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to store their merchandise, HSN delivered its merchandise to its
customers via United Parcel Service rather than utilizing the
mart distribution system used by HSC. HSN’s initial operations
were not successful. HSN operated at a loss during its first 2
months of operation, and it laid off approximately 100 order
takers during its first 2 days on the air. In its third month of
operations, HSN began to realize a profit.
On July 16, 1986, HSN granted to Canadian Home Shopping
Network, Ltd. (CHSN), an exclusive, perpetual, noncancellable
license to use HSN’s home shopping format in Canada. The license
agreement gave CHSN the right to use, among other things, the
Local Software.5 In exchange for the license, CHSN agreed to pay
HSN 5 percent of CHSN’s net sales, in perpetuity. CHSN began
operations in early 1987. HSN owned approximately 20 percent of
the outstanding shares of CHSN,6 and Mr. Speer and Mr. Paxson sat
on the board of directors of CHSN.
Pursuant to its June 21, 1985, License Agreement with
5The relevant terms of the July 16, 1986, license agreement
gave CHSN the right to use HSN’s computer software programs,
excluding any source material and any software subject to a
Burroughs license agreement (presumably the National Software).
Although Pioneer owned the Local Software, HSN had been granted
an exclusive license to use the software, including the right to
sublicense it, in its June 21, 1985, License Agreement with
Pioneer and HSC.
6HSN was prohibited from acquiring more than 20 percent of
CHSN’s stock, as Canadian law restricted foreign ownership to 20
percent.
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