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GE Capital has zapped the nation’s top satellite TV broadcaster, DirecTV, with a stunning $133 million jury verdict in federal court in New Haven, Conn. The verdict, apparently a state record, covers consumer loan losses incurred in the satellite giant’s fierce scramble for market dominance. The losses stem from a 1995 campaign to grab millions of new satellite TV viewers with dishes and converter boxes at $1,000 a setup. DirecTV countersued, alleging GE fraudulently induced it into the deal, and sought $50 million in damages. DirecTV says it will appeal. The case highlights the frenetic rush for “eyeballs” in communications technology. In 1995, space was its new frontier; entertainment the unquenchable market. DirecTV, a subsidiary of Hughes Electronics, faced competition from cable and other satellite dish startups, and realized that Wall Street valued subscriber base and market share far more than short term profit. It picked GE Capital for its extensive credit card experience, to manage financing of $1,000 satellite dish-and-box setups for millions of new subscribers. The companies created the “EZ Approval” program for equipment financing, with DirecTV agreeing to indemnify GE for any losses from the program In a six-week trial before senior U.S. District Judge Peter C. Dorsey in New Haven, GE Capital’s legal team persuaded the jury that DirecTV breached the agreement. GE’s lead counsel was Robert L. Byman and Barbara S. Steiner of Chicago-based Jenner & Block, with Anthony Fitzgerald of the New Haven offices of Carmody & Torrance. DirecTV was represented by Michael E. Baumann and Eric Liebler of the Los Angeles offices of Kirkland & Ellis, and Jean Haynes of its New York branch, and Richard C. Robinson and Gwen Weisberg of Hartford, Conn.’s Sorokin Gross Hyde & Williams. The trial chronicled a frenzied rush for market share, coupled with increasingly lax credit standards. GE presented an ex-DirecTV sales representative who told of being instructed to inflate the credit qualifications of potential customers. Throughout the sign-up drive, DirecTV repeatedly eliminated barriers to credit, accepting prospects with increasingly sketchy or checkered credit histories, according to GE witnesses. A higher than normal loss rate became an accepted practice. By late 1996, red flags that would prevent a credit sale were reduced to as few as three triggers for “policy reject logic” — bankruptcy, no credit history at all, or a history of creditors writing off bad debt. Unlike satellite sales programs anchored in stores like Radio Shack or Circuit City, door-to-door entrepreneurs handled DirecTV’s marketing push. Executive advancement at DirecTV was geared to increasing subscribers, according to witnesses for GE Capital. Christopher A. Murphy, DirecTV’s assistant general counsel, said in an interview the company will appeal, based on material Dorsey refused to let into evidence. He says the jury was not allowed to see the whole picture. The total amount loaned was $205 million, and GE wrote off $170 million as uncollectable, a “staggering” amount, says Murphy. He says that GE’s patented process for measuring credit risks, touted as a state of the art system, was fundamentally flawed, and directly led to the losses. DirecTV is actually a part of General Motors, which owns a controlling share of its parent, Hughes Electronics Corp. Wall Street excitement over Hughes’ “new economy” role as a provider of fiber optics, satellite communications, and switching capacity has eclipsed the car-manufacturing segment of GM, according to The Wall Street Journal, making it “a satellite communications company with a unit that also makes cars.” It now has more than eight million subscribers, partly from its acquisition of rival Primestar in 1998. In closing arguments, GE’s Byman told the jury that DirecTV got what it bargained for — some 180,000 new subscribers and an edge over then-rival Primestar. “What it bargained for was subscribers. What it went into this deal for was to beat Primestar, and it did that. It didn’t just beat Primestar, it owns Primestar.” The trial concluded July 21, after the jury deliberated for 10 hours. DirecTV’s Murphy, who is hoping for a new trial, says, “We felt that we could have done a better job just standing on a street corner and giving out free set-top boxes.”

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