TiVo v. EchoStar

April 28, 2011 – Blog Post

The Federal Circuit overturned its previous rules regarding contempt proceedings for patent infringement on Wednesday, April 20 in an en banc ruling in TiVo v. EchoStar.

TiVo originally brought suit against EchoStar in 2004, alleging infringement of patent claims for essential features of DVRs. The jury found infringement and awarded damages in 2006. The district court issued an injunction, listing the accused products by model number, ordering EchoStar to stop its infringing activity and to disable DVR functionality in existing receivers. In 2008, the Federal Circuit affirmed this decision as far as it concerned the software claims, which were the claims at issue in this contempt proceeding. TiVo subsequently moved for a district court finding that EchoStar was in contempt of the injunction, to which EchoStar argued that it had modified its devices in two different ways so as not to infringe. Finding that the redesigned software was not more than colorably different from the software previously found to be infringing, the district court found contempt proceedings to be appropriate under KSM Fastening Sys v. H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985). In the contempt proceedings, the district court found continued infringement of the claims, and additionally found EchoStar in contempt due to the injunction’s orders for EchoStar to completely disable DVR functionality on its devices. As a result, EchoStar faced $90 million in sanctions plus damages and an amended injunction requiring court approval for future noninfringing workarounds. EchoStar appealed the contempt rulings on both the infringement provisions and the disablement provisions of the injunction.

In disputing the district court’s rulings on the infringement provisions, EchoStar first argued that it could not be held in contempt because it acted in good faith, hiring engineers and obtaining opinions of counsel to avoid infringement. The Federal Circuit, however, applied Supreme Court precedent stating that a lack of malicious intent is not relevant when a court is deciding whether to hold a party in contempt for violating an injunction. The Federal Circuit therefore affirmed the district court’s rejection of EchoStar’s good faith arguments.

After addressing EchoStar’s good faith arguments, the Federal Circuit examined its own precedent, set in KSM, for addressing motions for findings of contempt where a defendant has redesigned a product. As required in KSM, the court must first determine whether a contempt hearing is appropriate for the redesigned product, which it may do by comparing the redesigned and adjudged infringing products to see if there is “more than a colorable difference.” If the court finds that the redesigned product satisfies this threshold test, the court under KSM must then determine whether the redesigned product also infringes the patent claims.

However, in the en banc ruling in TiVo, the Federal Circuit overruled this two-step KSM inquiry, describing it as “unworkable.” Instead, the court ruled that a district court should hold a contempt proceeding when the district court finds, left to the district court’s “broad discretion,” that an injured party has alleged facts constituting contempt. The Federal Circuit found no abuse of discretion at the district court in holding contempt proceedings. The Federal Circuit then decided to “telescope” the two-part KSM inquiry into one “more than colorable differences” standard as the proper test in the contempt proceedings themselves. This standard, the court ruled, initially focuses on the key infringing features in the adjudged infringing product and any modifications made to those features in the newly accused product. Significant differences in those features, from the perspective of one of ordinary skill in the art, would render the question of actual patent infringement irrelevant in the contempt proceeding. If a court finds no more than colorable differences, however, the court must then determine whether the redesigned product continues to infringe the relevant patent claims as construed in the infringement case. Therefore, the Federal Circuit here vacated the district court’s decisions on contempt and remedies, remanding the case to the district court for contempt proceedings under the new rule.

The Federal Circuit also looked to EchoStar’s contentions concerning disablement, which relate to the injunction itself on the grounds of vagueness and “overbreadth.” Regarding vagueness, a majority of the Federal Circuit judges found that the injunction was not vague and that, even if it had been, EchoStar should have sought clarification or modification from the district court rather than proceed in the face of the injunction. EchoStar also argued that the injunction was unlawful because it prohibited noninfringing activity, but the Federal Circuit majority found that EchoStar had waived this argument by not raising it when the district court initially issued the injunction, before contempt proceedings. The Federal Circuit therefore affirmed the findings of contempt of the injunction’s disablement provisions.

Judge Dyk wrote an opinion, dissenting-in-part, joined by Chief Judge Rader and Judges Gajarsa, Linn, and Prost. The dissent agreed with overruling KSM and establishing the new test for finding contempt. It differed, however, in its application of the new rule and in its views on breadth and vagueness.

In the wake of the en banc decision, patent owners seeking to enforce an injunction can more easily initiate full contempt proceedings. Under KSM, the patent owner had to show a lack of colorable differences between the adjudged infringing product and the redesigned product, but under TiVo, the patent owner need only allege facts constituting contempt. However, because the colorable differences standard is now part of the contempt proceedings for injunctions coming from patent infringement cases, the likelihood of a court finding a defendant in contempt in any one case would be mostly unchanged in theory. With patent owners more easily initiating contempt proceedings, however, they may have more opportunity to convince the court of a lack of colorable differences.

Defendants who face permanent injunctions following patent infringement cases should make every effort to clear any ambiguities in the injunctions before redesigning products. According to the majority in TiVo, the defendant has a burden to raise the issue at that time. Even prior to this ruling, such a practice would have avoided wasted investment, but now it may be the only opportunity to avoid a finding of contempt from an unclear injunction.