IP News

Federal Circuit to Hear EchoStar Appeal En Banc

On May 14, 2010 the Federal Circuit granted Defendants-Appellants EchoStar Corporation, et al.'s petition for rehearing en banc, vacated its March 4, 2010 opinion affirming a district court's decision finding EchoStar in contempt of the court's permanent injunction order, 597 F.3d 1247 (Fed. Cir. 2010), and requested that the parties file new briefs addressing the following issues:

1. Following a finding of infringement by an accused device at trial, under what circumstances is it proper for a district court to determine infringement by a newly accused device through contempt proceedings rather than through new infringement proceedings? What burden of proof is required to establish that a contempt proceeding is proper?
2. How does “fair ground of doubt as to the wrongfulness of the defendant's conduct” compare with the “more than colorable differences” or “substantial open issues of infringement” tests in evaluating the newly accused devices against the adjudged infringing device?
3. Where a contempt proceeding is proper, (1) what burden of proof is on the patentee to show that the newly accused device infringes and (2) what weight should be given to the infringer's efforts to design around the patent and its reasonable and good faith belief of noninfringement by the new device, for a finding of contempt?
4. Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope?

The case originated in 2004 when Tivo sued EchoStar in the U.S. District Court for the Easter District of Texas, alleging that EchoStar's DVR receivers infringed U.S. Patent No. 6,233,389. Following a jury finding of infringement, the district court entered judgment on the verdict and issued a permanent injunction against EchoStar ordering it to: 1) stop making, using, offering to sell, and selling the receivers that had been found to infringe by the jury, and 2) disable the DVR functionality in existing receivers that had not already been placed with subscribers. On appeal, the Federal Circuit affirmed the liability findings with respect to some of the claims and noted that the permanent injunction would take effect following the court's decision. Tivo then moved the district court to find EchoStar in contempt of the court's permanent injunction based on its sale of redesigned DVR receivers. After a series of hearings, the district court held EchoStar in contempt and imposed sanctions of nearly $90 million, rejecting EchoStar's argument that the redesigned receivers were more than colorably different from the adjudged infringing devices.

The Federal Circuit panel affirmed the contempt judgment on appeal. The court held that the district court did not abuse its discretion in finding that the modified products raised no substantial open questions of infringement. Despite the fact that EchoStar undertook a significant redesign effort, the court reasoned that the redesign impacted only a single claim limitation and that there was another unmodified software feature that EchoStar had admitted at trial infringed that limitation. The court further rejected EchoStar's good faith argument ' that it had paid 15 engineers to spend 8,000 hours on the redesign ' reasoning that a lack of intent alone cannot save an infringer from a finding of contempt.

EchoStar's en banc appeal brief is due July 26, 2010.

Ninth Circuit: Copyright Registered on the Date Application Is Received

In Cosmetic Ideas, Inc. v. IAC/InteractiveCorp, 08-56079, 2010 U.S. App. LEXIS 10555 (9th Cir. May 25, 2010), the Ninth Circuit reversed a district court's dismissal of Cosmetic Ideas, Inc.'s (“Cosmetic”) copyright infringement action, and held that receipt by the Copyright Office of a complete copyright application satisfies the requirement of 17 U.S.C. ' 411(a) that a copyright be registered before an infringement suit may be brought.

In 1997, Cosmetic created a piece of costume jewelry known as the “Lady Caroline Lorgnette” (“the necklace”). It began manufacturing and selling copies of the necklace in 1999 and continues to do so today. Cosmetic claims that sometime between 2005 and 2008, some of the defendants (“Home Shopping Network” or “HSN”) began selling a virtually identical necklace. On March 6, 2008, Cosmetic submitted an application to the Copyright Office for registration of the necklace and received confirmation of receipt of the application on March 12. On March 27, 2008, before the Copyright Office registered the necklace, Cosmetic filed a complaint alleging that HSN had infringed on Cosmetic's copyright in the necklace. On June 2, 2008, HSN filed a motion to dismiss for failure to state a claim and lack of subject-matter jurisdiction, arguing that Cosmetic did not possess a valid copyright registration when it commenced the action. On June 17, 2008, the district court granted the motion to dismiss on the basis that it lacked subject-matter jurisdiction.

The Ninth Circuit reversed. As an initial matter, the court rejected HSN's argument and the district court's holding that copyright registration under ' 411(a) is a jurisdictional prerequisite to suit. The court reasoned that such a finding was contrary to the Supreme Court's recent decision in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237 (2010). There, the Supreme Court held that although “[s]ection 411(a)'s registration requirement is a pre-condition to filing a claim,” it “does not restrict a federal court's subject-matter jurisdiction.”

This did not end the inquiry, however, since the court still needed to consider whether Cosmetic had stated a claim for infringement. The court stated the question as: “[i]s a copyright registered at the time the copyright holder's application is received by the Copyright Office (the 'application approach'), or at the time that the Office acts on the application and issues a certificate of registration (the 'registration approach')?” Noting that its sister circuits, including the Fifth, Seventh, Tenth, and Eleventh Circuits were split on the question, the Ninth Circuit chose the “application approach,” holding that “receipt by the Copyright Office of a complete application satisfies the registration requirement of ' 411(a).”

The court first looked to the relevant statutory language, but found that it was ambiguous and did not unequivocally support either the registration or the application approach. The court then considered “the broader context of the statute as a whole” and the purpose of ' 411(a), which is a product of the 1976 Copyright Act. The court reasoned that the 1976 Act extended copyright protection to all works ' published and unpublished ' at the time of their creation. The 1976 Act also relaxed notice requirements and eliminated mandatory registration. At the same time, Congress valued a robust federal register of existing copyrights and thus encouraged copyright holders to register with the office through various statutory incentives. With this framework in mind, the court held that the application approach fulfills Congress' purpose of providing broad copyright protection while maintaining a robust federal register. The court reasoned that the application approach avoided unnecessary delay in copyright infringement litigation, without impairing the central goal of registration ' maintaining a robust national register of copyrights. Finally, the court reasoned that, in a worst case scenario, the registration approach could cause a party to lose its ability to sue if the three-year statute of limitations were tolled while the Copyright Office considered an application.

Since Cosmetic's complaint alleged that the Copyright Office received its application before it filed its complaint, the court held that Cosmetic's complaint stated a claim upon which relief could be granted and remanded the case to the district court for proceedings on the merits.

Howard J. Shire is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.

Federal Circuit to Hear EchoStar Appeal En Banc

On May 14, 2010 the Federal Circuit granted Defendants-Appellants EchoStar Corporation, et al.'s petition for rehearing en banc, vacated its March 4, 2010 opinion affirming a district court's decision finding EchoStar in contempt of the court's permanent injunction order, 597 F.3d 1247 (Fed. Cir. 2010), and requested that the parties file new briefs addressing the following issues:

1. Following a finding of infringement by an accused device at trial, under what circumstances is it proper for a district court to determine infringement by a newly accused device through contempt proceedings rather than through new infringement proceedings? What burden of proof is required to establish that a contempt proceeding is proper?
2. How does “fair ground of doubt as to the wrongfulness of the defendant's conduct” compare with the “more than colorable differences” or “substantial open issues of infringement” tests in evaluating the newly accused devices against the adjudged infringing device?
3. Where a contempt proceeding is proper, (1) what burden of proof is on the patentee to show that the newly accused device infringes and (2) what weight should be given to the infringer's efforts to design around the patent and its reasonable and good faith belief of noninfringement by the new device, for a finding of contempt?
4. Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope?

The case originated in 2004 when Tivo sued EchoStar in the U.S. District Court for the Easter District of Texas, alleging that EchoStar's DVR receivers infringed U.S. Patent No. 6,233,389. Following a jury finding of infringement, the district court entered judgment on the verdict and issued a permanent injunction against EchoStar ordering it to: 1) stop making, using, offering to sell, and selling the receivers that had been found to infringe by the jury, and 2) disable the DVR functionality in existing receivers that had not already been placed with subscribers. On appeal, the Federal Circuit affirmed the liability findings with respect to some of the claims and noted that the permanent injunction would take effect following the court's decision. Tivo then moved the district court to find EchoStar in contempt of the court's permanent injunction based on its sale of redesigned DVR receivers. After a series of hearings, the district court held EchoStar in contempt and imposed sanctions of nearly $90 million, rejecting EchoStar's argument that the redesigned receivers were more than colorably different from the adjudged infringing devices.

The Federal Circuit panel affirmed the contempt judgment on appeal. The court held that the district court did not abuse its discretion in finding that the modified products raised no substantial open questions of infringement. Despite the fact that EchoStar undertook a significant redesign effort, the court reasoned that the redesign impacted only a single claim limitation and that there was another unmodified software feature that EchoStar had admitted at trial infringed that limitation. The court further rejected EchoStar's good faith argument ' that it had paid 15 engineers to spend 8,000 hours on the redesign ' reasoning that a lack of intent alone cannot save an infringer from a finding of contempt.

EchoStar's en banc appeal brief is due July 26, 2010.

Ninth Circuit: Copyright Registered on the Date Application Is Received

In Cosmetic Ideas, Inc. v. IAC/InteractiveCorp, 08-56079, 2010 U.S. App. LEXIS 10555 (9th Cir. May 25, 2010), the Ninth Circuit reversed a district court's dismissal of Cosmetic Ideas, Inc.'s (“Cosmetic”) copyright infringement action, and held that receipt by the Copyright Office of a complete copyright application satisfies the requirement of 17 U.S.C. ' 411(a) that a copyright be registered before an infringement suit may be brought.

In 1997, Cosmetic created a piece of costume jewelry known as the “Lady Caroline Lorgnette” (“the necklace”). It began manufacturing and selling copies of the necklace in 1999 and continues to do so today. Cosmetic claims that sometime between 2005 and 2008, some of the defendants (“Home Shopping Network” or “HSN”) began selling a virtually identical necklace. On March 6, 2008, Cosmetic submitted an application to the Copyright Office for registration of the necklace and received confirmation of receipt of the application on March 12. On March 27, 2008, before the Copyright Office registered the necklace, Cosmetic filed a complaint alleging that HSN had infringed on Cosmetic's copyright in the necklace. On June 2, 2008, HSN filed a motion to dismiss for failure to state a claim and lack of subject-matter jurisdiction, arguing that Cosmetic did not possess a valid copyright registration when it commenced the action. On June 17, 2008, the district court granted the motion to dismiss on the basis that it lacked subject-matter jurisdiction.

The Ninth Circuit reversed. As an initial matter, the court rejected HSN's argument and the district court's holding that copyright registration under ' 411(a) is a jurisdictional prerequisite to suit. The court reasoned that such a finding was contrary to the Supreme Court's recent decision in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237 (2010). There, the Supreme Court held that although “[s]ection 411(a)'s registration requirement is a pre-condition to filing a claim,” it “does not restrict a federal court's subject-matter jurisdiction.”

This did not end the inquiry, however, since the court still needed to consider whether Cosmetic had stated a claim for infringement. The court stated the question as: “[i]s a copyright registered at the time the copyright holder's application is received by the Copyright Office (the 'application approach'), or at the time that the Office acts on the application and issues a certificate of registration (the 'registration approach')?” Noting that its sister circuits, including the Fifth, Seventh, Tenth, and Eleventh Circuits were split on the question, the Ninth Circuit chose the “application approach,” holding that “receipt by the Copyright Office of a complete application satisfies the registration requirement of ' 411(a).”

The court first looked to the relevant statutory language, but found that it was ambiguous and did not unequivocally support either the registration or the application approach. The court then considered “the broader context of the statute as a whole” and the purpose of ' 411(a), which is a product of the 1976 Copyright Act. The court reasoned that the 1976 Act extended copyright protection to all works ' published and unpublished ' at the time of their creation. The 1976 Act also relaxed notice requirements and eliminated mandatory registration. At the same time, Congress valued a robust federal register of existing copyrights and thus encouraged copyright holders to register with the office through various statutory incentives. With this framework in mind, the court held that the application approach fulfills Congress' purpose of providing broad copyright protection while maintaining a robust federal register. The court reasoned that the application approach avoided unnecessary delay in copyright infringement litigation, without impairing the central goal of registration ' maintaining a robust national register of copyrights. Finally, the court reasoned that, in a worst case scenario, the registration approach could cause a party to lose its ability to sue if the three-year statute of limitations were tolled while the Copyright Office considered an application.

Since Cosmetic's complaint alleged that the Copyright Office received its application before it filed its complaint, the court held that Cosmetic's complaint stated a claim upon which relief could be granted and remanded the case to the district court for proceedings on the merits.

Howard J. Shire is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.