TiVo v. EchoStar

On April 20, 2011, the Federal Circuit issued its opinion in the TiVo Inc. v. EchoStar Corp. case. No. 2009-1374 (Fed. Cir. Apr. 20, 2011). The decision marks a sea change for evaluating contempt of an injunction in a patent case, significantly limiting an infringer's ability to challenge an injunction on the grounds that it is vague or overbroad.

In the district court, a jury found that EchoStar Corporation (“EchoStar”) had willfully infringed TiVo Inc.'s (“TiVo”) patent. The district court then issued a permanent injunction against EchoStar with two provisions: 1) an infringement provision prohibiting EchoStar from making, using, offering to sell, and selling the models that were found to have infringed TiVo's patent, and 2) a disablement provision requiring EchoStar to disable Digital Video Recording (“DVR”) functionality in satellite television receivers already being used by EchoStar customers and in products that had not yet shipped to customers.

EchoStar initially appealed the jury's verdict on certain issues regarding claim construction and infringement, but not on the injunction. The injunction was stayed during the course of the appeal. EchoStar modified the infringing products and then marketed the same.

Once the permanent injunction became effective, TiVo filed a contempt action. The district court found EchoStar to be in contempt for violating both the infringement and disablement provisions of the injunction. EchoStar again appealed.

KSM Standard Overruled

Before the TiVo decision, when an infringer modified its product, a court first decided whether a contempt proceeding was appropriate or whether the modified product was so different from the original infringing product that an entirely new infringement case was proper. Applying the standards set forth in KSM Fastening Systems, Inc. v. H.A. Jones Co., 776 F.2d 1522 (Fed. Cir. 1985), courts were required to first identify whether a “colorable difference” existed between the modified product and the original infringing product, and then, only if the court found that no colorable difference existed, would the court move to a second step: determining whether the modified product continued to infringe. In TiVo, the Federal Circuit en banc unanimously overruled KSM as unworkable. Following the Supreme Court's analysis in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), the court also noted that the KSM standard created a special rule for patent infringement cases by requiring a threshold inquiry into whether a contempt proceeding was appropriate and properly initiated, something that is not required in contempt proceedings in other types of cases.

Under the new test outlined in TiVo, district courts have broad discretion to determine whether to hold a contempt proceeding as long as they are provided with “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.” TiVo Inc. No. 2009-1374, at 17-18. When reviewing a contempt finding, the Federal Circuit will only consider whether the injunction at issue is enforceable and was violated, and whether the sanctions were proper. Under this new standard, allegations that a contempt proceeding was improper are not a valid argument on appeal. Id. at 18. The court noted that there may be circumstances in which the initiation of contempt proceedings would be an abuse of discretion, but declined to identify these circumstances. Id.

Clarification of the Proper Test for Evaluating Modified Products Against Infringing Products

In TiVo, the Federal Circuit clarified how courts should determine whether colorable differences exist: “whether the newly accused product is so different from the product previously found to infringe that it raises 'a fair ground of doubt as to the wrongfulness of the defendant's conduct.'” Id. at 19. Proper analysis of this issue should focus on those aspects of the product that were the basis for the previous finding of infringement and consider whether those portions have been modified or removed, and, if so, whether the modification is significant. Id.

A determination of significance, the court noted, depends upon the nature of the products. The Federal Circuit also instructed district courts to look at the relevant prior art “to determine if the modification merely employs or combines elements already known in the prior art in a manner that would have been obvious to a person of ordinary skill in the art at the time the modification was made.” Id. at 20. When the modification is significant, the product is more than colorably different from the infringing product, and the product cannot be the basis for a finding of contempt.

Where the district court finds that no colorable difference exists, the court must determine whether the newly accused product continues to infringe the asserted claim, on a limitation by limitation basis, to make sure that the modified product continues to meet each limitation. In this analysis, the district court is bound by its earlier claim construction in the case.

Appellate review of these decisions is based on a clear error standard, with sanctions reviewable for an abuse of discretion. Id. at 21-22.

In applying these new standards to the case at hand, the Federal Circuit found that the district court failed to look at the modifications Echo-
Star made to the specific features of its products that had been found to infringe TiVo's patent, but instead looked at a wholly separate feature and found that this separate feature infringed. Accordingly, the Federal Circuit vacated and remanded the contempt finding. On remand, the district court was instructed to look at the specific modification Echo-Star made to the feature previously found to infringe.

Although the dissent, penned by Judge Timothy B. Dyk and joined by Judges Randall R. Rader, Arthur J. Gajarsa, Richard Linn, and Sharon Prost, agreed with the new colorable differences test, it disagreed with its application in this case. Instead, Judge Dyk argued that the infringement provision of the injunction was not violated. The dissent reasoned that “[t]he sole feature accused of satisfying the parsing limitation was removed from the modified product and replaced with a feature that is both substantially different and a solution not known in the prior art, the two products are necessarily more than colorably different on the basis of the parsing limitation alone.” Id. at 23-24 (Dyk, J., dissenting).

Good Faith Attempts to Design Around a Patent Are Not a Defense to Contempt

Perhaps TiVo's most significant change to the law is that good faith is no longer a defense to civil contempt. Instead, a defendant's good faith and diligent efforts to comply with an injunction are factors that a court may consider when assessing penalties. Id. at 16. EchoStar had argued that contempt was improper as it had engaged in good faith efforts to comply with the injunction and reasonably believed it was in compliance. In making this argument, EchoStar noted that it “employed 15 engineers for 8000 hours to complete the software redesign, which took a year.” Id. at 15. The district court rejected this argument, and the Federal Circuit agreed. Thus, in determining whether a party that has been found to infringe a patent has violated a permanent injunction, it is improper for a court to consider the defendant's good faith efforts to design around the patent, except in the damages phase.

EchoStar Precluded from Challenging the Injunction on the Grounds of Vagueness And Overbreadth

In the final issue addressed in its opinion, the Federal Circuit held that EchoStar had waited too long to challenge the disablement provision of the injunction on the grounds of vagueness and overbreadth.

Over heated dissent, the majority found that EchoStar could not challenge the injunction on grounds of vagueness or overbreadth for the first time when appealing a finding of contempt. The majority noted that EchoStar had failed to raise arguments that the injunction was vague and overbroad during its first appeal after it was found to have infringed TiVo's patent. Nor did EchoStar file a motion to clarify or modify the injunction at any time or raise these issues during the contempt proceedings. Thus, the majority reasoned EchoStar “cannot now spring its ambiguity defense to avoid contempt on the basis of its self-serving interpretation of the court's injunction.” Id. at 30.

The dissent strongly challenged the majority's decision regarding the timeliness of EchoStar's arguments that the injunction was vague and overbroad. According to the dissent, an accused party should not be held in contempt for violating an injunction that does not clearly prohibit the challenged conduct whether or not the accused party raised issues of vagueness and overbreadth in any previous pleadings. Id. at 9, 16-18 (Dyk, J., dissenting).

The Upshot

Less than two weeks after the Federal Court handed down its decision, TiVo and EchoStar settled the case for $500 million. Although no district court will have to compare EchoStar's modifications made to the specific features of its products that had been found to infringe TiVo's patent to the original infringing device, courts in future cases will be required to focus the colorable difference test in this manner. And more importantly, an infringer will need to assess immediately whether grounds for challenging an injunction exist before engaging in efforts to re-design or re-engineer a product, lest the infringer lose its opportunity to challenge an injunction, and potentially challenge a finding of contempt.

R. David Donoghue is a trial lawyer focusing on patent litigation as a partner at Holland & Knight, LLP, and he is the founder of the Chicago IP Litigation blog (www.chicagolitigation.com). He can be reached at 312-578-6553 or [email protected]. Anna Krasinski is a trial lawyer focusing on patent litigation at the firm. She can be reached at 312-715-5769 and [email protected].

On April 20, 2011, the Federal Circuit issued its opinion in the TiVo Inc. v. EchoStar Corp. case. No. 2009-1374 (Fed. Cir. Apr. 20, 2011). The decision marks a sea change for evaluating contempt of an injunction in a patent case, significantly limiting an infringer's ability to challenge an injunction on the grounds that it is vague or overbroad.

In the district court, a jury found that EchoStar Corporation (“EchoStar”) had willfully infringed TiVo Inc.'s (“TiVo”) patent. The district court then issued a permanent injunction against EchoStar with two provisions: 1) an infringement provision prohibiting EchoStar from making, using, offering to sell, and selling the models that were found to have infringed TiVo's patent, and 2) a disablement provision requiring EchoStar to disable Digital Video Recording (“DVR”) functionality in satellite television receivers already being used by EchoStar customers and in products that had not yet shipped to customers.

EchoStar initially appealed the jury's verdict on certain issues regarding claim construction and infringement, but not on the injunction. The injunction was stayed during the course of the appeal. EchoStar modified the infringing products and then marketed the same.

Once the permanent injunction became effective, TiVo filed a contempt action. The district court found EchoStar to be in contempt for violating both the infringement and disablement provisions of the injunction. EchoStar again appealed.

KSM Standard Overruled

Before the TiVo decision, when an infringer modified its product, a court first decided whether a contempt proceeding was appropriate or whether the modified product was so different from the original infringing product that an entirely new infringement case was proper. Applying the standards set forth in KSM Fastening Systems, Inc. v. H.A. Jones Co. , 776 F.2d 1522 (Fed. Cir. 1985), courts were required to first identify whether a “colorable difference” existed between the modified product and the original infringing product, and then, only if the court found that no colorable difference existed, would the court move to a second step: determining whether the modified product continued to infringe. In TiVo, the Federal Circuit en banc unanimously overruled KSM as unworkable. Following the Supreme Court's analysis in eBay Inc. v. MercExchange, LLC , 547 U.S. 388 (2006), the court also noted that the KSM standard created a special rule for patent infringement cases by requiring a threshold inquiry into whether a contempt proceeding was appropriate and properly initiated, something that is not required in contempt proceedings in other types of cases.

Under the new test outlined in TiVo, district courts have broad discretion to determine whether to hold a contempt proceeding as long as they are provided with “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.” TiVo Inc. No. 2009-1374, at 17-18. When reviewing a contempt finding, the Federal Circuit will only consider whether the injunction at issue is enforceable and was violated, and whether the sanctions were proper. Under this new standard, allegations that a contempt proceeding was improper are not a valid argument on appeal. Id. at 18. The court noted that there may be circumstances in which the initiation of contempt proceedings would be an abuse of discretion, but declined to identify these circumstances. Id.

Clarification of the Proper Test for Evaluating Modified Products Against Infringing Products

In TiVo, the Federal Circuit clarified how courts should determine whether colorable differences exist: “whether the newly accused product is so different from the product previously found to infringe that it raises 'a fair ground of doubt as to the wrongfulness of the defendant's conduct.'” Id. at 19. Proper analysis of this issue should focus on those aspects of the product that were the basis for the previous finding of infringement and consider whether those portions have been modified or removed, and, if so, whether the modification is significant. Id.

A determination of significance, the court noted, depends upon the nature of the products. The Federal Circuit also instructed district courts to look at the relevant prior art “to determine if the modification merely employs or combines elements already known in the prior art in a manner that would have been obvious to a person of ordinary skill in the art at the time the modification was made.” Id. at 20. When the modification is significant, the product is more than colorably different from the infringing product, and the product cannot be the basis for a finding of contempt.

Where the district court finds that no colorable difference exists, the court must determine whether the newly accused product continues to infringe the asserted claim, on a limitation by limitation basis, to make sure that the modified product continues to meet each limitation. In this analysis, the district court is bound by its earlier claim construction in the case.

Appellate review of these decisions is based on a clear error standard, with sanctions reviewable for an abuse of discretion. Id. at 21-22.

In applying these new standards to the case at hand, the Federal Circuit found that the district court failed to look at the modifications Echo-
Star made to the specific features of its products that had been found to infringe TiVo's patent, but instead looked at a wholly separate feature and found that this separate feature infringed. Accordingly, the Federal Circuit vacated and remanded the contempt finding. On remand, the district court was instructed to look at the specific modification Echo-Star made to the feature previously found to infringe.

Although the dissent, penned by Judge Timothy B. Dyk and joined by Judges Randall R. Rader, Arthur J. Gajarsa, Richard Linn, and Sharon Prost, agreed with the new colorable differences test, it disagreed with its application in this case. Instead, Judge Dyk argued that the infringement provision of the injunction was not violated. The dissent reasoned that “[t]he sole feature accused of satisfying the parsing limitation was removed from the modified product and replaced with a feature that is both substantially different and a solution not known in the prior art, the two products are necessarily more than colorably different on the basis of the parsing limitation alone.” Id. at 23-24 (Dyk, J., dissenting).

Good Faith Attempts to Design Around a Patent Are Not a Defense to Contempt

Perhaps TiVo's most significant change to the law is that good faith is no longer a defense to civil contempt. Instead, a defendant's good faith and diligent efforts to comply with an injunction are factors that a court may consider when assessing penalties. Id. at 16. EchoStar had argued that contempt was improper as it had engaged in good faith efforts to comply with the injunction and reasonably believed it was in compliance. In making this argument, EchoStar noted that it “employed 15 engineers for 8000 hours to complete the software redesign, which took a year.” Id. at 15. The district court rejected this argument, and the Federal Circuit agreed. Thus, in determining whether a party that has been found to infringe a patent has violated a permanent injunction, it is improper for a court to consider the defendant's good faith efforts to design around the patent, except in the damages phase.

EchoStar Precluded from Challenging the Injunction on the Grounds of Vagueness And Overbreadth

In the final issue addressed in its opinion, the Federal Circuit held that EchoStar had waited too long to challenge the disablement provision of the injunction on the grounds of vagueness and overbreadth.

Over heated dissent, the majority found that EchoStar could not challenge the injunction on grounds of vagueness or overbreadth for the first time when appealing a finding of contempt. The majority noted that EchoStar had failed to raise arguments that the injunction was vague and overbroad during its first appeal after it was found to have infringed TiVo's patent. Nor did EchoStar file a motion to clarify or modify the injunction at any time or raise these issues during the contempt proceedings. Thus, the majority reasoned EchoStar “cannot now spring its ambiguity defense to avoid contempt on the basis of its self-serving interpretation of the court's injunction.” Id. at 30.

The dissent strongly challenged the majority's decision regarding the timeliness of EchoStar's arguments that the injunction was vague and overbroad. According to the dissent, an accused party should not be held in contempt for violating an injunction that does not clearly prohibit the challenged conduct whether or not the accused party raised issues of vagueness and overbreadth in any previous pleadings. Id. at 9, 16-18 (Dyk, J., dissenting).

The Upshot

Less than two weeks after the Federal Court handed down its decision, TiVo and EchoStar settled the case for $500 million. Although no district court will have to compare EchoStar's modifications made to the specific features of its products that had been found to infringe TiVo's patent to the original infringing device, courts in future cases will be required to focus the colorable difference test in this manner. And more importantly, an infringer will need to assess immediately whether grounds for challenging an injunction exist before engaging in efforts to re-design or re-engineer a product, lest the infringer lose its opportunity to challenge an injunction, and potentially challenge a finding of contempt.

R. David Donoghue is a trial lawyer focusing on patent litigation as a partner at Holland & Knight, LLP, and he is the founder of the Chicago IP Litigation blog (www.chicagolitigation.com). He can be reached at 312-578-6553 or [email protected]. Anna Krasinski is a trial lawyer focusing on patent litigation at the firm. She can be reached at 312-715-5769 and [email protected].