May 2011

En Banc Court Establishes New Test for Contempt Proceedings in Infringement Cases
Mayssam H. Ali

In TiVo Inc. v. EchoStar Corp., No. 09-1374 (Fed. Cir. Apr. 20, 2011) (en banc), the Federal Circuit vacated the district court’s finding that defendants EchoStar Corporation and several other entities (collectively “EchoStar”) were in contempt of the first provision of a permanent injunction and remanded for further factual determinations.  The Court affirmed the district court’s finding of contempt of the second provision of the injunction and upheld the award of sanctions against EchoStar.

TiVo Inc. (“TiVo”) owns U.S. Patent No. 6,233,389 (“the ’389 patent”), which relates to technology permitting a viewer to “time-shift” a television broadcast, simultaneously recording and viewing it, using a digital video recorder (“DVR”).  TiVo brought suit against EchoStar in 2004, alleging that its satellite television receivers infringed various “hardware” and “software” claims of the ’389 patent.

The district court issued a two-part permanent injunction after a finding of willful infringement by a jury.  That injunction ordered EchoStar to cease making, using, offering for sale, or selling the infringing satellite television receivers (the “infringement provision”), and to disable the DVR functionality in existing receivers that had been, or would be, placed with its customers (the “disablement provision”).  EchoStar appealed, challenging the claim construction and finding of infringement, but did not appeal the grant of the permanent injunction.  The Federal Circuit upheld the claim construction and infringement finding as to the software claims relevant to this appeal, reversing and remanding as to the hardware claims.  Following the appeal, TiVo moved the district court to find EchoStar in contempt of the permanent injunction, which had been stayed during the appeal and became effective afterwards.  The district court found EchoStar in contempt of both the infringement and disablement provisions, and imposed almost $90 million in sanctions.  EchoStar again appealed.

The Federal Circuit first addressed the test for determining contempt in cases of alleged continued infringement.  As an initial matter, it rejected EchoStar’s contention that good faith, as evidenced by a costly redesign and subsequent noninfringement opinion from outside patent counsel, was a defense to civil contempt.  The Court explained that good faith is not a defense because civil contempt is remedial in nature, although it may be considered in assessing penalties. 

The Federal Circuit also rejected the two-part test established in KSM Fastening Systems, Inc. v. H.A. Jones Co., 776 F.2d 1522, 1530-32 (Fed. Cir. 1985), which had required an initial inquiry into the propriety of initiating contempt proceedings, conducted by comparing the accused and adjudged infringing products to determine whether there was “more than a colorable difference” between them, in which case infringement would be determined by a new trial.  In the absence of more than a colorable difference, the Court would evaluate the redesigned product for infringement.  The Court concluded that the two-step inquiry was unworkable, confused the merits of the contempt with the propriety of initiating contempt proceedings, and was not observed in practice.  Instead, the Federal Circuit concluded that a district court should combine the inquiries, leaving the question of the propriety of initiating contempt proceedings to the discretion of the trial court.  A contempt proceeding is merited where the injured party provides a “detailed accusation . . . setting forth the alleged facts constituting the contempt.”  Slip op. at 17-18.  The Federal Circuit explained that, on appeal, it would not consider allegations that contempt proceedings were improper, but would only review the enforceability and violation of injunctions, as well as the propriety of imposed sanctions.  It noted, however, that there may be circumstances under which the initiation of contempt proceedings could constitute abuse of a district court’s discretion. 

The Federal Circuit explained that a patentee seeking enforcement of an injunction must prove, by clear and convincing evidence, first, that a newly accused product is not more than colorably different from the adjudged infringing product and, second, that the newly accused product actually infringes.  A district court’s comparison of the newly accused and adjudged infringing products should focus on any differences between the features relied upon to establish infringement and the modified features of the newly accused products.  If the modification or removal of a relied-upon feature is significant, as determined by reference to the relevant prior art, optionally with the assistance of expert testimony, then the newly accused product is more than colorably different, in which case contempt is inappropriate and a new trial should be held.  The court’s evaluation should also account for the policy favoring legitimate design-arounds. 

In the event that a district court finds only a colorable difference between the modified and adjudged infringing products, the Federal Circuit instructed that the district court should proceed to determine whether the modified product also infringes.  In doing so, the district court should apply the same claim construction that was initially used in determining infringement, and should compare the redesigned product to the asserted claim on a limitation-by-limitation basis.  The Federal Circuit indicated that it would review the court’s factual determinations as to colorable differences and infringement for clear error, and would review any award of sanctions for continued infringement for abuse of discretion.

Applying its test to the infringement provision of the permanent injunction, the Federal Circuit began by noting that TiVo had relied upon the start code detection feature of EchoStar’s original receivers to satisfy a “parsing” limitation of the software claims and prove infringement, and that EchoStar had replaced that feature with a statistical estimation feature.  The Court also noted that the district court’s analysis relied upon an alternative feature of EchoStar’s modified devices to satisfy the parsing limitation of the software claims.  Consequently, the Federal Circuit vacated the contempt finding as to the infringement provision, remanding to the district court to determine whether the statistical estimation feature of the modified receivers was significantly different from the start code detection feature and, if not, whether the replaced feature continued to meet the parsing limitation of the software claims. 

The Federal Circuit then turned to the disablement provision of the permanent injunction, rejecting EchoStar’s arguments that that provision was unenforceable.  First, the Court rejected EchoStar’s argument that the injunction was unenforceable as vague because of ambiguity in the term “Infringing Products.”  Although the Federal Circuit agreed that vagueness can serve as a defense to contempt in appropriate circumstances, it was not persuaded that the injunction was vague.  The Court held, however, that, if the injunction were facially vague, then EchoStar had the burden of seeking clarification or modification of the injunction from the district court.

Next, the Court rejected EchoStar’s argument that the disablement provision unlawfully prohibited noninfringing activity and was therefore unenforceable for overbreadth.  The Court concluded that EchoStar should have appealed the injunction at the time it was issued, and, hence, its arguments regarding overbreadth were waived for failure to raise them earlier.  The Federal Circuit indicated that it therefore would not address the legitimacy of EchoStar’s arguments, but nevertheless explained in a footnote that injunctive restraint of noninfringing activities, although strongly discouraged, was within the discretion of a district court.  Thus, the Federal Circuit affirmed the finding of contempt with regard to the disablement provision.  Consequently, it affirmed the sanctions award, explaining that the sanctions had been expressly awarded on alternative grounds for violation of either of the two provisions of the injunction.

Judge Dyk, with whom Chief Judge Rader and Judges Gajarsa, Linn, and Prost joined, joined the majority in its general description of the applicable law but dissented as to its application in this case.  Judge Dyk would have overturned the finding of contempt with regard to the disablement provision on the grounds that the injunction did not bar the installation of modified software rendering the devices noninfringing or, alternatively, could not provide the basis for a finding of contempt due to lack of clarity.  Judge Dyk further contended that the majority decision undermined the policy encouraging accused infringers to design around patent claims and the well-established principle that contempt sanctions could not be imposed for violation of an unclear injunction.  Judge Dyk also concluded that the infringement provision plainly was not violated because the statistical estimation feature was substantially different from the start code detection feature and was not known in the prior art, necessitating a finding that the two products were more than colorably different and thus rendering remand unnecessary.  Finally, Judge Dyk disagreed with the majority’s decision to affirm the sanctions award, explaining that the award, as calculated by the district court, was clearly based in large part on EchoStar’s alleged violation of the infringement provision, which was reversed by the majority.