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Despite Indicators of Good Faith, Federal Circuit Upholds $90 Million Contempt Order Based on Redesign

09-1374
March 04, 2010

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Last Month at the Federal Circuit - April 2010

Judges: Mayer, Lourie (author), Rader (dissenting)

[Appealed from: E.D. Tex., Judge Folsom]

In TiVo Inc. v. EchoStar Corp., No. 09-1374 (Fed. Cir. Mar. 16, 2010), the Federal Circuit upheld a $90 million contempt order against appellants (collectively “EchoStar”), finding that the district court had not abused its discretion. 

TiVo Inc. (“TiVo”) sued EchoStar for infringement of U.S. Patent No. 6,233,389 (“the ’389 patent”), which is directed to digital video recorder (“DVR”) technology.  A jury found that EchoStar’s 50X and Broadcom receivers infringed hardware and software claims of the ’389 patent, and awarded TiVo lost profits and reasonable royalties of about $74 million.  The district court issued a permanent injunction, ordering EchoStar “(1) to stop making, using, offering to sell, and selling the receivers that had been found infringing by the jury (the ‘infringement’; provision) and (2) to disable the DVR functionality in existing receivers, with the exception of receivers that had already been placed with its subscribers (the ‘disablement’ provision).”  Slip op. at 3.  EchoStar filed an emergency motion to stay the injunction pending appeal of claim construction and infringement issues.  In that appeal, the Court upheld the jury’s verdict that EchoStar’s devices infringed the software claims, but found errors in the construction of hardware claims and therefore reversed the judgment that EchoStar infringed the hardware claims.  EchoStar’s appeal did not address the scope of the injunction, which took effect after the Court’s decision. 

Thereafter, the district court found EchoStar in contempt of the injunction, finding that EchoStar’s redesigned software still infringed and that EchoStar had not satisfied the disablement provision.  Accordingly, the district court issued a new order requiring EchoStar to seek approval before implementing any future workarounds and imposing sanctions for contempt in the amount of nearly $90 million. 

On appeal, EchoStar argued that the district court had abused its discretion by adjudging infringement of the redesign in a contempt proceeding and by finding EchoStar in contempt. 

The Federal Circuit first rejected EchoStar’s contention that TiVo was required to prove, by clear and convincing evidence, that a contempt proceeding was an appropriate forum for evaluating infringement of the redesigned product.  On the contrary, the Court found that the district court had the discretion to determine whether a contempt proceeding was an appropriate forum.  Although EchoStar claimed to have completely transformed the DVR software in its receivers by removing infringing features, the Court was unmoved.  The Court agreed that it was acceptable for TiVo to present a new infringement theory and for the district court to consider whether the allegedly unmet limitations were satisfied by other components in EchoStar’s DVR software.  Thus, the Court found that the district court did not abuse its discretion by concluding that EchoStar’s modifications had not rendered its redesigned receivers more than colorably different than the adjudged infringing ones and that there were no substantial open issues on continuing infringement.

The Court noted that a lack of intent alone cannot save an infringer from a finding of contempt.  And the Court found that the district court clearly acted within its discretion by giving EchoStar’s good-faith arguments appropriate weight and by not accepting them. 

With regard to the district court’s findings of continuing infringement, the Court found no clear error.  The Court agreed that another feature in EchoStar’s receivers, which had not been part of TiVo’s infringement theory at trial, clearly met the “parses” limitation of the ’389 patent software claims.  The Court found no clear inconsistency between TiVo’s position on that limitation at the contempt hearing and its position at trial.  Under TiVo’s new mapping, the Court also agreed that the buffer features remaining in EchoStar’s Broadcom receiver software met the automatic flow control limitations of the ’389 patent software claims.  The Court also agreed with Tivo that there was no inherent order required among the claim limitations.  Thus, the Court was persuaded that TiVo presented clear and convincing evidence that both types of EchoStar receivers continued to infringe. 

The Court also noted that the time to appeal an injunction is when it is handed down, not when a party is later found to be in contempt.  Characterizing the interpretation as “stretched,” the Court rejected EchoStar’s argument that the district court’s order to “disable all storage to and play back from a hard disk drive of television data” had to require EchoStar to disable all infringing storage and play back functionality.  The Court found that, at a minimum, EchoStar had notice of the possibility that the district court was imposing a complete ban on the DVR software of each of EchoStar’s listed receivers.  The Court concluded that as long as a plain reading of the order would have provided EchoStar with such notice, it could not allow a collateral challenge to the order after a contempt proceeding. 

The Court also agreed that EchoStar had waived the right to challenge the scope of the injunction when it sought an emergency stay and appealed other issues from the district court’s prior judgment.  The Court conceded that infringement is generally essential for violation of an injunction, but noted that as long as EchoStar had explicit notice of what it had been ordered to do and had refused to do so, the district court possessed broad equitable powers to enforce its decree. 

The Court further rejected EchoStar’s appeal of the district court’s amendment to the injunction requiring EchoStar to seek approval before implementing any future workarounds.  The Court noted that the district court was in a unique position to evaluate the likelihood that EchoStar would continue to infringe.  In light of EchoStar’s refusal to disable the DVR functionality in its receivers and its wholly unsuccessful attempt to design around the ’389 patent, the Court concluded that the district court was justified in determining that preapproval of any new design-around effort was necessary to prevent future infringing activity.  

In a dissenting opinion, Judge Rader disagreed with the Court for punishing a good-faith design-around effort.  Judge Rader found that the district court and the Federal Circuit had both clearly and improperly interpreted the disablement provision of the injunction as applying even to noninfringing functionality.  In Judge Rader’s view, the relevant precedent requires a court to interpret an injunction in contempt proceedings as prohibiting infringement only by devices adjudged to infringe and by devices no more than colorably different therefrom.  Further, according to Judge Rader, in the proceedings leading to the injunction, TiVo expressly stated that it sought nothing more and that EchoStar could disable the infringing functionality by updating software via satellite transmission.  Judge Rader found those statements inconsistent with the interpretation of the disablement provision of the injunction that the Court used to uphold the contempt order. 

Moreover, noting there was little similarity between the infringement proceedings and the issues before the Court in this appeal, Judge Rader opined that the differences warranted a new trial—not a contempt proceeding.  In Judge Rader’s view, the relevant precedent generally allows a modifying party an opportunity to litigate the infringement question at a new trial if expert and other testimony subject to cross-examination would be helpful or necessary.  Judge Rader concluded that TiVo should not be allowed to bootstrap a new infringement theory to a jury verdict based on a record including entirely different theories, evidence, and positions.

 

Summary authored by Kia L. Freeman, Esq.