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En Banc CAFC Affirms $90 Million Award Against EchoStar, Issues New Rules for Contempt Proceedings for Where a Product Is Modified Post-Injunction

April 20, 2011

The U.S. Court of Appeals for the Federal Circuit on Apr. 20 affirmed a $90 million award against based on a district court’s judgment that EchoStar Corp. violated one provision of a permanent injunction relating to TiVo Inc.’s digital video recorder technology and set forth new standards governing contempt proceedings in patent infringement cases (TiVo Inc. v. EchoStar Corp., Fed. Cir., No. 09-1374, 4/20/11).

The court was unanimous in its statement on the new contempt standards.

A majority then found that the $90 million sanctions award against EchoStar could stand based on the violation of the permanent injunction’s provision ordering disablement of EchoStar’s DVR functionality. It reasoned that this alternative ground for the award was separate from that for the violation of the infringement provision, which required a new trial on remand.

However, Judge Timothy B. Dyk, joined by Chief Judge Randall R. Rader and three other judges, cited flaws in the injunction and said that neither contempt finding “standing alone is sufficient to sustain the sanctions award.”

Contempt Proceedings Issues Taken En Banc.

As reported in an earlier Intellirights story, the appellate court in March 2010 agreed that EchoStar was in contempt of a district court’s permanent injunction order barring further infringement of TiVo Inc.’s “Multimedia Time Warping System” patent (6,233,389) on DVR technology.

Then a circuit judge, Rader dissented in the panel decision, arguing that EchoStar should have not been found in contempt because the injunctive order was vague and overbroad.

In a May 2010 order, the court vacated its panel ruling so that it could decide en banc whether a contempt proceeding is the proper setting for determining whether a newly accused device infringes a patent in violation of an injunction. (See earlier story.)

Oral arguments were heard in November 2010.

New Contempt Proceedings Standards.

1-Two-Part KSM Fastening Analysis Is `Unsound.’ The two-part test established in KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522 (Fed. Cir. 1985), is “unsound” and is here overruled, Judge Alan Lourie said, writing for the court. Under the KSM test, courts had to first determine the appropriateness of a contempt proceeding is appropriate under “colorable differences” test and then determine whether contempt actually occurred. “As a result, we will telescope the current two-fold KSM inquiry into one, eliminating the separate determination whether contempt proceedings were properly initiated,” Lourie said. Under the Federal Circuit’s new approach, a district court has wide discretion to hold a contempt proceeding, which requires “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”

2-Appealing a Decision to Hold a Contempt Proceeding. “As with appeals from findings of civil contempt in other areas of law, we will only review whether the injunction at issue is both enforceable and violated, and whether the sanctions imposed were proper,” the Federal Circuit said. However, sentences later it said that “that there may be circumstances in which the initiation of contempt proceedings would constitute an abuse of discretion by the district court.” Lourie found no abuse of discretion here.

3-The “Colorable Differences” Test. As to the question of whether an injunction against patent infringement has been violated, courts should continue to employ a “more than colorable differences” standard. Under this test, a patentee seeking to enforce the injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes. Rather than focusing solely on infringement, the contempt analysis must focus initially on the differences between the features relied upon to establish infringement and the modified features of the newly accused products, the court advised. “The primary question on contempt should be 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,’” Lourie said, quoting Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609 (1885). The analysis should center “not on differences between randomly chosen features of the product found to infringe in the earlier infringement trial and the newly accused product, …, but on those aspects of the accused product that were previously alleged to be, and were a basis for, the prior finding of infringement, and the modified features of the newly accused product.”

Comparing this standard to this case, the appellate court faulted the district court for finding, during the contempt proceeding, that a different feature of EchoStar’s modified devices—the PID filter—satisfied the claimed “parsing” limitation. Ordering a new trial on remand on this point, Lourie said that the PID filter in EchoStar’s redesigned device may meet the “parsing” limitation and continue to infringe the asserted claims, “but that should not be decided in a contempt proceeding.”

Accordingly, the contempt finding as to the infringement provision was vacated and remanded.

4-Infringement and Claim Construction. When a court concludes that there are no more than colorable differences between the adjudged infringing product and modified product, it must still find that the newly accused product actually infringes the  t the asserted claim, on a limitation by limitation basis. “In making this infringement evaluation, out of fairness, the district court is bound by any prior claim construction that it had performed in the case,” the Federal Circuit wrote

5-No Good Faith Defense to Contempt Finding. EchoStar had argued that a contempt finding was inappropriate here because it had made good faith design-around efforts. However, the Federal Circuit pointed to authority stating that “[s]ince the purpose [of civil contempt] is remedial, it matters not with what intent the defendant did the prohibited act. . . . An act does not cease to be a violation of a law and of a decree merely because it may have been done innocently.” McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949). Finding itself “bound by Supreme Court precedent,” the appellate court rejected EchoStar’s good faith arguments and its reliance upon opinions of counsel. Still, it recognized that, while not a defense to contempt, EchoStar’s diligence and good faith “may be considered in assessing penalties, a matter as to which the district court has considerable discretion.”

While the contempt finding as to the injunction’s infringement provision was vacated and remanded, the appellate court still affirmed the contempt finding and the $90 million sanction award against EchoStar based on the disablement provision. Here, the court noted that infringement and disablement were “two separate provisions of the injunction” that were “made on alternative grounds.” 
The district court’s ruling was affirmed in part, vacated in part, and remanded.

Lourie’s opinion was joined in full by Judges Pauline Newman, Haldane Robert Mayer, Kimberly Moore, William Bryson, Kathleen O’Malley, and Jimmie Reyna.

Dissenting View: Flaws in Injunction and Sanctions Award.

Judge Timothy B. Dyk, dissenting in part with Rader and Judges Richard Linn, Arthur Gajarsa, and Sharon Prost, argued that it was “wholly unnecessary” to remand the the infringement provision contempt finding because there are undoubtedly colorable differences between the features relied upon to establish infringement and the modified features of the newly accused products. “Because the 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,” Dyk wrote.

Further Dyk objected to the majority’s decision affirming the $90 million sanctions award based solely on the disablement provision. The contempt judgment and the sanctions imposed by the district court, he said, “rest on two separate and distinct findings of contempt, neither of which standing alone is sufficient to sustain the sanctions award.” He said that TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software, but it “did not remotely satisfy this burden. Under such circumstances, contempt is improper because there is at least a fair ground of doubt as to the wrongfulness of EchoStar’s conduct.”

Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, Washington, D.C., argued for TiVo.

E. Joshua Rosenkranz of Orrick, Herrington & Sutcliffe, New York, argued for EchoStar and Dish Network.

Willard K. Tom, General Counsel, Federal Trade Commission, Washington, D.C., represented amicus curiae Federal Trade Commission.

William P. Nelson of Howrey LLP, East Palo Alto, Cal., represented amicus curiae SAP America.

Edward R. Reines of Weil, Gotshal & Manges, Redwood Shores, Cal., represented amicus curiae American Intellectual Property Law Association.

Gary M. Hoffman of Dickstein Shapiro, Washington, D.C., represented amici curiae General Electric Co. and Johnson & Johnson.

Matthew Schruers of Computer & Communications Industry Association (CCIA), Washington, D.C., represented amicus curiae CCIA.

Robert P. Taylor of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, Palo Alto, Cal., represented amicus curiae Intellectual Property Owners Association.

Elaine J. Goldenberg of Jenner & Block, Washington, D.C., represented amici curiae Law Professors Erwin Chemerinsky and others.

Mark J. Abate of Goodwin Procter, New York, represented amicus curiae New York Intellectual Property Law Association.

Christopher J. Kelly of Mayer Brown, Washington, D.C., represented amici curiae Professors of Intellectual Property and Competition Law and Economics.

Michael K. Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., represented amicus curiae Verizon Communications.

Scott A.M. Chamber of Patton Boggs, McLean, Va., represented amicus curiae Greatbatch, Inc.

Edward A. Pennington of Hanify & King, Boston, represented amicus curiae Acushnet Co.

Matthew D. McGill of Gibson, Dunn & Crutcher, Washington, D.C., represented amici curiae Hewlett-Packard Co. and others.

Paul D. Clement of King & Spalding, Washington, D.C., represented amicus curiae Finjan Inc.

Jeffrey A. Lamken of MoloLamken LLP, Washington, D.C., represented amicus curiae Association for Competitive Technology.

Richard A. Epstein of Chicago represented for amici curiae Professors of Law and Economics Fred S. McChesney and others.

Rodney A. Cooper of Protecting Assets of the Mind, Colorado Springs, Colo., represented amici curiae Distinguished Economists.

Bruce A. Lehman of International Intellectual Property Institute, Washington, D.C., represented amicus curiae International Intellectual Property Institute.

Alexander C.D. Giza of Russ, August & Kabat, Los Angeles, represented amici curiae Former Federal Court Judges Honorable Stephen G. Larson and others.

Philip J. Graves of Graves & Walton, Los Angeles, represented amici curiae Arizona Science and Technology Enterprises and others.

Robert S. Schwartz of Constantine Cannon, Washington, D.C., represented amici curiae Agricultural Organizations.


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