Federal Circuit Provides New Rules for Post Injunction Contempt Proceedings in TiVo v. EchoStar
On April 20, 2011, the Court of Appeals for the Federal Circuit handed down an en banc decision in TiVo, Inc. v. EchoStar Corp. that outlines new rules for contempt proceedings against a new or modified product when the original product has been barred subject to a permanent injunction. The decision is significant in that the new rules lower the burden faced by the patent owners to initiate such proceedings. The decision also illustrates the importance of clarifying the scope of injunctive orders at the time of entry.
TiVo sued EchoStar in 2004 in the United States District Court for the Eastern District of Texas for infringing U.S. Patent No. 6,233,389. Based on a jury finding in favor of TiVo, the District Court entered a judgment on the verdict and a permanent injunction against EchoStar in 2006. The injunction prohibited EchoStar from making, using, offering to sell or selling the infringing products (the “infringement” provision), and required EchoStar to disable certain infringing features for products placed with end users (the “disablement” provision). In response to an appeal by EchoStar (which was not directed to the injunction), the Federal Circuit issued a decision in 2008 that, inter alia, finalized the injunction order.
Shortly thereafter, TiVo moved in the District Court to find EchoStar in contempt of the order based on certain design-around activities it initiated as an alternative to disablement. The District Court issued a decision finding EchoStar in contempt in 2009. A panel of the Federal Circuit affirmed the District Court’s decision in 2010. The present decision resulted from EchoStar’s petition for rehearing en banc. Interestingly, the rehearing drew briefs from twenty amici. In the wake of the en banc decision, the parties agreed to a settlement on May 2, 2011, in which EchoStar will pay $500M to TiVo in exchange for a license to the ‘389 Patent.
In the en banc decision, seven judges joined in a majority opinion authored by Judge Lourie, while five judges joined in a dissenting-in part-opinion filed by Judge Dyk. The Court unanimously overruled a two-step framework defined in KSM Fastening Sys., Inc. v. H. A. Jones Co. for initiating contempt proceedings based on a product redesign as “unworkable.”
The two-step KSM framework requires a district court to first decide whether a contempt hearing is an “appropriate setting” by comparing the redesigned product with the original product to determine whether there is “more than a colorable difference” between the two products, such that “substantial open issues with respect to infringement” exist. If this threshold is unmet, the district court may then proceed to determine whether the redesigned product continues to infringe the claims.
The Court found that the two-step inquiry of KSM “confuses the merits of contempt with the propriety of initiating contempt proceedings.” In its place, the Court holds that the district court may be allowed broad discretion to determined the propriety of a contempt proceeding based simply on “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”
EchoStar argued that a contempt proceeding is improper in any case where a defendant, in redesigning an infringing product, has engaged in “diligent, good faith efforts to comply with the injunction” and has an “objectively reasonable basis” to believe that its actions are in compliance with the injunction. The Court disagreed with this argument, citing Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc. for the proposition that “a lack of intent to violate an injunction alone cannot save an infringer from a finding of contempt.”
For a finding of contempt, the Court cited Abbott Labs. v. TorPharm, Inc. as requiring proof 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.” The Court clarified that the colorable difference portion of the test is not determined simply by judging whether the redesigned product continues to infringe, but rather by focusing on differences between the infringing features of the original product and the modified features of the newly accused product. Citing a decision by the U.S. Supreme Court in Cal. Artificial Stone Paving Co. v. Molitor, the Court stated that “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.’”
The Court was divided as to whether provisions in an injunction order can be directly challenged as vague and overbroad in a contempt proceeding. Although the majority agreed that “in certain circumstances vagueness can operate as a defense to contempt,” it stated with reference to the Supreme Court’s opinion in McComb v. Jacksonville Paper Co. that the contempt defendant who has an earlier opportunity to present a vagueness claim on appeal or clarify or modify an injunction by motion “cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the [defendant’s] conduct.” In the dissenting-in part-opinion, Judge Dyk disagreed with the majority’s interpretation of McComb, and suggested that the pertinent question is not whether or not the injunction is invalid for vagueness, but rather “whether contempt is appropriate where the injunction does not clearly prohibit the challenged conduct.”
While the Court’s ruling simplifies and arguably lowers the threshold for initiating contempt, it may raise the threshold for finding a colorable difference by narrowing the inquiry to only the product features that were originally relied upon for establishing infringement. As a result, patent owners may prefer in some cases to file a new infringement lawsuit against a redesigned product rather than entering into a contempt proceeding. The present decision suggests that it may be in the interests one or more of the parties to challenge ambiguities in injunctive order at the time it is granted rather than later on within the context of a contempt proceeding.