En banc Federal Circuit Modifies Standard on Findings of Contempt Regarding Permanent Injunctions; $90 million sanctions ruling against EchoStar survives over dissent.

TiVo Inc. v. Echostar Corp., No. 2009-1374 (Fed. Cir. Apr. 20, 2010).

The en banc Federal Circuit clarifies the “more than colorable differences” standard in contempt of noninfringement injunctions to require focus on changed features relative to infringing products, and modifies the  two-part KSM test to eliminate requirement of determining whether contempt proceedings are appropriate.

EchoStar was found to infringe TiVo’s digital video recording (DVR) patents, and in 2008 an injunction issued barring this activity by EchoStar.  The injunction had two components:  First, EchoStar was barred from making, using, offering to sell, selling, or importing the products found to infringe as well as products “only colorably different therefrom” in the context of the infringed claims.  Second, EchoStar was ordered to disable the DVR functionality in certain of the DVR devices it had already sold.

EchoStar subsequently changed the software in its DVR devices and continued to sell them, arguing that it had designed around TiVo’s patents and thus the injunction did not apply to these new devices.

TiVo then initiated contempt proceedings, arguing that EchoStar’s new devices violated in the injunction because the changes resulted in devices that were “not more than colorably different” from the infringing products.  The district court (E.D. Texas) agreed, and imposed sanctions on EchoStar in the amount of almost $90 million, as well as rewarding additional damages to TiVo.  The court also amended its injunction to require EchoStar to obtain the court’s approval before implementing future noninfringing workarounds to its DVR software.

EchoStar argued the amount of time spent in its redesign and that it had obtained a noninfringement opinion supporting its argument showed its good faith and weighed against a contempt finding.  The en banc Federal Circuit disagreed, stating that, under Supreme Court precedent, “a lack of intent to violate an injunction alone cannot save an infringer from a finding of contempt.”

EchoStar also argued that a full infringement analysis was required, rather than the district court analyzing infringement in the context of a contempt proceeding. 

Here, the precedent in KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1530-32 (Fed. Cir. 1985) required a two-step inquiry to finding a defendant in contempt of an injunction in a patent infringement case.  The court first compares the redesigned product to the product already judged to infringe “to determine if there is ‘more than a colorable difference’ between the accused product and the adjudged infringing product such that ‘substantial open issues with respect to infringement’ exist.”  If so, a new trial on infringement required.

In TiVo, the en banc Federal Circuit modified this two-part KSM test, collapsing it into one inquiry and eliminating the separate inquiry into whether the initiation of contempt proceedings was proper.  Instead, “What is required for a district court to hold a contempt proceeding is a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”  (The Federal Circuit noted that it would then review on appeal whether the injunction was both enforceable and violated, and whether sanctions were properly imposed.)

Moreover, the en banc Federal Circuit also directed that courts hould continue to use the “more than colorable differences” standard in analyzing the question of whether a product violates an injunction against patent infringement.  The court clarified this standard, instructing that it is inappropriate, as some district courts have done, to focus solely on infringement by the newly accused devices in assessing infringement.  Rather, the correct analysis focuses “initially on the differences between the features relied upon to establish infringement and the modified features of the newly accused products.”  If the differences are significant, contempt is inappropriate.  This “significance” is an issue of fact, the analysis of which involves review of the nature of the products at issue, the prior art, and expert testimony, where appropriate.  However, if the differences in products are not more than colorable, then the court must evaluate the new products against the asserted claims on a limitation-by-limitation basis to ensure that each limitation is met.  During the process, the court is bound by any prior claim construction it issued in the case.

Throughout the contempt process, the patentee bears the burden of proof by clear and convincing evidence, both as to infringement and colorable differences.

The Federal Circuit remanded for the district court to determine whether EchoStar’s new software merited contempt sanctions under this new standard.

The court also ruled that the disablement portion of the injunction was not unenforceable as vague, and that EchoStar waived its overbreadth arguments by waiting too long to present them.  Because the second basis of the contempt ruling was affirmed, the Federal Circuit did not modify the $90 million sanctions assessment.

Judge Dyk (joined by Chief Judge Rader and Judges Gajarasa, Linn, and Prost) dissented to this part of the decision, arguing that the court should not have upheld the contempt ruling as to the disablement provision because, in their view, the provision did “not bar the installation of software that renders the devices non-infringing” and, regardless, the provisions were too unclear to provide a basis for a contempt finding.  The dissent also believed that the infringement provision was not violated, and that the affirmance of the $90 million sanctions award was inappropriate because it was based in part of the infringement provision contempt finding, which was remanded.

TiVo underscores the importance of timely challenging the scope of injunction and of seeking clarification before proceeding unilaterally.  After TiVo, a patentee bringing a contempt proceeding must first show by clear and convincing evidence that the redesigned elements of the new device are not colorably different from the enjoined device.  If the patentee passes this threshold inquiry, the patentee must then show by clear and convincing evidence that the redesigned elements in fact infringe the patent.  If new device is colorably different, then the modifying party generally deserves the opportunity to litigate the infringement questions at a new trial, where the patentee would have to show infringement by a mere preponderance of evidence.

Article written by Doug Robinson.