TiVo Inc. v. EchoStar Corp.

In a trial by jury, EchoStar was found to infringe TiVo Inc's '389 patent. The infringing devices were the categorized by their video decoding ASIC. The two categories were DVRs using the 50X series ASIC and DVRs using Broadcom Corporation parts. The jury found, "the 50X DVRs literally infringed the asserted hardware and software claims,"[2] the "Broadcom DVRs literally infringed the asserted hardware claims and infringed the asserted software claims under the doctrine of equivalents."[2] As a result, TiVo Inc. was awarded approximately $74 million in damages from lost profits and royalties, and a permanent injunction was issued against EchoStar.[2]

Before: Circuit Judge Bryson, Senior Circuit Judge Plager, and Chief District Judge Keeley

EchoStar Corp. motioned the Federal Circuit for an appeal and was granted a temporary stay on the permanent injunction. The issues on trial were two hardware claims (1 and 32) and two software claims (31 and 61) of TiVo Inc.'s '389 patent. The Federal Circuit held "Broadcom DVRs do not satisfy the 'is separated' limitation [of the hardware claims] and the 50X DVRs don't satisfy the 'assembles' limitation [of the hardware claims];"[2] thus, the appeals court reversed "the portion of the judgment upholding the jury's verdict that EchoStar's DVRs literally infringe the hardware claims."[2] Finding the jury's reasoning permissible, the Federal Circuit upheld the jury's verdict that EchoStar Corp's DVRs infringed the software claims of TiVo Inc.'s '389 patent. The stay on the permanent injunction dissolved when the appeal became final and the District Court could determine if TiVo Inc. sustained additional damages while the stay was in effect.[2] Additional damages were found to be warranted.[11]

TiVo Inc. motioned to hold EchoStar Corp. in contempt for violating the Infringement and Disablement Provisions of the permanent injunction. The District Court utilized the KSM test to determine if a contempt proceeding was appropriate and if there was continuing infringement. The first step of the KSM test was to determine whether there was a "colorable" difference between the infringing and modified products. The second step was to compare the modified products to the patent claims to determine if the modified product infringes.[7]

EchoStar argued that its redesign of the infringing products was more than colorably different by the KSM test.[3][7] Upon a comparison between the infringing and modified products, the District Court held "any differences between the infringing and modified products are no more than colorable … As a result, contempt proceeding in this case are appropriate [by the KSM test]."[7] Applying the second step of the KSM test, the District Court held "modifications do not affect elements of the disputed claims as construed … the infringing and modified devices may be treated as the same."[7] Therefore, EchoStar Corp. continued to infringe TiVo Inc. patent '389 and was held in contempt of permanent injunction's Infringement Provision.

With respect to the Disablement Provision, the District Court stated "even if EchoStar had achieved a non-infringing design-around, this Court would still find that EchoStar is in contempt of this Court's permanent injunction … [regarding] the Disablement Provision of this Court's order, which ordered EchoStar to 'disable the DVR functionality.'" [7] EchoStar argued the Disablement Provision only covered original infringing products (non-software updated 50X and Broadcom DVRs). However, the District Court held that a plain reading of the order includes all 50X and Broadcom DVRs whether non-infringing redesigned or original infringing.[3][7] The District Court ordered EchoStar Corps. to deactivate the DVR capability of all 50X and Broadcom DVRs regardless of the software utilized by the device; EchoStar Corps. did not comply and were held in contempt of the Disablement Provision of the permanent injunction.

This ruling determined the sanctions against EchoStar Corp. for violation the permanent injunction. The District Court awarded TiVo Inc. "$2.25 per DVR subscriber per month for the contempt period,"[11] which amounts to nearly $90 million in addition to the original jury award.[3] Furthermore, EchoStar Corp. must reimburse TiVo Inc's legal fees for the contempt proceedings.[11] The District Court amended its earlier injunction to require "EchoStar seek the court's approval before implementing future non-infringing workarounds to its DVR software."[3]

Majority Opinion (Circuit Judges Mayer and Lourie)

EchoStar Crop. appealed the District Court's contempt ruling on the grounds that issues relating to continued infringement are impermissible in a contempt proceeding due to changes made during the redesign. The Federal Circuit disagreed and held that the District Court "used the proper standard in its analysis,"[3] the KSM test. The Federal Circuit concluded there was no "abuse of discretion in the court's decision to hold contempt proceedings,"[3] In addition, the Federal Circuit was persuaded that the District Court could find EchoStar in contempt of the Infringement Provision and that there was "clear and convincing evidence"[3][12] to do so. With regards to the Disablement Provision, the Federal Circuit held a plain reading "would have provided EchoStar with notice of what is now being held in contempt;"[3] furthermore, the chance to appeal the provision language has passed. The amendment to the permanent injunction which required EchoStar Crop. to seek pre-approval for any new design-around effort was affirmed.[3][12]

Dissenting Opinion (Circuit Judge Rader)

Indeed, the only thing that is not different [about this case] is the identity of the parties themselves. These differences deserve a trial, not a summary contempt proceeding.

— Circuit Judge Rader[3]

Judge Rader argued the District Court's injunction was too broad and ambiguously worded.[12] Furthermore, the dissenting opinion argued "TiVo should not be able to bootstrap its new, previously abandoned infringement theory to that [previous] verdict,"[3] because this "discourages good faith efforts to design around an infringement verdict."[3]

Majority Opinion (Circuit Judges Lourie, Newman, Mayer, Bryson, Moore, O'Malley, and Reyna; In Part Chief Circuit Judge Rader, Circuit Judges Gajarsa, Linn, Dyk, and Prost)

EchoStar Corp. petitioned for a rehearing en banc by the Federal Circuit to challenge "the enforceability of the District Court's injunction based on overbreadth and vagueness."[4] Upon review, the en banc Federal Circuit overruled the case which the KSM test was from, "we conclude that KSM's two-step inquiry has been unworkable and now overrule that holding of KSM."[4] The en banc Federal Circuit replaced the KSM test with a straight "more than colorable difference test."[8] As a result of the application of the new test, the en banc Federal Circuit vacated the District Court's finding of contempt for violating the Infringement Provision of the permanent injunction.[4] However, the en banc Federal Circuit affirmed the District Court's holding with regards to the Disablement Provision; thus, affirming the District Court's finding of contempt.[4][8] The en banc Federal Circuit found EchoStar Corp's arguments for overbreath and vagueness in the permanent injunction "unpersuasive."[4]

The original jury award was vacated; however, the contempt sanctions were affirmed.[4][9] In addition, the District Court's holding of infringement provision contempt was remanded "to make a finding concerning any colorable difference between the previously adjudicated infringing devices and the newly accused devices"[4] using the new test laid out in this case.

Dissenting Opinion (Chief Circuit Judge Rader; and Circuit Judges Gajarsa, Linn, and Prost)

The dissenting opinion focused on the Disablement Provision of the permanent injunction, which argued that the finding of contempt should have been reversed outright.[4][8] "In my view, the disablement provision does not bar the installation of modified software that renders the devices non-infringing, and, even if the provision were unclear, an unclear injunction cannot be the basis for contempt."[4] In addition, the dissenting opinion argued this case should not be remanded to the lower court due to the Infringement Provision since "that provision plainly was not violated."[4]