Just 12 days ago the United States Court of Appeals for the Federal Circuit issued its ruling in TiVo v. EchoStar, largely handing TiVo a victory in the epic saga between the two satellite TV giants. Earlier today TiVo Inc. (NASDAQ: TIVO), DISH Network Corporation (NASDAQ: DISH), and EchoStar Corporation (NASDAQ: SATS) announced today that they have settled all of their ongoing patent litigation. Under the terms of the settlement, DISH Network and EchoStar agreed to pay TiVo $500 million, including an initial payment of $300 million with the remaining $200 million distributed in six equal annual installments between 2012 and 2017. TiVo, DISH Network and EchoStar agreed to dismiss all pending litigation between the companies with prejudice and to dissolve all injunctions against DISH Network and EchoStar.
The parties also granted certain patent licenses to each other. TiVo granted DISH Network a license under its Time Warp patent (US Patent No. 6,233,389) and certain related patents, for the remaining life of those patents. TiVo also granted EchoStar a license under the same ‘389 patent and certain related patents, for the remaining life of those patents, to design and make certain DVR-enabled products solely for DISH Network and two international customers. EchoStar granted TiVo a license under certain DVR-related patents for TiVo-branded, co-branded and ingredient-branded products.
Relating to the dispute recently addressed by the Federal Circuit, which is almost certainly the catalyst for this global patent settlement that nets TiVo $500 million, the dispute initially began back in 2004 when TiVo sued EchoStar in the United States District Court for the Eastern District of Texas. TiVo alleged that its receivers infringe “hardware” claims (claims 1 and 32) and “software” claims (claims 31 and 61) of US Patent No. 6,233,389. The jury found there was willful infringement and the district court entered an injunction ordering EchoStar to cease infringing. It is this injunction that now is at the root of the dispute to be heard by the Federal Circuit. TiVo did not believe EchoStar lived up to the Order of the district court. The district court, seemingly out of an abundance of caution, decided not to utilize its summary contempt powers but held a year long proceeding to determine if infringement was ongoing. The district court found EchoStar was violating the injunction Order and acted accordingly. EchoStar appealed and argued that only a full patent infringement trial would suffice. The panel sided with TiVo over a strong dissent by Judge Rader, now Chief Judge of the Federal Circuit, who felt the summary proceedings were inadequate. For more see Looking Ahead to TiVo v. Dish at the Federal Circuit.
Ultimately after granting a rehearing, on November 9, 2011, the Federal Circuit heard oral arguments sitting en banc (i.e., with all the judges participating). After an oral argument with both sides coming out a bit battered and beaten, I opined that I thought that TiVo would prevail because they had the superior legal argument, and because I think it is pretty clear that EchoStar received some bad legal advice and under the law they now have to live with the consequences.
What legal consequences? Much of the EchoStar argument was centered on the fact that the underlying injunction was believed to be ambiguous and/or over broad. In reality EchoStar was likely correct, or at the very least the injunction could have and should have been clarified by the district court. The trouble was the EchoStar never asked for a clarification and never appealed the injunction, so the Federal Circuit sitting en banc correctly concluded that EchoStar waived the ability to challenge the injunction. This was the only outcome that could be supported under the law with many decades of Supreme Court precedent all saying that one must challenge an injunction and not simply choose to ignore the injunction no matter how inappropriate the injunction may be. Essentially, you cannot ignore the order of a judge, period! That is the law, has been the law for many decades and ultimately sank EchoStar on their major argument.
The remaining issues for the Federal Circuit to address were whether the district court correctly proceeded with a contempt proceeding to determine whether EchoStar’s allegedly modified device was still infringing and violating the district court’s injunction. In truth, what the district court did was by no stretch of the imagination a contempt proceeding, but rather was nearly a year long procedure that was far more than a simple contempt proceeding, although much less than a patent infringement trial. At the end of the process the district court determined that EchoStar was violating the injunction. The Federal Circuit found nothing wrong with the district court proceeding to address the TiVo contentions via a contempt proceeding, although the Federal Circuit did ultimately vacate one aspect of the contempt finding.
The Federal Circuit decision was not as clear and unambiguous as one might like it to be, and in fact overruled prior Federal Circuit precedent in a way that made me scratch my head. It seemed like an overruling without a distinction really. Prior to this case the Federal Circuit had required district courts to make a two-part inquiry in finding a defendant in contempt of an injunction in patent infringement cases. In KSM Fastening Sys., Inc. v. H.A. Jones Co., the Federal Circuit explained that the court must determine whether a contempt hearing is an appropriate setting in which to adjudge infringement by the redesigned product. Only in cases where the court was satisfied on the threshold inquiry of the appropriateness of a contempt proceeding could the district court inquire whether the redesigned product continues to infringe the claims as previously construed. The Federal Circuit explained that as a practical matter district courts never really separately determined the propriety of a contempt proceeding before proceeding to the merits of the contempt itself. As a result, the Federal Circuit telescoped the two-fold KSM inquiry into one inquiry, thereby eliminating the separate determination whether contempt proceedings were properly initiated. The new inquiry now asks 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.” 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. Determining how to proceed based on the unique circumstances is left to the broad discretion of the trial court to be answered based on the facts presented.
Ultimately, the Federal Circuit vacated the district court’s finding of contempt for violation of the infringement provision and remand to the district court to make that factual determination under the new guidance provided. This was particularly baffling given that the Federal Circuit acknowledged that in practice the KSM two-prong approach was folded into a single prong. With the new single prong comparing the newly accused product with the previously accused product, and the outcome being left tot he broad discretion of the trial court, was there every anyone who believed that upon returning to trial the district court would change its mind? So it seemed the remand was extremely unnecessary, the test didn’t change very much at all, contempt was found to be appropriate, and with broad discretion vested in the district court the handwriting was clearly on the wall for all to see, even EchoStar. But if the writing didn’t seem to appear for you, remember that the district court’s ruling on the disablement provisions of the injunction (i.e., those allegedly vague and over broad portions) were affirmed by the Federal Circuit, along with the $90 million award to TiVo. So at best EchoStar was going to have to go back to trial and lose again and continue a futile fight. With the bad legal advice that really tainted the entire case, i.e., it being a good idea to ignore an order of a district court judge, this had to just be more than even the ridiculously litigious EchoStar could bear.
In any event, as a result of this settlement there is an unusual kum ba yah moment between TiVo and EchoStar, as evidenced in the nice things each said about the other on the occasion of the settlement and the prospect of even working together moving forward. Could a real truce be in the offing? Could there be merger stars in the eyes of the two satellite giants? Who knows, but take a look for yourself at what they were saying on this occasion, which strikes me as nearly over the top praise after such a hard fought, protracted and antagonistic legal dispute.
Comments of Charlie Ergen, Chairman and CEO of DISH Network:
“We have tremendous respect for TiVo’s management, and we have always said that regardless of the outcome of the case, there were many ways that we could work together with TiVo. The results of TiVo’s formidable intellectual property enforcement program speak for themselves, and consequently, we are pleased to put this litigation behind us and move forward. Additionally, we believe that our agreement with TiVo provides us a competitive advantage as one of the few multichannel operators with rights to operate under TiVo’s Time Warp patent, which ultimately will allow us to enhance the performance of our award-winning DVRs. We look forward to continuing to offer DISH Network customers the most choices in video service.”
Ergen on the fact that TiVo will help DISH Network promote the Blockbuster digital video service:
“We are excited to work with TiVo to help develop our Blockbuster video service. Resolving the patent infringement case allows us to further engage with TiVo on a variety of exciting strategic initiatives, like Blockbuster, where we are uniquely positioned to collaborate.”
Comments of Tom Rogers, president and CEO of TiVo:
“We are extremely pleased to reach an agreement with DISH Network and EchoStar which recognizes the value of our intellectual property. The compensation from this settlement, including the resulting reduction in legal expenditures, puts TiVo in an enviable financial and strategic position. This settlement, which brings the total compensation paid by DISH Network for use of TiVo’s ‘389 patent family to over $600 million, demonstrates the significant return afforded to our shareholders by diligent enforcement of TiVo’s intellectual property rights. Those efforts will aggressively continue with other parties.”
That is not exactly the type of comments I would have expected, but I suppose if you are in this business long enough you see just about everything.