When it comes to DVR, no one can argue with the convenience of being able to record your favorite shows and watch them later. But when the case of DVR patent infringement came to court, the big lesson was that “later” just isn’t going to work. Earlier this month at the Symposium of SIPO/US Bar Liaison Council with ACPAA held at Cardozo Law School, prominent figures in intellectual property law tackled strategic and ethical issues for patent attorneys in the wake of the TiVo v Echostar case. They came to the conclusion that asserting your rights early and often is the best practice for attorneys faced with injunction cases.
In TiVo v. Echostar, Echostar lost on infringement of TiVo’s patented DVR functionality. Judge Folsom issued an injunction and ordered that Echostar stop offering the service and disable all storage to and playback from the hard disk. Unfortunately for Echostar, they did not appeal the wording of the injunction and took no action against the disablement provision. Instead they designed around it by downloading new code to get the set-top box to operate in a different way, in what appeared to be a pretty clean design-around. TiVo filed a contempt motion. Echostar was sanctioned on the grounds that there were not “colorable differences” and their design-around infringed. The dissent argued that not only were there colorable differences but moreover the differences established non-infringement. After two years of back-and-forth and one too many trips to Judge Folsom, the original 70 million that Echostar had to pay for the initial infringement rose to 300 million because of Echostar doing what they thought would get them out of infringing. (Ultimately, Echostar wound up settling for 500 million.)
The real issue is whether the order was clear or whether, as Patrick Coyne of the Federal Circuit Bar Association says, it was “lost in the hazy fog of the Romanian mountains.” The dissent in the case argued that since the disablement provision refers to “all DVR” the injunction was too vague, did not give fair notice, and thus, should not have been enforced.
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Coyne says the case leaves patent attorneys with a few take-away lessons: First, re-design your product if you’re in this situation. Second, get an opinion of counsel. The issue with Echostar was they did the re-design themselves. They didn’t go back to Judge Folsom and let him approve it. Instead of waiting till they were under a contempt citation, they should have gotten their actions blessed ahead of time. Third, appeal the injunction if you don’t like it right away. Finally, and perhaps most intuitive, don’t lie like they did in Ninestar. (In that case, Ninestar had been given a cease-and-desist order telling them not to sell any of the printer cartridges that were attacked as being knock-offs of patented products. They lied and told the ITC judge that all the cartridges were reconditioned HP cartridges when in fact only twenty percent were. Not unsurprisingly, the court did not rule in their favor.)
Christopher Shao Wei, senior partner of NTD Intellectual Property Attorneys based in Beijing, gave us a glimpse of the issues of repeated infringement in China, There the court has no general contempt power but instead proceeds through either a judicial approach or an administrative approach where the patent authority makes all determinations. While the criteria for what exactly constitutes a repeat patent infringement is unclear, it is obvious that once something was established as a repeated patent infringement, infringers were punished with higher fines, with one example showing a company being fined 4 times as much for a repeated infringement. Wei even mentioned that there exists a provision that allows jail time for repeat infringers, though there is no case to date which has utilized such extreme measures.
TiVo provides important lessons for clients and lawyers, but also exposes some perils for lawyers too. According to the ABA Model Rules, it is an ethical violation to directly disobey a court order or to advise a client to disregard the order. Echostar’s action leaves us with the question of whether it is ethical for an attorney to say “let’s ignore this disablement provision for now and try this design around that may take care of everything,” says chair of Zuckerman Spaeder LLP’s Legal Profession and Ethics Practice Thomas Mason. Post-TiVo, waiting to assert your rights about lack of clarity until after a design-around poses an ethical problem, especially given the ability to challenge at the beginning through a motion to verify. Mason urges attorneys to act with caution pointing out that even if you believe you complied with a court order, a court could decide otherwise and present even bigger problems for you. “Giving your former client the ability to plea [in a malpractice case] that not only did you not handle their case well but you also violated an ethics rule makes your malpractice case much more troublesome,” he says.
There are some jurisdictional differences between ethics rules. For example, New York follows the ABA model closely, with California and Texas–where TiVo took place– taking different approaches. The point to note is that the jurisdiction where you’re litigating is the one whose ethics rules apply to you.
“When it comes to the ethics rules, the first rule of the ethics rules is don’t tick off the judge. The second rule is if you tick off the judge, the first words you say are ‘I’m really sorry I didn’t mean it’,” says AIPLA’s president Jeffrey Lewis.
It seems that in the light of TiVo that patent attorneys should be tactfully crafting their strategies to reflect a healthy dose of respect for injunctions.