The United States Court of Appeals for the Federal Circuit announced back in May that they would take up the matter of Tivo, Inc. v. EchoStar Corp. en banc, and then subsequently set the oral argument date for Tuesday, November 9, 2010. November 9, 2010 will be a busy day for the Federal Circuit indeed. On this first anniversary of the Bil ski oral arguments at the United States Supreme Court the Federal Circuit has scheduled two en banc hearings. Second up on November 9, 2010 will be Tivo v. EchoStar, first up will be Therasence v. Becton, both cases of great importance. We will be following both cases closely, and I will be in attendance in the gallery and offering eyewitness accounts that afternoon. In the meantime, however, let the punditry, analysis and gossip begin. First up — TiVo v. Echostar, which will decide the limitations (if any) on a district court’s ability to use contempt proceedings to enforce a permanent injunction in a patent case when there is an alleged work-around.
The dispute between TiVo and EchoStar dates back to 2004 when TiVo sued EchoStar in the United States District Court for the Eastern District of Texas, alleging 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 that both the 50X receivers and the Broadcom receivers infringed the asserted hardware as well as software claims and awarded TiVo approximately $74 million in lost profits and reasonable royalties. The district court entered judgment on the verdict and issued a permanent injunction against EchoStar. In granting the injunction, the district court ordered EchoStar (1) to stop making, using, offering to sell, and selling the receivers that had been found infringing by the jury (the “infringement” provision) and (2) to disable the DVR functionality in existing receivers, with the exception of select receivers that had already been placed with its subscribers (the “disablement” provision). Following the entry of final judgment by the district court, the Federal Circuit affirmed in part, reversed in part, and remanded the district court’s decision. At that time, EchoStar did not appeal the district court’s grant of a permanent injunction. The Federal Circuit noted that the district court’s injunction, which had been stayed during the course of the appeal, would take effect following our decision.
Following the decision on the appeal, TiVo moved the district court to find EchoStar in contempt of the court’s permanent injunction. At this stage EchoStar essentially argued that the injunction had no further effect because they had already downloaded into consumers boxes software that did not infringe, basically taking the position that they had to do nothing further to turn the receivers, which had already been adjudicated to be infringing, into non-infringing devices. TiVo argued that the new software continued to infringe and that the disablement aspects of the court’s permanent injunction were violated because EchoStar had not disabled the features in the adjudicated receivers that lead to the jury finding of willful infringement. EchoStar’s counter argument was that the disablement aspects of the permanent injunction only affected infringing receivers, and the adjudicated receivers had been changed into non-infringing receivers. EchoStar further argument that it is only appropriate for contempt proceedings when any modifications or redesign is so trivial that it can be characterized as bad faith; a subterfuge.
Rather than conduct a new trial, and rather than elect the truly summary proceedings that could have been available in a contempt proceeding, the district court elected for a middle of the road process. In fact, there was discovery, expert testimony was heard by the district court and the entire process took nearly a year to complete. Upon coming to the end of this quasi-contempt, quasi-trial process the district court rejected EchoStar’s argument that it had redesigned its infringing products so that they were more than colorably different from the adjudged infringing devices. The district court evaluated two of EchoStar’s major modifications to the infringing DVR software and concluded that the modified software continued to infringe. The district court, therefore, found EchoStar to be in violation of the infringement provision of the injunction. Moreover, the district court found that even if EchoStar had achieved a non-infringing design-around, EchoStar would still be in contempt because it had failed to comply with the disablement provision in the district court’s order requiring it to disable DVR technology completely from the receivers.
Before proceeding to what happened on appeal, allow me to point out what should be obvious to everyone. By not changing anything after the permanent injunction was issued and not disabling the DVR technology as ordered, EchoStar essentially gave the district court “the Heisman.” That is not ever a good idea, but particularly not a good idea when an injunction is at issue. In my experience, district court judges, in fact all judges, hate having their orders ignored. It shows disrespect for the court, for the judicial process and calls into question the very foundation upon which the judicial system is built. So whatever EchoStar did or didn’t do, it seems as if they made a very bad strategic decision. They clearly could have done more and should have done more if for no other reason than to seriously attempt to do something real and tangible in keeping with the injunction after having been found to be a willful infringer. So if you ask me, EchoStar brought a lot of this onto themselves.
In any event, when the case goes back to the Federal Circuit the majority of a 3 judge panel of the Federal Circuit concluded that the district court decision was appropriate. The Federal Circuit panel decision per Judge Lourie and with Judge Mayer joining in the decision, determined that given EchoStar’s refusal to disable the DVR functionality in its existing devices and the fact that its original attempts to design around TiVo’s patent were wholly unsuccessful, the district court had ample justification for its determination that court pre-approval of any new design-around effort was necessary to prevent future infringing activity. Seems pretty open and shut if you ask me, but in the words of Lee Corso of ESPN College Football Gameday fame — “not so fast my friend!”
Judge Rader voiced a strong dissent. It comes as no surprise to anyone who reads IPWatchdog.com that I have enormous respect for Judge Rader and believe him to be correc with great frequency . Said another way if I were on the CAFC I would rule consistent with Judge Rader on an a great many number of cases, but likely not this one. So when I realized Judge Rader was in dissent my inclination was to believe I would likely side with him and the majority was likely just overlooking something, at least in my opinion. That, however, was not the case. I am left wondering what the district court should have and could have done to please Judge Rader, save deciding on the facts that EchoStar had an appropriate work-around.
The district court didn’t proceed with a truly summary contempt proceeding, and even if they did why shouldn’t that be allowed on the facts of this case? It seems to me that EchoStar showed a good deal of contempt toward the district court and the requirements of the injunction, and the owner of a valid patent continues to be injured. Should TiVo have to litigate, relitigate and continually litigate in the face of such repeat willful infringement? If contempt proceedings, or proceedings like this which really are far more deliberative than contempt proceedings, are not allowed then doesn’t that essentially create a compulsory licensing regime for those who infringe?
I know that the United States Supreme Court has said that a patent owner is not, as a matter of right, guaranteed to receive a permanent injunction even if they establish infringement as the result of being victorious in patent infringement litigation. That decision is ridiculous, idiotic and absurd! For crying out loud the grant of a patent itself provides an exclusive right, which means that the owner can EXCLUDE others. So the fact that the Supreme Court wants to force a compulsory licensing regime upon the patent system doesn’t and shouldn’t mean that the Federal Circuit should be afraid to stand up for patent owners who prove infringement and at least let those who qualify for a permanent injunction return in a contempt proceeding without needing to go through 5 to 10 years of expensive patent litigation again to ultimately prevail. A patent is a wasting asset and without meaningful exclusion provided to victorious patent owners we have nothing more than a compulsory licensing regime, which is wholly unacceptable if you ask me.
In any event, the basis of Judge Rader’s dissent seems to be wrapped in his belief that the disputed claim shows little similarity between the former infringement proceedings and the issues now before this court. Rader found the accused structures to be different, the infringement theories to be different and the claim constructions to be different. Rader also believed that the modified method operates in a significantly different way from the old method. In fact Rader said “the only thing that is not different is the identity of the parties themselves.” Thus, Rader was extremely troubled that summary contempt proceedings were used to address a dispute that was, in his view, not the same as the underlying patent litigation. Furthermore, in Judge Rader’s view the injunction issued and approved by the majority of the panel was over-broad. While I do respect Judge Rader immensely, I just disagree with his assessment here.
So where do we go from here? Putting aside my disdain for the Supreme Court stepping into patent matters of any kind, what does seem clear is that the Supreme Court wants to pretend that patents are the same as any other area of law and the same processes and procedures pertaining to other areas of law apply equally to the patent world. See eBay v. MercExchange and Zurko v. Dickinson for but two examples. The Supreme Court also loves case by case approaches without hard and fast rules that can actually be objectively and even-handedly applied. See KSR v. Teleflex and Bilski v. Kappos for but two examples. So strictly adhering to this clear trend it would suggest that the Supreme Court would be quite open to giving district court judges broad latitude to enforce their own Orders when appropriate. This would allow the district courts discretion to handle different cases differently, so that would cover the case by case approach, and it would seem to be in keeping with theories of judicial economy, which are typically left to the district court to handle, particularly when procedure, process and management of the docket are at issue. So here the district court believed that a summary contempt proceeding wasn’t appropriate, but also determined that a full-blown trial wasn’t appropriate either. I suspect that the Supreme Court would approve of the deliberate and thoughtful proceedings conducted by the district court. Thus, if the Federal Circuit tries, as they did in Bilski, to slavishly apply Supreme Court law that should favor TiVo.
Of course, time tells all things, and this dispute will be no exception. A decision en banc will bind the entire Federal Circuit for at least a few years, until panels chip away at whatever ruling is reached. A case important enough to be heard en banc could peek the interest of the Supreme Court, particularly given that it is a quasi-patent matter. The Supremes would never take a complex double-patenting issue, but a quasi-patent matter that touches on contempt powers and administrations of justice in a fundamental way should interest as leas a few Justices, so either way we might not see the last of this case even after the Federal Circuit opines.
There will be much more to write about this dispute leading up to November 9, 2010. TiVo papers will soon be due, and that should provide many clues about how they will attempt to justify the original panel decision, and perhaps whether they are setting up the issue with the appropriate constitutional questions relevant to contempt powers to perhaps lay the seeds of interest at the Supremes.