En Banc Court Weighs Colorable Differences Test for Infringement in Contempt Hearings

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The U.S. Court of Appeals for the Federal Circuit heard en banc Nov. 9 arguments in a case on the extent to which a contempt hearing should consider continuing patent infringement of a redesigned product (TiVo Inc. v. EchoStar Corp., Fed. Cir., No. 2009-1374, oral arguments 11/9/10).

Though the parties agreed that the “colorable differences” test--applied to determine if the redesigned product varies markedly from previously adjudicated infringing products--is not a threshold question for whether a contempt proceeding should even consider ongoing infringement, they disagreed on how readily the contempt fact finder should conclude that a new infringement trial is warranted.

But the nine court judges appeared to be frustrated in their attempts at clarifying the standard, as the advocates repeatedly based arguments in detailed reviews of the facts of the instant case.

The case has significant financial consequences for Dish Network Corp., in its appeal of an infringement decision involving digital video recorders used by the satellite television service's customers, and for TiVo Inc., which has seen its DVR market share decrease considerably in recent years.

But, with a substantial portion of briefs by friends of the court dedicated to broader patent policy concerns (80 PTCJ 781, 10/15/10), the court's decision is likely to have considerably greater impact on the patent community generally.

Infringement Analysis in Contempt Hearing.

The issue in the case involves enforcement of a judgment of patent infringement. After an accused infringer is found liable, the infringer may choose to redesign the product to be noninfringing. If so, the question remains whether the redesigned product does or does not infringe the patent and how that decision is to be adjudicated.

TiVo owns a patent (6,233,389) that allows television users to “time-shift” television signals--record a television program in digital format and enable the user to replay, pause, fast forward, or reverse while the program is playing on the television set. In 2004, TiVo sued DVR maker and Dish Network technology partner EchoStar Communications Corp. and others for patent infringement.

After a jury found in TiVo's favor, Judge David J. Folsom of the U.S. District Court for the Eastern District of Texas entered judgment on the verdict and issued a permanent injunction. In January 2008, the Federal Circuit affirmed the lower court's rulings as to two software-related claims. 516 F.3d 1290, 85 USPQ2d 1801 (Fed. Cir. 2008) (75 PTCJ 354, 2/8/08).

The trial court subsequently conducted a hearing on whether EchoStar and Dish Network were in contempt for violating the injunction, considering their argument that they had redesigned the infringing software and downloaded the new software to DVRs in subscribers' homes. Finding contempt due to the continuing infringement of the redesigned software, Folsom awarded an additional $103 million to TiVo in a June 2009 order (78 PTCJ 185, 6/12/09). In September 2009, he further awarded approximately $110 million in compensation based on the jury's award and approximately $90 million in sanctions for infringement continuing after the earlier June order.

Affirmed on Appeal, But En Banc Court Vacates.

In its appeal of the contempt finding, EchoStar argued that its software modifications were so substantial as to justify a separate infringement action and thus that the contempt hearing was an improper forum for adjudging continuing infringement.

On March 4, a 2-1 panel ruled that the lower court did not abuse its discretion by including an infringement analysis in its contempt hearing nor in finding that the defendants were continuing to infringe, despite the redesign (79 PTCJ 544, 3/12/10).

But the en banc court granted EchoStar's petition for rehearing, vacated the panel opinion (80 PTCJ 82, 5/21/10), and posed the following questions:  

(a) Following a finding of infringement by an accused device at trial, under what circumstances is it proper for a district court to determine infringement by a newly accused device through contempt proceedings rather than through new infringement proceedings? What burden of proof is required to establish that a contempt proceeding is proper? 

(b) How does “fair ground of doubt as to the wrongfulness of the defendant's conduct” compare with the “more than colorable differences” or “substantial open issues of infringement” tests in evaluating the newly accused device against the adjudged infringing device? 

(c) Where a contempt proceeding is proper, (1) what burden of proof is on the patentee to show that the newly accused device infringes and (2) what weight should be given to the infringer's efforts to design around the patent and its reasonable and good faith belief of noninfringement by the new device, for a finding of contempt? 

(d) Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope? 




As to this last question, the panel had also split 2-1 on the degree to which the lower court's language used in the injunction required Echostar's disablement of DVR functionality.

Briefing: KSM Governs, But What Does it Say?

EchoStar's 70-page brief on the merits was filed July 26 by E. Joshua Rosenkranz of Orrick Herrington & Sutcliffe, New York. TiVo's 72-page principal brief was filed Sept. 10 by Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr, Washington, D.C.

The governing precedent, accepted by both parties, is KSM Fastening Systems Inc. v. H.A. Jones Co., 776 F.2d 1522, 227 USPQ 676 (Fed. Cir. 1985). The parties argued that KSM should be reaffirmed, but reaffirmed for creating different perceived standards.

Twenty briefs were filed by friends of the court in the case (80 PTCJ 781, 10/15/10).

Amici generally sympathetic to EchoStar's position cited as the primary policy consideration the economic benefits of competition through efforts to design around patents. Those amici generally sympathetic to TiVo's position were concerned with the danger to the patent system when a permanent injunction is difficult to enforce.

An amicus brief filed by the Intellectual Property Owners Association was representative in defining two steps of the KSM analysis.

“As the first step, the district court must compare the redesigned product or process with the product or process originally held to infringe and ascertain whether a contempt proceeding is appropriate,” the IPO said. “If the redesign is 'more than colorably different' from the original such that it creates 'substantial open issues with respect to infringement to be tried,' that ends the inquiry as to contempt.

“If the two versions are sufficiently similar such that the redesign fails the first step--e.g., the redesign is not more than colorably different from the original--then it becomes appropriate for the court to take the second step and determine whether the redesign still infringes the claims of the patent,” the brief concluded.

The briefs submitted by the parties disagreed as to the discretion of the court to determine what meets the “substantial open issues” standard.

Colorable Differences in Instant Case Details.

But from the beginning of oral arguments, it became clear that the parties were more interested in debating the facts of the instant case.

Rosenkranz began by reviewing the “disablement” text of Folsom's injunction to fight the contention that it prohibited EchoStar from upgrading DVR units in place to be noninfringing. Though Judge Alan D. Lourie said, “We're here en banc to discuss broader issues,” Rosenkranz persisted in arguing the facts. He parried yet another attempt, this time by Judge Sharon Prost, to turn to the discussion of the KSM standard.

Even as he turned to the adequacy of the contempt hearing for determining ongoing infringement, Rozenkranz did so in the context of nine reasons why the redesigned software was colorably different from the infringing software.

Both parties ultimately agreed with Judge Timothy B. Dyk that the colorable differences test is not a threshold question but rather, as Waxman put it, an initial determination of what is being compared for the purposes of the infringement analysis.

In fact, there was little difference between the parties as to the contours of the test. Rosenkranz said the comparison of the two products is done “through the lens of the claim terms” and Waxman said it is done “in light of the claims as construed.”

Dyk contended that determining colorable differences and infringement are two separate tests, asking whether substantial open issues as to the first is sufficient to move adjudication beyond a contempt hearing. But Waxman repeated that the differences must be assessed in light of the construed claims, thus allowing for a simultaneous infringement analysis--at least with respect to the adjudicated claim construction.

Judge Arthur J. Gajarsa asked Waxman whether in some cases the redesigned product might even require a new claim construction, implying that a new infringement trial would certainly be necessary in that case.

Waxman replied that it certainly might, “but not in this case,” and the conversation quickly returned to details about the facts presented at trial.

Judge Kimberly A. Moore said that it appeared that TiVo had made one infringement argument at trial and was making a different infringement argument in the contempt hearing. That led to a prolonged debate between Moore and Waxman about exactly what was found at trial.

The jury submitted a general verdict of infringement, and Rosenkranz and Waxman presented substantially different interpretations of what the jury must have meant in terms of specific claim limitations and the specific elements of the accused products.

Judicial Inefficiency.

In their questions to Rosenkranz, Dyk and Gajarsa invoked the public policy issue of inefficiency in enforcing patent infringement judgments through a subsequent action rather than in the contempt hearing.

If infringement has to be adjudicated anew, Rosenkranz said, TiVo has the option to seek a preliminary injunction at that stage, getting the same result that it received in the contempt hearing without the sanctions against EchoStar.

But Judge Pauline Newman protested. “You're saying if there is room for argument, there is no contempt,” she said to Rosenkranz. That means you want the patentee to bring another case to a district court, she said, inevitably requiring a jury trial, with equally inevitable delays, timing issues, and scheduling problems.

Rosenkranz had previously responded to Gajarsa's question by positing that a new trial might be avoided by the judge in summary judgment motions, but Newman appeared unconvinced that that would be the norm.

Disablement Provision Disagreement Dominates.

During Waxman's arguments, Prost brought the discussion back to the disablement clause and the fourth of the Federal Circuit's questions, “Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope?”

In fact, both parties argued that the injunction was not ambiguous, but of course each argued it was not ambiguous in opposite interpretations.

Waxman contended that, even if the disablement requirement was ambiguous, the burden was on EchoStar to seek clarification. Moore tried to distinguish latent and patent ambiguity, citing not infrequent instances where both parties claim to have won after receiving a district court ruling.

Waxman insisted that, at this point in the proceeding, any ambiguity fell to EchoStar to resolve. But in his rebuttal, Rosenkranz countered that that assumes there was ambiguity, and EchoStar was convinced of its own interpretation. “No one would think [TiVo's interpretation] is what [the disablement text] meant,” he said.

Rosenkranz closed his remarks by saying that the features of the redesigned product may involve very interesting questions of infringement and spawn a very interesting debate. And those questions are not resolved, he said, again implying that a new infringement complaint by TiVo would be necessary to resolve them.

By Tony Dutra