Benjamin A. Saidman, Designing Around a Patent Injunction: Developing a Comprehensive Framework for Determining When Contempt Proceedings Are Appropriate

• Jurisdiction: United States,Federal
• Publication year: 2012
• Citation: Vol. 61 No. 4

DESIGNING AROUND A PATENT INJUNCTION: DEVELOPING A COMPREHENSIVE FRAMEWORK FOR DETERMINING WHEN CONTEMPT PROCEEDINGS ARE APPROPRIATE

ABSTRACT

Spurred by TiVo Inc. v. Dish Network Corp., this Comment proposes a factor-based framework for determining when contempt proceedings are appropriate in a patent infringement case. Once a court determines that an accused device infringes a patent and issues an injunction, the infringing party will often try to design around the injunction by creating a modified device. Patentees can then respond to potential continued infringement by instituting a new infringement suit or by making a motion for contempt. Previously, under the contempt framework established by KSM Fastening Systems, Inc. v. H.A. Jones Co., the district court was required to undertake a substantial analysis into the propriety of contempt proceedings. Unfortunately, TiVo, which overruled KSM, eliminated the threshold inquiry into the propriety of contempt proceedings and produced a contempt standard that creates a lack of notice, certainty, and consistency that will adversely affect all of the parties involved.

A comprehensive contempt framework should provide the district courts with the means of creating a reasoned distinction between modified devices that merit contempt proceedings and those that merit a separate infringement suit. This Comment argues that the Federal Circuit should reinstate the threshold inquiry and proposes a factor-based analysis to strengthen the KSM standard. The result is a comprehensive framework for determining whether contempt proceedings are appropriate that would cure the deficiencies of the TiVo contempt analysis.

INTRODUCTION 865

1. PERMANENT INJUNCTIONS AND CONTEMPT IN PATENT LAW 869

   1. Connection Between Permanent Injunctions and Contempt in Patent Law 870

   2. Historical Standard for Determining Whether Contempt Proceedings Are Appropriate 872

   3. Rejecting KSM and Developing a New Standard in TiVo 874

   4. Policies Underlying the Determination of Whether Contempt Proceedings Are Appropriate 876

2. SURVEY OF CONTEMPT IN THE DISTRICT COURTS 879

3. PERMANENT INJUNCTIONS AND CONTEMPT OUTSIDE OF PATENT

   LAW 883

   1. Copyright 884

   2. Trademark 886

4. DEVELOPING A FRAMEWORK 889

   1. Rejecting the Federal Circuit: Reinstating the Threshold Inquiry 889

   2. Creating a Factor-Based Framework 891

      1. Expert Testimony, Further Claim Construction, and Further Factual Analysis or New Theories of Infringement 891

      2. The Existence of Patents Associated with the Modified Device, the Presence of Good Faith, and a Balance of the Hardships 894

   3. Applying the New Framework to TiVo 897

CONCLUSION 901

INTRODUCTION

Contempt in the context of patent infringement is the rare moment when criminal sanction and patent law interact.1 A prevailing patent owner, having already enjoined the defendant from further production of an enjoined infringing device, may still face the possibility of additional infringement if the defendant2 attempts to design around the injunction by creating a modified device. In response to the defendant’s design-around attempt, the patent owner will have the option of either instituting a separate suit to enjoin the modified

device or making a motion for contempt. Unfortunately, the courts have failed to develop a sufficient framework to compare the enjoined device with the modified device and determine whether contempt proceedings are appropriate. Recently, TiVo Inc. v. Dish Network Corp.3 highlighted the confusion created

by the lack of a comprehensive framework.

TiVo brought suit against EchoStar4 alleging infringement of certain claims of U.S. Patent No. 6,233,389 (the ’389 Patent), titled “Multimedia Time Warping System.”5 EchoStar designs digital video recorders (DVRs) as a component of its satellite service, and these DVRs are “central to the ’389 patent.”6 At trial, TiVo accused two categories of EchoStar DVR receivers of infringing the ’389 patent.7 The jury found that all of the pertinent claims of the ’389 patent were not invalid and that EchoStar willfully infringed the ’389 patent by clear and convincing evidence.8 As a result, the jury awarded monetary damages to TiVo, and the court enjoined EchoStar from further

1. See KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1524 (Fed. Cir. 1985) (“[T]he contemnor may be punished by fine (payable to the patent owner) and imprisonment, even in civil contempt.”), overruled by TiVo Inc. v. EchoStar Corp., 646 F.3d 869 (Fed. Cir. 2011) (en banc).

2. The defendant will also be referred to as the “infringing party” or the “enjoined party.”

3. 640 F. Supp. 2d 853 (E.D. Tex. 2009), aff’d in part, vacated in part en banc sub nom. TiVo Inc. v. EchoStar Corp., 646 F.3d 869 (Fed. Cir. 2011).

4. Defendants EchoStar Communications Corporation, EchoStar DBS Corporation, EchoStar Technologies Corporation, EchoStar Satellite LLC, and EchoSphere LLC are collectively referred to as EchoStar. Id. at 857. The EchoStar companies operate and support the satellite television service known as

   “Dish Network.” Id.

5. Id. TiVo specifically asserted that the EchoStar receivers infringed claims 1, 5, 21, 23, 32, 36, and 52 (together called the “Hardware Claims”), and claims 31 and 61 (the “Software Claims”) of the ’389 patent. Id.

6. Id. DVR systems allow “for simultaneous storage and playback of television signals from sources such as cable and satellite providers.” Id.

7. Id. TiVo specifically asserted that seven models of EchoStar DVR receivers—three models that used a

chip from ST Microelectronics and four models that used a chip from Broadcom—infringed the ’389 patent.

Id.

infringement.9 The injunction prohibited EchoStar “from making, using, offering to sell, selling or importing in the United States, the Infringing Products, either alone or in combination with any other product and all other products that are only colorably different therefrom in the context of the Infringed Claims.”10

In response to the jury verdict, EchoStar invested seven hundred thousand dollars and eight thousand hours in an effort to design around the ’389 patent.11 Engineers changed five thousand of the ten thousand lines of DVR code,12 and EchoStar subsequently consulted an intellectual property firm that advised EchoStar that the modifications to the DVR receiver should be sufficient to avoid further infringement.13 TiVo contended that, despite the modifications, EchoStar failed to comply with the injunction and continued to infringe the ’389 patent.14 Rather than instituting a new infringement suit, however, TiVo made a motion to hold EchoStar in contempt.15 EchoStar responded by arguing that it had successfully designed around the ’389 patent and, as a result, should not be subject to contempt proceedings.16 The district court agreed with TiVo and found EchoStar in contempt of the court’s permanent injunction.17

On appeal, the Federal Circuit used the “more than a colorable difference” standard from KSM Fastening Systems, Inc. v. H.A. Jones Co., as discussed in greater detail in Part I, to decide whether contempt proceedings were appropriate.18 Under the two-step KSM analysis, the Federal Circuit found that

EchoStar’s enjoined DVR and its modified DVR were “not more than colorably different” and that no substantial issues remained for the parties to

1. Id.

2. Id. at 858.

3. Id. at 869. In comparison, EchoStar spent more than $120 million on advertising over the same time period. Id.

4. Id.

5. See TiVo Inc. v. EchoStar Corp., No. 2009-1374, 2010 U.S. App. LEXIS 4543, at *18 (Fed. Cir. Mar. 4, 2010), aff’d in part, vacated in part en banc, 646 F.3d 869 (Fed. Cir. 2011).

6. Dish Network, 640 F. Supp. 2d at 857.

7. Id. at 856. Contempt authority is granted to the federal courts under 18 U.S.C. § 401 (2006), which provides that “[a] court of the United States shall have power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority, [as results from d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command.” Id.

8. Dish Network, 640 F. Supp. 2d at 857.

9. Id. at 874.

10. TiVo, 2010 U.S. App. LEXIS 4543, at *7–8, *14, *16 (quoting KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1530 (Fed. Cir. 1985), overruled en banc by TiVo, 646 F.3d 869) (internal quotation marks omitted).

    
    

    litigate in either a contempt proceeding or a separate trial.19 With only colorable differences between the two DVRs, the Federal Circuit affirmed the holding of the district court that contempt proceedings were appropriate.20

    
    

    On rehearing en banc, the Federal Circuit overruled the two-step KSM analysis and attempted to clarify the standard governing contempt proceedings in patent infringement cases.21 The court remanded to the district court to make a factual determination of colorable differences under the new standard,22 but

    the parties settled before the district court reached a decision.23

    
    

    EchoStar’s attempt to design around the ’389 patent demonstrated the uncertainty created by the KSM standard, and as this Comment will argue, the rehearing en banc failed to remedy the deficiencies of the KSM contempt analysis. This uncertainty is unsettling in light of the fact that contempt proceedings provide an important check on the scope of injunctions and are the

    gatekeeper for patent law’s transition to criminal sanction.24 Contempt

    proceedings offer a number of distinct advantages to the patent owner.25 Most importantly, the infringing party cannot raise unenforceability or invalidity in

    defense.26 In addition, the court handling the contempt proceeding is already familiar with the case, and as a result, the proceeding will be much quicker and cheaper than a separate infringement proceeding.27 Moreover, because the proceeding will take place in the same court that ordered the injunction, there is also the possibility that the court will look unfavorably on the accused infringer’s possible failure to obey the injunction.28 On the other hand, the

    
    

11. Id. at *13.

12. Id. at *19.

13. See TiVo, 646 F.3d at 881.

14. Id. at 884.

15. TiVo Inc. v. EchoStar Corp., 429 F. App’x 975, 976 (Fed. Cir. 2011).

16. See...