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A divided U.S. Court of Appeals for the Federal Circuit, ruling en banc, has vacated a $110 million award against EchoStar Corp. for continued infringement of TiVo Inc.’s patents after a permanent injunction and clarified the contempt standards in patent infringement cases. The April 20 ruling in TiVo Inc. v. EchoStar Corp. also affirmed Eastern District of Texas Chief Judge David Folsom’s $90 million award against EchoStar as a sanction for its contempt finding. The most recent chapter in a long-running court battle between the two companies addressed whether EchoStar’s redesign of digital video recorder (DVR) technology found to infringe TiVo’s patents still infringes and whether EchoStar is in contempt of the district court’s permanent injunction order. The divided Federal Circuit ruling included separate holdings on different parts of the lower court case. It vacated the district court’s finding of contempt “of the infringement provision of the permanent injunction” and remanded it for further review under the new standards. Additionally, it affirmed the court’s “finding of contempt of the disablement provision of the permanent injunction.” The Federal Circuit also partially vacated the lower court’s damages award to TiVo for EchoStar’s continued infringement. Judge Alan Lourie filed the majority opinion. He was joined in full by judges William Bryson, Kimberly Moore, Pauline Newman, Kathleen O’Malley and Jimmie Reyna, as well as Senior Judge Haldane Robert Mayer. Judge Dyk filed a dissenting-in-part opinion. He was joined by Chief Judge Randall Rader and judges Arthur Gajarsa, Richard Linn and Sharon Prost. In the majority, Lourie wrote that the two-step inquiry for finding a defendant in contempt of an injunction in patent infringement cases, which the Federal Circuit outlined in its 1985 ruling in KSM Fastening Sys., Inc. v. H.A. Jones Co., “has been unworkable and [we] now overrule that holding.” The two-step process required a court to first decide “whether a contempt hearing is an appropriate setting” to determine whether a redesigned product infringes. Then the court would hold a new infringement trial or a contempt proceeding. “We recognize now that that inquiry confuses the merits of the contempt with the propriety of initiating contempt proceedings,” Lourie wrote. “As a result, we will telescope the current two-fold KSM inquiry into one, eliminating the separate determination whether contempt proceedings were properly initiated. That question, we hold, is left to the broad discretion of the trial court to be answered based on the facts presented.” Going forward, the requirement for contempt hearing “is a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.” Lourie also concluded that the district court did not abuse it discretion by holding contempt proceedings. The majority vacated the district court’s contempt finding of the infringement provision of the permanent injunction, and remanded to the district court to determine whether there’s infringement under the new standard. Lourie wrote that “the party seeking to enforce the injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes.” Lourie went on to say the ” court is required to evaluate the modified elements of the newly accused product against the asserted [patent] claim, on a limitation by limitation basis, to ensure that each limitation continues to be met.” He also wrote that the district court would be bound by its own prior claim construction and the patentee must prove violation of the injunction by clear and convincing evidence. That portion of the decision vacated the district court’s $110 million award to TiVo–”$1.25 per subscriber per month plus interest”–for EchoStar’s infringement through its modified software during the injunction’s stay. The majority directed the district court to award TiVo damages, based on the formula of $1.25 per subscriber per month plus interest, “for the use of the original infringing software during the stay of the injunction.” Lourie later wrote that EchoStar’s waived its arguments on overbreadth of the district court’s injunction by not raising them early enough. Based on that determination, the majority upheld the $90 million sanction against EchoStar, based on a formula of about $1.00 per subscriber per month. In the partial dissent, Dyk wrote that although his group joined the part of the ruling that vacated the district court’s $110 million award to TiVo, it dissented from the majority’s affirmance of the $90 million sanctions award. The dissenters also disagreed with the majority’s ruling upholding a determination that EchoStar was in contempt of the permanent injunction’s disablement provision. “In my view, the disablement provision does not bar the installation of modified software that renders the devices non-infringing, and, even if the provision were unclear, an unclear injunction cannot be the basis for contempt,” Dyk wrote. Dyk and the other dissenters also objected to the majority’s decision to remand the case to the district court to determine whether EchoStar violated the infringement provision. Dyk wrote that, before the majority’s ruling, “accused infringers were encouraged to design around patent claims to achieve non-infringing products and methods” and contempt sanctions could not be imposed if the injunction was unclear. “In sum, TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software,” Dyk wrote. “It did not remotely satisfy this burden. Under such circumstances, contempt is improper because there is at least a fair ground of doubt as to the wrongfulness of EchoStar’s conduct.” Seth Waxman, the Washington chairman of Wilmer Cutler Pickering Hale and Dorr’s appellate and Supreme Court litigation practice group, who argued for TiVo at the Federal Circuit, referred questions to his client. In a statement, TiVo noted that the ruling is the second time the Federal Circuit has upheld the district court’s contempt ruling. “We look forward to the permanent injunction against EchoStar and Dish Network finally being enforced with respect to the DVRs they must now disable,” TiVo stated. “This ruling also paves the way for TiVo to receive substantial damages and contempt sanctions regarding the DVRs that EchoStar and Dish Network failed to disable.” E. Joshua Rosenkranz, a New York partner who heads the Supreme Court and appellate litigation practice at Orrick, Herrington & Sutcliffe, argued for EchoStar. He and his Orrick, Herrington colleagues did not respond to requests for comment. Other EchoStar lawyers at Finnegan, Henderson, Farabow, Garrett & Dunner in Washington and Morrison & Foerster referred questions to the company. In a joint statement, DISH Network and EchoStar said the companies are pleased that the Federal Circuit has “unanimously vacated the district court’s contempt ruling regarding our software design around.” EchoStar is now one of Dish Network Corp.’s main technology partners. The companies also stated that they’re disappointed with the Federal Circuit’s 7-5 decision affirming the district court’s ruling on the disablement question. “We intend to seek review of that part of the decision by the United States Supreme Court and seek a stay of the injunction while doing so,” stated DISH and EchoStar. “We also will be making a motion to dissolve the injunction based on TiVo’s recent representations to the [U.S.] Patent and Trademark Office substantially limiting the scope of the claims at issue in this case.” Morgan Reed, the executive director of the Association for Competitive Technology, said that TiVo’s victory with regard to the contempt ruling against EchoStar is very important for startups and small businesses. The association filed one of the 21 amicus briefs in the case. “It sends a message that you can’t just make minor modifications and infringe again and expect that you can drag it out in court,” Reed said. “It was a good decision by the court. It has broad positive implications for startups and small businesses that take risks to create innovative new products and marketplaces.” Sheri Qualters can be contacted at [email protected] .

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