Tivo Inc. v. Echostar Corp. (Fed. Cir. 2011) (en banc)
At trial, Echostar was held liable as an infringer and was permanently enjoined from making or selling the infringing products as well as "all other products that are only colorably different therefrom." Echostar then modified and continued to market its product. Rather than filing a new lawsuit, Tivo filed a contempt action arguing that Echostar's activities violated the permanent injunction already in place. The district court held Echostar in contempt after ruling that the modified product was not colorably different from the infringing product and therefore that its sale violated the permanent injunction.
Normally, a contempt proceeding is the appropriate vehicle for judging violations of a permanent injunction. However, when a company's new product is sufficiently different from its prior infringing product, courts instead require the patentee to pursue an entirely new case on the merits of the new product. In a rare en banc decision penned by Judge Lourie, the Court of Appeals for the Federal Circuit has provided new guidance as how courts should structure a contempt proceeding when an adjudged infringer releases a new or modified product.
The new rules of contempt proceedings for modified products following an injunction:
- Good Faith Design Around: A good faith effort to modify a product in order to avoid infringement will not avoid a contempt proceeding. However, the good faith of someone held in contempt may be used in lessening the penalty for contempt.
- Overrule Two-Step Process: The two-step test defined in KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1530–32 (Fed. Cir. 1985), is overruled as unworkable. That test required courts to first determine whether a contempt proceeding is appropriate based upon the colorable difference test and then determine whether contempt actually occurred. Under the new approach, courts will have broad discretion in judging whether to hold a contempt proceeding so long as the injured party offers "a detailed accusation … setting forth the alleged facts constituting the contempt."
- Appealing Decision to Hold a Contempt Proceeding: A confused aspect of the decision is whether the lower court's decision to hold a contempt proceeding will be appealable. In one portion of the opinion, the court states that the question of whether the contempt proceeding was proper will not be directly appealable. "As with appeals from findings of civil contempt in other areas of law, we will only review whether the injunction at issue is both enforceable and violated, and whether the sanctions imposed were proper." In the next paragraph, however, the court notes "that there may be circumstances in which the initiation of contempt proceedings would constitute an abuse of discretion by the district court." The court then went on to hold that the decision in this particular case was not an abuse of discretion.
- Colorably Different: In order win a contempt proceeding, the patentee must show that "the newly accused product is [not] so different from the product previously found to infringe that it raises 'a fair ground of doubt as to the wrongfulness of the defendant's conduct.'" In conducting this analysis, the court should focus on the portions of the accused product that were a basis for the prior finding of infringement and consider whether those portions have been significantly modified or removed. "If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one" and a contempt finding would be inappropriate. At that point, the patentee could still pursue a full infringement action.
- Infringement and Claim Construction: Even when the new product is not colorably different from the prior infringing products, the court must also determine that the new product actually infringes the asserted patent claims. In this process, the court will be bound by its prior claim construction ruling.
In this case, the district court failed to explicitly consider whether Echostar's modified product met each limitation of the asserted claim. On remand, the district court must make that factual determination.
The court was unanimous as to this new approach to contempt proceedings.
Dissent: The dissent filed by Judge Dyk primarily challenges whether a particular portion of the injunction can be challenged as vague and overbroad in a contempt proceeding. Judge Dyk's dissent was joined by Chief Judge Rader and Judges Gajarsa, Linn, and Prost. Looking at the tallies, for this portion of the opinion, there were seven judges in the majority and five in dissent. [updated to fix counting error] The majority included Judges O'Malley and Reyna who were not on the bench until well after briefing and oral arguments had been complete.