December 8, 2021

Volume XI, Number 342

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December 07, 2021

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December 06, 2021

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Federal Circuit Changes Law for Post-Injunction Contempt Proceedings Against Modified Products

In TiVo, Inc. v. EchoStar Corp., et al., No. 2009-1374 (Fed. Cir. Apr. 20, 2011), a recent en banc decision, the Federal Circuit vacated an Eastern District of Texas court’s ruling that EchoStar was in contempt of the district court’s permanent injunction. Because the Federal Circuit considered the case en banc, the Federal Circuit was able to reconsider the two-step test it adopted in KSM Fastening Systems v. H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985), for determining whether a district court should hold a contempt proceeding. The Federal Circuit concluded that the KSM test was unsound and clarified the standards governing contempt proceedings in patent infringement cases.
The TiVo/EchoStar patent battle has been raging in the courts for the better part of 10 years. Following a win by TiVo in a jury trial in the Eastern District of Texas, Judge Folsom entered an injunction prohibiting EchoStar from undertaking certain activities in connection with its accused DVR products. The court subsequently found EchoStar in violation of the injunction and imposed contempt sanctions on top of the damages awarded by the jury. EchoStar appealed to the Federal Circuit and ultimately persuaded the Federal Circuit to consider the case en banc to clarify the standard for imposing contempt sanctions in a patent case. 
In a unanimous portion of the opinion, the Federal Circuit held that there is no “good faith” defense to a charge of contempt. The court also overruled an often-misunderstood portion of the 1985 KSM case, which had set out a two-part test for deciding whether contempt proceedings were appropriate. The Federal Circuit changed the two-part KSM inquiry into a single statement: “What is required for a district court to hold a contempt proceeding is a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”
With respect to the substantive standard applied to a contempt proceeding, the Federal Circuit reiterated 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.” For the first portion of this analysis—determining whether there are more than “colorable differences”—the court clarified the appropriate comparison: “[O]ne should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims. Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. 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 the inquiry into whether the newly accused product actually infringes is irrelevant. Contempt is then inappropriate.”
On the final key question—whether EchoStar’s conduct constituted contempt under the newly devised proper standard—two factions of the en banc court were sharply divided. EchoStar argued that the language of the injunction was too ambiguous to clearly proscribe the challenged conduct. The seven judge majority, in an opinion written by Judge Lourie, held that such an argument was unavailable as a matter of law because EchoStar never directly challenged the language of the injunction. According to the majority, “where a party has bypassed opportunities to present its asserted vagueness claim on appeal or through a motion to clarify or modify the injunction, the party cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the party’s conduct.” The five-member minority, in an opinion written by Judge Dyk, disagreed strenuously, on the grounds that “contempt cannot be based on an order susceptible to two reasonable readings, one of which does not cover the accused conduct.” Thus, the dissenting judges would have reversed the finding of contempt because “TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software. It did not remotely satisfy this burden.”
One important message to take away from this case is that any defendant that is subject to an injunction in a patent case should immediately analyze the injunction to determine whether there is any potential ambiguity in its terms. If such ambiguity is present—or even potentially present—the defendant frequently may be well advised to raise any such issues immediately, through a motion to clarify/modify the injunction and/or an appeal to the Federal Circuit. Absent those protective measures, the ambiguity of an injunction will likely not provide the defendant with grounds to later oppose a contempt motion by the patentee.
Copyright © 2021 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume I, Number 168
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About this Author

C.Erik Hawes, litigation lawyer, Morgan Lewis
Partner

C. Erik Hawes serves intellectual property clients in litigation and pre-litigation counseling, patent prosecution, management of patent and trademark portfolios, trade secrets and confidentiality issues, due diligence concerning IP issues in transactions, and day-to-day counseling concerning IP issues of every size and shape. While he has a strong background in other industries, Erik works primarily with clients in the oil & gas industry.

713-890-5165
David Levy, Intellectual property attorney, Morgan Lewis
Partner

David Levy focuses his practice on high-stakes commercial and intellectual property disputes. He also counsels clients on litigation avoidance and crisis management. With more than two decades’ experience as a trial and appellate lawyer, he has represented technology, financial services, energy, insurance, manufacturing, and retail clients in US federal and state courts, and before US and international arbitration tribunals. Several of these cases have involved billions of dollars at stake. He previously co-chaired the international litigation and Asia-Pacific practices...

713-890-5170
Robert Busby, IP and Licensing Attorney, Morgan Lewis
Partner

Robert Busby represents international companies, particularly those based in Asia, with an emphasis on Japanese companies, in intellectual property litigation and licensing negotiations. Bob conducts licensing negotiations and has spearheaded teams on litigations filed in various US District Courts and with the US International Trade Commission (ITC). He appears in numerous jurisdictions for motions and claim construction hearings, and has taken and defended dozens of depositions in the United States, Europe, Taiwan, and Japan.

202.739.5970
Robert Gaybrick, Intellectual property lawyer, Morgan Lewis
Partner

A co-chair of the firm’s intellectual property practice, Robert J. Gaybrick helps clients maximize the value of their IP portfolios. He counsels clients on IP issues involving electrical, computer, semiconductor, display, automotive, and mechanical technologies. An intellectual property strategist, Robert advises businesses on litigation, licensing, patent procurement, and portfolio development, and has participated in more than 150 patent licensing negotiations and transactions. Robert also offers IP opinions and litigates cases around the United States.

202-739-5501
Collin Park, Morgan Lewis, Patent litigation attorney
Partner

Collin W. Park counsels clients on patent issues, including patent litigation, licensing, and portfolio management. He represents both patent owners and those accused of infringement through all stages of litigation, including presuit investigations, settlement negotiations, and trial. He also handles Section 337 proceedings before the US International Trade Commission. Collin appears in district courts throughout the United States.

202-739-5516
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