On November 9, an en banc panel of the U.S. Court of Appeals for the Federal Circuit heard argument in the latest round of the six-year-old fight between TiVo and Dish Network, and its affiliate Echostar (collectively, “Dish”). The panel considered the circumstances under which an adjudged infringer’s design-around efforts can be evaluated by way of contempt proceedings as opposed to a new infringement trial on the redesigned device. The very first question from the bench underscored the potential for a sea change in this area of the law: “Should we revise the KSM [Fastening Systems, Inc.] case? And is ‘colorable’ too vague a term?”
The en banc rehearing was ordered on the heels of Chief Judge Randall R. Rader’s blistering dissent in a panel opinion that upheld a judgment of contempt and $90 million in penalties against Dish. At trial, a jury found that aspects of Dish’s digital video recorder (DVR) devices infringed TiVo’s patent related to now-familiar technology that allows viewers to “time-shift” television programming. The trial court then entered an injunction requiring the disablement of the DVR functionality in Dish’s devices.
In response, Dish then issued a software update to the subject devices; TiVo claimed the update failed to design around its patent and thus violated the injunction. The trial court agreed. Applying the familiar KSM standard, the court concluded that because the infringing devices and the redesigned devices were not “colorably different,” it was appropriate to conduct contempt proceedings instead of new infringement litigation against the redesigned products.
During argument this week, some members of the en banc panel revealed their concern regarding the “colorable difference” standard, suggesting that it was insufficiently precise. Moreover, the court questioned if the KSM standard could be squared with the analysis on contempt first articulated by the Supreme Court in 1885, namely whether there is a “fair ground of doubt” as to the wrongfulness of the alleged contemnor’s conduct. The panel also noted that courts and litigants since KSM have had difficulty defining and applying the “colorable difference” standard.
However, in something of a surprise, counsel for both parties at oral argument seemed to disagree with the premise that KSM is cumbersome in practice, citing the familiarity of the long-established standard. Dish argued principally that the injunction had been improperly interpreted by the district court to encompass all of its products, not just the specific functionality adjudged to infringe, while TiVo argued in turn that the burden was on Dish to clarify the scope of the injunction and to seek approval from the court for the redesign – and Dish had done neither.
The case may go off on a simple review of the district court’s factual analysis of the sufficiency of the design-around effort and the scope of the injunction. Indeed, it is mystifying that Dish proceeded with a design-around plan that skirted the edge of the injunction without either clarifying its arguably vague terms or obtaining permission from the judge – something that no infringer should ever do. Nonetheless, the tenor of oral argument indicates that perhaps the Federal Circuit will, as TiVo suggested was possible before the en banc hearing, “radically re-shape longstanding precedent” on contempt proceedings. If such a wholesale change in the law does come to pass, however, the direction of paradigm shift remains uncertain. It seems apparent that some members of the panel are concerned that the contempt of injunction framework within which lower courts work is too loose, as the colorable difference standard may not in practice fairly determine when the question should be determined on contempt, and when it should be put to a jury.
Although the KSM standard may be somewhat difficult in application, courts and litigants have adapted and understand the landscape. It seems that the Federal Circuit should observe the protections afforded patent holders in the form of contempt proceedings, while at once not unduly stifling innovation, particularly in the form of colorably different, good-faith design-around efforts. How the court will strike this balance is unclear, but patent holders, their counsel and innovators should be aware of the potential for great change in this arena of patent law.