Circuit Unravels TiVo’s $200M Patent Ruling

WASHINGTON (CN) - A majority of the full Federal Circuit upheld part of a contempt order against EchoStar for refusing to disable digital-recording technology on its satellite receivers that a jury found infringed on patents held by TiVo.

The decision marks a bitter victory for TiVo because the federal appeals court vacated $110 million in damages awarded to TiVo for infringement on its patents and asked the trial court to reconsider its findings under a new standard for determining contempt in such cases. TiVo can still collect nearly $90 million in sanctions, however, the court ruled.

Under that new standard the Eastern District of Texas would have to find that Echostar's receivers continued to infringe on TiVo's patents in the same way they did in 2004 even though EchoStar used a software patch to modify them.

The long legal battle between the two companies began in 2004 when TiVo convinced a jury that EchoStar had infringed on its "Multimedia Time Warping System," which allowed viewers to pause, rewind and fast-forward during a television broadcast.

The jury awarded TiVo $74 million in damages and the District Court issued a permanent injunction ordering EchoStar to disable the digital-video recorders embedded in receivers used by its customers to watch satellite television. In its 2008 consideration of the case, the Federal Circuit upheld that award.

But EchoStar never disabled the DVRs and instead downloaded a software workaround to the receivers that altered how DVRs accomplished playback.

TiVo cried foul, and in 2009 the District Court found EchoStar in contempt of its disablement order for existing receivers. U.S. District Judge David Folsom fined the company $200 million for selling new receivers that he ruled were not "colorably different" from the ones found to have infringed TiVo's patents.

A three-judge panel of the Federal Circuit initially upheld that determination, but the court vacated its ruling to allow review by a full panel of judges.

In vacating part of that award and sending the case back to the District Court on Wednesday, the full Federal Circuit rejected the standard that infringement follows a finding of no colorable difference.

"Today, we reject that infringement-based understanding of the colorably different test," Judge Alan Lourie wrote on behalf of 11 other judges. "Instead of focusing solely on infringement, the contempt analysis must focus initially on the differences between the features relied upon to establish infringement and the modified features of the newly accused products."

This would require courts to directly compare the parts of an infringing product with same parts of the newly accused product rather than relying on the overall similarity of the two products to determine that the new product infringes.

It is possible, the ruling continues, that the modified parts could infringe on a patent in a different way than the originally infringing product, but this would require a new trial rather than a contempt proceeding.

Five of the judges joined in the aforementioned part of the 30-page ruling and one other part, but they issued a 26-page partially dissenting opinion that blasts the majority's decision to uphold the finding of contempt of the 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," Judge Timothy Dyk wrote for the dissent. "The majority's holding that lack of clarity provides no defense is inconsistent with established law reflected in numerous decisions of the Supreme Court, our own court, and our sister circuits.

Dyk added that the majority should not have affirmed the award of $90 million in sanctions, nor should it have remanded the case for the vacated issue because "that provision plainly was not violated."

On remand, the District Court must determine if EchoStar's software modifications infringe TiVo's patents in the same way the original features did in 2004. If the court concludes that they do not, TiVo may have to start all over again with a new patent-infringement complaint.

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