Appeals Court Says EchoStar Continues to Violate TiVo Patent

EchoStar’s software changes to its DVR-equipped satellite receivers didn’t make them “colorably different” from models that a federal jury found infringed a TiVo patent, the U.S. Appeals Court for the Federal Circuit ruled Thursday in upholding a lower court contempt order.

In a split decision, the appeals court said U.S. District Judge Charles Folsom was correct in ruling that EchoStar’s satellite receivers/DVRs continued to infringe TiVo’s time-warp patent despite modifications made to its indexing software. Last June, Folsom ordered EchoStar to pay TiVo $103 million plus interest and found the company in contempt of his 2006 injunction that barred it from continuing to sell infringing satellite receivers. EchoStar will ask the full federal circuit to review the decision, the company said.

In upholding the contempt ruling, the appeals court rejected EchoStar’s argument that a contempt hearing was only needed when redesigned devices continued to infringe. While EchoStar maintained that a new trial was needed to determine whether the changes it made continued to infringe, the appeals court argued that “would make it impossible for a district court to employ a contempt proceeding to enjoin infringing products,” wrote appeals court judges Alan Lourie and Haldane Mayer.

"Modifications that EchoStar made to its software based on what it alone considered to be the basis of the jury’s infringement finding cannot guarantee the creation of substantial open issues with respect to infringement,” the court said. EchoStar claimed 15 engineers spent 8,000 man-hours and $700 million on DVR software designed to work around TiVo’s patent.

The appeals court finding “paves the way” for TiVo to get $300 million in damages and contempt sanctions that were awarded for infringement through July 1, 2009, TiVo said. TiVo will seek further damages for the period after July, TiVo said.

While EchoStar eliminated a record buffer and altered start code indexing, the modified and original products continued to use a circular transport structure with 10 buffers, the appeals court said. The changes didn’t represent a “major redesign of the software,” the appeals court said. “EchoStar did not significantly change the manner in which the data flows to the transport buffers, simply the manner in which it was written to the hard disc."

While EchoStar did alter the way automatic flow control was achieved, a new issue doesn’t bar a district court from having a contempt hearing on continued infringement, the appeals court said.

In a dissenting opinion, Appeals Court Judge Randall Radner argued that the former infringement proceedings were different from the issues before the appeals court. The modified software operated “significantly differently” from the previous version, Radner said. “Indeed the only thing that is not different is the identity of the parties themselves,” Radner said. These differences deserve a trial, not a summary contempt proceeding,” he said.

While TiVo conceded that EchoStar could avoid infringement by reprogramming the receivers via satellite or disabling the DVR feature, it later maintained that the infringing products should be “physically removed” from customers’ homes, Radner said. “Given TiVo’s clear bait-and-switch ploy, this court should have recognized and forbid this game,” he said.

TiVo abandoned infringement claims tied to start codes after EchoStar made “substantial” changes. It shifted focus to the PID filter that passes payload data that has been scrambled to avoid piracy to a user with a PID number. The PID filter wasn’t alleged to have infringed the TiVo patent, Radner said. “The record cannot support a contempt conclusion,” Radner said. “The very structure which provided the basis for TiVo’s infringement theory was eliminated by EchoStar in its modified design. This redesign, at a minimum, shows EchoStar’s substantial good faith efforts to comply."

While it was “disappointed” with the appeals court decision, Echostar is “pleased” Radner agreed with its position, the company said.

If TiVo believes EchoStar’s new design continues to infringe its patent, “it should file a new infringement suit, not attempt to short circuit a full proceeding,” Radner said. “In its current form, this decision discourages good faith efforts to design around an infringement verdict.”