In a precedent-setting win for the company perceived as the originator of "time-shift" video recording, the Federal Circuit Court of Appeals has fully affirmed a lower court's judgment that satellite service provider EchoStar's software continued to infringe upon TiVo's patents even after making significant changes to address its complaints. This despite what EchoStar (whose DVR boxes are also used by former sister company Dish Network) had called "Herculean" efforts to steer clear of TiVo's intellectual property, and a preliminary US Patent Office rejection last August casting doubt on the validity of TiVo's patents.

At issue was whether EchoStar modified the software for two of its recorders, called the 50X and Broadcom series (the latter named after the supplier of its key hardware), in such a way that it didn't store video in a stream similar to TiVo's patented methodology. Last June, after a jury found in favor of TiVo on the infringement charge, a US district court slapped an injunction on EchoStar and Dish Network boxes. EchoStar did not appeal that injunction, and it may have thought it wasn't really enforced while courts jostled back and forth over possible penalties. That prompted TiVo to move the district court to find EchoStar in contempt. It did, and today the Appeals Court upheld that finding.

In the appeals panel's 2-1 decision today, they refuted the notion that a trial on the reformed EchoStar software should have been a separate proceeding, on account of the software being completely reformed. TiVo argued that the changes were trivial, and the higher court agreed.

"We also reject EchoStar's and the dissent's [Judge Randall Rader's] argument that the district court was required to limit its analysis to whether the modified devices had eliminated start-code detection and indexing," wrote judge H. R. Mayer and Alan Lourie for the majority (PDF available here). "EchoStar argues that a contempt hearing is proper only when the redesigned devices are alleged to infringe in the exact same manner that has already been adjudicated to infringe. We disagree. The test for colorable differences is not divorced from the scope of the claim that has previously been found to have been infringed. 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. Where the court is clearly convinced, based on evidence presented at trial, that there are no substantial open issues on continuing infringement of the asserted claims, we see no reason to disallow summary proceedings."

While EchoStar apparently strongly protested the district court's injunction, the two judges wondered why it didn't formally appeal that injunction. "The fact that there were numerous other issues on appeal cannot excuse its failure to appeal the injunction," the judges wrote. "Had EchoStar brought an appeal on the injunction, we could have addressed its legitimacy. The time to do so has long passed."

The EchoStar injunction applies to all of its DVRs, not just those two models; and in his dissent, Judge Rader called that injunction too broad and unfair. "Under its strained interpretation of its earlier injunction, the district court effectively required EchoStar to go into each of its customers' homes and physically remove each cable box containing any DVR functionality -- infringing or not! The trial court required this course of action even in the face of both parties' recognition that a satellite link could more easily remove or replace the 'infringing' technology. In other words, if EchoStar would enter each home and replace each of its cable boxes with identical cable boxes uploaded with the same software, it would escape contempt. These absurdities spring from the 'disablement provision,' [of the District Court order, which reads in part,] 'The DVR functionality, i.e., disable all storage to and playback from a hard disk drive of television data) [sic] shall not be enabled in any new placements of the Infringing Products.'"

Judge Rader didn't see how EchoStar changing its product to fulfill the same function as a TiVo, but in a different way, constituted contempt of a court order in favor of the way TiVo performed the function originally.

"In its redesign efforts, EchoStar eliminated its video frame start-code detection in its entirety," the dissenting judge wrote. "Rather than parsing through all the video and audio data before storing onto the system, the modified design, upon request from the user, statistically estimates where a given frame might appear long after storage of the video and audio data. This change was a critical component of a vast redesign effort by fifteen engineers working full time for over 800 total hours. Before proceeding, EchoStar got two separate approvals of this change from an independent law firm."

Judge Rader believes TiVo should not have been able to resurrect an old argument about what infringed what -- which TiVo itself rejected prior to EchoStar's software overhaul -- to apply to new software that wasn't the subject of the original claim. In his closing, he wrote, "If Tivo believes that Echostar's new design still infringes its patent, it should file a new infringement suit, not attempt to short circuit a full proceeding. In its current form, this decision discourages good faith efforts to design around an infringement verdict."

In celebrating its victory, TiVo released this statement early this afternoon: "This ruling paves the way for TiVo to receive the approximately $300 million in damages and contempt sanctions awarded to us for EchoStar's continued infringement through July 1, 2009. We will also seek further damages and contempt sanctions for the period of continued infringement thereafter. We will continue our efforts to protect our intellectual property from further infringement." Neither Dish Network nor EchoStar had released a comment at the time of this publication.

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