Archives For Digital video recorder

More on EchoStar’s questionable litigation tactics

Geoffrey Manne —  24 November 2010

The day before yesterday I posted on the fascinating and important TiVo v. EchoStar case.  Today I wanted to follow up with some, let’s say, color commentary on EchoStar’s litigation tactics.  This isn’t dispositive, of course, but it does seem to add some insight into the notion that EchoStar is taking advantage of questionable litigation tactics rather than respecting property rights in its dealings with TiVo.

You’ll recall that, in the case, EchoStar lost at trial, ignored the judge’s order to stop infringing, was held in contempt, and continues infringing today.  This has resulted in numerous legal proceedings, all managing to keep TiVo bogged down in litigation as EchoStar continues to misappropriate TiVo’s intellectual property.  Although EchoStar has accrued substantial legal expenses—and damage awards from both a jury and the judge—they are dwarfed by its DVR revenues.

It turns out that courtroom shenanigans are no stranger to EchoStar.

Just last week, a state trial judge in Manhattan found that EchoStar exhibited grossly negligent behavior in a case involving Cablevision’s VOOM subsidiary.  The language in VOOM v. EchoStar characterized EchoStar’s misconduct  (allowing critical e-mail evidence to be destroyed) in an exceedingly harsh manner, holding that EchoStar “systematically destroyed evidence in direct violation of the law and in the face of a ruling by a federal court that criticized EchoStar for the same bad-faith conduct . . . .” The judge went on to characterize EchoStar as engaging in “procedural gamesmanship” and noted “EchoStar’s pattern of questionable — and, at times, blatantly improper — litigation tactics.”

The court further described EchoStar’s conduct as “precisely the type of offensive conduct that cannot be tolerated by the courts.” It rebuked “EchoStar’s last-minute finagling with expert reports, believing that it can play fast and loose with the rules of procedure in order to enhance its litigation posture . . . throughout this litigation, EchoStar has been hoist by its own petard.”

Arguably EchoStar has made this type of legal strategy part of its business model.

In the TiVo case, like many others, EchoStar’s gamesmanship and its propensity to abuse the law has become a central issue. In an amicus brief submitted by agricultural organizations in the TiVo case, the groups argue: “EchoStar’s conduct in this case . . . and in other cases, displays a propensity to flout court orders,” and goes on to cite several examples of this behavior, including:

  • breaking promises to the court (CBS Broad. Inc. v. EchoStarCommc’ns Corp., 276 F. Supp. 2d 1237, 1246 (S.D. Fl. 2003));
  • patently unmeritorious claims of error (CBS Broadcasting Inc. v. EchoStar Commc’ns Corp., 450 F.3d 505, 523, 526 (11th Cir. 2006));
  • misleading and coercive communication (Air Commun. & Satellite Inc. v. Echostar Satellite Corp., 38 P.3d 1246, 1254 (Colo. 2002));
  • and even frivolous actions (Dominion Video Satellite, Inc. v. EchoStar Satellite L.L.C., 430 F.3d 1269, 1278 (10th Cir. 2005)).
  • Further, in a 2004 case, one federal judge claimed that “EchoStar’s action rises to the level of conscious wrongdoing” (EchoStar Satellite Corp. v. Brockbank Ins. Servs., No. 00-MK-1513, 2004 U.S. Dist. LEXIS 31130 (D. Colo. Feb. 4, 2004)),
  • another chided EchoStar for failing “in its duty of candor . . . .We admonish EchoStar for this abuse of process” (EchoStar Satellite Corp. v. Young Broad. Inc., 16 F.C.C.R. 15070, 15076 (Aug. 2, 2001)).

Of course any good lawyer advocating for his client may push the envelope, and some of these procedural matters are governed by standards that are less than clear.  But this is a worrisome list of excesses, and should certainly raise eyebrows in the TiVo case.

Of a piece with this, in addition to the problem of EchoStar’s overall strategy of delay, avoidance and misappropriation in the TiVo case, is also EchoStar’s fantastic claim that upholding the lower court’s contempt proceeding would inflict serious hardship on the firm, causing it to lose a substantial fraction of its present and future customer base (to the tune of $90 million per month).  Unfortunately, this customer base was built, indisputably (that is, undisputed even by EchoStar which does not challenge the underlying infringement finding), on the back of TiVo’s misappropriated technology.  It is like the child who murders her parents and then throws herself on the mercy of the court as an orphan. It seems absurd to listen to EchoStar claim hardship from the prospect of losing business it never earned in the first place.

As Richard Epstein noted in his amicus brief in the case:

In effect EchoStar’s argument is that once it has built up a large business on the back of someone else’s patents, it should be allowed to reap those profits for the indefinite future.  The size of its own illicit gains becomes the tool it deftly uses to extend its illicit activity indefinitely.  This approach creates the perverse outcome that the longer the defendant is able to wiggle away from legal sanctions, the stronger is its case to continue on its unlawful path.  EchoStar’s claims of large future losses prove only one thing: that its large monthly losses make the damages awarded for TiVo in 2006 look puny relative to the continuing harm from EchoStar’s misbehavior.

The VOOM holding is just the latest in a serial pattern of courtroom distractions and legal delays. It seems EchoStar has made a practice out of disobeying court orders and pushing the legal system to the limits. Like the TiVo case, VOOM and others demonstrate that a determined party can drag out the legal process and prevent the other side from obtaining a remedy for harm it has suffered. As I noted the other day, this is particularly true for software devices and other complex products, where trivial changes can be exaggerated in an effort to run out the clock on a patent.

In the TiVo case the stakes are enormous. EchoStar is working to undermine the role of the courts in enforcing the intellectual property rights that facilitate innovation.  And more, a victory for EchoStar would send a message to large and small companies, innovators and capitalists that abusing the court’s rules of procedure is not only fair game, but also a legitimate business tactic.

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TiVo v. EchoStar: A study in abusing the courts instead of just respecting the patent

Geoffrey Manne —  22 November 2010

On November 9, the en banc US Court of Appeals for the Federal Circuit heard oral arguments in an extremely important patent infringement case (mp3 of oral argument here). Hanging in the balance are the very incentives for technological innovation and the seeds of economic progress. The arguments made in the case by the infringer, EchoStar, would have the effect of reducing the certainty and thus the efficacy of patent rights by weakening the ability of the courts to define and enforce patents clearly, quickly and efficiently. While for some commentators this is probably a feature, and not a bug, of EchoStar’s position, I find its stance and its claims to be extremely troublesome.

The litigation, TiVo v. EchoStar, has been raging for more than six years, in which time TiVo has, in fact, prevailed at every turn. In brief, the substantive and procedural history of the case is as follows: The case revolves around TiVo’s valuable patent for digital video recorder (DVR) technology. In April 2006, a jury found that EchoStar had infringed TiVo’s patents and awarded TiVo close to $74 million in damages. The jury also found that EchoStar had acted willfully in infringing the patent. The District Court granted TiVo’s motion for an injunction, which required EchoStar to disable all DVR units for which it had not paid compensatory damages. In the ongoing litigation, EchoStar does not challenge the initial finding of infringement, the initial damage award, or the initial order for injunctive relief. Instead, it seeks to avoid a contempt citation issued by the District Court, in exercise of its continuing jurisdiction over the case, after EchoStar introduced a second device which purported to “design around” the original TiVo patent. After noting the similarity between EchoStar’s original and modified devices, the court conducted a short trial on the question of infringement, after which the court held that EchoStar’s modified device still infringed TiVo’s patent.

Upon examining the technology, the District Court found that EchoStar’s purported design workaround did not embody a new and independent device. Instead EchoStar consciously modified its original infringing device in small ways that it may have believed would preserve its desired functionality without violating TiVo’s ‘389 patent, but failed instead to remove itself from the reach of either TiVo’s patent or the court’s earlier order.

At no point prior to its deployment of its altered technology did EchoStar ask the District Court, which had continuing jurisdiction over the case, to review the new design for patent infringement. EchoStar announced the re-design in a January 2008 press release and in the following months, two years after the original jury verdict of infringement, the District Court learned of the use of the modified EchoStar device.

In light of its finding of near identity between EchoStar’s original and modified DVRs, the District Court relied on KSM Fastening Systems, Inc. v. H.A. Jones Co., Inc., 776 F.2d 1522 (Fed. Cir. 1985), to enter a contempt order against EchoStar for its violation of the original injunctive decree (first finding the two devices to be substantially similar and then assessing in a contempt hearing whether EchoStar’s unilateral deployment of the second device violated the Court’s injunction). EchoStar then sought a stay of the injunction pending appeal. The Federal Circuit granted a stay, but earlier this year it upheld the district court’s contempt finding. The matter was then rescheduled for an en banc hearing. During this entire time, EchoStar has continued to market and use its infringing devices to its immense profit. The question before the en banc Court is whether the District Court’s contempt decree was proper under the controlling precedent.

In essence, every federal judge who has heard this case (save the lone dissenter in the appeal from which the Federal Circuit rehearing was brought) has determined that TiVo was wronged and is owed significant monetary and equitable compensation from EchoStar, as well as the disablement of the adjudicated DVR devices. However, EchoStar has yet to curtail its infringing activity. EchoStar now argues that it should be allowed to continue to evade the judgments against it by forcing TiVo and the courts to endure yet another full trial—to start anew down an almost identical path assessing the propriety of EchoStar’s slightly-modified technology—rather than enforce the existing injunction.

EchoStar is seemingly within the reasonable bounds of due process to suggest that such an outcome might be required if its new technology is sufficiently different than its old. But the question is really one of process: who gets to decide if the technology is sufficiently similar—the District Court that heard the original case and issued the original injunction, or EchoStar? Seen this way, it is evident that the costly, strategic behavior lurking just under the surface of this case and that pervades EchoStar’s conduct belies the innocence of its arguments and points out the enormous cost that establishing such precedent could impose on innovation and the economy more broadly.

At root, this case tests whether courts can realistically enforce their judgments, including, as in this case, the judgment that a patentee has been denied the right to control the use of its patent. The central legal question presented is when a court may enforce its own injunction against an infringer who makes small tweaks to its infringing technology in an effort to avoid the reach of the injunction. Certainly, we want to encourage so-called “work-arounds” that add to the stock of innovation in our economy. But proponents of EchoStar’s view ignore or underweigh the effect on the original innovation itself, as well as the courts. If, by virtue of small tweaks, an infringer can tie up a patent in court for so long that it has the potential to run out the patent’s term, render its exclusivity period worthless, and all the while steal business from the patent-holder in violation of the patentee’s Constitutionally-empowered protection, then initial innovation will be sharply discouraged, to the public’s detriment. The courts should not (and the KSM case seems to me to make clear that they need not) abet this process.

And EchoStar is indeed stealing business from TiVo. The trial judge issued an injunction in this case precisely because EchoStar cannot compensate TiVo for the harm done once EchoStar had built its customer base on the back of TiVo’s unlicensed technology. Since the injunction was issued more than four years ago, EchoStar has continued to build and service its customer base, and has even gone so far as to argue that the lower court’s decision should not be upheld because doing so would harm EchoStar’s customers. These are the very customers who, if EchoStar had not violated TiVo’s intellectual property rights or if the injunction had been enforced, would never have been EchoStar’s customers at all!

Meanwhile, the uncertainty engendered by delayed enforcement and the curtailment of injunctive relief further erodes the value of patents and complicates, rather than eases, the process of economic development. In this case as in others, a potential licensee has chosen to misappropriate patented technology (and take its chances in court) rather than pay for it or forebear from its use. If EchoStar prevails, similarly-situated companies will have even less incentive to seek out deals with patent-holders, instead relying on the courts to carve out for them an extended period of unlicensed use with a bill that comes due years later—assuming the patent holder can afford to litigate for years—and in an amount almost certainly far below the actual benefit conferred.

It is difficult to see how either due process or economic efficiency is furthered by EchoStar’s position. This case demonstrates that a determined infringer can make minor changes, drag out judicial proceedings, and seek to run out the clock on a patent, thereby squandering both judicial resources as well as incentives for innovation. This is particularly true for devices that involve software or other complex products where inconsequential changes can be exaggerated. An EchoStar victory in this case will dim technological progress and diminish the role of the courts in enforcing the property rights that facilitate that progress.

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