TiVo Inc. v. EchoStar Corp.

DYK, Circuit Judge,

with whom

Chief Judge RADER and Circuit Judges GAJARSA, LINN, and PROST join, dissenting-in-part.

While I join Parts A(l)-(3)(a) of the majority decision, I dissent from parts A(3)(b) and B. In particular, I dissent from 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. The majority’s holding that lack of clarity provides no defense is inconsistent with established law reflected in numerous decisions of the Su*891preme Court, our own court, and our sister circuits.

I also dissent from the majority’s decision to remand to the district court to determine whether EchoStar violated the infringement provision. In my view, that provision plainly was not violated. Finally, I dissent from the majority’s affirmance of the $90 million sanctions award, which was based in part on the finding of contempt of the infringement provision. If the contempt finding is set aside with respect to the infringement provision, the sanctions award must also be set aside.

I

Before today’s majority decision — upholding contempt of the disablement provision based on an apparently successful design-around — two principles seemed well established. The first of these was that accused infringers were encouraged to design around patent claims to achieve non-infringing products and methods. As this court has recognized, “designing new and possibly better or cheaper functional equivalents [of a competitor’s product] is the stuff of which competition is made.” State Indus. Inc. v. A.O. Smith Corp., 751 F.2d 1226, 1235-36 (Fed.Cir.1985).1 The second was that contempt sanctions could not be imposed for the violation of an injunction that failed to provide sufficient clarity. As the Supreme Court stated in Granny Goose Foods, Inc. v. Teamsters, 415 U.S. 423, 444, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974), the “basic principle built into [Federal Rule of Civil Procedure] 65 is that those against whom an injunction is issued should receive fair and precisely drawn notice of what the injunction actually prohibits.” The majority has disregarded both principles with predictably unhappy consequences for the innovation community.

A

A crucial question in any contempt proceeding is whether the injunction bars the accused conduct. The “interpretation of the terms of an injunction is a question of law we review de novo.” Abbott Labs. v. TorPharm, Inc., 503 F.3d 1372, 1382 (Fed. Cir.2007). The disablement provision of the injunction here provided:

Defendants are hereby FURTHER ORDERED to, within thirty (30) days of the issuance of this order, disable the DVR functionality (i.e., disable all storage to and playback from a hard disk drive of television data) ... of the Infringing Products that have been placed with the end user or subscriber.

J.A. 162 (emphasis added). Because other provisions are also pertinent, the entire injunction is included as an Appendix to this opinion.

TiVo and the district court essentially interpret this provision as barring designarounds (i.e., the substitution of non-infringing software for software found to infringe in the devices installed in customers’ homes). In its briefing to the panel, TiVo characterized the injunction as prohibiting the “continued provision of DVR functions through the exact units previously found to infringe — whether or not they have purportedly been modified by the downloading of new software.” Br. of Pl.Appellee TiVo, Inc. at 21, TiVo, Inc. v. *892EchoStar Corp., No. 2009-1374 (Fed.Cir. Jun. 25, 2010). The district court similarly characterized the injunction as “not limited to infringing software.” TiVo, Inc. v. EchoStar Corp., 640 F.Supp.2d 853, 874 (E.D.Tex.2009) [hereinafter Contempt Opinion ]. The language of the injunction itself contradicts this interpretation.

First, contrary to TiVo’s argument, the definition of the term “Infringing Products” on its face does not simply refer to devices with particular model numbers; it requires that those products be “Infringing.” The term “Infringing Products” appears in the introductory paragraph of the injunction, which enters judgment “against Defendants for willful infringement ... by Defendants’ following DVR receivers (collectively the ‘Infringing Products’): DP-501; DP-508; DP-510; DP-522; DP-625; DP-721; DP-921; and the DP-942.” J.A. 161. The injunction was thus written to address devices with particular model numbers that had been found by the jury to be infringing. The verdict form itself is framed in terms of whether particular model numbers infringed. See Verdict Form at 2-3, TiVo, Inc. v. EchoStar Corp., No. 2:04-CV01 (E.D.Tex. Apr. 13, 2006), ECF No. 690. Thus it is not surprising that the injunction also made reference to those particular model numbers that were found to infringe. The evident purpose of the injunction was to award relief concerning the specific products found to infringe.

Second, interpreting the term “Infringing Products” as extending to non-infringing products is contradicted by the usage of the same term elsewhere in the injunction. In addition to the disablement provision, the term “Infringing Products” is also used in the infringement provision— barring continued infringement by the “Infringing Products ... and [those] products that are only colorably different” — and in the enablement provision — barring the enablement of “DVR functionality ... in any new placements of the Infringing Products.” 2 J.A. 162. Neither TiVo nor the district court interprets the injunction as barring design-arounds in other contexts (i.e., the installation of new, non-infringing software in new products or the substitution of new, non-infringing software in old products still on the shelves). For example, under the heading, “The Disablement Provision Does Not Prohibit EchoStar From Attempting To Design Around The Patent,” TiVo states explicitly that “Mottling in the injunction ... prevents EchoS-tar from providing DVR functions using new, non-infringing receivers.” Br. of Pl.Appellee TiVo, Inc. at 21. The district court adopted a similar interpretation. In finding EchoStar in contempt of the infringement provision, the district court did not rest its contempt finding on the fact that the model numbers were the same. Contempt Opinion, 640 F.Supp.2d at 871-73. Instead, the court’s contempt finding rests on the fact that the model numbers are the same and the accused products are not more than colorably different from those found to infringe. Id. If the infringement and enablement provisions barred the sale or placement of products bearing the listed model numbers regardless of infringement, there would have been no need to evaluate whether EchoS-tar’s modified products were “no more than colorably different” and “eontinue[d] to infringe.” Id. at 860-61.

*893The inconsistency of the interpretation adopted by TiVo and the district court is particularly acute when the disablement and enablement provisions are compared. Identical language is used m the disablement provision, which deals with products that are already in the hands of customers, and enablement provision, which deals ^ ducts gtm on the ghel£

Disablement Provision

Enablement Provision

“Defendants are hereby FURTHER ORDERED to, within thirty (30) days of the issuance of this order, disable the DVR functionality (i.e., disable all storage to and playback from a hard disk drive of television data) ... of the Infringing Products that have been placed with an end user or subscriber.” J.A. 162 (emphases

’’The DVR functionality (i.e., disable all storage to and playback from a hard disk drive of television data) shall not be enabled in any new placements of the Infringing Products.” J.A. 162 (emphases added).

By using the same terminology in both the disablement and enablement provisions, it is clear that the injunction extends only to infringing software. It would be contrary to established principles of construction to give identical language a different meaning in one provision than the other. Nor can the use of the term “DVR functionality,” with the notation “disable all storage to and playback from a hard disk drive of television data,” distinguish the disablement provision from other provisions in which the term “Infringing Products” is used. The enablement provision also uses the term “DVR functionality” and describes it in the same manner as the disablement provision (“i.e., disable all storage to and playback from a hard disk drive of television data”). J.A. 162.

In the context of statutory construction, identical language is assumed to have the same meaning. See, e.g., Clark v. Martinez, 543 U.S. 371, 378, 125 S.Ct. 716, 160 L.Ed.2d 734 (2005); Dept. of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 341-42, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994). In Clark, the Supreme Court held that identical language in two separate provisions of a statute must be interpreted in the same manner even though the two provisions had different purposes. 543 U.S. at 378-380, 125 S.Ct. 716. This basic principle of interpretation should apply to injunctions as well. Thus, the terms “Infringing Products” and “DVR functionality” must be interpreted consistently throughout the injunction. Under such a construction, the disablement provision would necessarily permit the replacement of the infringing software with new non-infringing software.

Third, the injunction does not explicitly address the issue of design-arounds, and TiVo’s proposed interpretation is clearly contrary to the established policy in favor of design-arounds discussed above. There is indeed a serious question as to whether, in light of this strong policy, the district court would even have the authority to issue an injunction barring design-arounds. This court has repeatedly instructed that injunctions in the patent context must be limited to restraints designed to prevent further infringement. See Riles v. Shell Exploration and Prod. Co., 298 F.3d 1302, 1311-12 (Fed.Cir.2002); Johns Hopkins Univ. v. CellPro, Inc., 152 F.3d 1342, 1366-67 (Fed.Cir.1998); Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 772-73 (Fed.Cir.1993); Eli Lilly & Co. v. Medtronic, Inc., 915 F.2d 670, 674 (Fed.Cir.1990). Specifically, this court has recognized that “an injunction is only proper to the extent it is ‘to prevent the violation of any right secured by patent.’ ” Eli Lilly, 915 F.2d at 674 (quoting 35 U.S.C. § 283). For exam-*894pie, in Riles we held that “an injunction cannot impose unnecessary restraints on lawful activity,” and thus concluded that enjoining the use of the entire product was improper where the defendant “may lawfully use its [product] without infringing.” 298 F.3d at 1311-12. Similarly, in Joy Technologies, we held that an injunction “which precludes [the defendant] from activities that are not necessary to prevent infringement of the patented process cannot stand.” 6 F.3d at 777. Absent explicit language, no reasonable attorney would read the disablement provision as barring design-arounds because such an injunction would likely exceed the district court’s authority. Here there is no such explicit language. For these reasons, it is clear that the injunction does not in fact bar design-arounds and that it permits the substitution of non-infringing software in existing products that are in the hands of customers, just as it permits the use of non-infringing software in identical devices not yet distributed to the customer.

B

Unlike the district court, the majority does not hold that the injunction clearly prohibits the accused conduct. Rather, the majority concludes that even if the injunction is unclear, the district court’s reading is “the most natural” and lack of clarity is not a defense in contempt proceedings.3 Maj. Op. at 886. With respect, this position is untenable. The question here is not whether the injunction is invalid because it is vague. The question is whether contempt is appropriate where the injunction does not clearly prohibit the challenged conduct. The Supreme Court, our own court, and our sister circuits have clearly answered that question in the negative: An accused party cannot be held in contempt for violating an injunction which does not clearly reach the accused conduct. This is so because contempt is improper where there is “a fair ground of doubt” as to whether the defendant’s conduct is barred by the injunction. Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618, 5 S.Ct. 618, 28 L.Ed. 1106 (1885); MAC Corp. of Am. v. Williams Patent Crusher & Pulverizer Co., 767 F.2d 882, 885 (Fed.Cir.1985) (citing Cal. Artificial Stone Paving Co., 113 U.S. at 618, 5 S.Ct. 618). The fair ground of doubt principle is itself reflected in Rule 65(d) of the Federal Rules of Civil Procedure, which the Supreme Court has interpreted to require that an injunction contain a clear and unambiguous statement of “what the court intends to require and what it meant to forbid.” Int’l Longshoremen’s Ass’n v. Phila. Marine Trade Ass’n, 389 U.S. 64, 76, 88 S.Ct. 201, 19 L.Ed.2d 236 (1967); see also Square Liner 360, Inc. v. Chisum, 691 F.2d 362, 378 (8th Cir.1982) (“An enjoined party ought not to be compelled to risk a contempt citation unless the proscription is clear.”).

The majority relies primarily on McComb v. Jacksonville Paper Co., 336 U.S. 187, 69 S.Ct. 497, 93 L.Ed. 599 (1949), to suggest that the requirement of clarity may be invoked only on direct appeal or by a motion to modify the injunction, and that, absent a successful appeal or modification, there can be no defense to a contempt charge based on a lack of clarity in the injunction. As discussed below, that novel theory is inconsistent with numerous cases subsequent to McComb in the Su*895preme Court and courts of appeals holding that contempt is improper, even in the absence of a successful direct appeal or modification, if the injunction could reasonably be read not to prohibit the conduct on which the contempt allegation is based. McComb itself lends no support to the majority’s theory.

In order to understand the Supreme Court’s holding in McComb, it is essential to understand the facts of the case. The original decree enjoined violations of the Fair Labor Standards Act. Id. at 189, 69 S.Ct. 497. It also explicitly required the defendants to pay their employees a specific hourly rate of pay, compensate them for overtime, and keep adequate records. Id. The defendants were found in violation of the decree because they had (1) set up a “false and fictitious method of computing compensation without regard to the hours actually worked;” (2) “adopted a plan which gave the employees a wage increase in the guise of a bonus” to avoid paying overtime; (8) improperly classified some employees as “executive or administrative employees” (exempt categories); and (4) employed workers “in excess of the maximum workweek without paying them overtime compensation.” Id. at 190, 69 S.Ct. 497. The defendants argued that they could not be held in contempt because the “plan or scheme which they adopted was not specifically enjoined.” Id. at 192, 69 S.Ct. 497. The Supreme Court rejected this argument, noting that the defendants “were alerted by the decree against any violation of the specified provisions of the Act.” Id. The Court did not suggest that the decree (or the Act itself) was in any way unclear or that lack of clarity would not be a defense to contempt. Rather, the Court concluded that contempt was proper because the defendants’ actions were clearly prohibited by the decree. Id. To be sure, the Court stated: “Respondents could have petitioned the District Court for a modification, clarification or construction of the order.” Id. But the Court’s recognition that such relief existed “if there were extenuating circumstances or if the decree was too burdensome in operation,” is just that — the acknowledgment of an alternative remedy available where defendants had difficulty in complying with an otherwise clear decree. The Court in McComb did nothing to discard the “fair ground of doubt” standard set forth more than sixty years before in California Artificial Stone Paving. See 113 U.S. at 618, 5 S.Ct. 618.

Indeed, after McComb, the Supreme Court twice affirmed the principle that an accused party cannot be held in contempt for violating an injunction which does not clearly reach the accused conduct. See Granny Goose, 415 U.S. at 428, 94 S.Ct. 1113; Int’l Longshoremen’s, 389 U.S. at 76, 88 S.Ct. 201. In International Longshoremen’s, the parties disputed the meaning of a provision in a collective bargaining agreement. 389 U.S. at 65, 88 S.Ct. 201. The union argued that the “set-back” provision entitled the workers to a partial day’s pay when the start of their work day was postponed due to unfavorable weather conditions, while the employers argued that the workers were entitled to no more than one hour’s pay. Id. at 65-66, 88 S.Ct. 201. An arbitrator ruled that the employer’s reading of the set-back provision was correct, but the union refused to work unless the employers adopted the contrary interpretation. Id. at 66-68, 88 S.Ct. 201. At the request of the employers, the district court entered an order requiring the union “to comply with and to abide by [the arbitrator’s award].” Id. at 69, 88 S.Ct. 201. The district court later found the union in contempt of the order because it had engaged in a strike designed to require the employers to provide the increased set-back pay. Id. at 72, 88 S.Ct. *896201. The Supreme Court reversed the contempt finding because “the order ... did not state in ‘specific ... terms’ the acts that it required or prohibited.” Id. at 76, 88 S.Ct. 201 (quoting Fed.R.Civ.P. 65(d)).

In Granny Goose, the district court issued a temporary restraining order without specifying an expiration date. 415 U.S. at 428, 94 S.Ct. 1113. Under the rule in effect at the time, the order would expire no later 'than twenty days after issuance. Id. at 432-33, 94 S.Ct. 1113. Prior to its expiration, the district court denied a motion to dissolve the order. Id. at 429, 94 S.Ct. 1113. After twenty days, the district court held the union in contempt for violation of the order. Id. at 425-26, 94 S.Ct. 1113. The union argued that contempt was improper because the order had expired before the date of the alleged contempt, id. at 430, 94 S.Ct. 1113, but the district court rejected this argument on the ground that its denial of the motion to dissolve had “effectively converted the order into a preliminary injunction of unlimited duration,” id. at 440, 94 S.Ct. 1113. The Supreme Court reversed the contempt finding, holding that “where a court intends to supplant such an order with a preliminary injunction of unlimited duration ..., it should issue an order clearly saying so.” Id. at 444-45, 94 S.Ct. 1113. “And where it has not done so, a party against whom a temporary restraining order has issued may reasonably assume that the order has expired within the time limits imposed by Rule 65(b).” Id. at 445, 94 S.Ct. 1113. The Court noted that the “basic principle built into Rule 65 is that those against whom an injunction is issued should receive fair and precisely drawn notice of what the injunction actually prohibits.” Id. at 444, 94 S.Ct. 1113.

Despite the majority’s assertion that, under McComb, “[t]he burden was clearly on EchoStar to seek clarification or modification from the district court,” Maj. Op. at 886, no other court has read McComb in this way. In cases which are quite similar to the present case, courts of appeals, including ours, have consistently held that contempt is inappropriate where the injunction does not clearly prohibit the accused conduct. For example, in Abbott, an injunction barred Apotex from “commercially manufacturing, using, selling, offering to sell, or importing into the United States generic divalproex sodium which the Court has found to be infringing.... ” 503 F.3d at 1376. Apotex was found in contempt for violating the injunction by filing an Abbreviated New Drug Application (“ANDA”) for a generic divalproex sodium with the Food and Drug Administration. Id. at 1375. This court reversed the contempt finding because the injunction did not clearly prohibit the conduct on which the contempt allegation was founded, stating that “we cannot agree that Apotex’s actions actually violated the original injunction” because “[t]he injunction contains no ‘explicit notice’ to Apotex that the filing of a new ANDA ... was forbidden.” Id. at 1382-83. We noted that Rule 65(d) requires that “those enjoined receive explicit notice of precisely what conduct is outlawed.” Id. at 1382. “These concerns have led courts to construe injunctions narrowly where, as here, they failed to give adequate notice that particular conduct was enjoined.” Id. at 1382-83.

In New York Telephone Co. v. Communications Workers of America, 445 F.2d 39, 48 (2d Cir.1971), a temporary restraining order barred the unions “from engaging in ... any strike, work stoppage, boycott of overtime work, slowdown or any other form of interference with the business of plaintiff.” Id. at 43. In the interest of reaching a settlement, the parties agreed to extend this order indefinitely. Id. An agreement was reached and the work stoppage ended, but several months *897later the workers commenced a strike over a different issue than the one leading to the original order. Id. The district court found the unions in contempt of the earlier restraining order because its plain language barred “any strike.” Id. at 43-44. On appeal, the Second Circuit reversed the contempt finding. Id. at 51. The court concluded that “despite the broad language” of the order, the order clearly “was meant to apply and should only be applied to the [dispute occurring at the time of its issuance].” Id. at 46. Additionally, the court noted that “[ejven if we considered the restraining order’s scope to be a closer issue, several policy considerations [e.g., the clarity requirements of Rule 65(d) ] counsel us to resolve all ambiguities in favor of the unions.” Id. at 48.

In Common Cause v. Nuclear Regulatory Commission, 674 F.2d 921, 924 (D.C.Cir.1982), the district court held that the Nuclear Regulatory Commission had acted unlawfully in closing a budget meeting to the public. The district court issued an injunction enforcing the Sunshine Act, 5 U.S.C. § 522b (1976), and prohibiting the Commission “from closing future meetings of a similar nature.” Id. The court later found the Commission in contempt for closing a series of budget meetings. Id. at 925. On appeal, the District of Columbia Circuit reversed the contempt finding because the injunction was “susceptible to more than one interpretation” because it did not “identify the characteristics of a future meeting ‘of a similar nature.’ ” Id. at 926.

In NBA Properties, Inc. v. Gold, 895 F.2d 30, 32 (1st Cir.1990), a consent decree barred a group of franchisors, from “[p]assing off, inducing, or enabling others to sell or pass off any heat transfers, garments and/or other items which are not genuine NBA products as and for genuine NBA products.” The district court found the franchisors in contempt. Id. at 31. The franchisees’ had sold counterfeit merchandise, and the district court concluded that, by granting franchises, the franchisors had “enabled” the franchisees to sell the counterfeit merchandise. Id. at 32-33. The First Circuit reversed the contempt finding, declining to read the term “enabling” to “encompass the simple granting of the franchise itself’ when doing so would require “reading [the decree] rather strongly against, rather than ‘to the benefit of[,] the person charged with contempt.’ ” Id. at 33 (quoting Ford v. Kammerer, 450 F.2d 279, 280 (3d Cir.1971)).

In Perez v. Danbury Hospital, <