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Contempt and Competition

Despite the title, this is not an undiscovered antitrust law column by Jane Austen - not that pride and prejudice don't have roles to play in the case I'm writing about (although sense and sensibility may take a back seat). And to be sure, there's an epic battle of wits going on; the parties have produced wonderfully well-written briefs, with more to come. But the setting is more Silicon Valley than the bucolic English countryside, the subject is not romance and the social order but innovation competition, and your clients have something real at stake in this story's outcome.

To oversimplify: TiVo (the maker of what former FCC chairman Michael Powell once described as "God's machine") successfully sued EchoStar for patent infringement and won an injunction against EchoStar's infringing digital video recorders. EchoStar then redesigned its DVR software to eliminate the two features that were evidently the basis of the jury's infringement verdict. Contending that the design-around still infringed its patent (based on an infringement theory that it seemingly had disavowed at trial) and violated the injunction, TiVo sought contempt sanctions. EchoStar argued that the summary contempt process was the wrong way to go; instead, TiVo should file a new infringement action against the modified product. But the district court agreed with TiVo, employed the contempt process, held EchoStar in contempt and imposed about $200 million in contempt sanctions. Only a little over half of that amount was meant to compensate TiVo for the continued infringement: About $90 million of the sanctions was meant "to promote EchoStar's compliance with this Court's orders." Mind you, though, this is not the typical coercive civil contempt penalty that you can avoid by just complying with the court's order - as where a recalcitrant witness is jailed until he or she agrees to testify, or a defendant is fined for each day that it remains in non-compliance with an order. This extra $90 million was due regardless of what EchoStar did going forward. Ouch. And this is even though the district court pointedly refused to hold that EchoStar had acted willfully.

Chris Kelly

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