Free Enterprise and the Judge
Kermit Roosevelt is a professor of law at the University of Pennsylvania Law School.
Warnings about the threat that runaway judges can pose to the American way of life are a staple of our political discourse. But they usually come in the context of Supreme Court decisions about hot-button social issues like abortion or gay rights, and they are frequently nothing more than attempts to energize voters of one or another partisan stripe.
Few politicians would seek to make hay out of a decision about how a single trial judge should decide whether a patent has been infringed. But a case going on now shows that this apparently obscure issue can have very serious consequences for our system of free enterprise and economic innovation.
Regardless of their political views, people should be concerned.
TiVo and EchoStar both make digital video recorders, or DVRs, which allow television viewers to record shows and also to fast-forward, rewind, and pause them while watching. In 2004, TiVo sued EchoStar, alleging that some features of EchoStar's DVRs infringed a 1998 patent.
Ultimately, in 2006, EchoStar was found liable for infringing two software claims and ordered to disable the infringing DVRs, including those already placed in customers' homes, by removing the software. The district court also ordered EchoStar not to make or sell any products that were "only colorably" different from the infringing products.
EchoStar responded by trying to redesign its DVRs-the only real alternative to going out of business-to achieve the same functions without infringing TiVo's patent. Its engineers spent thousands of hours on the task, and in 2008 came up with a new approach that experienced patent lawyers certified as non-infringing. When that solution was implemented, TiVo went back to court-not with a new infringement suit, but with the argument that EchoStar's attempt to design around TiVo's patent violated the district court's order.
The district court agreed. Despite the fact that EchoStar had removed and replaced the infringing software elements, it found that the redesign was no more than colorably different from the original infringing software.
Further, and most shocking, it pronounced that even if the new software were not infringing, it would hold EchoStar in contempt because restoring the functionality of the DVRs in consumers' homes-even with a non-infringing redesign-violated the order to disable them.
When EchoStar appealed to the Federal Circuit, the specialized federal court of appeals that hears patent issues, a three-judge panel applied a very lenient standard of review and upheld the district court's order on the grounds that it was not an abuse of discretion.
The case may sound technical and complex, but it is very important. The Federal Circuit has taken the unusual step of agreeing to rehear it before the entire set of judges, which they did on Nov. 9. And friend of the court briefs have been pouring in, near twenty at my last count-from companies including Amazon, Microsoft, and Hewlett-Packard, from the Association of Intellectual Property Owners, from law professors of all stripes. (I joined one for civil procedure professors.)
Important Ramifications
This case is important for two reasons. First, the standards for the exercise of a court's contempt power are important because contempt is the most potent form of judicial authority. In a contempt proceeding, a
single judge is lawmaker, judge, and enforcer rolled into one. The procedures are streamlined, and the penalties for contempt can be severe, including not only damages but punitive sanctions. If any situation places the individual at risk from judicial error or overreaching, it is a contempt hearing. Constraints on the contempt power, in the form of substantive limits on its exercise and meaningful appellate review of those limits, are
essential to safeguarding individual rights and liberties.
Second, the substantive rules of patent infringement are important. Our patent system is designed to promote innovation and economic growth in two ways. First, a limited period of exclusive right gives original inventors a chance to reap the rewards of their creations. Second, and equally important, exclusivity encourages would-be competitors to design around the patent, to come up with different and better ways to achieve the
same goal.
Excessive patent enforcement threatens this second mechanism of innovation, and enforcement through contempt worsens the problem. The approach the three-judge panel took in this case amounts to a one-strike-and-you're-out policy. No would-be competitor whose product has once been found to infringe will take the risk of attempting a different design if even a non-infringing product can expose it to draconian contempt sanctions at the whim of a single judge. The potential losses to our system of free enterprise are enormous. Imagine if the creator of the button had been able to stop the zipper by persuading one judge.
The devil, of course, is in the details. What should the standard for enforcement by contempt be? How much discretion should a single judge have, as compared to a panel conducting appellate review? There are important considerations weighing on both sides. But clearly the act of creating a new and non-infringing design should not expose a party to contempt sanctions.
The panel decision here got the balance wrong, and the Federal Circuit should fix it.
The opinions expressed in this commentary are solely those of the author.
By Kermit Roosevelt: