The end draws near(er) for EchoStar DVRs
March 12th, 2010 | by elisabeth | Published in Future of the Internet | 9 Comments
We’ve previously covered the drawn-out battle between EchoStar and TiVo over EchoStar’s DVR technology, which TiVo claims infringes its patents. The merits of the patent dispute are, as with most, Byzantine, but a jury has found that EchoStar has indeed infringed TiVo’s patents, and appeals courts have affirmed that finding. The key point from an FOI perspective is this: the trial court ordered without any apparent hesitation, by way of remedy, that all of the millions of infringing DVRs—DVRs that are already purchased, reposing in homes, and recording episodes of the Jersey Shore—be zapped via satellite to fix the infringement. (A few are to be spared at random!)
This is yet another example of appliances-as-services. The item that used to be yours when you brought it home from the store is now only contingently yours, subject to ongoing regulation. In some ways this is good—particularly if you believe in vigorous patent enforcement—but it seems hard on several million consumers here, and this is a remedy simply not realistically available before the Internet: the patent police don’t knock on your door to seize an infringing mousetrap inside. Rather, the bad mouse trap company pays damages, as EchoStar is to do here — tens of millions of dollars.
TiVo has its remedy; not clear what the consumers’ is when their DVRs are fried through the vector of a “feature update,” other than suing a probably-broke company. And, as discussed before, it’s worrisome that exactly this kind of control can be exercised so casually, and in a spectrum of ways beyond total destruction—spying, bricking as a punishment for certain consumer behavior, and so on.
The latest development in the story, from last week, is that the Federal Circuit has again affirmed that EchoStar needs to destroy the DVRs. The court didn’t directly review the merits of the order, but rejected EchoStar’s narrower claim that the order should be construed to allow other remedies other than remotely disabling the DVRs. EchoStar’s delay in implementing the bricking has resulted in a finding of contempt of court.
What’s really striking about all the different court orders was how totally unconcerned they were with the novelty and arguable unfairness of the remote-disablement solution. The district court’s order just asserted, without discussion, that the disablement order was appropriate. (“The hardship of disabling DVR capabilities to Defendants’ DVR customers is a consequence of Defendants’ infringement and does not weight against an injunction…The public has an interest in maintaining a strong patent system.”) The Federal Circuit didn’t say much more, asserting that “We find the manner in which the disablement could be accomplished irrelevant to the issue at hand.” Moreover, the Federal Circuit actually rejected EchoStar’s argument that it could just remotely change the parts of the technology that infringed, leaving the DVR players intact generally—the court simply said that wasn’t the point of the disablement provision. One might understand why the Federal Circuit didn’t want to (or couldn’t) jump in with a broad equitable rewrite of the disablement order at this point, but the blasé treatment of a seemingly more reasonable solution was startling. The public may have an interest in a strong patent system, but we haven’t really had a chance yet to weigh whether that means innocent customers have their products disabled: that technology is still new.
It’s worth noting, though, that EchoStar has thus far defied the disablement order, and has been hit with $90 million of contempt fines instead. Complex procedural rules make it difficult to predict how this will all turn out, but EchoStar could just hold out on this, paying contempt fines into bankruptcy. Or TiVo and EchoStar could negotiate a settlement. So we’ll have to watch to see whether any DVR units actually are fried. In the meantime, what I take away from this case is that we can expect more cases like this in the future, and for parties and courts to fully accept and exploit these characteristics of tethered appliances.
—By EO + JZ
March 12th, 2010 at 4:14 pm (#)
Any thoughts on why the court issued an injunction rather than requiring Echostar to shell out some money? Since this decision was apparently just addressing the issue of whether Echostar was in contempt, there was a distinct lack of discussion here regarding the motivations for the injunction against the infringing DVRs.
And if Echostar chooses the contempt-into-bankruptcy option rather than the brick-into-bankruptcy one, do the owners of the infringing DVRs have anything to worry about?
March 13th, 2010 at 10:50 am (#)
The difference from most patent-infringement cases, I’d guess, is that the per-unit loss to TiVo is not related to the hardware cost, but to the tangential service fees over time.
If TiVo could actually collect on a judgment whose damages were derived from the expected lifetime fees of all the units, I bet they’d take that, but from your article it sounds like EchoStar doesn’t have those kinds of assets, so TiVo’s next best bet is to shut down the offending units and hope EchoStar’s customers, newly sans DVR, will sign up for TiVo service.
The problem with that logic is that while legally TiVo is the victim here, one must wonder whether any of EchoStar’s customers will see it that way.
March 13th, 2010 at 1:36 pm (#)
I’m sorry, but I just don’t see the problem here.
TiVo has a patent, which means that they have a legally protected exclusive right to sell “X”. Echostar never had the right to sell “X”, thus you never had a legal right to BUY “X” from Echostar.
Yes, you’re right, the best strategy is to sue Echostar yourself for not selling you what you paid for. But good luck with that.
However, I’m not sure what you think the solution *should* be? That those millions of customers — who if they want “X”, should be getting it from Tivo — keep putting money into the pockets of people who don’t deserve it instead of into Tivo’s pockets?
March 13th, 2010 at 4:37 pm (#)
[...] judge has ruled that Echostar, a manufacturer of Digital Video Recorders, must send all its customers an ‘update’ that breaks their machines, after it was found to infringe on a patent. Not only does this show the stupidity of software [...]
March 14th, 2010 at 12:52 pm (#)
This is similar to the infamous RIM (BlackBerry) case. These days, most gizmos have a service component associated with them, so de-featuring or bricking a customer-purchased item is always a risk. Usually, the plaintiff just wants money, and will usually accept an amount that would allow the defendant to stay in business without having to inordinately jack up the rates. The RIM case occurred at a time when it was much easier to obtain an injunction, and the asserted patents were of questionable merit. Since then, the eBay case ruling by the Supreme Court made it much harder to obtain an injunction, so for this to progress to this stage means that there is a much more serious violation.
Injunctions (or the threat of them) is the tool by which plaintiffs extract the value of their patented innovations from infringers. Rarely do the services actually get shut off.
In light of the fact that TiVo innovated and EchoStar appears to have copied and has had more success in the market, this kind of outcome was probable. It is premature to sympathize with the customers, since the more likely injured party will be shareholders, who have been knowingly gambling on this issue for many years.
IMHO, we need a separate patent court system which could adjudicate these things faster and without standard juries (although juries of engineers that are appropriately paid might make sense). Part of the problem here is also that patents now take and average of 7 years to issue due in large part to the fact that the PTO can’t keep the filing fees to hire and retain enough good examiners to do their jobs properly, which also leads to some bad patents being issued and good patents not being issued. These are the real problems with the patent system, but the current Patent Reform Act in congress addresses none of them and will actually make it worse if they switch to a first-to-file system (due to the need to apply early and often rather than wait until the technology is refined).
March 19th, 2010 at 8:28 am (#)
This reminds me of the Kodak Instant Camera saga from the late 70′s/early 80′s. Kodak marketed a line of instant cameras and was immediately sued for infringement by Polaroid. The court ruled in Polaroid’s favor and Kodak was ordered to stop selling the cameras — and the film, which had the effect of bricking all the existing cameras.
The differences seem to be that Kodak immediately obeyed the order AND initiated a compensation program for customers holding Kodak Colorburst doorstops. It wasn’t perfect (at first, they were not offering cash, and changed that under threat of suit), but ultimately customers were compensated for their products having been disabled.
March 21st, 2010 at 3:43 pm (#)
This may be tangential to the point your trying to make, but calling Echostar(DISH) “probably-broke” is misleading and frames the case poorly. Echostar is valued at $9.3 billion, about 5x of TIVO, and has about $2 billion in cash. This case has caused barely a blip in Echostar’s valuation, which is still close to its 52-week high.
Tivo is a company that is losing money on its main product; despite its superior product and being first-to-market, they’re losing subscribers and money every quarter. Most of their value is in their IP claims. TiVo currently only builds DVRs for cable and OTA, not satellite.
Echostar chose to take a large risk by allowing this case to go to court; its main competitor (DirecTV) settled w/ Tivo long ago and has a cross licensing agreement with them.
Another salient point is that these satellite DVRs are almost all leased by the month and not owned. The box was never yours to begin with! If these boxes are bricked, the best that consumers could hope for is that they’ll be let out of their contract (if any) early so they can switch to a provider that has a working DVR.
This is a game of high-stakes chicken that will almost certainly end up in a settlement. If there’s no settlement there are no winners among the involved parties: Tivo loses licensing revenue, Echostar loses customers+$, and customers lose a useful service.
March 24th, 2010 at 9:53 am (#)
So in theory someone could sue Apple over some sort of patent infringement and the court could order them to brick every iPhone on the planet overnight?
March 27th, 2010 at 2:06 pm (#)
Thanks for all the great comments. A few replies:
I think the court ordered zapping the DVRs rather than just money because money didn’t completely cure the harm. After all, if the infringement is ongoing, a one-time payment won’t help TiVo. From TiVo’s perspective, either (1) ongoing payment isn’t as good as getting the competitor off the market or (2) the injunction is a useful bargaining chip. I don’t know why the court isn’t willing to consider a more limited injunction that would just modify the infringing technology. It may have been considered earlier and the court decided it wasn’t really feasible, despite EchoStar’s representations. (By the way, I think that’s the answer to the question about the iPhone—maybe a court theoretically could order them to kill all the phones, but realistically they’d just have to remove the offending app.)
I’m not sure what the endgame of a contempt finding is, if EchoStar doesn’t end up settling—it’s possible EchoStar is just paying a huge fine to avoid killing the DVRs, but it’s possible the court will enforce its mandate.
As to the questions about whether this is a good outcome from a patent perspective: while I’m a patent novice, the system is obviously striking some kind of balance between protecting inventors and protecting other parties (customers, shareholders, etc). That balance was initially struck at a time when this kind of remote bricking wasn’t possible. Even if remote bricking is the “right” answer under the current law, I just wonder if judges or legislators should be thinking hard about whether remote bricking that punishes customers is the balance we want to strike. (If people have received stolen goods innocently, we have all sorts of trouble figuring out whether they have to return them, right?) I thought of the Kodak case too, but that case stands out partly because it was so remarkable for its time, and it’s going to become the standard case.
Or it may be (as a couple people have noted) that the system is already moving to address this problem in some ways, and that pragmatically all of this is posturing that leads to a settlement.