Opinion ID: 2809789
Heading Depth: 2
Heading Rank: 2

Heading: Civil Contempt Remedies

Text: The second question is whether the civil contempt sanctions should be set aside. It is well established that “[v]iolations of an order are punishable as crimi12 EPLUS, INC. v. LAWSON SOFTWARE, INC. nal contempt even though the order is set aside on appeal . . . or though the basic action has become moot.” United States v. United Mine Workers of Am., 330 U.S. 258, 294 & n.60 (1947) (citing Worden v. Searls, 121 U.S. 14 (1887); Gompers v. Buck’s Stove & Range Co., 221 U.S. 418 (1911)); see also Walker v. Birmingham, 388 U.S. 307, 319 (1967) (upholding criminal contempt sentences for violation of injunction regardless of the validity of the injunction); Howat v. Kansas, 258 U.S. 181, 189–90 (1922) (criminal contempt sentences do not depend on constitutionality of law on which injunction is based). If Lawson had been found guilty of criminal contempt, that order and any resulting penalties would not be set aside simply because claim 26 had been cancelled. However, the district court found Lawson in civil, not criminal, contempt. It awarded “compensation” to ePlus for economic injury during the period that the injunction was in effect, based on the Supreme Court decision in Leman v. Krentler-Arnold Hinge Last Co., 284 U.S. 448 (1932). In Leman, the Court upheld an award of the infringer’s profits “not by way of punishment but to insure full compensation.” Id. at 456. 5 The rule for civil contempt for violating a provision of an injunction that is not final, i.e., that is still subject to litigation over the propriety of its issuance, is that “[t]he right to remedial relief falls with an injunction which events prove was erroneously issued.” United Mine Workers, 330 U.S. at 295 (citing Worden, 121 U.S. at 25–26; Salvage Process Corp. v. Acme Tank Cleaning Process Corp., 86 F.2d 727, 727 (2d Cir. 1936); S. Anargyros v. Anargyros & Co., 191 F. 208 5 The district court also ordered coercive sanctions. We stayed these sanctions pending the resolution of this appeal. There is no question that ePlus is not entitled to seek coercive sanctions now that the injunction has been vacated. EPLUS, INC. v. LAWSON SOFTWARE, INC. 13 (C.C.D. Cal. 1911)). The Supreme Court distinguished civil from criminal contempt, explaining that: It does not follow, of course, that simply because a defendant may be punished for crimi- nal contempt for disobedience of an order later set aside on appeal, that the plaintiff in the action may profit by way of a fine imposed in a simulta- neous proceeding for civil contempt based upon a violation of the same order. Id. at 294–95. The Court explained that if the non-final injunction at issue (a temporary restraining order) had been overturned, “the conviction for civil contempt would be reversed in its entirety.” Id. at 295. “[A party’s] right, as a civil litigant, to the [civil] compensatory fine is dependent upon the outcome of the basic controversy.” Id. at 304. Civil contempt sanctions must be set aside when the resolution of the case requires overturning the injunction on which those sanctions are based. The Supreme Court has specifically applied this rule to set aside civil contempt sanctions imposed for violating an injunction based on patents found to be invalid on appeal of the (non-final) injunction. Worden, 121 U.S at 26. 6 In Worden, the district court had declared the patent 6 Curiously, the dissent now finds Worden inapplicable to this situation, Diss. Op. at 14 n.5, after previously urging in Fresenius that Worden required the reversal of contempt sanctions in such situations. Judge O’Malley, in dissenting from the denial of en banc rehearing in Fresenius, stated: “[Worden] merely stands for the proposition that the right to fines for violation of a preliminary injunction is founded on that injunction which in turn is predicated on the validity of the patent.” Fresenius USA, Inc. v. Baxter Int’l, Inc., 733 F.3d 1369, 1376 n.5 (Fed. Cir. 14 EPLUS, INC. v. LAWSON SOFTWARE, INC. not invalid, found the defendants liable for infringement, and ordered a permanent injunction. Id. at 19. The court also found the defendants in contempt of its preliminary injunction and ordered them to pay fines for civil contempt. Id. at 20. The defendants appealed the court’s rulings on infringement and validity, as well as the contempt order and resulting fines. Id. at 20, 24. On appeal, the Supreme Court found the patent invalid and, on that basis, vacated the injunction. Id. at 25. Because the Court found the patent invalid, id. at 24, and reversed the injunction on appeal, id. at 26, it set aside the civil contempt order and resulting fines, declaring that the sanctions “cannot be upheld.” Id. The Court explained that the civil sanctions were “incidents of [the patentee’s] claims in the suit. His right to them was, if it existed at all, founded on his right to the injunction, and that was founded on the validity of his patent.” Id. at 25. Under Worden, compensatory civil contempt remedies for violating a provision of an injunction that is still subject to litigation over its issuance must be set aside when the injunction is reversed because the patent is determined to be invalid. 7 2013) (dissenting from the denial of the petition for rehearing en banc) (citing Worden, 121 U.S. at 25). 7 ePlus claims that some cases it cites have reached contrary results, but those cases involve situations where the basis for the injunction was eliminated prospectively only, see, e.g., Klett v. Pim, 965 F.2d 587, 590 (8th Cir. 1992) (passage of Agricultural Credit Act made injunction moot, not baseless); Coleman v. Espy, 986 F.2d 1184, 1190 (8th Cir. 1993) (citing Klett, 965 F.2d at 590) (same), or penalties that were not determined to be civil, see, e.g., Cassidy v. Puett Elec. Starting Gate Corp., 182 F.2d 604, 608 (4th Cir. 1950) (district court ordered penalties “to punish those who have deliberately and without any EPLUS, INC. v. LAWSON SOFTWARE, INC. 15 Other circuits have similarly held that civil contempt sanctions must be set aside if the underlying non-final injunction is reversed on appeal. 8 This case is not distinguishable on the ground that the basis for the injunction has been removed as the result of the PTO proceeding rather than a court judgment. In Fresenius USA, Inc. v. Baxter International, Inc., we held that a non-final money judgment of damages for reasonable excuse disobeyed [its] orders” (internal quotation marks omitted)). 8 “The general rule is that whether a contempt judgment survives the avoidance of an underlying order depends on the nature of the contempt decree. If the contempt is criminal it stands; if it is civil it falls.” LaTrobe Steel Co. v. United Steelworkers of Am., 545 F.2d 1336, 1342, 1347–48 (3d Cir. 1976) (vacating coercive civil contempt order because “reversal of the underlying injunction indicates that the complainant never had a valid right which was enforceable against the defendant”); see also e.g., McLean v. Cent. States, S. & S. Areas Pension Fund, 762 F.2d 1204, 1210 (4th Cir. 1985) (ordering “reversal of the contempt order because [the appellant] has prevailed in overturning the [underlying] order on appeal.”); Scott & Fetzer Co. v. Dile, 643 F.2d 670, 675 (9th Cir. 1981) (remedial civil contempt judgment “must fall as a result of our decision invalidating the underlying injunction”); ITT Comm. Dev. Corp. v. Barton, 569 F.2d 1351, 1361 (5th Cir. 1978) (vacating contempt orders because the underlying turn-over order “was invalid ab initio”); Blaylock v. Cheker Oil Co., 547 F.2d 962, 966 (6th Cir. 1976) (concluding that “the remedial contempt order . . . falls with [the relevant provision] of the injunction”). All of these cases involved orders whose merits were still subject to review when the civil contempt sanctions were reviewed. 16 EPLUS, INC. v. LAWSON SOFTWARE, INC. infringement must be set aside where the judgment rested on a patent claim that the PTO later cancelled. 721 F.3d 1330, 1344, 1347 (Fed. Cir. 2013). 9 We held that the cancellation of a patent requires that non-final judgments be set aside because the “cancelled claims [a]re void ab initio,” id. at 1346, relying on Moffit v. Garr, 66 U.S. 273, 283 (1861), where the Supreme Court held that “unless [the patent] exists, and is in force at the time of trial and judgment, the suits fail.” Id. at 1345 (quoting Moffit, 66 U.S. at 283). Thus, the cancellation of the patent precluded the patentee from recovering damages in Fresenius. Similarly, here the civil contempt sanctions must be set aside. This case does not require us to decide whether civil contempt sanctions would survive if the injunction had been final at the time the district court imposed civil contempt sanctions. 10 The injunction here was not final even though claim 26 had been held infringed. We go no further than we did in Fresenius in deciding this case. We held in Fresenius that even if this court has re- jected an invalidity defense to infringement, an “interven- 9 The Supreme Court denied the petition for certiorari on May 19, 2014. Baxter, Int’l, Inc. v. Fresenius USA, Inc., 134 S. Ct. 2295 (2014). 10 See, e.g., Maggio v. Zeitz, 333 U.S. 56, 68 (1948) (reviewing contempt order, but not underlying order requiring turnover of property because “the turnover proceeding is a separate one, and when completed and terminated in a final order, it becomes res judicata and not subject to collateral attack in the contempt proceedings”); Proveris Scientific Corp. v. Innovasystems, Inc., 739 F.3d 1367, 1370, 1374 (Fed. Cir. 2014) (holding defendant cannot raise invalidity as a defense to contempt when the underlying injunction is final and not on appeal). EPLUS, INC. v. LAWSON SOFTWARE, INC. 17 ing decision invalidating the patents unquestionably applies” as long as “the judgment in [the present] litigation is not final.” Id. at 1344; see also Moffit, 66 U.S. at 283 (“[P]ending suits fall with the surrender” of a patent “which, in judgment of law, extinguishes the patent.”); Mendenhall, 26 F.3d at 1584 (“Because the Mendenhall patents are invalid, the plaintiffs cannot now enjoin or recover damages from these defendants.”). In Fresenius, we had previously reviewed the district court’s rulings on infringement and invalidity and remanded the case to the district court to determine the scope of damages and injunctive relief. 721 F.3d at 1333. When reviewing the judgment reached by the district court on remand, we held that the original district court judgment, while “final for purposes of appeal . . . was not sufficiently final to preclude application of the intervening judgment” that led to the cancellation of the patent. Id. at 1340. With respect to the determination of finality, we explained that “where the scope of relief remains to be determined, there is no final judgment binding the parties (or the court).” Id. at 1341. We relied on the Supreme Court’s holding that “a final decree [is] one that finally adjudicates upon the entire merits, leaving nothing further to be done except the execution of it.” John Simmons Co. v. Grier Bros. Co., 258 U.S. 82, 88 (1922). At the time of the original injunction here, the jury had found two system claims and three method claims infringed. The injunction did not tie specific enjoined activities or products to specific claims that had been found infringed. Indeed, it did not even mention any of the five claims that were found to be infringed. On its face, our invalidation of the two system claims and our holding that method claims 28 and 29 were not infringed, see ePlus I, 700 F.3d at 520–22, resulted in a substantial question as to the appropriate scope of the injunction. The question was whether the one method claim we sustained 18 EPLUS, INC. v. LAWSON SOFTWARE, INC. (claim 26) was sufficient to support the district court’s broad injunction. We remanded for the district court to “consider what changes are required to the terms of the injunction, consistent with this opinion.” Id. at 523. Although the parties agreed that configuration 2, which the jury had found infringed one system claim, was to be removed from the injunction, a central issue on remand was whether the injunction as to sales and manufacturing could still be upheld on the basis of infringement of method claim 26. The injunction enjoined “making, . . . offering to sell, or selling” the “Infringing [software] Products . . . .” J.A. 4263–64. But it did not tie the sales provision to any particular claims, nor, contrary to the dissent, did the district court’s opinions do so. 11 There was no question as 11 The dissent quotes from the district court’s opinion denying judgment as a matter of law to argue that selling the infringing systems would be an infringement of method claim 26 specifically. Diss. Op. at 4 n.2 (quoting ePlus, Inc. v. Lawson Software, Inc., 2011 WL 3584313, at  (E.D. Va. Aug. 12, 2011)). The context of the quoted sentence shows instead that the district court was referring to the infringed claims collectively: The jury heard and received substantial evidence to support a finding of indirect infringement of the claims, on either an inducement or contributory infringement basis. Evidence demonstrated that Lawson actively induces its customers’ direct infringement by selling and offering to sell the in- fringing systems with the intent that its customers use those systems in an infringing manner. Testimony elicited during the trial and the documentary evidence tended to prove also that Lawson installs the infringing systems on its EPLUS, INC. v. LAWSON SOFTWARE, INC. 19 to the propriety of the sales and manufacturing injunction so long as the system claims were infringed. An injunction can of course be granted against the making and selling of a product that directly infringes on a system claim. See, e.g., NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1315 (Fed. Cir. 2005) (noting that using, offering to sell or selling a patented system can be direct infringement of a system claim under 35 U.S.C. § 271(a)); Broadcom Corp. v. Emulex Corp., 732 F.3d 1325, 1338 (Fed. Cir. 2013) (sustaining injunction against sales where a system claim was infringed). But the system claims were held invalid. ePlus has argued that the sales and manufacturing provisions of the injunction could be based on induced infringement by Lawson of method claim 26, the one claim of the patent that we held infringed in the original appeal. On remand, and again on appeal here, Lawson argued that the injunction had to be modified because it could not, after the customers’ systems, configures and implements the systems, provides a wide-range of technical support and service, and provides instructions and training to its customers on how to use the sys- tems in an infringing manner. ePlus, 2011 WL 3584313, at . This passage, like the district court’s injunction opinion, see ePlus, Inc. v. Lawson Software, Inc., 2011 WL 2119410 (E.D. Va. May 23, 2011), is not clear on the precise scope of Lawson’s indirect infringing activity with respect to each individual claim. Given that only method claim 26 survived the ePlus I appeal, with the system claims held invalid and other method claims found non-infringed, there was a substantial question as to which activities—Lawson’s selling, installing, supporting, servicing, or training— could still be enjoined. 20 EPLUS, INC. v. LAWSON SOFTWARE, INC. invalidation of the two system claims, “prohibit[] Lawson from making and selling its . . . systems” because the original injunction barred sales “even though Lawson’s mere sale and distribution of its systems does not infringe the method of [c]laim 26.” Lawson’s Statement of Position Respecting the Effect of the Federal Circuit’s Decision on the Scope of the Original Injunction at 17–18, No. 3:09cv620 (E.D. Va. Dec. 27, 2012), ECF No. 990 (emphases in original). We agree with Lawson that the original appeal did not resolve the question of whether claim 26 could support the sales injunction. Once the system claims were invalidated, there remained a substantial question of whether an injunction against sales and manufacturing could be justified on a theory of inducement. 12 The core functionality of Lawson’s systems (which ePlus itself characterizes as the “core” functionality) allowed a purchaser to search an internal database and order items. But that functionality did not 12 The dissent suggests we affirmed a determination of contributory infringement of the method claims. Diss. Op. at 6–7. In fact, the panel opinion in ePlus I did not address contributory infringement. This is unsurprising, since contributory infringement of the method claims was barely mentioned in the parties’ briefs in that appeal. Significantly, the panel did not even mention contributory infringement when it described ePlus’ theories of infringement of the method claims. See ePlus I, 700 F.3d at 514 (“As to the method claims, ePlus alleged that (1) Lawson induces its customers to use software programs to perform all of the steps of the asserted method claims; (2) Lawson itself infringes the method claims by demonstrating, installing, managing, and maintaining its software products for its customers; and (3) Lawson, its customers, and third party vendors jointly infringed the asserted method claims.”). EPLUS, INC. v. LAWSON SOFTWARE, INC. 21 infringe claim 26. Only using the so-called “Punchout” feature that allowed customers to also order from thirdparty databases was held to be infringing. As the Supreme Court explained in the analogous context of copyright infringement, to “overcome[] the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use,” induced infringement requires active steps to encourage direct infringement and an “affirmative intent that the product be used to infringe.” Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 936 (2005) (citing Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 668 (Fed. Cir. 1988)). A seller does not induce infringement of a method claim by merely selling an apparatus capable of performing the method. See Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1276 n.6 (Fed. Cir. 2004) (“[S]ale of a lawful product by lawful means, with the knowledge that an unaffiliated, third party may infringe, cannot, in and of itself, constitute inducement of infringement.” (citation, internal quotation marks omitted)); Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 773 (Fed. Cir. 1993) (“The law is unequivocal that the sale of equipment to perform a process is not a sale of the process within the meaning of section 271(a).”). Inducement requires such steps as “encourag[ing],” Grokster, 545 U.S. at 936, “recommend[ing],” Toshiba Corp. v. Imation Corp., 681 F.3d 1358, 1365 (Fed. Cir. 2012), or “promot[ing],” Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354, 1365 (Fed. Cir. 2004), an infringing use. Further, the Fifth Circuit explicitly held in Rohm & Haas Co. v. Dawson Chemical Co., 599 F.2d 685 (5th Cir. 1979), aff’d, 448 U.S. 176 (1980), “mere sale is not wrongful under [271(b)]” where a method claim had been infringed, so appropriate relief would “not be an injunction forbidding [sales].” Id. at 703 n.24. Not surprisingly, our opinion in ePlus I did not resolve 22 EPLUS, INC. v. LAWSON SOFTWARE, INC. whether the sales and manufacturing injunction could be based on method claim 26. With respect to claim 26, we stated that Lawson’s customers infringe by performing all the steps of claim 26, that Lawson directly infringes claim 26, and that Lawson induced infringement. But we did not hold that sales induced infringement. 13 There was no argument by either party in the original appeal as to the consequences of invalidating the system claims, so this 13 The entirety of our discussion is as follows: Moreover, in our view, the record contains sub- stantial evidence to show that Lawson itself in- fringes claim 26. In particular, there is evidence that Lawson installed, maintained, demonstrat- ed, and managed the infringing systems for its customers. The evidence includes course catalogs and webinar presentations offered by Lawson to its customers. ePlus also offered testimony at trial to the effect that Lawson’s professional services include developing, installing, and testing “up to and including bringing a system live” for its cus- tomers. J.A. 1941. ePlus also provided the jury with evidence that the live testing phase included performing actual procurements using Lawson’s systems. All of this circumstantial evidence permits a reasonable jury to infer that Lawson per- formed the steps of claim 26. Finally, we have reviewed the record and are satisfied that it con- tains sufficient evidence of Lawson’s intent and knowledge to allow a reasonable jury to conclude that Lawson induced its customers to infringe claim 26. Thus, we affirm the district court’s denial of JMOL of non-infringement with respect to the jury’s verdict of direct and induced infringement of claim 26. ePlus I, 700 F.3d at 520–21. EPLUS, INC. v. LAWSON SOFTWARE, INC. 23 court’s statement that “[t]o the extent that we have not addressed any of the parties’ arguments . . ., we have determined them to be unpersuasive,” ePlus I, 700 F.3d at 523 n.2, cannot have been directed to that issue. Thus, because the propriety of the injunction against sales and manufacturing was still an issue after the first appeal, there had not been “a final decree . . . that finally adjudicates upon the entire merits, leaving nothing further to be done except the execution of it.” John Simmons Co., 258 U.S. at 88. And the “scope of relief remain[ed] to be determined . . . .” Fresenius, 721 F.3d at 1341. The injunction was not final and under Worden, the cancellation of the claim by the PTO required that the injunction and contempt sanctions be vacated. ePlus asserts that Lawson viewed the injunction as final because it filed a Rule 60(b) motion asking the district court to modify or dissolve the modified injunction. The filing of a Rule 60(b) motion under such circumstances is not unusual. Filing a Rule 60(b) motion did not prevent Lawson from appealing the modified injunction in addition to appealing the denial of the Rule 60(b) motion. See Stone v. Immigration & Naturalization Serv., 514 U.S. 386, 401 (1995) (“Either before or after filing his appeal, the litigant may also file a Rule 60(b) motion for relief with the district court. The denial of the [Rule 60(b)] motion is appealable as a separate final order, and if the original appeal is still pending . . . the court of appeals can consolidate the proceedings.”). We conclude that the compensatory award for the violation of the injunction must be set aside in light of the cancellation of claim 26. Given our disposition, we need not reach the question of whether Lawson’s redesigned products are more than colorably different from the original accused products and whether the redesigned products infringe. 24 EPLUS, INC. v. LAWSON SOFTWARE, INC.