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District Court Orders Production of Settlement Agreements But Denies Request for Deposition That Would Go Beyond Four Corners of the Agreements

Plaintiffs filed a declaratory judgment action seeking a declaration that U.S. Patent No. 7,923,221 (the “Cabilly III patent”), owned by Defendants, is invalid and therefore Plaintiffs do not owe royalties with respect to Praluent. During the case, Plaintiffs requested production of five executed settlement agreements that resolved prior litigations involving the Cabilly II and III patents and also requested a deposition regarding the agreements and the negotiations that led up to the agreements. Defendants represented that it would not use the agreements in the litigation.

The district court began its analysis by noting that “[o]ne potential methodology for valuing a patent is based on comparable licenses. ‘Such a model begins with rates from comparable licenses and then ‘account[s] for differences in the technologies and economic circumstances of the contracting parties.’ . . . The Federal Circuit has rejected the argument that licenses in settlement agreements are categorically irrelevant to a reasonably royalty. ‘While the fact that a settlement or settlement offer comes in the midst of litigation may affect the relevance of the settlement or offer, there is no per se rule barring reference to settlements simply because they arise from litigation.’ Astrazeneca AB v. Apotex Corp., 782 F.3d 1324, 1336 (Fed. Cir. 2015).”

The district court then explained that “[t]he five settlement agreements at issue contain licenses to the Cabilly patents at issue and, therefore, are relevant to determination of a reasonable royalty, a key issue in this case. Astrazeneca, 782 F.3d at 1336; LaserDynamics, Inc., 694 F.3d at 77; ResQNet, 594 F.3d at 872. The parties do not dispute that there is a significant amount of money at stake in this litigation, and that production of five settlement agreements would not be unduly burdensome.

The Plaintiffs also sought to compel Defendants to designate a witness pursuant to Fed.R.Civ.P. 30(b)(6) to testify regarding “the negotiation of such settlement and such license.” In reviewing this request, the district court focused on In re MSTG, Inc., 675 F.3d 1337, 1341 (Fed. Cir. 2012): In MSTG, Plaintiff produced six settlement agreements. The defendant, AT&T, then sought discovery into the negotiations of the settlement agreements. Although AT&T’s motion to compel was initially denied, MSTG’s expert subsequently produced a report that concluded the six settlement agreements were not comparable to a hypothetical negotiation between MSTG and AT&T for various reasons. AT&T renewed its motion in light of the expert report, and its motion was granted. 675 F.3d at 1339-40.

On writ of mandamus, the Federal Circuit acknowledged that “settlement agreements can be pertinent to the issue of reasonable royalties.” Id. at 1348. Because MSTG’s expert went beyond the four corners of the settlement agreements in rendering his opinion, the court concluded that “MSTG cannot at one and the same time have its expert rely on information about the settlement negotiations and deny discovery as to those same negotiations.” Id. The court found no abuse of discretion in ordering the production of settlement negotiation documents. Id.

In contrast to MSTG, the district court found that the fact here did not show a need to go beyond the four corners of the settlement agreements.

Accordingly, the district court denied the motion to compel the deposition.

Sanofi-Aventis U.S., et al. v. Genentech, Inc. and City of Hope,
Case No. CV 15-5685-GW (AGRx) (C.D. Cal. March 30, 2016)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or

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