In this patent infringement action, the defendant moved to compel the production of settlement license agreements as part of its reasonable royalty analysis. The plaintiff opposed the request on the grounds that the agreements were protected by the common interest privilege and were not relevant.
The district court disagreed.
Turning to the issue of common interest, the district court explained that “[t]he protection of communications among clients and attorneys ‘allied in a common legal cause’ has long been recognized” and “has previously arisen in connection with patent rights.” In re Regents of University of California, 101 F.3d 1386, 1389 (Fed. Cir. 1996). In patent cases, “the Federal Circuit has required the entities exchanging the privileged material to have a substantially identical legal interest, as opposed to a solely commercial interest.” High Point SARL v. Sprint Nextel Corp., No. 09-2269-CM-DJW, 2012 WL 234024, at *7 (D. Kan. Jan. 25, 2012) (citing In re Regents, 101 F.3d at 1389). “An exception to the assertion of the common interest privilege exists when the participants in the common interest become adverse to each other in litigation.” Dexia Credit Local v. Rogan, 231 F.R.D. 287, 295 (N.D. Ill. 2005).
In support of its common interest position, the plaintiff asserted that the settlement agreements are protected by the common interest privilege because the plaintiff and the third parties who entered these agreements “have common legal interests in negotiating and implementing legal protection favorable to both parties.” Plaintiff argued that two cases involving sales of patents and exclusive patent licenses justified this position. See Britesmile, Inc. v. Discus Dental, No. C 02-3220, 2004 WL 2271589, at *2 (N.D. Cal. Aug. 10, 2004) (patent sale); High Point, 2012 WL 234024, at *1 (patent sale); In re Regents, 101 F.3d at 1388 (exclusive license). The defendant countered that these cases are not applicable as the common interest privilege cannot apply to situations involving non-exclusive patent licenses between parties who were adverse to each other in litigation.
The district court agreed with the defendant’s analysis. “In the cases cited by Plaintiff involving the sale of a patent, the patentee and prospective patent purchasers ‘had a substantially identical common legal interest in the validity, enforceability, and potential for infringement of the patents-in-suit.’ High Point, 2012 WL 234024, at *9. Similarly, in the cases involving an exclusive license agreement, ‘the inventor/patentee and potential licensee had a ‘substantially identical’ legal interest in the subject of the communication—valid and enforceable patents—because of the potentially and ultimately exclusive nature of their license agreement.’ Id. at *7 (citing In re Regents, 101 F.3d at 1389). These legal interests are not applicable to this case because Defendant is requesting non-exclusive license agreements entered for the purpose of settling litigation. The court is not persuaded that an interest in implementing legal protections favorable to both parties in a settlement agreement to resolve active litigation is sufficient to warrant protection by the common interest privilege. Concluding otherwise would contravene clear authority that an exception to the common interest privilege is when the parties become adverse to each other in litigation. See Dexia, 231 F.R.D. at 295. The court therefore concludes that the common interest privilege is inapplicable in this case because Plaintiff and the third parties who entered the settlement agreements were adverse to each other in litigation and Plaintiff has failed to identify any authority supporting a substantially identical legal interest under these circumstances.”
With respect to the relevance issue, the district court also disagree with the plaintiff’s argument, which relied on Supreme Court authority holding that settlements are not relevant to determining damages in other cases of infringement. The district court stated that plaintiff “relies on dicta in the 1889 Rude case stating that ‘[i]t is clear that a payment of any sum in settlement of a claim for an alleged infringement cannot be taken as a standard to measure the value of the improvements patented, in determining the damages sustained by the owners of the patent in other cases of infringement.’ Rude v. Westcott, 130 U.S. 152, 164, 9 S.Ct. 463, 32 L.Ed. 888 (1889). As explained above, the Federal Circuit has since recognized that ‘prior settlements can be relevant to determining damages,’ but an important limitation is that for purposes of admissibility, ‘the prior licenses or settlements need to be ‘sufficiently comparable’ for evidentiary purposes and any differences in circumstances must be soundly accounted for.’ Elbit Systems Land and C4l Ltd v. Hughes Network Systems, LLC, 927 F.3d 1292, 1299 (Fed. Cir. 2019) (quoting Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1330 (Fed. Cir. 2014)). The Elbit case makes clear that the Federal Circuit does not authorize the use of prior settlements as a ‘standard’ to measure damages, but rather, has carefully defined when prior settlements may be relevant and admissible for the purpose of calculating damages. The court therefore disagrees that Federal Circuit authority improperly overrules or is inconsistent with dicta in Rude.”
Accordingly, the district court granted the motion to compel the production of the settlement agreements finding them relevant and not protected by the common interest doctrine.
Modern Font Applications v. Alaska Airlines, Case No. 2:19-cv-00561-DBB-CMR (D. Utah Feb. 3, 2021)
The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.