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In an "Exceptional" Case, Court Orders Production of Negotiations Leading to License Agreements

By Michael C. Smith

Clear With Computers, LLC v. Hyundai Motor America, Inc., 6:09cv479 (E.D. Tex., Nov. 29, 2010)

Judge: Leonard Davis

Holding: Motions to Comepl GRANTED; Motion for Protective Order DENIED

Defendants filed motions to compel asking that the plaintiff be required to produce plaintiff's communications related to the negotiations of already-produced license agreements to the patents-in-suit.  Judge Davis granted the motions to compel and denied the corresponding motion for protection.

Judge Davis' order notes that in ResQNet.com, Inc. v. Lansa, Inc., the Federal Circuit commented that ?the most reliable license in this record arose out of litigation.? 594 F.3d 860, 872 (Fed. Cir. 2010), and that since that case some courts in the Eastern District have held that such licenses are admissible to prove a reasonable royalty, while others have not.  "This Court," he writes "has held that 'that the admissibility of litigation licenses?like all evidence?must be assessed on a case-by-case basis, balancing the potential for unfair prejudice and jury confusion against the potential to be a ?reliable license.' . . . . Whether the settlement agreements are admissible will likely depend on whether they are an accurate reflection of the inventions? value.  In this case, the settlement communications are likely to be key in determining whether the settlement agreements accurately reflect the inventions? value or were strongly influenced by a desire to avoid or end full litigation."  (Internal citations omitted).

So is this the rule - that negotiations leading to these litigation licenses are discoverable?  Ah, well, no, actually.  "The Court expects that its finding here allowing discovery will be the exception, not the rule, and in most cases discovery of the negotiations will not be warranted.  Additionally, communications that are privileged on grounds other than a claimed settlement privilege remain privileged. Thus, documents protected under a mediation privilege or as attorneyclient communications are still not discoverable."  Why?  Because the settlements in this case were likely to be the only licenses of the paytents in suit - there were not likely to be any non-litigation licenses that could shed light on the value of the invention.

Full post as published by Eastern District of Texas Federal Court Practice on December 01, 2010 (boomark / email).