“You really should settle this case…” Do the Courts practice what they preach?

1. “You really should settle this case…”Do the Courts practice what they preach? November 2009 Daniel Lueders

2. You should settle…trust me No one said this was going to be fair or reasonable. Settlement will save fees and give you certainty.

3. OVERVIEW • DJ Jurisdiction • Injunction (Preliminary & Permanent) • Reasonable Royalty • FRE 408 • Enforced Settlement “Agreements” • Other problems

4. Settlement Contract only with those who are trustworthy TORT CONTRACT

5. DECLARATORY JUDGMENT JURISDICTION In MedImmune, the Supreme Court emphasized that DJ jurisdiction only requires that the dispute at issue be: "definite and concrete, touching the legal relations of parties having adverse legal interests”; and that it be “real and substantial” and “admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” Id. at 771 (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 81 L.Ed. 617 (1937)).

6. DECLARATORY JUDGMENT JURISDICTION . In sum, the rule adopted by the court in this case will effect a sweeping change in our law regarding declaratory judgment jurisdiction. Despite the references in the court's opinion to the particular facts of this case, I see no practical stopping point short of allowing declaratory judgment actions in virtually any case in which the recipient of an invitation to take a patent license elects to dispute the need for a license and then to sue the patentee. SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007).

7. Settlement vs. INJUNCTIONS(Permanent) • U.S. Supreme Court: “MercExchange sought to license its patent to eBay and Half.com, as it had previously done with other companies, but the parties failed to reach an agreement. MercExchange subsequently filed a patent infringement suit against eBay and Half.com in the United States District Court for the Eastern District of Virginia. A jury found that MercExchange's patent was valid, that eBay and Half.com had infringed that patent, and that an award of damages was appropriate.” eBay Inc. v. MercExchange LLC, 78 USPQ2d 1577 (U.S. 2006)

8. Settlement vs. INJUNCTIONS(Permanent) U.S. Supreme Court: “For example, some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.”

9. Settlement vs. INJUNCTIONS(Preliminary) • In High Tech the plaintiff’s prior offer to license was used as a basis for denial of a preliminary injunction against the defendant’s infringing actions. The court stated: “To the contrary, the evidence shows that HTMI offered a license to New Image, so it is clear that HTMI is willing to forgo its patent rights for compensation. That evidence suggests that any injury suffered by HTMI would be compensable in damages assessed as part of the final judgment in the case.” • High Tech Med. Instrumentation Inc. v. New Image Indus. Inc., 33 U.S.P.Q.2d 2005, 2009 (Fed. Cir. 2009).

10. FRE 408: RULE (2006 amend.) (a) Prohibited uses.—Evidence of the following is not admissible on behalf of any party, when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction: (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a the claim which was disputed as to either validity or amount; and, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of (2) conduct or statements made in compromise negotiations is likewise not admissible regarding the claim, except when offered in a criminal case and the negotiations related to a claim by a public office or agency in the exercise of regulatory, investigative, or enforcement authority. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations.

11. FRE 408: RULE (b) Permitted uses. This rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a). Examples of permissible purposes include proving a witness's bias or prejudice; negating a contention of undue delay; and proving an effort to obstruct a criminal investigation or prosecution.

12. Affirmative Defense Not for “invalidity of…a claim” ? • Ralph Lauren trademark: polo pony logo • Def’s marks: 4 versions, A, B, C and D. • During a FRE 408 settlement negotiation: • D’s asserts P said it had no objection to version D; • P denies such a statement • At trial, Def seeks to introduce evidence of the ‘statement’ to show: • Lack of likelihood of confusion • Estoppel by acquiescence. PRL USA Holdings Inc. v. United States Polo Ass’n Inc., 86 U.S.P.Q.2d 1022 (2nd Cir. 2008)

13. Affirmative Defense Not for “invalidity of…a claim” ? The settlement statement could not be entered as evidence that there was no “likelihood of confusion” since this went to liability for the claim. the Court reached the opposite conclusion with respect to admissibility to prove the affirmative defense of “estoppel by acquiescence”. Id. at 1027. The Court deemed that the affirmative defense was not to establish the “invalidity” of the claim. Id. Rather, it was deemed to fall within the rule’s “another purpose” exception. This was done even thought the Court recognized the “overlap” between the estoppel issue and the likelihood of confusion issue in that the estoppel evidence, “may well suggest to the jury that the owner of the mark did not believe the mark in question was likely to cause confusion.” Id. at 1026.

14. A little good “FRE 408” news: The Eighth Circuit addressed the issue whether FRE 408 applied to “documents not communicated to the opposing side.” The circuit concluded that “[t]he spirit of the Rule, as recognized by several circuits and as set forth in the commentary to the Rule, supports the exclusion of certain work product, internal memos, and other materials created specifically for the purpose of conciliation, even if not communicated to the other party.” EEOC v. UMB Bank, _ F.3d at _. (8th Cir. 2009) (No. 07-2901)(citing 3rd, 5th and 11th Circuit cases favorably). But: apparently such client settlement notes are discoverable.

15. FRE 408: THIRD-PARTIES • Recently the Seventh Circuit affirmed an order enforcing a subpoena and directing a third party to produce documents exchanged during arbitration between the third party and a defendant in present suit, despite the defendant’s contention that the parties to the arbitration agreement agreed to confidentiality. Gotham Holdings LP v. Health Grades Inc., No. 09-2377 (7th Cir. September 3, 2009). The court held that the confidentiality agreement accompanying the arbitration cannot bar disclosure to a stranger to the agreement (such as the plaintiff) seeking discovery under federal rules. Id.

16. FRE 408: PRE-INFRINGEMENT NEGOTIATIONS Deere & Co. v. Int’l Harvestor Co., 218 U.S.P.Q. 481 (Fed. Cir. 1983). International Harvester (the infringing party) sought to have evidence admitted of offers from Deere to license Deere’s technology at a 1% royalty to International Harvester. The Federal Circuit ruled that the offers were admissiblebecause the first of the two offers predated the infringement and was therefore not a settlement negotiation under FRE 408.  Deere unsuccessfully argued that the dealings between Deere and International Harvester were always made with the knowledge that an eventual court battle was possible or even probable and therefore all their negotiations should be protected by FRE 408.

17. DISMISSAL v. CONSENT DECREE

18. DISMISSAL • Dismissal: case and all orders cease to exist • Confidentiality Orders evaporate unless Judge recites that Court retains jurisdiction. • No collateral estoppel or res judicata. • Dismissal: no injunction. • Dismissal: can be verbally stipulated. • Dismissal: settlement agreement may remain confidential.

19. CONSENT DECREE “It is apparent, nevertheless, from a review of patent cases dealing with contempt proceedings that injunctions are frequently drafted or approved by the courts in general terms, broadly enjoining “further infringement” of the “patent,” despite the language of Rule 65(d), and Supreme Court interpretation. …contempt proceedings, civil or criminal, are available only with respect to devices previously admitted or adjudged to infringe, and to other devices which are no more than colorably different therefrom and which clearly are infringements of the patent.” KSM Fastening Systems, Inc. v. H.A. Jones Company, Inc., et al., 227 USPQ 676 (Fed. Cir. 1985) • Consent Decree = Court Order. • Must be public. • Rule 65 “four corners” rule; no incorporation by reference. • Limited to actual case and controversy: • Enforceable: “D is enjoined from making Model No. 352 and colorable imitations thereof. • Not: “D is enjoined from infringing U.S. Patent No. 8,443,912”.

20. Easy to find oneself in a dismissal • In Garber v. Chicago Mercantile Exchange, the Federal Circuit discussed the relative ease with which a party can enter a stipulation of dismissal. “Indeed, the Seventh Circuit has treated filings that were far more ambiguous than the stipulation in this case as falling under Rule 41(a)(1)(A). In Boran v. United Migrant Opportunity Services, Inc., the court found that a letter, signed by only the plaintiff, was properly considered a stipulation for dismissal under Rule 41(a)(1)(A)(ii). 99 Fed. App'x 64 (7th Cir. 2004). The court stated that “literal compliance with the stipulation requirement has not been required where the agreement of all parties is apparent.” Id. at 66-67. Furthermore, the court noted that other circuits recognize that “even oral assent to dismissal can satisfy” Rule 41(a)(1)(A)(ii). Id. at 67. In light of the Seventh Circuit's permissive entry of dismissal under Rule 41(a)(1), we conclude that the “Stipulation for Dismissal Without Prejudice” was what it claimed to be, irrespective of the attached proposed order and arguably discretionary language. We therefore find that the stipulation was properly entered under Rule 41(a)(1).” • Garber v. Chicago Mercantile Exchange, 570 F.3d 1361, 1381 (Fed. Cir. 2009).

21. ‘Forced’ Settlement “agreement”? All that is required is that the Court, without a jury, “conclude that agreement has been reached on all material terms.” Brock v. Scheuner Corp., 841 F.2d 151, 154 (6th Cir. 1988). Early agreement that payment of $162,714.32 was the “final material term necessary to complete the agreement”, despite disagreement on other [important] terms. This can be done even if the asserted settlement agreement is verbal. Id.

22. ‘Forced’ Settlement “agreement”?

23. ‘Forced’ Settlement “agreement”?

24. Federal Circuit: settlement ‘gotcha’ Joy Mfg Co. v. National Mine Serv. Co., 1. U.S.P.Q.2d 1627 (Fed. Cir. 1987). The settlement language said that “NATIONAL will not file any suit in any United States Court or any Court in any foreign country challenging or contesting the validity of the Licensed Patents . . .”.Id. at 1629.

25. OTHER PROBLEMS WITH LICENSING SETTLEMENTS • If royalty based, and if between competitors, you are giving your competitor a meter on your business. • The lowest royalty given will be a lighting rod for future litigation “reasonable royalty” analysis and for settlement terms. • Power Lift Inc. v. Weatherford Nipple-Up Systems, Inc., 871 F2d. 1082 (Fed. Cir. 1989)(denying termination for non-payment breach; applying Oklahoma anti-forfeiture statute).

26. No good deed goes unpunishedif you try to settle, the courts will (may): • Find DJ jurisdiction over you. • No preliminary injunction. • No permanent injunction. • Admit your settlement compromise as evidence of a reasonable royalty. • Admit settlement talks as proof of a dispositive affirmative defenses. • Force on you an “agreement” that you never agreed to. • Not terminate the settlement even for nonpayment. • Strictly construe the agreement to allow validity challenges despite a clear contrary intent.

27. “You really should settle this case…”Do the Courts practice what they preach? November 2009 Daniel Lueders