“You really should settle this case…”
Do the Courts practice what they preach?
November 2009
Daniel Lueders
You should settle…trust me
Settlement will save
fees and give you
certainty.
No one said
this was going
to be fair or
reasonable.
OVERVIEW
•DJ Jurisdiction
•Injunction (Preliminary & Permanent)
•Reasonable Royalty
•FRE 408
•Enforced Settlement “Agreements”
•Other problems
Settlement Contract only with those
who are trustworthy
TORT
CONTRACT
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)).
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).
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)
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. ”

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).

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.
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.
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)
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.
A little good “FRE 408” news:
The Eighth Circuit addressed the issue whether FRE 408
applied to “documents not communicated to the
But:
apparently
opposing side.” The
circuit
concluded thatsuch
“[t]he spirit
of the Rule, as recognized
by several circuitsnotes
and as set
client
settlement
forth in the commentary to the Rule, supports the
exclusion of certain
work
product, internal memos,
and
are
discoverable
.
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. 072901)(citing 3rd, 5th and 11th Circuit cases favorably).
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.
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 admissible because 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.
DISMISSAL v. CONSENT
DECREE
Dismissal
Consent Decree
Case ends.
Case continues.
Separate settlement
agreement = private
contract remedies.
Settlement terms may be
totally private
Contract rules.
Terms of consent decree =
contempt of Court
remedies.
Consent decree terms
public.
Rule 65 rules; more limiting
in structure.
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.
CONSENT DECREE
“It is apparent, nevertheless, from a review of patent
cases dealing with contempt proceedings that injunctions
 Consent Decree = Court Order.
are frequently drafted or approved by the courts in
general
Must be
public.
terms,
broadly enjoining “further infringement” of
“patent,”
despite
the language
of incorporation
Rule 65(d), and
the
Rule
65 “four
corners”
rule; no
Supreme Court interpretation.
by reference.
…contempt
Limited toproceedings,
actual casecivil
andorcontroversy:
criminal, are available
only
with respect “D
to devices
previously
admitted
or
 Enforceable:
is enjoined
from making
Model
adjudged
to and
infringe,
andimitations
to other devices
No. 352
colorable
thereof.which are no
more
than“D
colorably
different
therefromU.S.
andPatent
which
 Not:
is enjoined
from infringing
clearly
infringements of the patent.”
No.are
8,443,912”.
KSM Fastening Systems, Inc. v. H.A. Jones Company, Inc., et al., 227
USPQ 676 (Fed. Cir. 1985)
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).

‘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.
‘Forced’ Settlement “agreement”?
Plaintiff
Defendant
Court
$167,714
$167,714, but later $167,714
wanted to
recalculate the
correct amount
Certified check
Reg. check (float) Reg. Check (float)
Attorneys fees
NO attorneys fees Attorneys fees,
(reversed)
‘Forced’ Settlement “agreement”?
Plaintiff
Defendant
Pay government $ Pay employees
who will disperse directly
$ to employees
12% interest rate
12% interest rate
Nunc pro tunc
Not
(6 month interest)
Court
Pay government $
who will disperse
$ to employees
(reversed)
12% interest rate
Nunc pro tunc
(reversed)
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.
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 antiforfeiture statute).
No good deed goes unpunished
if 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.
“You really should settle this case…”
Do the Courts practice what they preach?
November 2009
Daniel Lueders