Opinion
Civil Action No. 00-12234-EFH.
May 6, 2005
ORDER
Before the Court is Defendants' Request for Judicial Notice and Application of Collateral Estoppel to Establish Facts Relevant to Hypothetical Negotiation. For the following reasons, the Court denies said motion.
Defendants' request involves two documents: a 1996 agreement settling a trade-secrets case between Cellexis International, Inc. and GTE Corporation (hereinafter, the "1996 settlement agreement") and an April 20, 2004 order from a related case, GTE Mobilnet Service Corp. v. Cellexis International, Inc., United States District Court, District of Massachusetts, Civil Action No. 01-10793-RWZ (hereinafter, the "2004 order"). Because the 2004 order interpreted portions of the 1996 settlement agreement, defendants urge the Court to take judicial notice of the 2004 order, collaterally estop plaintiff from challenging those interpretations, and instruct the jury that as of 1998 "plaintiff had agreed that GTE could use prepaid wireless systems covered by the patents-in-suit without payment of any royalty to [Plaintiff]."
Individual persons affiliated with Cellexis along with a corporate affiliate of GTE Corp., GTE Mobilnet Service Corp., were also parties to the 1996 settlement agreement.
If the Court were to grant defendants' request, the 1996 settlement agreement would effectively be admitted into evidence for the purpose of establishing a reasonable royalty. But "[i]t is a century-old rule that royalties paid to avoid litigation are not a reliable indicator of the value of a patent and therefore should be disregarded when determining reasonable royalty rates." 4 John Gladstone Mills III et al., Patent Law Fundamentals § 20.58, at 20-196 to 20-197 (2d ed. 2005 Rev.) (citing Rude v. Westcott, 130 U.S. 152, 164, 9 S. Ct. 463, 468, 32 L. Ed. 888, 894 (1889)); see Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1164 n. 11 (6th Cir. 1978) ("A royalty, if any, resulting from settlement of an infringement suit . . . should not be considered evidence of an `established' royalty and thus a measure of adequate damages here."). And the Federal Circuit has extended this rule to royalties "negotiated against a backdrop of continuing litigation." Deere Co. v. Int'l Harvester Co., 710 F.2d 1551, 1557 (Fed. Cir. 1983); see Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc., 862 F.2d 1564, 1572 (Fed. Cir. 1988) (discussing cases excluding licenses negotiated against threat or backdrop of litigation).
The rationale underlying this rule is that licenses negotiated against the threat of litigation or the backdrop of litigation are likely to be influenced by factors other than the market value of the patent. See Mills, supra, § 20.58; Panduit, 575 F.2d at 1164 n. 11 ("License fees negotiated in the face of a threat of high litigation costs `may be strongly influenced by a desire to avoid full litigation.'"). Indeed, plaintiff's counsel indicated as much when he represented that plaintiff entered into the 1996 settlement agreement to avoid defending a libel case that would likely have bankrupted the company. Thus, the Court rules that the 1996 settlement agreement, which was negotiated against the backdrop of litigation, is not probative as to the value of the patents in suit.
In addition, were the Court to admit the 1996 settlement agreement, plaintiff's purported reason for entering into this agreement would be relevant and admissible. Therefore, allowing defendants to raise this collateral matter at this late stage of the trial would likely confuse the jury, place a burden on the Court, and needlessly waste judicial resources.
Based on the foregoing, the Court denies Defendants' Request for Judicial Notice and Application of Collateral Estoppel to Establish Facts Relevant to Hypothetical Negotiation.
SO ORDERED.