From Casetext: Smarter Legal Research

TYCO HEALTHCARE GROUP LP v. E-Z-EM, INC.

United States District Court, E.D. Texas, Marshall Division
Mar 2, 2010
CIVIL ACTION NO. 2:07-CV-262 (TJW) (E.D. Tex. Mar. 2, 2010)

Summary

recognizing a shift in approach toward discoverability of settlement negotiations and compelling production of settlement negotiations of patent license agreement between the defendant and a third party

Summary of this case from HIGH POINT SARL v. SPRINT NEXTEL CORP

Opinion

CIVIL ACTION NO. 2:07-CV-262 (TJW).

March 2, 2010


MEMORANDUM OPINION AND ORDER


Pending before the Court is Plaintiffs' Motion to Compel Defendants to Produce Documents Allegedly Covered by Defendants' Purported "Settlement Negotiations" Privilege. [Dkt. No. 223]. After considering the parties' briefing, Plaintiffs' motion is GRANTED.

Plaintiffs Mallinckrodt Inc. and Liebel-Flarsheim, Co. (collectively "Mallinckrodt") seek communications between Defendants E-Z-EM, Inc. and Acist Medical Systems, Inc.'s (collectively "E-Z-EM") counsel and third-party Medrad that culminated in a license agreement (hereinafter "settlement negotiations"). E-Z-EM entered into a license to use the technology protected by Medrad's "injector control" patents in a number of E-Z-EM's products, including the accused products in this case. E-Z-EM Surreply, Exhibit A. [Dkt. No. 328-2] E-Z-EM argues that the documents are protected by a settlement negotiations privilege, as recognized in Goodyear Tire Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (6th Cir. 2003). Mallinckrodt asserts that no such privilege attaches because 1) the Goodyear doctrine has been called into doubt and, 2) the license agreement was not related to any litigation.

I. Legal Standard

Rule 26(b)(1) governs the scope of discovery, providing that "[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense" or "appears reasonably calculated to lead to the discovery of admissible evidence." Fed.R.Civ.P. 26(b)(1). The discovery rules are accorded a broad and liberal treatment to effect their purpose of adequately informing litigants in civil trials. Herbert v. Lando, 441 U.S. 153, 176, 99 S.Ct. 1635, 60 L.Ed.2d 115 (1979). Nevertheless, discovery does have "ultimate and necessary boundaries," Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978) (quoting Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 91 L.Ed. 451 (1947)).

As the Fifth Circuit has repeatedly instructed, "`[a] district court has broad discretion in all discovery matters, and such discretion will not be disturbed ordinarily unless there are unusual circumstances showing a clear abuse.'" Beattie v. Madison County Sch. Dist., 254 F.3d 595, 606 (5th Cir. 2001) (quoting Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 855 (5th Cir. 2000)). See also Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 220 (5th Cir. 2000). The party requesting discovery may move to compel the disclosure of any materials requested so long as such discovery is relevant and otherwise discoverable. See FED. R. CIV. P. 37; Export Worldwide, Ltd. v. Knight, 241 F.R.D. 259, 263 (W.D. Tex. 2006) ("[Rule] 37(a)[(3)(B)(iii) and (iv)] empowers the court to compel the production of documents . . . upon motion by the party seeking discovery."). Materials and information are discoverable if they are "relevant to any party's claim or defense" or if they "appear[] reasonably calculated to lead to the discovery of admissible evidence." FED. R. CIV. P. 26(b)(1).

II. Discussion

This Court has in the past followed Goodyear generally and adopted a bright-line rule that settlement negotiations are privileged while the resulting license agreement is discoverable. See, e.g., Intergraph Hardware Tech. Co v. Dell Computer Corp., No. 2:02-cv-312, Dkt. No. 348 (E.D. Tex. June 2, 2004) (citing to Goodyear in a denial of a motion to compel settlement negotiations). A recent decision from the Federal Circuit causes the Court to shift its approach toward the discoverability of settlement negotiations. See ResQNet.com, Inc. v. Lansa, Inc., 2010 WL 396157 (Fed. Cir. 2010).

The Federal Circuit has explained that prior license agreements that result from litigation can be the "most reliable" to the hypothetical negotiation damages analysis and, when performing a reasonable royalty calculation, the Court should consider "the panoply of `events and facts that occurred thereafter and that could not have been known to or predicted by the hypothesized negotiators.'" ResQNet, 2010 WL 396157 at *11 (quoting Fromson v. Western Litho Plate Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988)). A prior, related settlement agreement, where it exists, may be central to the fact-finder's determination of damages using a hypothetical negotiations analysis. Given that the "hypothetical reasonable royalty calculation occurs before litigation and that litigation itself can skew the results of the hypothetical negotiation," the parties are entitled to show whether and to what extent the rate from a prior license agreement is the result of a compromise or reflects a desire to avoid litigation. Id. Moreover, the district court should make "factual findings that account[] for the technological and economic differences between [previous] licenses and the [patent-in-suit]." Id. It necessarily follows that, in light of the admissibility and importance of prior related settlement agreements, ResQNet suggests that the underlying negotiations are relevant to the calculation of a reasonable royalty using the hypothetical negotiation damages model. The prior license agreements, as before ResQNet, must relate to the same patents or comparable technology to be of any value to the hypothetical negotiation process. Id. ("[T]he trial court should not rely on unrelated licenses to increase the reasonable royalty rate above rates more clearly linked to the economic demand for the claimed technology.") See also Lucent Techs., Inc. v. Gateway, 580 F.3d 1301, 1327-28 (Fed. Cir. 2009). The Goodyear privilege does not apply in light of the Federal Circuit's ruling in ResQNet.

III. Conclusion

E-Z-EM is ordered to produce the settlement negotiations within 20 days of this order.

It is so ORDERED.


Summaries of

TYCO HEALTHCARE GROUP LP v. E-Z-EM, INC.

United States District Court, E.D. Texas, Marshall Division
Mar 2, 2010
CIVIL ACTION NO. 2:07-CV-262 (TJW) (E.D. Tex. Mar. 2, 2010)

recognizing a shift in approach toward discoverability of settlement negotiations and compelling production of settlement negotiations of patent license agreement between the defendant and a third party

Summary of this case from HIGH POINT SARL v. SPRINT NEXTEL CORP

ordering disclosure of settlement negotiations in light of ResQNet

Summary of this case from TIGI Linea Corp. v. Prof'l Prods. Grp.

noting that " prior, related settlement agreement, where it exists, may be central to the fact-finder's determination of damages using a hypothetical negotiations analysis" and that "the parties are entitled to show whether and to what extent the rate from a prior license agreement is the result of a compromise or reflects a desire to avoid litigation"

Summary of this case from FENF, LLC v. Taylor Gifts, LLC
Case details for

TYCO HEALTHCARE GROUP LP v. E-Z-EM, INC.

Case Details

Full title:TYCO HEALTHCARE GROUP LP, MALLINCKRODT INC. and LIEBEL-FLARSHEIM COMPANY…

Court:United States District Court, E.D. Texas, Marshall Division

Date published: Mar 2, 2010

Citations

CIVIL ACTION NO. 2:07-CV-262 (TJW) (E.D. Tex. Mar. 2, 2010)

Citing Cases

FENF, LLC v. Taylor Gifts, LLC

Id. at *5.The plaintiff was entitled to discovery of settlement negotiations that lead to a license or that…

Volumetrics Med. Imaging v. Toshiba Am. Med. Sys., Inc.

The vast majority of courts to consider the relevance of settlement agreements (and offers) to the subject of…