Protecting Confidentiality of Patent Infringement Settlements: Is Mediation Necessary?
Parties regularly opt to keep terms, conditions and licensing agreements confidential when settling patent infringement disputes. Often, patentees do not want the license terms to serve as precedent in other assertions of the patent(s). Defendants may also not want other potential patent plaintiffs to believe they are a “soft touch.” Whatever the reason, parties assume that the confidentiality provision will be effective against disclosure of the license terms by the other side or to third parties. The assumption may be warranted in the former, but recent cases have cast serious doubt on the latter.
The Federal Circuit, for example, has held that such confidentiality provisions may not shield the license terms or their negotiations from either disclosure or admissibility on the issue of damages in other suits brought under the same patent(s). However, it has intimated that this may not be the case if the negotiations were conducted in, and the settlement the result of, a mediation. It appears that conducting patent infringement settlement negotiations in mediation maximizes the prospects for protecting at least the confidentiality of those negotiations, if not the license itself.
To put that thesis in context, under 35 U.S.C. Sec. 284, a patentee is entitled to at least a reasonable royalty if its patent is found to have been infringed. A reasonable royalty is usually determined by an analysis of factors set forth in the Georgia-Pacific case that inform the hypothetical royalty rate the parties would have agreed to in negotiations conducted when the infringement began. The first Georgia-Pacific factor—and the one most important here—is the royalties received by the patentee from existing licenses of the patent(s) in suit. Prior to 2010, there was a question concerning whether existing licenses that were the result of litigation settlement were proper references, because they were not purely commercial but could be skewed by litigation considerations such as expense savings, risks of invalidity, etc. That question was put to rest in ResQNet.com v. Lansa, Inc. (Fed.Cir. 2010), which held that of many licenses entered into by the patentee, “the most reliable license in this record arose out of litigation.” Confidentiality of this license or its negotiation history was not at issue, but it became of heightened importance to patentees that did not want their litigation settlements to cap their damages in future litigation. And, as will be seen below, it incentivized efforts by later defendants accused of infringing the same patents to discover not only the terms, but also the negotiation history of earlier licenses resulting from litigation settlements.
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