Federal Circuit allows discovery of patent infringement settlement negotiations

In MTSG V ATT, the Federal Circuit found that settlement negotiations related to reasonable royalty and damage calculations are not protected by a settlement negotiation privilege.

Background: In 2008, MSTG sued AT&T Mobility, LLC (“AT&T”) and other cell phone service providers and mobile device manufacturers claiming infringement of its third-generation (“3G”) mobile telecommunications patents. In 2009, MSTG sued more cell phone service providers and mobile device manufactures.

MSTG eventually settled with all defendants except AT&T, and as part of the settlement agreements, most defendants were granted licenses under the patents-in-suit.

At Issue: MSTG is seeking damages from AT&T. Part of damages calculations is the determination of a reasonable royalty. Evidence of reasonable royalties can come from licenses of the patents in suit or similar licenses…such as those negotiated with the other defendants. Normally these negotiations would have been exempt from discovery, but plaintiff’s expert witness used them to come to his conclusion regarding damages, so the district court ordered MTSG to make the materials available and the Federal Circuit agreed. The 21-page opinion is summed up in a concluding sentence: “As a matter of fairness MSTG cannot at one and the same time have its expert rely on information about the settlement negotiations and deny discovery as to those same negotiations.”

IPO owners finding themselves in similar situations should take particular heed. How important is it for a damages expert to see negotiation documents from related settlements? Would a thorough search in ktMINE allow for sufficient comparables that the in-house review of related settlements could be by-passed?