Page 79 - Intellectual Property Disputes

In ResQNet.com, the Federal Circuit acknowledged that the "most reliable license in this record arose
out of litigation." fn 48 Similarly, in ReedHycalog UK, Ltd. v. Diamond Innovations, Inc., the district
court allowed the inclusion of five settlement agreements with the other license agreements admitted at
trial. The district court indicated that the relevance of the agreements, basically the same license
structure and financial terms, outweighed any risk of confusion or prejudice that might occur. The
district court also remarked that ResQNet.com did not allow for the automatic inclusion of settlement
agreements but, rather, case specifics would determine the inclusion or exclusion of settlement
agreements. fn 49

The Federal Circuit’s decision in ResQNet.com has since become a commonly cited opinion in support
of the use of settlement agreements as part of the hypothetical negotiation analysis. However, the
opinion does not serve as a basis for the acceptability of settlement licenses in all cases. It appears
settlement agreements are more often admitted when the asserted patents have not been previously
licensed or no "more comparable" agreements are available. The settlement agreements then become the
best "comparable agreements" and may provide more instruction than the evidence created by the parties
to the litigation. Relying on the ResQNet.com decision, the court in Tyco Healthcare Group LP v. E-Z-
EM, Inc., held that

[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. fn 50

Further, in DataTreasury Corp. v. Wells Fargo & Co., fn 51 the district court denied a motion in limine
from the defendant seeking to exclude a royalty rate that was used in settlement of a case. The court,
referencing ResQNet.com, stated, "litigation-related licenses should not be excluded," and any "concerns
about the reliability of litigation-related licenses are better directed to weight, not admissibility." fn 52 In
doing so, the court held that the defendant can propose a jury instruction that gives guidance on applying
the settlement licenses and that the plaintiff should produce documents regarding the negotiations of
these settlement licenses.

Although settlement agreements were deemed potentially relevant in the previous decisions, the ultimate
decision about the relevance and, therefore, the admissibility of settlement license agreements depends
on the totality of the facts in a given case. In Fenner Investments, Ltd. v. Hewlett-Packard Co., the
district court clarified that the "ResQNet decision has not altered the admissibility of agreements entered

fn 48 ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 870 (Fed. Cir. 2010).

fn 49 ReedHycalog UK, Ltd. v. Diamond Innovations, Inc., 6:08-cv-00325 (E.D. Tex., 2010).

fn 50 Tyco Healthcare Group LP v. E-Z-EM, Inc., 2010 U.S. Dist. LEXIS 18253 (E.D. Tex.). The court ruled on the plaintiff’s motion
to compel the defendant to produce documents allegedly covered by the defendant’s purported "settlement negotiations" privilege. The
license in question was between the defendants and a nonparty third party for technology used in the defendant’s products.
fn 51 DataTreasury Corp. v. Wells Fargo & Co., 2010 U.S. Dist. LEXIS 25291 (E.D. Tex.). The patents at issue relate to digital
document imaging software such as that used in digital check processing.

fn 52 Id.

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