Your Settlement Negotiations May Not Be Privileged - Federal Circuit Nixes Proposed Privilege For Negotiation Of Patent Royalties And Other Settlement Discussions

When a party seeks to obtain sensitive but otherwise discoverable information from its opponent, courts occasionally are asked to consider whether a new privilege should be recognized in order to shield the information being sought. In recent years, however, courts have shown an extreme reluctance to create new privileges. The Federal Circuit reinforced this trend on April 9, 2012, when—in a precedential order—it refused to recognize a privilege being proposed for patent cases that would have prevented discovery of litigation settlement negotiations.

The case, In re MSTG, Inc., No. 11-M996 (Fed. Cir. Apr. 9, 2012), involved patent-infringement allegations relating to "3G" mobile telecommunications technology. It was brought by MSTG against AT&T Mobility and several other providers. MSTG subsequently entered into settlement agreements with the other providers, licensing its patents to them. As the litigation with AT&T continued, the settlement agreements themselves were produced to AT&T, but AT&T also sought discovery of information relating to the negotiation of those agreements. AT&T reasoned—and the court agreed—that, if infringement were to be found, settlement negotiation information could be relevant to the valuation of any royalties owed by AT&T.

MSTG unsuccessfully urged the Federal Circuit to fashion a new privilege to prevent disclosure of its settlement negotiations. Turning to the court's refusal to do so, several points bear noting:

The court rejected the view that it was sufficient to produce the settlement agreements themselves without producing underlying negotiation information. It observed that the underlying information could be relevant, at least in this case, for purposes of assessing whether "litigation related compromises" influenced the dollar amounts settled upon in licensing the patents. Relatedly, while this decision holds that a specific privilege protecting settlement discussions does not exist, it does not limit the inherent power of courts to "exercise appropriate control over the discovery process" to "prevent abuse." Here, the court found that the potential relevance of the...