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Federal Circuit Declines to Adopt Settlement Negotiation Privilege

April 2012
Practice: Professional Liability
People: Richard J. Rosensweig
In a closely watched decision issued yesterday, the U.S. Court of Appeals for the Federal Circuit rejected a privilege for settlement negotiations of in patent matters in re MSTG, Inc., Misc. Docket No. 996 (Fed. Cir. April 9, 2012).  Although litigants sometimes assert that settlement negotiations are privileged under Rule 408 of the Federal Rules of Evidence, the Rule creates no such privilege.  Rule 408 states inter alia that "evidence of conduct or statements made in compromise negotiations is . . . not admissible" "to prove liability for or invalidity of [a] claim or its amount."  The Rule does not require exclusion of the evidence if offered for other purposes.  Nor does it state that the evidence is privileged or otherwise immune from discovery.

In MSTG, the defendant sought discovery of evidence concerning negotiations of settlement conducted by the plaintiff with the defendant in connection with lawsuit at issue, and with other parties who had settled patent infringement claims related to the plaintiff's 3G mobile telecommunication technology.  After having denied an earlier request, the magistrate judge in the trial court allowed discovery of those negotiations and his decision was upheld by the Distrct Court judge.  The plaintiff sought an order of mandamus from the Federal Circuit to overturn the trial court's decision.

On appeal the plaintiff urged the Federal Circuit to "fashion a new privilege in patent cases that would prevent discovery of litigation settlement negotiations related to reasonable royalties and damages" citing Goodyear Tire & Rubber Co. v. Chiles Pwer Supply Inc.,332 F.3d 976 (6th Cir. 1983).  But the Court declined, reasoning that none of the factors to be considered in assessing the propriety of adopting a new privilege protections set forth in Federal Rule of Evidence 501 were present. Specifically, the court held that there is no state consensus in favor of such a privilege, Congress declined to adopt such a privilege in Rule 408, such a privilege is not among the list of evidententiary privileges recommended by the Advisory Committee of the Judicial Conference in its proposed Federal Rules of Evidence, "a broad settlement negotiation privilege" is not necessary to further the public interest in fostering settlements, and such a rule would necessarily have numerous exceptions as Rule 408 itself contemplates the admissibility of such evidence for purposes outside the scope of its admissibility exclusion. 

A copy of the decision can be found at: http://www.virginiaiplaw.com/uploads/file/MTSG.pdf 

This blog entry was originally posted on Legal OnRamp.  Goulston & Storrs attorneys provide blogs, discussion forums, collaboration, and pertinent news and related key cases regarding attorney-client privilege and work product protection information for Legal OnRamp.

This information should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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