Evidence of Prior Licensing Discussions May Be Excluded if the Accused Infringer Stipulates to Knowledge of the Patent

Authored by Amanda Joy Dittmar, D. Brian Kacedon, and John C. Paul

The Federal Circuit has ruled that evidence of unfruitful licensing discussions is admissible to show, for example, an accused infringer's knowledge of the patents-in-suit. SeeFuji Photo Film Co. Ltd. v. Jazz Photo Corp.; Mentor H/S, Inc. v. Medical Device Alliance, Inc.¹ After these cases, a question remained: is evidence of licensing attempts always relevant and admissible? The District of Delaware recently considered this question and precluded evidence of those attempts in a case in which the Court had bifurcated willfulness and damages and the accused infringer stipulated to having knowledge of the patent-in-suit for purposes of inducement of infringement.

The LadaTech LLC v. Illumina, Inc. Order

After licensing negotiations failed to result in a license agreement for U.S. Patent No. 6,107,023, LadaTech, LLC brought an infringement suit against Illumina, Inc. and Solexa, Inc.² During the litigation, the trial court bifurcated the willfulness and damages elements of the case. In addition, Illumina and Solexa stipulated that they knew of the '023 patent for purposes of inducement of infringement.

LadaTech sought to introduce evidence of the failed licensing negotiations as evidence of Illumina's intent for purposes of establishing inducement of infringement. LadaTech cited the Federal Circuit decisions, Fuji Photo and Mentor H/S, for the principle that a failed licensing attempt is relevant circumstantial evidence of a defendant's knowledge of a patent. Illumina and Solexa moved to preclude the evidence of the licensing attempts based on their stipulation.

The Court distinguished the Federal Circuit cases. Unlike this case, the question of when the defendants had knowledge of the patents-in-suit was at issue in Fuji Photo and Mentor H/S. LadaTech did not need to prove defendants' knowledge of the patent at trial. Thus, according to the Court, the failed licensing discussions were not relevant.

Illumina and Solexa argued that Federal Rule of Evidence 408 bars the admission of the failed licensing discussions. Rule 408 bars the admission of evidence of efforts toward compromising or attempting to compromise a claim in litigation, but the Court found that Rule 408 does not prevent the plaintiff from relying on licensing discussions to support its claims. The Court instead held that the evidence was inadmissible under Federal Rule of Evidence 403, because the danger of unfair prejudice to the defendants and the likely juror confusion that would result from this collateral issue outweighed the probative value of the failed licensing attempts in view of the defendants' stipulation.

Strategy and Conclusion

This case provides insight into the circumstances that might prompt a court to admit or exclude evidence of failed licensing attempts. If the Federal Circuit and other courts follow the reasoning of the District of Delaware, evidence of unfruitful licensing discussions may be admissible if damages, willfulness, or the accused infringer's knowledge of the patents-in-suit is at issue. Where damages and willfulness are bifurcated, however, a stipulation to knowledge of the patent by the accused infringer may make evidence of licensing discussions inadmissible under Rule 403.

While the evidence of prior negotiations was excluded in this case, it does highlight the potential issue of licensing discussions being used in later litigation. If parties are concerned about this issue, it is worthwhile to consider entering into a confidentiality agreement that contractually prohibits the use of the licensing discussions in any later litigation. This will often be preferable to relying on the rules of evidence to exclude the discussions. 

Endnotes
¹  Fuji Photo, 394 F.3d 1368, 1377-78 (Fed. Cir. 2005); Mentor H/S, 244 F.3d 1365, 1379 (Fed. Cir. 2001).

²  The LadaTech decision: https://www.scribd.com/doc/81845888/Ladatech-LLC-v-Illumina-Inc-et-al-C-A-No-09-627-SLR-D-Del-Feb-14-2012.

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