January 9, 2012
LES Insights
Authored by Uttam G. Dubal, D. Brian Kacedon, and John C. Paul
When a patent owner successfully enforces a patent in litigation, the court will award damages adequate to compensate for the infringement. The awarded damages should in no event be less than a reasonable royalty, namely, the rate a licensee would willingly pay after normal arms-length negotiations between a licensee and a licensor. During the discovery phase of most patent litigations, the parties will ask each other to produce license agreements in an effort to support their analysis of a reasonable royalty. Often, the patent owner will have license agreements involving the patent-in-suit and others not involving that patent.
The Federal Rules of Civil Procedure are broadly construed by courts to allow information to be discoverable by parties so long as the information sought is reasonably calculated to lead to the discovery of admissible evidence. On the other hand, courts have often denied (or in some cases limited) the scope of discoverable information if the burden and expense of the proposed discovery outweighs any likely benefit. This begs the question—when are patentees required to provide their adversaries with a copy of a particular license agreement if that agreement does not involve the litigated patent? In a recent order in Bally Technologies, Inc. v. Business Intelligence Systems Solutions, Inc., 2-10-cv-00440 (D. Nev. Aug. 30, 2011),1 the district court provided some insight on this issue.
During the course of the litigation, Business Intelligence Systems Solutions, Inc. (BIS2) asked Bally Technologies, Inc. (Bally) to respond to a Request for Document Production. The particular request sought all documents relating to any actual or potential license agreements that related to any of Bally's patents (including documents related to communications concerning any license agreements or negotiations). Bally objected to this request as being, among other things, overly broad and unduly burdensome. Further, Bally argued that it had produced all relevant agreements between it and its customers. In support of its request to compel Bally to produce additional license agreements, BIS2 cited a Federal Circuit decision from 1985, American Original Corp. v. Jenkins Food Corp., for the proposition that in the absence of any existing royalty rate, "royalties paid by others for use of a comparable patent in the industry" were relevant to establishing a reasonable royalty.
The district court clarified the American Original decision and explained that it stood for the proposition that evidence regarding license agreements for a comparable patent may be admitted where the particular patent-in-suit has not been licensed and there is thus no established royalty rate. The court then continued by pointing to case law that further listed the relevant factors for a reasonable calculation of royalties. As an overarching theme, the Federal Circuit has held that a trial court "must carefully tie the proof of damages to the claimed invention's footprint in the market place." In short, the court agreed that Bally's licensing agreements involving patents relating to similar technologies may be relevant if the patent-in-suit has not been licensed, or if there is reason to believe that Bally's licenses of the patents did not involve arms-length business transactions reflecting their actual market value.
In the end, the court denied BIS2's motion to compel production of Bally's licensing documents related to other Bally-owned patents. The court required Bally to produce only the actual license agreements, negotiated at arms-length, regarding the patents-in-suit and explained that such agreements are the best, and only, evidence on which to base a reasonable royalty rate. BIS2's "very sketchy motion to compel" did not, according the court, provide sufficient showing that license agreements involving other patents were "sufficiently relevant."
Bally demonstrates that patent owners can push back on broad discovery requests related to patents other than those asserted when license agreements involving the asserted patents exist. License agreements involving similar technology but different patents may be deemed sufficiently relevant, however, if no other patents exist. While not addressed directly by Bally, this rationale may also apply to protect defendants from producing unrelated license agreements.
1 The Bally v. BIS2 order: http://docs.justia.com/cases/federal/district-courts/nevada/nvdce/2:2010cv00440/72434/106/0.pdf?1314805328.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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