In re MSTG, Inc.

• Decision Date: 09 April 2012
• Docket Number: Misc. No. 996.
• Citation: 675 F.3d 1337,102 U.S.P.Q.2d 1321
• Parties: In re MSTG, INC., Petitioner.
• Court: U.S. Court of Appeals — Federal Circuit

102 U.S.P.Q.2d 1321

675 F.3d 1337

In re MSTG, INC., Petitioner.

Misc. No. 996.

United States Court of Appeals, Federal Circuit.

April 9, 2012.

Christopher J. Lee, Niro, Haller & Niro, of Chicago, IL, filed a petition for writ of mandamus and motion to stay for petitioner-movant.

David T. Pritikin, Sidley Austin LLP, of Chicago, IL, filed a response for respondent AT & T Mobility LLC. With him on the response were Lisa A. Schneider and Benedict F. Frey. Of counsel was Robert N. Hochman.

Before RADER, Chief Judge, DYK and MOORE, Circuit Judges.

ON PETITION FOR WRIT OF MANDAMUS

DYK, Circuit Judge.

ORDER

This petition arises out of an order of the United States District Court for the Northern District of Illinois compelling MSTG, Inc. (“MSTG”) to produce documents related to license negotiation discussions between MSTG and six other companies, including previous defendants in this suit. We are asked to decide first, as a matter of first impression, whether such communications related to reasonable royalties and damages are protected from discovery based on a settlement negotiation privilege, and second, whether on the facts of this case the district court clearly abused its discretion by ordering their production. Because we conclude that the communications are not privileged, and that the district court did not clearly abuse its discretion, we deny the petition for writ of mandamus.

Background

In 2008, MSTG sued AT & T Mobility, LLC (“AT & T”) and other cell phone service providers and mobile device manufacturers claiming infringement of U.S. Patent Nos. 5,920,551, 6,198,936, and 6,438,113 (collectively, the “patents-in-suit”) covering third-generation (“3G”) mobile telecommunications technologies. In 2009, MSTG initiated another lawsuit against other cell phone service providers and mobile device manufactures, also alleging infringement of the patents-in-suit. MSTG eventually settled with all defendants other than AT & T. As part of the settlement agreements, most defendants were granted licenses under the patents-in-suit as well as under other patents owned by MSTG. One defendant entered into an agreement giving it an option to license the patents at a predetermined rate. Additionally, during this time period, MSTG licensed the patents-in-suit to a technology consortium, providing the consortium the right to grant a sublicense to its more than 50 members, a few of which were defendants in the pending litigation.

One of the issues in the litigation was the amount of a reasonable royalty if AT & T were found to infringe the patents-in-suit. License agreements can be pertinent to the calculation of a reasonable royalty. During discovery and in response to AT & T's document requests, MSTG produced six license agreements and the option agreement (collectively, the “settlement agreements”). AT & T then sought further discovery into the negotiations of the settlement agreements on the theory that those negotiations too could be pertinent to a reasonable royalty. MSTG objected on the ground that the negotiations were irrelevant to the reasonable royalty calculation. AT & T moved to compel the production of all “documents reflecting communications between MSTG or its attorneys, on the one hand, and either licensees or parties threatened with infringement by MSTG, on the other.” Resp't's App. 270. In a January 20, 2011, order, a magistrate judge denied AT & T's motion to compel, finding that “AT & T has not carried its burden of showing why the settlement negotiations are relevant and discoverable under the standards of Rule 26.” MSTG, Inc. v. AT & T Mobility LLC (“ Initial Order ”), No. 08–C–7411, slip op. at 28, 2011 WL 221771 (N.D.Ill. Jan. 20, 2011).

On January 10, 2011, after AT & T had submitted its motion to compel, MSTG served an expert report by Frank Bernatowicz on the issue of damages. This report was not submitted to the magistrate judge before he issued his January 20, 2011, order. In this report, Mr. Bernatowicz offered an opinion regarding a reasonable royalty for AT & T's alleged infringement of the patents-in-suit by “analyz[ing] royalty rates from potentially comparable licenses, industry survey results, licensing policies of the 3GPP, and other published licensing rates for similar technology.” Resp't's App. 144–45. Although the expert had “reviewed the[ ] six agreements and taken them into consideration in [his] reasonable royalty analysis,” he did not find the royalty rates in those agreements to “be comparable to the hypothetical negotiation between MSTG and AT & T.” Resp't's App. 138. This was so because most of the royalty agreements were “litigation related compromises,” id., and because they covered additional patents beyond the patents-in-suit. There was no showing that the expert had access to the negotiation documents, though he relied on deposition testimony of an MSTG executive that the agreements reflected litigation-related compromises.

AT & T sought reconsideration of the January 20, 2011, order on the grounds that the expert's discussion of the license agreements in his report constituted newly discovered evidence supporting discovery of the settlement negotiations. Granting the motion, the magistrate judge found that the negotiation documents “might contain information showing that the grounds Bernatowicz relied on to reach his conclusion are erroneous.” MSTG, Inc. v. AT & T Mobility LLC (“ Reconsideration Order”), No. 08–C–7411, slip op. at 4, 2011 WL 841437 (N.D.Ill. Mar. 8, 2011). The Reconsideration Order went on to explain that “[d]ocuments related to negotiations could shed light on why the parties reached their royalty agreements and could provide guidance on whether some or all of the licenses could be considered a basis for calculating a reasonable royalty between AT & T and MSTG.” Id. at 5. MSTG was ordered to “produce documents reflecting communications, including settlement negotiations, it had with the six companies referenced in AT & T's motion.” Id. at 7. The effect was to require production of the negotiation documents leading up to the license agreements, the option agreement, and the agreement with the technology consortium.

The district court denied MSTG's objections and adopted the order. MSTG, Inc. v. AT & T Mobility LLC (“Final Discovery Order”), No. 08–C–7411, slip op. at 2 (N.D.Ill. June 27, 2011). In doing so, the district court agreed with the analysis of the magistrate judge. Additionally, it found that because MSTG's expert relied on the testimony of MSTG's executive regarding MSTG's “business reasons” for entering into the license agreements, it would be unfair for MSTG to “then shield those reasons from further examination.” Id. On July 7, 2011, MSTG moved the district court to stay its June 27, 2011, order pending MSTG's petition for writ of mandamus. The district court denied MSTG's motion.

MSTG petitioned this court for a writ of mandamus to vacate the June 27, 2011, order and simultaneously moved for a stay of the discovery order pending our review of the petition. On July 29, 2011, we temporarily stayed the district court's discovery order pending our review. We have jurisdiction under 28 U.S.C. § 1295. See In re Princo Corp., 478 F.3d 1345, 1351 (Fed.Cir.2007).

Discussion

I

“As to discovery matters, we have held that Federal Circuit law applies when deciding whether particular written or other materials are discoverable in a patent case, if those materials relate to an issue of substantive patent law.” Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., 265 F.3d 1294, 1307 (Fed.Cir.2001). For example, in In re Seagate Technology, 497 F.3d 1360 (Fed.Cir.2007) (en banc), we held that “[b]ecause willful infringement and the scope of waiver [of attorney-client privilege and work-product immunity] accompanying the advice of counsel defense invoke substantive patent law, we apply the law of this circuit.” Id. at 1367–68. Similarly, in In re Spalding Sports Worldwide, Inc., 203 F.3d 800 (Fed.Cir.2000), we held that “a determination of the applicability of the attorney-client privilege to [an] invention record clearly implicates, at the very least, the substantive patent issue of inequitable conduct. We therefore apply Federal Circuit law in determining whether the attorney-client privilege applies.” Id. at 803–04. Just as we have applied our own law to issues of the scope of the attorney-client privilege and work product doctrine, we here apply our own law in determining whether a privilege or other discovery limitations protect disclosure of information related to reasonable royalties because that issue “implicates the jurisprudential responsibilities of this court within its exclusive jurisdiction,” Advanced Cardiovascular Sys., Inc., 265 F.3d at 1303, and has a significant bearing on the substantive issue of patent damages, see In re EchoStar Commc'ns Corp., 448 F.3d 1294, 1298 (Fed.Cir.2006).

II

Pursuant to the All Writs Act, 28 U.S.C. § 1651(a), this court has the authority to issue a writ of mandamus as “necessary or appropriate in aid of” our jurisdiction. Miss. Chem. Corp. v. Swift Agric. Chems. Corp., 717 F.2d 1374, 1379 (Fed.Cir.1983). The remedy of mandamus is available only in extraordinary situations to correct a clear abuse of discretion or usurpation of judicial power. In re Calmar, Inc., 854 F.2d 461, 464 (Fed.Cir.1988). A party seeking a writ bears the burden of proving “that its right to issuance of the writ is clear and indisputable, ... and that it lacks adequate alternative means to obtain the relief sought.” In re Spalding Sports Worldwide, 203 F.3d at 804 (alteration in original) (quoting In re Regents of Univ. of Cal., 101 F.3d 1386, 1387 (Fed.Cir.1996)).

It is generally inappropriate to review discovery orders by mandamus. However, mandamus may be appropriate where a discovery order “raises a novel and important question of power to compel discovery, or ... reflects substantial uncertainty and confusion in the...