Laboratories v. Sandoz Inc.

• Decision Date: 24 May 2010
• Docket Number: No. 05 C 5373.,05 C 5373.
• Citation: 743 F.Supp.2d 762
• Parties: ABBOTT LABORATORIES, Abbott Laboratories, Inc., and Abbott Pharmaceuticals PR Ltd, Plaintiffs,v.SANDOZ, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

743 F.Supp.2d 762

ABBOTT LABORATORIES, Abbott Laboratories, Inc., and Abbott Pharmaceuticals PR Ltd, Plaintiffs,

v.SANDOZ, INC., Defendant.

No. 05 C 5373.

United States District Court, N.D. Illinois, Eastern Division.

May 24, 2010.

R. Mark McCareins, Michael Alan Flomenhoft, Todd Jay Ehlman, Winston & Strawn LLP, Chicago, IL, Andrea Weiss Jeffries, Andrew Winston Song, Jeffrey Ira Weinberger, Ted G. Dane, Munger, Tolles & Olson, Los Angeles, CA, Genevieve A. Cox, Jennifer L. Polse, Munger, Tolles & Olson LLP, San Francisco, CA, for Plaintiffs.Keith D. Parr, Locke Lord Bissell & Liddell LLP, Chicago, IL, Alan B. Clement, Locke Lord Bissell & Liddell LLP, New York, NY, David B. Abramowitz, James T. Peterka, Kevin Michael Nelson, Myoka Kim Goodin, Scott B. Feder, Locke Lord Bissell & Liddell LLP, Chicago, IL, for Defendant.

ORDER

DAVID H. COAR, District Judge.

Presently before this Court are motions in limine filed by Plaintiffs, Abbott Laboratories, Abbott Laboratories, Inc., and Abbott Pharmaceuticals PR LTD (collectively “Abbott” or “Plaintiff”), as well as motions in limine filed by Defendant, Sandoz, Inc. (“Sandoz” or “Defendant”). Subject to the explanations below, Plaintiff Abbott's motions in limine [478], [479], [483], and [484] are GRANTED, Plaintiff Abbott's motions in limine [477], [480], [482], [486], [492], are DENIED, and Plaintiff Abbott's motions in limine [481], [485], and [489] are DENIED IN PART and GRANTED IN PART. Defendant Sandoz's motions in limine [468], [473], and [474] are GRANTED, and Defendant Sandoz's motions in limine [469], [470], [471], [472], [475], and [476] are DENIED.

A. PLAINTIFF ABBOTT'S MOTIONS IN LIMINE1. To preclude Sandoz from offering evidence or relying upon settlement agreement royalties. [ Dkt. 492.]

Abbott entered into three settlement agreements (with Teva, Andrx, and Ranbaxy) involving the patents at issue in this case. As a term of these settlements, Abbott agreed to allow Teva, Andrx, and Ranbaxy to sell their generic versions of Biaxin XL on a royalty-free basis. Abbott argues that, under Federal Rules of Evidence 402, 403, and 408, the Court should prevent Sandoz from introducing the royalty rates to which Abbott agreed in those settlements. First, royalty rates from these settlements should be excluded under Rule 408 to further the important policy of promoting settlements. Second, the royalty rates are irrelevant under Rule 402; because amounts paid in prior settlement agreements are based on many factors in addition to the value of use of a patented product, such amounts are not probative of the amount a patentee should be awarded following a finding of infringement. For the same reason, the potentially marginal relevance of this evidence is outweighed by the danger of unfair prejudice and potential to distract the jury under Rule 403. Finally, introducing this evidence would invite a mini-trial on the similarities or differences between the facts of this case and the cases against Andrx, Teva, or Ranbaxy, and Abbott's reasons for settling those cases. (Abbott argues, for example, that one key difference between the instant case and the settled cases is that Sandoz chose to launch its product at risk, decreasing the likelihood that Abbott would offer Sandoz the same exclusivity it offered Andrx, Teva, and Ranbaxy.)

In response, Sandoz argues that, because Abbott's damages expert put Abbott's settlement agreements in issue, Sandoz is entitled to rely upon those agreements to rebut the expert's testimony. During his deposition, Abbott's expert stated that he considered the zero-percent royalty rate agreements when he conducted the “book of wisdom” analysis underlying his reasonable royalty calculation. Sandoz argues that because Federal Rule of Evidence 705 imposes upon the defendant the burden of showing on cross-examination the basis for the plaintiff's expert's testimony, Sandoz is entitled to use the settlement agreements at issue to rebut the expert's testimony. Century Wrecker Corp. v. E.R. Buske Mfg. Co., 898 F.Supp. 1334 (N.D.Iowa 1995). In addition, Sandoz argues that the settlement agreements are relevant evidence of Abbott's perceived value of the patents-in-suit, and there is no hard-and-fast rule that royalty rates in settlement agreements may not be relied upon to determine a reasonable royalty rate in a patent infringement case.

On April 26, 2010, Sandoz submitted ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed.Cir.2010), as supplemental authority in further support of its opposition to this motion. In response, Abbott argues that this case is inapposite because it does not address the admissibility of licenses that are specifically part of settlement agreements. Abbott also submitted supplemental authority in support of its motion: Insight Technology Inc. v. SureFire LLC, No. 04–CV–74–JD, 2009 WL 3242554 (D.N.H.2009) (holding evidence of other settlement agreements inadmissible at trial to prove the value of a reasonable royalty); Uniloc USA, Inc. v. Microsoft Corp., 632 F.Supp.2d 147, 159 (D.R.I.2009) (excluding licenses entered into as part of settlements in other cases because they are not probative of a reasonable royalty and “whatever relevance the evidence could have as to reasonable royalty is substantially outweighed by the unfair prejudice ... and juror confusion that would likely result from these collateral issues”); Cornell Univ. v. Hewlett–Packard Co., No. 01–CV–1974, 2008 WL 2223122, at *1 (N.D.N.Y. May 21, 2008) (federal circuit judge sitting by designation excluded under Rules 402 and 408 testimony on the amounts the patentee had offered to license a third party in settlement negotiations).

Abbott's motion will be DENIED. This determination would be easy if the question merely involved whether to admit evidence of license agreements contained in Abbott's settlements with Andrx, Teva, and Ranbaxy. It is clear that these license agreements would be inadmissible under Fed.R.Evid. 408 and the wealth of cases excluding evidence of settlement agreements offered to establish reasonable royalty rates in the context of patent infringement. However, the fact that Abbott's expert relied on the license agreements at issue separates this case from the precedent and supports the admission of these agreements under Century Wrecker Corp. v. E.R. Buske Mfg. Co., 898 F.Supp. 1334 (N.D.Iowa 1995).

Even though a patent holder's license agreements with third parties are permissible and relevant considerations in a reasonable royalty calculation, courts frequently exclude such agreements under Fed.R.Evid. 408. PharmaStem Therapeutics, Inc. v. Viacell, Inc. et. al., No. C.A. 02–148(GMS), 2003 WL 22387038, at *2, 2003 U.S. Dist. LEXIS 27869, at *6 (D.Del. Oct. 7, 2003); Century Wrecker, 898 F.Supp. at 1340. Evidence of settlement agreement royalties is generally excluded for two primary reasons. First, Rule 408 aims to promote settlements, and accordingly, admitting these agreements could chill parties' willingness to engage in settlement negotiations. Vardon Golf Co., Inc. v. BBMG Golf Ltd., 156 F.R.D. 641, 652 (N.D.Ill.1994); PharmaStem, 2003 WL 22387038, at *3–4, 2003 U.S. Dist. LEXIS 27869, at *10. Second, because many considerations contribute to settlement agreements, such agreements are not very reliable guides for determining the value of a reasonable royalty. Uniloc USA, Inc. v. Microsoft Corp., 632 F.Supp.2d 147, 159 (D.R.I.2009); Vardon Golf Co., 156 F.R.D. at 651. Admitting evidence of settlement agreements with third parties would “invite a ‘mini-trial’ on similarities and differences in the facts regarding the ‘same’ claims against other defendants” to determine the value of the claim in the case at hand. Pioneer Hi–Bred Intern., Inc. v. Ottawa Plant Food, Inc., 219 F.R.D. 135, 145 (N.D.Iowa 2003). In addition, given the marginal relevance of the settlement agreements, their probative value is outweighed by the danger of unfair prejudice under Rule 403. Id. at 144–45; see also Uniloc USA, Inc., 632 F.Supp.2d at 159.

Despite the plethora of cases and supplemental authority submitted by the parties, the two most relevant cases are Century Wrecker Corp. v. E.R. Buske Mfg. Co., 898 F.Supp. 1334 (N.D.Iowa 1995) and PharmaStem Therapeutics, Inc. v. Viacell, Inc. et al., No. C.A. 02–148(GMS), 2003 WL 22387038, 2003 U.S. Dist. LEXIS 27869 (D.Del. Oct. 7, 2003). These are the only two cases that deal with the admissibility of settlement agreements in patent infringement cases when the defendant's expert has relied on such agreements in his reasonable royalty calculation. After noting the precedent supporting the exclusion of settlement agreements, the court in Century Wrecker held that, because the plaintiff's expert specifically relied upon settlement agreements in his reasonable royalty calculation, the defendant could present those agreements to rebut the expert's testimony. Century Wrecker, 898 F.Supp. at 1341. The court explained that “Federal Rule of Evidence 705 imposes upon the opposing party the onus of eliciting the bases of an expert witness' opinion on cross-examination” and went on to admit the evidence at issue, holding:

To the extent that defendants can show [plaintiff's expert] relied in any way on the settlement agreements in question in reaching his conclusions about a reasonable royalty in this case, defendants are entitled to present those settlement agreements and to show in what way they form an appropriate or inappropriate basis for [plaintiff's expert's] calculations.

Id. Addressing essentially the same facts, the court in PharmaStem noted that it was not bound by Century Wrecker and held that it was “not required to allow otherwise inadmissible settlement agreements into evidence simply because one party's expert relies on them in reaching a reasonable royalty.” PharmaStem, 2003 WL 22387038, at *3, 2003 U.S. Dist. LEXIS 27869, at *9. Citing the important policy considerations underlying Rule 408...