Small v. Nobel Biocare USA, LLC

Decision Date19 July 2011
Docket NumberNo. 06 Civ. 0683 (RJH)(JLC).,06 Civ. 0683 (RJH)(JLC).
Citation808 F.Supp.2d 584
PartiesDr. Paula SMALL, Plaintiff, v. NOBEL BIOCARE USA, LLC, et al., Defendants.
CourtU.S. District Court — Southern District of New York

OPINION TEXT STARTS HERE

Alfred Ross Fabricant, Andrew Alan Phillips, Cindy Yang, Dawn L. Rudenko, Lawrence C. Drucker, Peter Lambrianakos, Steven I. Weisburd, Dickstein Shapiro LLP, New York, NY, for Plaintiff.

David M. Kohane, Cole, Schotz, Meisel, Forman & Leonard, P.A., Baldassare Vinti, Bruce E. Fader, Elias Leib Schilowitz, James Holman Shalek, Proskauer Rose LLP, Christopher Allen McLaughlin, Zawacki, Everett & Gray, Michael Edward Treiman, Bernard Malina, Malina & Associates, P.C., New York, NY, Sean M. Murray, Sheila N. Swaroop, Knobbe Martens Olson & Bear LLP, Irvine, CA, David L. De Bruin, Michael Best & Friedrich LLP, Pro Hac, Vice, Alan Becker, Litchfield Cavo, LLP, Joseph F. Marinelli, Fitch, Even, Tabin & Flanner, Gilberto E. Espinoza, Michael Best & Friedrich LLP, Pro Hac, Vice, Chicago, IL, Allen E. Hoover, Fitch, Even, Tabin & Flannery, Boulder, CO, Christopher Dugger, Michael Hurey, Kleinberg & Lerner, LLP, Los Angeles, CA, for Defendants.

MEMORANDUM & ORDER

JAMES L. COTT, United States Magistrate Judge.

Currently before the Court are the requests of Defendants Implant Direct, MFG., LLC, Southern Implants, Inc., Southern Implants (Pty) Ltd., MegaGen USA, Inc., and MegaGen Co., Ltd. (together “Implant Direct”) and Defendants Nobel Biocare USA, LLC and Nobel Biocare AB (together Nobel) for a pre-motion conference regarding a proposed motion to compel the production of a settlement agreement that Plaintiff Dr. Paula Small (Small) consummated with two former Defendants in this action, Neoss, Inc. and Neoss, Ltd. (together “Neoss”) and that Implant Direct and Nobel contend is relevant under Rule 26(b)(1) of the Federal Rules of Civil Procedure. Having considered the parties' numerous and lengthy letter-briefs on this issue, which are tantamount to motion papers, the Court finds that there is no need for a pre-motion conference. For the reasons that follow, the motion to compel is GRANTED.

I. BACKGROUND

This is a patent infringement case concerning dental implants. Dr. Small, a prosthodontist and one of the three named inventors of Patent Number RE38, 945 (the “'945 Patent”), has asserted claims of the '945 Patent against Implant Direct, Nobel, Camlog USA Inc., and Henry Schein Inc. Neoss was also originally among the named Defendants; however, Small and Neoss resolved their dispute in a confidential settlement agreement (the “Neoss Agreement”) and filed a stipulation of dismissal on April 28, 2011, which Judge Holwell endorsed on May 2, 2011 (Dkt. No. 187).

By letter to the Court dated May 27, 2011, Implant Direct seeks to compel the production of the Neoss Agreement, asserting that it is relevant pursuant to Fed. R. Civ. 26(b)(1). Implant Direct's May 27, 2011 Letter. On June 1, 2011, Small responded by letter. Pl.'s June 1, 2011 Letter. On June 20, 2011, Nobel joined Implant Direct in its request for permission to make a motion to compel. Nobel's June 20, 2011 Letter. Small responded one day later. Pl.'s June 21, 2011 Letter. By letter dated June 28, 2011, Implant Direct provided the Court with additional authority that it believes supports its position. Implant Direct's June 28, 2011 Letter. Small responded on July 6, 2011. Pl.'s July 6, 2011 Letter. On July 8, 2011, Nobel sent the Court another letter, contending that since Small seeks testimony from Nobel's 30(b)(6) witnesses concerning, among other things, settlement agreements to which Nobel has been a party, it is disingenuous for Small to argue that the Neoss Agreement is not relevant in this action. Nobel's July 8, 2011 Letter at 1. Finally, Camlog USA, Inc. and Henry Schein, Inc. (together “Camlog”) submitted a letter to the Court dated July 15, 2011 joining in Implant Direct and Nobel's application. Camlog's July 15, 2011 Letter.1

II. DISCUSSION
A. Standards Applying to Discovery of Settlement Agreements

Although Rule 408 of the Federal Rules of Evidence limits the introduction at trial of evidence regarding settlement negotiations in light of the strong “public policy favoring the compromise and settlement of disputes,” Fed.R.Evid. 408 advisory committee's note (citations omitted), Rule 408 does not apply to discovery. See, e.g., Conopco, Inc. v. Wein, No. 05 Civ. 9899(RCC)(THK), 2007 WL 1040676, at *5 (S.D.N.Y. Apr. 4, 2007); In re Initial Public Offering Sec. Litig., No. 21 MC 92(SAS), 2004 WL 60290, at *4 (S.D.N.Y. Jan. 12, 2004); ABF Capital Mgmt. v. Askin Capital Mgmt., No. 96 Civ. 2978(RWS), 2000 WL 191698, at *1 (S.D.N.Y. Feb. 10, 2000). Instead, Rule 26(b)(1) of the Federal Rules of Civil Procedure provides the scope of discovery—that, unless otherwise limited by court order

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense—including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).

Fed.R.Civ.P. 26(b)(1). Though district courts in this Circuit have in the past disagreed as to whether discovery of settlement agreements requires a heightened showing of relevance, the majority view is now that no such heightened showing is required. See Gen. Elec. Co. v. DR Sys., Inc., No. 06 Civ. 5581(LDW)(ARL), 2007 WL 1791677, at *1 (E.D.N.Y. June 20, 2007) (discussing split in authority and adopting the view that no heightened relevance showing is required); ABF Capital Mgmt., 2000 WL 191698, at *1 (“Prevailing authority within this Circuit holds that the discovery of settlement-related information is governed by [Rule 26], and that no heightened showing of relevance need be made in order to justify the disclosure of a settlement agreement.” (citations omitted)). The parties do not dispute this point here. See Implant Direct's May 27, 2011 Letter at 2; Pl.'s June 1, 2011 Letter at 1.

The burden of demonstrating relevance is on the party seeking discovery. See, e.g., Callaway Golf Co. v. Corporate Trade Inc., No. 10 Civ. 1676(GBD)(JCF), 2011 WL 1642377, at *3 (S.D.N.Y. Apr. 25, 2011). Thus, Implant Direct and Nobel bear that burden here. They assert that the Neoss Agreement is relevant to (1) the issue of damages, i.e., the determination of a reasonable royalty; (2) the infringement or validity of the '945 Patent; (3) the credibility of Small and her experts; and (4) the credibility of Mr. Cooper and Dr. Marotta, the other named inventors of the '945 Patent. Implant Direct's May 27, 2011 Letter at 2–4; Nobel's June 20, 2011 Letter at 1–2. Further, Nobel asserts that since Small seeks deposition testimony regarding settlement agreements to which Nobel has been a party, it is disingenuous for Small to argue that the Neoss Agreement is not relevant in this action. Nobel's Letter dated July 8, 2011 at 1. The Court turns next to the relevancy of the Neoss Agreement as to the issue of a reasonable royalty.

B. Relevancy of Settlement Agreements as to a Reasonable Royalty

Before deciding whether the Neoss Agreement is relevant as to a reasonable royalty—the issue most hotly contested by the parties here—it is first necessary to explain what a reasonable royalty is. 35 U.S.C. § 284 provides that a patentee who has demonstrated infringement is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” A reasonable royalty “can be calculated from an established royalty, the infringer's profit projections for infringing sales, or a hypothetical negotiation between the patentee and infringer based on the factors in Georgia–Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y.1970).” Wordtech Sys., Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1319 (Fed.Cir.2010). But in litigation it “is often determined on the basis of a hypothetical negotiation, occurring between the parties at the time that infringement began.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1312 (Fed.Cir.2011) (internal citations omitted). The hypothetical negotiation ‘attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began,’ and ‘necessarily involves an element of approximation and uncertainty.’ Wordtech, 609 F.3d at 1319 (quoting Lucent Techs. v. Gateway, Inc., 580 F.3d 1301, 1324–25 (Fed.Cir.2009)). A patentee who relies on a prior license agreement to make such a showing must demonstrate that the agreement is “sufficiently comparable to the hypothetical license at issue in suit.” Lucent Techs., 580 F.3d at 1325. It appears that the hypothetical negotiation approach will be employed in this case. Pl.'s June 1, 2011 Letter at 3, 5; Pl.'s July 6, 2011 Letter at 2.

Whether the Neoss Agreement is relevant to the issue of the determination of a reasonable royalty largely turns on the Court's interpretation of a recent decision of the Federal Circuit in ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed.Cir.2010), a case in which the Circuit overturned a royalty verdict based on seven licenses—five of which were unrelated to the claimed invention and two of which arose from the litigation.2 In that decision, the Circuit noted that “the most reliable license in this record arose out of litigation.” Id. Based on this and other language in the decision, some courts have concluded that settlement agreements are discoverable under ...

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