March 18, 2020 Practice Points

Resolving IP Disputes—The Common-Interest Privilege and the Use of Settlement Counsel

The common-interest privilege and using settlement counsel in licensing discussions may allow a party to shield sensitive information from disclosure in future discovery.

By Kirk Dailey

Whether engaged in licensing discussions before a dispute has arisen or settlement in the midst of ongoing patent litigation, fear that communications between the parties could be discovered by third parties in subsequent litigation can inhibit progress towards resolution. Federal Rule of Evidence 408 is commonly invoked during such settlement discussions, but parties should be aware that Rule 408 is a rule of evidence regarding admissibility—not a rule of discovery. Two considerations impacting confidentiality and disclosure concerns should be taken into account during licensing/settlement discussions: the common interest privilege and the use of settlement counsel. 

The common-interest privilege can be helpful in shielding from discovery communications between licensors and potential licensees. The common-interest privilege is an extension of the attorney-client privilege and its application can vary from one jurisdiction to another. Generally speaking, confidential communications between a potential licensee and a patentee may be privileged under the common-interest doctrine because both parties have the same interest in obtaining strong and enforceable patents. See In re Regents of the Univ. of Calif., 101 F.3d 1386, 1390 (Fed. Cir. 1996); Crane Sec. Techs., Inc. v. Rolling Optics, AB, 230 F. Supp. 3d 10 (D. Mass. 2017). In the Crane case, the court found that the negotiation of an exclusive license pursuant to a confidentiality agreement was in furtherance of a shared legal interest and that the resulting communications were privileged. The Crane court also cited to High Point SARL v. Sprint Nextel Corp., 2012 WL 234024, *9 (D. Kan. Jan. 25. 2012) for the proposition that adversarial interests during discussions of a patent transfer are protected by the common-interest privilege, since the parties “still had a common legal interest in the validity, enforceability, and potential infringement of the patents-in-suit.” Crane Sec. Techs., Inc. at 20.  

Some important jurisdictions have cited to In re Regents of the Univ. of Calif. and recognized that the common-interest privilege can extend to communications between a patent licensor and a potential licensee. See, e.g., TC Technology LLC v. Sprint Corp., Civil Action No. 16-cv-153-RGA (D. Del. Dec. 13, 2018) (applying, in part, Regents’ rationale in finding that the common-interest privilege shielded communications about acquiring and enforcing a patent); Love v. The Permanente Medical Group, Case No. C-12-05679-DMR (N.D. Cal. Feb. 19, 2014); Tech Pharmacy Services, LLC v. Alixa RX LLC, Case No. 4:15-CV-766 (E.D. Tex. July 24, 2017). 

To be clear, the common-interest privilege will not apply to every communication concerning patent licensing; rather, the privilege will attach only when the legal interests of the licensor and potential licensee align. The fact that such communications also may overlap with commercial considerations does not negate the applicability of the privilege. For example, the Northern District of California held that the common-interest privilege applied to an inventor’s communications with a university employer, which retained royalty rights but not ownership rights to the underlying patent. See Rembrandt Patent Innovations, LLC v. Apple Inc., Case No. C 14-05094 WHA (N.D. Cal. Feb. 4, 2016). There, the court relied on a common legal interest in licensing and enforcement opportunities, perfecting title in the patent, and defending the patent’s validity in finding that the privilege shielded the underlying communications, despite the fact that the relationship centered on royalty rights. In contrast, a Delaware court found that the retention of royalty rights alone was insufficient to warrant application of the common-interest privilege. See Delaware Display Group LLP v. Lenovo Group Ltd., Civ. A. Nos. 13-2108, -2109, and -2112-RGA (D. Del. Feb. 23, 2016). As these decisions illustrate, application of the common-interest privilege may vary depending on the underlying facts of the case and the law of the jurisdiction involved.   

The use of settlement counsel provides a way for settlement communications between adverse parties to be protected from discovery. Those types of party-to-party settlement communications may be deemed discoverable in some circumstances (FRE 408 would generally bar admissibility, but the communications could still be discoverable under certain circumstances). By employing settlement counsel as a conduit for a party’s settlement communications, the protection of the attorney-client privilege and attorney work-product doctrine will protect a party’s sensitive information that it prepares for settlement discussions. That information can then be synthesized by settlement counsel, ensuring the desired messaging to the opposing party while protecting sensitive information from discovery. A key benefit to employing settlement counsel is that true positions of compromise can be communicated between opposing parties, which creates a greater likelihood of settlement. The underlying/internal rationale for those positions would remain protected by the attorney-client privilege by employing settlement counsel.

Kirk Dailey is the president of Innovius, LLC, in Dallas, Texas. 

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