First published in LES Insights

Abstract

A Washington district court recently protected an alleged infringer’s intra-corporate licenses from discovery after deeming them irrelevant to an analysis of patent-infringement damages. The court held that these agreements—which covered rights to substantially all of the alleged infringer’s intellectual property—were not comparable to a hypothetical license negotiation between competitors over a much narrower property right. Further, the court found, the requested discovery, which covered over 2,800 separate licenses, imposed burdens on the alleged infringer while providing little benefit to the merits of the case.

Although federal courts liberally allow discovery between parties, it is not without limitation. The information sought must be relevant to at least one party's claim or defense. Parties often test the bounds of discovery through motions asking a court to order a party to turn over certain documents or materials of alleged relevance. In resolving these disputes, courts may weigh the costs and burdens on the producing party with the relevance and probative value of the information for the discovering party.

In patent-infringement cases, a patent owner often seeks discovery of the alleged infringer's license agreements that relate to the infringed technology. Patent owners may seek to use those agreements in a damages analysis as evidence of what an alleged infringer may have paid for the infringed technology in a hypothetical license negotiation with the patent owner. An alleged infringer, however, may have strong incentives to protect the discovery of its license agreements from competitors. A recent patent-infringement case, Telebuyer, LLC v. Amazon.com, Inc.,1 shows how these discovery disputes can play out in federal court. There, the Western District of Washington protected an alleged infringer's intracorporate licenses from discovery after finding that they were not comparable to the hypothetical negotiation between the parties over the patented technology.

Background

Telebuyer, LLC sued Amazon.com, Inc., among other defendants, (collectively, "Amazon"), for patent infringement. During discovery, Telebuyer asked Amazon to identify all intracorporate licenses (i.e., licenses between a parent company and any subsidiary or between subsidiaries) pertaining to the accused technology. Telebuyer also broadly requested that Amazon turn over "[a]ll inbound or outbound patent licenses relating to the Accused Technology."

Amazon objected to both discovery requests, asserting that they covered "over 2,800" intracorporate licenses in which Amazon transferred or licensed patents to its subsidiaries. These intracorporate licenses broadly granted Amazon's subsidiaries "wholesale permission for Amazon's affiliates to use all of Amazon's intellectual property." Telebuyer filed a motion asking the court to order that Amazon provide the requested information. According to Telebuyer, the intracorporate licenses were relevant, "arm's length" negotiations reflecting the true value of the conveyed intellectual property. The court disagreed.

The Telebuyer Decision

Observing that patent damages are to be determined by the outcome of a hypothetical negotiation between the patent holder and the infringer, the court held that Amazon's intracorporate licenses were irrelevant to Telebuyer's damages claim. Citing two reasons, the court found a "fundamental disparity in both the value and nature" of the intracorporate licenses compared with the hypothetical negotiation. First, because Amazon's intracorporate licenses covered substantially all of Amazon's intellectual property, those licenses granted its subsidiaries considerably more intellectual property rights than those involved in the litigation. Second, the court noted, the intracorporate licenses involved "markedly different considerations and bargaining positions" from those between competitors such as Amazon and Telebuyer.

The court also rejected Telebuyer's argument that the intracorporate licenses could reasonably lead to the discovery of admissible evidence regarding aspects such as Amazon's intellectual property valuations and licensing practices. Telebuyer's request, the court observed, covered over 2,800 licenses, which would impose a burden on Amazon while providing little benefit to the case.

Strategy and Conclusion

This decision provides an example of how the right to discovery in federal district courts is not without bounds. Overly aggressive discovery might be successfully defended on the basis of relevance. Further, within the unique context of an analysis of patentinfringement damages, discovery of intracorporate patent licenses may be limited if they are not sufficiently comparable to the hypothetical negotiation between the patent holder and the accused infringer.