The District of New Jersey, Judge Noel Hillman presiding, in Blue Gentian, LLC v. Tristar Prods., Inc.,[1] Civil Action 1:13-cv-1758 NLH/AMD (D.N.J. Nov. 14, 2017), issued an order concerning the relevance of a settlement agreement in determining a reasonable royalty. Judge Hillman affirmed the Magistrate Judge’s ruling that the settlement agreement was relevant to the calculation of a reasonable royalty and must be produced.

Plaintiffs Blue Gentian and Telebrands were previously involved in litigation regarding the same patented garden hose product at issue in this litigation. Blue Gentian and Telebrands resolved that suit by entering into a settlement agreement (the “Agreement”). Plaintiffs produced a redacted version of the Agreement, Defendants filed a motion to compel production of the entire Agreement, and Magistrate Judge Ann Marie Donio granted Defendants’ motion. Plaintiffs appealed, and Judge Hillman reviewed the holding under a “clearly erroneous” or “contrary to law” standard of review. Under the guidance of Rule 26(b)(1) of the Federal Rules of Civil Procedure, 35 U.S.C. § 284, and the Georgia-Pacific factors, Judge Hillman addressed the discoverability of each section of the Agreement, holding “the settlement agreement, as a whole, is relevant to determining a reasonable royalty rate here.”

The paragraphs of the Agreement concerning “the scope of the license granted to Telebrands” were relevant to the reasonable royalty analysis. The Court held that Georgia-Pacific factor four, which concerns “the licensor’s established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly,” supports disclosure because “the Agreement itself could represent the ‘granting of a license under special conditions designed to preserve that monopoly.’” The Court also held that factor three, “whether a license is exclusive or non-exclusive and any restrictions placed on the licensee, . . . is precisely what is detailed in [the redacted paragraphs].” “The scope of the license granted under the Agreement is certainly relevant in analyzing the royalty rate agreed to between Plaintiffs and Telebrands, which makes it relevant in determining a reasonable royalty rate in this case.”[2]

When considering the total amount paid by Telebrands for its sales of the product up to the time of the settlement, the Court again sided with the Magistrate, rejecting Plaintiffs’ argument that the settlement for past sales was not relevant to determining a reasonable royalty rate. The Court acknowledged that “lump sum awards for past infringement and forward looking reasonable royalty rates are different things,” but pointed out that “the issue now before this Court is not admissibility but one of discoverability.” Holding that factor eleven—“the extent to which the infringer has made use of the invention and any evidence probative of the value of that use—appears to allow for consideration of infringement damages,” the Court found the “information discoverable because it is some evidence of the value of the patent and may be one data point useful to experts or others in offering a reasonable calculation of a reasonable royalty rate.”

Regarding the paragraphs related to potential future litigation between the parties and the potential sale of Telebrands’ garden hose business, the Court agreed that the information was relevant to Georgia Pacific factor five, “’the commercial relationship between the licensor and licensee.’” The Court found the information relating to future litigation to be probative of commercial relationship as “the parties are stipulating to the terms of the commercial relationship moving forward.”

In sum, finding no clear error, the Court affirmed the Magistrate’s prior opinion and ordered the production of the unredacted Agreement because “a litigation-based settlement agreement for the patent in suit falls within the universe of information and is relevant to determining a reasonable royalty for purposes of Fed. R. Civ. P. 26(b)(1).”