Rule 408 of the Federal Rules of Evidence protects settlement communications. The language of the rule is clear. Such communications are “not admissible . . . to prove or disprove the validity . . . of a disputed claim.” However, there are exceptions to this rule. And in a recent patent infringement case, the Federal Circuit used one of these exceptions when it affirmed an award of attorney fees based in part on the amount of money offered in settlement.
In Blackbird Tech LLC v. Health in Motion LLC¸ 2018-2393 (Fed. Cir. Dec. 16, 2019), the plaintiff sued the defendant for patent infringement relating to certain exercise equipment. On the eve of trial (and after opposing a motion for summary judgment of noninfringement), the plaintiff dismissed its case with prejudice. The defendant then filed a motion for attorney fees under 35 U.S.C. § 285, which allows courts in patent cases to award reasonable attorney fees to the prevailing party in exceptional cases. The District Court granted the motion for attorney fees, finding that the plaintiff filed a meritless claim based on alleged patent infringement and that the plaintiff litigated the case in an unreasonable manner.
In a precedential decision affirming the grant of attorney fees, the Federal Circuit ruled that the District Court did not abuse its discretion in finding that the case “stands out” – and therefore was exceptional – with respect to the manner in which the plaintiff litigated the case. The Federal Circuit examined the plaintiff’s settlement strategy in evaluating the manner in which the plaintiff litigated the case. The plaintiff made settlement offers of $80,000, $50,000, $15,000, and eventually a walk-away settlement of zero dollars – all of which were rejected by the defendant. The Federal Circuit found that each of the settlement offers was “significantly less than the cost of litigation,” and therefore affirmed the District Court’s finding that the case was litigated “in an unreasonable manner.”
Rule 408 protects most settlement communications, but parties should be aware that settlement offers may be used to prove that a case was litigated in an unreasonable manner.