Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03148/USCOURTS-cand-3_05-cv-03148-52/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:145 Patent Infringement

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MATSUSHITA ELECTRIC INDUSTRIAL

CO., LTD.,

Plaintiff(s),

v.

MEDIATEK, INC., ET AL.,

Defendant(s).

____________________________________/

Case No. C-05-3148 MMC (JCS)

ORDER GRANTING IN PART AND

DENYING IN PART PLAINTIFF’S MOTION

FOR LEAVE TO FILE MOTION FOR

RECONSIDERATION OF THE COURT’S

ORDERS RE SETTLEMENT

NEGOTIATION DOCUMENTS, DENYING

MOTION FOR RECONSIDERATION, AND

DENYING MOTION FOR STAY

[Docket Nos. 565, 572)]

Plaintiff/Counterclaim Defendant, Matsushita Electric Industrial Co., Ltd., and Counterclaim

Defendant, Panasonic Corporation of North America (referred to collectively as “Plaintiff”) have

filed a Motion for Leave to File a Motion for Reconsideration of the Court’s Orders Re Settlement

Negotiation Documents (the “Motion for Leave”) [Docket Nos. 565 (redacted version) and 572

(sealed version)]. As set forth below, that Motion is GRANTED IN PART and DENIED IN PART. 

Further, the Court treats the papers submitted in support of the Motion for Leave as a Motion for

Reconsideration. The Motion for Reconsideration is DENIED. The Court finds that both Motions

are suitable for determination without oral argument, pursuant to Civil Local Rule 7-1(b). 

I. BACKGROUND

On March 9, 2007, as ordered by the Court, the parties filed a Joint Discovery Letter

regarding various issues the parties believed the Court should decide, and other issues which the

parties had resolved. The Court treated the Joint Letter as a “Motion to Compel.” In the Motion to

Compel, the parties set forth their respective positions, both factually and legally, with respect to

each of the contested issues. Defendants MediaTek, Inc., OPPO Digital, Inc., and MSI Computer

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Corp. sought, inter alia, documents and testimony related to the licensing of, and the negotiations

regarding the licensing of, the patents-in-suit. Motion to Compel at 7. Defendants argued that these

documents are relevant based on several theories. First, during licensing negotiations, one of the

prospective licensees may have raised the invalidity of the patents-in-suit, and may have pointed to

prior art in support of those invalidity arguments. Motion to Compel at 6. As a result, Defendants

asserted, it is reasonably likely the discovery of licensing negotiation documents may lead to the

discovery of admissible evidence concerning invalidity. Defendants also argued that production of

these materials may lead to the discovery of admissible evidence on the royalty rate that should be

applied to determine damages in this case and may also lead to evidence regarding theories of noninfringement.

Plaintiff objected. Insofar as is relevant to the instant application, Plaintiff argued that a

“federal settlement privilege . . . shields from discovery any communication created in the context of

settlement negotiations.” Motion to Compel at 8. 

On March 13 and March 15, 2007, the Court denied the Motion to Compel and overruled the

objection regarding the “federal settlement privilege.” Objections followed, which Judge Chesney

denied on March 21, 2007, without prejudice to filing a motion for leave to file a motion for

reconsideration before the undersigned. Plaintiff filed the Motion for Leave on March 26, 2007.

II. THE MOTION FOR LEAVE

The Motion for Leave is premised on Local Rule 7-9(b)(2). Motion for Leave at 7. That

Local Rule provides that the “moving party must specifically show . . . the emergence of new

material facts or a change of law occurring after the time of such order. . . .” In support of the

Motion for Leave, Plaintiff cites to only a single new event: the Ninth Circuit’s decision in In re

Napster Copyright Litig., Nos. 06-15886, 06-72515, 2007 WL 754748 (9th Cir. March 14, 2007). 

That decision was filed on March 14, 2007, after this Court’s original decision on March 13, 2007. 

Accordingly, to the extent that the Motion for Leave is premised on the existence of new law

decided after this Court’s decision, the Motion is GRANTED, and the Motion for Leave is deemed

to be a Motion for Reconsideration. 

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 While the Motion for Reconsideration is denied on this basis, the Court also takes this

opportunity to set forth in the section that follows the basis for its conclusion in granting the Motion to

Compel that a federal settlement privilege does not exist as a matter of law.

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On the other hand, the Motion for Leave also raised many arguments other than those

premised on Napster. For example, Plaintiff argues, inter alia, that the settlement documents in

question are not reasonably calculated to lead to the discovery of admissible evidence, and that

Defendants’ request for production of these documents was untimely and predicated on false

representations. None of those events occurred after the Court’s decision on the Motion to Compel

and should have been raised with the Court in the Joint Letter. Accordingly, other than as

specifically granted above, the Motion for Leave is DENIED. 

III. THE MOTION FOR RECONSIDERATION

A. THE NAPSTER DECISION IS NOT APPLICABLE

TO THE QUESTION BEFORE THE COURT

In Napster, the Ninth Circuit faced two questions relating to the crime fraud exception to the

attorney-client privilege. First, in a civil case where outright disclosure is requested under the crime

fraud exception, does a party seeking to preserve the attorney-client privilege have the right to

introduce counterveiling evidence to rebut the evidence introduced by the party seeking disclosure? 

Id. at 10. Second, what is the burden of proof “for the party seeking to establish the crime fraud

exception [to the attorney-client privilege].” Id. 

Napster is not applicable to the case at bar. In Napster, the question of whether or not the

privilege (or the exception to the privilege) existed as a matter of law was not at issue. The sole

question was the procedure and quantum of proof necessary to prove an exception to the attorneyclient privilege. As discussed below, the Court has concluded that the federal settlement privilege

proffered by Defendants does not exist. As a result, Napster’s mandate that courts consider

evidence from both sides before deciding whether or not certain materials fall within an existing

privilege is not applicable to this case. Accordingly, while the Court has granted leave to reconsider

the matter in light of Napster, the Motion for Reconsideration is DENIED.1

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B. FEDERAL RULES OF EVIDENCE 501 AND 408 DO NOT

CREATE A FEDERAL SETTLEMENT PRIVILEGE

Federal Rule of Civil Procedure 26 permits discovery “regarding any matter, not privileged,

that is relevant to a claim or defense of any party. . . . Relevant information need not be admissible at

trial if the discovery appears reasonably calculated to the lead to the discovery of admissible

evidence.” Fed. R. Civ. P. 26(b)(1). In the Motion to Compel, the Court concluded that the

discovery sought was reasonably calculated to lead to the discovery of admissible evidence. 

Accordingly, these materials are discoverable so long as they are not privileged. Neither Rule 408

nor Rule 501 creates a federal settlement privilege.

1. Rule 408 Does Not Prohibit The Disclosure Of Compromise 

Negotiations On Its Face

In order to dispel the notion that there is a federal settlement privilege, one need look no

further than the language of Federal Rule of Evidence 408: 

Compromise and Offers to Compromise

 (a) Prohibited uses. — Evidence of the following is not

admissible on behalf of any party, when offered to prove liability for,

invalidity of, or amount of a claim that was disputed as to validity or

amount, or to impeach through a prior inconsistent statement or

contradiction:

 (1) furnishing or offering or promising to furnish – or

accepting or offering or promising to accept – a valuable consideration

in compromising or attempting to compromise the claim; and

 (2) conduct or statements made in compromise negotiations

regarding the claim, except when offered in a criminal case and the

negotiations related to a claim by a public office or agency in the

exercise of regulatory, investigative, or enforcement authority.

 (b) Permitted uses.— This rule does not require exclusion if

the evidence is offered for purposes not prohibited by subdivision (a). 

Examples of permissible purposes include proving a witness’s bias or

prejudice; negating a contention of undue delay; and proving an effort

to obstruct a criminal investigation or prosecution.

Fed. R. Evid. 408.

On its face, Federal Rule of Evidence 408 is not a discovery rule. It only limits the

admissibility of some, but not all, evidence of events that occur during the course of settlement

negotiations. Moreover, Rule 408 provides for the admissibility of evidence relating to settlement

negotiations for specific purposes. See Fed. R. Evid. 408(b) (permitting the introduction of evidence

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of compromise and offers to compromise to prove a witness’s bias or prejudice, negate a contention

of undue delay, or to prove an effort to obstruct a criminal investigation). The only prohibited use of

such evidence is to prove or disprove liability or the amount of a claim “or to impeach through a

prior inconsistent statement or contradiction.” Id. at 408(a). 

The inescapable conclusion is that a privilege against disclosure cannot be found in Rule

408. To the contrary, because the Rule anticipates that settlement negotiations may be admissible, a

privilege against their discovery would be inconsistent with Rule 26.

2. Under Rule 501, No Novel Privilege Applying to

Settlement Discussions Can Be Implied From Rule 408

Because it is obvious that Rule 408 permits, rather than forbids, the disclosure of

compromise negotiations, courts and parties that have sought to establish a “federal settlement

privilege” have relied on the sweeping language of Federal Rule of Evidence 501:

 Except as otherwise required by the Constitution of the United

States or provided by Act of Congress or in rules prescribed by the

Supreme Court pursuant to statutory authority, the privilege of a

witness, person, government, State, or political subdivision thereof

shall be governed by the principles of the common law as they may be

interpreted by the courts of the United States in the light of reason and

experience. However, in civil actions and proceedings, with respect to

an element of a claim or defense as to which State law supplies the

rule of decision, the privilege of a witness, person, government, State,

or political subdivision thereof shall be determined in accordance with

State law.

Fed. R. Evid. 501.

Rule 501 permits the federal courts to define new privileges in light of “reason and

experience.” However, the Supreme Court has repeatedly cautioned that this right to fashion new

privileges should be used with great restraint. The general rule is that the public has “a right to

every man’s evidence” and that “any exemptions which may exist are distinctly exceptional, being

so many derogations from a positive general rule.” Jaffe v. Redmond, 518 U.S. 1, 9 (1996) (citing

United States v. Bryan, 339 U.S. 323, 331 (1950)). See also Univ. of Penn. v. EEOC, 493 U.S. 182,

189 (1890) (the Supreme Court is “disinclined to exercise [Rule 501's] authority expansively”).

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 Applying this analysis, courts have declined to recognize many privileges, including the

identity of reporters’ confidential sources, child abuse records, parent-child communications, academic

peer review records, corporate ombudsman records, unemployment hearings, and communications

between an insurer and an insured. See In re Subpoena Issued to Commodity Futures Trading Comm’n, 370 F. Supp. 2d 201, 208 n.8 (D. D.C. 2005) (listing proposed privileges rejected under Fed. R. Evid.

501).

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The Supreme Court has, in recent years, identified a number of considerations that should

guide the decision whether or not to imply a new privilege under Rule 501, which this Court has

taken into account:

(1) Is there a significant public and private interest supporting the recognition of the

privilege? Jaffe, 518 U.S. at 11. 

 (2) Is the likely “evidentiary benefit that [will] result from the denial of the privilege []

modest”? Id. 

(3) Is there a consensus among the states as to the existence of the new privilege? Id. at 12-

13. 

(4) Has Congress considered the relevant competing concerns itself and acted on the

question of whether or not the information should be privileged? Univ. of Penn., 493 U.S. at 189.

(5) Is there an historical and statutory basis for the new privilege? Id. at 195. 

(6) Is the proposed privilege on the list of privileges that was proposed by the Judicial

Conference in 1973? United States v. Gillock, 445 U.S. 360, 367-68 (1980).2

It is worth noting that, with and without a detailed analysis of the issue, courts have reached

widely divergent conclusions about whether or not a federal settlement privilege exists. The Sixth

Circuit approved the application of a federal settlement privilege in Goodyear Tire & Rubber Co. v.

Chiles Power Supply, Inc., 332 F.3d 976, 980 (6th Cir. 2003). See also Cook v. Yellow Freight Sys.,

Inc., 132 F.R.D. 548 (E.D. Cal. 1990); Allen County v. Riley Indus., Inc., 197 F.R.D. 352, 353 (N.D.

Ohio 2000). Many courts have rejected the existence of a privilege. In re Subpoena Issued to

Commodity Futures Trading Comm’n, 370 F. Supp. 2d 201 (D. D.C. 2005); Computer Assocs. Int’l,

Inc. v. Am. Fundware, Inc., 831 F. Supp. 1516, 1531 (D. Colo. 1993) (Rule 408 of the Federal Rules

of Evidence is “not a broad discovery privilege”); NAACP Legal Defense and Educ. Fund, Inc. v.

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The United States Dep’t of Justice, 612 F. Supp. 1143, 1146 (D. D.C. 1985) (same). See also Alcan

Int’l Ltd. v. S.A. De Mfg. Co., 179 F.R.D. 403, 405 (W.D.N.Y. 1998) (noting that Rule 408 does not

limit the discovery of evidence); In re Gen. Motors Engine Interchange Litig., 594 F. 2d 1106, 1124

(7th Cir. 1979) (finding “no convincing basis” for the proposition that “the conduct of settlement

negotiations is protected from examination by some form of privilege”); Primetime 24 Joint Venture

v. Echostar Commc’ns Corp., No. 98Civ.6738, 2000 WL 97680 at *4 n.5 (S.D.N.Y. Jan. 28, 2000)

(“[W]e agree with defendants’ observation that Fed. R. Evid. 408 does not create a settlement

privilege.”). Some courts have taken a middle ground and held that settlement negotiation materials

may not be disclosed absent a showing greater than that required for ordinary discovery under Rule

26. See, e.g., Bottaro v. Hatton Assocs., 96 F.R.D. 158, 160 (E.D.N.Y. 1982) (requiring a

“particularized showing”). 

Most of these cases, however, have not conducted the detailed analysis required for the

creation of a new federal privilege under the Jaffe and Univ. of Penn. decisions. The most thorough

analysis of the subject was conducted in In re Subpoena Issued to Commodity Futures Trading

Comm’n in 2005. In re Subpoena Issued to Commodity Futures Trading Comm’n, 370 F. Supp. 2d

201 (D. D.C. 2005). In In re Subpoena, a subpoena had been served on the Commodity Futures

Trading Commission (“CFTC”) by an energy consumer who had sued an energy company for its

alleged manipulation of the energy market. Id. at 202. The energy company sought to quash the

subpoena, which would otherwise have required the production of, inter alia, settlement negotiation

documents. Id. at 203-04. In a ruling directly applicable to the question before this Court, Judge

Bates conducted an exhaustive analysis under Jaffe and the Univ. of Penn., and concluded that a

federal settlement privilege does not exist. Id. at 208-09.

First, the court noted that while there is a public policy of promoting settlement disputes

outside the judicial process, it was far from clear that a federal settlement privilege would result in

an increased likelihood of settlements so substantial that it would justify an exception to the

production of evidence in support of the truth-finding process. Id. at 212. This argument is

buttressed by the fact that there is no evidence that the method taken by Rule 408 to protect

settlement negotiations – limiting the admissibility of settlement discussions without limiting their

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disclosure in discovery – is insufficient to promote public policy of settling disputes outside the

judicial process.

Second, the court in In re Subpoena found that there is no “consensus” among the states as to

the existence of a settlement privilege. Id. at 210. Unlike the situation in Jaffe, where “all 50 states

and the District of Columbia” had enacted into law a form of psychotherapist privilege, there is no

such foundation for a “settlement privilege” under state law. Jaffe, 518 U.S. 1.

Finally, it is clear that when Congress approved Rule 408 to promote settlements, it chose to

do so by limiting admissibility – and not by limiting discovery. See In re Subpoena, 370 F. Supp. 2d

at 211. Indeed, it specifically provided that settlement negotiations can be admitted for certain

purposes. Accordingly, any federal settlement privilege is contrary to the enactment approved by

the legislature.

The only major case to conduct the analysis required by the Jaffe and Univ. of Penn.

decisions that found in favor of the existence of a settlement privilege is the Sixth Circuit’s decision

in Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (6th Cir. 2003). To the

extent that the Goodyear decision is at variance with the analysis described above, and the court’s

interpretation of Rules 501 and 408 in In re Subpoena, this Court disagrees with the Goodyear

decision. First, the court in Goodyear did not analyze each of the important factors identified by the

United States Supreme Court in order to determine whether a new privilege should be implied under

Rule 501. Second, the court seemed persuaded that many of the “facts” that might be discovered

from the examination of settlement negotiations would not be reliable. See Goodyear, 332 F.3d at

981. (“The discovery of these sort of ‘facts’ would be highly misleading if allowed to be used for

purposes other than settlement.”) The court did not even analyze Congress’s solution to this

problem: permitting the admissibility of settlement discussions only in very limited circumstances. 

Nor did the court address the fact that Congress had chosen, by its approval of Federal Rule of

Evidence 408, to allow settlement discussions to be admitted in certain circumstances. The

Goodyear court also did not analyze whether or not creation of this new privilege had a foothold in a

consensus, or even a majority, of state jurisdictions.

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Accordingly, this Court concludes that a federal settlement privilege should not be implied

under Rule 501 of the Federal Rules of Evidence. 

IV. CONCLUSION 

For all of the foregoing reasons, the Motion for Leave to File a Motion for Reconsideration is

GRANTED IN PART and DENIED IN PART, and the Motion for Reconsideration is DENIED. 

The Motion for a Stay is DENIED.

IT IS SO ORDERED.

Dated: March 30, 2007 _______________________________

JOSEPH C. SPERO

United States Magistrate Judge

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