In Re MSTG, Inc.

United States Court of Appeals
for the Federal Circuit
__________________________

IN RE MSTG, INC.,
Petitioner.
__________________________

Miscellaneous Docket No. 996
__________________________

On Petition for Writ of Mandamus to the United States
District Court for the Northern District of Illinois in case
no. 08-CV-7411, Judge Edmond E. Chang.
__________________________

ON PETITION FOR WRIT OF MANDAMUS
__________________________

CHRISTOPHER J. LEE, Niro, Haller & Niro, of Chicago,
Illinois, filed a petition for writ of mandamus and motion
to stay for petitioner-movant.
DAVID T. PRITIKIN, Sidley Austin LLP, of Chicago,
Illinois, filed a response for respondent AT&T Mobility
LLC. With him on the response were LISA A. SCHNEIDER
and BENEDICT F. FREY. Of counsel was ROBERT N.
HOCHMAN.
__________________________

Before RADER, Chief Judge, DYK and MOORE, Circuit
Judges.
DYK, Circuit Judge.
IN RE MSTG INC 2

ORDER

This petition arises out of an order of the United
States District Court for the Northern District of Illinois
compelling MSTG, Inc. (“MSTG”) to produce documents
related to license negotiation discussions between MSTG
and six other companies, including previous defendants in
this suit. We are asked to decide first, as a matter of first
impression, whether such communications related to
reasonable royalties and damages are protected from
discovery based on a settlement negotiation privilege, and
second, whether on the facts of this case the district court
clearly abused its discretion by ordering their production.
Because we conclude that the communications are not
privileged, and that the district court did not clearly
abuse its discretion, we deny the petition for writ of
mandamus.

BACKGROUND

In 2008, MSTG sued AT&T Mobility, LLC (“AT&T”)
and other cell phone service providers and mobile device
manufacturers claiming infringement of U.S. Patent Nos.
5,920,551, 6,198,936, and 6,438,113 (collectively, the
“patents-in-suit”) covering third-generation (“3G”) mobile
telecommunications technologies. In 2009, MSTG initi-
ated another lawsuit against other cell phone service
providers and mobile device manufactures, also alleging
infringement of the patents-in-suit. MSTG eventually
settled with all defendants other than AT&T. As part of
the settlement agreements, most defendants were granted
licenses under the patents-in-suit as well as under other
patents owned by MSTG. One defendant entered into an
agreement giving it an option to license the patents at a
predetermined rate. Additionally, during this time pe-
riod, MSTG licensed the patents-in-suit to a technology
3 IN RE MSTG INC

consortium, providing the consortium the right to grant a
sublicense to its more than 50 members, a few of which
were defendants in the pending litigation.

One of the issues in the litigation was the amount of a
reasonable royalty if AT&T were found to infringe the
patents-in-suit. License agreements can be pertinent to
the calculation of a reasonable royalty. During discovery
and in response to AT&T’s document requests, MSTG
produced six license agreements and the option agree-
ment (collectively, the “settlement agreements”). AT&T
then sought further discovery into the negotiations of the
settlement agreements on the theory that those negotia-
tions too could be pertinent to a reasonable royalty.
MSTG objected on the ground that the negotiations were
irrelevant to the reasonable royalty calculation. AT&T
moved to compel the production of all “documents reflect-
ing communications between MSTG or its attorneys, on
the one hand, and either licensees or parties threatened
with infringement by MSTG, on the other.” Resp’t’s App.
270. In a January 20, 2011, order, a magistrate judge
denied AT&T’s motion to compel, finding that “AT&T has
not carried its burden of showing why the settlement
negotiations are relevant and discoverable under the
standards of Rule 26.” MSTG, Inc. v. AT&T Mobility LLC
(“Initial Order”), No. 08-C-7411, slip op. at 28 (N.D. Ill.
Jan. 20, 2011).

On January 10, 2011, after AT&T had submitted its
motion to compel, MSTG served an expert report by
Frank Bernatowicz on the issue of damages. This report
was not submitted to the magistrate judge before he
issued his January 20, 2011, order. In this report, Mr.
Bernatowicz offered an opinion regarding a reasonable
royalty for AT&T’s alleged infringement of the patents-in-
suit by “analyz[ing] royalty rates from potentially compa-
IN RE MSTG INC 4

rable licenses, industry survey results, licensing policies
of the 3GPP, and other published licensing rates for
similar technology.” Resp’t’s App. 144–45. Although the
expert had “reviewed the[] six agreements and taken
them into consideration in [his] reasonable royalty analy-
sis,” he did not find the royalty rates in those agreements
to “be comparable to the hypothetical negotiation between
MSTG and AT&T.” Resp’t’s App. 138. This was so be-
cause most of the royalty agreements were “litigation
related compromises,” id., and because they covered
additional patents beyond the patents-in-suit. There was
no showing that the expert had access to the negotiation
documents, though he relied on deposition testimony of an
MSTG executive that the agreements reflected litigation-
related compromises.

AT&T sought reconsideration of the January 20, 2011,
order on the grounds that the expert’s discussion of the
license agreements in his report constituted newly discov-
ered evidence supporting discovery of the settlement
negotiations. Granting the motion, the magistrate judge
found that the negotiation documents “might contain
information showing that the grounds Bernatowicz relied
on to reach his conclusion are erroneous.” MSTG, Inc. v.
AT&T Mobility LLC (“Reconsideration Order”), No. 08-C-
7411, slip op. at 4 (N.D. Ill. Mar. 8, 2011). The Reconsid-
eration Order went on to explain that “[d]ocuments re-
lated to negotiations could shed light on why the parties
reached their royalty agreements and could provide
guidance on whether some or all of the licenses could be
considered a basis for calculating a reasonable royalty
between AT&T and MSTG.” Id. at 5. MSTG was ordered
to “produce documents reflecting communications, includ-
ing settlement negotiations, it had with the six companies
referenced in AT&T’s motion.” Id. at 7. The effect was to
require production of the negotiation documents leading
5 IN RE MSTG INC

up to the license agreements, the option agreement, and
the agreement with the technology consortium.

The district court denied MSTG’s objections and
adopted the order. MSTG, Inc. v. AT&T Mobility LLC
(“Final Discovery Order”), No. 08-C-7411, slip op. at 2
(N.D. Ill. June 27, 2011). In doing so, the district court
agreed with the analysis of the magistrate judge. Addi-
tionally, it found that because MSTG’s expert relied on
the testimony of MSTG’s executive regarding MSTG’s
“business reasons” for entering into the license agree-
ments, it would be unfair for MSTG to “then shield those
reasons from further examination.” Id. On July 7, 2011,
MSTG moved the district court to stay its June 27, 2011,
order pending MSTG’s petition for writ of mandamus.
The district court denied MSTG’s motion.

MSTG petitioned this court for a writ of mandamus to
vacate the June 27, 2011, order and simultaneously
moved for a stay of the discovery order pending our re-
view of the petition. On July 29, 2011, we temporarily
stayed the district court’s discovery order pending our
review. We have jurisdiction under 28 U.S.C. § 1295. See
In re Princo Corp., 478 F.3d 1345, 1351 (Fed. Cir. 2007).

DISCUSSION

I

“As to discovery matters, we have held that Federal
Circuit law applies when deciding whether particular
written or other materials are discoverable in a patent
case, if those materials relate to an issue of substantive
patent law.” Advanced Cardiovascular Sys., Inc. v. Med-
tronic, Inc., 265 F.3d 1294, 1307 (Fed. Cir. 2001). For
example, in In re Seagate Technology, 497 F.3d 1360 (Fed.
IN RE MSTG INC 6

Cir. 2007) (en banc), we held that “[b]ecause willful in-
fringement and the scope of waiver [of attorney-client
privilege and work-product immunity] accompanying the
advice of counsel defense invoke substantive patent law,
we apply the law of this circuit.” Id. at 1367–68. Simi-
larly, in In re Spalding Sports Worldwide, Inc., 203 F.3d
800 (Fed. Cir. 2000), we held that “a determination of the
applicability of the attorney-client privilege to [an] inven-
tion record clearly implicates, at the very least, the sub-
stantive patent issue of inequitable conduct. We therefore
apply Federal Circuit law in determining whether the
attorney-client privilege applies.” Id. at 803–04. Just as
we have applied our own law to issues of the scope of the
attorney-client privilege and work product doctrine, we
here apply our own law in determining whether a privi-
lege or other discovery limitations protect disclosure of
information related to reasonable royalties because that
issue “implicates the jurisprudential responsibilities of
this court within its exclusive jurisdiction,” Advanced
Cardiovascular Sys., Inc., 265 F.3d at 1303, and has a
significant bearing on the substantive issue of patent
damages, see In re EchoStar Commc’ns Corp., 448 F.3d
1294, 1298 (Fed. Cir. 2006).

II

Pursuant to the All Writs Act, 28 U.S.C. § 1651(a),
this court has the authority to issue a writ of mandamus
as “necessary or appropriate in aid of” our jurisdiction.
Miss. Chem. Corp. v. Swift Agric. Chems. Corp., 717 F.2d
1374, 1379 (Fed. Cir. 1983). The remedy of mandamus is
available only in extraordinary situations to correct a clear
abuse of discretion or usurpation of judicial power. In re
Calmar, Inc., 854 F.2d 461, 464 (Fed. Cir. 1988). A party
seeking a writ bears the burden of proving “that its right to
issuance of the writ is clear and indisputable, . . . and that it
7 IN RE MSTG INC

lacks adequate alternative means to obtain the relief
sought.” In re Spalding Sports Worldwide, 203 F.3d at
804 (alteration in original) (quoting In re Regents of Univ.
of Cal., 101 F.3d 1386, 1387 (Fed. Cir. 1996)).

It is generally inappropriate to review discovery orders
by mandamus. However, mandamus may be appropriate
where a discovery order “raises a novel and important
question of power to compel discovery, or . . . reflects
substantial uncertainty and confusion in the district
courts.” 16 Charles Alan Wright, Arthur R. Miller &
Edward H. Cooper, Federal Practice and Procedure:
Jurisdiction and Related Matters § 3935.3 (2d ed. 1996)
(citing Schlagenhauf v. Holder, 379 U.S. 104, 111 (1964)
(“[T]he petition was properly before the court on . . . an
issue of first impression that called for the construction and
application of [a discovery rule] in a new context.”)).

Thus, “mandamus may properly be used as a means of
immediate appellate review of orders compelling the
production of documents claimed to be protected by privi-
lege or other interests in confidentiality.” Bogosian v.
Gulf Oil Corp., 738 F.2d 587, 591 (3d Cir. 1984). In such
cases, “[w]ithout mandamus review, litigants might be
compelled to disclose documents that are protected from
disclosure by strong public policy.” Id. at 592. Mandamus
review is appropriate here as to the privilege issue. The
issue of whether settlement negotiations are privileged is a
matter of first impression before this court and one on
which district courts are split. 1 The confidentiality of the
settlement negotiations would be lost if review were denied
until final judgment, and immediate resolution of this issue
would avoid discovery that would undermine the claimed
important public interests in protecting settlement discus-

1 See infra note 2.
IN RE MSTG INC 8

sions from discovery. See In re Seagate, 497 F.3d at 1367;
In re Spalding Sports Worldwide, 203 F.3d at 804; see
also In re United States, 669 F.3d 1333, 1336-37 (Fed. Cir.
2012).

III

There are two primary issues. First, MSTG argues
that the license negotiations between it and its other
licensees are protected by a settlement negotiation privi-
lege. Second, MSTG argues that here, where the fully-
integrated settlement agreements are already part of the
record, the district court clearly abused its discretion by
ordering the production of the underlying settlement
negotiations.

A.

MSTG urges us to invoke Rule 501 of the Federal
Rules of Evidence to fashion a new privilege in patent
cases that would prevent discovery of litigation settle-
ment negotiations related to reasonable royalties and
damages. In this respect, MSTG urges us to adopt the
reasoning of the United States Court of Appeals for the
Sixth Circuit in Goodyear Tire & Rubber Co. v. Chiles
Power Supply, Inc., 332 F.3d 976, 979-83 (6th Cir. 2003),
which appears to be the only one of our sister circuits to
adopt such a privilege. The Seventh Circuit declined to
adopt a settlement privilege in In re General Motors Corp.
Engine Interchange Litigation, 594 F.2d 1106, 1124 n.20
(7th Cir. 1979). 2 Although parties to settlement may

2 District courts are divided on whether a settle-
ment negotiation privilege exists. Compare Matsushita
Electric Indus. Co. v. Mediatek, Inc., No. C-05-3148, 2007
WL 963975 (N.D. Cal. Mar. 30, 2007), and In re Subpoena
Issued to Commodity Futures Trading Comm'n, 370 F.
9 IN RE MSTG INC

agree to keep settlement agreements confidential, MSTG
does not contend that settlement agreements themselves
would be covered by the proposed privilege.

The scope of discovery is governed by Rule 26(b)(1) of
the Federal Rules of Civil Procedure, which provides in
relevant part:

Parties may obtain discovery regarding any non-
privileged matter that is relevant to any party’s
claim or defense . . . . Relevant information need
not be admissible at the trial if the discovery ap-
pears reasonably calculated to lead to the discov-
ery of admissible evidence.

Discovery of privileged material is not permissible. Rule
501 of the Federal Rules of Evidence authorizes federal
courts to define new privileges by interpreting “[t]he
common law . . . in the light of reason and experience.”
“The Rule thus did not freeze the law governing the
privileges of witnesses in federal trials at a particular
point in our history, but rather directed federal courts to
‘continue the evolutionary development of testimonial
privileges.’” Jaffee v. Redmond, 518 U.S. 1, 8–9 (1996)
(quoting Trammel v. United States, 445 U.S. 40, 47
(1980)). However, in adhering to the principle that “the
public . . . has a right to every man’s evidence,” United
States v. Bryan, 339 U.S. 323, 331 (1950), the Supreme
Court has warned that evidentiary privileges “are not
lightly created nor expansively construed, for they are in
derogation of the search for truth,” United States v.

Supp. 2d 201 (D.D.C. 2005), with California v. Kinder
Morgan Energy Partners, L.P., No. 07-1883, 2010 WL
3988448 (S.D. Cal. Oct. 12, 2010), and Software Tree, LLC
v. Red Hat, Inc., No. 6:09-CV-097, 2010 WL 2788202 (E.D.
Tex. June 24, 2010).
IN RE MSTG INC 10

Nixon, 418 U.S. 683, 710 (1974).

The Supreme Court has identified several factors to
be considered in assessing the propriety of defining a new
privilege under Rule 501. These factors do not support
recognition of a settlement privilege here.

First, “the policy decisions of the States bear on the
question whether federal courts should recognize a new
privilege or amend the coverage of an existing one.”
Jaffee, 518 U.S. at 12–13. In Jaffee, the Court found that
the existence of a consensus among the states as to the
existence of a psychotherapist privilege indicated that
“reason and experience” supported recognition of the
privilege. Id. at 13. Because of the broad consensus
among states, “[d]enial of the federal privilege therefore
would frustrate the purposes of the state legislation that
was enacted to foster these confidential communications.”
Id. Here, however, there is no state consensus as to a
settlement negotiation privilege. Although all states have
apparently enacted a statutory mediation privilege, Jay
M. Zitter, Annotation, Construction and Application of
State Mediation Privilege, 32 A.L.R. 6th 285, § 2 (2008),
the negotiations in this case did not result from mediation
but from settlement negotiations between two sides
without the assistance of a third-party mediator. We are
not aware of any state that recognizes a settlement privi-
lege outside the context of mediation. Thus, failure to
recognize a federal settlement privilege will not “frustrate
the purposes” of any state legislation as the failure to
recognize a psychotherapist-patient privilege would have
in Jaffee.

Second, in determining whether a new privilege
should be adopted, courts look to whether Congress had
considered that or related questions. See Univ. of Pa. v.
11 IN RE MSTG INC

EEOC, 493 U.S. 182, 189 (1990). In adopting Rule 408 of
the Federal Rules of Evidence, Congress directly ad-
dressed the admissibility of settlements and settlement
negotiations but in doing so did not adopt a settlement
privilege. Although the Supreme Court transmitted to
Congress its proposed Rules of Evidence in 1973 pursuant
to the Rules Enabling Act, Congress exercised its powers
to suspend their implementation until expressly approved
by an act of Congress. Act of Mar. 30, 1973, Pub. L. No.
93-12, 87 Stat. 9. After being revised by Congress, in
1975, the Federal Rules of Evidence were adopted as
statutory law. Act of Jan. 2, 1975, Pub. L. No. 93-595, 88
Stat. 1926. As part of the new rules, Congress adopted
Rule 408, which was devised for the basic purpose of
advancing the goal of “promoting non-judicial settlement
of disputes.” H.R. Rep. No. 93-650, at 7 (1974), reprinted
in 1974 U.S.C.C.A.N. 7075, 7081. Rule 408, as currently
amended, 3 provides that “[e]vidence of . . . (1) furnishing,
promising, or offering—or accepting, promising to accept,
or offering to accept—a valuable consideration in com-
promising or attempting to compromise the claim; and (2)
conduct or a statement made during compromise negotia-
tions about the claim” is “not admissible—on behalf of any
party—either to prove or disprove the validity or amount
of a disputed claim or to impeach by a prior inconsistent
statement or a contradiction.” Fed. R. Evid. 408(a) (em-
phasis added). The rule specifically permits such evi-
dence, however, for any other purpose, including, but not
limited to, “proving a witness’s bias or prejudice, negating

3 The Federal Rules of Evidence were amended, ef-
fective December 1, 2011. These amendments, however,
were “intended to be stylistic only. There [was] no intent
to change any result in any ruling on evidence admissibil-
ity.” Fed. R. Evid. 408 advisory committee’s note to 2011
amendments. Thus, we cite here to the amended version
of the rules.
IN RE MSTG INC 12

a contention of undue delay, or proving an effort to ob-
struct a criminal investigation or prosecution.” Fed. R.
Evid. 408(b).

The rule is clear by its text and history that it covers
not only settlements and negotiations between the parties
to the lawsuit, but also settlements and negotiations
involving a third party. The advisory committee propos-
ing the rule specifically stated:

While the rule is ordinarily phrased in terms of of-
fers of compromise, it is apparent that a similar
attitude must be taken with respect to completed
compromises when offered against a party
thereto. This latter situation will not, of course,
ordinarily occur except when a party to the pre-
sent litigation has compromised with a third per-
son.

Fed. R. Evid. 408 advisory committee’s note (1972 Pro-
posed Rules). This understanding has been echoed by
both courts, see, e.g., McInnis v. A.M.F., Inc., 765 F.2d
240, 247–48 (1st Cir. 1985), and commentators, see, e.g.,
23 Charles Alan Wright & Kenneth W. Graham, Jr.,
Federal Practice and Procedure: Evidence § 5304 (1st ed.
1992) (collecting and commenting on cases). Third party
settlement negotiations are admissible, but only for
purposes other than proving liability or the amount of a
claim.

In enacting Rule 408, Congress did not take the addi-
tional step of protecting settlement negotiations from
discovery. Adopting a settlement privilege would require
us to go further than Congress thought necessary to
promote the public good of settlement, or in other words,
to strike the balance differently from the one Congress
13 IN RE MSTG INC

has already adopted. This also suggests that it is not
appropriate to create a new privilege for settlement
discussions.

This situation is similar to that in University of Penn-
sylvania, 493 U.S. 182, involving a Title VII suit against a
university claiming bias in a tenure decision. The univer-
sity asserted that a new privilege should be recognized
under Rule 501 covering confidential peer review materi-
als, that is, confidential documents in a professor’s ten-
ure-review file such as evaluations made by other
professors and documents reflecting the internal delibera-
tions of the tenure committee. The Supreme Court re-
jected that privilege, placing significant emphasis on the
fact that in extending Title VII to educational institutions
and providing for broad EEOC subpoena powers, Con-
gress did not see fit to create a privilege for peer review
documents. In doing so, the Court weighed significantly
the fact that “Congress has considered the relevant com-
peting concerns but has not provided the privilege itself.”
Id. at 189. Indeed, “Congress undoubtedly was aware . . .
of the potential burden that access to [peer review] mate-
rial might create,” id. at 191, but provided for confidenti-
ality not through a privilege but by other means, such as
criminal penalties for disclosure of confidential documents
outside of an EEOC proceeding, id. at 192-93. Here too
Congress’s failure to adopt a settlement privilege supports
our conclusion that no privilege for settlement negotia-
tions should be recognized.

Third, in determining whether new privileges should
be recognized, the Supreme Court has been influenced by
the list of evidentiary privileges recommended by the
Advisory Committee of the Judicial Conference in its
proposed Federal Rules of Evidence. See Jaffee, 518 U.S.
at 13-14; United States v. Gillock, 445 U.S. 360, 367-68
IN RE MSTG INC 14

(1980). In Jaffee, the Court’s decision was “reinforced by
the fact that a psychotherapist privilege was among the
nine specific privileges recommended by the Advisory
Committee in its proposed privilege rules.” 518 U.S. at
14. In Gillock, on the other hand, the Court’s holding that
Rule 501 did not include a state legislative privilege
(speech and debate privilege) relied, in part, on the fact
that no such privilege was included in the Advisory Com-
mittee’s draft. 445 U.S. at 367-68. Here, a settlement
negotiation privilege was not included among the nine
specific privileges recommended by the Advisory Commit-
tee, thus cutting against MSTG’s argument.

Fourth, “[t]he Supreme Court requires that a party
seeking judicial recognition of a new evidentiary privilege
under Rule 501 demonstrate . . . that the proposed privi-
lege will effectively advance a public good.” In re Sealed
Case, 148 F.3d 1073, 1076 (D.C. Cir. 1998) (citing Gillock,
445 U.S. at 375). MSTG contends that settlement nego-
tiations are analogous to the spousal, attorney-client, and
psychotherapist privileges because they are all rooted in
an “imperative need for confidence and trust,” Jaffee, 518
U.S. at 10, and are designed to open up communication in
which full and frank discussion serves a public good.
MSTG concludes that this court must similarly recognize
a privilege for settlement discussions. This need for
confidence and trust alone, however, is an insufficient
reason to create a new privilege. In other circumstances,
the Supreme Court has rejected new privileges under
Rule 501 even though recognition of a privilege would
foster a relationship based on trust and confidence. See,
e.g., Univ. of Pa., 493 U.S. at 194-95 (rejecting privilege
against disclosure of academic peer review materials).
Also, while there is clearly an important public interest in
favoring the compromise and settlement of disputes,
disputes are routinely settled without the benefit of a
15 IN RE MSTG INC

settlement privilege. It is thus clear that an across-the-
board recognition of a broad settlement negotiation privi-
lege is not necessary to achieve settlement.

Fifth, any settlement privilege would necessarily have
numerous exceptions. Rule 408 itself contemplates a host
of scenarios under which documents related to settlement
negotiations would be admissible for purposes other than
“prov[ing] or disprov[ing] the validity or amount of a
disputed claim or [] impeach[ing] by a prior inconsistent
statement or a contradiction.” For example, settlement
negotiation evidence would be admissible where the
settlement itself or its interpretation is at issue or where
evidence of the ingredients of the settlement might be
relevant to an issue of double recovery. See, e.g., Portu-
gues-Santana v. Rekomdiv Int’l, 657 F.3d 56, 63–64 (1st
Cir. 2011) (concluding the district court erred in not
considering a settlement agreement in connection with a
motion to offset damages); Catullo v. Metzner, 834 F.2d
1075, 1079 (1st Cir. 1987) (holding that testimony of
settlement negotiations was admissible to “prove the
terms of the agreement itself”); see also 2 Jack B.
Weinstein & Margaret A. Berger, Weinstein’s Federal
Evidence § 408.08[5] (Joseph M. McLaughlin, ed., Mat-
thew Bender 2d ed. 1997) (“If the settlement negotiations
and terms explain and are a part of another dispute, they
must often be admitted if the trier is to understand the
case.”). Documents related to settlement negotiations
would typically be relevant and discoverable to the extent
that such evidence would be admissible under Rule 408.
Thus, a privilege for settlement negotiations would neces-
sarily be subject to numerous exceptions. The existence of
such exceptions would distract from the effectiveness,
clarity, and certainty of the privilege. “An uncertain
privilege . . . is little better than no privilege at all.”
Jaffee, 518 U.S. at 18 (quoting Upjohn Co. v. United
IN RE MSTG INC 16

States, 449 U.S. 383, 393 (1981)).

Finally, to the extent we need to protect the sanctity
of settlement discussions and promote the compromise
and settlement of dispute, there are other effective meth-
ods to limit the scope of discovery to achieve those ends—
primarily Rule 26 of the Federal Rules of Civil Procedure.
In general, the Federal Rules of Civil Procedure promote
a “broad and liberal” policy of discovery “for the parties to
obtain the fullest possible knowledge of the issues and
facts before trial.” Hickman v. Taylor, 329 U.S. 495, 501,
507 (1947). Discovery is not unlimited, though, under
Rule 26. Courts are required to “limit the frequency or
extent of discovery otherwise allowed . . . if it determines
that . . . the burden or expense of the proposed discovery
outweighs its likely benefit, considering the needs of the
case, the amount in controversy, the parties’ resources,
the importance of the issues at stake in the action, and
the importance of the discovery in resolving the issues.”
Fed. R. Civ. P. 26(b)(2)(C).

The Supreme Court has instructed us that the federal
courts “should not hesitate to exercise appropriate control
over the discovery process” to “prevent abuse.” Herbert v.
Lando, 441 U.S. 153, 177 (1979). Under Rule 26, trial
courts can grant motions for protective orders to restrict
the use of information solely for purposes of the litigation.
See Mohawk Indus., Inc. v. Carpenter, 130 S. Ct. 599, 608
(2009) (“Moreover, protective orders are available to limit
the spillover effects of disclosing sensitive information.”).
Indeed, in the present case the district court issued a
protective order to help preserve confidentiality.

Similarly, the Advisory Committee’s note to Rule 26
recognizes that the discovery rules “confer[] broad powers
on the courts to regulate or prevent discovery even though
17 IN RE MSTG INC

the materials sought are within the scope of 26(b).” Fed.
R. Civ. P. 26 advisory committee’s note (1970 Amendment
Subdivision (b)). While typically settlement negotiations
that are admissible under Federal Rule of Evidence 408 4
or disclosed to a party’s expert 5 would be discoverable, the
district court has discretion to limit discovery of material
that is not itself admissible and that was not utilized by
the opposing party to protect settlement confidentiality.
Even as to such admissible or disclosed material, some
protections may be appropriate. Significantly, citing the
example of a tax return, the Advisory Committee propos-
ing Rule 26 acknowledged that discovery could be limited
where competing confidentiality interests are at stake.
Id. The Advisory Committee recognized that although a
party’s tax return is generally held not privileged, an
individual’s “interests in privacy may call for a measure of
extra protection.” Id. (citing Wiesenberger v. W. E. Hutton
& Co., 35 F.R.D. 556, 557 (S.D.N.Y. 1964) (holding in a
Securities Act case that even though the plaintiff’s tax
return was relevant to show that certain tax savings by
the plaintiff for investments that turned out to be fraudu-
lent could be offset against any liability of the defendant,
a party’s income tax return should only be discoverable

4 We note here that we have not yet decided the ex-
tent to which evidence of settlement negotiations would
be admissible under Rule 408. See generally
ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869-73
(Fed. Cir. 2010); Vanderlande Indus. Nederland BV v.
Int’l Trade Comm’n, 366 F.3d 1311, 1322 (Fed. Cir. 2004);
Snellman v. Ricoh Co., 862 F.2d 283, 289-90 (Fed. Cir.
1988); Medtronic Inc. v. Intermedics, Inc., 799 F.2d 734,
741 (Fed. Cir. 1986); Hanson v. Alpine Valley Ski Area,
Inc., 718 F.2d 1075, 1078-82 (Fed. Cir. 1983); Deere & Co.
v. Int’l Harvester Co., 710 F.2d 1551, 1556-57 (Fed. Cir.
1983).
5 See In re Pioneer Hi-Bred Int’l, Inc., 238 F.3d
1370, 1375 (Fed. Cir. 2001).
IN RE MSTG INC 18

“where a litigant himself tenders an issue as to the
amount of his income”)). Under this authority, discovery
in other areas has been limited because allowing broad
discovery would undermine other important interests in
confidentiality. See, e.g., In re Anonymous Online Speak-
ers, 661 F.3d 1168, 1176 (9th Cir. 2011) (identity of
anonymous speaker); Bruno & Stillman, Inc. v. Globe
Newspaper Co., 633 F.2d 583, 598 (1st Cir. 1980) (identity
of confidential sources); Keyes v. Lenoir Rhyne Coll., 552
F.2d 579, 581 (4th Cir. 1977), cert. denied 434 U.S. 904
(1977) (peer review materials at universities); Hartley Pen
Co. v. U.S. Dist. Court, 287 F.2d 324, 328 (9th Cir. 1961)
(trade secrets).

We note that other courts have imposed heightened
standards for discovery in order to protect confidential
settlement discussions. In the context of confidential
mediation communications, the Second Circuit has held
that because “confidentiality in [mediation] proceedings
promotes the free flow of information that may result in
the settlement of a dispute,” a party seeking discovery of
confidential communications must make a heightened
showing “demonstrat[ing] (1) a special need for the confi-
dential material, (2) resulting unfairness from a lack of
discovery, and (3) that the need for the evidence out-
weighs the interest in maintaining confidentiality.” In re
Teligent, Inc., 640 F.3d 53, 57-58 (2d Cir. 2011) (internal
quotation mark omitted). Many district courts also re-
quire heightened showings for discovery of settlement
negotiations. See, e.g., Eisai Inc. v. Sanofi-Aventis U.S.,
LLC, No. 08-4168, 2011 WL 5416334, at *8 (D.N.J. Nov. 7,
2011) (finding that party seeking discovery “failed to
make a heightened, more particularized showing of rele-
vance” (internal quotation mark omitted)); Atchison
Casting Corp. v. Marsh, Inc., 216 F.R.D. 225, 226–27 (D.
Mass. 2003); Young v. State Farm Mut. Auto. Ins. Co., 169
19 IN RE MSTG INC

F.R.D. 72, 76 (S.D. W. Va. 1996); Servants of Paraclete,
Inc. v. Great Am. Ins. Co., 866 F. Supp. 1560, 1576
(D.N.M. 1994). But see Vardon Golf Co. v. BBMG Golf
Ltd., 156 F.R.D. 641, 650-51 (N.D. Ill. 1994) (rejecting the
approach of placing a burden upon the proponent of
discovery to make some “particularized showing” of a
likelihood that admissible evidence will be generated by
discovery of the information). Because the issue is not
before us, we reserve for another day the issue of what
limits can appropriately be placed on discovery of settle-
ment negotiations. But the existence of such authority,
whatever its scope, strongly argues against the need for
recognition of a privilege. In other words, the public
policy goals argued to support a privilege can more ap-
propriately be achieved by limiting the scope of discovery.

Therefore, in light of reason and experience, we hold
that settlement negotiations related to reasonable royal-
ties and damage calculations are not protected by a
settlement negotiation privilege. See In re Gen. Motors,
594 F.2d at 1124 n.20.

B.

Our cases appropriately recognize that settlement
agreements can be pertinent to the issue of reasonable
royalties. See generally ResQNet.com, Inc. v. Lansa, Inc.,
594 F.3d 860, 869-73 (Fed. Cir. 2010). Here, the settle-
ment agreements were in fact produced and MSTG does
not argue that this production was inappropriate. How-
ever, MSTG challenges the discovery order on the grounds
that the district court abused its discretion by ordering
the production of negotiation documents underlying the
settlement agreements.

The magistrate judge first denied discovery of the set-
IN RE MSTG INC 20

tlement negotiations because the settlement agreements
had already been produced and AT&T had not shown a
need for discovery as to the underlying settlement nego-
tiations. After MSTG’s expert offered his opinion regard-
ing a reasonable royalty for AT&T’s alleged infringement,
the magistrate judge reconsidered and ordered production
of the negotiation documents “because they might contain
information showing that the grounds [MSTG’s expert]
relied on to reach his conclusion are erroneous.” Recon-
sideration Order, slip op. at 4. The district court agreed,
and ordered production to permit AT&T “the ability to
test the accuracy of [the expert’s] opinions and assump-
tion.” Final Discovery Order, slip op. at 2.

While MSTG argues that its expert relied only on in-
formation within the four corners of the settlement
agreements, see Reconsideration Order, slip op. at 3,
AT&T points to specific opinions offered by the expert
that go beyond the four corners of the agreements, see id.
at 4. For example, the expert concluded that the rates in
the settlement agreements were “discounted by at least
75%” because they were entered before any substantive
litigation rulings such as claim construction or summary
judgment. Resp’t’s App. 139. On this issue the agree-
ments themselves did not support the opinion. Rather,
the expert cited an MSTG executive as to MSTG’s sup-
posed reasons for entering into the agreements as well as
other data. As a matter of fairness MSTG cannot at one
and the same time have its expert rely on information
about the settlement negotiations and deny discovery as
to those same negotiations. See In re Pioneer Hi-Bred
Int’l, Inc., 238 F.3d 1370, 1374-76 (Fed. Cir. 2001). Nor
has MSTG attempted to show that the district court
awarded overly broad discovery into the settlement nego-
tiations, or that denial of discovery of the settlement
negotiation documents was necessary here to encourage
21 IN RE MSTG INC

settlement. Thus, the district court did not clearly abuse
its discretion in ordering production of the settlement
negotiation documents. See In re Roche Molecular Sys.,
Inc., 516 F.3d 1003, 1004 (Fed. Cir. 2008) (“The remedy of
mandamus is available only in extraordinary situations to
correct a clear abuse of discretion . . . .”). MSTG’s petition
for writ of mandamus is thus denied.
Accordingly,
IT IS ORDERED THAT:

(1) The petition for a writ of mandamus is denied.

(2) All pending motions are moot.

FOR THE COURT

April 9, 2012 /s/ Jan Horbaly
Date Jan Horbaly
Clerk