“a plaintiff needs to exercise caution when allowing indemnitors to review licensing materials”
by: Robert Kelly, Senior Vice President, Licensing | June 19, 2018
It happens often, during initial licensing discussions a plaintiff provides the accused infringer with settlement and licensing materials—which plaintiff of course provides on the condition of strict confidentiality—and then the infringer proceeds to ask whether they can share the materials with their indemnitor/supplier (collectively referred to here as “indemnitor(s)”). Should you allow the infringer to share the materials with their indemnitors in hope that it will move licensing discussions forward? Do you deny the request out of fear of how the materials will be used? Or is there some middle ground? Typically the best approach is the latter.
The main reason a plaintiff needs to exercise caution when allowing indemnitors to review licensing materials—which very often include specifics of the plaintiff’s infringement allegations and/or claim charts—is the indemnitors can use the provided materials as support for initiating a Declaratory Judgment action against the plaintiff, filing a petition for an Inter Partes Review (“IPR”), or otherwise attempting to hinder the plaintiff’s assertion efforts. While it’s often impossible to prevent these actions entirely, the plaintiff can take steps to protect itself and minimize exposure.
A plaintiff can protect itself when sharing licensing materials by, among other things, having the indemnitors agree to 1) treat the materials according to FRE 408, 2) maintain the materials as confidential, and 3) not use the materials for any purpose other than in connection with the plaintiff’s settlement discussions. Note that the plaintiff should make sure they have written confirmation from the indemnitor of the above agreements (i.e., don’t settle for a defendant’s second-hand confirmation).
Requiring the indemnitor to treat the materials according to FRE 408 provides the least protection for a plaintiff because the rule is focused on restricting admissibility of evidence relating to settlement. This protection is often helpful in facilitating settlements between a plaintiff and a defendant, but it’s less helpful in the case of an indemnitor. FRE 408 does not provide much protection in this scenario because plaintiff is not in litigation with the indemnitor, so an agreement from the indemnitor around admissibility of evidence doesn’t carry much weight.
An agreement to treat the materials as confidential prevents the indemnitor from sharing the materials with others. Those others could be patent aggregators, patent risk management companies, competitors, etc. who may be incentivized to file DJ actions or IPRs. Without access to the licensing materials, those other parties may have a more difficult time establishing a basis for such an action and/or proving up their case.
Last, but not least, make sure that the indemnitor will not use the materials provided for non-settlement purposes. The risk addressed here is similar to that in the agreement to confidentiality, but instead of a third party potentially initiating the DJ, IPR, etc., the concern is that the indemnitor themselves may initiate those actions. This is probably the most important of all the protections discussed here, because in almost all cases the indemnitor has a strong incentive to step in and protect their customers.
As mentioned above, these are not absolute protections to an indemnitor stepping in (e.g., through an intervenor complaint) or filing a DJ, IPR, etc., but can at least prevent a plaintiff from unnecessarily giving the indemnitor more ammunition to do so