District Court’s Preliminary Injunction Opinion Offers Cautionary Tale Over Engaging in Settlement Negotiations with a Rival

A recent decision from the Western District of Washington denying a motion for a preliminary injunction offers a cautionary tale to keep in mind when considering whether to engage in settlement negotiations with a competitor.

BitTitan brought suit against SkyKick for infringement of U.S. Patent No. 8,938,510, a patent directed to the migration of email data from one email system to another. According to BitTitan, the ‘510 patent covered the essential elements of BitTitan’s email migration product and SkyKick was its main competitor in this industry.

Although the court denied the preliminary injunction for a number of reasons, including BitTitan’s failure to establish that it would likely prevail on its infringement claim, its rationale for finding that BitTitan failed to show irreparable harm is worth noting. In concluding that BitTitan failed to present substantive evidence demonstrating that its potential loss could not be compensated by money damages, the Court noted that BitTitan’s settlement discussions with SkyKick undermined BitTitan’s claim of irreparable harm.

The court recognized that Federal Rules of Evidence 408 prohibits the use of offers to compromise and negotiations as evidence “to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction.” However, relying on Judge Koh’s decision in Apple, Inc. v. Samsung Elecs. Co., 2011 U.S. Dist. LEXIS 139049 (N.D. Cal. December 2, 2011), the court concluded that this prohibition did not apply to the preliminary injunction hearing because, in the court’s mind, the evidence was “presented to establish whether there would be irreparable harm…, not the validity of the claim or amount of the harm.”

It is well recognized that Rule 408 is intended to encourage parties to settle their disputes and engage in settlement discussions that might otherwise not occur if those discussions were admissible evidence. While it is debatable as to whether the court applied the rule correctly, a court’s willingness to consider these discussions in connection with a preliminary injunction hearing could have the effect of undermining the purpose of Rule 408.

If this decision is followed by other courts, patent plaintiffs intending to seek an injunction need to weigh whether engaging in settlement negotiations will undermine their ability to obtain this relief.