April 10, 2012
On Monday April 9, the Federal Circuit decided In re MSTG, Inc., which clearly eliminated any argument that settlement or license negotiations might be privileged from discovery. The Federal Circuit rejected those cases that had held license negotiations — and other settlement negotiations — were privileged: Exempt from document production, deposition questioning, and otherwise protected from scrutiny in a lawsuit in the U.S.
Why do you care? You care because signing a non-disclosure agreement, or putting confidentiality provisions in documents, to facilitate a negotiation, will be binding on the parties, but not the court or in a lawsuit or arbitration. This means don’t put something in a settlement communication or presentation or licensing letter or presentation that would hurt you in a lawsuit. That is, if a bad document is not going to be privileged, then don’t allow a bad document to be created…The best way to avoid bad evidence is not to create it in the first place.
What can you do? The opinion has a lot of non-binding commentary, dicta, that gives negotiators, and people in litigation, some possible guidance for keeping negotiations confidential — and possibly even privileged. Some U.S. states have statutes that make mediation (a moderated negotiation with a third-party neutral, a “mediator”), privileged. The Federal Circuit did not address this issue directly, but in dicta indicated that mediation might in fact be privileged. If you have sensitive negotiations (prior to a suit in order to avoid litigation or after litigation), and you want to bar discovery into your negotiations, then do a mediation with a mediator in a state where the mediation is privileged (for example, Texas).
If you are stuck in a lawsuit now and settlement and license negotiation records, presentations or notes, are being requested by the other side, the Federal Circuit said that these types of materials might be subject to a higher burden for discovery, and more protection to maintain their confidentiality once produced. Again, this is dicta, but the language in the opinion gives parties in litigation something to work with in protecting settlement and license negotiations.
Be careful out there! Frank talk in settlement or license negotiations may be repeated back in court, notes may be shown to the jury, and presentations dissected in motions. Yes, there are potential limits of relevance under Federal Court Rules, especially Federal Rules of Evidence 403 and 408, but these limits are up to the court’s discretion, not legal privileges. Don’t create “bad evidence”…