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Trading Technologies v. Bcg Partners

September 2, 2011


The opinion of the court was delivered by: Judge Virginia M. Kendall


Plaintiff Trading Technologies International, Inc. ("TT") filed 12 cases in this District, now consolidated before this Court, against various defendants, alleging they infringed on TT's electronic trading patents. On June 15, 2011, pursuant to the Court's scheduling order, TT filed a series of amended complaints. The defendants*fn1 moved to dismiss TT's indirect infringement claims, asserting they do not sufficiently plead their knowledge (1) of TT's patents and (2) that they were infringing TT's patents under 35 U.S.C. § 271(b) and (c) in light of the Supreme Court's recent decision in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011). Some of the defendants also move to strike certain parts of TT's complaints under Federal Rule of Evidence 408 because TT alleged knowledge of the patents using references to settlement and licensing negotiations. Finally, TT has moved to strike certain affirmative defenses and counterclaims raised in a handful of the defendants' answers. For the below reasons, the Court grants the defendants' motion to strike TT's allegations concerning settlement agreements, denies the defendants' motions to dismiss, and denies TT's motions to strike.


Prior to evaluating the sufficiency of TT's complaints, the Court first considers whether some of TT's allegations should be stricken per Rule 12(f). In a number of the amended complaints, TT alleged various defendants had knowledge of TT's patents based on settlement negotiations between TT and those defendants after TT filed these suits in February 2010. TT also references a licensing term sheet that it allegedly provided to a number of defendants setting out standard prices and conditions to license TT's patents. That term sheet has "For Settlement Purposes Only / Subject to F.R.E. 408" emblazoned at the top of each page. The defendants assert that under Rule 408, these allegations should be stricken as they are inadmissible to prove liability for infringement.

Rule 12(f) allows the Court to strike "redundant, immaterial, impertinent, or scandalous matter" from any pleading, but motions to strike are generally disfavored due to their tendency to delay proceedings. See Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989). Rule 408 makes "conduct or statements made in compromise negotiations" regarding a claim inadmissible "when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount." Rule 408 is "inapplicaple," however, when "compromise evidence is offered for a purpose other than to prove the validity, invalidity, or amount of a disputed claim." Fed. R. Evid. 408 advisory committee's note. The rule is not waivable - a party cannot introduce evidence of its own settlement offers. Id. "The primary policy reason for excluding settlement communications is that the law favors out-of-court settlements, and allowing offers of compromise to be used as admissions of liability might chill voluntary efforts at dispute resolution."

Zurich Am. Ins. Co. v. Watts Indus., 417 F.3d 682, 689 (7th Cir. 2005). "In deciding whether Rule 408 should be applied to exclude evidence, courts must consider the spirit and purpose of the rule and decide whether the need for the settlement evidence outweighs the potentially chilling effect on future settlement negotiations." Id.

In Fidelity National Title Co. v. Law Title Insurance Co., cited by both TT and various defendants, one court in this District considered a motion to strike a letter attached to the complaint as exhibit, asserting that the letter was a settlement offer and fell within Rule 408. The court asked three questions: (1) whether the letter was written in an effort to settle the parties' dispute; (2) whether the plaintiff wanted to use the letter to establish the defendant's liability; and (3) whether the letter concerned liability that the defendant had otherwise admitted. See No. 04 C 6382, 2005 WL 1126899 at *5-7 (N.D. Ill. May 3, 2005); see also Geary v. Motel Props., Inc. No. 06 C 225, 2006 WL 1344015, at *1 (S.D. Ind. May 16, 2006) ("This court is of the belief that allowing the use of compromise materials in pleadings runs against the intent of F.R.E. 408 to encourage settlement discussions at all points of a dispute.") The Fidelity analysis is consistent with both the language and purpose of Rule 408. The first two questions are straight from the text of the rule; the last question recognizes that the rationale for the rule falls away if the defendant had already admitted to the liability in question.

Here, the Court may skip over the first question in Fidelity because TT concedes that the amended complaints describe settlement discussions. As to the second question, to establish induced infringement and contributory infringement under 35 U.S.C. § 271(b) and (c), TT must ultimately show that the defendants had knowledge of its patents. See Global-Tech, 131 S. Ct. at 2067-68. Put another way, knowledge of the patent is a prerequisite for both types of indirect infringement. Id.

TT is explicit that it wants to use the settlement negotiations to establish (or at least plead) the defendants' knowledge of its patents and, consequently, liability for indirect infringement.*fn2 There is no dispute that TT and the defendants were trying to settle the exact claims TT brings here. Finally, the issue of defendants' knowledge of TT's patents (and their liability for induced infringment) is hotly disputed. Fidelity's analysis dictates that the Court strike TT's references to settlement negotiations and the licensing sheet.

Moreover, striking the references to settlement negotiations promotes the purpose of Rule 408. If patent holders could lure suspected infringers to settlement negotiations, only to turn around and use those negotiations to level additional indirect infringement claims at the purported infringer, parties will be less likely to negotiate a settlement or engage in licensing discussions in the first place. In other words, settlement negotiations should not subject parties to more liability for indirect infringement - their purpose is the precisely the opposite.

The cases TT cites for the proposition that compromise evidence is admissible even to show an element of a claim are distinguishable. For example, Zurich is clear that Rule 408 allows admission only for purposes unrelated to establishing liability for the claim at issue. See Zurich, 417 F.3d at 689 (compromise evidence has been "admitted by courts for additional purposes other than establishing liability.") (emphasis added). In United States v. Haubert, the Seventh Circuit upheld admission of compromise evidence to allow the Government to rebut the defendant's contention that he had a subjective misunderstanding of his legal duty to report income, but the evidence was not offered to directly prove that failed to pay his taxes. See 40 F.3d 197, 200 (7th Cir. 1994). Cases like Halbrucker v. Waste Mgt. of Wisconsin, No. 07 C 11, 2007 WL 3125276, at *2 (E.D. Wis. Oct. 24, 2007), which refused to strike complaint allegations, are distinguishable because there it was unclear for what purpose the plaintiff intended to use the settlement negotiations. Here, TT is upfront that it wants to use the settlement negotiations to establish liability for indirect infringement. The Court strikes all references to TT's settlement negotiations with defendants and TT's licensing term sheet used in those negotiations from TT's amended complaints.*fn3


A. Standard

The defendants next assert that in light of Global-Tech, TT has not plead enough facts that the defendants knew about TT's patents and that they knew their products, if used by someone else, would infringe on TT's ...

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