Paice LLC v. Hyundai Motor Company, 1:12-cv-00499

Background

Paice previously litigated and settled patent disputes with Toyota in a 2010 Settlement Agreement containing a confidentiality clause (Section 5.9) and a Delaware choice-of-law clause (Section 5.10).
In this case (Paice, et al. v. Hyundai, et al.), Toyota intervened to resist production/use of the Paice–Toyota Settlement Agreement; defendants earlier moved to compel some Toyota litigation materials but expressly withdrew any request for the Settlement Agreement itself.
Paice signaled intent to disclose the Settlement Agreement (including to its damages expert) under a claimed obligation to produce materials under Rule 26; Toyota moved for a protective order to bar Paice’s disclosure/use.
The magistrate judge analyzed the Agreement under Delaware contract law and concluded Paice bargained away the right to disclose/use the Agreement in this litigation under the Agreement’s confidentiality clause.
Paice and co-plaintiff Abell served subpoenas on Toyota seeking the Settlement Agreement; the court denied Paice’s ability to use/disclose the Agreement but granted Abell’s motion to compel because Abell is not contractually bound by the confidentiality clause and is entitled to discovery under Federal Circuit patent-discovery law.
The court left questions about admissibility (probative value vs. prejudice under Federal Circuit precedent) to the trial judge, noting discovery is broader than admissibility and that admission of settlement evidence for reasonable-royalty analysis is often disfavored under cases like LaserDynamics and ResQNet.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Paice may disclose/use the Paice–Toyota Settlement Agreement despite its confidentiality clause	Paice: Rule 26 and local pretrial rules require disclosure of documents used to support claims/damages; protective order can safeguard confidentiality	Toyota: The Agreement’s Section 5.9 expressly restricts Paice’s right to disclose/use the Agreement; contract terms govern	Held: Paice cannot disclose or use the Agreement — confidentiality clause controls under Delaware contract law
Whether the Settlement Agreement is discoverable/admissible for reasonable-royalty damages	Paice: Settlement agreements are discoverable and relevant to damages; protective order suffices to prevent misuse	Toyota: Settlement is irrelevant or inadmissible and confidentiality bars disclosure/use	Held: Agreement is discoverable under Rule 26 (discovery broader than admissibility), but admissibility is a separate open question for trial judge; Federal Circuit precedent raises serious admissibility concerns
Whether Abell (non-signatory, partial patent assignee/investor) is bound by the Agreement’s confidentiality clause	Plaintiffs: Abell is entitled to the Agreement; not bound as non-signatory/owner	Toyota: Abell stands in Paice’s shoes (third-party beneficiary, assignee, successor) and thus is bound	Held: Abell is not a third-party beneficiary, assign, or successor bound by the confidentiality provision; Abell may compel production
Whether contractual confidentiality runs with the patent to bind successors/assignees	Toyota: Confidentiality is a substantive encumbrance that runs with the patent and binds successors	Plaintiffs: Confidentiality is procedural and does not encumber patent rights to prevent discovery by assignees	Held: Confidentiality is a procedural license term (not a substantive patent-use restriction) and does not bar Abell from obtaining the Agreement under substantive patent/assignment law

Key Cases Cited

Loppert v. WindsorTech, Inc., 865 A.2d 1282 (Del. Ch. 2004) (contract interpretation principles under Delaware law)
Sassano v. CIBC World Markets Corp., 948 A.2d 453 (Del. Ch. 2008) (objective theory of contract interpretation; ordinary meaning of words)
ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir.) (treatment of prior licenses/settlements in reasonable-royalty analysis)
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (caution against admitting settlement agreements with dubious probative value; Rule 403 prejudice concerns)
Datatreasury Corp. v. Wells Fargo & Co., 522 F.3d 1368 (Fed. Cir. 2008) (distinguishing substantive patent encumbrances from procedural license terms like arbitration clauses)
Marine Midland Realty Credit Corp. v. LLMD of Mich., Inc., 821 F. Supp. 370 (E.D. Pa. 1993) (court allowed disclosure of a settlement amount where disclosure was necessary to pursue a subsequent legal claim)