Free Response - District Court of Federal Claims - federal

Case 1:92-cv-00580-EJD

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ______________________________ SPARTON CORPORATION, ) ) Plaintiff, ) ) v. ) No. 92-580C ) Chief Judge Edward Damich THE UNITED STATES, ) ) Defendant. ) SPARTON CORPORATION'S OPPOSITION TO DEFENDANT'S MOTION IN LIMINE TO PRECLUDE SETTLEMENT OFFER AS EVIDENCE OF REASONABLE COMPENSATION Sparton Corporation ("Sparton") opposes defendant's motion in limine to preclude Sparton's alleged settlement offer as evidence of reasonable compensation. See Doc. 306. By this Court's Order, defendant was required to justify the filing of this motion in view of the Court's Order, Doc. 290, requiring the filing of motions in limine by January 22, 2008. Sparton's opposition traverses defendant's (a)

justification for untimely filing this motion in violation of this Court's Order (Doc. 290), and (b) motion on substantive grounds. I. Defendant Has No Justification For Filing Its Motion Defendant claims that the Court's Order (Doc. 290) sets no date for the filing of motions in limine relating to matters presented in pretrial briefs, but instead imposed a deadline for the filing of motions in limine regarding "... the opposing party's proposed witnesses or exhibits." Mot. 1. Defendant further argues that plaintiff's expert did not

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rely upon the 5% settlement offer at issue here, but instead provided his own analysis, and not until Sparton's brief was filed on February 6, 2008 did Sparton rely on the settlement offer as part of its accounting analysis. Mot. 1-2. Defendant's argument is frivolous, and the Court should so find. That defendant's subject motion in limine relates

directly to "... the opposing party's proposed witnesses or exhibits" is established as follows. The 5% settlement

offer at issue here is the subject of Joint Exhibit 80 ("J80"), "[l]etter to Office of Naval Research from John Bodde, dated February 11, 1981 (Def. Summ. J. Ex. 42, A000517-A000519)." See Doc. 299, p. 20. Plaintiff's two

experts, contrary to defendant's frivolous allegation, did rely upon the 5% settlement offer at issue in their reports. In Donald Martin's report at P248.15, he states: It is also my understanding that in the initial period of infringement, Sparton offered a settlement license to the U.S. Navy at a royalty rate of 5%. This royalty rate was offered in settlement for a claim for infringement, in the face of a market depressed by the presence of infringing competitors, and should be thought of only as a floor for the reasonable royalty rate. (Emphasis added). Gerald Martin's expert report at P246.3 and P246.5 states: Other facts and conclusions/opinions I will present in connection with the reasonable royalty calculus are that: (1) Sparton offered the Navy a settlement license about February 11, 1981 at a 5% rate on all sales of sonobuoys or other products utilizing the patented inventions. * * * These facts and conclusions and/or opinions

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[set forth in his report] justify a substantial increase in the 5% rate Sparton offered the Navy on February 11, 1981 .... (Emphasis added). Defendant's statement that plaintiff's expert did not rely upon the 5% settlement offer at issue here is clearly wrong. Defendant's statement that it was not until Sparton's brief was filed on February 6, 2008 that it was aware that Sparton relied upon the settlement offer as part of its accounting analysis is also clearly wrong. Mot. 1-2. Evidentiary

document exhibits J80, P246.3 and P248.15 are to the contrary and establish a lack of justification for the filing of defendant's motion in limine. The motion is

frivolous and should be so found by the Court. II. Factual Background Defendant is correct that Sparton filed an administrative claim on February 11, 1981 indicating that it was entitled to a 5% royalty. Mot. 1. Defendant then states

that the Navy and Sparton failed to resolve the claim. Id. This statement fails, however, to present the reality of what transpired during the administrative claim. After Sparton filed its administrative claim, the Navy raised the on-sale defense on February 9, 1982, just as defendant did years later in the case at bar. Ex. A, P500.1 (Ex. A attached hereto contains 19 pages consisting of multiple letters by or between Sparton and the Navy). On

April 13, 1982, Sparton traversed the Navy's on-sale defense

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position. Ex. A, P500.2-3.

By November 2, 1984, Navy

attorney Louis Allahut was assigned to investigate Sparton's administrative claim. Ex. A, P500.4. Sparton's contracts

manager John Bodde had been assigned by Sparton to pursue Sparton's administrative claim. Id. John Bodde reached an agreement with Navy attorney Louis Allahut, as set forth and memorialized in writing by letter dated February 5, 1987, that a royalty rate of 5.5% was to be applied to the alleged infringement. Ex. A, P500.5-.6. This 5.5% rate was .5% higher than Sparton had

proposed in its February 11, 1981 letter initiating Sparton's administrative claim because the parties were attempting to cost out sonobuoy parts they believed were covered by the patent claims. Id. By letter dated April 22,

1988, Navy attorney Louis Allahut utilized the 5.5% royalty rate in computing the royalties owed to Sparton and communicated same to Sparton. Ex. A, P500.7-.9. By letter

dated May 27, 1988, Sparton concurred with Navy attorney Louis Allahut's utilization of the 5.5% royalty rate in computing the royalties owed to Sparton. Ex. A, P500.10. An agreement on the royalty rate was reached by John Bodde of Sparton and Navy attorney Louis Allahut as of July 18, 1988, and in this regard, Navy attorney Louis Allahut submitted a memorandum to the Navy Office of Counsel on July 18, 1988, over seven years after Sparton's claim had been

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initiated, stating: "Pursuant to DoD FAR Supplement 8.7002, settlement of a claim against the Government has been negotiated." (Emphasis added). Ex. A, P500.11. Navy

attorney Louis Allahut by this July 18, 1988 memorandum sought funds from the Navy to settle Sparton's administrative claim. Id. Notwithstanding Navy attorney

Louis Allahut's negotiated settlement recommendation, the Navy Office of Counsel by June 26, 1989 decided to revisit the on-sale defense in view of UMC Electronics Co. v. United States, 816 F.2d 647 (Fed. Cir. 1987), RCA Corp. v. Data General Corp., 887 F.2d 1056 (Fed. Cir. 1989), and Envirotech Corp. v. Westech Engineering, Inc., 904 F.2d 1571 (Fed. Cir. 1990), instead of finalizing settlement and committing funds. Ex. A, P500.12. Sparton again traversed

this on-sale defense. Ex. A, P500.13-.16. Sparton complained to the Navy's chief counsel, Margaret Olsen, on October 3, 1990 about the Navy's reversal in settlement position after the claim had been negotiated and pending for over 9 years. Ex. A, P500.17-.18. Navy

counsel Olsen stated on November 16, 1990 in response to Sparton's complaint: "Incidentally, we can find no evidence in the record available to us that anyone with authority to settle patent infringement claims actually agreed on a value of your claim that you should be paid." Ex. A, P500.19. (Emphasis added). This lawsuit was filed in this Court on

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August 25, 1992, and defendant's on-sale defense has been dismissed. Complaint and 399 F.3d 1321 (Fed. Cir. 2005). Since defendant decided to continue purchasing infringing sonobuoys, thereby further depressing Sparton's market, and litigate the on-sale defense to a conclusion, instead of reaching an amicable settlement with Sparton, the 5% and/or 5.5% royalty rate should be considered a royalty rate floor when determining a reasonable royalty. Otherwise, defendant will have no incentive to settle any 28 U.S.C. §1498 case prior to the completion of litigation. As

Sparton's expert said: "This royalty rate [5%] was offered in settlement ..., in the face of a market depressed by the presence of infringing competitors, and should be thought of only as a floor for the reasonable royalty rate." P248.15. Sparton's 5% and/or 5.5% proffered royalty rate is evidence of Sparton's valuation of its patented inventions in the face of a depressed, infringing competitor market, and should be considered a royalty rate floor when determining a reasonable royalty (a) in view thereof and (b) in further view of defendant's action in litigating the on-sale defense to a conclusion instead of reaching an amicable settlement with Sparton. This evidence is relevant to the accounting

due Sparton and is thus admissible. III. Legal Analysis of Defendant's Position

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Defendant contends that Sparton's administrative claim settlement offer is barred by Fed. R. Evid. 408 because it is offered to prove the value of defendant's liability, i.e. liability or the claim amount. Mot. 3-4. In support of its

contention, defendant relies upon Cheyenne River Sioux Tribe v. United States, 806 F.2d 1046, 1050-52 (Fed. Cir. 1986) and United States v. Ward Baking Co., 376 U.S. 327 (1964). Mot. 3-5. The rational behind these cases is twofold. A

trial court should not imposes upon parties a settlement to which they had not agreed (1) because "... permitting consideration of settlement offers as reflecting an admission of liability in the amount of the offer would seriously discourage parties from discussing settlement or making settlement offers [which the law favors]" and (2) if one of the parties has not yet introduced all its trial evidence because the court will have "... failed to perform its obligations to determine the case on the basis of the evidence." 806 F.2d at 1050 and Ward Baking, supra at 334 ("[w]e decide only that where the Government seeks an item of relief to which evidence adduced at trial may show that it is entitled, the District Court may not enter a `consent' judgment without the actual consent of the Government.") Defendant draws a distinction between these two above cases and Hughes Aircraft Co. v. United States, 31 Fed. Cl. 481, 487 (1994), aff'd, 86 F.3d 1566 (Fed. Cir. 1996),

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vacated, 520 U.S. 1183 (1997), aff'd in part on remand, 140 F.3d 1470 (Fed. Cir. 1998), which permitted settlement offers in evidence for other purposes as Rule 408 permits, i.e. to establish a patent owner's invention valuation for a reasonable royalty determination. See also Ramada

Development Co. v. Rauch, 644 F.2d 1097, 1107 (5th Cir. 1981). In this connection, defendant asserts that certain

administrative claim documents it will offer in evidence (e.g. the Widenhofer and Depew affidavits), are relevant to other case issues and are thus admissible. Mot. 6-7. Defendant's contention that Rule 408 precludes the Court's consideration of Sparton's administrative claim settlement offer is in error. The twofold rational behind

Cheyenne River and Ward Baking is inapplicable to the case at bar. Trial begins April 21, 2008. Defendant is not

being precluded, as it was by the lower courts in Cheyenne River and Ward Baking, from presenting its reasonable royalty evidence at trial. Furthermore, a patent owner's

disclosure to the Navy of his valuation of his patent does not have a chilling effect upon a claim settlement. Rather,

it enhances a settlement negotiation and is required by Navy regulation to process a claim. This Court in Hughes, 31 Fed. Cl. at 487-88, also rejected the application of Rule 408 to Hughes' licensing offers. The basis of the rejection was that Hughes' offers

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were not offered to prove anything concerning its infringement claims against Philco-Ford or MBB, but rather were offered for "another purpose[,]" i.e. to establish Hughes' own valuation of the patent there in suit. This

Court found Hughes' historical offers "highly significant" and quoted with approval Pitcairn v. United States, 212 Ct. Cl. 168, 186 (1978) in which the Court of Claims stated: "[T]here is no reason why the [patent]owner himself should not be held to his own offer[s].... It is appropriate to take them into account and to give them great weight." Id. at 488. The Federal Circuit likewise reviewed Hughes' offers

and affirmed this Court's consideration of Hughes' licensing offers. 86 F.3d at 1572-74. Other cases in this Court have See de Graffenried v.

likewise considered licensing offers.

United States, 25 Cl. Ct. 209 (1992) (de Graffenried's offers to Westinghouse, Bethlehem Steel, Streak, Inc., and the government Arsenal facility considered in determining a reasonable royalty); ITT Corp. v. United States, 17 Cl. Ct. 199 (1989) (proposals to Hughes and Bendix considered in determining a reasonable royalty); and Penda Corp. v. United States, 29 Fed. Cl. 533 (1993) (license offered to ShuertOakland considered in determining a reasonable royalty). In the case at bar, Sparton is offering the administrative claim settlement offer as evidence of the patents' value to it shortly after (1981) the time the

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infringement began (~1977), i.e. a floor to the royalty rate as stated above. Under Rule 408, this evidence is

admissible as "otherwise discoverable" and/or for "another purpose." This type of evidence has been routinely admitted

in this Court's proceedings in other cases in connection with the reasonable royalty determination. The policy

reasons behind Rule 408 are inapplicable here. In view of the above, defendant's motion should be denied because (a) it did not have any justification for its filing and (b) the weight of authority in this Court is plainly against defendant's position. Sparton requests that

exhibit PX 500, pages P500.1-.19 be added to its document list as a sanction upon defendant for the filing of this frivolous motion. Respectfully submitted, Sparton Corporation, Plaintiff Dated: March 10, 2008 s/Steven Kreiss Steven Kreiss Attorney for Plaintiff 1120 Connecticut Avenue NW Suite 433 Washington D.C. 20036 Telephone: (202) 347-6382 Facsimile: (202) 347-7711

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