Free Motion in Limine - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS SPARTON CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 92-580C Chief Judge Edward J. Damich

DEFENDANT'S MOTION IN LIMINE TO PRECLUDE USE OF PLAINTIFF'S SETTLEMENT OFFER AS EVIDENCE OF REASONABLE COMPENSATION The United States hereby moves to preclude the use of plaintiff's settlement offer as evidence of reasonable compensation to be awarded in this case. Such use is barred by Fed. R. Evid. 408.

I.

JUSTIFICATION FOR FILING No date was set for filing of motions in limine relating to matters presented in the pretrial

briefs, as set forth in this motion. The Pretrial Order, Docket No. 290, ¶ 2.c.i.(4), sets January 22, 2008 as the date for filing "any objections, including motions in limine, to the opposing party's proposed witnesses or exhibits." As noted below, plaintiff's expert Dr. Donald Martin, does not rely on the settlement offer at issue here, but provides his own analysis. Not until plaintiff filed its pretrial brief did plaintiff rely on the settlement offer as part of its accounting analysis. Plaintiff's pretrial brief was filed on February 6, 2008. See Docket No. 306.

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The filing of this motion 14 days after the filing of plaintiff's pretrial brief is reasonable in light of the issue presented and the government's timely filing of its own pretrial brief on February 13, 2008.

II.

FACTUAL BACKGROUND On February 11, 1981, plaintiff submitted a letter to the Navy for the purpose of

submitting an administrative claim for compensation in accordance with 28 U.S.C. § 1498(a) and section 9-404 of the Defense Acquisition Regulation. J80.1. In the letter, plaintiff stated it "believes it is entitled to a 5% royalty on all past and future sales of sonobuoys or other products utilizing the patented inventions." J80.1. After a series of communications between the Navy and plaintiff failed to resolve the claim, see DX-86 through DX-96, plaintiff filed the present suit. While the administrative claim was pending, the Navy questioned plaintiff on the dates of conception and reduction to practice, particularly with respect to the release mechanism of the ECP. See, generally, DX-86 through DX-96. In response, plaintiff offered a number of internal documents and obtained affidavits of Messrs. James Widenhofer and Donald Depew, to support its arguments relating to the making of the claimed inventions. DX-93 through DX-95. Plaintiff submitted the report of its economic expert, Dr. Donald Martin, on April 17, 2006, in accordance with RCFC 26(a)(2). PX-248. In a footnote, Dr. Martin stated: "It is 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%" and indicated that he thought that this rate was "depressed" by "infringing competitors." P248.15 n.16. There is no indication in the report,

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however, that Dr. Martin relied on this number for the purpose of formulating his own opinion as to the amount of compensation he believed was due plaintiff. Then, on February 6, 2008, plaintiff filed its pretrial brief. Sparton Corp's Mot. for Leave to File a Mem. of Fact & Law in Compliance with the Court's June 20, 2007 Order, Docket No. 306 (Feb. 6, 2008) (Pl. Pretrial Brief). At page 9 of the brief, plaintiff states: "In connection with the reasonable royalty calculus, the predicate facts 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 ...." Further, at page 12, plaintiff states: "These facts and conclusions and/or opinions justify a substantial increase in the 5% rate Sparton offered the Navy on February 11, 1981 (to near the said average 14% Sparton lost profit rate)...."

III.

DISCUSSION A. PLAINTIFF'S SETTLEMENT OFFER IS NOT ADMISSIBLE TO PROVE THE VALUE OF ITS CLAIM

Plaintiff presents its own settlement offer as evidence of the value of its claim and therefore ­ it reasons ­ the value of the reasonable compensation that it should be paid. Pl. Pretrial Br. at 9, 12. Plaintiff's use of the settlement offer in an attempt to establish the amount or value of the government's liability is clearly barred by Fed. R. Evid. 408. Federal Rule of Evidence 408, as amended in 2006, provides: (a) Prohibited uses. ­ Evidence of the following is not admissible on behalf of any party, when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction: (1) furnishing or offering or promising to furnish ­ or accepting or offering or promising to accept ­ a valuable consideration in compromising or attempting to compromise the claim; and

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(2) conduct or statements made in compromise negotiations regarding the claim, .... (b) Permitted uses. ­ This rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a). Examples of permissible purposes include proving a witness's bias or prejudice; negating a contention of undue delay; and proving an effort to obstruct a criminal investigation or prosecution. Here, plaintiff unambiguously offers the settlement amount for the purpose of proving the amount of its claim. Plaintiff holds out the settlement amount as "predicate fact" needed for the determination of reasonable compensation and argues plaintiff should be awarded an amount substantially more than that settlement offer. Pl. Pretrial Br. 9, 12. The settlement offer, however, is clearly plaintiff's own "offer[] or promis[e] to accept" an amount in settlement of its claim. Thus, the settlement amount falls squarely within the bounds of the Rule. And it would be error for the court to rely on an unaccepted settlement offer as the basis for determining the amount of compensation due. Cheyenne River Sioux Tribe v. United States, 806 F.2d 1046, 1050-52 (Fed. Cir. 1986) ("the trial court could not impose upon the parties a settlement to which they had not agreed"). In Cheyenne River Sioux, the Federal Circuit drew its logic from the Supreme Court's opinion in United States v. Ward Baking Co., 376 U.S. 327 (1964). Ward Baking involved price-fixing by a group of bakery companies. 376 U.S. 327-28. After settlement negotiations failed, the bakery companies requested, and the court imposed the bakery company's proposed "consent" degree. 376 U.S. 328-30. The Court concluded that the trial court erred entering the proposed anti-trust consent judgment over the government's objections. 376 U.S. at 333-35. The Court reasoned that the trial court's imposition of the

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unaccepted settlement offer would preclude the government from seeking relief to which it may be entitled. Id. Relying on Ward Baking, the Cheyenne River Sioux court recognized that the "critical point in both [Ward Baking and Cheyenne River Sioux] is the same: the trial court could not impose upon the parties a settlement to which they had not agreed." 806 F.2d at 1051. To do so, the court reasoned would discourage settlement discussions. 806 F.2d at 1050. Allowing previously rejected settlement offers to be used by a trial court as the basis for a judgment, would not "mitigate[] the antagonism and hostility that protracted litigation leading to judgment may cause." Id. In this instance, there is even less reason to allow the use of the proposed settlement amount. It is plaintiff's own settlement offer, and not that of defendant. Like Ward Baking, plaintiff is seeking to have the court impose a bargain to which the parties were unable agree during the settlement process. Further, the settlement offer is not a "fact," but rather plaintiff's opinion as to the value of its claim. As pointed out in Ward Baking and Cheyenne River Sioux, such an opinion cannot substitute for the trial court's duty "to determine the merits and enter judgment accordingly." 806 F.2d at 1050. For the reasons stated, the court must disregard the references to the offered amount and cannot consider the settlement offer in determining what compensation, if any, is appropriate in this case.

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B.

THE SETTLEMENT DISCUSSIONS ARE ADMISSIBLE FOR OTHER PURPOSES

That the settlement offer is not admissible for purposes of determining the amount of compensation due, if any, does not mean that the documents are inadmissible, however. Historical facts disclosed and discussed by plaintiff during the settlement discussions are relevant and admissible in this case to establish facts surrounding the conception and reduction to practice of the invention, the structure of plaintiff's Deep DIFAR sonobuoy and the sonobuoy described in the ECP, and to the determination of the knowledge and skill of those having ordinary skill in the art. That these historical facts were first disclosed and discussed in the context of settlement discussions does not bring them within the scope of Rule 408. As originally enacted, Fed. R. Evid. 408, provided that the "rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations." Fed. R. Evid. 408 (1974). That provision specifically permitted the admission of facts presented during compromise negotiations such as those presented by plaintiff during its settlement negotiations with the Navy. Hughes Aircraft Co. v. United States, 31 Fed. Cl. 481, 487 (1994) (company's "normal royalty rates available to competitors early in the patent term" were evidence that was "otherwise discoverable"), aff'd, 86 F.3d 1566 (Fed. Cir. 1996), vacated by, 520 U.S. 1183 (1997), aff'd in pertinent part on remand, 140 F.3d 1470 (Fed. Cir. 1998); see also Ramada Development Co. v. Rauch, 644 F.2d 1097, 1107 (5th Cir. 1981) (Rule 408's provision for "evidence otherwise discoverable" insures that "negotiations are not being used as a device to thwart discovery by making existing documents unreachable").

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The 2006 amendment, however, eliminates the provision relating "evidence otherwise discoverable." Fed. R. Evid. 408 (2006). The Advisory Committee note to the rule makes clear that the elimination of that provision did not effect a change to the Rule's scope: The sentence of the Rule referring to evidence "otherwise discoverable" has been deleted as superfluous. The intent of the sentence was to prevent a party from trying to immunize admissible information, such as a pre-existing document, through the pretense of disclosing it during compromise negotiations. But even without the sentence, the Rule cannot be read to protect pre-existing information simply because it was presented to the adversary in compromise negotiations. Fed. R. Evid. 408, Advisory Comm. Note to 2006 Amendments (citations omitted). Thus, the historical facts and the affidavits of Messrs Widenhofer and Depew remain admissible at trial. In any event, plaintiff relied on affidavits of Messrs Widenhofer and Depew and the Deep DIFAR description during the prior appeal in support of its argument that the ECP did not place the claimed invention on sale. Brief of Appellant Sparton Corp. at 7-8 (Feb. 10, 2004) (citing to A816-22 & A823-38 of the Joint Appendix) (Attachment 1); Nonconfidential Joint Appendix, Volume V, Index at xii (Attachment 2). Accordingly, any objection to the use of the historical facts has been waived. See, e.g., Living Designs, Inc. v. E.I. Dupont de Nemours & Co. 431 F.3d 353, 368 & n.13 (9th Cir. 2005) (objection based on Fed. R. 408 waived by failure to object at trial).

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IV.

CONCLUSION For the reasons stated above, plaintiff's reliance on the amount of its 1981 settlement

offer is barred by Fed. R. Evid. 408. Accordingly, the court must disregard the references to the offered amount and cannot consider that amount in determining what compensation, if any, is appropriate in this case. Respectfully submitted JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JOHN FARGO Director

s/Gary L. Hausken GARY L. HAUSKEN Attorney Commercial Litigation Branch Civil Division Department of Justice Washington, D. C. 20530 Telephone: (202) 307-0342 Facsimile: (202) 307-0345 February 20, 2008 Attorneys for Defendant, United States

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS SPARTON CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 92-580C Chief Judge Edward J. Damich

DEFENDANT'S MOTION IN LIMINE TO PRECLUDE USE OF PLAINTIFF'S SETTLEMENT OFFER AS EVIDENCE OF REASONABLE COMPENSATION

ATTACHMENT 1

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03-5169

UNITED STATES COURT OF APPEALS ~OR THE FEDERAL CIRCUIT

SPARTON CORPORATION Plaintiff-Appellant

THE UNITED STATES Defendant-Appellee

APPEAL FROM THE UNITED STATES-C~URT OF FEDERAL CLAIMS IN CV92-580C, CHIEF JUDGE EDWARD DAMICH

BRIEF OF APPELLANT SPARTON CORPORATION

Steven Kreiss 1120 Connecticut Avenue N.W. Suite 240 Washington D.C. 20036 Attorney For Plaintiff-Appellant

February ~, 2004

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called an "inverse" or "upside-down" deployment design because all production sonobuoys up to that time routinely contained release plate assemblies located at the bottom of the sonobuoy to deploy sonobuoy components from the bottom end of a sonobuoy. The "upside-down" design completely departed from conventional wisdom in the manner by which sonobuoy components should be deployed. It is critical to note that, although the "upside-down design" was conceived in the late 1960s-1970 time frame, the conception of the claimed inventions did not occur at this time. In September 1970~Sparton's project engineer, Devereaux, prepared a Program Schedde to complete a design phase and then a testing phase ,'to demonstrate an acceptable design for [Sparton's] Deep DIFAR" sonobuoy. ¯ A70-73, 83, 135. In November 1970, Sparton employee Depew was assigned the responsibility to prepare a technical description of Sparton's proposed dual depth sonobuoy in a proposal to be given to the Navy. A839-40. His technical description was to be hardware oriented and include a layout. Id. Depew conceived of a release plate (not the patented one) to be used with the "inverse sonobuoy design." A823-838. Depew's plate is a multipiece mechanism and was the one incorporated into ECP 0465-2. Id.

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Although Depew designed his mnltipiece plate mechanism and

described it in the ECP, Widenhofer designed another mnltipiece plate mechanism, called a spider plate, for use in the mechanical design referenced in the September 1970 Program Schednle. A816-822. The Sparton sonobuoys sea tested February 18, 1971 contained the mnltipiece spider plate mechanism. The September 1970 Program Schednle was revised on March 16, 1971 because a cable break problem occurred during a February 18, 1971 test. A104.2 Although Widenhofer stated in his February 26, 1971 report that the "cable break" problem involved "only minor modifications to the cable pack assembly," he also noted that "... the problem is still being investigated." A83-90. And it was investigated at NOL. On March 8, 1971, Widenhofer concluded that "...the cable breaks are not due simply to a 'cable pack problem.'" A94.3 Devereaux, Widenhofer's supervisor, informed the Sparton program head, Hungerford, that the NOL test "...was determined to

2 This cable problem caused a failure in the cable means and receiving and ,transmitting means elements of all 120 patent claims during the February 18, 1971 test. A83-90, 1421-22. 3 Six possible causes were considered. B94. Mr. Widenhofer indicated that "[t]he unique nature of the deep DIFAR design invites a close scrutiny of all conceivable cable break possibilities in an attempt tobetter understand the peculiarities inherent in the inverse approach to sonobuoy design." A94.

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS SPARTON CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 92-580C Chief Judge Edward J. Damich

DEFENDANT'S MOTION IN LIMINE TO PRECLUDE USE OF PLAINTIFF'S SETTLEMENT OFFER AS EVIDENCE OF REASONABLE COMPENSATION

ATTACHMENT 2

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VOLUME V PAGES 03-5169

628-868

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

SPARTON CORPORATION Plaintiff-Appellant
Vo

UNITED STATES Defendant-Appellee

APPEAL FROM THE UNITED STATES COURT OF FEDERAL CLAIMS IN CV92-580C, CHIEF JUDGE EDWARD DAMICH

NONCONFIDENTIAL JOINT APPENDIX
VOLUME V PAGES 628-868

Steven Kreiss 1120 Connecticut Avenue N.W. Suite 240 Washington D.C. 20036 Attorney For Plaintiff-Appellant (202) 347-6382 July i, 2004

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VOLUME V

DESCRIPTION
DD 254 Form under Contract N00019-69-C0465 (SPA 02172-02175) Description of the Deep DIFAR Sonobuoy

PAGE A0811

A0816
A0823

Affidavits of James Widenhofer and Donald Depew and Exhibits thereto Sparton Internal Memo to R. Hungerford fi'om B. Passman dated November 11, 1970 (SPA 37709-37710) Defense Supply Agency Inter-Office Memo dated July 18, 1973 (002130-002132)
Rockwell Business Plan Revision dated June 6, 1980 (Picka'ell Dep. Ex. 13) (Confidential Memo by Rockwell chronicling its design and development program for its SSQ-53B sonobuoy) Selected portions of deposition transcript of Don Piclcrell, Jr. (Confidential Deposition of Rockwell's Vice President explaining the information contained on A0844 and A847-48) Selected portions of Hazeltine DIFAR PreAward notes and presentations dated October 9-10, 1979 (Kuhn Dep. Ex. 5) (021505-06, 021510, 021532, 021539, 021541, 021544, 021546, 021549-50) (Confidential Memo by Hazeltine explaining its design and development program for its DIFAR sonobuoy)
xii A7

A0839

A0841 A0844

A0851

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