NDGA strikes a "project-specific" patent license agreement between plaintiff and defendant

On March 29, 2011, Judge Batten of the Northern District of Georgia granted Defendant Southwest's motion to strike the project-specific license agreement that it had entered into with Plaintiff Insituform Technologies ("ITI"). Insituform Techs., Inc. v. Southwest Pipeline and Trenchless Corp., Case No. 1:08-CV-333-TCB (N.D. Ga., Mar. 29, 2011). ITI was attempting to use the agreement to support its damages claim against another defendant, Cosmic-Sondermaschinenbau GmbH, which had defaulted and was thus liable for infringement. Southwest moved to strike its license with ITI because the terms of the agreement prohibit ITI from relying on or referring to it in the litigation. Southwest argued that, if ITI is allowed to use the agreement to establish royalties owed by defaulting Cosmic, then ITI will turn around and use the established royalty against Southwest later in the case, if it is found liable.

Here is a quick background of the facts. The timing of events is important to ITI's arguments. During litigation with Cosmic (who is a third-party defendant in this case), ITI entered into a project-specific license agreement with Southwest. The relevant portions of that agreement state:

LICENSOR, by this Agreement, does not waive any claims, demands, or rights of action that LICENSOR has or may have against LICENSEE for past, present or future infringement of the PATENTS that is not explicitly licensed hereunder with respect to the PROJECT.

Neither LICENSOR nor LICENSEE shall use this AGREEMENT, or the existence of this AGREEMENT, to support any claims or de3fenses either may raise in the event of future litigation involving LICENSOR, LICENSEE or the PATENTS, including but not limited to estoppel, waiver, or laches. [...]

Southwest Project Specific License Agreement, section 7.3.

ITI later sued Southwest for infringement while the Cosmic litigation had not yet finished.

In general, Southwest claimed that the agreement implied that ITI could not use the license agreement against it in any way, including use in the separate Cosmic litigation. ITI responded that the agreement is fair game because the action with Southwest was not a "future litigation" and because the agreement was only used to support its claims against Cosmic.

The court held under Fed. R. Evid. 403 that "the danger of unfair prejudice outweighs the marginal relevance of the license agreement." Agreeing with Southwest, the court found that though the litigation with Cosmic was already pending, the proceeding was still a "future litigation" with respect to Southwest. The rationale being that Southwest had become a party five months after the Cosmic litigation had commenced, hence a "future litigation." Also, the court found it "likely that ITI would rely upon similar arguments, opinions and documents[,]" as used in the Cosmic case, against Southwest. Thus, the court granted Southwest's motion based on the danger of unfair prejudice.