The federal courts have struggled to define the role that prior third-party settlements should play in determining damages for patent infringement. Although the use of such evidence is governed by the Federal Rules of Evidence, appellate and district courts have failed to reach consensus regarding the appropriate application of these rules. Most recently, in ResQNet v. Lansa, the Federal Circuit noted that the most reliable evidence of damages for infringement may be a license that emerges from a previous settlement. This decision prompted a flurry of new rulings by district courts regarding the admissibility and discoverability of evidence of previous third-party settlements. These rulings have made matters worse: although these decisions reflect an admirable attempt at clarifying the scope of Rule 408, they have wrought confusion on patent practitioners as new splits across the federal districts—and even within single districts, including the Eastern District of Texas—have emerged.

This confusion suggests that we need to take a fresh look at the relevant governing evidentiary principles. Our examination reveals that Federal Rule of Evidence 408 precludes the admission of any settlement-related evidence for the determination of damages. However, such evidence is nevertheless discoverable. This disconnect between the discoverability and admissibility of settlement-related evidence leaves something to be desired—especially when considered together with several features unique to patent litigation. In particular, the rise of nonpracticing entities (or “patent trolls”), an increased reliance on expert testimony, and new studies on bench and jury trials undermine the traditional policy rationales that underlie Rule 408. Although prevailing law suggests that settlement-related evidence should play only a limited role in patent damages calculations, this examination of Rule 408’s underlying policies suggests that the Advisory Committee to the Judicial Conference and Congress ought to reconsider the continued viability of the Rule.