Inline Connection Corporation v. AOL Time Warner and Earthlink Inc. 2007 WL 174168 D. Delaware, decided Jan. 23, 2007 Magistrate Judge Thynge Download PDF of case here. In this case the juryââ?¬â?¢s goal was to come up with a hypothetical settlement. To most lay people, it seems to make sense to allow evidence of actual settlement discussions help guide this hypothetical exercise. Us lawyers know better.* Inline Connection (the Plaintiff) moved to exclude evidence of settlement talks that Defendants were trying to submit. In particular there was a memo from Plaintiffââ?¬â?¢s CEO to opposing counsel suggesting a lump settlement of $500,000. Defendants argue this evidence shows Plaintiff was willing to accept a lump sum, as opposed to a royalty scheme, and this information is very probative and helpful to the jury. Defendants further argue that the amount stated in the memo serves as a ââ?¬Å?reality check on the damage numbers.ââ?¬Â? Section 408 of the Federal Rules of Evidence states:

(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 (2) conduct or statements made in compromise negotiations regarding the claim, except when offered in a criminal case and the negotiations related to a claim by a public office or agency in the exercise of regulatory, investigative, or enforcement authority. (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.

The Court correctly points out that ââ?¬Å?FRE 408 follows a policy favoring freely-negotiated settlements.ââ?¬Â? Further, the Defendantââ?¬â?¢s argument that the memo should have been submitted to provide a ââ?¬Å?reality checkââ?¬Â? runs directly contrary to FRE 408 which bars evidence used to prove amount of a claim. Magistrate Judge Thynge correctly excluded the memo and other evidence of actual settlement negotiations. Although it may be tempting to circumvent the rules, the strong policy reasons for them must trump the seemingly probative evidence. On a personal note, this case was particularly interesting to me because I just learned FRE 408 in my Evidence class last week. Itââ?¬â?¢s nice to see that what I’m learning corresponds to how the system actually works, and why the policy reasons behind the rules really are important. This case was also nicely covered by the Delaware IP Law Blog. * By “us lawyers” I mean you (Mr. and Ms. Member of the bar).