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Don't Sleep on Settlement...

Gaston Kroub

Bedding is big business. Renowned for their ability to extract huge markups from customers, mattress companies like Serta Simmons have long enjoyed robust sales. But with success comes competition, with a new breed of Internet-based mattress companies like Casper and Leesa challenging the prior dominance of the old-guard like Serta Simmons. Of the challengers, Casper is perhaps the best known, with celebrity investors like Carmelo Anthony and Kyrie Irving joining Target as important backers as the company marches towards a potential IPO.

Rather than take things standing still, however, Serta Simmons sued Casper for patent infringement in the Southern District of New York late last September. While the filing of that case may have been straightforward, its path since then has been anything but. In fact, the case has highlighted some of the perils of competitor patent litigation, on both the patentee and accused infringer side. Chief among the lessons learned is that parties in litigation can't sleep on settlement, by waiting until late in the game to resolve matters. Because courts operate on their own schedules and might not wait for a deal to finalize before disposing of a case.

To start, Serta Simmons moved for a preliminary injunction, which was denied by Judge Alvin Hellerstein because of a failure to show irreparable harm -- since money damages would have been enough to make Serta Simmons whole if it could win the case. In a twist, the Court also set the matter for early trial, putting pressure on both sides to complete discovery, claim construction, and summary judgment in short order. After a few rounds of claim construction, Casper filed for summary judgment of no infringement, with Serta Simmons filing its own motion seeking summary judgment of no inequitable conduct. 

Yes, a patent case on a compressed schedule is not so extraordinary, particularly to those of us who have litigated in rocket dockets like the Western District of Wisconsin or the Eastern District of Virginia. But things took a turn towards the absurd after the parties filed their summary judgment papers in this case. First, on June 18, 2018 the parties filed a "Joint Notice of Settlement and Motion to Stay". Great, dispute resolved. But two days later the Court entered judgment for Casper, finding no infringement. That decision kicked off a round of craziness that is still ongoing.

Having won on the merits, Casper apparently tried to back out of the settlement agreement it signed on June 18. So Serta Simmons filed a motion to enforce the settlement agreement on June 29, kicking off a round of briefing that is apparently still ongoing. As part of the motion practice around the settlement agreement, the parties tried to seal the actual settlement agreement. Yes, they are fighting over whether the agreement was tentative (Casper's position) or final (Serta Simmons' position). But they agreed -- as do most litigants in patent cases -- that there were valid business interests on both sides that justified keeping the agreement terms confidential.

Judge Hellerstein, however, recently disagreed. His short order upends a lot of conventional thinking about the confidentiality of patent settlement agreements, with its finding that the public interest in transparent court proceedings and in the "legitimate scope" of patent monopolies outweighs the interests of the parties in keeping the agreement confidential. Except for the actual payment amount, the "strong common law and constitutional presumptions of public access" compel disclosure of the other settlement terms in Judge Hellerstein's view. Especially where the the "court and parties should be publicly accountable for private settlement arrangements" involving patent rights that affect the public-at-large. 

Investors and their advisors -- who are frequently hamstrung in evaluating patent litigation settlements due to confidentiality clauses -- are surely hopeful that other courts adopt Judge Hellerstein's reasoning. At the same time, sophisticated litigants like Serta Simmons and Casper must now take another issue into account before embarking on litigation. This ongoing saga proves that settlement is never simple, whether from a timing or confidentiality perspective.  

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