Hypothetical: We are negotiating a trademark dispute. During those negotiations — which we both agree are being undertaken for purposes of settling our dispute — I, trademark user, promise not to object to (i.e., not to sue for) a certain use by you, other user, but we never actually incorporate that into any kind of agreement.
Five years later I sue you for making just that use. You try to introduce proof of that promise as evidence that I acquiesced to your use, and should be estopped (barred) from suing because of that acquiescence.
And I get down from my pony and scream: “You can’t use that! Those are settlement communications protected under Federal Rule of Evidence 408 — not admissible!” (The idea being, of course, that settlement discussions become impossible if parties need to fear that their representations could end up before a jury down the line.)
Not so hypothetical: In the endless PRL USA Holdings, Inc. v. United States Polo Ass’n squabbling over the POLO trademark, Ralph Lifshitz‘s company, the plaintiff, tried to keep such evidence out. Circuit #2 says: Not quite.
While we have no need in this case to determine the full range of accommodation between Rule 408’s prohibition and its exception, it seems clear that the firm prohibition should not apply to the affirmative defense of estoppel by acquiescence, which depended on issues distinct from the elements of the claim of infringement. To prevent a defendant from proving an estoppel by acquiescence that arose during settlement negotiations would unfairly curtail a defendant’s ability to rely on that defense. A discussion between a trademark owner and a potential user of a similar mark in which the owner gives assurance that it will not sue for infringement may well be characterized as compromise negotiations. To construe Rule 408 as barring such evidence would substantially limit the opportunity of defendants to rely on the defense of estoppel, even when well substantiated.
The Court quoted an earlier case, explaining,
It would be an abuse of Rule 408 to allow one party during compromise negotiations to lead his opponent to believe that he will not enforce applicable time limitations and then object when the opponent attempts to prove the waiver of time limitations. Similarly, it would be an abuse of Rule 408 to let [a plaintiff] lull [a defendant] into breaching the contract and then prevent [the plaintiff] from explaining its actions because the lulling took place around the settlement table.
In short: Promises at settlement are still promises on which your settlement “partner” can and should be able to rely — especially when you sit by for years while he does so. Hat tip to Howard Bashman.