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July 18, 1991


The opinion of the court was delivered by: Kimba M. Wood, District Judge.

Plaintiff Alpex Computer Corporation ("Alpex") moves for an order pursuant to Federal Rules of Evidence 408 precluding defendants Nintendo Company, Ltd. and Nintendo of America ("Nintendo") from introducing any evidence concerning plaintiff's efforts to compromise disputed claims regarding the '555 patent and the amounts involved in those efforts to compromise. For the reasons set forth below, the court grants plaintiff's motion.


This case arises from a dispute over the validity and alleged infringement of U.S. Patent No. 4,026,555 (the '555 patent), a patent that involves the earliest video games. On January 18, 1991, the court denied the parties' cross-motions for summary judgment. That opinion sets forth the facts underlying this dispute in some detail; familiarity with that opinion is assumed. The court will repeat only those facts necessary for an understanding of this motion.

Although the parties disagree over exactly how to characterize the evidence Alpex seeks to preclude, the evidence falls roughly into three categories. The first category includes documents relating to Alpex's offers to license the '555 patent to a large number of companies in the video game industry. The second category includes exhibits relating to licenses granted by Alpex to seven companies "after extensive business negotiations and without any commencement of litigation." Defendant's Mem. of Law in Opposition ("Nintendo Mem.") at 38. The third category includes licenses agreed to by four companies during litigation and certain documents relating to those licenses.

After receiving the right to sue for past infringement of the '555 patent from Fairchild Camera & Instrument Co., the original licensee of the patent, Alpex embarked on a program to combat what it viewed as widespread infringement of the patent. As part of this program, outside counsel for Alpex wrote letters to a number of companies in the video game industry in December 1979 notifying them of Alpex's view that they were infringing the '555 patent. The letter to Atari, one of the leaders in the video game industry at the time, is illustrative. Alpex's counsel informed Atari that "[a] number of the TV games which Atari is manufacturing and selling under the name PONG clearly infringe the '555 patent." Nintendo Appendix at Exh. 2. The letter concluded with Alpex offering "to extend a non-exclusive license under its patents on a royalty basis." Id. This notice led to "extended negotiations," Alpex Mem. of Law (Alpex Mem.) at 4, and eventually a settlement between Alpex and Atari under which Atari paid for and received a non-exclusive license. Alpex's counsel sent similar letters to Mattel and Bally. As was the case with Atari, the notice to Mattel resulted in extended negotiations, a settlement, and a license. Nintendo seeks to designate as trial exhibits a variety of documents from these two negotiations, including letters between the parties describing the negotiations over the license price, news articles about the Atari settlement, Bankruptcy Court pleadings describing the Mattel settlement, and the actual license agreements. See Alpex Mem. at 4-5.

In 1983, after the settlement with Atari and another with Magnavox, counsel for Alpex sent infringement letters to approximately 70 companies. These letters announced that Alpex had recently granted licenses under the patent to Atari and Magnavox, and stated that Alpex had "recently obtained information indicating that your company manufactures and/or sells video game cartridges and/or consoles which may infringe the subject patent." Nintendo App. at Exh. 3. "We would prefer to resolve this matter without litigation," the letters continued, "and the purpose of this letter is to advise you that our client is prepared to extend a nonexclusive license under the '555 patent on a paid-up or royalty basis." Id.

As part of its campaign, Alpex sued six companies alleged to have sold or manufactured products that infringed on its patent. The first suit filed was against Magnavox in 1981 and was settled, with Magnavox receiving a non-exclusive license, in December 1982. Several years later, Alpex brought suit against five additional companies: Activision, Coleco, Commodore, Tandy, and Parker Brothers. Alpex has agreed to settle with four of the companies; the action against Parker Brothers has been stayed pending the outcome of this case. Nintendo wishes to designate as trial exhibits a variety of documents that pertain to these actions, including documents setting forth the terms of settlement and various letters between Alpex and the prospective licensees.


I.  Preclusion Under Rule 408

Federal Rules of Evidence 408 provides, in pertinent part, that:

  Evidence of (1) furnishing or offering or
  promising to furnish or (2) accepting or offering
  or promising to accept, a valuable consideration
  in compromising or attempting to compromise a
  claim which was disputed as to either liability
  or amount, is not admissible to prove liability
  for or invalidity of the claim or its amount.
  Evidence of conduct or statements made in
  compromise negotiations is likewise not

Alpex argues simply that the same considerations that led to the enactment of this rule, namely "the promotion of the public policy favoring the compromise and settlement of disputes," F.R.Evid. 408 advisory committee's note, compel the granting of this motion. Faced with widespread infringement of its patent over a long period of time, Alpex contends, the company followed a reasonable course of action in alerting companies it believed were ...

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