Federal Circuit Upholds Liability And Damages in Genetically Modified Soybean Case
By Sherri Oslick --
Monsanto holds two patents related to its Roundup Ready technology: U.S. Patent No. 5,633,435 (RE39,247) and 5,352,605 [NB: Monsanto has asserted these two patents against nine farmers in the last five months.] Genetically modified Roundup Ready seeds yield crops resistant to glyphosphate herbicide (Monsanto's Roundup), enabling farmers to treat their crops with Roundup, killing weeds while leaving the resistant crops unaffected. The '435 patent is directed to plant cells containing DNA encoding the resistance-based modified enzyme, while the '605 patent is directed to a plant cell containing a promoter sequence facilitating the plant's production of the modified enzyme.
Monsanto authorizes various companies to produce and sell the Roundup Ready seeds, including soybeans, on their behalf, and they are sold at a per bag cost of $19-$20. Purchasers must also sign a "Technology Agreement" ("the Agreement"), agreeing to pay a one-time license fee of $6.50 per bag, and agreeing not to plant themselves, or supply to others, "saved" seeds, i.e., seeds produced from the originally purchased seeds. This system ensures that farmers purchase and license Roundup Ready soybean seeds each planting season.
Having learned that for two years in a row farmer McFarling saved seeds from an earlier crop and planted them the following year, Monsanto sued for breach of the Agreement and for patent infringement. The present decision represents Round 3 at the CAFC. In McFarling I, the District Court preliminarily enjoined McFarling from continuing to plant saved seeds; the CAFC affirmed. In McFarling II, Monsanto moved for summary judgment on breach of contract claim, on infringement of the '605 patent, and on McFarling's counterclaims. The District Court granted Monsanto's motion with the exception of damages, which were subsequently set by stipulation of the parties to the liquidated damages delineated in the Agreement. On appeal, the CAFC affirmed liability but vacated the liquid damages. Monsanto then withdrew all claims but for the '605 patent claim, and the issue of damages was tried to a jury. The jury returned a verdict of $40 per bag of saved seeds, higher than the $6.50 per bag argued for by McFarling but lower than the $80.65 (for year one) and $73.20 per bag (for year two) advanced by Monsanto. The District Court adopted the jury's verdict for a total award of $375,000, and permanently enjoined McFarling from any further unauthorized use of the patented technology.
On appeal, McFarling argued that Monsanto's withdraw of its claim under the '435 patent negated the CAFC's earlier holding against McFarling's patent misuse and antitrust claims. In McFarling II, McFarling had asserted that Monsanto's license impermissibly restricted the use of farmer-grown Roundup Ready soybean seeds. In this earlier case, the CAFC, noting that the '435 patent read on the saved seeds, and that the antitrust claim was simply a repackaging of the patent misuse claim, held against McFarling. McFarling's reassertion of the arguments fared no better; the CAFC upheld its prior ruling, adding that their earlier reasoning applied equally well to the '605 patent.
McFarling also challenged the damages award. McFarling insisted that the established royalty of $6.50 per bag should apply, an amount dismissed by the District Court as insufficient for failing to take into account the consumer's obligation under the Agreement to purchase seeds from an authorized dealer in addition to paying the license fee. The CAFC, agreeing with the District Court, held that the royalty payments were a total of two separate payments - one payment directly to Monsanto ($6.50), and another payment through the third party seed distributors ($19-$22), for a total payment of $25.50 to $28.50 per bag of seeds. Monsanto proffered evidence at trial showing that the current system for selling Roundup Ready soybean seed provided benefits to Monsanto beyond the monetary amounts of purchase plus license - the no saved seeds requirement, for example, ensured Monsanto's knowledge of the quality of seed planted each year. Additionally, Monsanto provided evidence that use of Roundup Ready soybeans provided farmers with concrete benefits over use of the next-best non-infringing product, conventional soybeans. Taken together, the CAFC found the jury's valuation justified, and affirmed the lower court's ruling.
Monsanto Co. v. McFarling (Fed. Cir. 2007)
Panel: Circuit Judges Lourie, Rader, and Bryson
Opinion by Circuit Judge Bryson
Additional information regarding this case can be found at Patently-O.