|
SUPREMES CONSIGN THE MONSANTO – MCFARLING LITIGATION TO REST IN PEACE On January 7, the US Supreme Court announced that it would not take up an appeal in McFarling v. Monsanto. The Court might well have pulled the plug on a dispute that has shuttled up and down the federal court system for eight years. In 1997 and 1998, Mississippi farmer Homan McFarling purchased Monsanto’s Roundup Ready®, genetically engineered (GE) soybean seeds. The farmer also signed a Monsanto Technology Agreement that required him to use the seed for planting a commercial crop in a single season. The contract prohibited McFarling from supplying seed to any other person for planting, saving any crop produced from the seed for replanting, or supplying saved seed to anyone for replanting. Nevertheless, McFarling saved 1,500 bushels of Roundup Ready soybeans from his 1998 harvest and planted them the following year. He saved 3,075 bags of soybeans from his 1999 harvest and planted them in 2000. McFarling reportedly stated that, unless prevented by a court, he would plant soybeans saved from his 2000 harvest in 2001. Before McFarling replanted soybeans collected from the 1998 harvest, he had sent them to a third party for cleaning. Monsanto obtained a sample and had the DNA analyzed at Mississippi State University. Genetic analysis revealed that McFarling had saved Roundup Ready seeds. In January 2000, Monsanto sued McFarling in the Eastern District of Missouri, alleging breach of contract and infringement of US Patent Nos. 5,633,435 and 5,352,605. The company requested a preliminary injunction to prohibit McFarling from "planting, transferring or selling the infringing articles to a third party." The district court granted Monsanto’s motion for a preliminary injunction. McFarling appealed to the Court of Appeals for the Federal Circuit and lost. He then filed a petition for a writ of certiorari to the US Supreme Court. The Court denied the petition. Back in the district court, Monsanto moved for summary judgment on its claims for patent infringement and breach of the Technology Agreement. The company also sought breach of contract damages. Monsanto argued that the Agreement’s liquidated damages clause should be interpreted to spawn an amount equivalent to 120 times the $6.50 technology licensing fee per 50-pound bag times the number of bags of seed replanted by McFarling. In the court’s view, however, this approach would result in a penalty of 120 times the actual damages. Since penalty clauses are illegal in Missouri, the court settled on an amount of $780,000, or 120 times 1,000 bags purchased by McFarling times the $6.50 technology licensing fee. McFarling appealed to the Federal Circuit for the second time. He claimed that the district court judge erred by ruling against his two asserted defenses – a patent misuse defense and a defense under the Plant Variety Protection Act – and an antitrust counterclaim. In 2004, the Federal Circuit endorsed the district court’s decision holding McFarling liable for breach of contract and dismissing McFarling’s counterclaims and defenses. The farmer also appealed the judgment on damages. On this matter, the Federal Circuit agreed with McFarling. The court characterized the liquidated damages provision as an unenforceable and invalid penalty clause as applied to McFarling’s breach for replanting saved seed. Rather than attempting to rehabilitate the invalid clause, Monsanto’s recovery must be limited to actual damages. The Federal Circuit sent the case back to the district court to compute actual damages based on the number of bags of seed that McFarling had saved and replanted. In a second petition for a writ of certiorari to the US Supreme Court, McFarling pressed his patent misuse defense and antitrust counterclaim. The Court requested a brief from the Acting Solicitor General, who recommended a denial of the petition. The Court decided that it would not review the case. Once again in district court, a jury returned a damages verdict of $40 per bag of saved seed, adding up to about $375,000 owed to Monsanto. McFarling appealed. "This is the third time this case has been before us," begins the Federal Circuit’s 2007 decision. McFarling argued that the amount of the damages award should be limited to $6.50 per bag, the fee that Monsanto charged licensees who purchased Roundup Ready seeds under its Technology Agreement. The Federal Circuit disagreed. Under the Monsanto license agreement, soybean farmers paid the company a Technology Fee and promised to refrain from planting Roundup Ready seed saved from a previous season’s crop. The promise ensured that farmers would purchase Roundup Ready seed from an authorized distributor seed company, which also charged a fee for soybeans. Monsanto effectively split its royalty fee into a $6.50 direct payment and a payment of $19 to $22 to the seed companies that promoted and distributed Monsanto’s products. In addition, Monsanto presented evidence on contract benefits beyond payments, such as the bargaining chip for signing up new seed companies provided by the no-saving-seed requirement. The total benefits to Monsanto, the Federal Circuit decided, justify the jury’s finding for a dollar amount exceeding the $6.50 fee per 50-pound bag. The jury had also considered the value of the Monsanto agreement to farmers. Monsanto’s expert had testified that the use of Roundup Ready seeds, as opposed to conventional soybeans, offered certain advantages. For instance, use of the GE soybeans increased yield in an amount of $14 to $25 per acre, the area of farmland that can be sowed with a 50-pound bag of soybeans. The expert also testified that the use of GE soybeans reduced the costs of weed control by $26 to $36 per acre. "Based on these advantages alone," the Federal Circuit concluded, "it was reasonable for the jury to suppose that, in a hypothetical negotiation, a purchaser would pay a royalty of $40 per bag for the Roundup Ready seed." For the third time, McFarling filed a petition for a writ of certiorari to the US Supreme Court. News reports of January 7 proclaimed that the Supremes had "backed" Monsanto on the case. This spin is incorrect. What happened is that, once again, the Court denied McFarling’s petition without comment. Phill Jones |