U.S. Supreme Court Declines to Hear Soybean Patent Case
On January 7, 2008, the U.S. Supreme Court declined to hear a case involving Monsanto’s dispute with a farmer over the famer’s use of Monsanto’s patented Roundup Ready soybean seed. Contrary to press reports and Monsanto’s own statements concerning the case, the court did not rule in Monsanto’s favor – they simply refused to hear the appeal. The Supreme Court did not validate Monsanto’s position taken in the case.
The facts of the case involved a farmer, Homan McFarling, who purchased and planted Monsanto’s patented ROUNDUP READY ® soybeans in 1997 and 1998. He signed Monsanto’s technology agreement that limited the use of the seeds to “planting a commercial crop only in a single season,” directed him not to “save any crop produced from this seed for replanting, or supply saved seeds to anyone for replanting,” and provided for liquidated damages. He saved some of the seeds from his first harvest and replanted them the next growing season. Monsanto sued for breach of contract and patent infringement.
At the trial court level, the United States District Court for the Eastern District of Missouri entered summary judgment against McFarling, and in favor of Monsanto on some, but not all, of the claims being litigated. The trial court held that, when McFarling replanted some of soybeans that he had saved from his prior year's crop, he breached the technology agreement that he had signed as a condition of his purchase of the patented seeds. The trial court also held that McFarling had failed to demonstrate a genuine issue of material fact that prevented entry of summary judgment on any of his counterclaims or his defenses to Monsanto's breach-of-contract claim. Finally, the district court held that a liquidated damages provision in the technology agreement was valid and enforceable under Missouri law and entered a judgment in the amount of $780,000.00.
McFarling appealed to the Federal Circuit on several of his counterclaims and defenses, as well as its ruling on the contractual damages provision. The court affirmed on the counterclaims and defenses, but vacated the district court's judgment as it related to the damages provision (the court said the provision was an unenforceable and invalid penalty clause) and sent the case back to the trial court for a determination of Monsanto's actual damages. Under the damages provision in the technology agreement, McFarling would have had to pay 120 times the applicable technology fee per bag of seed (amounting to a total of $780,000 based on a per bag technology fee of $6.50 per bag). Monsanto tried to get the U.S. Supreme Court to take the case and overturn the appellate court’s ruling on the contractual damages issue, but the Supreme Court declined to take the case in 2005.
Of particular importance before the appellate court was McFarling's defense that Monsanto committed patent misuse (patent misuse is an affirmative defense to a suit for patent infringement or for royalties due under a patent licensing agreement). McFarling claimed that Monsanto had impermissibly tied an unpatented product to a patented product. Specifically, McFarling claimed that, "by prohibiting seed-saving, Monsanto has extended its patent on the gene technology to include an unpatented product--the germplasm--or God-made soybean seed which is not within the terms of the patent." McFarling was particularly disturbed that the license controlled what he could do with second-generation seeds--the seeds that he "made" using the seeds that he acquired under the license.
The issue had never previously been addressed by the Federal Circuit. So it was unclear how the court would rule in such a situation where there were restrictions placed on goods made by, yet not incorporating, the licensed good under the patent misuse doctrine. The court noted that the Technology Agreement presented a unique set of facts, and involved a situation where licensing restrictions on the use of goods produced by the licensed product could be beyond the scope of the patent grant at issue. However, the court also noted that the licensed and patented product (the first-generation seeds) and the good made by the licensed product (the second-generation seeds) were nearly identical copies. Thus, the court explained that they must presume that Monsanto's patent applies to the first-generation seeds, and also applies to the second-generation seeds. Because the patent would apply to all generations of soybeans produced, the court held that the restrictions in the Technology Agreement prohibiting the replanting of the second generation of ROUNDUP READY ® soybeans did not impermissibly extend Monsanto's rights under U.S. patent law.
That’s the issue that the U.S. Supreme Court declined to review. Further litigation in different cases can likely be expected on the matter. Monsanto Co. v. McFarling, 488 F.3d 973 (Fed. Cir. 2007), cert. den., No. 07-241, 2008 U.S. LEXIS 73 (U.S. Jan. 7, 2008).
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