Bayer Cropscience AG v. Dow AgroSciences LLC, 2015-1854

• Decision Date: 17 March 2017
• Docket Number: 2015-1854
• Citation: 851 F.3d 1302
• Parties: BAYER CROPSCIENCE AG, Bayer S.A.S., Plaintiffs-Appellants v. DOW AGROSCIENCES LLC, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

851 F.3d 1302

BAYER CROPSCIENCE AG, Bayer S.A.S., Plaintiffs-Appellants

v.DOW AGROSCIENCES LLC, Defendant-Appellee

2015-1854

United States Court of Appeals, Federal Circuit.

Decided: March 17, 2017

Adam Mortara , Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL, argued for plaintiffs-appellants. Also represented by Daniel Charles Taylor , Denver, CO; Robert J. Koch , Milbank, Tweed, Hadley & McCloy, LLP, Washington, DC; Christopher James Gaspar , New York, NY.

Mark S. Davies , Orrick, Herrington & Sutcliff LLP, Washington, DC, argued for defendant-appellee. Also represented by Katherine M. Kopp ; Peter A. Bicks, Alex V. Chachkes, Andrew D. Silverman, Aaron Scherzer , New York, NY.

Before Newman, Chen, and Stoll, Circuit Judges.

Stoll, Circuit Judge.

Bayer appeals the district court's award of attorney fees to Dow under 35 U.S.C. § 285. The district court awarded attorney fees to Dow upon finding that the case stood out from others and was thus exceptional. Because the district court did not abuse its discretion in finding the case exceptional and awarding fees, we affirm.

BACKGROUND

This is the second appeal to our court in this patent infringement lawsuit between plaintiffs-appellants Bayer CropScience AG and Bayer S.A.S. (collectively, "Bayer") and defendant-appellee Dow AgroSciences LLC. The patents-in-suit relate to soybeans genetically engineered to tolerate herbicide, and, particularly, to the Bayer-developed dmmg gene. The first appeal centered on the merits of a contractual dispute. The parties disagreed over the scope of Bayer's license of the patents-in-suit to a Dow business partner, M.S. Technologies, LLC ("MS Tech"), and, specifically, whether the license granted MS Tech a broad license to commercialize and sublicense the soybean technology. MS Tech sublicensed to Dow whatever patent rights it received from Bayer. When Bayer sued Dow for infringement of these patents, Dow raised the MS Tech sublicense as an affirmative defense.

On summary judgment, Bayer argued that it had only licensed MS Tech rights to non-commercial exploitation of the dmmg patents, and thus, Dow's activity with MS Tech in commercializing dmmg gene soybeans infringed the patents-in-suit. Dow countered that the Bayer–MS Tech agreement conveyed to MS Tech broad rights—including commercialization of the patents-in-suit—by its terms, but especially in view of the facts surrounding the agreement negotiations. The parties agreed that English law governed the agreement, and under English law, the background or surrounding circumstances of contract formation are considered when interpreting the agreement. The district court agreed with Dow's interpretation of the Bayer–MS Tech agreement and entered summary judgment in its favor. Bayer CropScience AG v. Dow AgroSciences LLC , No. CV 12-256-RMB-JS, 2013 WL 5539410 (D. Del. Oct. 7, 2013). Our court affirmed that decision. Bayer CropScience AG v. Dow AgroSciences LLC , 580 Fed.Appx. 909 (Fed. Cir. 2014) (Bayer I ).

The case returned to the district court, where the court awarded Dow attorney fees pursuant to 35 U.S.C. § 285. The magistrate judge who had managed the case, having been briefed on the § 285 issue by both parties and having conducted a two-day hearing on the matter, issued a thorough report and recommendation declaring a "firm conviction that this is an ‘exceptional case’ " and recommending fee-shifting under § 285. Bayer CropScience AG v. Dow AgroSciences LLC , No. CV 12-256-RMB-JS, 2015 WL 108415, at *1 (D. Del. Jan. 5, 2015). The district judge who entered summary judgment for Dow then reviewed the magistrate's recommendation and adopted it in a thorough opinion of her own. The district judge examined the full duration of the litigation and concluded that, in her view, Bayer's weak positions on the merits and litigation conduct supported a finding that this was an exceptional case.

Specifically, the district judge emphasized that "Bayer's own witnesses as well as key documents contradicted Bayer's contorted reading of the contract" and that "Bayer's conduct in litigating this case in the face of evidence that contradicted its contorted reading of the Agreement was objectively unreasonable." Bayer Crop-science AG v. Dow Agrosciences LLC , No. CV 12-256, 2015 WL 1197436, at *4, *8 (D. Del. Mar. 13, 2015) (Fees Op. ). Bayer had argued that it did not grant Dow's business partner, MS Tech, commercialization rights to the dmmg gene patents, relying in large part on the emphasized exception clause in the license grant:

The SELLER [Bayer] hereby grants to the PURCHASER [MS Tech] ... a worldwide, fully paid-up, exclusive license—with the right to grant sublicenses solely as set out in Article 3.1.3 and with the exception of the rights to increase, market, distribute for sale, sell and offer for sale, granted to STINE by separate agreement ....

J.A. 339 (emphasis added). The referenced Stine agreement was a non-exclusive license Bayer gave to Stine Seed Farm, Inc.—an entity working closely with MS Tech—which specifically granted the enumerated commercialization rights listed in the MS Tech agreement (i.e., right to increase, market, distribute for sale, sell, and offer for sale). Bayer argued that this exception in the MS Tech agreement referencing the Stine agreement carved all commercialization rights completely out of the MS Tech license. Dow posited instead that the provision simply indicated that the MS Tech license was not exclusive with respect to the separate license rights Stine had been granted. The parties each presented textual arguments—citing other provisions in both the MS Tech and Stine agreements—to support their respective positions. In addition, the parties relied on expert testimony to interpret the agreements' terms, as well as extrinsic evidence regarding the parties' understanding of the agreement because such evidence is highly relevant under the governing English law.

In its decision awarding attorney fees, the district judge found that Bayer's arguments were "fallacious" because they were "implausible" and "made no business sense" in light of the facts surrounding the agreements and their negotiation. Fees Op. , 2015 WL 1197436, at *6–7. For example, the district court noted that Bayer was unable to adduce testimonial evidence from those involved in negotiating the agreement—including those working for Bayer—that anyone understood the agreement as carving out commercialization rights from the MS Tech agreement. To the contrary, the district court pointed to testimony of a Bayer executive at the time of the deal that "the value of these assets for [MS Tech/Stine] was in [the] ability to make full use of them" and further that "[i]t seems incongruous that we would sell an asset to somebody, receive remuneration for the sale, and then somehow prevent the acquirer from making use of the asset he just acquired." Id. at *5 (alterations in original) (emphases omitted) (quoting Morgan Dep., J.A. 4481 p. 62 ll. 6–8; J.A. 4488 p. 91 ll. 16–19). The district court also found Bayer's position in striking tension with remarks it made upon the agreement's execution in a congratulatory email sent to individuals concurrently serving as executives of both MS Tech and Stine: "[W]e are convinced that in your capable hands these ‘products' will find their true worth in the market." Id. (emphasis omitted) (quoting J.A. 13654).

The district court also expressed concern about the logical import of Bayer's argument. Under Bayer's theory, it retained commercialization rights in the dmmg gene patents. The district court found this position to be in conflict with Bayer's own evidence. A Bayer executive at the time of the deal testified that "it was relatively black and white certainly in my mind that we were divesting these assets." Id. (quoting Morgan Dep., J.A. 4481 p. 62 ll. 3–5) (emphasis omitted). Further, the congratulatory email that the Bayer executive sent had remarked: "We [Bayer] wish you every success in capturing the intrinsic value that these assets promise. We were disappointed that Bayer was unable to convert that potential given our (lack of) market presence...." Id. (quoting J.A. 13654).

The district court identified other specific instances of Bayer's litigation conduct as supporting its exceptional case determination. Specifically, the district court criticized Bayer's decision to add its dmmg gene patent allegations to an on-going Bayer–Dow lawsuit only a few days after MS Tech and Dow issued a joint press release, announcing the entities' plans to pursue commercializing dmmg -gene soybeans. The district court found Bayer's pre-suit diligence lacking, observing: "The positions Bayer took to support their contract interpretation arguments were directly contradicted by the record evidence Bayer had obtained through early discovery and Bayer should have made every effort to discover before filing suit." Id. at *9. In the district court's judgment, "[h]ad Bayer done any due diligence, it would have learned that no witness supported Bayer's construction of the Agreement and this case [ ] should never have been filed." Id. at *8.

The district court also found fault with Bayer's decision to move for a preliminary injunction against Dow amidst targeted discovery on the dispositive contract dispute. That discovery, including depositions of Bayer witnesses, would ultimately "debunk[ ] Bayer's claims," according to the district court. Id. at *9. Thus, the district court found that Bayer's preliminary injunction motion "was frivolous and unnecessarily increased the costs of litigation." Id. The district court lastly criticized Bayer for taking seemingly contradictory positions regarding ownership of a particular soybean—Enlist E3—in this case and an ongoing arbitration between the parties.

After identifying these aspects of Bayer's case, the district court concluded that, relative to other cases, this was an exceptional case that entitled Dow to fees under § 285. Bayer timely...