Monsanto Co. v. McFarling

• Decision Date: 09 April 2004
• Docket Number: No. 03-1177.,No. 03-1228.,03-1177.,03-1228.
• Parties: MONSANTO COMPANY, Plaintiff-Appellee, v. Homan McFARLING, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

363 F.3d 1336

MONSANTO COMPANY, Plaintiff-Appellee, v. Homan McFARLING, Defendant-Appellant.

No. 03-1177.

No. 03-1228.

United States Court of Appeals, Federal Circuit.

DECIDED: April 9, 2004.

Seth P. Waxman, Wilmer, Cutler & Pickering, of Washington, DC, argued for plaintiff-appellee. Also on the brief was Joseph C. Orlet, Husch & Eppenberger, LLC, of St. Louis, MO.

Jim Waide, Waide & Associates, P.A., of Tupelo, MS, argued for defendant-appellant.

Before LOURIE, Circuit Judge, PLAGER, Senior Circuit Judge, and CLEVENGER, Circuit Judge.

CLEVENGER, Circuit Judge.

The United States District Court for the Eastern District of Missouri entered summary judgment against defendant Homan McFarling and in favor of the Monsanto Company ("Monsanto") under Federal Rule of Civil Procedure 54(b) on some, but not all, of the claims being litigated. See Monsanto Co. v. McFarling, No. 4:00CV84 CDP, 2002 WL 32069634 (E.D.Mo. Nov. 5, 2002) (granting final judgment under Rule 54(b)); (E.D.Mo. Nov. 15, 2002) (granting Monsanto's motions for summary judgment). The district court held that, when McFarling replanted some of Monsanto's patented ROUNDUP READY® soybeans that he had saved from his prior year's crop, McFarling breached the Technology Agreement that he had signed as a condition of his purchase of the patented seeds. The district 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 appeals the district court's rulings on several of his counterclaims and defenses, as well as its ruling on the contractual damages provision. We affirm the district court on the counterclaims and defenses, but we vacate the district court's judgment as it relates to the damages provision and remand for a determination of Monsanto's actual damages.

I

Monsanto manufactures ROUNDUP® herbicide. ROUNDUP® contains glyphosate, a chemical that indiscriminately kills vegetation by inhibiting the metabolic activity of a particular enzyme, 5-enolpyruvyl-shikimate-3 phosphate synthase ("EPSPS"). EPSPS is necessary for the conversion of sugars into amino acids — and thus for growth — in many plants and weeds.

Monsanto also markets ROUNDUP READY® genetic-modification technology. In soybean seeds, the ROUNDUP READY® technology operates by inserting the gene sequence for a variant of EPSPS that is not affected by the presence of glyphosate but that still performs the sugar-conversion function required for cell growth. Thus, ROUNDUP READY® soybean seeds produce both a "natural" version of EPSPS that is rendered ineffective in the presence of the glyphosate in ROUNDUP® herbicide, and a genetically modified version of EPSPS that permits the soybean seeds to grow nonetheless. ROUNDUP®, or other glyphosate-based herbicides, can thus be sprayed over the top of an entire field, killing the weeds without harming the ROUNDUP READY® soybeans.

The Monsanto Technology Agreement in dispute in this case lists six patents related to the various seeds that are licensed by the agreement, but Monsanto has asserted infringement in this case only under two patents that read on aspects of the use of the ROUNDUP READY® technology in soybeans. United States Patent No. 5,633,435 ("the '435 patent") relates to the gene encoding the modified EPSPS enzyme, and sweepingly claims, inter alia, the "isolated DNA molecule" encoding it '435 patent, claim 1; "[a] glyphosate-tolerant plant cell comprising" that DNA molecule, id., claim 24; "[a] glyphosate-tolerane [sic] plant comprising" that plant cell, id., claim 28; "[a] seed of a glyphosate-tolerant plant," id., claim 79; a particular "transgenic soybean plant," id., claim 86; and "[a] method of producing genetically transformed plants which are tolerant toward glyphosate herbicide," id., claim 15. United States Patent No. 5,352,605 ("the '605 patent") relates to the use of a particular promoter in genetically modified plant cells. The '605 patent claims, inter alia, DNA sequences and plant cells containing the promoter. A promoter sequence is a DNA sequence located in proximity to the DNA sequence that encodes a protein and that, in part, tells the cellular machinery how much of the protein to make.

Monsanto licenses its proprietary ROUNDUP READY® technology through two interrelated licensing schemes. First, it licenses the patented gene to seed companies that manufacture the glyphosate-tolerant seeds that are sold to farmers. Under this license, seed companies gain the right to insert the genetic trait into the germplasm of their own seeds (which can differ from seed company to seed company), and Monsanto receives the right to a royalty or "technology fee" of $6.50 for every 50-pound bag of seed containing the ROUNDUP READY® technology sold by the seed company. Monsanto also owns several subsidiary seed companies that comprise approximately 20 percent of the market for ROUNDUP READY® soybeans.

Second, Monsanto requires that seed companies execute licenses, rather than conduct unconditional sales, with their farmer customers. The 1998 version of this "Monsanto Technology Agreement" (the "Technology Agreement") between Monsanto and the soybean farmers using ROUNDUP READY® soybeans places several conditions on the soybean farmers' use of the licensed soybeans. In exchange for the "[o]pportunity to purchase and plant seed containing" the ROUNDUP READY® technology, soybean farmers agree, inter alia:

To use the seed containing Monsanto gene technologies for planting a commercial crop only in a single season.

To not supply any of this seed to any other person or entity for planting, and to not save any crop produced from this seed for replanting, or supply saved seed to anyone for replanting.

To not use this seed or provide it to anyone for crop breeding, research, generation of herbicide registration data or seed production.

The Technology Agreement also contains a clause specifying damages in the event of breach by the farmer:

In the event that the Grower saves, supplies, sells or acquires seed for replant in violation of this Agreement and license restriction, in addition to other remedies available to the technology provider(s), the Grower agrees that damages will include a claim for liquidated damages, which will be based on 120 times the applicable Technology Fee.

II

Homan McFarling operates a 5000-acre farm in Pontotoc County, Mississippi. In 1998, McFarling executed the Technology Agreement in connection with the license of 1000 bags of ROUNDUP READY® soybean seed. McFarling concedes that he saved 1500 bushels of seed from his 1998 crop, enough to plant approximately 1500 acres, and that he replanted them in 1999. He subsequently saved 3075 bags of soybeans from his 1999 crop, replanting them in 2000.

Soybeans destined for replanting are apparently cleaned after harvest. When McFarling sent his seeds saved from the 1998 season to a third party for cleaning, Monsanto had some samples taken, had the genetic makeup of the seeds tested at Mississippi State University, and thus learned that McFarling was saving ROUNDUP READY® seeds.

III

In January 2000, Monsanto filed suit against McFarling, alleging, inter alia, infringement of the '435 and '605 patents and breach of the Technology Agreement, and seeking a preliminary injunction prohibiting McFarling from "planting, transferring or selling the infringing articles to a third party." In his answer, McFarling raised affirmative defenses (styled alternatively as counterclaims when possible) both to liability — including, inter alia, violations of the Plant Variety Protection Act ("PVPA"), 84 Stat. 1542, as amended, 7 U.S.C. § 2321 et seq., the federal antitrust laws, the patent misuse doctrine, and the patent exhaustion and first sale doctrines — and to damages as calculated under the 120 multiplier in the Technology Agreement. He did not, however, challenge the validity of Monsanto's patents. Because McFarling's only connection with Missouri was a forum selection clause in the Technology Agreement, McFarling also brought a motion to dismiss based on a lack of personal jurisdiction.

The district court held that the forum selection clause was valid and entered a preliminary injunction against McFarling. On appeal, we affirmed the district court on both issues. See Monsanto Co. v. McFarling, 302 F.3d 1291, 1296, 1299-300 (Fed.Cir.2002) ("McFarling I"). Addressing Monsanto's likelihood of success on the merits, we held that the district court did not err in finding that McFarling had not demonstrated a reasonable likelihood of success on his affirmative defenses. Id. at 1297-99.

Back in the district court, Monsanto moved for summary judgment on the infringement claim under the '605 patent, the breach of the Technology Agreement claim, and all of McFarling's affirmative defenses. The district court granted summary judgment in favor of Monsanto on all of McFarling's defenses as well as on liability with respect to Monsanto's '605 patent infringement claim and the Technology Agreement claim. On damages, however, the district court denied Monsanto's summary judgment motion. It left the damages issue regarding infringement of the '605 patent for trial. Additionally, although it held the liquidated damages clause in the Technology Agreement to be valid and enforceable (provided the 120 multiplier was applied to the number of bags of seed purchased rather than the number replanted), it concluded that there was insufficient evidence of the number of bags purchased by McFarling in 1998 to enter judgment on damages on the breach-of-contract claim. After McFarling stipulated that he purchased 1000 bags of ROUNDUP READY®...