Pioneer Hi-Bred Intern. v. Holden Foundation Seeds, Inc., HI-BRED

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: Before MAGILL; JOHN R. GIBSON; MORRIS SHEPPARD ARNOLD
• Citation: 31 USPQ2d 1385,35 F.3d 1226
• Parties: , 39 Fed. R. Evid. Serv. 993 PIONEERINTERNATIONAL, an Iowa Corporation, Plaintiff-Appellee, v. HOLDEN FOUNDATION SEEDS, INC., an Iowa Corporation, Defendant-Appellant, Hawaiian Research, Ltd., an Iowa Corporation; Corn States Hybrid Service, Inc., an Iowa Corporation, Defendants. PIONEERINTERNATIONAL, an Iowa Corporation, Plaintiff-Appellant, v. HOLDEN FOUNDATION SEEDS, INC., an Iowa Corporation, Defendants-Appellee, Hawaiian Research, Ltd., an Iowa Corporation; Corn States Hybrid Service, Inc., an Iowa Corporation, Defendants. . Submitted:
• Decision Date: 14 June 1993
• Docket Number: Nos. 92-3292,HI-BRED,92-3556

Page 1226

35 F.3d 1226 31 U.S.P.Q.2d 1385, 39 Fed. R. Evid. Serv. 993 PIONEER HI-BRED INTERNATIONAL, an Iowa Corporation, Plaintiff-Appellee,
v.
HOLDEN FOUNDATION SEEDS, INC., an Iowa Corporation,
Defendant-Appellant,
Hawaiian Research, Ltd., an Iowa Corporation; Corn States
Hybrid Service, Inc., an Iowa Corporation, Defendants.
PIONEER HI-BRED INTERNATIONAL, an Iowa Corporation,
Plaintiff-Appellant,
v.
HOLDEN FOUNDATION SEEDS, INC., an Iowa Corporation,
Defendants-Appellee,
Hawaiian Research, Ltd., an Iowa Corporation; Corn States
Hybrid Service, Inc., an Iowa Corporation, Defendants. Nos. 92-3292, 92-3556. United States Court of Appeals,
Eighth Circuit. Submitted: June 14, 1993.
Decided July 12, 1994.

Page 1228

Bennett Webster, Des Moines, Iowa, argued, for appellant.

John Werner, Des Moines, Iowa, argued, for appellee.

Before MAGILL, Circuit Judge, JOHN R. GIBSON ^*, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

JOHN R. GIBSON, Senior Circuit Judge.

This case involves a dispute between competing breeders of corn seed. The district court ¹ awarded $46,703,230.00 to Pioneer Hi-Bred International based on Holden Foundation Seeds, Inc.'s misappropriation of the genetic make-up of certain seed corn. Holden contests the district court's liability determination and damage award on numerous grounds. Pioneer cross-appeals from the district court's denial of prejudgment interest. We affirm.

The bench trial in this case consumed over 37 days, spread over 14 weeks. The massive record consists of over 9,000 pages of transcript and 1,100 exhibits. Thus, our recitation of the facts is, of necessity, somewhat abbreviated.

The sale of hybrid seed corn is a multi-billion dollar industry. Pioneer is a vertically integrated seed corn company. It conducts a breeding program, develops parent seed, and produces hybrid ² seed corn for the retail market. The superior performance of its products, obtained in part through millions of dollars spent annually on corn research and development, has enabled it to gain a sizeable portion of the retail seed corn market. Its marketed seed corns include Pioneer hybrids 3780 (Pioneer's leader in sales for several years) and 3541--which share a common parent, designated H3H.

Holden ³ indirectly competes with Pioneer. Holden is a foundation seed company that develops inbred parent seed lines and sells these lines to its customers, also seed corn companies, which use them to produce hybrid seed in competition with Pioneer. ⁴ During the 1980s, Holden's LH38, LH39, and LH40 ("LH38-39-40") ⁵ were among its most popular parent lines.

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Pioneer sued Holden on a number of legal theories, ⁶ claiming that Holden developed LH38-39-40 from misappropriated Pioneer H3H or H43SZ7 ⁷--protected trade secrets of Pioneer ("H3H/H43SZ7"). During discovery, the district court decided, at Pioneer's request, that the nature of this dispute required that Holden "freeze in" a particular story regarding the development of LH38-39-40. The court did so to prevent Holden from altering its story to conform to the scientific evidence eventually introduced. Holden claimed that although LH38-39-40 demonstrated some similarity to Pioneer's seed lines, Holden developed LH38-39-40 from an internal line, designated L120. The district court held that the genetic make-up of H3H/H43SZ7 is a protected trade secret of Pioneer. The court determined that although LH38-39-40 differed in some respects from Pioneer's seed, the lines had nonetheless been derived from misappropriated Pioneer material. The district court based its decision on expert testimony that LH38-39-40 derived from H3H/H43SZ7 and Holden's inability to offer adequate evidence of its "L120 story." The court also ruled in Pioneer's favor on its Lanham Act, interference with business advantage, unjust enrichment, and conversion ⁸ claims. ⁹ The district court awarded over 46 million dollars in damages to Pioneer. Holden appeals.

I.

Much of Holden's argument before this court attacks Pioneer's scientific evidence as inadequate to support the district court's judgment. A threshold issue, however, is Holden's assertion that the district court erred in admitting the scientific evidence relating to electrophoresis, liquid chromatography, and growout testing.

A.

The evidence from the electrophoresis, liquid chromatography, and growout testing was central to the district court's decision. The judge appointed an expert, Dr. Charles F. Lewis, ¹⁰ to assist the court, and both sides relied heavily on expert testimony to support their positions. Nonetheless, Holden argues that the scientific evidence from these three tests failed to meet the "general acceptance" requirement of Frye v. United States, 293 F. 1013, 1014 (D.C.Cir.1923), ¹¹ and this court's application of Frye in United States v. Two Bulls, 918 F.2d 56, 60-61 (8th Cir.1990). ¹²

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After briefing in this case, the Supreme Court decided Daubert v. Merrell Dow Pharmaceuticals, Inc., --- U.S. ----, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), which held the "austere" Frye standard "should not be applied in federal trials." Id. --- U.S. at ----, 113 S.Ct. at 2794; see United States v. Martinez, 3 F.3d 1191, 1196 (8th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 734, 126 L.Ed.2d 697 (1994). Rule 702 of the Federal Rules of Evidence, the Court stated, displaced Frye and the "general acceptance" standard. Daubert, --- U.S. at ----, 113 S.Ct. at 2794. Thus, the focal point of Holden's admissibility argument before this court has been removed. Moreover, we are convinced that the district court considered the factors discussed in Daubert, and committed no error in admitting the evidence.

Before admitting scientific expert testimony, the trial court must conclude, pursuant to the Federal Rules of Evidence, that the proposed testimony constitutes: "(1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue." Id. --- U.S. at ----, 113 S.Ct. at 2796; Martinez, 3 F.3d at 1196. This standard is "a flexible one" whose "overarching subject is the scientific validity--and thus the evidentiary relevance and reliability--of the principles that underlie a proposed submission." Daubert, --- U.S. at ----, 113 S.Ct. at 2797. The court's "focus, of course, must be solely on principles and methodology, not on the conclusions that they generate." Id.

The three tests rested on basic principles of genetics and horticulture, which the district court considered in some detail. Although the court did not expressly analyze these issues under the as-yet-unannounced Daubert formulation, its analysis convinces us that it did consider the experts' testimony to be scientific knowledge that would assist in determining facts in issue. Indeed, the court based its liability finding in large part on the ability of these tests to show Holden's possession of Pioneer's protected material. Pioneer Hi-Bred Int'l v. Holden Found. Seeds, Inc., No. 81-60-E, slip op. at 31-68, 1987 WL 341211, at * 13-30 (S.D.Iowa Oct. 30, 1987). The district court acknowledged that the tests were widely used in the industry, conducted by qualified experts, and considered helpful enough to be relied upon by both parties in their attempts to support their respective positions. Thus, the district court's opinion shows that it considered and applied many of the factors enumerated in Daubert.

Moreover, Holden's admissibility arguments to this court primarily focused on how the district court used the scientific evidence, not on its decision to admit the evidence. Holden explicitly concedes that "the scientific tests were admissible to show differences...." In light of this concession, the analysis made by the district court, and the less rigid standard enunciated in Daubert, we cannot say the court erred in admitting the testimony. Holden also suggests that the tests were inadmissible because they could not conclusively show derivation. This inability, however, provides no bar to the tests' admission. "Daubert requires only scientific validity for admissibility, not scientific precision." United States v. Bonds, 12 F.3d 540, 558 (6th Cir.1993).

This aspect of Holden's admissibility argument--that the tests did not prove parentage--arises again in our examination of whether Pioneer provided sufficient evidence to prove that Holden possessed Pioneer's protected material. This argument will be considered later, but we begin with a discussion of the specific tests and test results presented to the district court.

B.

The three tests played a significant role in evaluating Holden's claims as to how it developed the contested lines. Holden asserts that each of these lines developed from a common parent, L120. Because Holden discarded L120 two years before Pioneer filed suit when it began putting its inventory on computer and discarded a number of "old lines," the parties could not directly test L120. Instead, the parties attempted to reconstruct the genetic make-up of L120 from its pedigree supplied by Holden. Much of

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the scientific testimony in this case sought to prove the genetic makeup of L120. This, in turn, would indicate whether L120 could have been the parent of LH38-39-40, and whether it derived from protected Pioneer material.

Holden claims it developed L120 during repeated backcrossings ¹³ between a disease resistant (Ht ¹⁴) seed ¹⁵ and a public line, Oh43, which is freely available to breeders such as Holden. Holden stated that plant breeder Arlyn Eggerling selected certain plants (later labeled L120) from this backcross program. These plants were "tagged and bagged" but never entered into the nursery records. Holden explained that it could not provide a more accurate pedigree because inadequate nursery records ¹⁶ existed as to L120's early development. Holden's L120 pedigree provided to the court placed its selection at approximately the fifth to eighth backcrossing. Other...