Federal Circuit affirms damage award to Monsanto against farmer who saved seedMay 24, 2007

In the latest in a series of appeals to the Federal Circuit, the court affirmed a jury's award of damages to Monsanto for infringement of patents relating to glyphosate resistant plants. The defendant, a farmer, had saved seeds from his crops from one growing season to the next in violation of the terms of the license granted by Monsanto to use the seeds. In previous appeals, the finding of liability for patent infringement was affirmed by the Federal Circuit, but the liquidated damages provided in the license contract were rejected. Here, the court affirmed the amount of damages ultimately awarded.

More detail of Monsanto Co. v. McFarling after the jump.

McFarling was found to have infringed two Monsanto patents, one relating to glyphosate resistant crops and the other relating to promoter sequences incorporated into those crops. Monsanto sells seeds incorporating these genetics to farmers who must sign "Technology Agreements" providing that, among other things, the farmer will not save seeds from one planting cycle for replanting in the next cycle. Monsanto charged a license fee of $6.50 per bag of seed, and McFarling would have also had to pay between $19 and $22 for each bag of seed to a seed company, largely for the license.

McFarling did not comply with the terms of the agreement, and saved seeds from his 1998 crop for planting in 1999, and did the same with his 1999 crop for planting in 2000. He did not pay the license fee for the 1999 and 2000 crops.

Monsanto sued for patent infringement. In earlier proceedings, McFarling was found to have infringed the patent, but the Federal Circuit rejected the liquidated damages provision of the original license as an unenforceable penalty. The district court then held a jury trial to determine damages.

The damages award from the jury ($40/bag) greatly exceeded the "Technology Fee" that was charged to license the use of the patented technology. McFarling challenged the award and argued that damages should be limited to the $6.50 charged to farmers seeking to license the patented technology.

The Federal Circuit held that the damages to the patentee could exceed the loss of the "Technology Fee" and could include the value to the patentee of the provision against saving and replanting seed. Specifically, the court determined that it was possible for the jury to also consider:

  1. The total out-of-pocket costs for licensees of the patented product;
  2. The benefits to the patentee above and beyond the monetary payments made by licensees (i.e., reputation, bargaining power); and
  3. The benefits conferred on the defendant by infringing the patent (i.e., increased yield and resultant cost savings).

The court also noted that the full amount charged for the license was actually $25.50-$28.50 (less minor costs for bagging and other transactional costs), once the additional payment to the seed company was factored in. After considering these factors, the Federal Circuit found that the damages award was not “grossly excessive or monstrous, clearly not supported by the evidence, or based only on speculation or guesswork,” and affirmed the jury’s award of damages. This case illustrates that it is often better to pay a license fee up front rather than risk damages for patent infringement.

To read the full decision in Monsanto Co. v. McFarling, click here.

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