CAFC: Monsanto v. Ralph

According to the contract that was in use at the time that Ralph purchased the Roundup-Ready® soybean seed and stacked-trait cottonseed (i.e., the "Technology Agreement"), the farmer, or "grower," was required, in exchange for the opportunity to purchase and plant seed containing the Roundup-Ready® and/or Bollgard® technology, to agree

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.

At the time Ralph purchased the Mosanto seeds, the Technology Fee, which was built into the price of each seed bag, was $5.00/bag for Roundup-Ready soybean seed and $112.80/bag for stacked-trait cottonseed.

The Federal Circuit rejected Ralph's argument that the Technology Fee should be considered an established royalty.

One of the most fundamental tenets of patent law is that a patent gives its owner the right to exclude others from making, using, selling, offering to sell, or importing the patented subject matter. 35 U.S.C. § 271 (2000). If the patent owner chooses not to totally exclude others, he or she may negotiate with a potential licensee to permit the licensee to make, use, sell, or import the patented subject matter under whatever terms the parties agree upon. Monsanto has chosen, as is its prerogative, to permit farmers to plant a commercial crop of the patented seeds in a single season in exchange for payment of the Technology Fee and a promise, manifested through the Technology Agreement, not to save those seeds that are harvested at the end of the growing season for replanting, production, sale, or transfer to others. The Technology Fee is a royalty, to be sure, but it is a royalty for only a narrow, contractually agreed-upon, use of the seed. It is undisputed in the record that Monsanto has not granted licenses to anyone to plant, produce, or transfer saved seed. The Technology Fee is therefore not an established royalty for planting or transferring saved seed, the uses that Ralph made of the patented invention.

Ralph also argued that the liquidated damages clause in the Monsanto Technology Agreement constitutes an unenforceable penalty, rather than a measure of compensation, and that he is entitled to judgment as a matter of law on that issue. Again, the court disagreed.

Monsanto's arguments in support of the 120 multiplier are similar to those that it presented in McFarling, in which we vacated and remanded a jury verdict awarding damages calculated using the 120 multiplier on the basis that it offends Missouri state law. McFarling, 363 F.3d at 1347-50. In that case, we concluded that the "one-size-fits-all" 120 multiplier failed to distinguish between the various modes of breaching the contract. Id. at 1348 ("The 120 multiplier in the Technology Agreement also violates the anti-one-size rule because it specifies the same measure of damages in the event of breach of several different restrictive provisions of the contract that lead to different types of damages."). The same defect is present in this case, and at oral argument counsel for Monsanto conceded the point. Moreover, because the damages awarded to Monsanto for Ralph's infringement of its patents exceed the liquidated damages awarded for breach of contract, and the district court held that "satisfaction of the higher damages amount by the defendants shall extinguish the alternate damages amount," 2003 Judgment, slip op. at 2, we see no reason to remand the case to the district court to determine an appropriate damages award for breach of the Technology Agreement.