Monsanto v. McFarling (Fed. Cir. 2007).
Monsanto is one of the few patentees that sues individuals for patent infringement. In Monsanto’s case, the infringers are farmers who allegedly save & replant Monsanto’s patented genetically modified seeds violation of their “Technology Agreement”. When McFarling was found liable, the Missouri jury assessed damages of $40 per seed-bag and the court issued an injunction.
Monsanto customarily requires a royalty payment of $6.50 per seed-bag in addition to $22 per bag for the soybean seeds themselves. On appeal the CAFC focused on the proper royalty measure. McFarling argued that $6.50 was the “established” royalty while Monsanto argued that the actual royalty rate is much greater.
The Court agreed with Monsanto that the nominal designation of $6.50 as a royalty was not the entire sum of the damages:
Picking $6.50 as the upper limit for the reasonable royalty would create a windfall for infringers like McFarling. Such infringers would have a huge advantage over other farmers who took the standard Monsanto license and were required to comply with the provisions of the license, including the purchase-of-seed and non-replanting provisions. The evidence at trial showed that Monsanto would not agree to an unconditional license in exchange for a payment of $6.50, and the explanation—that Monsanto would lose all the benefits it gets from having the cooperation of seed companies in promoting Monsanto’s product and controlling its distribution—is a reasonable commercial strategy.
In fact, the CAFC found that the royalty rate can easily be calculated as something above the total $28 dollars per bag paid.
[I]t would be improper to hold that Monsanto’s reasonable royalty damages are limited to $25.50 to $28.50 per bag.
The damage amount, instead of being based on the amount usually paid by farmers, legitimately includes (a) the harm being felt by Monsanto because of the infrinement as well as (b) the additional benefits garnered by McFarling. In particular, these include: reputational harm due to rogue planters, potential lapses in monsanto’s database of planting techniques; bargaining power; as well as McFarling’s increased yeald of $31 – $61 per acre.
Based on those advantages alone, it was reasonable for the jury to suppose that, in a hypothetical negotiation, a purchaser would pay a royalty of $40 per bag for the Roundup Ready seed.
Under CAFC law, a jury’s damage award will be affirmed unless “grossly excessive or monsrous, clearly not supported by the evidence o rbased only on speculation or guesswork.” Here the court found sufficient reasons for the verdict and affirmed.
Established Royalty: Typically, an “established royalty” is the best measure of reasonable royalty damages when “the patentee has consistently licensed others to engage in conduct comparable to the defendant’s.” The rule of established royalty rate does not apply here, however, because Monsanto apparently never allows for replanting — Thus, there are no “comparable” replanting licenses.
Blacklist: The court also noted that Monsanto may blacklist Mr. McFarling from buying its seeds.
Notes:
- Mark Lemley of Stanford argued on behalf of the Farmer, McFarling.
- Several other issues are included in the decision.
- Read the case.
