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Mississippi Farmer “Rounded Up” by Forum-Selection Clause

01-1390
August 23, 2002

Decision icon Decision

Last Month at the Federal Circuit - September 2002

Judges: Newman (author), Bryson, and Clevenger (dissenting)

In Monsanto Co. v. McFarling, No. 01-1390 (Fed. Cir. Aug. 23, 2002), the Federal Circuit affirmed the grant of a preliminary injunction against Homan McFarling, prohibiting him from using plant seeds he obtained from crops grown from Monsanto Company’s (“Monsanto”) patented soybean seed, Roundup Ready®. McFarling originally planted Roundup Ready® seeds under a license from Monsanto called the Technology Agreement (“the Agreement”) that prohibited him from saving seeds from a crop for replanting. In violation of the Agreement, McFarling saved seeds from his crops and replanted them.

On appeal, the Court first considered its jurisdiction. The district court had held that it had personal jurisdiction over Mr. McFarling by virtue of a forumselection clause in the Agreement, specifying that the parties consented to Missouri jurisdiction for all disputes arising under the Agreement. On appeal, the Federal Circuit agreed that the forum-selection clause in question was enforceable and conferred personal jurisdiction over McFarling in Missouri. The Federal Circuit found that forum-selection clauses are valid and enforceable unless they are clearly unreasonable or fraudulent, relying on Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991).

Monsanto argued that the clause was reasonable for at least four reasons: (1) Monsanto’s interest in litigating disputes in its principal place of business; (2) greater judicial efficiency arising from litigating all disputes regarding the Agreement in a single forum; (3) greater uniformity of result; and (4) decreased litigation costs. Against this, McFarling argued that Mississippi was the fairest forum because that was where he purchased, planted, and harvested the seeds in dispute. He also argued that enforcing the provision against him was unfair because he did not purposefully consent to personal jurisdiction in Missouri because he had failed to read the forumselection clause in the Agreement. The Federal Circuit found the clause enforceable, holding that voluntarily unread contract terms are enforceable and that McFarling failed to demonstrate that the clause was unreasonable.

McFarling also argued on appeal that the district court abused its discretion in granting the preliminary injunction because: (1) the Agreement constitutes an illegal restraint of trade, rendering it unenforceable; (2) the first-sale doctrine prohibits the contractual restraint in the Agreement on producing his own seed; and (3) the Plant Variety Protection Act (“PVPA”) permits McFarling to save Roundup Ready® seed each year. On appeal, the Federal Circuit found that the district court correctly held that McFarling had not shown a reasonable likelihood of success on antitrust/misuse grounds, because the record did not support McFarling’s theory that he is required to buy future patented seed from Monsanto to buy present patented seeds. As to McFarling’s second argument, the Court found that the first-sale doctrine is not implicated by McFarling’s reservation of seed from his crops because the reserved seed was never sold by Monsanto. Finally, the Court found that J.E.M Ag Supply v. Pioneer Hi-Bred International, Inc., 534 U.S. 124 (2001), squarely held that the PVPA did not provide an exemption for McFarling’s saving seed covered by a utility patent.

Judge Clevenger dissented, arguing that the contract was not sufficiently reasonable to waive fundamental due-process rights under the circumstances.