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Court Upholds Jury Award of $50 Million in Punitive Damages

September 29, 2003

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Last Month at the Federal Circuit - October 2003

Judges: Clevenger (author), Schall, and Dyk

On remand from the Supreme Court, in Rhone- Poulenc Agro, S.A. v. DeKalb Genetics Corporation, No. 00-1218 (Fed. Cir. Sept. 29, 2003), the Federal Circuit once again affirmed the decision of the district court in which a jury awarded $50 million in punitive damages.

In this case, Rhone-Poulenc Agro, S.A. (“RPA”) and DeKalb Genetics Corporation (“DeKalb”) contracted to collaborate on biotechnology projects from 1991 through 1994. However, in 1994, contrary to the agreement, DeKalb withheld knowledge of successful field tests of an RPA product. Based on this, DeKalb was able to negotiate an agreement with RPA that amounted to a complete surrender of RPA’s exclusive rights to the technologies.

In 1997, RPA filed a suit against DeKalb that was ultimately bifurcated. The first jury found that DeKalb fraudulently induced RPA to enter the 1994 contract and awarded RPA rescission of the contract and $50 million in punitive damages. The second jury found in favor of RPA on the issues of tradesecret misappropriation and patent infringement.

On appeal, DeKalb challenged both jury verdicts, but the Federal Circuit affirmed. In its decision, the Court discussed and applied the three factors laid out in BMW of North America, Inc. v. Gore, 116 S. Ct. 1589 (1996): (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the harm suffered by the plaintiff and the punitive-damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. The Court held that all three Gore prongs had been satisfied. DeKalb petitioned the Supreme Court for review, which granted certiorari and remanded the case for reconsideration in light of State Farm v. Campbell, 123 S. Ct. 1513 (2003).

On remand, the Federal Circuit held that there was no constitutional infirmity in a jury award of $50 million in punitive damages, and, furthermore, the case did not affect the ruling regarding liability and compensatory-damages issues. The Court concluded that, given its narrow focus on punitivedamages awards, State Farm does not affect other issues related to liability or compensatory damages. Consequently, the Court restored its holdings regarding fraudulent inducement, rescission of the 1994 agreement, inequitable conduct, obviousness, and trade-secret misappropriation.

Therefore, the Court’s only question was whether the holding in State Farm required that it change its previous decision regarding the constitutionality of punitive damages awarded in the present case. Based on the three Gore prongs, the Appellant raised three main arguments for modifying the award of punitive damages: (1) the punitive-damages award is unconstitutional because the Court’s previous decision recognized that the Gore factors for reprehensibility were not present; (2) the punitive-damages award was disproportionate to the harm; and (3) the award goes beyond the authorized civil penalty under state law.

First, based on the expanded criteria in determining reprehensibility set forth in State Farm, the Appellant’s conduct constituted reprehensible misconduct and, therefore, satisfied the first prong of the Gore test. In State Farm, the Supreme Court expanded the list of criteria used to determine reprehensibility to include intentional malice, trickery, or deceit. According to the Court, the Appellant acted with the required intentional malice, trickery, or deceit when it fraudulently induced RPA to enter into the 1994 agreement.

The punitive-damages award was only slightly more than three times the compensatory award. Because the ratio is within the single-digit ratio specified by the Supreme Court and well within the four-fold amount that might push the bounds of constitutionality, the Federal Circuit ruled that the punitive-damages award lies well within the bounds of constitutional propriety.

Finally, with regard to the third Gore prong, the Federal Circuit ruled that State Farm does not explicitly prohibit a court from comparing the punitive-damages award to criminal sanctions, as it did in its original decision.

Accordingly, the Federal Circuit reaffirmed the judgment entered by the district court.