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Defendant’s Lies Result in Dismissal of His Defenses

03-1243
September 07, 2004

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Last Month at the Federal Circuit - October 2004

Judges: Lourie (author), Gajarsa, and Prost

In Monsanto Co. v. Ralph, No. 03-1243 (Fed. Cir. Sept. 7, 2004), the Federal Circuit affirmed an award of damages for patent infringement and sanctions for numerous discovery abuses and lying.

Monsanto Company (“Monsanto”) markets the herbicide ROUNDUP®, which indiscriminately kills vegetation by inhibiting an enzyme necessary for its growth. Monsanto also markets the genetic-modification technology ROUNDUP READY®, which allows crops to survive treatment with the herbicide. ROUNDUP® can be sprayed over an entire field, killing the weeds without harming the ROUNDUP READY® crops. Monsanto requires that seed companies execute restricted-use licenses with customers of ROUNDUP READY® crops. This license includes a technology agreement that permits a farmer to plant the seed for only a single season and prohibits the farmer from supplying the seed to anyone else or using the seed for research or crop breeding. Mr. Ralph, a farmer, purchased ROUNDUP READY® soybean seed and cottonseed.

The district court found that Ralph violated this technology agreement by saving seed for planting in subsequent seasons. After repeatedly lying about this under oath, he changed his testimony, stating instead that he saved the seed but later burned about 700 bags of it. The testimony of other farmers established that he had sold or given them seed. The district court exercised its discretion to sanction Ralph for intentional spoliation of evidence by striking all his pleadings and then entered judgment for Monsanto on liability and ordered the case to trial on damages only. A jury awarded Monsanto about $800,000 for patent infringement, which the Court trebled for willfulness and added prejudgment interest and attorney fees, for a total claim of $3M. In the alternative, the jury awarded Monsanto nearly $2M in liquidated damages under the technology agreement—which had a liquidated-damages clause of 120 times the technology fee for each bag of seed—but the Court concluded that satisfaction of the higher award for infringement extinguished the lesser award for breach of contract.

The Federal Circuit ruled that the Defendant’s dishonesty and violation of the district court’s orders provided a reasonable basis for the sanctions. The Federal Circuit also ruled that the district court did not err in determining the reasonable royalty, and upheld the jury’s damage award for infringement. It considered the technology fee to be a royalty for a narrow, contractually agreedupon use of the seed, and noted that in the context of infringement, the royalties were correctly assessed as depending on the condition of the breach, e.g., cottonseed and soybean seed, which have different prices and properties.

Finally, the Federal Circuit held that the lower court’s award for contract-based liquidated damages was excessive because the 120 multiplier was a “one size fits all” figure that did not reasonably forecast the harm suffered depending on the type of seed reused. Regardless, because the Court affirmed the reasonable royalty damages, it refused to remand on the liquidateddamages award. Thus, the Court vacated the liquidated-damages award.