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Bona Fide Purchaser Defense Does Not Apply to Nonexclusive Licensees

March 26, 2002

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Last Month at the Federal Circuit - April 2002

Judges: Dyk (author), Clevenger, and Schall

In Rhône-Poulenc Agro, S.A. v. DeKalb Genetics Corp., No. 00-1266 (Fed. Cir. Mar. 26, 2002), in response to an en banc order vacating its earlier decision, the Federal Circuit held that the bona fide purchaser defense is governed by federal law and is not available to nonexclusive licensees.

From 1991 through 1994, Rhône-Poulenc Agro, S.A. (“RPA”) and DeKalb Genetics Corporation (“DeKalb”) collaborated on the development of biotechnology related to an optimized transit peptide (“OTP”), which proved useful in growing herbicide-resistant corn plants. OTP is covered by the claims of U.S. Patent No. 5,510,471, reissued on December 14, 1999, as RE 36,449 (“the ’471 patent”). In 1994, RPA, DeKalb, and nonparty Calgene, Inc. (“Calgene”) entered into an agreement (the “1994 Agreement”) that granted DeKalb the world-wide, paid-up right to use OTP for corn. DeKalb was also allowed to grant sublicenses without further payment. In 1996, DeKalb sublicensed its rights to Monsanto Company (“Monsanto”). In exchange for the sublicense, Monsanto granted DeKalb licenses to certain intellectual property related to genetically engineered corn and acquired interests in DeKalb.

In 1997, RPA filed suit against DeKalb and Monsanto, seeking to rescind the 1994 Agreement on the ground that DeKalb had procured its sublicense by fraud. RPA also alleged that DeKalb and Monsanto were infringing the ’471 patent and had misappropriated RPA’s trade secrets. Monsanto argued that it had a valid license to practice the invention of the ‘471 patent and use the trade secrets, based on the 1994 Agreement and having paid value to DeKalb for its sublicense.

At trial, a jury found that DeKalb had fraudulently induced RPA to enter into the 1994 Agreement. However, the district court, relying on
Heidelberg Harris, Inc. v. Loebach, 145 F.3d 1454 (Fed. Cir. 1998), found that Monsanto was a bona fide purchaser of the ‘471 patent and the right to use the technology and, as a matter of law, could not be liable for patent infringement or misappropriation of trade secrets.

On appeal, a panel of the Federal Circuit affirmed the grant of SJ by the district court in Rhône-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 272 F.3d 1335 (Fed. Cir. 2001). The panel, citing Heidelberg Harris, agreed that the bona fide purchaser defense was available to nonexclusive licensees and affirmed. Monsanto then moved for a rehearing en banc. The Federal Circuit granted the petition for the limited purpose of deciding whether Heidelberg Harris was binding authority on the question of whether the bona fide purchaser doctrine applies to patent licensees.

Unconstrained by Heidelberg Harris, the panel reconsidered its decision and, this time, held that the bona fide purchaser defense to patent infringement is governed by federal law and, therefore, is not available to nonexclusive licensees. The Court reviewed a plethora of precedent on both issues in reaching its conclusions and found that the bona fide purchaser defense required an assignment, grant, or conveyance of all substantial rights of a patent, not just some of those rights. Therefore, since a nonexclusive license transfers less than all substantial rights of a patent, the bona fide purchaser defense was not available to Monsanto.

The en banc Court concluded that because of unique circumstances in that case, and because the parties did not contest the issue, Heidelberg Harris was not binding authority on the issue. Accordingly, the Court vacated its previous decision to the contrary.