McFarling Petitions Supreme Court to Hear RoundUp Ready Patent Case

Homan McFarling farms soybeans and other crops a few miles from my family’s farm in northern Mississippi.  Monsanto sued McFarling for replanting Monsanto’s patented GMO soybean seeds in violation of the “Technology Agreement.”

Soybean.USDAA Missouri jury found McFarling liable and awarded damages of $40 per seed-bag even though Monsanto typically charges only $6.50 license fee per seed-bag. On appeal, the CAFC found that the listed royalty rate did not provide any limit for the royalty calculation. Rather, infringement damages can properly include (a) the harm felt by Monsanto because of the infringement 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 yield of $31 – $61 per acre.

Now, McFarling has petitioned the Supreme Court for a Writ of Certiorari with two questions (with subparts):

  1. In determining a “reasonable royalty” under the patent-damages statute, 35 U.S.C. § 284, may the factfinder award the patentee either:
    • (a) a hypothetically negotiated royalty that vastly exceeds the established royalty charged in the marketplace, or
    • (b) a royalty that includes damages to the patentee’s third-party distributors and is intended to force the infringer to disgorge his profits—even though Congress eliminated the equitable disgorgement remedy in 1946?
  2. Do the doctrines of patent exhaustion and patent misuse permit the purchaser of a patented good to use that good and dispose of its products as it sees fit, absent a valid contract?

Mark Lemley (Stanford) is McFarling’s attorney.

Notes:

33 thoughts on “McFarling Petitions Supreme Court to Hear RoundUp Ready Patent Case

  1. 33

    [Check your business ethics at the door to santa clara county – its all up for grabs and he who can exploit it the most and the fastest and get his insider stock dumped into the public float is the winner.]

    I understand the disagreement with McFarling’s legal positions, and the argument about selecting which cases to take (though I disagree), but what does that have to do with business ethics?

  2. 32

    [There’s a difference between saying that a remedy is “in equity” and “equitable.” By “equitable,” the poster probably means just and right and that sort of thing. If Lemley said that “the grant or denial of an injunction is in equity,” they meant that injunctions are the sort of relief that was typically available in courts of equity rather than courts of law in the days of the divided bench. The typical legal remedy is compensatory damages. Examples of equitable remedies are injunctions, mandamus, specific performance, equitable replevin and equitable restitution. Even though those courts have since merged, the distinction is still relevant for some purposes, including the right to a jury trial. ]

    By “In equity” and equitable – I meant sounding in equity. You forget unjust enrichment, constructive trusts, and most appropriate here *trusts ex maleficio* all sound in equity. When the lemely gang unleashed the equity discretion to deny permanent injunctions – they also unleashed the equity to provide ‘full and complete justice’ What the lemely gang wants is broad equity discretion to deny injunctions (we have little halos over our heads here in the valley judge – honest to gosh we do) – but an extremely cramped and infringer permissive view of ‘law only’ relief to fashion the remedy. I call BS. Legal damages are the floor not the ceiling.

    [As for the rest of the post, if an attorney is representing an accused infringer, if he is any good, he will argue that the infringer doesn’t have to pay as much as the patentee wants him to. If you don’t like the balance the law strikes between patentee rights and the public domain, blame Congress or the courts. Lemley et al. are representing their client, and their duty is to him.]

    Lemely is no fool, he knows where his bread is buttered and he is not taking cases without a nod to his endowed chair factors. Farmer mcfairland is a useful tool to advance the serial infringer agenda – making predatory behavior toward innovation (patents) – safe, effective and enormously profitable (for the valley).

    Check your business ethics at the door to santa clara county – its all up for grabs and he who can exploit it the most and the fastest and get his insider stock dumped into the public float is the winner.

  3. 31

    I think the exhaustion argument is rock solid. Whilst I don’t read the precedents as saying that you can do anything you like with a patented product that you have purchased, at least not in the US, what McFarling did is so far inside the ordinary use of seeds that Monsanto’s rights should be exhausted.

    A contract claim might have more merit, but apparently Monsanto have dropped that. Everything else is irrelevant by comparison.

    OTOH, as someone else said, filing a petition for cert is like buying a lottery ticket. If it’s not taken up by the USSC, and it may well not be, then Monsanto win. In that case, though, I could see it not being the last time this issue comes up.

  4. 30

    “I was there” argues:

    —-
    Your crew argued that the grant or denial of injunctive relief was in equity. Why then is it equitable to allow the convicted infringer to profit from his wrongful acts? The infringer is unquestionably ‘enriched’ by his wrongful acts, the unauthorized use of the property of others. Why on earth should equity provide an infringer windfall from that? In other words, why would equity allow the infringer to be in a better position than the lawful purchaser?
    —-

    There’s a difference between saying that a remedy is “in equity” and “equitable.” By “equitable,” the poster probably means just and right and that sort of thing. If Lemley said that “the grant or denial of an injunction is in equity,” they meant that injunctions are the sort of relief that was typically available in courts of equity rather than courts of law in the days of the divided bench. The typical legal remedy is compensatory damages. Examples of equitable remedies are injunctions, mandamus, specific performance, equitable replevin and equitable restitution. Even though those courts have since merged, the distinction is still relevant for some purposes, including the right to a jury trial.

    As for the rest of the post, if an attorney is representing an accused infringer, if he is any good, he will argue that the infringer doesn’t have to pay as much as the patentee wants him to. If you don’t like the balance the law strikes between patentee rights and the public domain, blame Congress or the courts. Lemley et al. are representing their client, and their duty is to him.

    I understand that the Supreme Court is committed to “equal justice for all,” and that even the tinfoil hat-wearing crowd has a right to see justice done, but these rants are just strange.

  5. 28

    Interesting recasting of history Lemley. You confusing failed to provide that when infringers profits were eliminated from legal damages in the ’46 act, it was, in part, because ‘profit apportionment’ had become too much work and provided inconsistent results for the courts. The solution was to enter permanent injunctions and let the market work out the price. Now of course, since you and your sil valley cronies have opened the door that an injunction will not always enter, now you decry having to pay any more than the ‘established’ royalty. Thus making wide spread deliberate patent infringement, safe, effective, and extremely profitable (for the infringer).

    Your crew argued that the grant or denial of injunctive relief was in equity. Why then is it equitable to allow the convicted infringer to profit from his wrongful acts? The infringer is unquestionably ‘enriched’ by his wrongful acts, the unauthorized use of the property of others. Why on earth should equity provide an infringer windfall from that? In other words, why would equity allow the infringer to be in a better position than the lawful purchaser?

    Of course, of course, insert your ultimate poison pill to the patent system argument here – “patents hinder innovation – i’ve done a study funded by serial infringers.” If mcfariland doesn’t want to pay to use round up ready – then he is free to go develop his own system, go work with Misery State U or somebody and invent something yourself (of course, undermining the patent system would greatly reduce the expected ROI from such a venture since in your world view, lemley, the court would decide the ‘just’ compensation not what the market return would actually be. Appears to be a very unvirtuous cycle of everybody ripping off everybody else – with no defined incentive to innovate on your own.

  6. 26

    While you may debate the merits of Lemley’s argument or the patent damage system, recall that this was also a breach of contract case and the liquidated damages clause was 120 times the $6.50 fee for each 50 lb bag of seed. The district court’s original award was $780,000 based upon this clause. The CAFC reversed because the 120 multipier was based upon the reproduction ratio of cotton seeds, while the ratio for soy bean was only 36:1. You can bet that Monsanto has since cured that in its license agreements.

  7. 25

    Malcolm, I’ll grant you that. It seems very probable to me that the value to Monsanto of knowing that two years’ worth of crops of one farmer’s planted seed was bought from a seed company has to be very small, and almost certainly can’t bridge the gap between $26.50 (the easily quantifiable aspects of the established royalty) and $40 (the jury’s royalty award).

    I think the problem here was that trial counsel let Monsanto’s expert get away with using crop yield savings figures from one study and pesticide costs savings figures from a different study that used different accounting. Using those two studies without meaningful cross-examination on the point, the expert convinced the jury that there was more than $40/acre worth of savings from using Roundup Ready seed. On those facts, it doesn’t seem at all bizarre that the jury would think a farmer would pay $40/acre for the seed if he could save more than $40/acre.

    So perhaps the blame should really be placed on trial counsel for poor expert cross-examination. The gap between the established royalty’s probable value ($26.50 plus change) and the royalty award ($40) is sort of prima facie evidence that the reasonable royalty proof was off base (or else that Monsanto was drastically underpricing its product for farmer McFarling’s area of Mississippi, something that nobody argued, but that could be another possibility).

  8. 24

    Nice photo. :)

    I’m no fan of big corporations (funny that I work for them). But I have reviewed the CAFC opinion to which anonymous so helpfully offered a link, and it seems well reasoned.

    I think my only objection would be to the statement, “The principles of patent law do not cease to apply when patentable inventions are incorporated within living things,
    either genetically or mechanically.”

    Something about this doesn’t feel good. That’s all it is, just a feeling; can’t come up with a legal basis to say that it’s wrong.

  9. 23

    Never seen any evidence that Lemley is smart, Steve? Here’s some evidence: B.A. from Stanford, with distinction; J.D. from Boalt, Order of the Coif and on law review; of counsel at Keker & Van Nest. That’s a pretty good indication of smarts aplenty.

    The lawyers who make the biggest difference are those who argue novel, challenging cases to appellate courts. Of course the odds are against such lawyers in any given case, but when they win, they influence the law more directly than even the most powerful member of Congress.

  10. 22

    Gideon, how does your “Supreme Court favors Goliath over David” theory square with LabCorp. v. Metabolite?

  11. 21

    Hey Malcolm, I think you’re a DC alter ego. Kind of like a smart alecky, cynical, but very astute Crouch. Very useful for posting your true thoughts to a blog and for keeping it lively.

    Ay.

    I lament the path the Patent Law has taken since I got into the business.

    I do love invention, but I find myself disliking the process of patenting a bit more each day.

    It seems as though we have shifted dramatically away from a pure, “is it patentable?” system to a game being played.

    Of course, the other explanation is that I am getting older and more cynical by the minute, and, just as I no longer can brook the idle chatter of most of my colleagues, I also can no longer overlook the injuries the system imparts on us.

  12. 20

    “If any person believes that Monsanto is really attempting to collect the “lego feedback” fee, then I’d respectfully reply that that person is either a Monsanto sympathizer or a m0r0n.”

    Gideon 1, Spamcop 0. ;)

  13. 19

    I grant, before I write, that I am both ignorant of the exact details of this case and entirely disinclined to learn them.

    That written, this quote:
    “Gideon, you are off base. The contract rate to plant and sell Roundup Ready seeds was not $6.50 a bag. It was $6.50 a bag plus another performance — buying the bag from an authorized dealer.”

    is mixing things up.

    Hoh, you sound like a guy who does Monsanto work.

    Very simply, Monsanto’s interest in this case is NOT to simply be reimbursed and set WHOLE.

    Any bumpkin who believes that has parked the genetically modified pumpkin truck to close to the front door.

    Monsanto’s interest here is very simple –

    To PUNISH, so that all those who consider the same route will see that the road taken by this farmer is one fraught with impecuniousness.

    [loving the Spell Check feature Dennis – now I can bust out the big words].

    Monsanto, having realized that the license and patent thing provides only limited damages, made the executive decision to attempt compensation above and beyond the usual amount, because the usual amount was not a sufficient deterrent.

    Let me be very clear here . . .

    1. I support Monsanto’s right to monopolize its patent as it sees fit.

    2. I am pro-GMO.

    3. I have no sympathy for farmers who choose to use GMO seed but don’t want to pay for it or abide by the rules of the license they pull.

    BUT – and a very big BUT –

    In a society that is already rushing headlong into an amoral Corporatocracy, it is folly indeed to allow the Corporate gorillas to draft their own IP legislation.

    I’ve got nothing else to say about this.

    If any person believes that Monsanto is really attempting to collect the “lego feedback” fee, then I’d respectfully reply that that person is either a Monsanto sympathizer or a m0r0n.

  14. 18

    I think Mr. Mooney’s point is that the Lego hypothetical doesn’t make this case any clearer. It might be somehow analogous to the McFarling case, but it doesn’t help anyone understand it.

    The McFarling opinion itself provides a fairly straightforward explanation of its holding and reasoning. As with many of these posts, a good response to comments is an admonition to read the opinion.

    The opinion is here:
    link to fedcir.gov

    Read Section III. It’s only 6 pages.

  15. 17

    “So companies never want to know how their products are used and what consumers think of them?”

    Of course they want to know.

    The question is: if Monsanta was going to pay McFarlane for the data point that “only he could provide them”, how much would they be willing pay for that data point? That seems to me to be a reasonable way of determining how much that data point is worth.

    Remember that Monsanto had collected a lot of data before McFarlane …

  16. 16

    How come no one ever complains about the damages provision for design patent infringement – disgorgement of the infringer’s total profits? (OK, to be fair, the patent owner may elect this recovery instead of a reasonable royalty or lost profits)

  17. 15

    DDG, I agree this is a weak petition, independent of its merits. The patent exhaustion argument seems to be an invalidity argument and is poorly phrased. The standing argument speaks in generalities without engaging the applicability of standing to sue for harm to intended third party beneficiaries. And I really don’t see any correlation between the Federal Circuit’s opinion and how the petition relates the Federal Circuit’s reasoning.

  18. 14

    Malcolm — So companies never want to know how their products are used and what consumers think of them? That seems contrary to every experience I’ve had with a major company.

  19. 13

    Lemley usually appears to pick cases in which he has an ideological ax to grind. He also seems quite wrongheaded when it come to patent law. I really don’t understand his reputation as a patent expert; he’s not. He also appears to have no litigation judgment.

    I skimmed the petition. It mostly sucks. It blurs some fairly important issues and is not crafted in a way that will hook the Justices. For example, it muddies up the distinction between a reasonable royalty (floor for damages) and damages in general (potentially unbounded). The real issues are “what is a compensable injury under the patent laws” and here has “the federal circuit allowed noncompensable injuries to be lumped in with compensable ones”, but it’s approached obliquely. The reasonable royalty rate is a non sequitur.

    There might be something to the patent exhaustion argument, but it’s not phrased well. The petition should have picked one issue and stuck to it.

  20. 12

    “there is another performance I extract as part of my standard license — the promise to tell me how you like the Legos. That knowledge is valuable; it can help me with R&D and marketing.”

    This is the part of the damages calculation that reads like a bad joke.

  21. 11

    I have never really seen any evidence that Lemley is smart.

    He is anti-patent and verbose. Those I will give him.

  22. 10

    The public policy underlying damages is to putting both parties back in the position they would have been in had it not been for the breach (plus punitives if applicable). Would you prefer a fine?

    So the Fed Circuit’s fiding is somehow irrelevant? Huh?

  23. 9

    Gideon, you are off base. The contract rate to plant and sell Roundup Ready seeds was not $6.50 a bag. It was $6.50 a bag plus another performance — buying the bag from an authorized dealer.

    Consider this analogy — I, the patentee, will license anyone to use my patented Legos in making buildings if you will do three things: (1) Pay me $6.50 per bag of Legos; (2) Work three hours of manual labor for free for the seller of my Legos from whom you purchased, to encourage the seller to carry my Legos instead of my competitors’ Lincoln Logs; and (3) Tell me how you liked the Legos and about any problems you had with them, so I can better market my goods and develop them further.

    I agree there is an established royalty on those facts. What is its value? For sure it includes the $6.50 a bag you have to pay me. The established royalty also has to include the other two performances, because those are also consideration I require in my standard license.

    The question then becomes: What is the value of the other two performances? For item number 2 in my list, let’s say the jury reasonably values the performance at the minimum wage ($5.85 an hour), for a total of $17.55 for three hours’ work. (Or else imagine that the standard license would allow you to just pay $17.55 to my seller if you didn’t want to work; that’s pretty much just like this case.) Either way, the value of the required performance has to be part of the established royalty because it is consideration I extract as part of my standard license.

    But you can’t stop there either, because there is another performance I extract as part of my standard license — the promise to tell me how you like the Legos. That knowledge is valuable; it can help me with R&D and marketing. And that is what the court in this case said Monsanto also got by requiring farmers to buy from an authorized reseller. Yes, that performance may not have a clear value, but it has a value (or else why would I require it?), and therefore we can’t limit damages to $6.50 or even $6.50+$17.55.

    Since that third value is so indeterminate, it basically defeats the idea that the established royalty can be given a value that limits the royalty award. So, in sum, there is an established royalty, but it will not be the basis of a damage award because it cannot be accurately valued. That’s why the court was proper to let the jury assess the royalty another way, by computing the benefits to McFarling and assuming that the hypothetical license price would be less than, but within the range of, the maximum benefit to McFarling.

  24. 8

    I read the “Lemley must like losing” quip in the comments here every so often, and I think it’s ignorant.

    Lemley’s a smart law professor who takes on the occasional patent case. Most of the professors I know who also practice tend to choose cases that are (1) in their area of expertise, (2) important, and (3) really difficult.

    It’s that (3) part that’s important here. If McFarling’s case was an open-and-shut win for *him,* he wouldn’t need Lemley’s services, and Lemley probably wouldn’t be terribly interested in providing them. On the other hand, when you’re on the hook for as much damages as McFarling is, you’re up against arguably the best appellate lawyer in private practice, and your case implicates interesting and fairly undeveloped areas of patent law, it seems like the prime example of a case in which you’d think about hiring a law professor.

    Losing has nothing to do with it (though it’ll probably be the ultimate result, since filing a cert petition is usually like buying a lottery ticket).

    If you think McFarling’s legal position is absurd, provide an explanation. Otherwise, hold your fire on the gratuitous insults.

  25. 7

    The whole point in petitioning to the Supreme Court is that you don’t like “what the court [below] found”; so the fact that the Federal Circuit thinks McFarling is the scum of the earth (clearly they did) is not a point in Monsanto’s favor. And patent law is about compensation, not deterrence, which is also the point of the petition.

  26. 6

    Oh, and why isn’t it right to take the ill gotten profit (or lower cost to the wrong doer) as part of the damage award? Disgorgement is appropriate in many cases to make sure the worgdoer gets no advantage from their breach.

  27. 5

    Well we can agree to disagree about how to feed the billions on the planet (hard to do without monoculture) and whether you are firmly planted in reality when it comes to how do this…

    As for the bad actor comment I felt bad as soon as I posted, but that said – how would you describe what the court found? My comment is not from I think, but a finding of a court – the Fed. Circuit!

    You might have a point on damages, but damages need to be significant and in line with what is required to deter the behavior of others – and I am not sure $10/acre for what you are CAUGHT doing will work. There are also departures from sentencing guidelines, BTW.

  28. 4

    A poster name “me” wrote: “Well, I predict MegaCorp will win, but it is because they are legally correct and McFarling is a bad actor who knew he was stealing seed.”

    A “bad actor”!! Beautiful!

    The bad actors are the ones who try to pretend the whole patent system isn’t listing seriously in the favor of Big Corp.

    The issue here is not whether he was wrong, the issue here is damages.

    The plaintiff wanted more that the statutes offered. They just didn’t want the royalty, or treble damages, they wanted punitive damages and profit disgorgement because they want to make sure nobody gets out of line again.

    Hey, I agree that patents should be enforceable.

    I just disagree that the royalties determined should not go beyond the scope of the law.

    If the statute says you get 2-10 for armed robbery, and they put you in jail for 20, that ain’t right.

    And neither does this appear to be, although I have not read the details.

    Can a seasoned litigator chime in here?

    You can get reasonable royalty. You can get treble reasonable royalty for willfulness. But you cannot got 50 times the royalty in order to stick it to the defendant because you can’t prove lost profits or any other grounds for damages.

    Like most cases, the real point in this case is simple.

    In New Haven, the SC decided that the property rights of a few homeowners are less important than the desire of a city to “improve” itself.

    In this case, the SC will decide that Megacorporations can have exceptions to the written laws so that they can more effectively squash all dissenters.

    On the other hand, it’s high time that this world started a trend away from monoculture and megaagricorp.

  29. 3

    Yoooo hoooooooo Director Dudas yooooooo hooooo will you be following your brethren Mr. Gonzales, Mr. Rumsfeld, Mr. Ashcroft, Mr. Rove?

  30. 2

    Well, I predict MegaCorp will win, but it is because they are legally correct and McFarling is a bad actor who knew he was stealing seed. Did he also sell patented products to neighbors against the contract he signed, or something?

    Lemley must like losing…

  31. 1

    Let me do the legal analysis here . . .

    Mega Corp versus small guy.

    Hmmm.

    Mega Corp versus small guy.

    Hmmmmmmmm.

    Mega Corp versus small guy.

    After a thorough examination of the current legal issues, I have to predict that MEGACORP is going to win this case, particularly given the bent of the current SC.

    By the way, they didn’t teach me this in Law School. I figured this out through empirical observation.

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