Summary of a Recent
Judicial Development in
Biotechnology

Patent Infringement Damages Not Limited
to Infringer's Anticipated Profits

Kaleb K. Hennigh
National AgLaw Center Graduate Assistant

Summary of Decision

In Monsanto Co. v. Ralph, 382 F. 3d 1374 (Fed. Cir. 2004), the United States Court of Appeals for the Federal Circuit held that patent infringement damage awards were not limited to anticipated profits of an infringer and that a technology fee agreement granting royalty rights to plant seeds was not proper in calculating damages for the unlawful transfer of the patent protected seeds.

Background

Plaintiff Monsanto Company (Monsanto) brought willful patent infringement and breach of contract claims against defendant Kem Ralph. See id. at 1377. Ralph purchased numerous bags of Monsanto patented seeds and signed a contract which contained a technology agreement stipulating that Monsanto allowed Ralph to plant the seeds for commercial purposes, but limited his use to a single growing season. See id. The federal district court found that Ralph violated the technology agreement by saving bags of seed to plant in subsequent growing seasons and by transferring bags of seed to other producers. See id. at 1378.

The district court entered a judgment in favor of Monsanto for a "reasonable royalty" of approximately three million dollars in damages and entered an injunction prohibiting Ralph from any future seed purchases of Monsanto patented seed. See id. at 1379. The jury further awarded Monsanto additional damages for violation of the signed technology agreement which established liquidated damages at 120 times the technology fee assessed per bag of purchased seed. See id. Ralph appealed the district court's decision to the Federal Circuit. See id. at 1382.

Arguments

Ralph argued that the district court erred in failing to limit damages to his actual use, rather than his potential use of the seed, and that the liquidated damages clause was an unenforceable penalty. See id. at 1383. Ralph further argued that the technology fee assessed by Monsanto per bag of seed was an "established royalty" properly allowing his actions regarding the seed. See id. Monsanto argued that the jury's award of damages was reasonable because Ralph's infringement "extended well beyond the licensed planting of [the] commercial crop for a single growing season." Id.

Analysis and Holding

The Federal Circuit held that the assessed damages were not "grossly excessive or monstrous," and that the "120 multiplier" liquidated damages clause violated state law. See id. at 1384. The court reasoned that the jury was properly instructed on the factors relevant for the determination of a "reasonable royalty" and that the jury's determination was properly based on testimony of an expert witness. See id. at 1383.

The court also held that the "120 multiplier" liquidated damages clause violated state law. See id. at 1384. It relied upon its previous ruling on the Monsanto "120 multiplier" liquidation clause in Monanto Co. v. McFarling, 363 F.3d 1336 (Fed. Cir. 2004), where it found that such a clause "failed to distinguish between various modes of breaching the contract" in violation of the state prohibition of "one-size-fits-all" liquidation clauses. See id. at 1385.

The court further determined that the technology fee associated with the purchased seed granted a royalty to Ralph but only for the "narrow, contractually agreed-upon" seed use, which did not include the seed transfers nor the subsequent seasonal plantings. See id. at 1384.

The case was decided on September 7, 2004; this summary was posted Jan. 13, 2005.