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Mississippi farmer gets big break from appeals court in Monsanto biotech seed case

by Robert Schubert
CropChoice editor

(Tuesday, April 27, 2004 -- CropChoice news) -- After losing to Monsanto in federal district court in late 2002, Homan McFarling thought he'd have to pay the company $780,000 for illegally saving and replanting its genetically engineered soybean seed. However, a federal appeals court earlier this month threw out the award for damages. The Mississippi farmer likely will end up owing the company a fraction of the original amount. What's more, his lawyer is considering an appeal to the Supreme Court on antitrust grounds.

"It's one thing to subsidize Monsanto, but why do farmers have to subsidize the seed companies that have nothing to do with development of the [transgenic] seed but are charging higher prices," says Tupelo, Miss. attorney Jim Waide.

Monsanto's press office did not return a call seeking comment on this story. Its counsel in the federal appeals case, Seth P. Waxman of Wilmer, Cutler & Pickering, declined to comment.

Monsanto v. McFarling

In 1998, Homan McFarling purchased and planted 1,000 bags of genetically engineered RoundUp Ready soybean seed on his Mississippi farm. Two years later, Monsanto sued the farmer in the U.S. District Court for the Eastern District of Missouri, home turf for the St. Louis company, after tests showed his saved seeds were RoundUp Ready.

RoundUp Ready soybeans are so named because they're engineered with a gene conferring resistance to the glyphosate herbicide Monsanto makes and markets under the tradename RoundUp. This genetic modification allows farmers to spray RoundUp to kill many types of weeds without harming the RoundUp Ready soybean plants.

A "Technology Agreement" is critical to marketing the seed. Monsanto licenses the patented gene for glyphosate resistance, referred to as "the 435 patent," (Patent No. 5,633,435) to seed companies. They then integrate the gene into their soybean seed lines. With those genes inside the cells, the seeds themselves are now resistant to glyphosate, or RoundUp. They're RoundUp Ready, and covered by "the 605 patent" (No. 5,352,605). Monsanto charges seed companies, including its subsidiaries that control some 20 percent of this market, a "Technology Fee" as compensation for its innovation.

The seed companies actually collect the tech fee from farmers buying the RoundUp Ready seed -- the 1998 charge was $6.50 per 50-pound bag -- and then forward it to Monsanto. In addition, they include a "Technology Agreement" bearing the farmers' signatures. This contract licenses farmers to plant the seed for one season, and disallows both seed saving and selling or giving the seed to anyone for planting, research or breeding.

In federal district court, McFarling admitted saving 1,500 bushels of seed harvested from the '98 crop and sowing it in 1999. Furthermore, he planted 3,075 bags of saved seed in 2000.

Monsanto argued that McFarling, by saving and replanting the seed, infringed its '435 and '605 patents and breached the technology agreement, according to this reporter's interpretation of the appeals court decision. The company eventually sought a summary judgment against him for infringement of the '605 patent only and breach of the technology agreement. The court granted the request and ruled against McFarling's claims that Monsanto had:

  • violated the Plant Variety Protection Act, which permits the saving of registered seed;
  • misused the '435 patent covering the herbicide-resistant gene by applying it to the entire germplasm, by which point the '605 patent applies;
  • violated patent exhaustion and first sale doctrines; and
  • broken federal antitrust laws.

Beyond the issue of liability, the court ultimately ordered McFarling to pay Monsanto damages of $780,000.

McFarling appealed to the U.S. Court of Appeals for the Federal Circuit, which sided with the district court on all of the claims except the large damage award -- 120 times the $6.50 technology fee McFarling paid for each of the 1,000 bags of seed. The 120 multiplier that Monsanto has made standard in its technology agreements for soybeans, corn and cotton, even though they are different plants, did not reasonably predict the harm caused by breaching of the agreement and it was not difficult to measure, according to the decision. The appellate judges ordered the district court to reconsider and recalculate. McFarling will end up paying about $10,000, says his attorney, Jim Waide.

Monsanto's technology agreement, with the 120 multiplier, not only likely breaks the law of every state, it also violates federal due process, which limits punitive damages to 10 times actual damages, Waide says. Monsanto "uses it [the 120 muliplier] to frighten farmers into settling rather than fighting the company in court." He thinks Monsanto has used it to threaten about 70 farmers into settlement instead of going to court.

Antitrust appeal?

The appeals court ruled that seed saving prohibitions in the technology agreements are legal. In effect, farmers not only have to pay the fee, but they also have to buy new, more expensive seed every year instead of using saved seed, a longtime soybean farmer practice, Waide says. Approximately 200 soybean companies have agreements with Monsanto to sell the biotech seed to farmers. "The effect of this is farmers are forced to subsidize the seed companies that had nothing to do with developing the technology."

Waide, who represented McFarling in district court, told the appellate judges that Monsanto included "a count of infringement under the '435 patent" covering the glyphosate-resistant gene in its complaint but did not request "summary judgment on this count." He also argued that no court has ruled on the validity of the patent, and so it was improper to assume its validity. The court ruled against him and said he should have brought up the issue in district court.

Were Waide to appeal the decision to the Supreme Court, a spokesperson in his office says he would likewise assume validity of the '435 patent and then argue that Monsanto is tying the original technology for herbicide resistance to the second generation seeds. In other words, the '435 and '605 patents, referring to different products, are "tied." Farmers can't buy one without the other. This is similar to the U.S. government's case against Microsoft Corporation, which hinged on the claim that users of the Windows computer operating system had to use the company's Internet Explorer program, Waide says. -end-

Editor's note: McFarling is not challenging the validity of Monsanto's patents, but Mitchell Scruggs is. He's denying the validity and enforceability of all five patents under which Monsanto is suing him: '435, '605, '938, '316 and '525. Scruggs has filed motions for summary judgment asking the court to hold all five of these patents invalid, says his lawyer, James Robertson. A hearing on these motions is slated for June 2-3, 2004 in U.S. District Court in Greenville, Mississippi.

In July of 2002, Monsanto tried to amend its complaint to, in effect, withdraw the '435 patent; the court denied the motion in January of 2003. On December 8, 2003, Monsanto filed a Notice of Dismissal of the '435 patent, the contents of which are "Under Seal" and cannot be disclosed, Robertson says. He has filed a motion asking the district court to remove the seal so that the contents of the notice can be made public and continues to oppose Monsanto's withdrawal of the '435 patent from the case.

The case is set for trial in district court in Greenville on August 2, 2004.

1. Decision, United States Court of Appeals for the Federal Circuit; Case No. 03-1177, -1228; MONSANTO COMPANY, Plaintiff-Appellee, v. HOMAN MCFARLING, Defendant-Appellant
2. Interview, Jim Waide of Waide & Associates, counsel to Homan McFarling
3. Interview, James Robertson of Wise, Carter, Child and Caraway, counsel to Mitchell Scruggs

To see the 2001 CropChoice story about Mitchell Scruggs, 'Mississippi farmer fights for the right to save seed,' go to http://www.cropchoice.com/leadstry.asp?recid=285 . (Note: His lawyer at the time was Jim Waide.)

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