ALM Properties, Inc.
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Seeds of Conflict
Here's a billion-dollar question: How can a fight over soybeans result in the defendant corporation being sanctioned and owing $1 billion in damages, when the plaintiff suffered no actual losses? That's exactly what happened to E.I. du Pont de Nemours and Company, which was sued by the Monsanto Company in a cutting-edge patent case involving genetically enhanced seeds.
The answer lies deep in a St. Louis federal court case with records that have been tightly sealed. At press time DuPont was trying to unseal some of them in the hope of showing a miscarriage of justice. It also has vowed to appeal.
To understand the case, it helps to know the history. In 1996 Monsanto, which had spun off its chemical business to focus on biotechnology, discovered a way to make crops genetically immune to its weed killer, called Roundup. The change revolutionized the agricultural industry. Rather than plowing out the weeds and losing precious topsoil in the process, the farmers could simply plant the seed and spray. The weeds died while the crops thrived.
Monsanto had struck gold. According to court records, the Roundup Ready seed is now used in nearly 95 percent of soybean acreage in the United States. These sales helped earn the company some $12 billion last year.
At the start Monsanto licensed seed companies, like the huge Iowa-based Pioneer Hi-Bred International Inc., to sell its products. But in 1999 DuPont bought Pioneer and entered the agri-biotech market in a big way. In 2002 the two companies negotiated a deal granting DuPont a restricted license to use certain Monsanto patents. And they've been fighting bitterly over the meaning of the deal ever since.
Igniting this volatile mix are two giants in corporate law: Monsanto general counsel David Snively and DuPont GC Thomas Sager. Neither would speak for this story, but they would seem to have a great deal in common. Both men rose through the ranks at their companies; both are passionate litigators who eventually headed their firms' litigation departments. And neither man is known to back down when he believes he is right. "Waffles," Snively once told a law class, "are for breakfast."
Despite the licensing feud, DuPont moved ahead. In experiments it "stacked" the Monsanto gene trait on top of its weaker antiherbicide trait in soybeans. Stacking is a term of art referring to combining two genetic traits into one organism. The test worked, but Monsanto was furious. It was already suing DuPont over other aspects of the contract and use of the seeds, and in 2009 the St. Louisbased company filed suit over the experiments in federal district court in its home city. Monsanto accused DuPont of willfully violating its patents and then lying about it. DuPont countersued, accusing Monsanto of antitrust violations with its "monopoly" over the engineered seed in soybean, corn, cotton, and other crops. U.S. District Judge E. Richard Webber split the two issues into separate cases, and heard the patent case first.
Neither GC pulled any punches. DuPont claimed that Monsanto misled the Patent and Trademark Office to secure its patent. Monsanto claimed that DuPont was lying to the court about contract terms. Most of the court records are sealed, but there are hints of the hostility between the parties. In one unsealed order, Judge Webber noted the "vitriolic litigation . . . marked by bitter exchanges in depositions, hearings, and court filings."
Then, in December 2011, Webber issued a sanction order against DuPont. It said that the company had deliberately misled the court by saying that it believed it had a right to stack the Monsanto trait, when it knew better. As punishment, he struck some of DuPont's defenses. But he kept the order sealed at the time. The following August the jury returned its billion-dollar verdict, and in November, Webber unsealed the sanction order at Monsanto's urging.
In a rare outburst, Sager attacked the court. "The sanctions ruling is dead wrong . . . an erroneous ruling," Sager said in a statement in late November. "DuPont told the truth and did not mislead the court." And Sager didn't stop there. He attacked the verdict and damages award. "The court's numerous fundamental errors in the case deprived the jury of important facts and arguments resulting in an unjust and unprecedented outcome," he said. "No patent infringement verdict of this magnitude has ever been upheld." He vowed to appeal.
Monsanto, on the other hand, hailed the outcome. In fact, it's now asking Webber to triple the damages to punish DuPont for willfully violating its patent. And Snively, the Monsanto GC, took his own shots at DuPont after the verdict. In his statement he said that discovery showed "that DuPont's senior leaders were actively working to hide the fact [that] their . . . technology had failed and were using elaborate schemes to cover that up with the unlicensed use of our technology."
Patent law professor Bernard Chao, for one, sides with DuPont. A former in-house counsel at Covad Communications Group and now an assistant professor at the University of Denver School of Law, Chao is examining the case and its "novel theory of damages" in his classes. He decries the sealing of so many files, explaining that it's "one of the first high-stakes suits to involve genetically modified organisms. And it has important ramifications for agribusiness across America," as well as for Monsanto's livelihood.
"It's just crazy," Chao says of the damages. He notes that while DuPont may have experimented with Monsanto's technology, it never sold any of the seeds. "So how did the jury get there? A $1 billion verdict makes no sense to me at all," Chao continues. "Monsanto lost nothing here."
The worst nightmare for Monsanto, Chao speculates, is if Judge Webber lets the so-called compensatory damage award stand, while refusing to grant any additional punitive amount. A higher court could well decide to reduce or eliminate the $1 billion award because there was no proof of loss, Chao says, leaving Monsanto with nothing.
Even after the appeals, there's more to come. DuPont had pushed the U.S. Department of Justice's antitrust division into investigating Monsanto's stranglehold on the genetic patent. Small farmers in particular suffered because they couldn't afford Monsanto's steep prices for the seeds. Bloggers and others referred to the company as "thuggish" toward farmers, "a patent bully," and even called Monsanto "agribusiness's version of The Death Star."
But Monsanto received a boost in November. The Justice Department dropped its antitrust investigation without comment. Now DuPont is on its own as it pursues its antitrust countersuit, scheduled for trial in October. As the rival general counsel gear up for this new battle, it's hard to imagine that it can get any hotter.