Monsanto sells patented seeds that are resistant to Roundup, its herbicide. Distributors must sign a Technology Agreement, to which farmers buying the seeds must agree to; a license fee is involved.

[F]armers promised not to replant seeds that were produced from the purchased seeds or to supply those seeds to others for replanting. Those promises ensure that a farmer who uses Roundup Ready seeds buys the seeds that he plants each year.

In 1998, Mr. McFarling purchased Roundup Ready soybean seeds from a seed company. He signed the Technology Agreement for that year and paid the required fees. In violation of the license agreement, however, he saved seeds from his 1998 soybean crop and planted those seeds in 1999. He did the same thing the next year, saving soybeans from his 1999 crop and planting them in 2000. The saved seeds contained the patented genetic traits, but Mr. McFarling did not pay the license fee for the 1999 or 2000 growing seasons.

Upon learning of Mr. McFarling’s conduct, Monsanto sued him.

The fight went through district court and appeal a couple of rounds, with McFarling swinging wide on antitrust and patent misuse charges, concluding with a damages trial, and the current appeal on that award.

By statute, damages for patent infringement are to be “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284. After our remand in McFarling II, Monsanto elected to pursue the reasonable royalty measure of its damages. In response, Mr. McFarling argued that there is an established royalty of $6.50 per bag that should apply to his infringing conduct, and he asked the court to limit the amount of the reasonable royalty to that amount. The district court found “some legitimacy” in that argument but ultimately denied the motion and submitted the damages issue to the jury.

An established royalty is usually the best measure of a “reasonable” royalty for a given use of an invention because it removes the need to guess at the terms to which parties would hypothetically agree. When the patentee has consistently licensed others to engage in conduct comparable to the defendant’s at a uniform royalty, that royalty is taken as established and indicates the terms upon which the patentee would have licensed the defendant’s use of the invention. Birdsall v. Coolidge, 93 U.S. 64, 70 (1876) (an established royalty furnishes the best measure of damages); Nickson Indus., Inc. v. Rol Mfg. Co., 847 F.2d 795, 798 (Fed. Cir. 1988) (absent proof of unusual circumstances, such as widespread infringement that artificially depressed the established royalty, an established royalty is the best measure of a reasonable royalty); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir. 1983) (same); see also Rude v. Wescott, 130 U.S. 152, 165 (1889) (listing criteria defining an established royalty).

Monsanto has consistently licensed farmers to use its Roundup Ready technology pursuant to the terms of a standard license agreement.

Monsanto in effect decided that under its standard licensing program it would extract $6.50 in direct payment and would also extract an undertaking to buy seed from a seed company, which imposed an additional cost of $19 to $22 per bag on the farmers. The fact that Monsanto elected to allocate its licensing fees by obtaining a direct payment of $6.50 and ensuring a payment to the seed companies of another $19 to $22 does not mean that the royalty for its standard license was only $6.50. It means that, for a variety of economic reasons, Monsanto decided to split the royalty up into two parts and to direct part of the royalty to the third-party seed companies, which promoted and distributed Monsanto’s products. The out-of-pocket cost that the farmers paid for the right to use Monsanto’s technology was thus $25.50 to $28.50. In effect, the amount of that cost that can be characterized as a pure royalty payment was $25.50 to $28.50 minus the modest cost of cleaning and bagging the seeds and other transaction costs.

Picking $6.50 as the upper limit for the reasonable royalty would create a windfall for infringers like McFarling. Such infringers would have a huge advantage over other farmers who took the standard Monsanto license and were required to comply with the provisions of the license, including the purchase-of-seed and non-replanting provisions. The evidence at trial showed that Monsanto would not agree to an unconditional license in exchange for a payment of $6.50, and the explanation—that Monsanto would lose all the benefits it gets from having the cooperation of seed companies in promoting Monsanto’s product and controlling its distribution—is a reasonable commercial strategy.

In determining the amount of a reasonable royalty, it was proper for the jury to consider not only the benefits of the licensing program to Monsanto, but also the benefits that Monsanto’s technology conferred on farmers such as Mr. McFarling. Monsanto’s expert testified at length regarding the valuation of Monsanto’s damages. He began by estimating the value conferred on a farmer such as Mr. McFarling by the use of the Roundup Ready product. Because using conventional soybeans was the most logical alternative to either licensing or infringing, that value provided a reasonable basis for estimating the advantages conferred by the use of the patented technology.

Given that one 50-pound bag of seed is sufficient to plant about an acre of farmland, the savings of $31 to $61 per acre was equivalent to a savings of $31 to $61 per bag of seed. Based on those advantages alone, it was reasonable for the jury to suppose that, in a hypothetical negotiation, a purchaser would pay a royalty of $40 per bag for the Roundup Ready seed. The jury’s verdict was therefore justified even without considering some of the other more sharply controverted aspects of the expert’s valuation opinion, such as his use of a multiplier to account for the risks to Monsanto from infringement by farmers.

In reviewing damages awards in patent cases, we give broad deference to the conclusions reached by the finder of fact. As we explained recently in another “saved seed” case, a jury’s damages award “must be upheld unless the amount is grossly excessive or monstrous, clearly not supported by the evidence or based only on speculation or guesswork.” Monsanto Co. v. Ralph, 382 F.3d at 1383, quoting Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.3d 1555, 1560 (Fed. Cir. 1992). In this case, we hold that the jury’s verdict was supported by evidence and was not grossly excessive, particularly in light of the evidence of the savings Mr. McFarling achieved by his infringement, the benefits to Monsanto from requiring farmers to adhere to the terms of its standard licensing agreement, and the benefits conferred by the patented technology over the use of conventional seeds.