Monsanto Company v. Scruggs

United States Court of Appeals for the Federal Circuit

04-1532, 05-1120,-1121

MONSANTO COMPANY,

Plaintiff-Appellee,

v.

MITCHELL SCRUGGS, EDDIE SCRUGGS,
SCRUGGS FARM & SUPPLIES, LLC,
SCRUGGS FARM JOINT VENTURE, HES FARMS, INC.,
MES FARMS, INC., and MHS FARMS, INC.,

Defendants-Appellants.

Seth P. Waxman, Wilmer Cutler Pickering Hale and Dorr LLP, of Washington,
DC, argued for plaintiff-appellee. With him on the brief was Paul R.Q. Wolfson. Of
counsel on the brief was Joseph C. Orlet, Husch & Eppenberger, LLC, of St. Louis,
Missouri.

James L. Robertson, Wise, Carter, Child & Caraway, P.A., of Jackson,
Mississippi, argued for defendants-appellants. With him on the brief was Meredith B.
Aden.

James L. Jones, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., of
Jackson, Mississippi for amicus curiae Shea Leatherman d/b/a Riverfield Farms. With
him on the brief was Bradley S. Clanton.

Christopher P. Murphy, Arent Fox PLLC, of Washington, DC, for amicus curiae
The Biotechnology Industry Organization. With him on the brief was Amy E.L.
Schoenhard.

E. Anthony Figg, Rothwell Figg Ernst & Manbeck P.C., of Washington, DC, for
amicus curiae Delta and Pine Land Company. With him on the brief were Jeffrey L.
Ihnen and Barbara Webb Walker. Of counsel on the brief was Jerome C. Hafter,
Phelps Dunbar, of Jackson, Mississippi.

Gary Jay Kushner, Hogan & Hartson L.L.P., of Washington, DC, for amicus
curiae American Seed Trade Association. With him on the brief were Lorane F. Hebert
and Ryan D. Shadrick.
 Sondra Simpson McLemore, Special Assistant Attorney General for the State of
Mississippi, of Jackson, Mississippi, for amicus curiae State of Mississippi. With her on
the brief was Jim Hood, Attorney General.

Joseph Mendelson III, Center for Food Safety, of Washington, DC, for amicus
curiae Center for Food Safety.

Mark R. Patterson, Fordham University School of Law, of New York, New York,
for amicus curiae American Antitrust Institute.

Appealed from: United States District Court for the Northern District of Mississippi

Judge W. Allen Pepper, Jr.
 United States Court of Appeals for the Federal Circuit

04-1532, 05-1120,-1121

MONSANTO COMPANY,

Plaintiff-Appellee,

v.

MITCHELL SCRUGGS, EDDIE SCRUGGS,
SCRUGGS FARM & SUPPLIES, LLC,
SCRUGGS FARM JOINT VENTURE, HES FARMS, INC.,
MES FARMS, INC., and MHS FARMS, INC.,

Defendants-Appellants.

__________________________

DECIDED: August 16, 2006
__________________________

Before MAYER, BRYSON, and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge MAYER. Concurring in part and dissenting
in part opinion filed by Circuit Judge DYK.

MAYER, Circuit Judge.

Mitchell Scruggs; Eddie Scruggs; Scruggs Farm & Supplies, LLC; Scruggs Farm

Joint Venture; HES Farms, Inc.; MES Farms, Inc.; and MHS Farms, Inc. (collectively

“Scruggs”) appeal the judgment of the United States District Court for the Northern

District of Mississippi granting Monsanto Company’s (“Monsanto’s”) motions for

summary judgment of patent invalidity and infringement, Monsanto Co. v. Scruggs, 342

F. Supp. 2d 584 (N.D. Miss. 2004) (“Summary Judgment I”); antitrust violations and
patent misuse, Monsanto Co. v. Scruggs, 342 F. Supp. 2d 568 (N.D. Miss. 2004)

(“Summary Judgment II”); and common law counterclaims of, inter alia, tortious

interference, unfair competition, and invasion of privacy, Monsanto Co. v. Scruggs, 342

F. Supp. 2d 602 (N.D. Miss. 2004). Additionally, Scruggs appeals the trial court’s order

granting Monsanto a permanent injunction. Monsanto Co. v. Scruggs, No. 3:00CV161-

P-D (N.D. Miss. Nov. 4, 2004) (order granting permanent injunction). We affirm, vacate,

and remand.

Background

Monsanto owns U.S. Patent No. 5,352,605 (“the ’605 patent”), which is directed

toward insertion of a synthetic gene consisting of a 35S cauliflower mosaic virus

(“CaMV”) promoter, a protein sequence of interest, and a stop signal, into plant DNA to

create herbicide resistance. Monsanto also owns U.S. Patent Nos. 5,164,316;

5,196,525; and 5,322,938 (collectively “the McPherson patents”), which are directed

toward insect resistant traits. The McPherson patents expand upon the ’605 patent in

several ways, including disclosure of an enhanced CaMV 35S promoter.

Monsanto used the technology in the ’605 patent to develop glyphosate herbicide

resistant soybeans and cotton, sold as Roundup Ready (R) soybeans and cotton. One

of the glyphosate herbicides to which the Roundup Ready (R) plants are resistant is

Roundup, which is also sold by Monsanto. Monsanto used the ’605 patent in

combination with the McPherson patents to develop stacked trait cotton

(“Bollgard/Roundup Ready (R) cotton”), which is resistant to glyphosate herbicide and

certain insects.

04-1532, 05-1120,-1121 2
 Monsanto began licensing its biotechnology to seed companies (“seed sellers”);

it licensed Roundup Ready (R) technology starting in 1996 and Bollgard/Roundup

Ready (R) cotton technology starting in 1998. The licenses allow seed growers to

incorporate the Monsanto biotechnology into their germplasm to produce Roundup

Ready (R) and Bollgard/Roundup Ready (R) seeds. The licenses also impose certain

restrictions on seed sellers, including that seed companies may not sell seed containing

Monsanto’s technology to growers unless the grower signs one of Monsanto’s license

agreements; and that seed so sold may be used by growers to grow only a single

commercial crop. Monsanto’s restrictions on seed growers include: (1) requiring

growers to use only seed containing Monsanto’s biotechnology for planting a single crop

(“exclusivity provision”); (2) prohibiting transfer or re-use of seed containing the

biotechnology for replanting (“no replant policy”); (3) prohibiting research or

experimentation (“no research policy”); and (4) requiring payment of a “technology fee.”

Scruggs purchased both Roundup Ready (R) soybean seeds and

Bollgard/Roundup Ready (R) cotton seeds from seed companies, but never signed a

licensing agreement. It planted the purchased seeds, and after harvesting the

soybeans and cotton, retained the new generation of seeds. Its subsequent crops were

planted with those retained seeds, as well as with seeds obtained from subsequent

generations of crops.

Monsanto investigated Scruggs’ activities and filed suit for infringement of the

’605 and McPherson patents. The trial court issued a preliminary injunction, prohibiting

Scruggs from further sale and use of seeds containing Monsanto’s patented

biotechnology. Scruggs answered with federal and state antitrust claims and patent

04-1532, 05-1120,-1121 3
misuse affirmative defenses. Specifically, it asserted that Monsanto violated the

Sherman Act, 15 U.S.C. §§ 1-2, by tying the purchase of seed to the purchase of

Roundup through grower license agreements, grower incentive agreements, and seed

partner license agreements, as well as by tying the Roundup and Bollgard traits in

cotton seeds. It also asserted Monsanto violated section 2 of the Sherman Act by

unlawfully monopolizing or attempting to monopolize a relevant market. Additionally,

Scruggs asserted common law counterclaims of invasion of privacy, trespass, tortious

interference with contract and/or business relations, abuse of process, conversion,

nuisance, strict liability in tort, negligence, and unfair competition.

Scruggs denied infringement and sought a declaration of invalidity of the ’605

and McPherson patents. Monsanto moved for summary judgment on infringement, the

antitrust and patent misuse defenses, and the common law counterclaims. Scruggs

moved to vacate the preliminary injunction, and cross-moved for summary judgment.

Monsanto’s motions for summary judgment were granted, and Scruggs’ motion to

vacate the preliminary injunction was denied. The trial court then issued a permanent

injunction and a final judgment. Proceedings on damages were stayed pending this

appeal. We have jurisdiction pursuant to 28 U.S.C. § 1295(a).

Discussion

We review the trial court’s grant of summary judgment de novo. See Caterpillar

Inc. v. Sturman Indus., 387 F.3d 1358, 1373 (Fed. Cir. 2004). Summary judgment is

appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on

file, together with affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of law.”

04-1532, 05-1120,-1121 4
Fed. R. Civ. P. 56(c). “With regard to ‘materiality,’ only those disputes over facts that

might affect the outcome of the lawsuit under the governing substantive law will

preclude summary judgment.” Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 272 (5th

Cir. 1987).

I. Infringement

Infringement occurs when a properly construed claim reads on the accused

product. Atlas Powder Co. v. E.I. du Pont & Co., 750 F.2d 1569, 1579 (Fed. Cir. 1984).

In this case, Monsanto must show that its Roundup Ready (R) and Bollgard/Roundup

Ready (R) seeds are covered by the ’605 and/or McPherson patents and that Scruggs

used those seeds in a way that violated Monsanto’s patent rights. Affirmative defenses

to infringement include noninfringement, unenforceability, invalidity (e.g., failing to

satisfy the written description or enablement requirements), 35 see U.S.C. § 282, patent

misuse, see Senza-Gel Corp. v. Seiffhart, 803 F.2d 661 (Fed. Cir. 1986), and the

existence of an implied license, see Carborundum Co. v. Molten Metal Equip.

Innovations, 72 F.3d 872, 878 (Fed. Cir. 1995).

In granting Monsanto’s motion for summary judgment of infringement, the trial

court relied on Scruggs’ admissions with respect to: (1) its purchasing of the Roundup

Ready (R) soybeans and Bollgard/Roundup Ready (R) cotton; (2) its failing to obtain a

license from Monsanto; and (3) its saving of soybean and cotton seed for future

planting. Summary Judgment I 342 F. Supp. at 593-94. Additionally, the court pointed

to Monsanto’s scientific tests showing that Scruggs’ soybean and cotton crops

contained Monsanto’s patented technology. Id. at 594.

04-1532, 05-1120,-1121 5
 Scruggs argued that: (1) neither Monsanto’s biotechnology (Roundup Ready (R)

soybeans and Bollgard/Roundup Ready (R) cotton) nor the plants in Scruggs’ fields

were covered by the patents-in-suit; (2) the promoter sequences in Monsanto’s

biotechnology did not match the sequences claimed in the ’605 patent; and (3)

Monsanto’s test results should be disregarded for not complying with accepted scientific

standards. The trial court rejected those arguments. Scruggs’ affirmative defenses to

infringement included: (1) lack of proper notice of the patents-in-suit; (2) the existence of

an implied license to use the Monsanto technology; (3) the doctrine of patent

exhaustion; (4) violation of the Plant Variety Protection Act; (5) patent misuse; and (6)

patent invalidity.

With respect to the implied license affirmative defense, the trial court found that

Scruggs had “no reasonable expectation that they could use Monsanto’s patented

biotechnology unless they first obtained a license” and, therefore, had no implied

license. Id. at 598. Next, the court found the patent exhaustion defense inapplicable

because Monsanto never made an unrestricted sale of its biotechnology. Id. at 598-99.

Finally, it rejected Scruggs’ remaining affirmative defenses.

On appeal, Scruggs again argues that the patent claims do not read on its plants,

that Monsanto’s test results showing that Scruggs’ soybean and cotton crops contained

Monsanto’s Roundup Ready (R) and Bollgard technology should be disregarded, that

the patent exhaustion doctrine applies, and that Scruggs had an implied license.

With respect to the argument that the claims in the ’605 patent do not read on the

Roundup Ready (R) seeds, Scruggs specifically argues that the CaMV 35S promoter

sequence in Roundup Ready (R) soybeans is different from and shorter than the

04-1532, 05-1120,-1121 6
promoter from the CM4-184 strain of the CaMV noted in the ’605 patent; therefore, the

’605 patent does not cover the Roundup Ready (R) biotechnology. However, the

specification in the ’605 patent states that different strains of CaMV may be used in the

invention. The fact that the promoter in the Roundup Ready (R) soybeans differs from

the CM4-184 CaMV strain mentioned in the ’605 patent specification by a few dozen

nucleotides is, therefore, not disparities. Moreover, Scruggs does not appeal the trial

court’s claim construction of the ’605 patent as covering “a promoter element [] selected

from the group consisting of either a 35S cauliflower mosaic virus promoter or a 19S

cauliflower mosaic promoter . . .” Id. at 591. Thus, the court’s finding that the ’605

patent employs the promoter from CaMV generally, and not just that in the CM4-184

strain, must stand. In addition, the promoter used in Roundup Ready (R) seeds

matches published sequence information about the CaMV 35S promoter, which is

incorporated by reference into the ’605 patent, and therefore is covered by the patent.

Finally, Scruggs’ argument that the promoter in Roundup Ready (R) seeds is shorter

than the promoter covered by the ’605 patent fails because the deletions in the

Roundup Ready (R) DNA are in the enhancer region of the DNA inserted into the cotton

and soybean DNA, not in the promoter region. Accordingly, the Roundup Ready (R)

seeds are covered by the ’605 patent.

Scruggs also argues on appeal that Monsanto’s test results showing that

Scruggs’ soybean and cotton crops contained Roundup Ready (R) and Bollgard

technology should be disregarded for failing to use a negative control. However, it fails

to point to any evidence contradicting Monsanto’s results, which establish that its crops

contain Monsanto’s patented biotechnology. It merely presents hypothetical situations

04-1532, 05-1120,-1121 7
to suggest that Monsanto’s test results could be flawed. Given the evidence in the

record, hypotheses alone are insufficient to create a genuine issue of material fact.

In its brief, Scruggs attempts to incorporate by reference a portion of the

supporting memorandum for summary judgment it submitted to the trial court. Those

arguments also pertain to “deficiencies” in the testing done by Monsanto. However,

argument by incorporation, such as by referring to a summary judgment memoranda for

legal analysis, is a violation of Fed R. App. P. 28(a)(6). See Graphic Controls Corp. v.

Utah Med. Prods., Inc., 149 F.3d 1382, 1385 (Fed. Cir. 1998). Therefore, those

arguments are deemed waived. But even a casual perusal shows they would fail for the

same reasons they failed below: Scruggs’ failure to point to evidence raising a genuine

issue of material fact.

Scruggs argues that it purchased the Monsanto seeds in an unrestricted sale,

and that it was therefore entitled to use those seeds in an unencumbered fashion under

the doctrine of patent exhaustion. The first sale/patent exhaustion doctrine establishes

that the unrestricted first sale by a patentee of his patented article exhausts his patent

rights in the article. See Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 701 (Fed.

Cir. 1992); see also LG Elecs., Inc. v. Bizcom Elecs., Inc., 2006 U.S. App. Lexis 16916,

at *7-*8 (Fed. Cir. July 7, 2006). The doctrine of patent exhaustion is inapplicable in this

case. There was no unrestricted sale because the use of the seeds by seed growers

was conditioned on obtaining a license from Monsanto. Furthermore, the “‘first sale’

doctrine of exhaustion of the patent right is not implicated, as the new seeds grown from

the original batch had never been sold.” See Monsanto v. McFarling, 302 F.3d 1291,

1299 (Fed. Cir. 2002). Without the actual sale of the second generation seed to

04-1532, 05-1120,-1121 8
Scruggs, there can be no patent exhaustion. The fact that a patented technology can

replicate itself does not give a purchaser the right to use replicated copies of the

technology. Applying the first sale doctrine to subsequent generations of self-replicating

technology would eviscerate the rights of the patent holder.

Scruggs also argues that it had an implied license to use Monsanto’s technology.

In order to establish an implied license, the “circumstances of the sale must ‘plainly

indicate that the grant of a license should be inferred.’” Met Coil Sys. Corp. v. Korners

Unlimited, Inc., 803 F.2d 684, 686 (Fed. Cir. 1986) (citations omitted); see also LG

Elecs., Inc., 2006 U.S. App. Lexis 16916, at *6-*7. It is undisputed that Monsanto

requires all licensees to place a notice on all bags of Roundup Ready (R) seeds stating

that the seeds are covered by U.S. Patents, that the purchase of the seeds conveys no

license, and that a license from Monsanto must be obtained before using the seeds.

Therefore, the circumstances of the sale indicate that Scruggs had no implied license to

use Monsanto’s patented biotechnology. Furthermore, because the seed distributors

had no authority to confer a right to use Monsanto’s biotechnology, they could not

confer any sort of license to use the seeds. See Aro Mfg. Co. v. Convertible Top

Replacement Co., 377 U.S. 476 (1964) (a seller cannot confer broader rights via an

implied license than it has been granted by the patent holder).

II. Validity

To satisfy the written description requirement of 35 U.S.C. § 112 for inventions

pertaining to DNA, a patent must provide “sufficiently detailed, relevant identifying

characteristics . . . i.e., complete or partial structure, other physical and/or chemical

properties, functional characteristics when coupled with a known or disclosed

04-1532, 05-1120,-1121 9
correlation between function and structure, or some combination of such

characteristics.” Enzo Biochem Inc., v. Gen-Probe Inc., 323 F.3d 956, 964 (Fed. Cir.

2002) (citation omitted). However, neither a specific DNA sequence nor a biological

deposit is required to meet a written description requirement if the biological material is

known and readily available to the public. Id. at 965. “[R]eference in the specification to

a deposit in a public depository, which makes its contents accessible . . . constitutes an

adequate [written] description . . .” Id. The written description requirement helps to

ensure that the patent applicant actually invented the claimed subject matter and was in

possession of the patented invention at the time of filing. Univ. of Rochester v. G.D.

Searle & Co., 358 F.3d 916, 926 (Fed. Cir. 2004), rehearing denied 375 F.3d 803, cert

denied 543 U.S. 1015 (2004). Because a patent carries a statutory presumption of

validity, 35 U.S.C. § 282, Scruggs has the burden of showing by clear and convincing

evidence, after all reasonable inferences are drawn in its favor, that the ’605 and

McPherson patents are invalid, see WMS Gaming, Inc. v. Int’l Game Tech., 184 F.3d

1339, 1355 (Fed. Cir. 1999).

Scruggs argued patent invalidity to the trial court as a defense to infringement

and asserted that the patents-in-suit fail the written description requirement for not

disclosing specific gene sequences in the text of the patents. The court found,

however, that there was no need for specific gene sequences to be disclosed because

the patents do not cover one particular gene sequence and because the patent

specifications “clearly describe promoters already known to those skilled in the art.”

Summary Judgment I, 342 F. Supp. 2d at 601. The trial court also concluded that

04-1532, 05-1120,-1121 10
Scruggs failed to meet its burden of proof by presenting insufficient evidence from which

a reasonable fact finder could find lack of enablement.

Scruggs again asserts on appeal that the ’605 and McPherson patents are

invalid for failing to satisfy the written description requirement. With respect to the ’605

patent, it says that Monsanto should have been required to include a specific DNA

sequence for the promoter or that, at a minimum, Monsanto should have offered a

reason why it did not include specific promoter sequences in the ’605 patent. These

arguments are unsupported in law. At the time of the ’605 patent application, those of

ordinary skill in the art knew the DNA sequences of several strains of the CaMV virus,

the location of the CaMV promoters, and the DNA sequences for several CaMV 35S

promoters. Given the knowledge in the art, it was unnecessary for the ’605 patent to

include specific gene sequences when referring to the CaMV 35S promoter to meet the

written description requirement. Nor is there a requirement that a patent holder justify

its decision to omit specific sequence information from a patent. The written description

requirement was satisfied because the ’605 patent incorporates by reference deposits

with the American Type Culture Center, which are publicly available. ’605 patent col.5

ll.40-44.

With respect to the McPherson patents, Scruggs argues that they fail the written

description requirement for the same reasons as it argues the ’605 patent is invalid.

Those arguments do not surmount Scruggs’ burden of proof for the same reason its

arguments with respect to the ’605 patent fail. Scruggs also argues that the McPherson

patents are invalid because they do not specifically identify enhancer sequences in the

DNA and that the McPherson patents are “suspect” because the specifications are

04-1532, 05-1120,-1121 11
similar but the claims are different. Scruggs points to no evidence sufficient to meet its

burden of proof with respect to invalidity. It states that it is unreasonable to claim a

range of DNA sequences in the McPherson patents and seems to suggest that such a

range should necessarily make them invalid for lack of a written description. No law

supports this assertion. Scruggs fails to point to any evidence showing that McPherson

did not possess the invention at the time of filing. See Vas-Cath Inc. v. Mahurkar, 935

F.2d 1555, 1561 (Fed. Cir. 1991). Furthermore, the argument that the McPherson

patents are “suspect” for containing similar specifications is unsupported by

requirements for written description. The patents are continuations or divisionals of a

common parent application and therefore necessarily have almost identical

specifications. Nothing about a continuation or divisional patent makes it inherently

more likely to fail the written description requirement or changes the burden of proof

with respect to proving invalidity.

Scruggs also asserts on appeal that the ’605 patent is invalid for not satisfying

the enablement requirement. Under 35 U.S.C. § 112, a patent must “enable any person

skilled in the art . . . to make and use the [invention]” without undue experimentation.

Chiron Corp. v. Genentech, Inc., 363 F.3d 1247, 1253 (Fed. Cir. 2004). It first argues

that the ’605 patent is not enabling because no particular gene sequence is claimed and

because only one example of the entire genus of CaMV promoters is described in the

specification. First, as discussed above, more than one example of CaMV is described;

the patent, for instance, refers to biological deposits of the CaMV strains that can be

obtained to make the invention. Moreover, because of the level of skill in the art and the

publicly available information about CaMV, no specific gene sequence needed to be

04-1532, 05-1120,-1121 12
claimed for someone of ordinary skill in the art to understand how to make and use the

invention. Scruggs also seems to argue that, at a minimum, one must disclose in the

specification the exact DNA sequence of most species of the claimed genus. It is true

that in some cases specific DNA sequences may be required to satisfy the enablement

requirement, namely where the level of skill in the art is low and there is little publicly

available information about that DNA. Here, however, specific sequences are not

required because CaMV is well-known and well-documented. Scruggs presented

insufficient evidence to demonstrate that others would have been unable to practice the

claimed invention without undue experimentation. The fact that some experimentation

may be necessary to produce the invention does not render the ’605 patent invalid for

lack of enablement. Id. Because Scruggs has failed to meet its burden of proof, it has

not shown the ’605 patent invalid for lack of enablement.

III. Antitrust/Patent Misuse

Antitrust laws may be violated if a patent holder’s conduct falls outside the

protection afforded by the patent laws. United States v. Line Material Co., 333 U.S.

287, 308 (1948). Under the patent laws, a patentee has the right to exclude others from

making, using, or selling a patented invention. 35 U.S.C. § 154(a)(1). Conduct falling

within the scope of protection includes, inter alia, limited use licensing, see Mallinckrodt,

Inc. v. Medipart, Inc., 976 F.2d 700, 703 (Fed. Cir. 1992), and charging of royalties,

Brulotte v. Thys Co., 379 U.S. 29 (1964). Field of use licensing restrictions, i.e.,

permitting the use of inventions in one field and excluding it in others, are also within the

scope of the patent grant. See Gen. Talking Picture Corp. v. W. Elec. Co., 305 U.S.

124, 127 (U.S. 1938).

04-1532, 05-1120,-1121 13
 Under section 1 of the Sherman Act, “[e]very contract, combination in the form of

trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is [] declared to

be illegal.” Tying arrangements fall under section 1 of the Sherman Act. “A tying

arrangement is the sale or lease of one product on the condition that the buyer or

lessee purchase a second product.” Breaux Bros. Farms, Inc. v. Teche Sugar Co., Inc.,

21 F.3d 83, 85 (5th Cir. 1994). To prove that a tying arrangement exists, the plaintiff

must show: (1) the involvement of two separate products or services; (2) the sale of one

product or service is conditioned on the purchase of another; (3) the seller has market

power in the tying product; and (4) the amount of interstate commerce in the tied

product is not insubstantial. Eastman Kodak Co. v. Image Tech. Serv., Inc., 504 U.S.

451, 461-62 (1992).

Under section 2 of the Sherman Act, unlawful monopolization is prohibited. To

establish a section 2 violation, one must prove that the party charged had monopoly

power in a relevant market and acquired or maintained that power by anti-competitive

practices instead of by competition on the merits. Aspen Skiing Co. v. Aspen Highlands

Skiing Corp., 472 U.S. 585, 596 (1985).

Patent misuse may be found even where there is no antitrust violation, because

“[p]atent misuse is . . . a broader wrong than [an] antitrust violation.” C.R. Bard, Inc. v.

M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998). The “policy of the patent misuse

doctrine is ‘to prevent a patentee from using the patent to obtain market benefit beyond

that which inures in the statutory patent right.’” Monsanto Co. v. McFarling, 363 F.3d

1336, 1341 (Fed. Cir. 2004) (quoting Mallinckrodt, 976 F.2d at 704 (“Monsanto II”). In

order for competitive behavior to amount to patent misuse, one must “impermissibly

04-1532, 05-1120,-1121 14
broaden[] the scope of the patent grant with anticompetitive effect.” Id. Thus, “[i]n the

cases in which the restriction is reasonably within the patent grant, the patent misuse

defense can never succeed.” Id. Moreover, “[n]o patent owner otherwise entitled to

relief . . . shall be denied relief or deemed guilty of misuse or illegal extension of the

patent right by reason of his having . . . refused to license or use any rights to the patent

. . . .” 35 U.S.C. § 271(d).

At trial, Scruggs asserted that Monsanto’s commercial practices violate federal

and state antitrust laws, and constitute patent misuse. The specific practices it attacked

were Monsanto’s seed grower incentive programs, its seed partner license agreements,

its grower license agreements, and its alleged refusal to sell Roundup Ready (R) cotton

seeds without the Bollgard trait. Monsanto’s grower license agreements include an

exclusivity provision, a no replant policy, a no research policy, and the payment of a

technology fee. Additionally, its grower license agreements between 1996 and 1998

stated that if a grower chose to use glyphosate herbicide in connection with Roundup

Ready (R) seeds, then the grower must use Roundup (“1996 Roundup restriction”). At

that time, Roundup was the only glyphosate herbicide approved by the Environmental

Protection Agency for use with Roundup Ready (R) seeds. Monsanto’s grower

incentive agreements give participating seed growers additional voluntary benefits if

they choose to use Roundup herbicide exclusively on crops containing Monsanto’s

Roundup technology. Monsanto’s seed partner agreements require seed growers who

choose to use a glyphosate herbicide to use Roundup.

The trial court stated that Monsanto’s no replant policy was not subject to

challenge under the antitrust laws because the identical policy had been found valid and

04-1532, 05-1120,-1121 15
within its rights under the patent laws in Monsanto Co. v. McFarling, 363 F.3d 1336,

1343 (Fed. Cir. 2004). The court also found that the technology fees imposed by

Monsanto were within the scope of its patent rights. Finally, the court found that the no

research policy and Monsanto’s refusal to allow seed partners to stack the Roundup

Ready (R) trait with transgenic traits developed by competitors to be “field of use

restrictions which fall within the scope of the patent monopoly [that] are, therefore,

lawful.” Summary Judgment II, 342 F. Supp.2d at 575.

The trial court specifically addressed Scruggs’ antitrust claims under section 1 of

the Sherman Act, applying both per se and rule of reason analyses. In its per se

analysis, the court found that the 1996 Roundup restriction did not constitute per se

illegal tying; Roundup was the only EPA-approved product for use over the top of the

Roundup seeds from 1996 to 1998, and only the licenses taken out during those years

had the Roundup herbicide restriction. The court also found Monsanto’s grower

incentive agreements to be legal restraints because they simply give growers an

incentive to choose Roundup herbicide and do not coerce them into purchasing it.

Next, the court found that Scruggs failed to demonstrate that Monsanto forced seed

partners to buy Roundup in order to obtain a license. The court stated that if the seed

partner agreements did amount to a tie, per se treatment was not appropriate. Finally, it

found that Scruggs failed to prove Monsanto illegally tied the Roundup Ready (R) trait to

the Bollgard trait in cotton. The court stated that the record did not support the claim

that Monsanto “engineered a shortage of single trait cotton seed which ‘forced’ growers

to buy stacked trait seed . . . .” Id. at 579.

04-1532, 05-1120,-1121 16
 Under its rule of reason analysis, the trial court also found the evidence Scruggs

presented with respect to the tying claims insufficient. Scruggs argued that Monsanto’s

binding of dealers in downstream markets to the same restrictions it imposes on its

seed partners (in a “third party clause”) was a violation of section 1 of the Sherman Act,

as were the grower incentive agreements. The court found that the third party clause

was a valid restriction because limited use licenses are valid, and the third party clause

simply amounted to a limited use. Additionally, the court held that the grower incentive

agreements were valid; the provisions were merely financial incentives and “d[id] not

foreclose competition in a substantial share of the relevant product market(s).” Id. at

581.

The trial court also found that: (1) Scruggs’ evidence was insufficient with respect

to proving a violation of section 2 of the Sherman Act for unlawful monopolization or

attempted monopolization; (2) because there was no federal antitrust violation, the

alleged state antitrust violations could also be dismissed on summary judgment; and (3)

patent misuse was inapplicable because Monsanto did not use its patents to

impermissibly broaden the scope of its patent grant.

On appeal, Scruggs reasserts that the exclusivity provision, no replant policy,

and technology fee payments required by Monsanto’s licensing agreements with seed

growers are illegal anticompetitive practices. Monsanto has a right to exclude others

from making, using, or selling its patented plant technology, see Brulotte, 379 U.S. at

29-30, and its no replant policy simply prevents purchasers of the seeds from using the

patented biotechnology when that biotechnology makes a copy of itself. This restriction

therefore is a valid exercise of its rights under the patent laws. Furthermore,

04-1532, 05-1120,-1121 17
Monsanto’s uniform technology fee is essentially a royalty fee, the charging of which is

also within the scope of the patent grant. Lastly, the no research policy is a field of use

restriction and is also within the protection of the patent laws.

Scruggs also argues on appeal that Monsanto ties the purchase of its seed to the

purchase of Roundup through grower license restrictions, grower incentive agreements,

and seed partner agreements. It asserts that Monsanto unlawfully ties the Roundup

Ready trait to the Bollgard trait in cotton seeds. It does not point to sufficient evidence

to establish that Monsanto’s behavior constitutes illegal tying. The grower incentive

program was optional, not coerced. Additionally, Monsanto’s seed partners were not

forced to buy Roundup under the seed partner agreements. Furthermore, there is no

merit to the argument that Monsanto illegally tied the sale of cotton containing the

Roundup Ready (R) gene to the sale containing the Bollard trait; Monsanto sells cotton

without the Bollgard trait and there is no evidence that Monsanto engineered a shortage

of Roundup Ready (R) cotton.

Lastly, Scruggs asserts that the trial court’s decision should be sent back for a

separate patent misuse analysis, because the burden of proving patent misuse is lower.

However, patent misuse covers only activity falling outside of the patent grant, and

Scruggs did not point to any activity falling outside Monsanto’s patent.

The dissent argues that Federal Trade Commission v. Indiana Federation of

Dentists, 476 U.S. 447 (1986), and Fashion Originators’ Guild of America, Inc. v.

Federal Trade Commission, 312 U.S. 457 (1941), compel a finding of patent misuse;

they do not. In those cases, the antitrust defendants argued that their anticompetitive

conduct should be excused on the ground that it provided benefits and furthered a

04-1532, 05-1120,-1121 18
public policy unrelated to competition. The Supreme Court rejected those arguments,

holding that collusive agreements between competitors do not become lawful simply

because they may have some other beneficial effects. In this case, Monsanto does not

argue that it should escape a finding of patent misuse because its contract provisions

protected the public or furthered EPA policy; rather, Monsanto’s argument is that its

contract provisions lacked any anticompetitive effect because EPA’s regulations

prohibited growers from using competing glyphosate herbicides for over-the-top

application. Therefore, even if growers elected to use such herbicides for over-the-top

application, they would not be legally free to use competing brands. As the trial court

noted, the record supports Monsanto’s argument; Scruggs has not pointed to any

evidence to the contrary. The record shows that Monsanto’s competitors sought and

obtained regulatory approval and that when they did, Monsanto modified its contracts

accordingly. In this unusual setting, the rule of reason applies to the defense of patent

misuse based on the alleged tying arrangement, and under the rule of reason, Scruggs

is required to show that the challenged contracts had an actual adverse effect on

competition. See U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1185 (Fed.

Cir. 2005). Scruggs did not do so and therefore cannot use the challenged contract

provisions as a defense against Monsanto’s patent infringement claims. Therefore,

Monsanto’s behavior did not constitute patent misuse.

IV. Common Law Counterclaims

Scruggs attempts to appeal the trial court’s findings with respect to tortious

interference, unfair competition, and invasion of privacy. In order for this court to reach

the merits of an issue on appeal, it must be adequately developed. See Graphic

04-1532, 05-1120,-1121 19
Controls, 149 F.3d at 1385; United States v. Elder, 90 F.3d 1110, 1118 (6th Cir. 1996).

Argument by incorporation, such as by referring to a summary judgment memoranda for

legal analysis in an appellate brief, is a violation of Fed R. App. P. 28(a). Rothe Dev.

Corp. v. Dep’t of Def., 413 F.3d 1327, 1339 (Fed. Cir. 2005). Moreover, merely stating

disagreement with the trial court does not amount to a developed argument. See, e.g.,

Anderson v. City of Boston, 375 F.3d 71, 91 (1st Cir. 2004). Here, Scruggs failed to

develop its arguments and attempted to make arguments by incorporation in its brief.

These arguments are therefore deemed waived.

V. Permanent Injunction

eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006), requires courts to

consider the standard four part test for permanent injunctions in patent cases and

reverses this court’s traditional rule that “courts will issue permanent injunctions against

patent infringement absent exceptional circumstances[,]” MercExchange, L.L.C. v eBay

Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005). Therefore, we vacate the trial court’s

decision with respect to the permanent injunction and remand for reconsideration in light

of the Supreme Court’s eBay case.

Conclusion

Accordingly, the judgment of the United States District Court for the Northern

District of Mississippi is affirmed. The order granting a permanent injunction is vacated

and the case is remanded.

COSTS

Monsanto shall have its costs.

AFFIRMED, VACATED, AND REMANDED

04-1532, 05-1120,-1121 20
 United States Court of Appeals for the Federal Circuit

04-1532, 05-1120, -1121

MONSANTO COMPANY,

Plaintiff-Appellee,

v.

MITCHELL SCRUGGS, EDDIE SCRUGGS,
SCRUGGS FARM & SUPPLIES, LLC,
SCRUGGS FARM JOINT VENTURE, HES FARMS, INC.,
MES FARMS, INC., and MHS FARMS, INC.,

Defendants-Appellants.

DYK, Circuit Judge, concurring in part and dissenting in part.

I join the majority opinion except for Part III, from which I respectfully dissent.

Scruggs argues that Monsanto’s grower license agreements between 1996 and 1998

unlawfully tied the purchase of Roundup herbicide to the purchase of Roundup ready

seeds, and that this constituted patent misuse, rendering the patent unenforceable. The

district court rejected this argument. In Part III, the majority also rejects this contention,

on the ground that the agreements, in essence, merely enforced then-existing EPA

regulations. See Ante at 14-15. With respect, I think that the district court’s decision in

this respect, approved by the majority, is contrary to Supreme Court precedent.

I

As a condition on the purchase of Roundup Ready seeds between 1996 and

1998, Monsanto required that growers execute a licensing agreement containing the

following (or similar) language. “You [the grower] agree: . . . [i]f a herbicide containing
the same active ingredient as Roundup UltraTM herbicide [glyphosate] (or one with a

similar mode of action) is used over the top of Roundup Ready crops, you agree to use

only Roundup® branded herbicide.” J.A. at 309. Scruggs claims that this provision

unlawfully tied the sale of Roundup brand glyphosate herbicides to the sale of Roundup

Ready seeds.1

The district court held, and Monsanto agrees, that the provision was justified by

the fact that Roundup was the only glyphosate herbicide approved by the EPA at that

time for use “over the top” of crops. The district court concluded that “[b]ecause

Roundup was the only product labeled for use ‘over-the-top’ of Roundup Ready crops

between 1996 and 1998, it was the only EPA-approved herbicide that could be used on

Roundup Ready crops during that period[,]” and thus that the “defendants . . . failed to

meet their burden of producing significant probative evidence that Monsanto forced

farmers who wanted to purchase Roundup Ready seeds to purchase Roundup as well.”

Monsanto Co. v. Scruggs, 342 F. Supp. 2d 568, 577 (N.D. Miss. 2004). The majority

agrees. Ante at 15-16. I read the Supreme Court cases as to the contrary.

The Supreme Court has unequivocally held: “That a particular practice may be

unlawful is not, in itself, a sufficient justification for collusion among competitors to

prevent it.” Fed. Trade Comm’n v. Ind. Fed’n of Dentists, 476 U.S. 447, 465 (1986).2

1
The majority agrees that the patent misuse defense does not require a
showing of antitrust standing. Ante at 14; see also 6 Chisum on Patents § 19.04[5], at
19-541 (“[I]t has been clear at least since Morton Salt that the individual defendant
raising a [patent] misuse defense need not show that he was personally harmed by the
abusive practice.”); 6 Chisum on Patents § 19.04[5] nn.3-4 (collecting cases). Thus, the
fact that Scruggs did not execute a grower licensing agreement containing the Roundup
restriction is of no moment.
2
See Fashion Originators’ Guild of Am., Inc. v. Fed. Trade Comm’n, 312
U.S. 457, 468 (1941) (“[E]ven if copying [of the Guild members’ designs] were an

04-1532,05-1120,-1121 2
While the Supreme Court has not directly addressed this issue in the context of tying

arrangements, I see no basis for applying a different rule or for justifying otherwise per

se unlawful tying arrangements as designed to prevent illegal conduct. Monsanto urges

that these cases are distinguishable because the competitors there sought to enforce

state law, whereas here the tying arrangement is designed to enforce federal law. I see

no basis for such a distinction. This is not a case in which federal law pervasively

regulates, compels, or permits the allegedly anticompetitive conduct, which might create

an implied antitrust immunity. See Billing v. Credit Suisse First Bos. Ltd., 426 F.3d 131,

164-65 (2d Cir. 2005).

II

Monsanto argues, however, that its licensing restrictions had no anticompetitive

effect because the EPA regulations eliminated the possibility of competition in the

market for glyphosate herbicides, the allegedly tied product. We faced a related

contention in U.S. Philips Corp. v. International Trade Commission, 424 F.3d 1179 (Fed.

Cir. 2005), where Philips’ package patent licensing arrangements were challenged as

impermissible ties. We held that the agreements were not per se unlawful, because

there was no evidence of “commercially feasible” alternatives to the technology enabled

by the allegedly tied patents in the relevant market. Thus “packaging those patents

acknowledged tort under the law of every state, that situation would not justify
petitioners in combining together to regulate and restrain interstate commerce in
violation of federal law.”); see also Giboney v. Empire Storage & Ice Co., 336 U.S. 490,
496 (“[W]e have declared that violations of antitrust laws could not be defended on the
ground that a particular accused combination would not injure but would actually help
manufacturers, laborers, retailers, consumers, or the public in general.”); Int’l Harvester
Co. v. Missouri, 234 U.S. 199, 209 (1914) (“It is too late in the day to assert against
statutes which forbid combinations of competing companies that a particular
combination was induced by good intentions.”).

04-1532,05-1120,-1121 3
together with so-called essential patents can have no anticompetitive effect in the

marketplace, because no competition for a viable alternative product is foreclosed.” Id.

at 1194.3

This case is distinguishable. This is not a situation in which there were no

commercially feasible alternatives. There was evidence that manufacturers produced

products that could have been used “over the top,” and that all that was lacking was

regulatory approval. In other words, Monsanto’s tying arrangements here did no more

than enforce a regulatory requirement. Substantial competitive risks inhere in such an

arrangement. Potential competitors are potentially discouraged from seeking regulatory

approval or attempting to have the regulation modified or eliminated. To the extent that

such efforts are discouraged, the proponent of the tie has succeeded in eliminating

competition.

Moreover, in this connection it is highly significant that Monsanto’s grower license

agreements did not simply require the use of a government-approved herbicide; they

explicitly required the use of “Roundup branded herbicide.” A potential herbicide

competitor thus would be concerned that, even if it secured government approval of its

product, use of the approved herbicide would still be barred under the contracts. The

elimination of such potential competition is not permissible under the antitrust laws.

III

The district court did not make a finding as to Monsanto’s market power in the

alleged tying product. Ill. Tool Works, Inc. v. Indep. Ink, Inc., --- U.S. ---, 126 S. Ct.

1281, 1293 (2006); see Monsanto Co., 342 F. Supp. 2d at 575-80. I would vacate the

3
Even then the court held that the arrangements might violate the antitrust
laws under a rule of reason analysis. Id. at 1197.

04-1532,05-1120,-1121 4
judgment as to the alleged tie in the 1996-1998 grower agreements, and remand for the

district court to determine whether the relevant contract provision in fact constituted

patent misuse and, if misuse occurred, whether it was purged. See Senza-Gel Corp. v.

Seiffhart, 803 F.2d 661, 668 n.10 (Fed. Cir. 1986).

04-1532,05-1120,-1121 5