Monsanto Company v. Homan McFarling

302 F.3d 1291, 2002 WL 1941526

• Court: Court of Appeals for the Federal Circuit
• Decided: October 16, 2002
• Docket: 01-1390
• Status: Published

Opinions

Opinion for the court filed by Circuit Judge PAULINE NEWMAN. Dissenting opinion filed by Circuit Judge CLEVENGER.

PAULINE NEWMAN, Circuit Judge.

Mr. Homan McFarling appeals the grant of a preliminary injunction by the United States District Court for the Eastern District of Missouri,¹ prohibiting Mr. McFarling, pendente lite, from using the plant genes and seed obtained from crops grown from Monsanto Company’s patented soybean seed having the brand name Roundup Ready. We conclude that the district court acted within its discretion in granting the preliminary injunction.

BACKGROUND

Monsanto developed genetically modified plants that are resistant to glyphosate herbicides such as Roundup® brand herbicide. The herbicide can then be sprayed broadly in planted fields, killing the weeds but not harming the resistant crops. This results in substantial savings in labor costs for weed control. Monsanto’s United States Patents Nos. 5,633,435 and 5,352,-605 claim the glyphosate-tolerant plants, the genetically modified seeds for such plants, the specific modified genes, and the method of producing the genetically modified plants.

Monsanto authorizes various companies to manufacture the patented seeds, which are then sold to farmers. Monsanto requires that sellers of the patented seeds obtain from the farmers/purchasers a “Technology Agreement,” and the farmers pay a license fee to Monsanto of $6.50 per 50-pound bag of soybean seed. Mr. McFarling, a farmer in Mississippi, purchased Roundup Ready® soybean seed in 1997 and again in 1998; he signed the Technology Agreement and paid the license fee for each purchase. The signature line is immediately below the following statement: “I acknowledge that I have read and understand the terms and conditions of this Agreement and that I agree to them.”

The agreements include the requirement that the seeds are to be used “for planting a commercial crop only in a single season” and direct the licensee not to “save any crop produced from this seed for replanting, or supply saved seeds to anyone for replanting.” Mr. McFarling does not dispute that he violated the terms of the Technology Agreement. He saved 1,500 bushels of the patented soybeans from his harvest during one season, and instead of selling these soybeans as crop he planted them as seed in the next season. He repeated this activity in the following growing season, and stated that unless enjoined he intended to plant soybeans saved from the 2000 harvest in 2001. McFarling paid no license fee for this saved soybean seed, which retained the genetic modifications of the Roundup Ready® seed.

Monsanto filed suit in the Eastern District of Missouri, charging patent infringement and breach of contract, and seeking a preliminary injunction. Mr. McFarling challenged the Missouri court’s jurisdiction, and raised various counterclaims and defenses including charges of antitrust violation, patent misuse, and violation of the Plant Variety Protection Act, 7 U.S.C. § 2321 et seq. (PVPA). The district court interpreted the argument concerning violation of the PVPA as a request for declaration that the patents are invalid or unenforceable, granted McFarling’s motion to stay the proceeding pending review by the Supreme Court of this court’s ruling that plant seeds and seed-grown plants are within the subject matter of § 101 of the Patent Act. The Court affirmed that ruling in J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred International, Inc., 534 U.S. 124, 122 S.Ct. 593, 151 L.Ed.2d 508, 60 USPQ2d 1865 (2001).

The district court denied Mr. McFar-ling’s motion to dismiss for lack of personal jurisdiction and granted Monsanto’s motion for a preliminary injunction. This appeal followed.

DISCUSSION

The Forum Selection Clause

Mr. McFarling argues that the district court did not acquire personal jurisdiction over him based on the forum selection clause in the 1998 Technology Agreement. This clause was printed in capital letters, indeed the only provision of the Technology Agreement that is in all capital letters. All of the provisions of the Technology Agreement are ' on the same page, on the reverse side of the signature page:

THIS AGREEMENT IS GOVERNED BY THE LAWS OF THE STATE OF MISSOURI AND THE UNITED STATES (OTHER THAN THE CHOICE OF LAW RULES). THE PARTIES CONSENT TO THE EXCLUSIVE JURISDICTION OF THE U.S. DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI, EASTERN DIVISION, AND THE CIRCUIT COURT OF THE COUNTY OF ST. LOUIS, STATE OF MISSOURI, FOR ALL DISPUTES ARISING UNDER THIS AGREEMENT.

McFarling states that he never turned over the agreement,² and that he did not consent to jurisdiction in Missouri based on a forum selection clause that he did not intentionally sign. McFarling argues that he has no contacts with Missouri, and that the Missouri district court’s exercise of personal jurisdiction violates his due process rights under the Fifth Amendment.

Whether a district court has personal jurisdiction of a defendant in a patent infringement action is subject to plenary review. Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1359, 58 USPQ2d 1774, 1776 (Fed.Cir.2001). The issue here is not the reach of a state’s long-arm statute, but the effect of a forum selection clause whereby jurisdiction is obtained by contractual consent or waiver. Such a clause is enforceable unless the party challenging it clearly demonstrates that it is invalid or that enforcement would be unreasonable and unjust. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (noting that the enforcement of freely negotiated forum selection provisions “does not offend due process” when the provisions are neither unreasonable nor unjust); see also M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) (holding that a forum selection clause requiring suit in a foreign court should be enforced unless the plaintiff attempting to avoid it “could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching”).

The district court held that the forum selection clause of the Technology Agreement is valid and enforceable. Mr. McFarling, challenging this holding on the ground of fairness, refers to Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991), in which the Court held enforceable a forum selection clause printed on a cruise ticket, but stated that “forum-selection clauses contained in form passage contracts are subject to judicial scrutiny for fundamental fairness.” Id. at 595, 111 S.Ct. 1522. McFarling states that unlike a cruise ship that carries passengers to and from many places, he purchased, planted, and harvested the seeds, and executed the Technology Agreements, all in Mississippi, and thus that Mississippi is clearly the fairest forum. He states that the plaintiffs in Carnival conceded that they had notice of the forum selection provision, but that he did not have notice because he did not read the back of the agreement. McFarling cites Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 112, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987), for the proposition that minimum contact jurisdictional standards are not met unless the defendant performed an act “purposefully directed toward the forum State,” and argues that his “negligent” signing of the agreement was not purposeful. The district court correctly viewed the issue as one of validity of the contract provision, not an issue of minimum contacts.

Forum selection clauses are valid and accepted unless they are clearly unreasonable or fraudulent. Monsanto argues that the clause is reasonable because of Monsanto’s legitimate interest in litigating disputes arising from these Technology Agreements in the venue of its principal place of business, one of the justifications asserted by the cruise line' in Carnival. Monsanto also states that this common venue enhances judicial efficiency, produces greater uniformity of result, and decreases litigation costs. ,

The district court found that Mr. McFarling did not dispute that his ignorance of the clause was solely the result of his voluntary failure to read what he signed. A party who signs an agreement is bound by its terms, unless he was fraudulently induced not to read it or was fraudulently misled as to its content or significance. See Bradley v. Chiron Corp., 136 F.3d 1317, 1322, 45 USPQ2d 1819, 1822 (Fed.Cir.1998) (applying California law that a person is bound to a written agreement that he signs but neglects to read). Both Missouri and Mississippi contract law reflect this universal rule, making it unnecessary to consider choice of law issues. See, e.g., Binkley v. Palmer, 10 S.W.3d 166, 171 (Mo.Ct.App.1999) (“It has long been settled in Missouri that absent a showing of fraud, a party who is capable of reading and understanding a contract is charged with the knowledge of that which he or she signs.”); Oglesbee v. National Security Fire & Casualty Co., 788 F.Supp. 909, 913 (S.D.Miss.1992) (“Under Mississippi law, unless a party was induced not to read the contract or have it read to him by fraudulent representation made by another party, he will be required to abide by its terms.”)- McFarling’s argument that his voluntary failure to read the forum selection clause entitles him to exemption from its effect is unsupported by any law. Due process as to these issues is satisfied when a party consents by contract to personal jurisdiction in a selected forum. Moreover, McFarling has failed to demonstrate that the choice of Missouri as the forum is unreasonable. The district court correctly exercised personal jurisdiction over McFarling.³

The Injunction Pendente Lite

The district court granted Monsanto’s motion for a preliminary injunction, on Mr. McFarling’s statement that he would otherwise continue to save soybeans from his crop and plant them as seed, contrary to the agreements he signed. We review the grant of a preliminary injunction on the standard of abuse of discretion. See, e.g., H.H. Robertson Co. v. United Steel Deck, Inc., 820 F.2d 384, 387, 2 USPQ2d 1926, 1927 (Fed.Cir.1987). A district court abuses its discretion if it “made a clear error of judgment in weighing relevant factors or exercised its discretion based upon an error of law or clearly erroneous factual findings.” Novo Nordisk of North America, Inc. v. Genentech, Inc., 77 F.3d 1364, 1367, 37 USPQ2d 1773, 1775 (Fed.Cir.1996).

The general rule for grant of a preliminary injunction is that a party must establish (1) a reasonable likelihood of success on the merits; (2) irreparable harm, or harm not readily remediable monetarily; (3) a balance of hardships tipping in favor of the complainant; and (4) that the public interest is not disserved by the injunction. See, e.g., We Care, Inc. v. Ultra-Mark Int'l Corp., 930 F.2d 1567, 1570, 18 USPQ2d 1562, 1564 (Fed.Cir.1991); Hybritech Inc. v. Abbott Labs., 849 F.2d 1446, 1451, 7 USPQ2d 1191, 1195-96 (Fed.Cir.1988). The court must balance these four factors, as their relative weights warrant, in service to the interest of justice.

On appeal, Mr. McFarling challenges the district court’s analysis of only one of the four factors: the likelihood of Monsanto’s success on the merits. McFarling does not now challenge the validity of Monsanto’s patents; instead, he argues that the Technology Agreements constitute an illegal restraint of trade, in violation of the Sherman Act and in misuse of the patents, and thus that the patents are unenforceable. McFarling also argues that the first sale doctrine prohibits the contractual restraint on producing his own seed.

1.

First, Mr. McFarling argues that the Technology Agreements create an illegal tying arrangement by requiring farmers to buy new Roundup Ready® seed each year instead of allowing them to produce their own Roundup Ready® seed from the prior year’s crop. McFarling cites Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), for the proposition that a tying arrangement violates the Sherman Act when the seller exploits “its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.” Id. at 12, 104 S.Ct. 1551. According to McFarling, the tied product is a fresh supply of Monsanto’s Roundup Ready® seed in future years, while the tying product is the original purchase of Roundup Ready® seed. McFarling states that he does not want to buy future Roundup Ready® seed, because he can produce his own genetically modified Roundup Ready® seed. McFar-ling also states that even if these restrictions do not constitute antitrust violations, the requirement that farmers buy new seed each year impermissibly broadens the patent grant, with anti-competitive effect.

Mr. McFarling further argues that the Technology Agreements constitute illegal agreements among competitors, referring to the agreements between Monsanto and its local distributors whereby the local sellers must require farmers to enter into the Technology Agreements as a condition of buying the Roundup Ready® seed. McFarling cites Citizen Publishing Co. v. United States, 394 U.S. 131, 89 S.Ct. 927, 22 L.Ed.2d 148 (1969), for the proposition that agreements among competitors to fix the material terms of a sale are illegal. As a result of such alleged collusion, McFar-ling states that farmers in the United States pay higher prices for Roundup Ready® seed than do farmers in Argentina. Monsanto states that as the patent holder it decides unilaterally the terms on which its patents are licensed and its product sold under the Technology Agreements. Monsanto explains that the seed companies that are licensed by Monsanto to produce and sell the modified soybean seed have no control over the terms of the Technology Agreements that Monsanto requires of farmers who choose to purchase the Monsanto seed.

The district court found that Mr. McFarling was not likely to succeed on his Sherman Act or patent misuse claims, that he had not presented any evidence raising a substantial question as to whether the Technology Agreements constitute a form of unreasonable or illegal restraint of trade. The district court’s finding is not challenged, that there was no obligation upon Mr. McFarling to buy future seed as a condition of buying seed in the present. The court found that there were no impediments preventing Mr. McFarling from switching to other soybean seeds, the court recognizing that there are over two hundred commercial sources of soybean seed, including several herbicide-resistant soybeans.

A purchaser’s desire to buy a superior product does not require benevolent behavior by the purveyor of the superior product. Nor does an inventor of new technology violate the antitrust laws merely because its patented product is favored by consumers. See Abbott Labs. v. Brennan, 952 F.2d 1346, 1354, 21 USPQ2d 1192, 1199 (Fed.Cir.1991) (“The commercial advantage gained by new technology and its statutory protection by patent do not convert the possessor thereof into a prohibited monopolist.”)

In accordance with the Technology Agreement, the purchaser agrees to use the purchased seed for the purpose of growing crops and not for the purpose of producing new seed. In Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 24 USPQ2d 1173 (Fed.Cir.1992) this court held that use of a patented product “in violation of a valid restriction may be remedied under the patent law, provided that no other law prevents enforcement of the patent.” Id. at 701, 24 USPQ2d at 1174. A restriction on use to make additional patented product, to constitute an antitrust violation, must meet the requirements of such violation and be outside the scope of the patent grant. See General Talking Pictures Corp. v. Western Elec. Co., 305 U.S. 124, 127, 59 S.Ct. 116, 83 L.Ed. 81, 39 USPQ 329, 330 (1938). The district court correctly held that Mr. McFarling has not shown a reasonable likelihood of success on antitrust/misuse grounds; the record does not support Mr. McFarling’s theory that he is required to buy future patented seeds from Monsanto in order to buy present patented seeds.

2.

As a second ground for challenging the agreements, Mr. McFarling states that the contractual prohibition against using the patented soybeans to produce additional seeds for planting by the farmer violates the doctrines of patent exhaustion and first sale, and that the parties could not enter into an enforceable contract that has this effect. In support, McFarling cites the statement in United States v. Univis Lens Co., 316 U.S. 241, 249, 62 S.Ct. 1088, 86 L.Ed. 1408, 53 USPQ 404, 407 (1942), that when a patented product has been sold the purchaser acquires “the right to use and sell it, and ... the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold.” It follows, McFarling argues, that once Monsanto sold the patented seeds to McFarling, its patent rights on the seeds and their products were exhausted and could not be restricted by agreement. Monsanto responds that it is within the scope of Monsanto’s patent rights to prevent others from making, for the purpose of planting, a new batch of patented seeds from the purchased seeds.

The restrictions in the Technology Agreement are within the scope of the patent grant, for the patents cover the seeds as well as the plants. 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. The price paid by the purchaser “reflects only the value of the ‘use’ rights conferred by the patentee.” B. Braun Medical Inc. v. Abbott Labs., 124 F.3d 1419, 1426, 43 USPQ2d 1896, 1901 (Fed.Cir.1997). The original sale of the seeds did not confer a license to construct new seeds, and since the new seeds were not sold by the patentee they entailed no principle of patent exhaustion.

3.

McFarling argues that the contractual prohibition against using the patented seed to produce new seed for planting, when he produced only enough new seed for his own use the following season, violates section 2543 of the PVPA, which permits farmers to save seeds of plants registered under the PVPA.

The PVPA and the Patent Act are complementary forms of statutory protection of plant “breeders’ rights.” Utility patents under Title 35 provide rights and privileges that differ from those provided by Plant Variety Protection certificates. In J.E.M. AG Supply, 534 U.S. at-, 122 S.Ct. at 604-05, 60 USPQ2d at 1873-74, the Court held that utility patents are available to plants and seeds that meet the requirements of patentability, independent of and in addition to rights under the PVPA. The Court observed that one of the differences between the two statutes is that “there are no exemptions for research or saving seed under a utility patent.” Id. at-, 122 S.Ct. at 604, 60 USPQ2d at 1873. It is thus established that the right to save seed of plants registered under the PVPA does not impart the right to save seed of plants patented under the Patent Act.

4.

Mr. McFarling complains that the price charged for Roundup Ready® seeds is higher than for other soybean seeds, and that it is cheaper for him to produce his own Roundup Ready® seeds. He also states that Monsanto sells Roundup Ready® seeds at a lower price in Argentina.

We need not repeat that in a market economy a purveyor may charge the price that the product can sustain; there is no requirement that a patentee must lower his price to that of the less desired products he replaces. See, e.g., E. Bement & Sons v. National Harrow Co., 186 U.S. 70, 93, 22 S.Ct. 747, 46 L.Ed. 1058 (1902) (“The owner of a patented article can, of course, charge such price as he may choose.... ”); Carter-Wallace, Inc. v. United States, 196 Ct.Cl. 35, 449 F.2d 1374, 1383, 171 USPQ 359, 365 (1971) (“[A]s a general rule and absent any overriding unlawful conduct, patentees can charge for their patented products and licenses whatever the market will bear.”) This aspect does not add weight to the antitrust arguments pressed by Mr. McFarling.

CONCLUSION

Mr. McFarling conceded that he violated the terms of the Technology Agreements. The district court found that Monsanto had a reasonable likelihood of success on the issues of infringement and breach of contract, and that it was unlikely that an antitrust violation would be found. We do not discern error in these findings, and the other factors relevant to grant of an injunction pendente lite are not contested. We conclude that the district court did not abuse its discretion in granting the injunction.

AFFIRMED.

1 . Monsanto Co. v. Homan McFarling, No. 4:00CV84 CDP (E.D.Mo. Apr. 13, 2000) (order denying motion to dismiss for lack of personal jurisdiction); (Mar. 21, 2001) (order granting motion to stay); (April 18, 2001) (opinion and order granting preliminary injunction).

2 . The parties focus on the forum ■ selection clause in the 1998 agreement. Mr. McFarling states that the reverse side of the 1997 agreement was blank. Monsanto states that the 1997 agreement was a standard form and, like the 1998 agreement, included the forum selection clause as well as all other provisions of the Technology Agreement on the reverse side of the document, whose front side contains only the identity of buyer and seller and a statement of the crop and acreage to be ■ planted.

3 . We take note of the theory of our colleague in dissent, who argues that this is a contract of adhesion and therefore unenforceable. The dissent states that no court in the past thirty years "has enforced a forum selection clause against a defendant who has acceded to an adhesion contract.” If the term "contract of adhesion” is understood to mean a contract that a court decides is unenforceable because it is unconscionable, then obviously no such contracts will be enforced. If, on the other hand, the term refers to form contracts that are not subject to negotiation, forum selection clauses in such contracts have often been enforced. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991). For example, in Northwestern National Insurance Co. v. Donovan, 916 F.2d 372 (7th Cir.1990) the court enforced a forum selection clause in what it characterized as an adhesion contract between individual investors and a large insurance company. The court referred to "the widespread judicial suspicion of the form contract — the dreaded 'contract of adhesion,’ ” and observed that they are generally upheld (citing cases), remarking that "Ours is not a bazaar economy in which the terms of every transaction, or even of most transactions, are individually dickered; even when they are, standard clauses are commonly incorporated in the final contract, without separate negotiation of each of them.” Id. at 377. The court rejected the contention that failure to read a forum selection clause, in the absence of fraud, can negate its enforcement. Id. at 378 (“If they make a practice of signing contracts without reading them, they must bear the consequences.”)

Our colleague in dissent also proposes that since Mr. McFarling says he didn't read the forum selection clause he shouldn't be bound by it. This theory is somewhat ingenuous in this case, for all of the provisions of the Technology Agreement are on the obverse, not simply the forum selection clause (which is the only provision printed in all capital letters). Mr. McFarling does not deny that he knew of the provision that prohibited saving crop as seed, for example. Nor does Mr. McFarling, a businessman whose business is farming, state that he could not understand his acknowledgment that "I have read and understand the terms and conditions of this Agreement and that I agree to them,” when all the terms and conditions are together on the obverse page.