Last week, in Bayer CropScience AG and Bayer S.A.S. v. Dow Agrosciences LLC, the Federal Circuit determined that the District Court for the District of Delaware did not abuse its discretion in determining that, under the totality of the circumstances, the case was an exceptional one, and the Federal Circuit therefore affirmed the District Court's grant of attorney fees to Dow Agrosciences LLC.

An earlier appeal involving the same parties focused on the scope of Bayer's license to Dow's business partner M.S. Technologies, LLC ("MS Tech"), and more specifically, whether the license granted MS Tech a broad license to commercialize and sublicense the licensed technology (i.e., soybeans genetically engineered to tolerate herbicide).  Bayer's position was that it had only licensed MS Tech rights to non-commercial exploitation of the technology, and Dow countered that the Bayer-MS Tech agreement conveyed broad rights to MS Tech, including the right to commercialize the licensed technology.  The District Court agreed with Dow's interpretation of the Bayer-MS Tech agreement and granted summary judgment in Dow's favor.  The Federal Circuit affirmed that decision in Bayer CropScience AG v. Dow AgroSciences LLC, 580 F. App’x 909 (Fed. Cir. 2014) (Bayer I).

The case was returned to the District Court, where the Court awarded Dow attorney fees pursuant to 35 U.S.C. § 285.  In characterizing that decision, the Federal Circuit explained that "[t]he district judge examined the full duration of the litigation and concluded that, in her view, Bayer's weak positions on the merits and litigation conduct supported a finding that this was an exceptional case," adding that "the district judge emphasized that 'Bayer's own witnesses as well as key documents contradicted Bayer's contorted reading of the contract'" and that "'Bayer's conduct in litigating this case in the face of evidence that contradicted its contorted reading of the Agreement was objectively unreasonable.'"

Bayer had relied on an exception clause in the licensing agreement that granted "a worldwide, fully paid-up, exclusive license [to MS Tech] with the exception of the rights to increase, market, distribute for sale, sell and offer for sale, granted to STINE by separate agreement."  The separate agreement to Stine referenced in the exception clause concerned a non-exclusive license Bayer gave to Stine Seed Farm, Inc. Bayer contended that the exception clause carved all commercialization rights completely out of the MS Tech license, while Dow argued that the provision indicated that the MS Tech license was not exclusive with respect to the separate license rights Stine had been granted.  The District Court, however, determined that "[t]he positions Bayer took to support their contract interpretation arguments were directly contradicted by the record evidence Bayer had obtained through early discovery and Bayer should have made every effort to discover before filing suit" adding that "[h]ad Bayer done any due diligence, it would have learned that no witness supported Bayer's construction of the Agreement and this case [] should never have been filed."

In affirming the District Court's grant of attorney fees, the Federal Circuit noted that in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), the Supreme Court had clarified what constitutes an exceptional case, namely:

[A]n "exceptional" case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.  District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.

The Federal Circuit determined that the District Court had not abused its discretion in finding the case to be exceptional and had applied the correct legal test under § 285, examining the totality of the circumstances to determine whether the case stood out from others.  The panel opinion notes, for example, that "[o]ne Bayer executive at the time of the deal testified that Bayer did not retain commercial rights because 'it was relatively black and white certainly in my mind that we were divesting these assets,'" and that same executive further testified that "'[i]t seems incongruous that we would sell an asset to somebody, receive remuneration for the sale, and then somehow prevent the acquirer from making use of the asset he just acquired.'"

The Federal Circuit also determined that the District Court did not abuse its discretion in concluding that Bayer failed to perform a diligent pre-suit investigation of its claims against Dow, indicating that "Bayer's own witnesses testified against its contract interpretation," and stating that "[w]e cannot say that the district court erred in reasoning that had Bayer conducted a more searching pre-suit investigation—at least of its own easily-obtainable evidence—it would have not filed suit."  The Federal Circuit therefore held that the District Court had not abused its discretion in determining that this was an exceptional case, and affirmed the District Court's grant of attorney fees.

Bayer CropScience AG and Bayer S.A.S. v. Dow Agrosciences LLC (Fed. Cir. 2017)
Panel: Circuit Judges Newman, Chen, and Stoll
Opinion by Circuit Judge Stoll