Bayer CropScience AG v. Dow Agrosciences LLC (Fed. Cir. 2016)

by McDonnell Boehnen Hulbert & Berghoff LLP

Earlier this month, in Bayer CropScience AG v. Dow Agrosciences LLC, the Federal Circuit concluded that the District Court for the Eastern District of Virginia correctly confirmed an international arbitration tribunal's award of $455 million, modified the judgment such that post-judgment interest accrues at the federal statutory rate, and affirmed the judgment as modified.

At the center of the dispute between Bayer CropScience NV and Bayer CropScience AG ("Bayer") and Dow Agrosciences LLC, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co. ("Dow") was a 1992 cross-licensing agreement between Hoechst AG (Bayer's predecessor) and Lubrizol Genetics, Inc. (Dow's predecessor), in which Hoechst granted Lubrizol Genetics licenses to the Leemans patent family (which describes and claims various technologies related to the pat gene, which confers resistance to the herbicide glufosinate) and the Strauch patent family.  Bayer CropScience NV now owns or co-owns the Leemans patent family as a successor of Plant Genetic Systems NV.  Bayer CropScience AG owns the Strauch patent family as a successor of Hoechst AG.  Article 4 of the 1992 agreement restricted the parties' use of the licensed technology, and Article 12 of the 1992 agreement stated that the agreement was to be governed by and construed in accordance with French law and that disputes were to be decided by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

Dow AgroSciences LLC produces the Enlist E3, Enlist E3+IR, Enlist Soybean, Enlist Cotton, Widestrike, and Widestrike 3 products, each of which contains the pat gene, through its subsidiaries, Mycogen Plant Science, Inc., Agrigenetics, Inc., and Phytogen Seed Co.  Between 2007 and 2008, Dow entered into a series of agreements with MS Technologies, LLC regarding the pat gene, and this collaboration resulted in the creation of the Enlist E3 products.

In 2012, Bayer terminated the 1992 agreement with Dow, accusing Dow of materially breaching Article 4 of the agreement.  Bayer then sued Dow for infringement of several patents involved in the 1992 agreement.  Dow moved to dismiss or stay the action based on Article 12 of the agreement, and the District Court stayed the action.  Dow also filed six requests for inter partes reexamination of several patents involved in the 1992 agreement and one reissue patent corresponding to a patent involved in the agreement, alleging inter alia that certain claims of the patents were invalid for obviousness-type double patenting over two of the Strauch patents and a third patent.  (The opinion notes that the inter partes reexaminations remain pending before the U.S. Patent and Trademark Office and did not alter the Court's resolution of the appeal.)

In 2015, an arbitral tribunal entered an award, finding that (1) Dow breached the 1992 agreement by effectively sublicensing the pat gene to MS Tech; (2) Dow infringed various claims of the Leemans patents by its creation and other activities involving the Enlist and Widestrike products; (3) certain asserted claims were not invalid for inadequate written description or lack of enablement; and (4) certain asserted patents were not invalid for obviousness-type double patenting over the Strauch patent.  The tribunal awarded Bayer $455,459,187 in damages, including $374,731,000 in lost-opportunity damages under French law for breach of contract and $67,837,000 in reasonable-royalty damages under U.S. law for patent infringement, and also awarded Bayer pre-award interest using a rate of 8% and declared that the same rate would apply to "post-award interest."

Bayer moved the District Court to confirm the arbitral award, and Dow cross-moved to vacate the award.  Dow also moved to amend the judgment such that post-judgment interest would accrue at the rate specified by 28 U.S.C. § 1961(a) and not at the tribunal's 8% rate for "post-award interest."  The District Court confirmed the arbitral award and denied Dow's motion to amend the judgment, and Dow appealed to the Federal Circuit.

The Federal Circuit, after concluding that it had jurisdiction under 28 U.S.C. § 1295(a)(1), turned to the arbitral award, stating that:

Judicial review of the arbitral award at issue here is very limited even if, as we assume for present purposes, the standards governing both international and domestic arbitration apply.  In numerous ways, the relevant federal statutes and precedents make clear that ordinary legal or factual error is not a ground for disturbing an arbitral award like the one at issue here.

The Court also noted that "[a] challenger must meet related, and similarly high, standards to support a refusal to confirm an award as contrary to public policy."

In view of the strict limits for disturbing an arbitral award, the Federal Circuit rejected Dow's arguments attacking the arbitral award as counter to U.S. law or policies governing double patenting and post-patent-expiration royalties.  With respect to Dow's double patenting argument, the Federal Circuit stated that "[t]he tribunal carefully scrutinized Dow's argument," and "concluded that the patents were not commonly owned because Bayer CropScience AG and Bayer CropScience NV were different entities and Dow had not provided sufficient evidence to pierce the corporate veil separating them."  The Court also rejected Dow's argument that the tribunal's contract-damages award is partially unenforceable because it violates U.S. patent law limits on the recovery of post-expiration royalties for practicing a patent, determining that:

Under the standards for public-policy and manifest-disregard challenges, we conclude, Dow has not established that the contract award—more precisely, the portion of the award reaching past the 2023 expiration of the RE’962 reissue patent—must be vacated based on Brulotte.

The Court noted that in Brulotte v. Thys Co., 379 U.S. 29 (1964), the Supreme Court held unenforceable a licensing agreement that required the licensee to pay royalties after the expiration of the patent.

The Federal Circuit also rejected a number of other arguments presented by Dow for vacating the arbitral award, including the arbitral tribunal's (1) rejection of Dow's written description and enablement defenses, (2) ruling on Bayer's reissue patent, (3) misconstruction of relevant contract provisions, and (4) imposition of an 8% rate for pre-award interest.  With respect to Dow's written description and enablement defenses, the Court noted that "its arguments amount to no more than allegations of ordinary legal error," and determined that "[t]he tribunal's analysis shows no manifest disregard of law or other error meeting the standards for rejection of arbitral determinations."  The Court also determined that none of Dow's other arguments warranted vacating the arbitral award.

Although the Federal Circuit affirmed the District Court's decision to confirm the arbitral award, the Federal Circuit concluded that the District Court abused its discretion in denying Dow's motion to amend the judgment to use the federal statutory rate for post-judgment interest for the period beginning with the entry of the District Court's judgment.  The Federal Circuit therefore exercised its discretion under 28 U.S.C. § 2106 to "affirm, modify, vacate, set aside or reverse any judgment, decree, or order of a court lawfully brought before it for review," and modified the District Court's judgment to include the relief requested by Dow's motion to amend (i.e., post-judgment interest accruing from the date on which the District Court entered judgment at the rate established in § 1961).  The Federal Circuit then affirmed the judgment as modified.

Bayer CropScience AG v. Dow Agrosciences LLC (Fed. Cir. 2016)
Nonprecedential disposition
Panel: Circuit Judges Moore, Taranto, and Chen
Opinion by Circuit Judge Taranto

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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