Opinion ID: 211107
Heading Depth: 2
Heading Rank: 3

Heading: Antitrust/Patent Misuse

Text: 24 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, 68 S.Ct. 550, 92 L.Ed. 701 (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, 85 S.Ct. 176, 13 L.Ed.2d 99 (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 Pictures Corp. v. W. Elec. Co., 305 U.S. 124, 127, 59 S.Ct. 116, 83 L.Ed. 81 (U.S.1938). 25 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, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). 26 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, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985). 27 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 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). 28 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. 29 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 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. 30 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. 31 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. 32 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. 33 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, 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. 34 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. 35 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. 36 The dissent argues that Federal Trade Commission v. Indiana Federation of Dentists, 476 U.S. 447, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986), and Fashion Originators' Guild of America, Inc. v. Federal Trade Commission, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (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 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.