Court Opinion

ID: 4153585
Source: CourtListenerOpinion
Date Created: 2017-03-17 15:01:13.778052+00
Date Added: 2024-06-11T07:46:35.760081
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

     BAYER CROPSCIENCE AG, BAYER S.A.S.,
              Plaintiffs-Appellants

                           v.

             DOW AGROSCIENCES LLC,
                 Defendant-Appellee
               ______________________

                      2015-1854
                ______________________

    Appeal from the United States District Court for the
District of Delaware in No. 1:12-cv-00256-RMB-JS, Judge
Renée Marie Bumb.
                 ______________________

                Decided: March 17, 2017
                ______________________

    ADAM MORTARA, Bartlit Beck Herman Palenchar &
Scott LLP, Chicago, IL, argued for plaintiffs-appellants.
Also represented by DANIEL CHARLES TAYLOR, Denver,
CO; ROBERT J. KOCH, Milbank, Tweed, Hadley & McCloy,
LLP, Washington, DC; CHRISTOPHER JAMES GASPAR, New
York, NY.

    MARK S. DAVIES, Orrick, Herrington & Sutcliff LLP,
Washington, DC, argued for defendant-appellee. Also
represented by KATHERINE M. KOPP; PETER A. BICKS, ALEX
V. CHACHKES, ANDREW D. SILVERMAN, AARON SCHERZER,
New York, NY.
2           BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC

                  ______________________

    Before NEWMAN, CHEN, and STOLL, Circuit Judges.
STOLL, Circuit Judge.
    Bayer appeals the district court’s award of attorney
fees to Dow under 35 U.S.C. § 285. The district court
awarded attorney fees to Dow upon finding that the case
stood out from others and was thus exceptional. Because
the district court did not abuse its discretion in finding
the case exceptional and awarding fees, we affirm.
                        BACKGROUND
    This is the second appeal to our court in this patent
infringement lawsuit between plaintiffs-appellants Bayer
CropScience AG and Bayer S.A.S. (collectively, “Bayer”)
and defendant-appellee Dow AgroSciences LLC. The
patents-in-suit relate to soybeans genetically engineered
to tolerate herbicide, and, particularly, to the Bayer-
developed dmmg gene. The first appeal centered on the
merits of a contractual dispute. The parties disagreed
over the scope of Bayer’s license of the patents-in-suit to a
Dow business partner, M.S. Technologies, LLC
(“MS Tech”), and, specifically, whether the license granted
MS Tech a broad license to commercialize and sublicense
the soybean technology. MS Tech sublicensed to Dow
whatever patent rights it received from Bayer. When
Bayer sued Dow for infringement of these patents, Dow
raised the MS Tech sublicense as an affirmative defense.
    On summary judgment, Bayer argued that it had only
licensed MS Tech rights to non-commercial exploitation of
the dmmg patents, and thus, Dow’s activity with MS Tech
in commercializing dmmg gene soybeans infringed the
patents-in-suit. Dow countered that the Bayer–MS Tech
agreement conveyed to MS Tech broad rights—including
commercialization of the patents-in-suit—by its terms,
but especially in view of the facts surrounding the agree-
BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC          3

ment negotiations. The parties agreed that English law
governed the agreement, and under English law, the
background or surrounding circumstances of contract
formation are considered when interpreting the agree-
ment. The district court agreed with Dow’s interpretation
of the Bayer–MS Tech agreement and entered summary
judgment in its favor. Bayer CropScience AG v. Dow
AgroSciences LLC, No. CV 12-256-RMB-JS, 2013 WL
5539410 (D. Del. Oct. 7, 2013). Our court affirmed that
decision. Bayer CropScience AG v. Dow AgroSciences
LLC, 580 F. App’x 909 (Fed. Cir. 2014) (Bayer I).

    The case returned to the district court, where the
court awarded Dow attorney fees pursuant to 35 U.S.C.
§ 285. The magistrate judge who had managed the case,
having been briefed on the § 285 issue by both parties and
having conducted a two-day hearing on the matter, issued
a thorough report and recommendation declaring a “firm
conviction that this is an ‘exceptional case’” and recom-
mending fee-shifting under § 285. Bayer CropScience AG
v. Dow AgroSciences LLC, No. CV 12-256-RMB-JS, 2015
WL 108415, at *1 (D. Del. Jan. 5, 2015). The district
judge who entered summary judgment for Dow then
reviewed the magistrate’s recommendation and adopted it
in a thorough opinion of her own. The 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.
    Specifically, the district judge emphasized that
“Bayer’s own witnesses as well as key documents contra-
dicted 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 Crop-
science AG v. Dow Agrosciences LLC, No. CV 12-256, 2015
WL 1197436, at *4, *8 (D. Del. Mar. 13, 2015) (Fees Op.).
Bayer had argued that it did not grant Dow’s business
4            BAYER CROPSCIENCE AG    v. DOW AGROSCIENCES LLC

partner, MS Tech, commercialization rights to the dmmg
gene patents, relying in large part on the emphasized
exception clause in the license grant:
    The SELLER [Bayer] hereby grants to the
    PURCHASER [MS Tech] . . . a worldwide, fully
    paid-up, exclusive license – with the right to grant
    sublicenses solely as set out in Article 3.1.3 and
    with the exception of the rights to increase, market,
    distribute for sale, sell and offer for sale, granted
    to STINE by separate agreement . . . .
J.A. 339 (emphasis added). The referenced Stine agree-
ment was a non-exclusive license Bayer gave to Stine
Seed Farm, Inc.—an entity working closely with
MS Tech—which specifically granted the enumerated
commercialization rights listed in the MS Tech agreement
(i.e., right to increase, market, distribute for sale, sell, and
offer for sale). Bayer argued that this exception in the
MS Tech agreement referencing the Stine agreement
carved all commercialization rights completely out of the
MS Tech license. Dow posited instead that the provision
simply indicated that the MS Tech license was not exclu-
sive with respect to the separate license rights Stine had
been granted. The parties each presented textual argu-
ments—citing other provisions in both the MS Tech and
Stine agreements—to support their respective positions.
In addition, the parties relied on expert testimony to
interpret the agreements’ terms, as well as extrinsic
evidence regarding the parties’ understanding of the
agreement because such evidence is highly relevant under
the governing English law.
    In its decision awarding attorney fees, the district
judge found that Bayer’s arguments were “fallacious”
because they were “implausible” and “made no business
sense” in light of the facts surrounding the agreements
and their negotiation. Fees Op., 2015 WL 1197436, at *6–
7. For example, the district court noted that Bayer was
BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC            5

unable to adduce testimonial evidence from those involved
in negotiating the agreement—including those working
for Bayer—that anyone understood the agreement as
carving out commercialization rights from the MS Tech
agreement. To the contrary, the district court pointed to
testimony of a Bayer executive at the time of the deal that
“the value of these assets for [MS Tech/Stine] was in [the]
ability to make full use of them” and further that “[i]t
seems incongruous that we would sell an asset to some-
body, receive remuneration for the sale, and then some-
how prevent the acquirer from making use of the asset he
just acquired.” Id. at *5 (alterations in original) (empha-
ses omitted) (quoting Morgan Dep., J.A. 4481 p. 62 ll. 6–8;
J.A. 4488 p. 91 ll. 16–19). The district court also found
Bayer’s position in striking tension with remarks it made
upon the agreement’s execution in a congratulatory email
sent to individuals concurrently serving as executives of
both MS Tech and Stine: “[W]e are convinced that in your
capable hands these ‘products’ will find their true worth
in the market.” Id. (emphasis omitted) (quoting J.A.
13654).
     The district court also expressed concern about the
logical import of Bayer’s argument. Under Bayer’s theo-
ry, it retained commercialization rights in the dmmg gene
patents. The district court found this position to be in
conflict with Bayer’s own evidence. A Bayer executive at
the time of the deal testified that “it was relatively black
and white certainly in my mind that we were divesting
these assets.” Id. (quoting Morgan Dep., J.A. 4481 p. 62
ll. 3–5) (emphasis omitted). Further, the congratulatory
email that the Bayer executive sent had remarked: “We
[Bayer] wish you every success in capturing the intrinsic
value that these assets promise. We were disappointed
that Bayer was unable to convert that potential given our
(lack of) market presence . . . .” Id. (quoting J.A. 13654).
   The district court identified other specific instances of
Bayer’s litigation conduct as supporting its exceptional
6           BAYER CROPSCIENCE AG    v. DOW AGROSCIENCES LLC

case determination. Specifically, the district court criti-
cized Bayer’s decision to add its dmmg gene patent allega-
tions to an on-going Bayer–Dow lawsuit only a few days
after MS Tech and Dow issued a joint press release,
announcing the entities’ plans to pursue commercializing
dmmg-gene soybeans. The district court found Bayer’s
pre-suit diligence lacking, observing:      “The positions
Bayer took to support their contract interpretation argu-
ments 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.” Id. at *9. In the district court’s judgment, “[h]ad
Bayer done any due diligence, it would have learned that
no witness supported Bayer’s construction of the Agree-
ment and this case [] should never have been filed.” Id.
at *8.
     The district court also found fault with Bayer’s deci-
sion to move for a preliminary injunction against Dow
amidst targeted discovery on the dispositive contract
dispute. That discovery, including depositions of Bayer
witnesses, would ultimately “debunk[] Bayer’s claims,”
according to the district court. Id. at *9. Thus, the dis-
trict court found that Bayer’s preliminary injunction
motion “was frivolous and unnecessarily increased the
costs of litigation.” Id. The district court lastly criticized
Bayer for taking seemingly contradictory positions re-
garding ownership of a particular soybean—Enlist E3—in
this case and an ongoing arbitration between the parties.
    After identifying these aspects of Bayer’s case, the
district court concluded that, relative to other cases, this
was an exceptional case that entitled Dow to fees under
§ 285. Bayer timely appealed, and we have jurisdiction
under 28 U.S.C. § 1295(a)(1).
BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC               7

                        DISCUSSION
                             I.
    Section 285 of the Patent Act provides: “The court in
exceptional cases may award reasonable attorney fees to
the prevailing party.” 35 U.S.C. § 285. In Octane Fitness,
the Supreme Court clarified what constitutes an excep-
tional case:
   [A]n “exceptional” case is simply one that stands
   out from others with respect to the substantive
   strength of a party’s litigating position (consider-
   ing 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 totali-
   ty of the circumstances.
Octane Fitness, LLC v. ICON Health & Fitness, Inc.,
134 S. Ct. 1749, 1756 (2014). After Octane Fitness, a fee-
seeking party must show that it is entitled to § 285 fees
by a “preponderance of evidence,” id. at 1758—a “change
in the law lower[ing] considerably the standard for award-
ing fees,” Oplus Technologies, Ltd. v. Vizio, Inc., 782 F.3d
1371, 1374 (Fed. Cir. 2015).
    The Supreme Court addressed our standard of review
for § 285 cases in Highmark Inc. v. Allcare Health Man-
agement System, Inc., 134 S. Ct. 1744 (2014)—a case
argued together with Octane Fitness and decided on the
same day. The Supreme Court held “that an appellate
court should review all aspects of a district court’s § 285
determination for abuse of discretion.” Id. at 1747. The
Court explained:
   “[A]s a matter of the sound administration of jus-
   tice,” the district court “is better positioned” to de-
   cide whether a case is exceptional, because it lives
   with the case over a prolonged period of time. . . .
8           BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC

    [T]he question is “multifarious and novel,” not
    susceptible to “useful generalization” of the sort
    that de novo review provides, and “likely to profit
    from the experience that an abuse-of-discretion
    rule will permit to develop.”
Id. at 1748–49 (citation omitted) (quoting Pierce v. Un-
derwood, 487 U.S. 552, 559–60, 562 (1988)).
    Abuse of discretion is a highly deferential standard of
appellate review.        Indeed, “deference [to the trial
court] . . . is the hallmark of abuse-of-discretion review.”
Gen. Elec. Co. v. Joiner, 522 U.S. 136, 143 (1997). To
meet the abuse-of-discretion standard, the moving party
must show that the district court has made “a clear error
of judgment in weighing relevant factors or in basing its
decision on an error of law or on clearly erroneous factual
findings.” Mentor Graphics Corp. v. Quickturn Design
Sys., Inc., 150 F.3d 1374, 1377 (Fed. Cir. 1998) (citing
A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d
1020, 1039 (Fed. Cir. 1992) (en banc)); see also Highmark,
134 S. Ct. at 1748 n.2.
                            II.
    We cannot say that the district court abused its dis-
cretion in this case. At the outset, we recognize that the
district court applied the correct legal test under § 285.
Indeed, it examined the totality of the circumstances to
determine whether the case stood out from others. See
Octane Fitness, 134 S. Ct. at 1756. The district court’s
opinion thoroughly demonstrated the totality-of-the-
circumstances approach, detailing the reasons why
Bayer’s positions on the merits and litigation tactics
coalesced in making this case, in its judgment, exception-
al.
    On appeal, Bayer first argues that the district court
erred in finding the case exceptional because “Bayer had
an objectively reasonable case on the merits.” Reply
BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC            9

Br. 1. The Supreme Court rejected such a rigid approach
in Octane Fitness, holding that whether a party’s merits
position was objectively reasonable is not dispositive
under § 285. Octane Fitness, 134 S. Ct. at 1756. Instead,
the Supreme Court adopted a holistic and equitable
approach in which a district court may base its discre-
tionary decision on other factors, including the litigant’s
unreasonableness in litigating the case, subjective bad
faith, frivolousness, motivation, and “the need in particu-
lar circumstances to advance considerations of compensa-
tion and deterrence.” Id. at 1756–57, 1756 n.6.
    Here, the district court considered factors beyond the
merits—including Bayer’s litigation conduct—and em-
phasized that “Bayer’s conduct in litigating this case in
the face of evidence that contradicted its contorted read-
ing of the Agreement was objectively unreasonable.” Fees
Op., 2015 WL 1197436, at *8. The court explained that “if
this were a case involving a colorable dispute regarding
contract language, this would not be an exceptional case.
But this case is not such case. Far from it.” Id. at *9.
The district court further explained that, in its view, this
case stood out from others because “[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.” Id.
Summarizing, the court explained that “Bayer marched
onward with a view of its case that was not supported by
its witnesses.” Id. at *9.
    The court did not abuse its discretion in so finding.
One 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.” Fees Op., 2015 WL 1197436,
at *5 (quoting Morgan Dep., J.A. 4481 p. 62 ll. 3–5). He
further testified that “[i]t seems incongruous that we
would sell an asset to somebody, receive remuneration for
10          BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC

the sale, and then somehow prevent the acquirer from
making use of the asset he just acquired.” Id. (quoting
Morgan Dep., J.A. 4488 p. 91 ll. 15–19). An email Bayer
sent to executives for Stine and MS Tech remarked that
“in your capable hands these ‘products’ will find their true
worth in the market.” Id. (emphasis omitted) (quoting
J.A. 13654). As the district court explained, the parties
agreed that English law governed the Bayer–MS Tech
contract. The parties further agreed that under English
law, the background facts and circumstances surrounding
the agreement—known in English law as the “factual
matrix”—must be considered in construing the contract’s
terms. Id. at *8. As such, the district court permissibly
relied on the testimony of Bayer’s witnesses to discredit
Bayer’s interpretation.
    The district court likewise did not abuse its discretion
in concluding that Bayer failed to perform a diligent pre-
suit investigation of its claims against Dow. Bayer’s own
witnesses testified against its contract interpretation. We
cannot say that the district court erred in reasoning that
had Bayer conducted a more searching pre-suit investiga-
tion—at least of its own easily-obtainable evidence—it
would have not filed suit. Nor did the district court err in
treating pre-suit diligence as a factor in the totality-of-
the-circumstance approach, as we have previously ap-
proved of this consideration in § 285 determinations. See
Lumen View Tech. LLC v. Findthebest.com, Inc., 811 F.3d
479, 481–83 (Fed. Cir. 2016).
    Bayer also argues that the district court abused its
discretion in awarding fees because Bayer’s expert,
Lord Collins, a former Justice of the Supreme Court of the
United Kingdom, “rendered his professional judgment
that . . . Bayer’s interpretation of the MS Tech license was
correct.” Appellant Br. 15. We reject Bayer’s argument.
As the district court explained, Bayer’s English-contract-
law expert testified that he had only considered the text of
the agreement itself in rendering his opinion. He admit-
BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC           11

ted that he was completely unaware of the factual matrix
in this case and that his opinion was incomplete because
one must consider the factual matrix in construing a
contract under English law.
     On appeal, Bayer also asks us to reweigh evidence in
a manner inconsistent with Highmark’s guidance that we
review “all aspects of a district court’s § 285 determina-
tion for abuse of discretion.” Highmark, 134 S. Ct. at
1747. For example, the district court found Bayer’s filing
of its motion for a preliminary injunction nearly eighteen
months after alleging infringement “frivolous.” Fees Op.,
2015 WL 1197436, at *9. The court explained that
Bayer’s motion “unnecessarily increased the costs of
litigation” and was a factor for deeming this case excep-
tional. Id. Bayer argues on appeal that it was not im-
proper for it to move for a preliminary injunction eighteen
months after alleging infringement. But the timing of
Bayer’s motion relative to alleging infringement was not
what drove the district court’s fees determination; in fact,
the district court considered the motion “early” since
Bayer sought the injunction before Dow sold any dmmg
gene products. Id. Rather, what concerned the district
court was that Bayer moved for a preliminary injunction
amidst targeted discovery on the very contract dispute
that would prove fatal to its case. The court explained
that Bayer sought the injunction while the parties were
conducting depositions and learned of “deposition testi-
mony of Bayer’s own witnesses that debunked Bayer’s
claims.” Id. Against this backdrop, it was not an abuse of
discretion for the district court to conclude that Bayer’s
seeking of a preliminary injunction—a “drastic and ex-
traordinary remedy” requiring a movant show, inter alia,
likelihood of success on the merits and irreparable harm
in its absence, Murata Machinery USA v. Daifuku Co.,
830 F.3d 1357, 1363 (Fed. Cir. 2016) (quoting National
Steel Car, Ltd. v. Canadian Pacific Railway, 357 F.3d
1319, 1324–25 (Fed. Cir. 2004))—was “frivolous and
12          BAYER CROPSCIENCE AG   v. DOW AGROSCIENCES LLC

unnecessarily increased the costs of litigation,” Fees Op.,
2015 WL 1197436, at *9.
     Bayer’s additional factual arguments do not convince
us that the district court abused its discretion either. For
example, Bayer continues to infer—as it did during the
first appeal to this court—that Stine obtained commercial
rights and MS Tech did not from the fact that Stine paid
more for its license than did MS Tech. Dow, however,
presented a plausible explanation for the price disparity.
Specifically, Dow explained that MS Tech was undercapi-
talized because of costs it incurred seeking regulatory
approval, and therefore had the closely-related Stine
entity bear the brunt of the licensing cost. Furthermore,
Bayer’s own witness testimony did not support its infer-
ence. Bayer’s corporate witness testified that “Stine paid
more than, than MS Tech, but I don’t know why that was
the case,” Schulte Dep., J.A. 3465 p. 115 ll. 23–25, and
another Bayer witness involved in the deal further testi-
fied that “I don’t believe that [] we cared as between those
companies how it was divided up,” Keating Dep., J.A.
7454 p. 97 ll. 15–16. We cannot say, especially in an
abuse-of-discretion review, that the district court erred in
rejecting Bayer’s argument regarding price of the license
as a “manufactured inference.” Fees Op., 2015 WL
1197436, at *7.
    Equally unavailing is Bayer’s argument that we
should interpret the congratulatory email that it sent to
individuals working for both Stine and MS Tech as only
applying to their respective roles at Stine. The email
remarked: “[W]e are convinced that in your capable hands
these ‘products’ will find their true worth in the market.”
J.A. 13654. While the email was sent to the individuals’
Stine email accounts, a Bayer news release announcing
the deal identified one of those individuals as a Director of
MS Tech and quoted him as saying that partnering with
Bayer “will help us bring these novel products to market.”
Fees Op., 2015 WL 1197436, at *9 (emphasis omitted).
BAYER CROPSCIENCE AG    v. DOW AGROSCIENCES LLC         13

This evidence suggests that Bayer considered at least this
individual as an executive of both Stine and MS Tech, and
the district court did not abuse it discretion in inferring
that the email was not limited to the executive’s role with
Stine.
    We have considered Bayer’s remaining arguments
and find them unpersuasive to show that the district
court abused its discretion.
                        CONCLUSION
     For the foregoing reasons, we hold that the district
court did not abuse its discretion in determining that,
under the totality of the circumstances, this was an
exceptional case, and we affirm the district court’s grant
of § 285 fees.
                        AFFIRMED
                           COSTS
   Costs to appellee.