Determination of Reasonable Royalty Should Consider Benefits to Patentee and Infringer

A Federal Circuit panel, in Monsanto Company v. Homan McFarling (No. 05-1570, -1598; May 24, 2007), affirms a district court's patent infringement damage award. In so doing, the Court holds that the jury properly considered the benefits that plaintiff Monsanto’s established licensing program conferred on both Monsanto and its licensees in order to establish a reasonable royalty.

Monsanto’s patents cover a system for weed control that employs genetically modified crops resistant to glyphosate herbicides. Monsanto distributes patented seeds by authorizing various companies to produce the seeds and sell them to farmers. McFarling purchased patented seed and signed a “Technology Agreement” which prohibited McFarling from planting seeds produced from the purchased seed. McFarling paid a $6.50 license fee to Monsanto per 50-pound bag of seed. McFarling also paid an authorized seed company between $19 and $22 per bag of seed. McFarling subsequently violated the Technology Agreement by planting seed produced by the patented seed. Monsanto sued for breach of contract and patent infringement.   At trial, the jury awarded Monsanto a reasonable royalty rate of $40 per bag of seed.  McFarling appealed the royalty rate and argued that Monsanto had established a royalty rate of $6.50 per bag through its established licensing program. 

The Federal Circuit panel agrees with McFarling’s position that “an established royalty is usually the best measure of a “reasonable royalty” for a given use of an invention because it removes the need to guess at the terms to which parties would hypothetically agree.” In affirming the jury’s award, however, the Federal Circuit holds that “it was proper for the jury to consider not only the benefits of the licensing program to Monsanto, but also the benefits that Monsanto’s technology conferred on farmers such as Mr. McFarling.”   The court finds that the benefits of increased yield and the reduced cost of weed control confer a savings of $31 to $61 per bag of seed to McFarling and then concludes that the jury’s award of $40 per bag was reasonable.