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Recent Cases
United
States Court of Appeals for the
Federal Circuit
00-1218,
-1350
RHONE-POULENC
AGRO, S.A.
(Now known
as Aventis CropScience, SA),
Plaintiff-Appellee,
v.
DeKALB
GENETICS CORPORATION
(Now known
as Pharmacia Corporation),
Defendant-Appellant,
and
MONSANTO
COMPANY,
(Now known
as Pharmacia Corporation),
Defendant.
George
Pazuniak, Connolly Bove Lodge & Hutz LLP, of Wilmington, Delaware, for
plaintiff-appellee. With him on
the brief were Rudolf E. Hutz and Francis DiGiovanni. Of counsel was Richard D. Levin.
John
F. Lynch, Howrey Simon Arnold & White, LLP, of Houston, Texas, for
defendant-appellant. With him
on the brief were Richard L.
Stanley and Steven G. Spears. Of counsel were Lisa J. Saks,
of Washington, DC, and Michael
E. Lee, of Houston, Texas, Howrey
Simon Arnold & White, LLP; and Donald L. Traut, Dekalb Genetics,
Legal Department, of Dekalb, Illinois.
Appealed
from: On remand from the
Supreme Court of the United
States
United States
Court of Appeals for the Federal Circuit
00-1218,
-1350
RHONE-POULENC
AGRO, S.A.
(Now known
as Aventis CropScience, SA),
Plaintiff-Appellee,
v.
DeKALB
GENETICS CORPORATION,
Defendant-Appellant,
and
MONSANTO
COMPANY,
(Now known
as Pharmacia Corporation),
Defendant.
___________________________
DECIDED: September
29, 2003
___________________________
Before
CLEVENGER, SCHALL and DYK, Circuit Judges.
CLEVENGER,
Circuit Judge.
DeKalb Genetics Corporation
("DeKalb") appealed the fraudulent inducement, trade secret
misappropriation, and patent infringement jury verdicts in favor of
Rhône-Poulenc Agro, S.A. ("RPA"), as well as the award of
punitive damages and several related post-trial rulings made by the
district court. On November 19, 2001, this
court issued a ruling which affirmed the appealed jury verdicts and
district court rulings. Rhone-Poulenc
Agro SA v. DeKalb Genetics Corp., 272 F.3d 1335 (Fed. Cir. 2001) (Rhone-Poulenc
II). DeKalb petitioned the
Supreme Court for review, and on April 23, 2003, the Court granted
certiorari, vacated our decision, and remanded the case to this court for
reconsideration in light of State Farm v. Campbell, 538 U.S. ___,
123 S. Ct. 1513 (2003). DeKalb
Genetics Corp. v. Bayer CropScience, S.A., ___ U.S. ___,
123 S. Ct. 1828 (2003).
Following remand from the Supreme Court, we recalled
our mandate and
reinstated the appeal. Rhone-Poulenc Agro, S.A. v.
DeKalb Genetics Corp., 66 Fed. App. 874, 875 (Fed. Cir. 2003)
(nonprecedential order). We
further requested additional briefing from the parties regarding the
applicability of State Farm to the current case. Id. Based on the Supreme Court's
instruction and the supplemental briefing from the parties, we have
reconsidered this case and, once again, affirm the judgment entered by the
district court.
I
Because we have previously
discussed the background of this patent dispute in detail, Rhone-Poulenc
II, 272 F.3d at 1340-43, we need not repeat it here. We provide only the relevant facts
salient to the instant disposition.
From 1991 through 1994, RPA and
DeKalb collaborated on the development of biotechnology related to the
genetic material of plant seeds.
Id. at
1341. As part of this
collaboration, RPA provided DeKalb with new genetic material, and in exchange
DeKalb would test the material and share the results of its testing with
RPA. Id. During the collaboration, scientists
at RPA developed an optimized transit peptide ("OTP") with a
particular maize gene, which proved useful in growing herbicide-resistant
corn plants. Id. Per their agreement, RPA provided
DeKalb the OTP-containing genetic material in February of 1993. Id. Although DeKalb shared with RPA its
initial greenhouse test results on OTP-containing corn, DeKalb never sent
the results of its subsequent successful field tests to RPA. Id. at
1341-42. Instead, DeKalb used
the field test results to backcross the successful OTP-containing corn
plants with commercial corn varieties, thus gaining an advantage on any
potential competition. Id. at 1342.
By withholding its knowledge of the
successful field test results, DeKalb was able to negotiate a more
advantageous agreement with RPA in 1994. Id. Through that new 1994 agreement,
DeKalb received a $500,000 payment from the settlement of a lawsuit between
RPA and Monsanto related to the OTP genetic material, world-wide paid-up
right to the technology, and the right to grant sublicenses to that
technology. Id. The 1994 RPA-DeKalb agreement
"amounted to a complete surrender of RPA's exclusive rights to the
technologies." Id. Eventually, DeKalb developed a
commercially successful corn line which, thanks to the OTP-containing
material, was resistant to herbicide.
Id.
On October 30, 1997, RPA
filed suit against DeKalb and Monsanto, seeking, inter alia,
to rescind the 1994 Agreement on the ground that DeKalb had procured the
license by fraud. Id. at
1343. RPA also alleged that
DeKalb and Monsanto were infringing RPA's patent and had misappropriated
RPA's trade secrets. Id. At DeKalb's request, the district
court bifurcated the trial between two different juries, with the first
jury deciding the licensing and technology transfer issues and the second
jury deciding the trade secret and patent infringement claims. Id.
The first jury trial resulted in a judgment in favor
of RPA that DeKalb fraudulently
induced RPA to enter into the 1994 Agreement. Id. The first jury awarded RPA $1 in
nominal damages, $15 million in unjust enrichment recovery, and $50 million
in punitive damages. Id. RPA also was awarded rescission of
the 1994 agreement. Id. The second jury trial similarly
resulted in a judgment in favor of RPA on both the trade secret
misappropriation and the patent infringement claims. Id. RPA and DeKalb then entered into a
stipulated agreement regarding damages for trade secret misappropriation
and patent infringement. Id.
In its appeal to this court, DeKalb
challenged the fraudulent inducement, trade secret misappropriation, and
patent infringement jury verdicts, as well as the award of punitive damages
and several related post-trial rulings by the district court. Id. at
1340. On review, we affirmed
the district court's judgment. Id. at
1343-60. In particular, we held
that the jury's verdict finding that DeKalb fraudulently induced RPA to
enter into the 1994 Agreement was supported by substantial evidence, id.
at 1343-47, and that the jury's award of punitive damages was not
unconstitutionally excessive in light of the Supreme Court's latest
pronouncements on the constraints imposed by the Due Process Clause on
punitive damages awards, id. at 1347-53 (citing Cooper Indus. v.
Leatherman Tool Group, 532 U.S. 424 (2001); BMW of N. Am., Inc. v.
Gore, 517 U.S. 559 (1996)).
In our application of Supreme Court precedent to the punitive damages
award, we carefully discussed and applied the three Gore factors:
(1) the degree of reprehensibility of the defendant's misconduct; (2) the
disparity between the harm suffered by the plaintiff and the punitive
damages award, and (3) the difference between the punitive damages awarded
by the jury and the civil penalties authorized or imposed in comparable
cases. Id. at
1347-48. On the issue of
reprehensibility of DeKalb's actions, our independent review of the record
indicated that, by a preponderance of the evidence, "DeKalb's conduct
was sufficiently reprehensible to support the award of punitive
damages." Id. at
1349. We then ruled that RPA
suffered substantial harm when DeKalb deprived RPA of the opportunity to
profit from the OTP-related technology. Id. at 1350-51. Finally, our review of state
statutes related to punitive damages did not indicate that the jury's award
of punitive damages was excessive compared to other available sanctions for
comparable misconduct. Id.
at 1351-52. For those reasons,
we affirmed the award of punitive damages.
As required by the Supreme Court's
instruction, we now reexamine our original opinion in light of State
Farm.
II
In State Farm, the Supreme
Court elaborated on the constraints placed by the Due Process Clause on the
discretion of juries and courts over both the severity of recognized
misconduct for which punitive damages may be imposed and the amount of such
penalty that may be constitutionally awarded for particular offenses. Given its narrow focus on punitive
damages awards, State Farm does not affect other issues related to
liability or compensatory damages.
Consequently, our holdings regarding fraudulent inducement,
rescission of the 1994 agreement, inequitable conduct, obviousness, and trade
secret misappropriation remain unaffected by the ruling of State Farm
and are restored in their entirety.
In addition, the central holding of
State Farm has no bearing on this case. In State Farm, the Supreme
Court reversed the Utah Supreme Court's decision upholding an award of
punitive damages that was punishing out-of-state conduct, 123 S. Ct. at
1521‑24, 1526, holding that "[a] State cannot punish a defendant
for conduct that may have been lawful where it occurred," id.
at 1522. Thus, the Supreme
Court focused on where the conduct being punished occurred, not the conduct
itself. In contrast, the
conduct itself is at issue in this case, and there is no claim that the
punitive damages award in this case punished out-of-state conduct.
III
We must, however, address the
question of whether State Farm requires us to change our conclusion
as to the constitutionality of the punitive damages award in this
case. We conclude that our
previous decision is unaffected by State Farm.
In its post-remand brief, DeKalb
raises three arguments to justify the modification of our original holding
on punitive awards. First,
DeKalb contends that, since our original opinion had acknowledged that none
of the Gore factors for reprehensibility was present, the award of
punitive damages is now infirm in light of State Farm. Second, the appellant again
challenges the $50 million in punitive damages as disproportionate to RPA's
harm. Finally, DeKalb submits
that the punitive damages award cannot stand because it allegedly exceeds
the authorized civil penalty under state law. We are unconvinced by those
arguments for the following reasons.
A
Under State Farm, DeKalb's
conduct is reprehensible and thus satisfies the first prong of the Gore
test. In our original opinion, we stated that "[i]t is true that the
facts alleged herein do not demonstrate any of the criteria enhancing
reprehensibility mentioned in Gore, such as an act of violence,
disregard for the health and safety of others, a pattern of misconduct, or
the exploitation of a financially vulnerable target." Rhone-Poulenc II, 272 F.3d at
1349 (citing Gore, 517 U.S. at 576). When we issued our opinion, DeKalb's
actions did not squarely fit the reprehensibility criteria listed in Gore. In fact, Gore only listed
four such criteria, see Gore,
517 U.S. at 576, all of which we considered in our original
opinion. We did not consider a
party's intentional malice to be one of the Gore factors, since only
one member of the
Gore Court specifically identified malice as a criterion to be
considered in the reprehensibility assessment. See id. (acknowledging
that "[i]ndeed, for Justice Kennedy, the defendant's intentional
malice was the decisive element in a 'close and difficult'
case").
In State Farm, however, the
Supreme Court expanded the list of specifically identified criteria that
lower courts must use to determine a defendant's reprehensibility:
"The
most important indicium of the reasonableness of a punitive damages award
is the degree of reprehensibility of the defendant's conduct." Gore,
supra, at 575. We have
instructed courts to determine the reprehensibility of a defendant by
considering whether: the harm caused was physical as opposed to economic;
the tortious conduct evinced an indifference to or a reckless disregard of
the health or safety of others; the target of the conduct had financial
vulnerability; the conduct involved repeated actions or was an isolated
incident; and the harm was the result of intentional malice, trickery,
or deceit, or mere accident. 517 U.S. at 576-577. The existence of
any one of these factors weighing in favor of a plaintiff may not be
sufficient to sustain a punitive damages award; and the absence of all of
them renders any award suspect.
State Farm, 123 S. Ct. at 1521 (emphasis
added). Among the specific
factors weighing in favor of sustaining a punitive damages award, the State
Farm Court explicitly listed "intentional malice, trickery, or
deceit." Id. For the Court's majority, that
factor has become an important criterion of what the Constitution accepts
as reprehensible conduct.
Although we did not originally consider intentional malice as a
criterion of reprehensibility, specifically identified in Gore, we
held that the lack of credibility of DeKalb's witnesses supported the
jury's finding of reprehensibility as to DeKalb's conduct. Rhone-Poulenc II, 272 F.3d at
1349. The Supreme Court's
addition of "intentional malice, trickery, or deceit" as a
specifically identified criterion for determining reprehensibility directly
supports this holding. See
State Farm, 123 S. Ct. at 1521.
In
this case, DeKalb acted with "intentional malice, trickery, or
deceit" in fraudulently inducing RPA to enter into the 1994
agreement. The first jury heard
witnesses' testimony and considered documentary evidence on that issue, and
found by preponderant evidence that DeKalb committed actual fraud against
RPA. Rhone-Poulenc II,
272 F.3d at 1344. Specifically,
to reach its verdict, the jury had to find under applicable state law that,
inter alia, DeKalb materially misrepresented a past or existing
fact, doing so definitely and specifically, with knowledge of its falsity
or in culpable ignorance of its truth, and with intention that the
misrepresentation should be acted upon. Id. Those findings, which were supported
by substantial evidence, indicate that DeKalb acted with the necessary
intentional malice, trickery or deceit to satisfy Gore's requirement
of reprehensibility.
In
sum, DeKalb cannot rely on our original opinion's acknowledgment that none
of the explicit Gore factors had been met. State Farm expanded the
criteria that we must consider in determining reprehensibility, and under
the Court's additional criteria, DeKalb's fraudulent actions constituted
reprehensible misconduct.
B
DeKalb
contends that, under State Farm, the $50 million in punitive damages
unconstitutionally exceeded the $15 million in compensatory damages awarded
by the jury. That argument does
not withstand scrutiny.
The
Court explained that "few awards exceeding a single-digit ratio
between punitive and compensatory damages, to a significant degree, will
satisfy due process." State
Farm, 123 S. Ct. 1524.
Although its precedent indicates that "an award of more than
four times the amount of compensatory damages might be close to the line of
constitutional impropriety," "[t]he precise award in any case, of
course, must be based upon the facts and circumstances of the defendant's
conduct and the harm to the plaintiff." Id.
In
this case, the proportion of punitive damages to compensatory damages does
not even approach the possible threshold of constitutional
impropriety. The $50 million
punitive award is barely above three times the compensatory award of $15
million in this case. That
ratio remains within the "[s]ingle-digit multipliers [which] are more
likely to comport with due process," id. at 1516, not even
reaching the 4-to-1 ratio mentioned by the Court as a threshold where the
punitive award may become suspect.
Given the egregious nature of DeKalb's fraudulent conduct in this
case, this low ratio of punitive to compensatory damages award lies well
within the bounds of constitutional propriety.
C
Finally,
DeKalb contends that our original opinion improperly applied the third Gore
prong by comparing the $50 million in punitive damages award to criminal
sanctions. We reject that
argument because State Farm did not proscribe the comparison of
criminal penalties authorized for the conduct in question to the punitive
damages awarded. Although State
Farm emphasized the use of comparable civil sanction for the third
guidepost of Gore and stated that criminal penalties have "less
utilities" in such inquiry, State Farm, 123 S. Ct. at 1526, it
did not prohibit such comparison.
In fact, the Court explicitly acknowledged that "in the past,
we have also looked to criminal penalties that could be imposed." Id. (citing Gore, 517
U.S. at 583; Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23
(1991)). As the Court stated,
"[t]he existence of a criminal penalty does have bearing on the
seriousness with which a State views the wrongful action." Id. Thus, contrary to DeKalb's
contentions, State Farm does not prohibit the use of comparable
criminal sanctions; the Court merely cautioned against using punitive civil
damages "to assess criminal penalties." Id. Consequently, the analysis of the
third guidepost in our original opinion is consistent with State Farm.
IV
As mandated by the Supreme Court,
we have reconsidered our original decision in this case in light of State
Farm. Based on this
reconsideration and as explained above, we again hold that there is no
constitutional infirmity in the award of punitive damages. And because State Farm did
not affect our rulings regarding the other liability and compensatory
damages issues, they are unaffected by the Supreme Court's opinion. Consequently, we reinstate our
original opinion, as modified by this instant ruling.
AFFIRMED
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