Bayer Cropscience Ag v. Dow Agrosciences LLC , 851 F.3d 1302 ( 2017 )


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  •   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.