http://www.businessweek.com/news/2012-08-01/monsanto-s-1-billion-patent-claim-against-dupont-to-go-to-jury

Bloomberg News

Monsanto’s $1 Billion Patent Claim Against DuPont Nears End

August 01, 2012

Monsanto Co.’s claim that DuPont (DD:US) Co. owes $1 billion for infringing a patent on herbicide-tolerant crops and a counterclaim the patent was obtained through deception will go to a jury after lawyers present closing arguments today.

The trial, in its fourth week in federal court in St. Louis, revolves around Monsanto’s patent for making Roundup Ready crops, a technology at the heart of its $13.7 billion in annual revenue (MON:US). Farmers have embraced the technology because it allows them to kill weeds with Roundup herbicide while leaving crops unscathed.

Monsanto argued at the trial that DuPont had no right to make hundreds of lines of soybeans that combine the Roundup Ready trait with a similar DuPont technology known as GAT. Monsanto says that patent infringement is worth $1 billion. In response, DuPont has argued St. Louis-based Monsanto deceived the government to obtain the patent, rendering it unenforceable.

“If the jury finds in favor of Monsanto, we remain status quo in the industry,” said Jeff Windau, an analyst with Edward Jones in St. Louis, who has a hold rating on Monsanto and a buy rating on DuPont. “If it goes in favor of DuPont, that really sets up a series of new products that can enter the market. DuPont would be one of the first beneficiaries.”

The companies are the two largest in the $34 billion commercial seed market, which includes $13.3 billion of genetically modified seeds.

Roundup Ready

The Roundup Ready trait is engineered into more than 95 percent of soybeans, largely through licensing agreements, generating $22 billion of revenue in the past eight years for Monsanto and the more than 200 seed companies that license the technology, George C. Lombardi, a Chicago-based Monsanto attorney with Winston & Strawn LLP, told the jury in opening arguments on July 10.

The technology in that time drove $6 billion in soybean seed sales for Wilmington, Delaware-based DuPont, he said.

Monsanto sued in 2009 to block DuPont from adding the Roundup Ready trait to its GAT soybean seeds, which are engineered to tolerate so-called ALS herbicides and glyphosate, the active ingredient in Roundup. Adding a second glyphosate- tolerance gene to Roundup Ready crops is prohibited by the companies’ licensing agreement, U.S. District Judge Richard Webber previously ruled.

‘End Run’

“It would be a bigger loss for DuPont because of the implication that their GAT trait wasn’t successful and they were just trying to do an end run around that failure,” said Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co., who doesn’t believe DuPont’s argument will succeed.

John Soper, a DuPont vice president, testified that the company in 2008 produced hundreds of soybean lines combining the Roundup Ready trait with its GAT trait. That means DuPont will have had unauthorized use of Roundup Ready for six years before the patent expires in 2014, resulting in damages of $800 million to $1 billion, Lombardi said.

Monsanto has switched more than three-fourths of its branded soybean sales to Roundup Ready 2, which is covered by a new patent, the company said June 27. DuPont, Monsanto’s largest licensee, hasn’t agreed to use the new trait in its soybeans.

Combining Traits

DuPont claimed during the trial that Monsanto sued only after it was shown data that the two genes work better than either GAT or Roundup Ready alone. DuPont argues there was nothing wrong with making the combination because Monsanto’s Roundup Ready patent is invalid and unenforceable.

The patent was initially issued in 1997, based on a 1994 application. In 2003, Monsanto asked the U.S. Patent and Trademark Office to reissue the patent to correct what it said was an inadvertent mixing of patent claims from 1990 and 1994 applications.

DuPont contends Monsanto did that to mislead the patent office so the agency wouldn’t discover it was trying to hide information that might have blocked the patent.

DuPont claims Monsanto misled the patent office about which gene makes Roundup Ready function to obscure the invention’s similarity to a trait developed by Calgene Inc., a competitor at the time.

“It was intentional because Monsanto didn’t want people to know what was inside the bag, what was inside the seed,” Leora Ben-Ami, a New York-based DuPont lawyer with Kirkland & Ellis LLP, told the jury on July 10. “Monsanto didn’t want people to know how the seed was made.”

Reissued Patent

Monsanto learned of the vulnerability of the patent when it sued farmers over unauthorized use of the seeds, DuPont said during the trial. When Monsanto applied for a reissued patent, it also failed to properly tell the agency it already held a similar patent in Europe, violating U.S. disclosure rules, DuPont claims.

Janelle Waack, a patent lawyer for Monsanto who handled the reissue application, and other Monsanto witnesses testified that there was nothing improper about the applications. The reissue made the European patent irrelevant, Waack said. All similar inventions were disclosed and the correct genetic sequence was referenced in all patent applications, according to Monsanto testimony.

Shaw predicts Monsanto and DuPont will ultimately settle their differences.

Reaching Agreement

“They’re going to reach some mutually beneficial agreement even if one loses the trial,” said Shaw, who has a neutral rating on Monsanto shares and doesn’t rate DuPont. “Ultimately both need each other, given the market share.”

DuPont also claimed in a 2009 lawsuit that Monsanto uses monopoly power to stifle innovation, restricting use of the Roundup Ready trait while making it difficult for other companies (MON:US) to develop a competing trait. Those antitrust claims have been split off into a separate case, with a trial scheduled for April.

Monsanto filed another suit against DuPont and its Pioneer Hi-Bred unit in June, accusing it of infringing patents over a way to develop new seeds more quickly and with fewer failures. The dispute is over a process known as seed chipping, which enables the automated sampling of genetic material from seeds without harming their viability. Pioneer has a pending case against Monsanto, filed in 2011, over ways to produce corn seeds.

The case is Monsanto Co. (MON:US) v. E.I. duPont de Nemours & Co., 09cv686, U.S. District Court for the Eastern District of Missouri (St. Louis).

To contact the reporters on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Steven Frank at sfrank9@bloomberg.net


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