Monsanto's court victory may wipe out DuPont reserves
By MATEUSZ PERKOWSKI
A lawsuit alleges the DuPont corporation breached its duty to shareholders by knowingly violating a contract with a rival biotech seed producer and lying about it in court.
The complaint seeks compensation from DuPont's board of directors, alleging directors exposed the company to great financial risk in a patent dispute with the Monsanto Co. over a biotech trait.
Monsanto had developed a genetic trait that allows plants to withstand glyphosate herbicides, thereby preventing damage to crops sprayed with the chemical.
DuPont licensed the "Roundup Ready" trait from Monsanto and inserted it into seeds produced by its subsidiary, Pioneer Hi-Bred International.
In August 2012, a federal jury found that DuPont violated Monsanto's patent by "stacking" the Roundup Ready trait with its own glyphosate-resistant "Optimum GAT" genetics.
The shareholder lawsuit claims DuPont took this step because it was apparent that Optimum GAT "was a failure as a stand-alone product" and posed an unacceptable risk to growers.
Monsanto said it opposed this combination because it raised "stewardship concerns and regulatory questions."
The jury awarded Monsanto $1 billion, but the recent shareholder lawsuit claims that punitive damages may bring the total judgment to $3 billion -- potentially wiping out DuPont's cash reserves.
"We are confident in the appropriateness of all our actions," said Thomas Sager, DuPont's general counsel, in a statement.
The shareholder lawsuit contends that DuPont's board of directors disregarded the license violation and engaged in litigation to the detriment of stockholders rather than remedying the dispute.
According to the complaint, DuPont knew it wasn't allowed to stack Monsanto's biotech trait and commercialize the product, but nonetheless told a federal judge these actions were permitted in its licensing agreement.
The shareholder complaint supports those allegations with a court ruling from the patent litigation that found DuPont's statements "were contradicted by facts" and that the company "perpetrated a fraud against the court."
Emails between DuPont's attorneys undermine the company's position that it was acting in good faith by stacking the traits, Senior U.S. District Judge Richard Webber said in the opinion.
"Defendants knew that they lacked these rights, and yet, they stated throughout two years of litigation that they negotiated for these rights and always believed they had these rights," Webber said.
To win a stockholder lawsuit, a plaintiff must show that a company's board of directors acted recklessly or committed intentional misconduct -- not just negligence, said Mark Loewenstein, a law professor specializing in securities law at the University of Colorado.
"They'd have to be really reckless, and what that translates to is hardly paying any attention to what they were doing," Loewenstein said.
In a shareholder derivative lawsuit such as the one filed against DuPont, the board members could be found liable for damages, which would then be owed to the corporation, he said.
In contrast, class action shareholder lawsuits seek compensation for the reduced stock value of individual investors.
Shareholder derivative lawsuits are often settled with the company agreeing to changes in corporate governance, in which case only the plaintiffs' attorneys get paid, Loewenstein said.
When a company takes a big loss, however, it becomes more vulnerable to such a lawsuit, he said. "When there's a lot of money lost, you take a shot."