Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...
An inventor can prevent the unauthorized making or copying of a patented article. The purchaser of a patented article can use it or resell it as the purchaser deems fit.
Those two standard statements of patent policy came into conflict during oral argument at the Supreme Court Feb. 19 in the context of planting seeds that come from a harvested crop (Bowman v. Monsanto Co., U.S., No. 11-796, argued 2/19/13).
Seventy-five-year-old Indiana farmer Vernon Hugh Bowman is appealing the U.S. Court of Appeals for the Federal Circuit's ruling that the soybeans derived from his planting of second-generation seeds are newly infringing articles, such that Monsanto Co. can enforce its Roundup Ready patents and block replanting.
Monsanto sells transgenic seed--corn, canola, soybean, sugar beet, alfalfa, and cotton--under the trade name Roundup Ready. Monsanto's patent on glyphosate, the basis for its Roundup herbicide, expired in 2000. The seed patents (Nos. 5,352,605 and RE39,247 on soybeans) cover technology for glyphosate-tolerant transgenic crops. They include claims to a particular “chimeric gene which is expressed in plant cells.” Thus, the plants whose genetic profiles include that gene infringe Monsanto's patents.
The company licenses its technology to seed producers, who in turn sublicense it to farmers, under the terms of a licensing contract, known as the Monsanto technology agreement. The agreement limits a farmer's planting of seeds to a single season, but the Roundup Ready trait is inherited by each successive seed generation. Monsanto has generally brought claims to fight instances of seed planting in a second or subsequent season without license payments.
The company has mostly succeeded, fending off challenges by farmers and others related to the terms of the agreement, patent misuse (77 PTD, 4/22/04), antitrust claims such as tying (162 PTD, 8/22/06), and a purported conflict with statutes for plant variety patentability (29 PTD, 2/13/08).
In a separate challenge currently at the Federal Circuit on a standing issue, the Public Patent Foundation took yet another approach (40 PTD, 3/1/12). The plaintiffs claim that they do not want to use or sell transgenic seed, but that the seeds are being blown onto their farms. The farmers say they “are increasingly being threatened by transgenic seed contamination despite using their best efforts to avoid it.” The patent eligibility argument, under 35 U.S.C. §101, is that Monsanto's patents are not “useful,” as contemplated in the U. S. Constitution, Art. I, para. 8, clause 8.
Bowman has tangled with Monsanto since 1999. Monsanto accused Bowman of using Roundup Ready “commodity seeds” against the terms of the Technology Agreement.
Commodity seeds are sold by grain elevators, which buy and collect post-harvest seeds from farmers such as Bowman. The technology agreement authorizes the farmers' sales to the grain elevators and authorizes the grain dealers' resale to farmers, but the typical use is as feed for animals.
Bowman, however, bought and used commodity seeds in a “second-crop” planting each year. The soybeans from that planting contained the patented gene, and Monsanto sued for infringement.
Bowman was the first defendant to argue that the company had exhausted its patent rights after the initial authorized sale. The Federal Circuit disagreed. Monsanto Co. v. Bowman, 657 F.3d 1341, 100 U.S.P.Q.2d 1224 (Fed. Cir. 2011) (185 PTD, 9/23/11).
The court held that the result of self-replicating technology is a “newly infringing article.” Thus, even if the original seed is subject to patent exhaustion after its first sale, the crop from replanting the second generation is not.
The court further rejected Bowman's argument that exhaustion applies because each sold seed is a “substantial embodiment” of later generation seeds, invoking the term used in the Supreme Court's holding in Quanta Computer Inc. v. LG Electronics Inc., 128 S. Ct. 2109, 86 U.S.P.Q.2d 1673 (2008). The court disagreed with that characterization of the commodity seeds, since “nothing in the record indicates that the 'only reasonable and intended use' of commodity seeds is for replanting them to create new seeds.”
Bowman sought high court review in December 2011. According to the petition, Monsanto exhausts its patent rights after an authorized sale of seeds “for their natural and foreseeable purpose--namely, for planting.” It stated the question presented as:
Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?
The court invited the government to submit a brief, and the Office of the U.S. Solicitor General recommended that the court not grant certiorari (186 PTD, 9/26/12). The Supreme Court nevertheless granted cert.
Bowman's merits brief, filed Dec. 3, stated, “This case raises similar issues to those considered in Quanta, with the main difference being that the patented items at issue here are 'self-replicating.' ” The brief further characterized the Federal Circuit's decision in terms of pre-Quanta precedent that “patent exhaustion does not apply to an 'expressly conditional sale' … that imposes post-sale restrictions on the purchaser,” thus contending that the technology agreement's restrictions on use of the seed violated public policy.
A brief on behalf of the U.S. government countered by asserting that “Although the Federal Circuit has previously erred in fashioning a 'conditional sale' exception to patent-exhaustion principles, those errors do not cast doubt on the court of appeals' decision here.” It endorsed the Federal Circuit's view of a “newly infringing article” and said that was not implicated by the conditional sale doctrine.
Monsanto's Jan. 16 brief stated, “the patent exhaustion doctrine never grants the purchaser the right to 'make' new copies of the invention, as petitioner did when he cultivated new crops of soybeans embodying the invention.” And as to the conditional sale issue, the brief argued that patent law does not render all restrictions imposed by a license for use of a patented article per se unenforceable, though it relied primarily on precedents more than a century old.
Mark P. Walters of Frommer Lawrence & Haug, Seattle, argued for Bowman. He had barely begun his argument when Chief Justice John G. Roberts Jr. asked, “Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?”
He brushed aside Walters's suggestion that Monsanto could form adequate contractual protection to justify its investment, contending that patent protection is intended to fill that role.
“Well, part of the patent policy as well is to protect the purchaser,” Walters said, “and that's been part of this Court's law for more than 150 years. … [U]nder Monsanto's theory, there is really no limit to the exhaustion doctrine.”
Later in the hearing, Roberts was equally critical of Bowman's opponents' arguments. That was not so with Justice Stephen G. Breyer.
Breyer's basic premise was that the patents covered the seeds themselves, and he defined three generations of seeds--the first bought from Monsanto, the second resulting from the first crop, and the third resulting from replanting the second generation seeds. Bowman can argue that the second generation was authorized, whether by his own Technology Agreement or the rights of the grain elevator to sell them. But, Breyer said, it is the third generation that infringes and they are not covered by any agreement.
“[Bowman] can resell generation two, he can do whatever he wants with it. If he sterilizes it and uses them in a circus, he can do it,” Breyer said, “The only thing he cannot do is he cannot create generation three, just as he couldn't use generation two seeds to rob a bank.”
Walters's response was to focus on the “use” of the patented articles, presumably allowed under the exhaustion doctrine, compared to the “making” of something different, and that served as a lead-in to the arguments by the government and Monsanto.
Melissa Arbus Sherry, assistant to the solicitor general, argued the government's position before the court. Agreeing with Breyer, Sherry said, “the exhaustion doctrine really has nothing to do with this case, and that's because the exhaustion doctrine has always been limited to the particular article that was sold, and we are talking about a different article here.”
Roberts now took aim at Sherry.
“It's the reason [this case] is here, because you have the intersection of the exhaustion doctrine and the normal protection of reinvented articles,” he said. “So I don't think it gets you very far to say that we've never applied the exhaustion doctrine that way either. We have never applied the reinvention doctrine to articles that reinvent themselves like plant seed.”
Sherry's defense was in the argument that investment follows from patent protection. “In order to encourage investment, the Patent Act provides 20 years of exclusivity,” she said. A ruling against Monsanto “would be reducing the 20-year term to essentially one and only one sale.”
Justice Antonin G. Scalia agreed that was a “pretty horrible result.” But he said it would also be horrible if “no farmer could ever plant anything from a grain elevator.”
Sherry described “traditional farming practice” so as to minimize the concern, but given Walters's subsequent rebuttal arguments, it was clear there were factual disputes about the uniqueness of Bowman's farming practices and the prohibitions on grain dealers, at least.
Returning to her main argument, Sherry repeatedly referred to Breyer's separation of the three generations, and insisted that patent exhaustion applies only to the specific articles in the first and second generation of seeds.
Again Roberts objected on the basis that all seeds carrying the genetic trait ultimately derive from Monsanto's first insertion of the gene into a plant cell. He asked, “You are saying it's exhausted with respect to the one bean?”
Sherry likened the case to Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 82 U.S.P.Q.2d 1400 (2007). In that case, Microsoft's “golden master” disk was used to install Windows onto foreign-assembled computers. Extraterritoriality issues saved Microsoft in that case, but the court said the individual copies would be infringing if made in the United States.
However, a further example, offered by Monsanto's counsel, Seth P. Waxman of Wilmer Cutler Pickering Hale & Dorr, Washington, D.C., made it apparent that the comparison to the Microsoft case was not completely on point, according to Roberts.
Waxman said that vaccines have the same characteristic, such that a vaccine manufacturer could eventually find itself in competition with pharmacies, such as CVS, to which it distributes the vaccine.
However, Roberts said, “it's not a situation where the intended use of the vaccine necessarily results in regeneration of it. In your hypothetical, CVS was going to some lab and making more, right?”
When Waxman tried to bring the software example back into the conversation, Breyer became interested again. That led to a discussion of whether the differences between licenses--typical in the software world--and sales could benefit Monsanto, and that led to a discussion about the Federal Circuit's conditional sale doctrine.
Justices Elena Kagan and Sonia M. Sotomayor joined Breyer in asking whether the court should speak to the doctrine in its opinion in the instant case. Sotomayor asked whether “both [you and the government] are suggesting… that we were explicit enough in Quanta and we don't have to address whatever lingering confusion the Federal Circuit may have with respect to conditional sales at all in this case?”
Waxman repeated the argument from Monsanto's brief that the Federal Circuit did not rely on it, and that the appeals court's identification of a newly infringing article is all that is at issue in the cert petition.
“I think that an appropriate case will come up where it will be important for you to determine [the conditional sale issue],” he said.
However, Waxman did proceed to defend the argument in his brief. He argued that no one objects to use restrictions in a lease, but that seed technology cannot be leased “because it will consume itself in whatever use one makes of it.” Monsanto was merely looking for an equivalent right given it cannot sign lease agreements, he said.
“[I]f the inventor has to realize its full costs of development and a reasonable rate of return on the first sale, the fact that there is this necessary sale in order to commercialize the invention cannot ipso facto make all such conditions unenforceable,” Waxman said.
Waxman also found himself essentially defending the issue that was presented in the Public Patent Foundation case, Organic Seed Growers and Trade Association v. Monsanto Co., No. 2012-1298 (Fed. Cir., argued Jan. 10, 2013).
Kagan said that “seeds can be blown onto a farmer's farm by wind, and all of a sudden you have Roundup [Ready] seeds there and the farmer is infringing,” thus identifying another reason why the technology involved in the Monsanto patents creates new challenges for patent law.
Waxman reminded the justices that, under 35 U.S.C. §271(a), infringement is a strict liability tort, but he said that “it requires affirmative volitional conduct. That is, a thing doesn't infringe; a person infringes.”
But, Breyer said, “A person plants it.”
When Breyer ultimately suggested that “a modification in patent law” would be needed to make an exception to infringement for involuntary use of a patent, Waxman appeared to agree.
Waxman also represented Monsanto in a case before the Federal Circuit, which heard oral arguments on Jan. 10. In that hearing, Waxman asserted that Monsanto had no intention of filing claims in cases in which infringement might be involuntary. His purpose there, though, was to deny standing to farmers who argued that the threat of infringement allowed them to challenge Monsanto under the Section 101 argument.
By Tony Dutra
Transcript is available at http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-796.pdf.
Federal Circuit's opinion is at http://pub.bna.com/ptcj/101068Sep21.pdf.
Bowman's brief is available at http://pub.bna.com/ptcj/110796Bowman12Dec3.pdf.
Monsanto's brief is available at http://pub.bna.com/ptcj/110796Monsanto13Jan16.pdf.
Amicus briefs are available at http://www.americanbar.org/publications/preview_home/11-796.html.
Five amicus briefs were submitted supporting Bowman: American Antitrust Institute, National Farmers Union, Food & Water Watch, Organization for Competitive Markets, and National Family Farm Coalition; Automotive Aftermarket Industry Association, Automotive Parts Remanufacturers Association, and International Imaging Technology Council; Center for Food Safety and Save Our Seeds; Knowledge Ecology International; and Public Patent Foundation.
The other 17 amicus briefs filed in the case support Monsanto and affirmance: Agilent Technologies Inc., Illumina Inc., Life Technologies Corp., Promega Corp., Qiagen N.V., and Roche Molecular Systems Inc.; American Intellectual Property law Association; American Seed Trade Association; American Soybean Association, 15 state soybean growers associations, National Corn Growers Association, National Association of Wheat Growers, American Sugarbeet Growers Association, and Growers For Biotechnology; Bayhdole25 Inc.; Biotechnology Industry Organization; BSA--The Software Alliance; CHS Inc.; CropLife America; CropLife International; four “academic and professional economists specializing in agricultural economics, industrial organization, and the economics of innovation”; Christopher M. Holman, professor of law at the University of Missouri-Kansas City School of Law; Intellectual Property Owners Association; New York Intellectual Property Law Association; Pioneer Hi-Bred International Inc.; Washington Legal Foundation; and Wisconsin Alumni Research Foundation, 18 other universities, and three university associations.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)