Unanimous Supreme Court Says No Patent Exhaustion for Monsanto Roundup Seeds

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By Tony Dutra  

Seeds harvested from one crop were “additional copies” of Monsanto Co.'s patented invention and thus were not subject to the patent exhaustion doctrine, a U.S. Supreme Court held unanimously on May 13 (Bowman v. Monsanto Co., U.S., No. 11-796, 5/13/13).

The decision, affirming a ruling by the U.S. Court of Appeals for the Federal Circuit, represented a victory for Monsanto, whose patents on Roundup Ready transgenic seeds have withstood attacks from farmers for more than a decade.

There was an open question whether the court's decision would cover other technologies, but Justice Elena Kagan confined the scope of the opinion to seeds and to the actions of Indiana soybean farmer Vernon Hugh Bowman:  

Our holding today is limited--addressing the situation before us, rather than every one involving a self-replicating product. We recognize that such inventions are becoming ever more prevalent, complex, and diverse. In another case, the article's self-replication might occur outside the purchaser's control. Or it might be a necessary but incidental step in using the item for another purpose.  

 

 

However, stakeholders consulted by Bloomberg BNA said that the opinion would likely be controlling in cases on other technologies.

Second-Crop Replanting by Bowman

Monsanto 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 claims that farmers who plant harvested seeds, such as Bowman in this case, violate the agreement and infringe the patents.

Monsanto has mostly succeeded in court, fending off challenges by farmers and others related to the terms of the agreement, patent misuse, antitrust claims such as tying, and a purported conflict with statutes for plant variety patentability. Bowman was the first to argue that the company had exhausted its patent rights after the initial authorized sale.

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 acknowledged that most farmers use commodity seeds that way, but he used those seeds in a “second-crop” planting each year. The soybeans from that second-crop planting included the patented gene, and Monsanto sued, alleging patent infringement.

Federal Circuit: 'Newly Infringing Article.'

The Federal Circuit affirmed the U.S. District Court for the Southern District of Indiana's summary judgment of infringement. Monsanto Co. v. Bowman, 657 F.3d 1341, 100 U.S.P.Q.2d 1224 (Fed. Cir. 2011) (185 PTD, 9/23/11).

The appeals 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) (111 PTD, 6/10/08). 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 September 2012. He 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. The Supreme Court nevertheless agreed to hear the case.

However, the justices were critical of Bowman's position in the Feb. 19 oral argument.

Exhaustion in Terms of 'Use,' Not 'Make.'

Kagan's opinion affirmed that the patent exhaustion doctrine “limits a patentee's right to control what others can do with an article embodying or containing an invention.”

However, the court held, “the doctrine restricts a patentee's rights only as to the 'particular article' sold …; it leaves untouched the patentee's ability to prevent a buyer from making new copies of the patented item.” The court thus distinguished Bowman's right to “use” the purchased patented article from the right to “make” another article:  

Bowman could resell the patented soybeans he purchased from the grain elevator; so too he could consume the beans himself or feed them to his animals. Monsanto, although the patent holder, would have no business interfering in those uses of Roundup Ready beans. But the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto's permission (either express or implied). And that is precisely what Bowman did.  

 

 

By replanting the seeds and harvesting more beans, Bowman reproduced the patented invention, the court said. And the patent exhaustion doctrine was unavailable whether he replanted from his own crop or purchased the seeds from a grain elevator, the court added, negating potential arguments by other Roundup Ready seed planters. In either case, according to the court, the crop of beans from the second planting was not licensed by Monsanto.

Otherwise, Meaningless Monopoly

During oral argument, the justices expressed concern about limiting the economic benefit to seed patenting by companies like Monsanto, and Kagan's opinion amply reflected that concern.

The court noted that, under Bowman's theory, Monsanto could lose its monopoly as to the patented seeds after a single sale of seed. Other seed companies could reproduce and market the seed, the court said, and farmers could replant ad infinitum, “each time profiting from the patented seed without compensating its inventor.”

Later in the opinion, responding to Bowman's argument that replanting is a “use” and not “making,” the court returned to this overarching principle:  

[I]f simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention. The undiluted patent monopoly, it might be said, would extend not for 20 years (as the Patent Act promises), but for only one transaction. And that would result in less incentive for innovation than Congress wanted. Hence our repeated insistence that exhaustion applies only to the particular item sold, and not to reproductions.  

 

 

No 'Blame-the-Bean' Defense

The court also noted the distinction between patenting seed under the Patent Act and the protection offered by a certificate issued under the Plant Variety Protection Act, 7 U.S.C. §2321. The exemption for “saving seed” under the PVPA has no Patent Act equivalent, the court said.

Kagan cited the court's opinion on the two statutes in J.E.M. Ag Supply Inc. v. Pioneer Hi-Bred International Inc., 534 U.S. 124, 60 U.S.P.Q.2d 1865 (2001). The court there held, she said, that a patent holder could prohibit saving harvested seed from replanting.

“That statement is inconsistent with applying exhaustion to protect conduct like Bowman's,” she said.

Finally, the court rejected what it characterized as Bowman's “seeds-are-special” argument--that they self-replicate of their own accord.

“But we think that blame-the-bean defense tough to credit,” the court said. “Bowman was not a passive observer of his soybeans' multiplication; or put another way, the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops.”

After refusing the opportunity to address whether the exhaustion doctrine applies to other self-replicating technologies, the court affirmed the Federal Circuit's decision.

Stakeholders: Court Got it Right

“Monsanto's patented invention has resulted in substantial monetary and man-hour savings to millions of farmers, bringing environmental benefits as farmers can use less invasive farming techniques,” Stewart D. Fried of Olsson Frank Weeda Terman Matz, Washington, D.C., commented to BNA. “This (and future) innovations will be critical in feeding the world's rapidly increasing population.”

He rejected Bowman's blame-the-bean defense in particular. “Soybeans and other crops require a significant amount of human intervention,” he said. “They simply do not grow themselves.”

However Fried, who filed a brief in the case on behalf of the American Soybean Association, noted that the high court's opinion repeatedly commented on Bowman's specific actions, which included treating his replanted fields with Roundup to kill weeds.

“Had Bowman merely planted commodity beans purchased from an elevator and not applied Roundup, the result might have been different as he would not have gained any benefit from the genetically modified trait in Roundup Ready soybeans,” he said.

Rod S. Berman of Jeffer Mangels Butler & Mitchell, Los Angeles, commented that “the artful patent prosecutor should also be credited for the success of Monsanto.”

“One of the claims at issue was broad enough to cover replicated seeds that included a copy of a DNA sequence encoding an enzyme having a particular sequence,” he told BNA. “The court recognized the uniqueness of DNA technology in the context of seeds, and readily came to the conclusion that patented seeds cannot be reproduced without obtaining a license from the patent holder.”

What About Other Self-Replicating Technologies?

Patrice P. Jean of Kenyon & Kenyon, New York, identified to BNA vaccines, genetically altered cell lines, genetically altered bacteria, DNA plasmids and vectors, genetically modified viruses, and computer software as other examples of self-replicating technology.

Though she acknowledged that the court explicitly limited its decision to the facts of this case, Jean asserted that the court's language related to the economic benefit concern “suggested that the court can and might apply an exclusion of the exhaustion doctrine to other self-replicating technologies on a case by case basis depending on whether it believes application of the doctrine would stifle innovation.”

Fried's comments were in accord. Listing the same types of technologies that Jean had identified, Fried said that the opinion “will likely be cited as authority with respect to other self-replicating technologies.”

Whither 'Conditional Sale' Doctrine?

The high court failed to address one remaining issue.

In briefing, the U.S. government had said, “The Federal Circuit's 'conditional sale' decisions allow patent holders to retain control over the use or resale of a patented article even after an authorized sale of that article has occurred--the very thing the exhaustion doctrine is intended to prevent.”

But the appeals court has not spoken to the issue since the Quanta case, and at oral argument, Justice Sonia M. Sotomayor had asked whether “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?”

Monsanto's counsel Waxman apparently satisfied the court by responding that the Federal Circuit did not rely on it in this case.

Jean, however, was not so sure. “The Supreme Court didn't comment and I believe the exception to still be alive,” she said.

One More Argument Out There

In a separate challenge currently at the Federal Circuit on a standing issue, the Public Patent Foundation took yet another approach against Monsanto.

The plaintiffs in that case asserted that they did not want to use or sell transgenic seed, but that the seeds were being blown onto their farms. The farmers said that 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, cl. 8.

The appeals court heard oral argument in the case Jan. 10, but has yet to reach a decision.

“I tend to doubt that the Bowman decision will be a factor at all in the Public Patent Foundation's case,” Fried, who attended the oral argument, told BNA. “The problem for [PubPat] was that none of their clients were actually impacted at all. My recollection is that none of their members found more than de minimis traces of genetically modified crops in their harvests.”

Mark P. Walters of Frommer Lawrence & Haug, Seattle, represented Bowman before the Supreme Court. Seth P. Waxman of Wilmer Cutler Pickering Hale & Dorr, Washington, D.C., represented Monsanto. Melissa Arbus Sherry, assistant to the solicitor general, argued the government's position before the court.

By Tony Dutra  


Text is available at http://www.bloomberglaw.com/public/document/Vernon_Hugh_Bowman_v_Monsanto_Company_et_al_Docket_No_1100796_US_.