Updated May 16, 2013: The Supreme Court unanimously decided in favor of Monsanto in an opinion (pdf) published on May 13, 2013 and authored by Justice Kagan, holding that “[p]atent exhaustion does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder’s permission.”
The Supreme Court of the United States granted Vernon Hugh Bowman’s Petition for Writ of Certiorari on October 5 to decide whether the Federal Circuit erred by: (1) refusing to find patent exhaustion – a doctrine which eliminates the right to control or prohibit the use of an invention after an authorized sale – in patented seeds that were sold for planting, and (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies. To better understand these issues, some background is appropriate.
What sets Monsanto apart from the market is their production of genetically engineered “Roundup Ready™” seeds.
Monsanto Co. is an American agricultural biotechnology company which is best known for its “Roundup™” line of herbicides. What sets Monsanto apart from the market is their production of genetically engineered “Roundup Ready™” seeds. Essentially, the Roundup Ready™ seeds are Roundup™ resistant, meaning farmers can spray entire crop fields with Roundup™ without worrying about destroying their crops. The catch is that under the company’s licensing contract for the Roundup Ready™ seeds, farmers can only use the product to harvest one round of crops. Under the Monsanto license, the farmer never purchases the seed outright; the farmer licenses the seed’s use for one crop season. Using the seeds a second time, according to Monsanto, is patent infringement. From 1997 to April 2010, Monsanto has filed 144 patent infringement lawsuits against farmers.
Vernon Hugh Bowman is a 74-year-old soybean farmer from Indiana. Bowman was originally sued by Monsanto Co. for patent infringement for the use of genetically modified soybean seeds. According to Monsanto, Bowman used the seeds to plant a second harvest in violation of the licensing agreement. However, Bowman’s second harvest actually came from commercially-purchased “commodity seeds” from a grain elevator that happened to contain some of the Roundup Ready™ seeds.
Under the Monsanto contract, you can sell “second-generation” seeds to grain elevators to be used as commodity seeds without violating the licensing agreement, which is what happened here. Monsanto claims Bowman signed an agreement for his original seeds, but failed to sign an additional agreement for the second harvest that inadvertently contained Roundup Ready™ seeds. Bowman did not violate the user agreement, but Monsanto alleges he still infringed their patent by using the seeds outside of a licensing agreement.
The District Court issued a permanent injunction against Bowman to prevent him from making, using, selling, or offering to sell any of Monsanto’s patented crop technologies.
Monsanto sued Bowman for patent infringement in the United States District Court for the Southern District of Indiana. 7 On Monsanto’s motion for summary judgment, Judge Richard L. Young held that the “first sale” patent right exhaustion doctrine did not apply to the sale of soybeans that contained a patented trait by grain elevators or dealers to farmers, who then used them for planting. The District Court issued a permanent injunction against Bowman to prevent him from making, using, selling, or offering to sell any of Monsanto’s patented crop technologies and awarded Monsanto $84,456.20 in damages. Bowman appealed.
Before the Federal Circuit, 8 the court of original jurisdiction for patent appeals, affirmed the District Court’s ruling and further held that a letter to Bowman from Monsanto provided Bowman with actual notice of infringement, thus Monsanto could seek pre-complaint damages.
Bowman’s principal argument before the Federal Circuit was that, under the Supreme Court’s decision in Quanta v. LGE, 9 patent exhaustion applied to the authorized sale of seeds into commodity markets and any downstream product of purchases from those markets that “substantially embodies” the same characteristics (i.e., soy beans grown from commodity seeds). In Quanta, the Supreme Court held a licensee’s sale of component computer parts that substantially embodied method patents held by a patentee was “authorized” by the patent holder, and had the effect of exhausting the patent holder’s patents. Monsanto argued that Bowman was liable for infringement by planting commodity seeds because patent protection is independently applicable to each generation of soybeans that “contains the patented trait.” 10 The Federal Circuit agreed with Monsanto and affirmed, stating that “[a]pplying the first sale doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.” 11 The Federal Circuit further held that “once a grower, like Bowman, plants the commodity seeds containing . . . Roundup Ready™ technology and the next generation of seed develops, the grower has created a newly infringing article” to which the patent exhaustion doctrine does not apply. 12
While considering whether to take this case up on cert., the Supreme Court asked the Solicitor General to give its opinion of the case. Here, the Solicitor General recommended that the Supreme Court deny review, but firmly stated that the Federal Circuit’s treatment of so-called “conditional” sales has not been consistent with the Supreme Court’s views on patent exhaustion. This could be why the Supreme Court granted review of this case and denied review of a similar case in McFarling v. Monsanto, a case the Solicitor General also recommended the Supreme Court deny.
Competitors and consumers may be able to avoid patent infringement by duplicating a patented article from a single sample, purchased legally in commerce.
The reason this case could have such great implications is simple. When the Federal Circuit referred to “self-replicated” technologies in the Bowman opinion, it did not limit its findings to seeds. If the Supreme Court reverses the Federal Circuit on the question of whether there is “an exception to the doctrine of patent exhaustion for self-replicating technologies,” then competitors and consumers may be able to avoid patent infringement by duplicating a patented article from a single sample, purchased legally in commerce. This opinion could have significant implications for the entire biotechnology industry, including research and sales of novel DNA sequences, virus strains, microorganisms, and lines of cells. However, if the Supreme Court affirms the Federal Circuit’s decision, it will be nothing more than business as usual for companies like Monsanto.