Supreme Court Hears Patent Exhaustion, Soybean Seed Case

Supreme Court Hears Patent Exhaustion, Soybean Seed Case

WASHINGTON, D.C. - (Mealey's) If allowed to stand, a 2011 Federal Circuit U.S. Court of Appeals ruling will threaten farmers by prioritizing "patent rights over personal property rights," something "that's never been done in 150 years,"an attorney for one such farmer told the U.S. Supreme Court Feb. 19 (Vernon Hugh Bowman v. Monsanto Co. et al., No. 11-796, U.S. Sup.).

Arguing on behalf of petitioner Vernon Hugh Bowman, Mark P. Walters said that under the theory endorsed by the Federal Circuit, "any farmer who grows a soy bean seed is infringing" a patented pesticide-resistant seed owned by respondent Monsanto Co. and that under such a standard, "there is really no limit" by the doctrine of patent exhaustion.

Justice Sonia Sotomayor appeared skeptical, however, noting "the exhaustion doctrine permits you to use the good that you buy. . . . It never permits you to make another item from the item you bought."

Licensed Producer

At issue in the dispute is Monsanto's U.S. patent No. 5,352,605, which covers chimeric genes used to transform plant cells using viral promoters. The invention specifically relates to the use of viral nucleic acid from the cauliflower mosaic virus, a virus capable of infecting plant cells, as a vector for incorporating new genetic material into plant cells.

Monsanto's "Roundup Ready" soybeans exhibit resistance to N-phosphonomethylglycine-based herbicides and are covered by the '605 patent as well as reissue patent No. RE39,247E. The company licenses producers to sell patented Roundup Ready seeds to growers pursuant to a technology agreement that requires growers to not save any crop seed for replanting. Accordingly, a grower's use is restricted because the patented Roundup Ready genetic trait carries forward into each successive seed generation.

Bowman purchased Roundup Ready seeds from Monsanto's licensed seed producer Pioneer Hi-Bred. Bowman, pursuant to the technology agreement, did not save seed from his first crop during any of the seven years he used the Roundup Ready seed.However, in 1999, Bowman purchased commodity seed from a local grain elevator for a late-season second crop. Bowman applied glyphosate-based herbicide to the commodity seed fields to control weeds and to determine whether the plants would exhibit glyphosate resistance. After confirming that many of the plants were indeed resistant, Bowman saved the seed harvested from his second crop for replanting additional second crops in later years.

Judgment Entered

After performing a field investigation, Monsanto and Monsanto Technology LLC (collectively, Monsanto) sued Bowman in 2007 in the U.S. District Court for the Southern District of Indiana, alleging patent infringement on the basis that Bowman's second crop of soybean seeds contained Roundup Ready technology. Monsanto moved for summary judgment; in response, Bowman argued that Monsanto's patent rights to the seeds he purchased from the grain elevator and their progeny were exhausted.

In 2009, the U.S. District Court for the Southern District of Indiana granted Monsanto's motion, entering judgment in the respondent's favor in the amount of $84,456.20. In September 2011, the Federal Circuit U.S. Court of Appeals upheld the ruling, rejecting Bowman's patent exhaustion defense. The appellate panel further found that by planting commodity seeds and harvesting their progeny, Bowman "created a newly infringing article."

Bowman filed a petition for writ of certiorari with the U.S. Supreme Court, seeking review of the Federal Circuit's patent exhaustion ruling, on grounds that "this issue affects every farmer in the country and the method of planting that farmers such as Mr. Bowman have used for generations." In October 2012, the Supreme Court granted the petition. Bowman's brief on the merits presents the following question: "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 for self-replicating technologies."

Outright Sale

Walters said today that when a farmer grows progeny seed, "they insure the risk that they're not going to have a crop in the first place."

"If they drive to the grain dealer to sell their harvest - they get one paycheck a year, by the way - if they get into a wreck, that's not Monsanto's problem; that's the farmer's problem. So what they're essentially asking for is for the farmers to bear all the risks of farming, yet they can sit back and control . . . how they use those seeds all the way down the distribution chain," Walters added.

Inconsistencies

Such an approach is "fundamentally inconsistent" with prior Supreme Court interpretations of the exhaustion doctrine, according to Walters, who noted that "this is not a license, this is an outright sale to the farmers of the first generation." Justice Ruth Bader Ginsburg responded by making a distinction, however.

"The seeds are owned by the farmer. But when he uses them to grow more seeds, he's infringing on that patent. . . . I don't think that the ownership has anything to do with it," she said.

Similarly, Justice Elena Kagan was not persuaded by Walters' claim that Monsanto can protect its patents contractually instead. "That answer is purely insufficient in this kind of a case, because all that has to happen is that one seed escapes the web of these contracts, and that seed, because it can self-replicate in the way that it can, essentially makes all the contracts worthless," Justice Kagan opined.

"Monsanto would have no incentive to create a product like this one," she added.

J.E.M. Cited

Arguing for amicus curiaethe U.S. government, assistant to the Solicitor GeneralMelissa Arbus Sherry told the court that J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc. (534 U.S. 124, 142 [2001]) "largely resolves" the instant dispute, for it counsels that thereare no seed saving or research exemptions within the Patent Act. To adopt Bowman's position would run afoul of J.E.M., Sherry said, as well as "doing much, much, much more under the guise of patent exhaustion."

"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. And it's never extended to the making of a new article," Sherry added.

Furthermore, Bowman's approach could stifle innovation, according to Sherry. Were the sale of a parent plant to exhaust a patent holder's rights not only with respect to the sale seed but with respect to all progeny seed, "we would have to go all the way back to the very first Roundup Ready plant that was created as part of the transformation event" Sherry said.

"Every single Roundup Ready seed in existence today is the progeny of that one parent plant and . . . that would eviscerate patent protections. There would be no incentive to invest, not just in Roundup Ready soybeans or not even agricultural technology, but it's quite a bit broader than that. In order to encourage investment, the Patent Act provides 20 years of exclusivity. This would be reducing the 20-year term to essentially one and only [one] sale. It would be near impossible to recoup your investments with that first sale and so the more likely consequence is that research dollars would be put elsewhere," Sherry cautioned.

Exhausted In Perpetuity

Attorney Seth P. Waxman, representing Monsanto, echoed Sherry's claim. Citing the "hundreds of millions of dollars" committed by Monsanto to develop the patented technology, Waxman argued it would be unfair to endorse Bowman's theory, whereby Monsanto exhausted its rights in perpetuity.

"Let's say that for simplicity's sake, since generation 1 is the original soybean sold byMonsanto to seed companies, let's just say that the bags of soybean seeds that farmers go to purchase from seed dealers is called generation N and they are licensed to produce generation N plus 1. But then, what about N plus 2? So what the Federal Circuit held is N plus 2 has never been sold. It was created, it exists without a sale, and because a sale is the sine qua non of patent exhaustion, which is also referred to as first sale, there is no exhaustion," Waxman added.

Bowman is represented by Edgar H. Haug, Steven M. Amundson, Vicki M. Franks, Jonathan A. Herstoff and Andrew M. Nason of Frommer Lawrence & Haug in New York and Walters, Dario A. Machleidt and Eric A. Lindberg of the firm's Seattle office.Monsanto is represented by Waxman of Wilmer Cutler Pickering Hale and Dorr in Washington and Daniel C. Cox of Thompson Coburn in St. Louis. Sherry of the U.S. Department of Justice in Washington represents the government.

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