Supreme Court Affirms Patent Exhaustion Not Applicable In Seed Dispute

Supreme Court Affirms Patent Exhaustion Not Applicable In Seed Dispute

WASHINGTON, D.C. - (Mealey's) A soybean farmer accused of infringing a patented pesticide-resistant seed was defeated May 13 in his efforts to avoid liability via the patent exhaustion doctrine, when the U.S. Supreme Court deemed the doctrine inapplicable to the dispute (Vernon Hugh Bowman v. Monsanto Co., et al., No. 11-796, U.S. Sup.) ( subscribers may access Supreme Court briefs and the opinion for this case).

Justice Elena Kagan, writing for a unanimous court, opined that although petitioner Vernon Hugh Bowman argued that the doctrine should apply "because he is using seeds in the normal way farmers do," it is actually Bowman who has asked for an exception to the "well-settled rule that exhaustion does not extend to the right to make new copies of the patented item."

"If Bowman was granted that exception, patents on seeds would retain little value," she added.

Technology Agreement

At issue in the dispute is U.S. patent No. 5,352,605, owned by respondents Monsanto Co. and Monsanto Technology LLC (Monsanto, collectively) and relating to 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.

After performing a field investigation, 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 District Court 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."

Untouched Ability

Bowman filed a petition for writ of certiorari with the 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 presented 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."

Rejecting Bowman's contention, the Supreme Court found as an initial matter that the patent exhaustion doctrine restricts a patentee's rights only as to the "particular article" sold. Accordingly, the doctrine "leaves untouched the patentee's ability to prevent a buyer from making new copies of the patented item." When he planted and harvested Monsanto's patented seeds, the petitioner "made additional copies" of Monsanto's invention "and his conduct thus falls outside the protections of patent exhaustion," according to the Supreme Court.

"Under the patent exhaustion doctrine, 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," the Supreme Court added.

'Undiminished Right'

Furthermore, Bowman's claim that the doctrine applies because "seeds are meant to be planted" must fail because a patentee retains an "undiminished right" to prohibit others from making the thing that a patent protects, according to the ruling. Were the Supreme Court to hold otherwise, "a patent would plummet in value after the first sale of the first item containing the invention," Justice Kagan noted.

"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. Nor do we think that rule will prevent farmers from making appropriate use of the Roundup Ready seed they buy. Bowman himself stands in a peculiarly poor position to assert such a claim. As noted earlier, the commodity soybeans he purchased were intended not for planting, but for consumption," the Supreme Court held.

Lastly, the Supreme Court clarified that its holding is limited to "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. . . . We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances. In the case at hand, Bowman planted Monsanto's patented soybeans solely to make and market replicas of them, thus depriving the company of the re­ward patent law provides for the sale of each article. Patent exhaustion provides no haven for that conduct. We accordingly affirm the judgment of the Court of Appeals for the Federal Circuit," the Supreme Court concluded.

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 Mark P. Walters, Dario A. Machleidt and Eric A. Lindberg of the firm's Seattle office. Monsanto is represented by Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr in Washington and Daniel C. Cox of Thompson Coburn in St. Louis. Melissa Arbus Sherry of the U.S. Department of Justice in Washington represents the government.

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