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Special Feature: Possible Far-Reaching Implications of Bowman v. Monsanto


Thursday, February 28, 2013

By Judith U. Kim

On February 19, 2013, the United States Supreme Court heard oral arguments in Vernon Hugh Bowman v. Monsanto Company. This case has far-reaching implications for the patent exhaustion or first sale doctrine in self-replicating technologies such as seeds, microorganisms, tissue culture, etc.

For example, even if a seed company does not have a sophisticated, licensing or conditional sale program like Monsanto, under the Federal Circuit holding, if a grower buys patent protected seeds ("first-generation") without any restrictions and saves subsequent-generations of seeds for replanting, the grower can be liable for patent infringement with respect to the subsequent-generation seeds. Based on the line of questioning during the Supreme Court oral arguments, it will be interesting to see how the Court provides guidance in applying the patent exhaustion doctrine in self-replicating technologies and whether the Court will draw a line between second-generation and subsequent-generation progenies.

Background

Monsanto owns U.S. Patent Nos. 5,352,605 and RE39,247E, which cover transformation of plant cells with gene sequences that encode EPSPS (glyphosate-tolerant 5-enolpyruvylshikimate-3-phosphate synthases), a glyphosate-tolerant enzyme. The genetically modified plants express EPSPS and exhibit glyphosate resistance. Based on this technology, Monsanto developed Roundup Ready® soybeans that exhibit resistance to glyphosate based herbicides, such as Monsanto's Roundup® product.

Monsanto sells Roundup Ready® soybean seeds and licenses its technology to seed producers. Monsanto's licensed producers sell Roundup Ready® seeds to growers for planting, subject to a standard form limited use license ("Technology Agreement"). Under the Technology Agreement, the licensed grower agrees to use the seed for planting a commercial crop for only one season, to not supply the seed to another person for planting, to not have any crop produced from the seed for replanting or crop breeding, etc. Although the Technology Agreement prohibits growers from selling the progeny of the licensed seeds, i.e., second-generation seeds, for planting, Monsanto authorizes growers to sell second-generation seeds to grain elevators as a commodity without requiring growers to place restrictions on grain elevators' subsequent sales of the second-generation seeds.

Unlike McFarling and Scruggs, who planted unauthorized second-generation seeds, Bowman purchased seeds from Pioneer Hi-Bred (a Monsanto licensed producer of Roundup Ready® seeds), planted the seeds for the "first-crop," and did not save second-generation seeds for planting.1 However, Bowman also purchased lower priced commodity seeds from a grain elevator for the riskier late-season planting, or "second-crop," to avoid paying the higher price for Pioneer's Roundup Ready® seeds. The commodity seeds contain a mixture of seeds from various sources, including Roundup Ready® soybeans and non-Roundup Ready® soybeans. Bowman applied glyphosate-based herbicide to the field where he planted the commodity seeds and confirmed that many of the plants were glyphosate resistance. Unlike his first-crop, Bowman also saved the subsequent-generation seeds harvested from his second-crop for replanting additional second-crops in the following years.

Monsanto sued Bowman, alleging infringement of U.S. Patent Nos. 5,352,605 and RE39,247E. The District Court for the Southern District of Indiana granted summary judgment of infringement in favor of Monsanto.2 Bowman appealed and the Court of Appeals for the Federal Circuit affirmed, holding that patent exhaustion does not bar an infringement action.3

Before the Federal Circuit, Monsanto argued that a grower's sale of harvested soybeans to a grain elevator is not an authorized sale when it results in those soybeans subsequently being planted. Monsanto also argued that even if there was exhaustion with respect to the commodity seeds, Bowman is liable for infringement by planting those seeds because patent protection is independently applicable to each generation of soybeans that contains the patented trait.

The Federal Circuit agreed with Monsanto, stating

[e]ven if Monsanto's patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence because once a grower, like Bowman, plants the commodity seeds containing Monsanto's Roundup Ready® technology and the next generation of seed develops, the grower has created a newly infringing article. . . . "The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology. Applying the first sale doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder."4

The Supreme Court Oral Arguments

Overall, the Court seemed to favor Monsanto's position, with Chief Justice Roberts setting the stage by asking, "[w]hy 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?"

During Bowman's attorney's oral arguments, Justice Breyer posed that perhaps Bowman could have done what he wanted with the second-generation seeds from the planting of the commodity seeds (which had no restrictions), just not with the third-generation because then he was making a copy of the patented invention, which is prohibited by law. Justice Breyer stated that the third-generation was "what the Federal Circuit was getting at" and that this case is not really related to the exhaustion doctrine. Bowman argued that Monsanto wants farmers to assume all risks but wants to control all the seeds and how their progenies are used, and that this case involves a sale, not a license.

The U.S. government's attorney argued that this case is not an exhaustion case and that there would be no incentive to invest in new technologies without the granting of 20 years of exclusivity. The government stated that under Bowman's position, the patented invention would not be protected by 20 years of exclusivity, but its protection would be limited to a one time sale. Justice Scalia pointed out that under the government's position, farmers could never plant seeds purchased from a grain elevator because no grain elevator is free of patented seeds even though sometimes farmers need to be able to do this to minimize risks of a second-crop. Justice Kagan asked if the Court should ignore the conditional sale doctrine or should something be done about it.

Monsanto's attorney responded that planting of a second-crop is very common practice by farmers and that there are other ways of planting a second-crop. Monsanto's attorney pointed to Bowman's testimony that he could have bought nonpatented seeds at a lower cost for the second-crop and that he knew that there was a good chance that he would obtain mostly Monsanto seeds from the commodity seeds he purchased. Monsanto reiterated the government's argument, stating that after investing "hundreds of millions of dollars" during 13 years, a holding of first sale doctrine would exhaust all patent rights. Responding to Justice Kagan's question about conditional sale, Monsanto stated that there is no need to address conditional sale because the Federal Circuit did not address this issue but did state that a conditional sale is not ipso facto invalid, where the technology cannot be leased because it consumes itself and thus has to be sold.

The questions from the Justices, especially Justice Breyer, suggest that the Court, in applying the patent exhaustion doctrine, may draw a line between second-generation and subsequent-generation seeds. The Supreme Court's formal decision is not expected to issue for several months.

Judith U. Kim (jkim@skgf.com) is a director in the Washington, DC office of intellectual property specialty firm Sterne, Kessler, Goldstein and Fox P.L.L.C. The opinions expressed are those of the author and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Endnotes


[1] McFarling and Scruggs are two other growers of Monsanto's patented seeds, who were involved in litigation with Monsanto. See Monsanto Co. v. McFarling, 302 F.3d 1291 (Fed. Cir. 2002), and Monsanto Co. v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006).

[2] Monsanto Co. v. Bowman, 686 F. Supp. 2d 834 (S.D. Ind. 2009).

[3] Monsanto Co. v. Bowman, 657 F.3d 1341 (Fed. Cir. 2011).

[4] Id. at 1348 (citation omitted).



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