Monsanto Company, a producer of herbicide resistant soybean seeds and technology, sued Vernon Hugh Bowman, a soybean farmer, for patent infringement. Bowman replanted second-generation seeds, which were the product of seeds purchased from a licensed Monsanto technology distributor. Monsanto argued that by planting the product of Monsanto’s herbicide resistant seeds instead of purchasing new ones, Bowman was in violation of the Technology Agreement for the seeds. The Federal Circuit upheld a district court decision awarding Monsanto damages for violation of their patented technology, reasoning that Monsanto's herbicide resistant technology was covered by patent regardless of whether it was the original seed or a product of the original seeds. Bowman contends that Monsanto’s patent rights were exhausted once he bought the seeds and that use of progeny seeds is an expected use of the product. Monsanto responds that in the case of self-replicating technologies the patent extends to the technology, here, the trait of herbicide resistance, rather than the seed itself.
Questions as Framed for the Court by the Parties
Patent exhaustion delimits rights of patent holders by eliminating the right to control or prohibit use of the invention after an authorized sale. In this case, the Federal Circuit refused to find exhaustion where a farmer used seeds purchased in an authorized sale for their natural and foreseeable purpose--namely, for planting.
The question presented is: 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?
May patent holders enforce their rights on the products of self-replicating technologies, such as replicating seeds, after an authorized sale or does the patent only apply to the original article?
Monsanto Company (“Monsanto”) designs herbicide resistant soybeans, which are called “Roundup Ready” because they are not harmed by Roundup, an herbicide created by the company. The two patents at issue, Patent No. 5,352,605 ("‘605 ") and Patent No. RE39, 247 ("‘247E "), involve different parts of the herbicide resistance technology. The‘605 patent covers a process by which Monsanto combined two different sequences of DNA to create a new gene called a chimeric gene. These chimeric genes can give a plant new characteristics, such as herbicide resistance. The‘247E patent uses the process in ‘605 patent to create chimeric genes in soybean plants that makes them compatible with herbicides.
Monsanto sells these herbicide resistant soybeans to farmers and licenses the herbicide resistance technology to seed producers. In their Technology Agreement, Monsanto limits the use of their seeds and technology to a single season and prohibits supplying it to a third party or replanting second generation seeds. Second generation seeds are the product of soybean plants grown from original seeds. Although the Agreement generally prohibits growers from selling second-generation seeds for replanting, Monsanto does allow growers to sell them to local grain silos to be used as animal feed or sold as a commodity. Commodity seeds are a collection of many different types of seeds from local growers that are purchased for a variety of uses, such as replanting or as livestock feed.
Vernon Hugh Bowman purchased seeds from Pioneer, a registered seed producer of Monsanto. As required by Monsanto, Pioneer had Bowman sign an agreement identical to Monsanto’s Technology Agreement, which limited the use of the seeds to a single season. Monsanto also sent Bowman a letter directly, which notified Bowman that he could not replant any form of Monsanto’s herbicide resistant seeds. Bowman regularly purchased seeds from Pioneer but one year, after harvesting the seeds purchased from Pioneer, Bowman also bought seeds from a local commodity seed provider and planted a second crop. Finding that the majority of seeds purchased from the local provider were herbicide resistant, Bowman also treated them with herbicide. Bowman continued to purchase Pioneer seeds for his first crop and harvested seeds from his second crops to use to replant his second crop the next year. In 2006, Monsanto became aware of Bowman’s planting practices and investigated his use of herbicide resistant seeds. Upon confirmation that Bowman’s second crops, grown from second-generation and commodity seeds, displayed herbicide resistance, Monsanto sued him for patent infringement.
The Court of Appeals for the Federal Circuit found that Monsanto’s patent rights in the seeds were not exhausted once sold to a commodity dealer. The Federal Circuit further reasoned that although Monsanto’s patented technology can replicate itself, a buyer cannot use the product of replication because it would eliminate Monsanto’s patent rights. The court concluded that Bowman retained the right to sell second-generation seeds as feed or for any other number of uses, but he was prohibited from replanting them in any form. The court deemed that Monsanto was entitled to damages for patent infringement.
The result of this case has the potential to impact the current balance of market competition in the agricultural industry. Interest groups also argue that the result will have a major impact on individual farmers and scientific research on a global scale.
Effect on Market Competition
The American Antitrust Institute ("AAI") argues that should the court restrict the use of second-generation seeds, companies like Monsanto would have a monopoly over the marketplace and the consumers would be foreclosed from suing under antitrust law. The AAI contends that by granting Monsanto patent control over both its seeds and the progeny of its seeds, Monsanto is granted a legal monopoly over the market, which could not be challenged by the antitrust review process. The Public Patent Foundation asserts that Monsanto currently controls 60% of the seed market for corn and soybean, and their herbicide resistance technology has been planted in as much as 90% of all soybean crops in the United States. The AAI argues that if Monsanto is allowed to completely restrict the replanting of second generation seeds, this monopoly would essentially eliminate market competition from commodity seeds because the commodity sellers and buyers are unlikely to take the risk that they may be sued for patent infringement.
In response, Business Software Alliance (BSA) argues that strict protection of patent technology is actually necessary to encourage market competition. BSA argues that continued growth of the technology industry is vital to support the national economy and maintain market competition. Croplife America also argues that if the Court does not uphold the Court of Appeals' decision, farmers would simply replant second generation seeds rather than buying the original seeds from seed producers. Croplife America contends that if farmers were to simply replant existing seeds there would be no incentive for companies to develop new technologies in order to compete for farmer’s business. BSA contends that failure to protect technology patents will stunt the growth of the industry because producers will be unwilling to fund research if the fruit of their investment will not be protected.
Effect on Farmers and Scientific Research
The Public Patent Foundation argues that the result of this decision could have unintended consequences for organic and conventional farmers who use seeds that are not genetically modified but whose crops have been contaminated by neighboring farmers nonetheless. The Public Patent Foundation argues that the Federal Circuit’s ruling does not exclude such farmers from prosecution and such prosecution would be blatantly unfair. The Center for Food Safety and Save Our Seeds additionally contend that Monsanto’s monopoly on the seed market has unnecessarily raised seed prices, which results in fewer options for farmers and less scientific research. The Public Patent Foundation argues that Monsanto’s monopoly over the seed market has resulted in fewer seed varieties, and prohibiting replanting of commodity seeds would only exacerbate this problem.
The American Seed Trade Association responds that removing restrictions on replanting would negatively impact scientific research because the technology is expensive to research and producers are unlikely to fund projects to develop new seed varieties if their product can simply be replanted by farmers after one year. A group of economists argue that the price of seeds would drastically increase because producers would be forced to recoup the cost to business were farmers allowed to replant seeds instead of buying them every year. Croplife International additionally contends that the judgment would have greater implications for other technologies that involve self-replication, such as vaccines, and other types of recombinantly engineered cells.
Bowman argues that once he purchased the patented soybeans, the doctrine of exhaustion applied and Monsanto relinquished its claim in the soybeans. Monsanto contends that the soybeans grown by Bowman were never the product of an authorized sale and do not fall under the doctrine of exhaustion.
Does Exhaustion Apply in All Sales
Bowman contends that once an article covered by a patent is sold through an authorized sale, the patent’s owner relinquishes all rights in that article and the owner no longer has control over the purchaser’s use of the article. Bowman argues that the Federal Circuit has been improperly using the exhaustion doctrine since Mallinkrodt, Inc. v. Medipart Inc. Bowman contends that under Mallinkrodt, courts are restricting the scope of the exhaustion doctrine by not applying it in cases where there is a conditional sale or license. Bowman argues that the Federal Circuit views the Supreme Court’s broad exhaustion doctrine as dicta and thus the Circuit has ruled that the exhaustion doctrine does not apply to all authorized sales. Bowman argues that the view of the Supreme Court’s rulings as dicta goes against 150 years of decisions by the Supreme Court and does not follow with case law. Further, Bowman contends that Monsanto’s authorization for farmers to sell seeds from their crops to the grain mills removes the license restrictions, and therefore, even the narrower reading of the exhaustion doctrine should not apply.
Monsanto contends that establishing a per se rule that exhausts all claims by the patentee on first sale would be prohibitive to the development and sale of products. Monsanto argues that the Patent Act’s purpose of providing incentive for innovation will not be fulfilled if the exhaustion doctrine applies to all authorized sales. Monsanto claims that there are many cases where a creator cannot receive adequate compensation for its product if the first authorized sale renders the patent void. Monsanto notes that farmers pay only a small fraction of the price that Monsanto would otherwise have to charge if farmers were allowed to reuse the technology through multiple generations of seeds. Monsanto argues that the Supreme Court has held in previous decisions that there is no per se rule against enforcement of reasonable restrictions after a sale. Monsanto contends that exhaustion only extends to “that quantity of the product of his invention” that was sold but nothing further. Monsanto claims that the Supreme Court has held that a patentee can impose restrictions on the use of its patent through a sale and that exhaustion only occurs where the sale is absolute without any conditions.
Does Exhaustion Apply to Progeny Seeds?
Bowman argues that once exhaustion occurs it also applies to all successor generation seeds, called progeny seeds. Bowman claims that once the patented right is exhausted through sale, the patentee loses the right to restrict the use of the buyer in practicing the invention. Bowman claims that the sale of the seeds allows for the practice of the patented invention because the growth of progeny seeds is a natural result of normal usage. Bowman contends that planting is the only intended purpose for the sale of first generation seeds. As a result, Bowman argues that the intended purposes of progeny seeds should also be for planting. Bowman contends that use of the progeny seeds for planting has nothing to do with “reconstruction” of the patent because no part of the patent was replaced. Bowman argues that farmers who plant first generation seeds lawfully own all progeny seeds and can do as they please with the seeds. Bowman contends that since exhaustion arises from any lawful title transfer and the progeny seeds are owned by the farmer, then exhaustion applies and the farmer is free to do as he/she wishes with the progeny seeds. Further, Bowman argues that this lawful ownership also applies to the purchasers of commodity grain. Bowman reasons that since the farmer has title to the progeny seeds and Monsanto’s rights are exhausted, the seeds now can be sold with full title and rights as the farmer sees fit.
Monsanto contends that exhaustion only applies to the specific product that is sold in the sale. Monsanto argues that the purchaser does not obtain the right to create or use any new versions of the patented product. Monsanto notes that the law allows the purchaser to repair the product with new parts but it does not allow the purchaser to reconstruct a wholly new product separate from that purchased. Monsanto argues that while each soybean contains the identical patented technology, each is an independent article that has separate patent rights. Monsanto claims that since the progeny seeds were never sold, the patented technology in each seed could not have been exhausted. Monsanto argues that Bowman’s expansion of the exhaustion doctrine would make it applicable to items that were not in existence at the time of sale as long as they items embody the patented information that was sold in the original sale. Monsanto rebuts Bowman’s claim that exhaustion applies because he lawfully purchased the commodity grain by arguing that exhaustion only applies when the sale is authorized by the holder of the patent. Monsanto claims that Bowman made new articles with the patented trait without Monsanto’s authorization and this is not covered by the exhaustion doctrine. Monsanto contends that the term “making” in the Patent Act applies with plain language and that the growing of progeny seeds encompasses making. Further, Monsanto contends that Congress and the courts have considered the cultivation of crops as being a form of “making.”
Bowman contends that the sale of a self-replicating item exhausts patent claims against subsequent generations that embody the same patented technology unless Congress explicitly takes action against a certain category of patents. Bowman argues that Congress has not made an exception to the exhaustion doctrine for self-replicating patents. Bowman claims that the Supreme Court has been reluctant to expand statutory rights, and finding that these rights should only be expanded by Congress. Bowman claims that without this expansion by Congress to include seeds, it is not the Court's responsibility to expand the protection. Bowman contends that the Plant Variety Protection Act (“PVPA”) does not cover plants that reproduce sexually (through seeds). Bowman suggests that since farmers are specifically mentioned with regards to seeds in the PVPA, the lack of mention of any group with regards to utility patent seeds suggests that Congress intended for the general exhaustion doctrine to apply. Further, Bowman notes that the Patent Act makes no separate mention of seeds anywhere in the text.
Monsanto argues that the Plant Protection Act (“PPA”) and PVPA are a minimum requirement of the patent rights held in self-replicating plants. Monsanto notes that its patent is a utility patent, which means that it receives greater protections than patents under the PPA and PVPA. Monsanto argues that Bowman’s claim would reverse Congress’ intent for utility patents by not providing them with the protection of controlling the reproduction and sale of the invention of new plants. The United States supports Monsanto by arguing that the Supreme Court has held that utility patents are independent of the PPA and PVPA and as such, saving seed is not allowed under utility patents. The United States contends that the PVPA only allows the sale of harvested seeds for purposes other than replanting. The United States also claims that Congress made an exception allowing for the copying of computer software. The United States argues that if a similar exemption was to come from the Patent Act for seeds, it should be made by Congress and not the Court. Monsanto argues that since this protection is available under the PPA and PVPA, it should also be available to utility patents, which have greater protection based on Congressional rulings. Finally, Monsanto contends that Bowman seeks to make the exception to the exhaustion doctrine by applying the exhaustion doctrine to all biotechnological inventions.
The results of this decision will play a major role in the way that companies sell their patented information to consumers and how much control patentees retain after the sale of a self-replicating item. Bowman argues that under the exhaustion doctrine, once the seed is sold, the purchaser has total control over the seed to do what the purchaser wishes and the patentee retains no claim in the seed. Monsanto contends that the exhaustion doctrine only applies to the specific item that is sold and that progeny seeds are the equivalent of illegal copies. If the Court finds for Bowman and the exhaustion doctrine applies per se, prices on many patented items may increase as companies try to recover large amounts of their costs through a single sale, and the spending on research and development by many companies may decrease. However, if Monsanto is successful in narrowing the doctrine of exhaustion, it may increase monopolies and make it harder for consumer to bring antitrust suits.
- Thomson Reuters News & Insight, Alison Frankel: Supreme Court conundrum: How far does a soybean seed patent go? (Jan. 17, 2013)
- Patently-O, Dennis Crouch: US Government Brief: Farmer who Purchases Commodity Soybeans Cannot Replant Those Beans Without Committing Patent Infringement (Jan. 22, 2013)
- Techdirt: Monsanto Wins Patent Dispute Against Farmer Who Bought Legal Seeds (Sept. 27, 2011)