Written on the wind: patent exhaustion

Recent Supreme Court decisions have addressed patent acquisition, patent validity and patent eligibility. However, in Bowman v. Monsanto the issue is patent infringement and the scope of the United States doctrine of patent exhaustion. Monsanto creates and thereafter sells or licenses genetically engineered patented seeds to farmers, distributors and growers. In particular, Monsanto’s genetically engineered corn and soybeans are resistant to RoundUp
—an herbicide that is also produced by Monsanto. Because of its patented herbicide resistance, Monsanto’s seed is significantly more expensive than generic corn and soybean seeds.

In its direct sales Monsanto requires licensees and purchasers to refrain from planting these patented seeds for the purpose of producing herbicide resistant progeny seeds. Instead, rather than planting progeny seeds purchasers and licenses must purchase additional patented seed from Monsanto for this herbicide resistant feature. However, Monsanto allows distributors and licensees to sell this patented seed to grain elevators “as a commodity.” These sales “as a commodity” have no contractual restrictions on the grain elevator’s use of the patented seeds. Similarly, grain elevators are not under any use restrictions in sales of these seeds to third persons. Grain elevators also intermingle Monsanto’s patented seeds with corn and soybean seed from other sources.

Mr. Bowman is a farmer who originally purchased Monsanto’s patented soybeans for planting. As a direct purchaser Mr. Bowman had always complied with Monsanto’s contractual restrictions, and so he did not plant seeds that were progeny of Monsanto’s seeds. However, because of significantly higher costs of the patented seeds, Mr. Bowman decided he would not purchase them for a second annual crop. Instead, for his second annual crop Mr. Bowman purchased less expensive seeds with intermingled Monsanto patented seed from a grain elevator. Mr. Bowman observed that the grain elevator seed exhibited significant resistance to the RoundUp herbicide. Mr. Bowman thereafter planted seed from the grain elevator to obtain soybean plants and progeny seeds with the herbicide resistance.

Thereafter, Monsanto filed a lawsuit against Mr. Bowman for patent infringement. Mr. Bowman’s position is as follows: Under the doctrine of patent exhaustion, generally a person who purchases one patented item from an authorized sale can use that item in any manner without liability for patent infringement. Therefore, patent exhaustion prevents a finding of patent infringement for use of seeds for planting successive crop generations because there were no use restrictions for the authorized sale. Without contractual restrictions, Mr. Bowman concludes the he properly used grain elevator seed to produce seeds for future crops. In support of this position, Mr. Bowman notes that sales of patented seeds to the grain elevator were not restricted as to use of these seeds. He also observed that Monsanto admitted that there were no use restrictions on the authorized sale of seed from the grain elevator to purchasers.

However, Monsanto contends that the patent exhaustion doctrine does not apply to “self-replicating technologies,” because application of the doctrine to self-replicating seeds defeats the purpose of investing in new seed technology. If the Supreme Court concludes there was patent infringement, the decision will substantially change the scope of the patent exhaustion doctrine. However, if the Supreme Court decides that the patent exhaustion applies to genetically engineered inventions, then Monsanto must more carefully review loopholes in its technology transfer contracts as well enlarging the scope of parties to these contracts.

© 2013 Adrienne B. Naumann
Ms. Naumann does not sponsor or endorse the advertisements at adriennebnauman.wordpress.com


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