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Thursday, November 15, 2012

Sowing Self-Replicating Seeds of Change

The Supreme Court will soon be hearing oral arguments for another case pitting agricultural giant Monsanto against a farmer, Vernon Bowman, whom Monsanto accuses of infringing its genetic seed patents. First some background, then some patent law, then a handful of questions...

At the beginning of any given soybean season, Bowman plants a first soybean crop using expensive patented seeds containing a genetic modification that makes the resulting plants resistant to Roundup® (a common herbicide not coincidentally also manufactured by Monsanto). Bowman harvests the soybeans and sells them to a local grain elevator. Later in the growing season, Bowman plants a riskier (because it’s so late) second soybean crop, but instead of using expensive patented seeds purchased from Monsanto’s licensees, Bowman buys cheap commodity seeds from a grain elevator (maybe the same ones he sold the year before, the commodity seeds are saved from the previous year’s growing season). Because so many farmers use Roundup Ready® brand seeds from Monsanto, about 94% of the undifferentiated seeds available for purchase from the grain elevator display Roundup Ready® traits.

Bowman (and anyone who purchases patented seeds from Monsanto’s licensees) must enter into a technology agreement with Monsanto that forbids him from replanting saved seeds but does not forbid him from selling his harvested crop to a grain elevator (for obvious reasons). Bowman is not violating his license agreement. The problem? The harvested crop consists of seeds ready for replanting (soybeans, by their nature, self-replicate). Bowman and his fellow farmers avoid buying expensive seeds for that risky second season: if everyone sells their seeds back to the grain elevator in season 1, then when the seeds are bought in season 2, they will be predominantly Roundup Ready® at a fraction of the price. Monsanto sued, claiming that Bowman infringes regardless of being square with his agreement because he is growing Roundup Ready® plants without permission.

Patent law can be tricky in this area. The gist is that once the patent owner makes an authorized sale of a patented good, the good can move in commerce (it can be used, sold or offered for sale) without liability to the patent owner for infringement. This is a pretty unremarkable doctrine. If I buy a ballpoint pen covered by a patent, I can resell it on eBay or write a letter with it without paying more to the patentee. Where it gets tricky: determining what “authorized sale” means in a world of licenses and post-sale restrictions. For a long time, courts have refused to enforce post-sale restrictions as to price and territory—we hate those because either they alienate chattel or they give us antitrust heebie-jeebies or both (for example, if my pen had a label that said I could only use it in Louisiana or that I could only resell it for $2). But we’ve held onto field of use licenses (i.e., a licensed radio manufacture may be licensed only to manufacture radios for home use) such that when the license is violated (the licensee sells to a home user in violation of the license), we find infringement. Post-sale restrictions not involving price or territory must be reasonable and not outside the scope of the patent in order to prevent an authorized sale (and thus exhaustion of patent rights) from occurring. For example, when I stamp my patented pre-filled syringe with “no refills, single use only” and sell it to you, provided I’m not violating antitrust laws and provided my patent claims are reasonably related to this condition, when you refill it and sell it to someone else, you are infringing—it’s not an authorized sale because, according to the Federal Circuit in Mallinckrodt, it’s a sale conditioned by the post-sale restriction. These questions were supposed to be resolved by the Court’s 2008 case, LG v. Quanta, but the Court was able to punt them by resolving that case narrowly on the terms of the license to the manufacturer (which was broad enough to give the licensee all of the rights necessary to exhaust the patent with respect to sales to downstream purchasers).

How should the Court decide Bowman then? Monsanto conditionally licenses to the seed companies and the seed companies conditionally sell to the farmers. The Court could hold that the sales are conditioned, so there can be no exhaustion as to farmers who purchase the seed; Monsanto wins. (The Federal Circuit might like this view, as it comports with Mallinckrodt and its other seed cases, Scruggs and McFarland.) Or they could hold that because none of these conditions are violated, it would seem that the patent rights to use and sell the patented technology (the seeds) are exhausted—I’m not infringing when I buy the seeds from the grain elevator, sell them on eBay, or use them as jewelry. But this leaves the patentee’s right to exclude others from making the patented technology. When Bowman buys the undifferentiated commodity seeds from the grain elevator, plants them during his later season and grows plants that produce second-generation seed, is he making the second generation seeds in violation of the patent right to make? And when he sells these second generation seeds, is he running afoul of Monsanto’s right to exclude others from using or selling the technology, creating a perpetual loop of growing and making unauthorized sales back to the grain elevator pool?

The Supreme Court has to figure out whether to clarify (or shutter) Mallinckrodt’s conditional sale doctrine and reconcile Quanta and early twentieth century case law born during a time of great suspicions regarding patent monopolies, or create a rule of law specifically addressing how this all works for self-replicating technology. The term “make” in this context makes very little sense—the licensee seed companies insert the modification into the genome of their seed lines and then produce seeds, the only true manufacturing done in the case. Those seeds carry genetic material that dictates traits, and sexually reproduce to create copies of the genetically modified seeds. Notably, the Plant Variety Protection Act of 1970, a special (and limited) patent right directed toward sexually propagating plant varietals, never mentions the word “make”, just the using and selling of the patented invention. Will the Court recognize, as in the PVPA, that authorizing what you do with the seed (sell to neighbors, keep for yourself, sell to a grain elevator as a commodity, etc.) generates the value for the patentee rather than authorizing creation?

More importantly, as a matter of patent policy, is it better to scrap Mallinckrodt and state more clearly that no post-sale restrictions are enforceable as a matter of both patent and contract law, or would it be better to acknowledge the ill fit of self-replicating technology (seeds in this case, but also nanotechnology and other things on the horizon) in our exhaustion law and create a carve out that leaves post-sale restrictions, whatever may be left after Quanta, intact? Or some third way?

Posted by Amelia Rinehart on November 15, 2012 at 06:32 PM in Intellectual Property | Permalink

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