In a unanimous decision, the Supreme Court laid out that patent exhaustion does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder’s permission. And….Boom Goes the Dynamite! (Bowman v. Monsanto Co. et al., (Bowman v Monsanto 11-796)

The decision will have an impact on a plethora of businesses besides agriculture including gene therapies, vaccines, cell lines, nano-technologies, software and any invention that can be easily replicated (since soybeans must be planted, cultivated, and harvested — soybeans do not regenerate themselves – they are not exactly “self-replicating”).

soybean seedsMake no mistake, this case is not about the $84,456 in damages awarded to Monsanto. Monsanto has about $13.5 billion in annual sales with half of that coming from seeds and about 10% from the sale of glyphosate.  Monsanto sold over $1.7 billion of soybeans last year so this is not without market desire. The seeds provide such a tremendous benefit that over 90% of corn, cotton, sugar beet, and canola planted in the United States is now Roundup-Ready.

In short, the Court held that:

(a) Under the patent exhaustion doctrine, “the initial authorized sale of a patented article terminates all patent rights to that item,” (Quanta Computer 553 U. S. 625), and confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit, United States v. Univis Lens Co., Syllabus 316 U. S. 241, 249–250. However, the doctrine restricts the patentee’s rights only as to the “particular article” sold, id., at 251; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. By planting and harvesting Monsanto’s patented seeds, Bowman made additional copies of Monsanto’s patented invention, and his conduct thus falls outside the protections of patent exhaustion. Were this otherwise, Monsanto’s patent would provide scant benefit. After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

(b) Bowman argues that exhaustion should apply here because he is using seeds in the normal way farmers do, and thus allowing Monsanto to interfere with that use would create an impermissible exception to the exhaustion doctrine for patented seeds. But it is really Bowman who is asking 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. Further, applying the normal rule will allow farmers to make effective use of patented seeds. Bowman, who purchased seeds intended for consumption, stands in a peculiarly poor position to argue that he cannot make effective use of his soybeans. Bowman conceded that he knew of no other farmer who planted soybeans bought from a grain elevator. In the more ordinary case, when a farmer purchases Roundup Ready seed from Monsanto or an affiliate, he will be able to plant it in accordance with Monsanto’s license to make one crop.

Justice Kagan delivered the unanimous opinion of the Court.

Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention.

The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission. The Court said “No, way.”

Monsanto markets soybean seed containing this altered genetic material as Roundup Ready seed. Farmers planting that seed can use a glyphosate based herbicide to kill weeds without damaging their crops. Two patents issued to Monsanto cover various aspects of its Roundup Ready technology, including a seed incorporating the genetic alteration (U. S. Patent Nos. 5,352,605 and RE39,247E).

Monsanto sells, and allows other companies to sell, Roundup Ready soybean seeds to growers who assent to a special licensing agreement. That agreement permits a grower to plant the purchased seeds in one(and only one) season. He can then consume the resulting crop or sell it as a commodity, usually to a grain elevator or agricultural processor. But under the agreement, the farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose. These restrictions reflect the ease of producing new generations of Roundup Ready seed. Because glyphosate resistance comes from the seed’s genetic material, that trait is passed on from the planted seed to the harvested soybeans: Indeed, single Roundup Ready seed can grow a plant containing dozens of genetically identical beans, each of which, if replanted, can grow another such plant—and so on and so on. The agreement’s terms prevent the farmer from co-opting that process to produce his own Roundup Ready seeds, forcing him instead to buy from Monsanto each season.

Petitioner Vernon Bowman is a farmer in Indiana who purchased Roundup Ready each year, from a company affiliated with Monsanto, for his first crop of the season. In accord with the agreement, he used all of that seed for planting, and sold his entire crop to a grain elevator (which typically would resell it to an agricultural processor for human or animal consumption).

According to the Court:

Bowman, however, devised a less orthodox approach for his second crop of each season. Because he thought such late-season planting “risky,” he did not want to pay the premium price that Monsanto charges for Roundup Ready seed. Id., at 78a; see Brief for Petitioner 6. He therefore went to a grain elevator; purchased “commodity soybeans” intended for human or animal consumption; and planted them in his fields. Those soybeans came from prior harvests of other local farmers. And because most of those farmers also used Roundup Ready seed, Bowman could anticipate that many of the purchased soybeans would contain Monsanto’s patented technology. When he applied glyphosate-based herbicide to his fields, he confirmed that this was so; a significant proportion of the new plants survived the treatment, and produced in their turn a new crop of soybeans with the Roundup Ready trait. Bowman saved seed from that crop to use in his late-season planting the next year—and then the next, and the next, until he had harvested eight crops in that way. Each year, that is, he planted saved seed from the year before (sometimes adding more soybeans bought from the grain elevator),sprayed his fields with glyphosate to kill weeds (and any non-resistant plants), and produced a new crop of glyphosate resistant, i.e., Roundup Ready-soybeans.

After discovering this practice, Monsanto sued Bowman for infringing its patents on Roundup Ready seed. Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans be-cause they were the subject of a prior authorized sale(from local farmers to the grain elevator).

The District Court rejected that argument, and awarded damages to Monsanto of $84,456. The Federal Circuit affirmed. It reasoned that patent exhaustion did not protect Bowman because he had created a newly infringing article:

The “right to use” a patented article following an authorized sale, the court explained, “does not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.” Ibid. (brackets and internal quotation marks omitted). Accordingly, Bowman could not “‘replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants.” Ibid.

The doctrine of patent exhaustion limits a patentee’s right to control what others can do with an article embodying or containing an invention.2 Under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008). “The sale confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit. United States v. Univis Lens Co., 316 U. S. 241, 249–250 (1942).

[T]he doctrine restricts a patentee’s rights only as to the “particular article” sold, ibid.; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. “[T]he purchaser of the [patented] machine . . . does not acquire any right to construct another machine either for his own use or to be vended to another.”

What this means for Farmer Bowman:

Unfortunately for Bowman, that principle decides this case against him. 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. He took the soybeans he purchased home; planted them in his fields at the time he thought best; applied glyphosate to kill weeds (as well as any soy plants lacking the Roundup Ready trait); and finally harvested more (many more) beans than he started with. That is how “to ‘make’ a new product,” to use Bowman’s words, when the original product is a seed. Brief for Petitioner 37; see Webster’s Third New International Dictionary 1363 (1961) (“make” means “cause to exist, occur, or appear,” or more specifically, “plant and raise (a crop)”). Because Bowman thus reproduced Monsanto’s patented invention, the exhaustion doctrine does not protect him.

Were the matter otherwise, Monsanto’s patent would provide scant benefit. After inventing the Roundup Ready trait, Monsanto would, to be sure, “receiv[e] [its] reward” for the first seeds it sells. Univis, 316 U. S., at 251. But in short order, other seed companies could reproduce the product and market it to growers, thus depriving Monsanto of its monopoly. And farmers themselves need only buy the seed once, whether from Monsanto, a competitor, or (as here) a grain elevator. The grower could multiply his initial purchase, and then multiply that new creation, ad infinitum—each time profiting from the patented seed without compensating its inventor. Bowman’s late-season plantings offer a prime illustration. After buying beans for a single harvest, Bowman saved enough seed each year to reduce or eliminate the need for additional purchases.

The exhaustion doctrine is limited to the “particular item” sold to avoid just such a mismatch between invention and reward.

Bowman principally argues that exhaustion should apply here because seeds are meant to be planted. The exhaustion doctrine, he reminds us, typically prevents a patentee from controlling the use of a patented product following an authorized sale. And in planting Roundup Ready seeds, Bowman continues, he is merely using them in the normal way farmers do. Bowman thus concludes that allowing Monsanto to interfere with that use would “creat[e] an impermissible exception to the exhaustion doctrine” for patented seeds and other “self-replicating technologies.”

But it is really Bowman who is asking for an unprecedented exception—to what he concedes is the “well settled” rule that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

That is because, once again, if simple copying were protected use, a patent would plummet in value after the first sale of the first item containing the invention. 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.

Still, Bowman has another seeds-are-special argument: that soybeans naturally “self-replicate or ‘sprout’ unless stored in a controlled manner,” and thus “it was the planted soybean, not Bowman” himself, that made replicas of Monsanto’s patented invention.

But we think that blame-the-bean defense tough to credit. Bowman was not a passive observer of his soybeans’ multiplication; or put another way, the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops. As we have explained, supra at 2–3, Bowman devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium. He purchased beans from a grain elevator anticipating that many would be Roundup Ready; applied a glyphosate-based herbicide in a way that culled any plants without the patented trait; and saved beans from the rest for the next season. He then planted those Roundup Ready beans at a chosen time; tended and treated them, including by exploiting their patented glyphosate-resistance; and harvested many more seeds, which he either marketed or saved to begin the next cycle. In all this, the bean surely figured. But it was Bowman, and not the bean, who controlled the reproduction (unto the eighth generation) of Monsanto’s patented invention.

Note that the Court did try to limit the holding somewhat:

Our holding today is limited—addressing 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. Cf. 17 U. S. C. §117(a)(1) (“[I]t is not [a copyright] infringement for the owner of a copy of a computer program to make . . . another copy or adaptation of that computer program provide[d] that such a new copy or adaptation is created as an essential step in the utilization of the computer program”). 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.

*Side Note: Monsanto seeds do not contain a “terminator gene” that kills seeds. While Monsanto has rights to the patented processes – which could be used to prevent farmers from saving seeds – the company has vowed not to use it due to global food security and developing-country agriculture concerns over sterile seed sales.

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