January 30, 2012
LES Insights
Authored by D. Brian Kacedon, Douglas W. Meier, and John C. Paul
According to the doctrine known as "patent exhaustion," the first authorized sale of a patented item ends, or "exhausts," a patentee's right to control the further use or resale of that item, leaving the buyer free to use the patented item without restriction. In recent years, courts have applied the doctrine to a variety of complex situations. In one such case, Monsanto Co. v. Vernon Hugh Bowman, No. 10-1068 (Fed. Cir. Sept. 21, 2011),1 the Federal Circuit addressed the issue of patent exhaustion in the context of Monsanto's Roundup Ready® soybeans.
Monsanto invented and developed technology for genetically modified "Roundup Ready®" soybeans, which makes them resistant to glyphosate-based herbicides, such as Monsanto's Roundup®. Monsanto licenses its technology to seed producers who insert the Roundup Ready genetic trait into their own seeds then sell those Roundup Ready® seeds to growers for planting. All sales to growers are subject to a standard-form license. Under this license, the licensed grower agrees, among other things: (1) to use the seed for planting a commercial crop only in a single season; (2) to refrain from supplying any seed to another person or entity for planting; and (3) to refrain from saving any crop produced from the seed for replanting. Monsanto restricts the grower's use of the Roundup Ready® seed to a single commercial crop season because the patented genetic trait carries forward into each successive seed generation.
Monsanto does, however, allow growers to sell the progeny of the licensed seeds—called "second-generation seeds"—to local grain elevators as commodity seeds, which are a mixture of undifferentiated seeds harvested from various sources, including farms that grow Roundup Ready® soybeans and those that do not.
One licensed grower, Mr. Bowman, planted the Roundup Ready® seeds as his first crop and did not save seed, consistent with the license. Separately, Mr. Bowman also purchased commodity seed from a local grain elevator for a late-season planting, referred to as a "second-crop." As the Court noted, second-crop plantings involve more risk, explaining the preference for cheaper commodity seed instead of the more expensive Roundup Ready® seed.
During this second-crop, Mr. Bowman applied glyphosate-based herbicide to the fields with the commodity seed, allowing him to determine which plants were resistant to glyphosate. Mr. Bowman saved the seed harvested from his second-crop for replanting additional second crops in later years. He also supplemented his second-crop planting with periodic additional purchases of commodity seed from the grain elevator.
Monsanto sued Mr. Bowman for patent infringement, claiming that he violated the license with his second-crop planting. The district court granted summary judgment of infringement. Mr. Bowman appealed.
On appeal, Mr. Bowman presented two arguments: (1) Monsanto's patent rights are exhausted for all Roundup Ready® seeds that exist in grain elevators as undifferentiated commodities; and (2) if the right to use patented seeds does not include the unlimited right to grow later generations free of liability for patent infringement, then any exhaustion determination is useless.
Regarding Mr. Bowman's first argument, Monsanto did not dispute that the license does not prohibit a grower from selling second-generation Roundup Ready® seeds to grain elevators. Therefore, according to Mr. Bowman, the sales of second-generation seeds by growers to grain elevators and then from grain elevators to purchasers are authorized and are therefore exhausting sales under Quanta. Monsanto responded that the sales of second-generation seeds to grain elevators as commodity seeds did not exhaust Monsanto's patent rights in those seeds because of the express condition in the license that the progeny of licensed seed can never be sold for planting. Therefore, according to Monsanto, a grower's sale of harvested soybeans to a grain elevator is not an "authorized sale" when it results in the later planting of those soybeans.
As his second argument, Mr. Bowman urged the Court to hold that each seed sold is a "substantial embodiment" of all later generations, which would allow the exhaustion doctrine to encompass the progeny of seeds and other self-replicating biotechnologies. In response, Monsanto argued that even if there were an exhaustion with respect to commodity seeds, Mr. Bowman is nevertheless liable for infringement by planting those seeds because patent protection applies independently to each generation of soybeans containing the patented trait. Therefore, according to Monsanto, Mr. Bowman's argument would lead to the evisceration of patent protection for self-replicating inventions.
The Court rejected Mr. Bowman's arguments, reasoning that even if Monsanto's patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence because once Mr. Bowman plants the commodity seeds containing the Roundup Ready® technology and the next generation of seed develops, he has created a newly infringing article.
The Court also declined to adopt Mr. Bowman's view that a seed "substantially embodies" all later-generation seeds, at least with respect to the commodity seeds, because nothing in the record indicates that the "only reasonable and intended use" of commodity seeds is for replanting them to create new seeds. Specifically, the Court pointed out that there are various uses for commodity seeds, including use as feed. Thus, under the Court's reasoning, farmers may have the right to use commodity seeds as feed, or for any other conceivable use, but they cannot replicate Monsanto's patented technology by planting it in the ground to create newly infringing seeds.
Patent exhaustion does not apply to self-replicating technologies. Citing to an earlier decision, the Court explained that "the right to use 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." Accordingly, even if patent rights in a self-replicating technology are exhausted, when that technology develops into a new article, that new article provides a newly formed basis for infringement.
Endnotes
1 The Monsanto decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1068.pdf
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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