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A License to “Use” a Patented Technology That Can Replicate Itself Does Not Necessarily Give a Purchaser the Right to Use Replicated Copies of the Technology

September 21, 2011

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Last Month at the Federal Circuit - October 2011

Judges: Bryson, Linn (author), Dyk

[Appealed from: S.D. Ind., Judge Young]

In Monsanto Co. v. Bowman, No. 10-1068 (Fed. Cir. Sept. 21, 2011), the Federal Circuit affirmed the district court’s SJ that by planting the progeny of Monsanto Company and Monsanto Technology LLC’s (collectively “Monsanto”) genetically altered seeds, Vernon Bowman infringed several claims of Monsanto’s patents. Additionally, the Court found that the doctrine of patent exhaustion did not bar Monsanto’s claims and that Bowman had actual notice of Monsanto’s allegations of infringement.

Monsanto invented and developed technology for genetically modified “Roundup Ready®” soybeans that exhibit resistance to N-phosphonomethylglycine (a compound commonly known as glyphosate). U.S. Patent No. 5,352,605 (“the ’605 patent”) and RE39,247E (“the ’247E patent”) cover different aspects of Monsanto’s Roundup Ready® technology. The technology allows for the transformation of a plant cell with a gene encoding for a glyphosate-tolerant enzyme. The plants then express the enzyme and exhibit glyphosate resistance, which allows farmers to treat their fields with glyphosate-based herbicides, such as Monsanto’s Roundup® product, to control weed growth without damaging the crops. This technology can be incorporated into a variety of crops.

Monsanto markets and sells its Roundup Ready® soybean seeds under its own brand and licenses its technology to seed producers who insert the Roundup Ready® genetic trait into their own seed varieties and sell the seeds to growers for planting. All sales to growers, whether from Monsanto or its licensed producers, are subject to a standard form limited use license (“Technology Agreement”). The ’605 patent and U.S. Patent No. 5,633,435 (“the ’435 patent”), which reissued as the ’247E patent, are listed as applicable patents licensed under Monsanto’s Technology Agreement. The Technology Agreement permits licensed growers to use the seeds containing Monsanto’s gene technologies for planting a commercial crop only in a single season because the patented genetic trait carries forward into successive seed generations.

Although the express terms of the Technology Agreement also forbid growers from selling the progeny of the licensed seeds (“second-generation seeds”) for planting, Monsanto authorizes growers to sell second-generation seeds to local grain elevators as a commodity, without requiring growers to place restrictions on the grain elevators’ subsequent sales of those seeds. Commodity seeds are a mixture of undifferentiated seeds harvested from various sources, including from farms that grow Roundup Ready® soybeans.

Bowman, a grower, purchased seeds containing Monsanto’s Roundup Ready® technology and executed the Technology Agreement. Bowman planted Roundup Ready® seeds as his first-crop in each growing season from 1999 through 2007, and did not save seeds from his first-crop during any of those years. In 1999, Bowman also purchased commodity seeds from a local grain elevator for a late-season planting, or “second-crop.” Bowman determined that many of the plants in his second-crop also exhibited glyphosate resistance. Bowman saved the seeds harvested from his second-crop for replanting additional second-crops in later years. Bowman did not attempt to hide his activities and candidly explained his practices with respect to his second-crop soybeans in correspondence with Monsanto.

In 2007, Monsanto sued Bowman for infringement of the ’605 and ’247E patents. Monsanto thereafter investigated Bowman’s fields and confirmed that Bowman’s second-crop soybean seeds contained the patented Roundup Ready® technology. Before the district court, Monsanto argued that Bowman’s second-crop infringed because the Technology Agreement only extended to seeds purchased from Monsanto or a licensed dealer; thus, Bowman’s use of the commodity seeds was not within the scope of the agreement. Monsanto did not allege infringement or breach of the Technology Agreement with respect to Bowman’s first-generation seeds. The district court granted SJ of infringement and Bowman appealed.

On appeal, the Federal Circuit first considered and rejected Bowman’s argument—that Monsanto’s patent rights were exhausted with respect to all of the Roundup Ready® soybean seeds sold by the grain elevators as undifferentiated commodity because sales of second-generation seeds by growers to grain elevators and then from grain elevators to purchasers are authorized according to Monsanto’s Technology Agreement and are thus exhausting sales under Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). The Court reviewed two of its earlier decisions pertaining to Monsanto’s patented technology, one of which held that the conditions in Monsanto’s Technology Agreement were valid and legal, and did not implicate the doctrine of patent exhaustion. The Court’s conclusion was based on the finding that the “price paid by the purchaser reflects only the value of the ‘use’ rights conferred by the patentee.” Slip op. at 11 (quotation marks and citation omitted).

As applied here, the Federal Circuit concluded that the doctrine of patent exhaustion did not bar an infringement action because, “[e]ven if Monsanto’s patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence because once a grower, like Bowman, plants the commodity seeds containing Monsanto’s Roundup Ready® technology and the next generation of seed develops, the grower has created a newly infringing article.” Id. at 12. Thus, the fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology. “Applying the first sale doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.” Id. (citation omitted). Ultimately, “the [C]ourt disagree[d] . . . 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.” Id. (citing Quanta, 553 U.S. at 631). Thus, while farmers may have the right to use commodity seeds as feed or for any other conceivable use, “they cannot ‘replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants.” Id. at 12-13.

Finally, the Federal Circuit found that while Bowman did not waive his arguments that Monsanto failed to provide actual or constructive notice of infringement in accordance with 35 U.S.C. § 287(a), Bowman received actual notice. A letter sent by Monsanto in 1999 specifically (1) identified the allegedly infringing Roundup Ready® soybeans, (2) identified the patents covering the Roundup Ready® soybeans, (3) explained that Bowman would infringe the identified patents by planting any unlicensed Roundup Ready® seeds, and (4) informed Bowman that he could not pay a fee to save Roundup Ready® seeds, but may license seeds only through the purchase of new seeds subject to the Technology Agreement. Thus, the Court held that Monsanto’s letter was an “‘affirmative communication to the alleged infringer of a specific charge of infringement by a specific accused product or device,’ . . . and it is ‘sufficiently specific to support an objective understanding that the recipient may be an infringer.’” Id. at 14-15 (citations omitted). Thus, Bowman had actual notice and the Court did not need to reach the issue of constructive notice.

Accordingly, the Federal Circuit affirmed the district court’s SJ of infringement.

Summary authored by Bart A. Gerstenblith, Esq.