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Patentee May Regulate Use of Subsequent Generations of Patented Self-Generating Biotechnology

August 16, 2006

Decision icon Decision

Last Month at the Federal Circuit - September 2006

Judges: Mayer (author), Bryson, Dyk (concurring-in-part and dissenting-in-part)

[Appealed from: N.D. Miss., Judge Pepper]

In Monsanto Co. v. Scruggs, Nos. 04-1532, 05-1120, -1121 (Fed. Cir. Aug. 16, 2006), the Federal Circuit affirmed the district court’s grant of Monsanto Company’s (“Monsanto”) motions for SJ of patent invalidity and infringement, antitrust violations, patent misuse, and common law counterclaims, and vacated the district court’s grant of permanent injunction.

Monsanto owns U.S. Patent No. 5,352,605 (“the ’605 patent”), which is directed to insertion of a synthetic gene consisting of a 35S cauliflower mosaic virus (“CaMV”) promoter, a protein sequence of interest, and a stop signal, into plant DNA to create herbicide resistance. Monsanto also owns three other patents (collectively “the McPherson patents”), which are directed to insect-resistant traits and expanded upon the ’605 patent. Monsanto used these patents to develop Roundup Ready (R) soybeans and cotton and stacked trait cotton, sold as Bollgard/Roundup Ready (R) cotton, which is resistant to glyphosate herbicide and certain insects. Monsanto licensed its technology to seed companies (“seed sellers”), allowing the licensees to
incorporate the Monsanto biotechnology into their germplasm to produce Roundup Ready (R) and Bollgard/Roundup Ready (R) seeds. The licenses also restrict seed sellers from selling seed containing Monsanto’s technology to growers unless the growers sign a license agreement and agree to grow only a single commercial crop.

Scruggs purchased both types of seeds but never signed a licensing agreement. Scruggs planted the purchased seeds and retained the new generation of seeds after harvesting. It planted subsequent crops with those seeds, as well as with seeds obtained from subsequent generations of crops.

Monsanto filed suit against Scruggs for infringement of the ’605 and McPherson patents. The district court issued a preliminary injunction, prohibiting Scruggs from sale and use of seeds containing the patented biotechnology. Scruggs answered the complaint with federal and state antitrust claims and patent misuse defenses. Additionally, Scruggs asserted common lawcounterclaims of invasion of privacy, trespass, tortious interference with contract and/or business relations, abuse of process, conversion, nuisance, strict liability in tort, negligence, and unfair competition. Scruggs also denied infringement and sought a declaration of invalidity of the ’605 and McPherson patents. Monsanto moved for SJ on infringement, the antitrust and patent misuse defenses, and the common law counterclaims. The district court granted Monsanto’s motions and denied Scruggs’s motion to vacate the preliminary injunction. The district court then issued a permanent injunction and a final judgment.

On appeal, the Federal Circuit affirmed the district court’s grant of SJ of infringement in view of Scruggs’s admission that it purchased the Roundup Ready (R) and Bollgard/Roundup Ready (R) seeds, it did not obtain a license, and it saved seeds for further use, in conjunction with Monsanto’s scientific tests showing Scruggs’s crops contained the patented technology. Rejecting Scruggs’s argument that the Roundup Ready (R) seeds are not covered by the ’605 patent, the Court explained that the specification in the ’605 patent states that different strains of CaMV may be used in the invention, and Scruggs did not appeal the district court’s claim construction of the ’605 patent as covering “a promoter element selected from the group consisting of either a 35S cauliflower mosaic virus promoter or a 19S cauliflower mosaic promoter . . . .” Thus, the district court’s finding that the ’605 patent employs thepromoter from CaMV generally stands, as does the conclusion that the Roundup Ready (R) seeds are covered by the ’605 patent. Furthermore, the Court concluded that Scruggs failed to present any evidence contradicting Monsanto’s testing results showing infringement.

The Federal Circuit also rejected Scruggs’s argument that it purchased the Monsanto seeds in an unrestricted sale and, therefore, it was entitled to use those seeds in an unencumbered manner under the doctrine of patent exhaustion. The Court concluded that the doctrine of patent exhaustion was inapplicable because there was no unrestricted sale. The use of seeds by seed growers was conditioned on obtaining a license from Monsanto. The Court further noted that the “‘first sale’ doctrine of exhaustion of the patent right is not implicated, as the new seeds grown from the original batch had never been sold.” Slip op. at 8. “The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology.” Id. at 9.

The Federal Circuit also held that Scruggs did not have an implied license to use Monsanto’s technology, as indicated by the circumstances of the sale. Furthermore, the seed distributors had no authority to confer a right to use Monsanto’s biotechnology and, therefore, could not have conferred a license to use the seeds.

The Federal Circuit affirmed the district court’s holding that the ’605 and McPherson patents were not invalid for lack of written description and enablement. The district court found, and the Federal Circuit agreed, that Monsanto was not required to disclose a specific gene sequence because the patents do not claim one particular sequence. The Court explained that the written
description requirement was satisfied because the ’605 patent incorporates by reference deposits that are publicly available, and given the knowledge in the art, it was unnecessary to include specific gene sequences. The Court also held that the McPherson patents satisfy the written description requirement for the same reason.

The Federal Circuit held that Scruggs failed to present sufficient evidence to demonstrate that the ’605 patent was invalid for lack of enablement as well. While the Court acknowledged that in some cases specific DNA sequences may be required to satisfy the enablement requirement, in this case, the specific sequences are not required because CaMV is well known and well documented. “The fact that some experimentation may be necessary to produce the invention does not render the ’605 patent invalid for lack of enablement.” Id. at 13 (emphasis in original).

The Federal Circuit further held that Monsanto’s licensing agreements, which contained an exclusivity provision, no replant policy, and technology fee payments, were not illegal anticompetitive practices. The no replant policy is a valid exercise of patent rights by preventing purchasers of the seeds from using the patented biotechnology when that biotechnology makes a copy of itself. Likewise, Monsanto’s uniform technology fee is also within the scope of the patent right. Finally, the Court explained that the no research policy is a field of use restriction within the protection of the patent laws.

The Federal Circuit also held that Scruggs did not provide sufficient evidence to prove that Monsanto’s practices constituted unlawful tying of the Roundup Ready trait to the Bollgard trait. The Court explained that the grower incentive program was optional, and Monsanto’s seed partners were not forced to buy Roundup under the seed partner agreements. Additionally, Monsanto sells cotton without the Bollgard trait.

The Federal Circuit also held that Scruggs did not present evidence of activity constituting patent misuse because Monsanto’s activities were within the patent grant. The Court agreed with Monsanto’s argument that its contract provisions lacked any anticompetitive effect because the Environmental Protection Agency’s regulations prohibited growers from using competing glyphosate herbicides for over-the-top application, and therefore, even if growers elected to use such herbicides for over-the-top application, they would not be legally free to use competing brands. Because Scruggs did not show that the challenged contracts had an actual adverse effect on competition, it cannot use the challenged contract provisions as a defense against patent infringement.

With respect to the tortious interference, unfair competition, and invasion of privacy claims, the Court held that Scruggs’s arguments were not adequately developed for the Court to reach the merits. Scruggs’s attempts to make arguments by incorporation in its brief violated Fed. R. App. P. 28(a) and were deemed waived.

With respect to the permanent injunction, the Court vacated the district court’s decision in view of eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006), and remanded for consideration of the standard four-part test for permanent injunctions in patent cases.

Judge Dyk joined the majority opinion on the issue of unlawful tying. Judge Dyk stated that he would vacate the judgment as to the alleged tie in the 1996-1998 grower agreements, and remand for the district court to determine whether the relevant contract provision in fact constituted patent misuse and, if misuse occurred, whether it was purged.