Bowman v Monsanto: the US Supreme Court rules on patent exhaustion and replication of patented seeds

Yesterday, the Supreme Court of the United States delivered its long-awaited judgment in the case of Bowman v Monsanto Co. et Al., unanimously ruling that 'patent exhaustion does not permit a farmer to reproduce patented seeds through planting and harvesting without the patent holder's permission'. The Court affirmed the decision rendered by the Court of Appeals for the Federal Circuit (which the AmeriKat analysed in detail here), observing that, if purchasers were allowed to replicate the invention, there would be a 'mismatch between invention and reward' and the patent would afford little protection to the inventor. Nonetheless, the judges warned that the doctrine of patent exhaustion might apply differently in relation to other self-replicating products. What follows is a recap of the facts of the case and the Supreme Court's decision.

Monsanto invented and patented (US Patent Nos. 5,352,605 and RE39,247E) 'Roundup Ready' soybean seeds, genetically engineered to survive exposure to N-phosophonomethylglycine (glyphosate) - based herbicides, including Monsanto’s Roundup® herbicide. Monsanto, directly or through licensed producers, sells the seeds to growers, under a special licensing agreement ('Monsanto Technology Agreement') which allows them to consume the resulting crop or sell it to local grain elevators or agricultural processors as a commodity. The agreement, however, allows growers to plant the seeds in one (and only one) season and prohibits the use of crop or second-generation seeds for replanting, or their sale to a third party for that purpose. 'These restrictions', explains the Supreme Court, 'reflect the ease of producing new generations of Roundup Ready seed', as the harvested soybeans inherit the glyphosate resistance embedded in the seeds' genetic material, a characteristic which would make it possible for growers to produce their own Roundup Ready seeds.

Vernon Hugh Bowman, a farmer from Indiana, purchased Roundup Ready seeds for several years, using them for his first crop of the season, in accordance with the licensing agreement. For the second crop of the season, instead, he purchased commodity soybeans, intended for human or animal consumption, from a grain elevator, and planted them in his fields, in order to avoid paying the premium price of Monsanto's seeds for a crop that the farmer considered 'riskier'. Bowman admittedly anticipated that, since most of the local farmers also used Roundup Ready seeds, many of the purchased soybeans would be second-generation, glyphosate-resistant, seeds, containing Monsanto’s patented technology. Bowman saved seeds from that crop to use them in the following year's late-season planting, and did so for eight consecutive years. Monsanto, after investigating the farmer's planting activities and confirming that the second-generation seeds contained the patented technology, sued Bowman for patent infringement. The farmer argued that, since Monsanto's agreement authorised local farmers to sell their crops to the grain elevator, from which he bought the seeds, he was protected by the doctrine of patent exhaustion. The Southern District of Indiana rejected the argument, and awarded damages of $84,456 to Monsanto. The Federal Circuit affirmed the judgment, observing that, even if Monsanto's patent rights in the commodity seeds are exhausted, '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'. The patentee, in the Federal Circuit's view, retained the exclusive right to make the article. Citing Monsanto Co. v Scruggs et Al., the court held that the purchaser of a patented technologies which can replicate itself is not authorised to use replicated copies of it, as this practice 'would eviscerate the rights of the patent holder'.

The Supreme Court noted that, under the doctrine of patent exhaustion, 'the initial authorised sale of a patented item terminates all patent rights to that item' (Quanta Computer Inc. v LG Electronics Inc.): the rationale behind this rule is that, once a patentee has received his reward through the sale of the patented item, he has no further right to restrain the use or enjoyment of it (United States v Univis Lens Co.). However, the doctrine only applies to the 'particular article' sold and does not interfere with the patentee's exclusive right to use and manufacture the invention in relation to other items. In other words, the right to make new copies of the patented items remains with the patentee, as 'the patent holder has "received his reward" only for the actual article sold, and not for subsequent recreations of it'. Applying this principle, the Court found that:

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... Because Bowman thus reproduced Monsanto’s patented invention, the exhaustion doctrine does not protect him.

If purchasers of the patented technology were allowed to replicate it, 'Monsanto's patent would

The IPKat would gladly replicate them...

provide scant benefit', as other companies could soon reproduce the product and market it to growers. Moreover, the farmers themselves could, after buying an initial round of seeds, multiply them and use later generation seeds in their fields, 'each time profiting from the patented seed without compensating its inventor'. This would create, in the Court's view, a mismatch between invention and reward.

The decision also follows the Supreme Court's teaching in J. E. M. Ag Supply Inc. v Pioneer Hi-Bred Int’l Inc., where the judges examined the relationship between the Plant Variety Protection Act and the Patent Act, establishing that inventors should be rewarded with a patent and explaining that only a patent holder could prevent purchasers of a protected seed from saving harvested seeds for replanting. Reasoning a contrario, the Court observed that, '[i]f a sale cut off the right to control a patented seed’s progeny, then (contrary to J. E. M.) the patentee could not prevent the buyer from saving harvested seed'. Thus, applying the patent exhaustion doctrine in the manner suggested by the petitioner would have contradicted the Supreme Court's earlier decision.

Although Bowman argued that seeds are meant to be planted and, therefore, that he merely used them 'in the normal way farmers do', the Court thought otherwise. It recognised that reproducing an article implies using it, but highlighted that reproduction falls, as held in previous case law (Cotton-Tie Co. v Simmons), beyond the boundaries of the exhaustion doctrine:

That is because, once again, if simple copying were a 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.

The Supreme Court noted that its interpretation of the patent exhaustion doctrine allows farmers to benefit from Roundup Ready, by planting, harvesting and consuming or selling the soybeans for consumption, while rewarding Monsanto for its innovation. This non-replicating use of the seeds, added the Court, was standard fare among farmers, as admitted by Bowman, who conceded that the beans sold by the grain elevator were intended for consumption, and that he knew of no other farmers who planted second-generation seeds bought from the grain elevator. Further, the judges criticised Bowman's 'blame-the-bean' defense, which argued that soybeans naturally self-replicate 'unless stored in a controlled manner', stating that the farmer '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'. It was Bowman, therefore, who controlled the reproduction, for eight consecutive generations, of the seeds protected by Monsanto's patents.

A cautious approach, perhaps sensitive to the concern expressed by some commentators, was exhibited towards the applicability of the exhaustion doctrine in relation to other self-replicating products. In concluding that, in the case in hand, patent exhaustion provided 'no haven' for Bowman's conduct, the Supreme Court added:

We recognize that [inventions related to self-replicating products] 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.

This closing statement addresses some of the criticism voiced against the Federal Circuit's decision. In an interesting paper entitled 'Self Replicating Technologies', Professor J. Sheff highlighted that 'not all self-replicating technologies are identical, and a categorical rule exempting them from exhaustion doctrine is unwarranted'. Although the Supreme Court did not go as far as identifying a criterium for modulating the patent exhaustion doctrine, as suggested in the paper (according to which, 'the application of the exhaustion doctrine should depend on the patentee’s ability to charge supracompetitive prices in its primary market where consumers are able to substitute secondary-market embodiments'), its final clarification appears to be a step in the right direction. Further, this Kat believes that focusing on the 'mismatch between innovation and reward' is a wise, yet frequently neglected, perspective to assess any patent case. When the reward is too low, as would be the case if the patent exhaustion doctrine applied in this case (and in many other situations, including unpatentable drugs and dormant therapies, as suggested by a well-educated reader - the IPKat plans on writing about this soon), courts and legislators are challenged with the task of strengthening protection; when the reward becomes too high, it is usually competition law that steps in. It seems, however, that investing in innovation might yield even greater benefits, for innovators, than legal battles: back in 2010, Neil highlighted that Monsanto was already 'refocus[ing] its strategic focus with respect to its patent portfolio from the first generation of bio-engineered seeds, which are close to expiration, in favor of promoting new versions of gene-modified products', letting its current patents 'expire without a fight'.