Today, in a case having the potential to upset the agricultural biotech industry, Justice Elena Kagan delivered the U.S. Supreme Court’s unanimous decision rejecting farmer Vernon Hugh Bowman’s patent exhaustion defense. Bowman argued that having purchased genetically modified seeds covered by Monsanto patents from a grain elevator, he was free to plant them, grow them into plants that produced new seed, and harvest the new seed to sell or save for later replanting without the patent owner Monsanto’s permission. Bowman v. Monsanto, __ U.S. __, (No. 11-796) (May 13, 2013). Affirming the district court and Federal Circuit rulings, the Court held that the doctrine of patent exhaustion does not apply to protect a purchaser of a patented article to make new copies of the patented invention. In doing so, however, the Court limited its holding to the facts of the case, where the accused infringer controlled the reproduction of the patented invention that involved passing a genetic modification from the purchased seed to its progeny. The Court expressly left open whether patent exhaustion will apply to other self-replicating inventions—e.g., biological organisms and software, where patented articles that self-reproduce or self-replicate under other circumstances that are outside the purchaser’s control, or where that replication is a necessary but incidental step in using the item for another purpose. But for genetically modified plant seeds, the answer today is clearly and unambiguously no.
Monsanto developed and obtained patents on a genetic modification that enables plants, in this case soybean, to survive exposure to glyphosate, the active ingredient in certain broad spectrum herbicides (including Monsanto’s own Roundup). Monsanto markets the genetically modified soybean seed directly and under license through other companies as Roundup Ready seed. Farmers who plant Roundup Ready seed can use a glyphosate-based herbicide to kill weeds without damaging their Roundup Ready soybean crops. These farmers do so under an agreement with Monsanto that allows them to plant the purchased seeds in one (and only one) season, and then consume the resulting crop or sell it as a commodity, usually to a grain elevator or agricultural processor (for resale for human or animal consumption). The farmers are not allowed under their license agreements to save any of the harvested soybeans for replanting, nor supply them to anyone else for that purpose.
Bowman bought licensed Roundup Ready soybean seed for a first planting every year, and would sell his entire soybean crop from this first planting to a grain elevator. As an industrious farmer, he also made a late season planting of a second soybean crop each year, but for this he purchased “commodity seed,” destined for human or animal consumption, from a grain elevator, reasoning that most of these soybean seeds would be Roundup Ready. This second crop, like the first one, was planted and treated with glyphosate and, as anticipated, most of the soybean plants survived. They yielded seed which he then harvested and sold to the grain elevator. He saved some portion of the second harvest every year, thereby reducing over time the amount of commodity seed he needed to purchase from a grain elevator for his late season second planting.
Monsanto discovered Bowman’s conduct and sued for patent infringement, arguing that Bowman was creating new seed to which he did not have a license. Bowman defended the infringement claim arguing that under the doctrine of patent exhaustion, Monsanto could not control his use of the soybeans because he was doing what farmers do with seeds, and they were the subject of a prior authorized sale (from local farmers to the grain elevator). The District Court rejected that argument, and awarded infringement damages to Monsanto of $84,456. The Federal Circuit affirmed. The Supreme Court granted certiorari “to consider the important question of patent law raised in this case” (Slip. Op. at 4).
In reaching its decision, the Court articulated the doctrine of patent exhaustion as one that:
limits a patentee’s right to control what others can do with an article embodying or containing an invention. 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). And by “exhaust[ing] the [patentee’s] monopoly” in that item, 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). We have explained the basis for the doctrine as follows: “[T]he purpose of the patent law is fulfilled with respect to any particular article when the patentee has received his reward ... by the sale of the article”; once that “purpose is realized the patent law affords no basis for restraining the use and enjoyment of the thing sold.” Id., at 251.
The Court drew a clear line between what Bowman could do under the patent exhaustion doctrine, which was to resell the patented soybeans he purchased from the grain elevator, consume the beans himself or feed them to his animals, and what he could not do, which was to make additional patented soybeans without Monsanto’s permission (either express or implied). The Court reasoned that Monsanto could not interfere with the former activity, having already received its “reward” for the actual article sold under license to Bowman. But the latter—keeping a share of his first season’s crop for the purpose of another planting of the genetically-modified soybeans—was not a protected use. The Court recognized that if exhaustion applied to the second generation seed, “Monsanto’s patent would provide scant benefit” because “in short order, other seed companies could reproduce the product and market it to growers, thus depriving Monsanto of its monopoly” thereby “profiting from the patented seed without compensating its inventor.” (Slip Op. at 6). As Justice Kagan stated: “The exhaustion doctrine is limited to the ‘particular item’ sold to avoid just such a mismatch between invention and reward” (slip op. at 7), and “if simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention” and the “undiluted patent monopoly” would not extend for the 20-year term advertised in the Patent Act (slip op. at 8).
The Court found its holding consistent with the dichotomy established between the Patent Act and the Plant Variety Protection Act (PVPA), as articulated in its earlier decision in J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U. S. 124 (2001). Justice Kagan noted these different, but not conflicting statutory schemes for plant protection in which the Patent Act has no exemption from infringement for saving seed for replanting, whereas the PVPA does.
The Court took note that Bowman was not merely a passive observer in the seed self-replication process—it took some effort on his part to cause the reproduction of the seed to use it for another season’s crop—and of his admission that he knew of no other farmer that did what he did. Rather, Bowman took an active role in causing the commodity soybean seed to self-replicate and produce additional seeds, and thereby controlled the reproduction. Leaving the door open on how patent exhaustion might apply to other facts, the Court has hinted that its view, or perhaps its unanimity, might turn on how self-replication of the patented article occurs, and to what extent it is beyond the purchaser’s control. Where that line may be drawn remains to be seen. Clearly, the Supreme Court has not exhausted what it has to say on the doctrine of patent exhaustion.
The high level of interest and importance of this case is reflected in the 23 amicus briefs filed, including one authored by Orrick's Robert Isackson and other members of the New York Intellectual Property Law Association Amicus Briefs Committee. For full text of the NYIPLA brief please click here.