House Considers Alternative Patent Royalty Scheme for Genetically Engineered Seed

by McDonnell Boehnen Hulbert & Berghoff LLP
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House of Representatives SealThe tendency for members of the House of Representatives to exhibit ignorance of the patent system, so amply demonstrated in the "debate" over H.R. 6621 at the end of the last Congress (see "Congressional Misunderstandings (Apparently) Motivate H.R. 6621"), persists in the 113th Congress.  The most recent example is H.R. 193, the ''Seed Availability and 5 Competition Act of 2013'' introduced on January 4th by Representative Marcy Kaptur, D-OH (9th District, which includes Toledo).  The seeming intent of the bill is to substitute government bureaucrats from the Departments of Agriculture and the Treasury for private patentees in enforcing patents on genetically engineered seed.  In addition to amounting to a compulsory license, Rep. Kaptur has evidently never considered that, sometimes, the scariest sentence in the English language is "I'm from the Federal government, and I'm here to help."  This is not surprising; Rep. Kaptur was recently elected to her 15th term, and her background is not in patent law or agriculture:  her professional training is in urban planning.

The bill requires "persons [farmers] who seek to retain seed harvested from the planting of patented seeds to register with the Secretary of Agriculture and pay fees set by the Secretary for retaining such seed, and for other purposes."  Specifically, any farmer who plants patented seed or seed "derived from" patented seed to retain the seed for replanting is subject to two requirements.  The farmer must submit a notice to the Secretary of Agriculture of the intent to retain patented seed for replanting, (§ 2(a)(1)) and to pay a fee established by the Secretary and dependent on the "type and quantity" of seed that can be retained and "any other information" the Secretary determines to be "appropriate" (§ 2(a)(2)).  The fee is paid to the Federal government (§ 2(b)) and deposited into a "Patented Seed Fund" established in the Treasury (§ 2(e)(1)(2)).  The fees will be refunded to any farmer who can establish that, after paying the fees, natural disaster or "related" circumstances prevented them from replanting the seed (§ 2(c)).

The monies collected from the farmers is then paid to the patent holders by the goverment (§ 2(d)).  The motivation for all these seeming legal and economic inefficiencies finally becomes evident in § 2(f), which provides that any farmer who complies with the provisions of the bill (if enacted) "shall not be bound" by any contractual, patent royalty, or licensing fees.

Kaptur, MarcyNot wishing to be considered un-American, Rep. Kaptur (at left) included in the bill a provision (§ 3) whereby the Treasury Department will collect a tariff amounting to the difference between the royalties or licensing fees imposed upon purchasers of patented seed in the U.S. and any lower royalties or licensing fees paid by purchasers of patented seeds in a foreign country and then imported into the U.S.  Those tariffs are paid into the Patented Seed Fund, presumably for payment to patent holders who have negotiated the lesser fees in the foreign country in the first place.

It is hard to know where to begin.  Clearly the political controversy engendered by the many patented seed cases brought by patentees against farmers over the past decade, and the recent kerfuffle produced by the Public Patent Foundation in its suit on behalf or "organic" farmers came to Rep. Kaptur's attention.  And in some ways this is a classic "split the baby" result, where the government (and its sensitivity to political considerations) can determine the "appropriate" royalty for replanted seed and distribute it to the patent holders.  The tariff provisions might also be seen as a boon to those patentees who were unable to obtain royalties or patent licensing fee abroad commensurate with the fees they collect from U.S. farmers.

But in reality, of course, the bill imposes a compulsory license on holders of genetically engineered seed patents, who have resisted the political pressure to permit farmers to replant seed instead of purchasing seed for each planting.  Although this has imposed legal and public relations costs on these patentees, the patent grant permits them to impose these restrictions (unless and until the Supreme Court decides otherwise in Bowman v. Monsanto).  But regardless of which side has the better policy argument in that debate, Rep. Kaptur's bill is not a remedy required by the politics or economics of the situation.  Indeed, it would just impose another government bureaucracy on U.S. agriculture that would not promote either agriculture or technological progress.

The bill has been referred to the House subcommittee on Rural Development, Research, Biotechnology, and Foreign Agriculture for further consideration.

Text of the bill:

A BILL

To require persons who seek to retain seed harvested from the planting of patented seeds to register with the Secretary of Agriculture and pay fees set by the Secretary for retaining such seed, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.


This Act may be cited as the ''Seed Availability and 5 Competition Act of 2013''.

SEC. 2. RETAINING PATENTED SEED.

    (a) REGISTRATION.—Any person who plants patented seed or seed derived from patented seed may retain seed from the harvest of the planted seed for replanting by that person if that person—
        (1) submits to the Secretary of Agriculture notice, in such form as the Secretary may require, of the type and quantity of seed to be retained and any other information the Secretary determines to be appropriate; and
        (2) pays the fee established by the Secretary pursuant to subsection (b) for the type and quantity of seed retained.
    (b) FEES.—The Secretary of Agriculture shall establish a fee to be paid by a person pursuant to subsection (a)(2) based on the type and quantity of seed retained.  The Secretary shall deposit amounts collected pursuant to subsection (a)(2) in the Patented Seed Fund established under subsection (e)(1).
    (c) REFUNDS.—The Secretary of Agriculture may refund or make an adjustment of the fee paid pursuant to subsection (a)(2) when the person is unable to plant or harvest the retained seed as a result of a natural disaster or related condition and under such other circumstances as the Secretary considers such refund or adjustment appropriate.
    (d) DISTRIBUTIONS.—The Secretary of Agriculture shall pay the collected fees to the appropriate patent holders, at a frequency that the Secretary determines is appropriate, from the Patented Seed Fund established under subsection (e)(1), taking into consideration the possibility of refunds pursuant to subsection (c).
    (e) PATENTED SEED FUND.—
        (1) ESTABLISHMENT.—There is established in the Treasury of the United States a fund to be known as the ''Patented Seed Fund'', consisting of such amounts as may be received by the Secretary and deposited into such Fund as provided in this section.
        (2) ADMINISTRATION.—The Fund shall be administered by the Secretary of Agriculture and all moneys in the Fund shall be distributed solely by the Secretary in accordance with this section and shall not be distributed or appropriated for any other purpose. Amounts in the Fund are available without further appropriation and until expended to make payments to patent holders.
    (f) INAPPLICABILITY OF CONTRACTS AND PATENT FEES.—A person who retains seed under subsection (a) from the harvest of patented seed or seed derived from patented seed shall not be bound by any contractual limitation on retaining such seed, or by any requirement to pay royalties or licensing or other fees, by reason of the patent, for retaining such seed.
    (g) DEFINITION.—In this section, the term ''patented seed'' means seed for which a person holds a valid patent.

SEC. 3. TARIFF ON CERTAIN IMPORTED PRODUCTS.

    (a) TARIFF.—In any case in which—
        (1) genetically modified seed on which royalties or licensing or other fees are charged by the owner of a patent on such seed to persons purchasing the seed in the United States is exported, and
        (2) no such fees, or a lesser amount of such fees, are charged to purchasers of the exported seed in a foreign country, then there shall be imposed on any product of the exported seed from that foreign country that enters the customs territory of the United States a duty determined by the Secretary of the Treasury, in addition to any duty that otherwise applies, in an amount that recovers the difference between the fees paid by purchasers of the seed in the United States and purchasers of the exported seed in that country.
    (b) DEPOSIT OF DUTIES.—There shall be deposited in the Patented Seed Fund established under section 2(e)(1) the amount of all duties collected under subsection (a) for distribution to the appropriate patent holders in accordance with section 2(d).
    (c) DEFINITIONS.—In this section—

        (1) the term ''genetically modified seed'' means any seed that contains a genetically modified material, was produced with a genetically modified material, or is descended from a seed that contained a genetically modified material or was produced with a genetically modified material; and
        (2) the term ''genetically modified material'' means material that has been altered at the molecular or cellular level by means that are not possible under natural conditions or processes (including recombinant DNA and RNA techniques, cell fusion, microencapsulation, macroencapsulation, gene deletion and doubling, introducing a foreign gene, and changing the positions of genes), other than a means consisting exclusively of breeding, conjugation, fermentation, hybridization, in vitro fertilization, tissue culture, or mutagenesis.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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