What’s the case about?
The Doctrine of Patent Exhaustion holds that the authorized sale of a patented item extinguishes all of the patent holder’s rights to it. Any subsequent use of that item by the purchaser is not infringement. In other words, the purchaser of a patented item can do whatever he or she likes with it. But what if that item is capable of self-replication? Does the patent holder have the right to control subsequent generations of the item? This was the issue the Supreme Court confronted in Bowman v. Monsanto.
The story is this: Mr. Bowman, a farmer from Indiana, would plant soybeans two times each year. For his first crop, he purchased Monsanto’s Roundup Ready seeds. These seeds contained a patented genetic modification that made them resistant to the weed-killer Roundup. To make this purchase, Bowman had to agree not to replant any of the 2nd generation soybeans. He was allowed to plant the seeds once, but was prohibited from replanting the offspring.
Bowman complied with the terms of this agreement for his first crop, but he also planted a second crop of soybeans each year. He purchased the seeds for this second crop not from Monsanto, but from a local grain elevator at a significantly lower price. Bowman would sell some of the offspring from this crop and use the rest for replanting.
So how did Bowman infringe Monsanto’s patent? Well, as it turned out, some of the seeds from the grain elevator contained the Roundup Ready technology. Bowman knew this—he would plant these seeds and apply herbicide to them, killing all but the Roundup Ready ones. Monsanto told Bowman to discontinue this practice. When he refused, Monsanto filed a lawsuit seeking damages and an injunction.
Monsanto argues that the Doctrine of Patent Exhaustion does not apply to the seeds from the grain elevator since they were never subject to an authorized sale. Rather, the grain elevator seeds were descended from seeds that were subject to an authorized sale.
Monsanto argues that allowing the initial seed sale to exhaust the patent rights in all future generations would destroy incentives for innovation. Justice Roberts seemed to be of the same mindset when he interrupted counsel for Bowman a little over 30 seconds into his argument with the question, “Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?”
While Bowman’s counsel responded that contract law provided sufficient protection, the Justices seemed largely unconvinced. The Court was concerned that ruling for Bowman would stifle innovation.
Monsanto spends a massive amount on research and development—$2.6 million every day. While many involved in agriculture are critical of its business practices, Monsanto has developed innovations that deliver significant benefit to farmers. Bowman, expressing the bittersweet sentiment many farmers feel for Monsanto explained, “If you disliked a doctor very much, but every time he operated on a patient that had cancer he cured them, you would go to him even though you hated his guts.” The Roundup Ready seeds have proven so advantageous that they now comprise over 90% of the soybeans planted in America.
The rampant success of these seeds appears to be a double-edged sword though. Bowman pointed out that ruling for Monsanto would effectively eliminate the ability to plant seeds from a grain elevator. A farmer who planted seeds from an elevator containing even 1% Roundup Ready seeds would be unintentionally infringing on Monsanto’s patent.
What will the outcome be?
Many experts predict a 9-0 decision in favor of Monsanto.
Patent litigation often forces courts to strike a balance between encouraging innovation and allowing for widespread use and dissemination of a good. Making this decision isn’t always easy, but given that ruling for Bowman would effectively eliminate Monsanto’s ability to generate a return on biotechnology research and development, the choice is clear. Without protection on subsequent generations, there would be little incentive to invent new and better seeds. As such, the Court will likely hold that the Doctrine of Patent Exhaustion does not extend to copies of a patented item, even when copies “naturally result” from use of the patent.
Since the Court can find for Monsanto on this ground, it will probably choose not to address the “lingering confusion” surrounding the viability of the Conditional Sale Doctrine (CSD). This doctrine, created by the Federal Circuit in Mallinckrodt, Inc. v. Medipart, Inc. functions as an exception to patent exhaustion. The CSD allows patent owners to condition the sale of a patented item on the purchaser’s promise to comply with usage restrictions. The patent owner can ensure compliance of these restrictions through a patent infringement or breach-of-contract claim. Monsanto forces all buyers of Roundup Ready seeds, including Bowman, to agree to such conditions.
The confusion surrounding the CSD is whether it was implicitly overruled by the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc. This case dealt with a license agreement permitting Intel to make and sell computer parts incorporating LGE’s patents. The Court found that Intel’s sale of these parts to manufacturers exhausted LGE’s patent rights. Therefore, LGE could not prevail against the purchasing manufacturer, Quanta, for patent infringement. As a result of Quanta, many think that the CSD is bad law. However, the fact that the Court made no explicit mention of the CSD in its opinion leaves open the possibility of its continued validity.
Both Monsanto and the Government thought that the Court did not need to address the CSD. Interestingly, the government’s position was that Quanta eliminated the CSD and that restrictions on authorized purchases of a patented item were unenforceable. In contrast, Monsanto claimed that restrictions on the use and resale of a patented item were generally valid.
What’s at stake?
While it’s likely that the Court’s opinion will extend beyond the world of soybean farming, how much further isn’t clear. The most immediate applications outside of farming pertain to vaccines and manmade cell lines. The decision may also have implications in the software field.
The parallel between seeds and software is that both items can be duplicated. Indeed, while seeds require planting, watering, sunlight and time in order to reproduce, copying information on a CD is significantly easier.
The Business Software Alliance (BSA), a software trade group composed of companies like Apple, Dell and Microsoft, submitted an amicus brief in favor of Monsanto. The BSA stated that a rule withholding patent protection from self-replicating items, if extended to software, could facilitate piracy on a broad scale. Because the process of using software frequently results in the creation of a temporary copy of the program in the computer’s short-term memory, software might be considered self-replicating. Therefore, a holding for Bowman could hinder the ability of intellectual property owners to prevent reproduction and resale of their software.
Emphasizing that patent exhaustion should only apply to the particular item sold, the BSA contended that copies of seeds, like copies of software, are “newly infringing article[s].” Without property rights to these new articles, owners would have no way of realizing a return on their investment. Should the Court find for Bowman, the BSA asked the holding be confined to the factual context of the present case.
However the Court structures its opinion, it will surely do so mindful of the effects on owners and users of intellectual property, even if that comes at the expense of Bowman and his seeds.