By Dennis Crouch
Bowman v. Monsanto Company (SCOTUS 2013) Transcript
The Supreme Court heard oral arguments today in the patent exhaustion case involving Monsanto's glyphosate-resistant soybeans. Acting in a pro bono basis, Mark Walters represented Mr. Bowman, the Indiana farmer accused of patent infringement. Decidedly not pro bono, Seth Waxman represented Monsanto, and Melissa Arbus Sherry spoke on behalf of the US Government.
My expectation here is that the court will side with Monsanto and find that a sale of patents seeds does not exhaust the patent rights as to progeny seeds that are grown. I will not be surprised if that result is 9-0. I suspect that there will also be a concurring opinion arguing that the Federal Circuit's conditional sale doctrine is bad law and that restrictions on the use of personal property do not normally bind subsequent purchasers who are not privy to that restriction agreement – regardless of whether the personal property is covered by a patent right.
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There are two major questions at stake: (1) what is the scope of patent exhaustion for goods that are naturally self-reproducing; and (2) to what extent do use restrictions placed on a licensed grower (or manufacturer) persist as servitudes that create potential liability for downstream purchasers.
Everyone agrees that the first authorized and unrestricted sale of a patented article exhausts the patent rights in that particular article and allows the purchaser to use and sell the article without fear of patent liability. Bowman argues that, for seeds, this right to use includes the right to sow the seeds and use the harvest. Under Bowman's construct, once a seed is sold without restriction, the patent rights are exhausted to that seed and to its generations of progeny. Bowman's argument also relies upon the disputed assumption that the patent rights covering the initial seeds he purchased were actually exhausted. Monsanto has kept tight control over its product throughout the years and always requires farmers who want to plant its seeds to sign a technology licensing agreement. That agreement includes a promise not to save and replant seeds. Monsanto has argued that use restriction (or license limitation) is binding on subsequent purchasers – even those who purchase the seeds in a fungible commodity market without agreeing to any restriction. Thus, for Bowman to win, the court needs to find (1) that the rights in the original seeds were exhausted by the time Bowman purchased them from the commodity market and (2) that the exhaustion applies to all future progeny of the seeds. So far, the courts have sided with Monsanto.
Out of the gate, a plurality of justices appeared concerned about the policy implications of a decision in favor of Bowman.
Chief Justice Roberts: 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?
There are several ways to answer this question: (1) an innovator could use contract law to ensure a better market structure; (2) patent rights are rarely sufficient alone to ensure profit; and (3) that soybeans are not really fungible in the way that you might think. The Court already knew the first two answers wanted to explore the third.
Mr. Walters: [S}eed that's available at a grain elevator is not a very good source of seed and farmers are not going to be able to eliminate the need to go to Monsanto or the other seed companies every year by going to the grain elevator. . . . Taking our example here where — where Petitioner bought commodity seeds, it's an undifferentiated mixture, it can't be overemphasized how different every single seed is, you don't know a Monsanto from a Pioneer from an Asgrow. You don't know the maturity rate. If I am a farmer, I need a particular maturity bean for my field because I don't want it to mature before it gets high enough for the combine to come around and cut it.
So you want to be able to have — you have all these things dialed in, these different variabilities. So if you go to the grain elevator and you don't know what exactly it is that you want and you just get a mixture, that's not going to be real -competitive at all to Monsanto's first generation seed. Now, the possibility of somebody selecting one and saying, ah, that's the exact one that I need for my field, I'm going to cultivate that and let it grow into enough seeds so I can plant my first crop, that would take a number of years to grow a 1,000-acre farm, and it's not — and by that time, farmers — the nature would have changed and evolved where you would want the latest disease resistance by that point….
Justice Scalia: Some of them would — would grow at different rates than others.
Mr. Walters: Absolutely. . . .
Justice Scalia: The original batch that he buys from Monsanto, in addition to being resistant to the chemical that kills the weeds, in addition to that, they all mature at the same rate.
Mr. Walters: Exactly. They're a uniform variety. They are exactly what a farmer needs …
Justice Scalia: So all the Monsanto seeds are not — are not fungible.
In addition to these elements, both Ms. Arbus Sherry and Mr. Waxman explained that the seed lines are additionally protected by PVPA certificates and that grain elevators are sales are prohibited by state and federal law from labeling its commodity goods as seed.
On the actual law of exhaustion Mr. Walters did not appear to fare so well.
Justice Sotomayor: I'm sorry. The Exhaustion Doctrine permits you to use the good that you buy. It never permits you to make another item from that item you bought. So that's what I think Justice Breyer is saying, which is you can use the seed, you can plant it, but what you can't do is use its progeny unless you are licensed to, because its progeny is a new item.
Mr. Walters: This is obviously a brand-new case where we're dealing with the — the doctrine of patent exhaustion in the context of self-replicating technologies.
It was around this point that Justice Breyer gave his best one-liner of the day, declaring that "three generations of seeds is enough." (see Buck v. Bell).
The government's Ms. Arbus Sherry began her discussion with a somewhat disingenuous parade of horribles that was quickly countered by Justice Scalia his is well known for his parades.
Ms. Arbus Sherry: If the concept is the sale of a parent plant exhausts the patentholder's rights not only with respect to that seed but with respect to all the progeny seed, we would have to go all the way back to the very first Roundup Ready plant that was created as part of the transformation event. Every single Roundup Ready seed in existence today is the progeny of that one parent plant and, as Your Honor pointed out, that would eviscerate patent protections. There would be no incentive to invest, not just in Roundup Ready soybeans or not even agricultural technology, but it's quite a bit broader than that.
In order to encourage investment, the Patent Act provides 20 years of exclusivity. This would be reducing the 20-year term to essentially one and only sale. It would be near impossible to recoup your investments with that first sale and so the more likely consequence is that research dollars would be put elsewhere.
Justice Scalia: That's a pretty horrible result, but let me give you another horrible result, and that is if — if we agree with you, farmers will not be able to do a second planting by simply getting the undifferentiated seeds from a grain elevator, because at least a few of those seeds will always be patented seeds, and no farmer could ever plant anything from a grain elevator, which means — I gather they use it for second plantings where the risks are so high that it doesn't pay to buy expensive seed. Now they can't do that any more because there's practically no grain elevator that doesn't have at least one patented seed in it.
Ms. Arbus Sherry: And the answer to that is this is actually not a traditional farming practice. Despite what Petitioner says, farmers do not generally go to grain elevators, buy commingled grain, plant it in the ground as seed.
Mr. Waxman's performance appears to be a tour-de-force, although he did not push for affirmance of the Federal Circuit's conditional sale doctrine. The one area where the court focused attention was on innocent infringement.
Justice Kagan: Mr. Waxman, there is a worrisome thing on the other side, though, too. And that is the Bureau position has the — has the capacity to make infringers out of everybody. And that is highlighted actually in this case by how successful this product is and how large a percentage of the market it has had.
So that — you know, seeds can be blown onto a farmer's farm by wind, and all of a sudden you have RoundUp seeds there and the farmer is infringing, or there's a 10-year-old who wants to do a science project of creating a soybean plant, and he goes to the supermarket and gets an edamame, and it turns out that it's Roundup seeds.
And, you know, these Roundup seeds are everywhere, it seems to me. There's, what, 90 percent of all the seeds that are around? So it seems as though — like pretty much everybody is an infringer at this point, aren't they?
Mr. Waxman: …Your point about the ubiquity of Roundup Ready's use is a fair one. I mean, this is probably the most rapidly adopted technological advance in history. The very first Roundup Ready soybean seed was only made in 1996. And it now is grown by more than 90 percent of the 275,000 soybean farms in the United States.
But size — that is, success — has never been thought and can't be thought to affect the contour of patent rights. You may very — with soybeans, the problem of blowing seed is not an issue for soybeans. Soybeans don't — I mean, it would take Hurricane Sandy to blow a soybean into some other farmer's field. And soybeans, in any event, are — you know, have perfect flowers; that is, they contain both the pollen and the stamen, so that they — which is the reason that they breed free and true, unlike, for example, corn.
The point that there may be many farmers with respect to other crops like alfalfa that may have some inadvertent Roundup Ready alfalfa in their fields may be true, although it's — it is not well documented. There would be inadvertent infringement if the farmer was cultivating a patented crop, but there would be no enforcement of that.
The farmer wouldn't know, Monsanto wouldn't know, and in any event, the damages would be zero because you would ask what the reasonable royalty would be, and if the farmer doesn't want Roundup Ready technology and isn't using Roundup Ready technology to save costs and increase productivity, the — the royalty value would be zero. …
Justice Breyer: And some of the self-replicating items, which are infringing items, end up inadvertently all over the place. Is there anything — is there precautions that you take? I mean, is there anything in patent law that helps?
Mr. Waxman: So infringement is — unlike contributory infringement or induced infringement, the act of infringement, that is a violation of Section 271 is a strict liability tort, but it requires affirmative volitional contact -conduct. That is, it's not that — a thing doesn't infringe; a person infringes. …
Justice Breyer: But you're just saying that would need a modification in patent law.
Mr. Waxman: Of course.
We can expect a decision by June.