Canada: Implications Of U.S. Patent Seed Case For Canadian Agribusiness

On February 19, 2013, the Supreme Court of the United States (SCOTUS) heard arguments in Monsanto Company, et al. v. Vernon Hugh Bowman, a case which could have significant implications for commercial farming and agribusiness in North America.

At issue in Bowman is whether an Indiana soybean farmer who used the progeny of patented genetically modified seeds to grow commercial soybean crops violated the intellectual property (IP) rights of the patent holder, Monsanto. Agribusiness observers will recall Monsanto Canada Inc. v. Schmeiser, where in a similar fact scenario, the Supreme Court of Canada (SCC) held that a Saskatchewan farmer who intentionally grew the progeny of genetically modified canola plants violated Monsanto's patent rights. The patent in that case covered a genetically modified cell of a canola plant and the gene itself. In its five-to-four majority decision, the SCC confirmed a patent holder's right to claim protection for genes and genetically modified cells that make up a resultant plant – a position which is generally congruent with U.S. law. However, if SCOTUS departs from this position in Bowman, then the harmony that currently exists in Canada and the U.S. regarding patent protection for self-replicating crops may be significantly disrupted.

Messrs. Schmeiser and Bowman are both commercial farmers who, after having discovered that their crops were resistant to glyphosate herbicides (commercially known as Roundup), saved and replanted the seeds in subsequent years. Monsanto developed genetically modified plant cells incorporating a gene that provided glyphosate resistance, thus making the plants resulting from the cells resistant to the herbicide Roundup®. Canola, soy and other plant cells were developed, which were marketed by Monsanto as "Roundup Ready" seeds. The genes and genetically modified cells were patented by Monsanto which required famers using the resulting seeds to enter into a Technology Use Agreement (TUA) which specified (1) that farmers may only use the seeds for a single crop; (2) that farmers may not save or store the seeds for replanting; and (3) that a licensing fee must be paid to Monsanto for each use of the patented seeds.

In Mr. Schmeiser's case, he claimed that the Roundup Ready seeds were blown onto his field from neighbouring farms, while Mr. Bowman – who was aware of the dominance of the Roundup Ready seeds in the market – purchased generic seeds from a grain elevator anticipating that the seeds would likely have the same genetic qualities as Monsanto's patented seeds. Because neither farmer had actually purchased the seeds from Monsanto, neither one was a party to Monsanto's TUA.

Mr. Bowman's argument before SCOTUS rests on the common law doctrine of patent exhaustion. The doctrine essentially limits a patent holder's right to control or prohibit the use of the invention after an authorized sale of the patented article. According to Mr. Bowman, Monsanto's right to limit or control the use of its IP rights was exhausted after its first sale to whichever farmer initially grew the seeds whose progeny ultimately found their way to the grain elevator. Thereafter, the company had no further right to restrict or prohibit the use of the progeny of those first seeds. We note that the U.S. Court of Appeals for the Federal Circuit did not accept Mr. Bowman's patent exhaustion argument reasoning that "the fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology. Applying the first sale [patent exhaustion] doctrine would eviscerate the rights of the patent holder."

The SCC's reasoning in Schmeiser turns on the question of unauthorized "use" of a patented invention as opposed to patent exhaustion. Patent rights entitle the holder of the patent to the full enjoyment of the monopoly granted by the patent. Therefore, what is prohibited is "any act that interferes with the full enjoyment of the monopoly granted to the patentee." As a practical matter, Monsanto's patent gave it a monopoly over the patented gene and genetically modified cell which enabled it to charge farmers a licensing fee for use of the seed. By cultivating plants containing the patented gene and cells without a licence, Mr. Schmeiser deprived Monsanto of the full enjoyment of its monopoly. The majority in Schmeiser found that possessing and cultivating the seeds incorporating the patented gene and cells constituted "use" sufficient to find patent infringement.

Potential Implications for Canadian Agribusiness

The SCOTUS decision in Bowman is expected in the summer of 2013. If SCOTUS finds in favour of Mr. Bowman, it would effectively create an "authorized sale" exception allowing U.S. farmers to use the progeny of patented genetically modified seeds without paying additional licensing fees for subsequent harvests. By contrast, Schmeiser prohibits the unauthorized use in Canada of seeds incorporating patented genes or cells – regardless of whether or not the initial sale was authorized. If the "authorized sale" exception is found to exist in the U.S., Canadian farmers will be at a significant disadvantage to their U.S. competitors who will be able to purchase second-generation patented seeds at significantly reduced prices by virtue of not having to pay perpetual licensing fees for each planting.

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