On May 13, 2013, the Supreme Court delivered a unanimous
decision determining that the doctrine of patent exhaustion does
not provide a safe haven for a farmer to create new seeds by
reproducing patented seeds through planting and harvesting without
the patent holder's permission. The case, Bowman v.
Monsanto Co., affirms that the patent exhaustion doctrine does
not extend to the right to make a new product.
Monsanto sells patented, genetically modified soybean seeds that
are resistant to many herbicides, most notably, Monsanto's own
Roundup® agricultural herbicide. Monsanto markets these
"Roundup Ready®" seeds to farmers seeking to use
herbicides to kill weeds without damaging their crops.
Farmers who use the Roundup Ready soybean seeds must enter into a
special licensing agreement that permits farmers to use the seeds
for one growing season only. Moreover, under the agreement,
farmers may not save any of the harvested soybeans for
replanting. Thus, the agreement's terms essentially
prevent farmers from producing their own Roundup Ready seeds from
seeds purchased from Monsanto, and instead requires farmers to buy
new seeds from Monsanto each season.
Mr. Bowman devised an interesting approach to circumvent
Monsanto's restrictions. For his first crop of each
season, he would purchase Monsanto's Roundup Ready soybean
seeds from an authorized dealer. Pursuant to the terms of the
special licensing agreement, Bowman used all the seeds for
planting, and sold the entire crop to a grain elevator.
However, recognizing that planting a second crop late in the season
was a more risky proposition, Bowman decided that he did not want
to pay for the premium-priced Roundup Ready seeds sold by
Monsanto. Instead, Bowman purchased soybeans from a grain
elevator—seeds that are intended for human or animal
consumption—and planted them in his fields. As most of
the farmers who sold soybeans to the grain elevator used Roundup
Ready seed, a significant proportion of Bowman's new crop
carried the Roundup Ready genetic trait. Bowman then saved
the seed from that crop to use in his late-season crop the next
year.
Monsanto caught wind of Bowman's activities and sued him for
patent infringement in federal court in Indiana. The District
Court rejected Bowman's patent exhaustion defense that Monsanto
could not control his use of the soybeans because they were the
subject of a prior authorized sale. The District Court
awarded damages to Monsanto of $84,456. The Federal Circuit
affirmed the District Court decision, reasoning that the patent
exhaustion doctrine does not apply to Bowman because he had
"created a newly infringing article."
In a succinct opinion, Justice Kagan made quick work of
Bowman's arguments that the doctrine of patent exhaustion
prevented Monsanto from controlling his use of the soybeans he
purchased from the grain elevator because those seeds were the
subject of a prior authorized sale, namely the sale from other
local farmers to the grain elevator. Noting that the
exhumation doctrine restricts a patentee's rights only as to
the "particular article" sold, Justice Kagan points out
that the doctrine leaves untouched the patentee's ability to
prevent a buyer from making new copies of a patented item,
i.e., the seeds borne from the purchased article.
Justice Kagan explains that the "second creation" of a
patented item implicates the monopoly conferred by the patent grant
because the patent holder has "received his reward" for
only the actual article sold, not subsequent recreations of
it. Bowman himself conceded that it is a
"well-settled" principle "that the exhaustion
doctrine does not extend to the right to 'make' a new
product." As the Court explained, "[u]nder the
patent exhaustion doctrine, Bowman could resell the patented
soybeans he purchased from the grain elevator; so too he could
consume the beans himself or feed them to his animals . . . [b]ut
the exhaustion doctrine does not enable Bowman to make additional
patented soybeans without Monsanto's permission (either express
or implied)."
The Court was careful to limit its decision to the particular
circumstances of the case before it: "Our holding today
is limited, addressing the situation before us, rather than every
one involving a self-replicating product. We recognize that
such inventions are becoming ever more prevalent, complex, and
diverse. In another case, the article's self-replication
might occur outside the purchaser's control. Or it might
be a necessary but incidental step in using the item for another
purpose."
Nevertheless, the ruling will undoubtedly have implications for
various industries that utilize replicating technologies, including
agriculture, biotechnology, and software.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
