Patent Exhaustion Does Not Apply to Genetically Engineered Seed

By Kevin E. Noonan —

Yesterday, the Federal Circuit once again upheld a judgment of infringement brought by Monsanto against a farmer who replanted its patented Roundup Ready® seed.  As it had in Monsanto Co. v. McFarling, Monsanto Co. v. David, and Monsanto Co. v. Scruggs, the Court in Monsanto Co. v. Bowman rejected defendant's argument, here that Monsanto's infringement action should be dismissed under the doctrine of patent exhaustion.  The difference is that this decision comes after the Supreme Court's opinion in Quanta Computer, Inc. v. LG Electronics, Inc., which might be expected to influence the outcome.

Here, the patents-in-suit are (as they have been in other cases) U.S. Patent No. 5,352,605 and RE39,247 (a reissue of 5,633,435).  Claims 1 and 4 of the '605 patent are representative:

1.  A chimeric gene which is expressed in plant cells comprising a promoter from a cauliflower mosaic virus, said promoter selected from the group consisting of a CaMV (35S) promoter isolated from CaMV protein-encoding DNA sequences and a CaMV (19S) promoter isolated from CaMV protein-encoding DNA sequences, and a structural sequence which is heterologous with respect to the promoter.

4.  A plant cell which comprises a chimeric gene that contains a promoter from cauliflower mosaic virus . . . .

and claims 103, 116, 122, 128, 129, and 130 of the '247 patent are representative:

103.  A recombinant, double-stranded DNA molecule comprising in sequence:
    (a)  a promoter which functions in plant cells to cause the production of an RNA sequence;
    (b)  a structural DNA sequence that causes the production of an RNA sequence which encodes an EPSPS enzyme having the sequence of SEQ ID NO:70; and
    (c)  a 3' non-translated region that functions in plant cells to cause the addition of a stretch of polyadenyl nucleotides to the 3' end of the RNA sequence;
    where the promoter is heterologous with respect to the structural DNA sequence and adapted to cause sufficient expression of the encoded EPSPS enzyme to enhance the glyphosate tolerance of a plant cell transformed with the DNA molecule.

116.  A glyphosate-tolerant plant cell comprising a DNA sequence encoding and EPSPS enzyme having the sequence of SEQ ID NO: 70.

122. A seed of the plant of claim 116, wherein the seed comprises the DNA sequence encoding an EPSPS enzyme having the sequence of SEQ ID NO: 70.

128. A glyphosate[-]tolerant plant cell comprising the recombinant DNA molecule of claim 103.

129. A plant comprising the glyphosate[-]tolerant plant cell of claim 128.

130. A method for selectively controlling weeds in a field containing a crop having planted crop seeds or plants comprising the steps of:
    (a)  planting the crop seeds or plants which are glyphosate-tolerant as a result of a recombinant double-stranded DNA molecule being inserted into the crop seed or plant . . .
    (b)  applying to the crop and weeds in the field a sufficient amount of glyphosate herbicide to control the weeds without significantly affecting the crop.

(where the Federal Circuit's opinion italicized portions relating to the scope of the claims).

Pioneer Hi-Bred (Pioneer), one of Monsanto's licensed seed producers, sold seed to Bowman; these sales were subject to a Technology Agreement similar to the Agreements Monsanto typically requires for farmers who purchase its seed.  Under the Technology Agreement, the licensed grower agrees: (1) "to use the seed containing Monsanto gene technologies for planting a commercial crop only in a single season"; (2) "to not supply any of this seed to any other person or entity for planting"; (3) "to not save any crop produced from this seed for replanting, or supply saved seed to anyone for replanting"; and (4) "to not use this seed or provide it to anyone for crop breeding, research, generation of herbicide registration data, or seed production."  It was undisputed that Bowman complied with these provisions as to its "first planting" each year.  Monsanto's complaint arose from farmer Bowman's "second planting," which was made using so-called "commodity seed" obtained from local grain elevators.  Farmers under the Technology Agreement could freely sell seed to grain elevators for commodity use, which did not include replanting.  However, since Farmer Bowman's "second planting" was riskier (in terms of potential yield) he decided to use commodity seed because it was significantly cheaper than Roundup Ready® seed.  After planting this seed, Farmer Bowman tested this second crop for Roundup® resistance, and finding that substantial amounts of the seed were resistant, used Roundup® on these plantings and replanted this seed.  Because the Technology Agreement did not cover this use, Monsanto did not allege breach of contract (as it was able to in other cases brought against farmers for improper replanting of Roundup Ready® seed).

The District Court granted summary judgment of patent infringement and entered judgment against Farmer Bowman in the amount of $84,456.20.  In a decision by Judge Linn, joined by Judges Bryson and Dyk, the Court rejected farmer Bowman's arguments that were predicated directly on the Supreme Court's Quanta decision.  In Quanta, the Supreme Court reiterated its "substantial embodiment" test to apply the patent exhaustion principle, which applied to both composition and method claims (reversing the Federal Circuit as to method claim exhaustion), citing Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940), and United States v. Univis Lens Co., 316 U. S. 241 (1942).  Specifically, the Court stated the standard that sales that "substantially embody" the patents in suit will be sales that exhaust the patent right to obtain royalties, citing Univis.  The immediately evident application of this decision to biotechnology patent claims include cases, as in Monsanto, where a patented article has the biological property of replication, where the license precludes use of replicates of the article after purchase.  Although critically important economically (since it is clear that Monsanto would not be in the seed business for very long in the absence of these restrictions), the rubrics for applying patent exhaustion set forth in the Court's Quanta decision could be applied to Monsanto's claim.  For example, it is without question that the seeds "embody" (figuratively and literally) the "essential features" of the patented invention, and thus the types of limitations Monsanto (and other seed producers) have placed on replanting of their patented seeds implicate the application of these standards to Monsanto's claims.

The Federal Circuit did not see it this way.  Farmer Bowman argued that exhaustion applied to all Roundup Ready® soybean seeds, including those present in grain elevators as undifferentiated commodity.  "Sales of second-generation seeds by growers to grain elevators, and then from grain elevators to purchasers (like Bowman) are authorized according to the terms of Monsanto's [T]echnology [A]greement[], and are thus exhausting sales . . . under the Supreme Court's analysis in Quanta [Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008)]," according to farmer Bowman.

In response, Monsanto argued that sale of soybeans are not "authorized" when those soybeans are replanted (i.e., used as seed rather than as commodity grain).  Monsanto further argued that, even if sale to grain elevators resulted in exhaustion, infringement occurred when the seed was replanted because "patent protection 'is independently applicable to each generation of soybeans (or other crops) that contains the patented trait,'" arguments Monsanto had previously (successfully) made in other infringement actions.  Monsanto also urged that J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred International, Inc., 534 U.S. 124 (2001), was controlling for patent exhaustion in seeds, specifically that exhaustion "must be limited to the seeds sold."  In this regard, Monsanto urged the portion of the J.E.M. opinion that stated that "there are no exemptions for research or saving seed under a utility patent."  Id. at 143 (emphases added).

The Federal Circuit agreed that patent exhaustion did not apply.  It distinguished McFarling as not implicating the doctrine, rather being directed towards enforcement of the Monsanto Technology Agreement.  Citing the McFarling opinion, the panel stated that "[t]he 'first sale' doctrine of patent exhaustion . . . [wa]s not implicated, as the new seeds grown from the original batch had never been sold.  The price paid by the purchaser 'reflects only the value of the 'use' rights conferred by the patentee.'"  Id. at 1299 (citing B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed. Cir. 1997)).

Turning to the specific facts in this case, the Court stated that the important consideration is that "the grower has created a newly infringing article" when commodity seed was planted by farmer Bowman and the "next generation" of seeds comprising Monsanto's Roundup Ready® technology were produced.  "The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology," according to the opinion, and "[a]pplying the first sale doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder," citing Scruggs, 459 F.3d at 1336.  According to the opinion, the right to use patented technology upon purchase "do[es] not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee," citing Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1102 (Fed. Cir. 2001).  The opinion applied the "substantial embodiment" test with regard to separate generations of seed, stating that present seed does not "substantially embody" "all later generation seeds," because with regard to the commodity seeds "nothing in the record indicates that the 'only reasonable and intended use' of commodity seeds is for replanting them to create new seeds, citing Quanta, 553 U.S. at 631 and noting that other uses for commodity seed existed (such as use as feed).  "While farmers, like Bowman, may have the right to use commodity seeds as feed, or for any other conceivable use, they cannot 'replicate' Monsanto's patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants."

The Federal Circuit thus has once again affirmed that patent exhaustion applies to seeds that are sold and not to progeny seeds that were not sold by the patent owner or not made by authority of the patent owner (for self-replicating seeds).  The patency of these distinctions await possible Supreme Court review.

Monsanto Co. v. Bowman (Fed. Cir. 2011)
Panel: Circuit Judges Bryson, Linn, and Dyk
Opinion by Circuit Judge Linn