Most will be aware by now of the recent US Supreme Court decision, Bowman v Monsanto Co.,569 US (2013). One question that remains is what would have been the outcome if like facts had arisen in Australia and were considered under Australian law? Australia is one of the world’s leading producers of agricultural commodities, and so this question is relevant – if Monsanto had Australian patent claims of a scope considered by the US Supreme Court, would an Australian court find for Monsanto, so that Bowman would be precluded from making the soybeans in Australia?
Let’s assume the following facts:
The seeds at issue are glyphosate herbicide-resistant soybean seeds also known as Roundup ReadyTM soybean seeds covered by Monsanto’s relevant Australian patent portfolio.
- These seeds are sold in Australia by Monsanto to Bowman with a license that allows Bowman to plant the seeds that he has purchased from Monsanto and then to either consume the crop arising from the planting, or to sell that crop.
- The license includes a no replant policy that prohibits Bowman from saving seed harvested from plants arising from the purchased seeds for replanting, and from supplying the seed to anyone else for replanting.
- In compliance with the license terms, Bowman plants and harvests the seeds that he has purchased from Monsanto, and then sells the harvested seeds.
- Bowman then purchases seeds from an Australian grain elevator. The elevator purchases seeds from local farmers generally for the purpose of on-selling those seeds for consumption. He purchases from the particular elevator as he expects that at least some of the seeds will be Roundup ReadyTM soybean seeds.
- He then plants and exposes the seeds purchased from the elevator to a glyphosate herbicide, harvests the resistant seeds, and uses them for his late season plantings. He repeats this for eight successive seasons in Australia.
- Monsanto sues Bowman for Australian patent infringement.
- Bowman acknowledges that the seeds that he purchased from the grain elevator are relevantly within the scope of the Monsanto patent claims. He accepts that under Australian law, Monsanto’s statutory right would ordinarily be to exclude others from making and using the seeds.
- However, Bowman alleges that Monsanto’s patent rights in the seeds he purchased from the elevator were exhausted by the prior sale of seeds from the local farmer to the elevator. In short, the natural use of seeds inevitably involves the remaking of the seeds, so that an exhaustion of patent rights relevant to use should axiomatically extend to an exhaustion of rights relevant to making of the seeds.
The legal issue
The question is whether, as Bowman argues, patent exhaustion should apply to permit unfettered use of the seeds he purchased from the elevator, given that, according to Bowman, seeds are meant to be planted and in planting the seeds, Bowman is merely using them in the normal way farmers do.
Relevant Australian cases
There has been little, if any Australian judicial consideration of patent exhaustion. What appears to be the key authority, namely National Phonograph Co Australia v Menck 12 CLR 15, was decided at the turnof the 20th century, well before the emergence of patented self replicating systems.
Notably, National Phonograph dealt with a situation involving a commercial use of a patented product, in the form of a sale, rather than the recreation or copying of the product. The defendant, Menck had purchased National’s patented phonograph products under contract that restricted Menck from selling the product at a price lower than a price agreed in his contract with National. Having formed the view that Menck had violated his contract, National sought to rely on its patent rights to the products that Menck had purchased, arguing that as owners of patent rights National could sell its products on terms and conditions importing only a limited right to deal with the products and that such limitations run with the products in the hands of all persons into whom those products are received.
The Court stated the following basic principles:
- a patent owner can sell less than the complete title while retaining control over the remaining title, including sales involving restrictive terms and conditions;
- there is a presumption that the sale is unfettered and that on the sale a patent exhausts (Note: Interstate Parcel Express Co v Time-Life International (Nederlands) BV later explained patent exhaustion as a legal outcome arising from implying a term that the patentee consents to the use of the article by the buyer and those claiming under him: “The law accordingly does ordinarily imply the consent of the patentee ‘to an undisturbed and unrestricted use’ of the patented article’.); and
- the presumption is rebutted by notice to the purchaser (and subsequent purchasers) of the terms and conditions limiting the title on sale.
Importantly for Menck, having been aware of the contract, he was considered to have been aware of limitations imposed by National in relation to how he could deal with the purchased National product. This meant that National’s patent rights to the products had not been exhausted, and therefore National was able, through its patent rights, to restrain Menck’s dealing in the products he had purchased from the company.
Application to Bowman
Under the Australian Patents Act 1990, a patentee has the right to exclude others from making a claimed invention. As a presumption of an implied license that arises on an authorized sale relates to use rather than making of a claimed invention, it would be open for Monsanto to argue in the circumstances that even if an implied license to use had been given by Monsanto on sale, that license could not exhaust Monsanto’s right to exclude Bowman from making seeds.
Having said this, the question of patent exhaustion becomes relevant where, according to the facts, Bowman alleges that patent Bowman v Monsanto in an Australian context exhaustion should apply to permit unfettered use of the seeds he purchased from the elevator, including use that normally results in copies of the purchased seeds being made when they are grown.
In following the principles of National Phonograph, the starting position would appear to be that an implied license, effectively exhausting all of Monsanto’s patent rights to control use of the purchased seeds is presumed. That presumption is rebutted where Monsanto shows that Bowman had notice when he purchased the seeds from the elevator of Monsanto’s terms and conditions that limited the uses to which the purchased seeds could be put to by Bowman.
As it was known that Monsanto only sold seed under a no replant policy, and that Bowman, having bought seed from Monsanto was aware of this, it would seem difficult for Bowman to refute an assertion that he had been put on notice of Monsanto’s limitations as to use of the seeds he purchased from the elevator at the time of his purchase. In the circumstances, Monsanto’s rights to exclude Bowman from replanting the seeds he purchased from the elevator would have survived the first sale from Monsanto to the local farmer who then sold to the grain elevator, and the subsequent sale to Bowman.
Given the above, it is likely that an Australian court would consider Bowman’s actions in respect of his use of the seeds subsequent to his purchase from the grain elevator to have infringed Monsanto’s patent rights. This outcome will be seen to be the same as that arrived at by the US Supreme Court, albeit by application of different legal principles. For further information on the protection of plant related technologies in Australia, please click here.
This article first appeared in The Patent Lawyer, April 2014