Indiana farmer Vernon Bowman claims in his U.S. Supreme Court merits brief that the Federal Circuit Court of Appeals, which ruled that he infringed patents by planting second-generation genetically modified (GM) seeds, has “significantly curtailed the patent-exhaustion defense” by refusing to “hold Monsanto’s patent rights exhausted with respect to the seeds Bowman purchased from [a] grain elevator.” Bowman v. Monsanto Co., No. 11-796 (U.S., petitioner’s brief filed December 3, 2012).

The U.S. Supreme Court agreed to review whether “the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale, and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies.” Additional information about the dispute appears in Issue 434 of this Update.

The allegedly infringing seeds that Bowman planted as a second crop were purchased in a commodity grain mix from a grain elevator. Such mixes can, according to Bowman, “be dirty, containing a relatively high content of debris, seeds from other crops, and weeds . . . [Their] mixed, impure character makes it largely unsuitable for planting, except where a farmer requires low-cost seeds to balance the risks associated with late-season plantings.” His crop “turned out to be resistant to Round Up [sic] related chemicals,” thus making them plants containing the traits Monsanto has patented. Accordingly, Monsanto sued him for patent infringement.

When Monsanto sells its Roundup Ready® seeds to farmers, they agree by contract to certain limitations on their use, including planting a commercial crop for just one season, not supplying the seed to any other person for planting, and not saving any crop produced from the seed for replanting. According to Bowman, Monsanto enforces the restrictions in these agreements through patent-infringement suits, and the company has recovered some $23 million in 136 lawsuits against 400 farmers and 23 small-farm businesses since 2010. Monsanto apparently allows farmers to sell the progeny of their first-generation seeds to grain elevators in unrestricted sales and authorizes grain elevators to resell progeny seeds as part of the mixed commodity grain available to the public. Still, the company “asserts a right to sue purchasers of commodity seeds for patent infringement when they use those seeds for planting.”

The Federal Circuit ruled that patent exhaustion does not apply to an “expressly conditional sale,” or one in which post-sale restrictions are imposed on the purchaser. It also affirmed the district court’s conclusion that “[n]o unconditional sale of the Roundup Ready® trait occurred because the farmers could not convey to grain dealers what they did not possess themselves.” Bowman contends that “this reasoning fails to recognize that exhaustion has only one requirement—an authorized sale. Whether a licensee or the patentee makes the sale, if it is authorized, it triggers exhaustion, and the item sold passes outside the protection of the Patent Act.”

The Federal Circuit also reasoned “that even if exhaustion applied to the seeds purchased as a commodity from a grain elevator, Bowman infringed Monsanto’s patents because his use of the commodity seeds for planting constituted an impermissible ‘making’ of the invention. In this argument, the Federal Circuit likened the use of commodity seeds for planting to impermissible ‘reconstruction’ of the invention.” Bowman argues that planting seeds is nothing like reconstruction and the Federal Circuit has extended the patent monopoly by judicial decision beyond the terms of the patent grant—action within Congress’s exclusive jurisdiction. He contends, “By authorizing the sale of patented seeds, Monsanto has authorized the sale of a product that can be used for practicing the patents and therefore has parted with all ability to restrict such use under the patent laws.”

Bowman further argues that (i) “Congress has provided no exception to the exhaustion doctrine for seeds, let alone any other self-replicating technology,” and (ii) “[p]atentees of self-replicating technologies have adequate contractual remedies to protect their interests in the use and resale of these technologies.” He concludes by assuring the Court that a ruling in his favor would not “eviscerate” Monsanto’s patent rights because “commodity grain does not directly compete with first-generation seeds given the mixed, impure character of commodity grain. A farmer buying commodity grain for planting cannot sell his progeny in competition with Monsanto given its mixed character and unknown ancestry.”