Yesterday, the United States Supreme Court heard oral arguments in the matter of Bowman v. Monsanto. See Transcript. The case presents the Court a question of patent infringement by farmers planting the progeny of genetically altered seeds covered by U.S. patents.
Monsanto Company and Monsanto Technology LLC (collectively “Monsanto”), sued Vernon Hugh Bowman (“Bowman”), in the United States District Court for the Southern District of Indiana alleging infringement of U.S. Patent Nos. 5,352,605 (“’605 Patent”) and RE39,247E (“’247E Patent”). The district court granted summary judgment of infringement in favor of Monsanto. Bowman appealed to the United States Court of Appeals for the Federal Circuit, which affirmed the district court judgment in favor of Monsanto. See Monsanto v. Bowman (CAFC, Sept. 21, 2011).
Bowman then appealed to the United States Supreme Court, with oral argument in the matter being held on February 19, 2013. While one can never know for certain how the Supreme Court will rule, even a casual observer has to conclude that the Supreme Court seems poised rule in favor of Monsanto. Seconds after Bowman’s attorney started Chief Justice Roberts interrupted asking why anyone would ever patent anything if Bowman were to prevail. Shortly thereafter Justice Breyer openly concluded that Bowman infringed in a matter of fact way. It later may have seemed Breyer was probing for a response he didn’t get more so than announcing his view of the case. Nevertheless, if Bowman loses Breyer he has no chance.
From a technical, scientific standpoint, the case centers around Monsanto’s invention of genetically modified “Roundup Ready®” soybeans that exhibit resistance to N-phosphonomethylglycine (commonly known as “glyphosate”) based herbicides, such as Monsanto’s Roundup® product. The ’605 and ’247E Patents cover different aspects of this Roundup Ready® technology.
Since 1996, Monsanto has marketed and sold Roundup Ready® soybean seeds under its own brands, and licenses its technology to seed producers who insert the Roundup Ready® genetic trait into their own seed varieties. Monsanto’s licensed producers sell Roundup Ready® seeds to growers for planting. All sales to growers, whether from Monsanto or its licensed producers, are subject to a standard form limited use license, called the “Monsanto Technology Agreement.”
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.” Monsanto restricts the grower’s use of the licensed Roundup Ready® seed to a single commercial crop season because the patented Roundup Ready® genetic trait carries forward into each successive seed generation.
Although the express terms of the Technology Agreement forbid growers to sell the progeny of the licensed Roundup Ready® seeds, or “second-generation seeds,” for planting, Monsanto authorizes growers to sell second-generation seed to local grain elevators as a commodity, without requiring growers to place restrictions on grain elevators’ subsequent sales of that seed.
The tale of what Bowman did that has caused this patent infringement rift starts in 1999, when Bowman purchased commodity seed from a local grain elevator for a late-season planting, or “second-crop.” Because Bowman considered the second-crop to be a riskier planting, he purchased the commodity seed to avoid paying the significantly higher price for Pioneer’s Roundup Ready® seed. That same year, Bowman applied glyphosate-based herbicide to the fields in which he had planted the commodity seeds to control weeds and to determine whether the plants would exhibit glyphosate resistance. He confirmed that many of the plants were, indeed, resistant. In each subsequent year, from 2000 through 2007, Bowman treated his second-crop with glyphosate-based herbicide. Unlike his first-crop, Bowman saved the seed harvested from his second-crop for replanting additional second-crops in later years. He also supplemented his second-crop planting supply with periodic additional purchases of commodity seed from the grain elevator. Bowman did not attempt to hide his activities, and he candidly explained his practices with respect to his second-crop soybeans in various correspondence with Monsanto’s representatives.
Thus, it is clear that Bowman purchased seeds, planted those seeds and then applied herbicide on his crop so that the only remaining living crops would be those that were subject to the patent rights of Monsanto. He also saved the seed harvested from the second crop for replanting in later years, which infringed upon the patent rights of Monsanto because Bowman made seeds covered by the claims of the Monsanto patents.
Federal Circuit Ruling
At the Federal Circuit Bowman argued that Monsanto’s patent rights became exhausted with respect to all Roundup Ready® soybean seeds that are present in grain elevators as undifferentiated commodity. Bowman urges the Federal Circuit to hold that each seed sold is a “substantial embodiment” of all later generations, thus adopting a robust exhaustion doctrine that encompassed the progeny of seeds and other self-replicating biotechnologies.
Monsanto countered that licensed growers’ sales of second-generation seeds to grain elevators as commodity seeds did not exhaust Monsanto’s patent rights in those seeds because of the express condition in the Technology Agreement that the progeny of licensed seed never be sold for planting. Monsanto further argued that, even if there was exhaustion with respect to commodity seeds, Bowman is nevertheless liable for infringement by planting those seeds because patent protection is independently applicable to each generation of crops that contain the patented trait.
The Federal Circuit, per Judge Linn with Judges Bryson and Dyk joining, after going through relevant patent exhaustion precedent, ruled that the doctrine of patent exhaustion did not bar the Monsanto infringement. Moreover, the Federal Circuit determined that even if Monsanto’s patent rights in the commodity seeds are exhausted, such a conclusion would be irrelevant because once a grower, like Bowman, plants the commodity seeds containing Monsanto’s Roundup Ready® technology and the next generation of seed develops, the grower has created a newly infringing article. Quoting from Monsanto Co. v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006), the Federal Circuit wrote: “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 doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.”
Supreme Court Oral Argument
At the outset of the oral argument, the attorney for Bowman — Mark Walters — began by laying out the patent exhaustion doctrine for the Supreme Court. Not more than 10 seconds into his opening the first question was thrown out by Chief Justice John Roberts, who asked: “Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?” After a quick volley, the Chief Justice responded: “So the patent system is based, I think, on the recognition that contractual protection is inadequate to encourage invention.” Things did not start well for Bowman.
In what can only be characterized as a VERY hot Supreme Court, the questions and banter did not cease. Just seconds after getting past the Chief Justice, Justice Scalia chimed in to correct Walters who had just said: “Under Respondent’s theory, any farmer who grows a soybean seed is infringing the patent but for the grace of Monsanto.” That is clearly not what Monsanto is arguing, and that Justice Scalia called Walters on such a fallacious statement shows that he was well prepared and knowledgeable about the facts and claim.
Scalia said: “I thought that their claim is he only violated the patent if he tries to grow additional seeds from his first crop. Right? Isn’t that the only claim here?” Indeed, the case revolves around the making of progeny seeds, not the purchase of seeds as a commodity from the grain elevator. Of course, that reality only helps Monsanto and that the Supreme Court was not confused by Bowman’s incredulous machinations suggests the Court sees through to the heart of the issue.
The Courtroom became a bit light-hearted as Justice Breyer, harkening back to the words of Justice Oliver Wendell Holmes, said: “There are three generations of seeds. Maybe three generations of seeds is enough.” Laughter abounded and Justice Breyer acknowledged that it was a bad joke. Certainly a politically incorrect joke. The “joke” referred to Holmes’ 1927 decision in Buck v. Bell, which was a case of forced sterilization. Holmes concluded in that case: “Three generations of imbeciles are enough.”
After this brief interruption in the seriousness of the proceedings, Breyer went on to say:
Here, he buys generation two. Now, he can do what he wants with those seeds. But I’ll tell you, there is a problem, because the coming about of the third generation is itself the infringement. So the second generation seeds have nothing to do with it. If he went into a room and had a box that he bought from a lab and he put rocks in it and he said, hocus-pocus and lo and behold out came the third generation of seeds, he would have infringed Monsanto’s patent with that third generation, would he not?
After a volley between Breyer and Walters, Breyer said:
I am saying the problem for you here, I think, is that, infringement lies in the fact that he made generation three. It has nothing to do with generation two. That has just a coincidence. But that is in fact the way he made these seeds. But he can sell, resell generation 2, he can do whatever he wants with it.
If he sterilizes it and uses them in a circus, he can do it. The only thing he cannot do is he cannot create generation 3, just as he couldn’t use generation 2 seeds to rob a bank.
You know, there are certain things that the law prohibits. What it prohibits here is making a copy of the patented invention. And that is what he did. So it’s generation 3 that concerns us. And that’s the end of it.
Justice Breyer is widely regarded as an anti-patent voice on the Supreme Court, thanks to his dissent in Lab Corp. and his decision in Mayo v. Prometheus, which unfortunately ignored decades of prior Supreme Court precedent and Title 35 of the United States Code. If Bowman loses Breyer he has no chance of prevailing.
Justice Ginsburg also was not buying the Bowman argument. After being frustrated that she was not getting an answer to her questions, she leaned into Walters, saying:
Now, when you buy generation 2, well, there are a lot of things you can do with it. You can feed it to animals, you can feed it to your family, make tofu turkeys. I mean, you know, there are a lot of things you can do with it, all right.
But I’ll give you two that you can’t do. One, you can’t pick up those seeds that you’ve just bought and throw them in a child’s face. You can’t do that because there’s a law that says you can’t do it.
Now, there’s another law that says you cannot make copies of a patented invention. And that law you have violated when you use it to make generation 3, just as you have violated the law against assault were you to use it to commit an assault.
Now, I think that’s what the Federal Circuit is trying to get at. And so it really has nothing to do with the exhaustion doctrine. It has to do with some other doctrine perhaps that — that somehow you think should give you the right to use something that has as a basic purpose making a copy of itself. Maybe you should, but I don’t see that. Where is that in the law?
Justice Sotomayor subsequently corrects Walters about the exhaustion doctrine, saying: “The Exhaustion Doctrine permits you to use the good that you buy. It never permits you to make another item from that item you bought.” And then Justice Kagan got to the heart of what Bowman has to be arguing. She said: “[I]t seems to me that what you’re suggesting is that the basic rule that says that the purchaser does not get to do that should have an exception for self-replicating technologies.”
The argument did not go well for Bowman at all. Only Justices Alito and Thomas remained silent during the questioning of Walters. Those familiar with the Supreme Court know that it is not unusual for Justice Thomas to remain silent. In fact, it would be unusual for him to ask questions. Each of the others who did ask questions seemed to be highly skeptical of Bowman’s argument, and corrected Walters repeatedly on the facts of the case and the law.
After presentation by the U.S. government, who took a position in support of Monsanto, Seth Waxman took the podium on behalf of Monsanto. As if having the law and facts stacked up against him, Bowman also had the misfortune of facing Waxman, who is a preeminent Supreme Court advocate — perhaps the most sought after advocate for patent matters. Waxman’s reputation is well earned, having been Solicitor General under President Bill Clinton and having prevailed in high profile patent cases before the Supreme Court even when the odds seemed long.
Waxman started: “Let me start by answering a couple of, I guess, science or technology questions that came up before launching into our doctrinal position.” The Supreme Court then allowed Waxman to go uninterrupted for upwards of 90 seconds as he answered questions raised by Justices Kennedy and Scalia that were not addressed by Walters. Waxman was then briefly interrupted by a clarifying question by Justice Ginsburg, and then proceeded uninterrupted again for upwards of 90 seconds. Waxman was then interrupted by Justice Scalia, who asked a clarifying question, which then lead into a joking exchange that harkened back to Justice Breyer’s earlier comment about robbing a bank. Scalia said: “You can’t rob a bank with it, though, right?” Waxman was back on track and uninterrupted again for upwards of 90 seconds.
The argument was proceeding exceptionally well for Waxman and Monsanto.
About as sticky as the argument got for Waxman and Monsanto was with respect to whether the Court should reach the issue of conditional sales. Justice Breyer asked about whether conditions placed in licenses on “the use of a product after it’s been sold,” violated the first sale doctrine. If conditions in a license violate the first sale doctrine then licensing technology would come to a screeching halt. Licenses are full of terms and conditions, but the Court seemed concerned about whether something that looks and feels like a sale (i.e., the sale of seeds) can be qualified by conditions.
[W]e don’t think that there’s any need whatsoever for this Court… to address the question of conditional sales and the extent to which patent law recognizes under some circumstances conditional sales, because in this case the Federal Circuit did not address that ground which we advocated and we still advocate… what the Federal Circuit decided, and it is entirely correct and it should be affirmed on that basis, is what you’re calling I think generation 3, let’s say that for simplicity’s sake, since generation 1 is the original soybean sold by Monsanto to seed companies, let’s just say that the bags of soybean seeds that farmers go to purchase from seed dealers is called generation N and they are licensed to produce generation N plus 1. But then, what about N plus 2?
So what the Federal Circuit held is N plus 2 has never been sold. It was created, it exists without a sale, and because a sale is the sine qua non of patent exhaustion, which is also referred to as first sale, there is no exhaustion.
Later, in response to Justice Sotomayor, Waxman further explained:
I think that an appropriate case will come up where it will be important for you to determine that. And our third argument, which wasn’t addressed by the Federal Circuit and isn’t necessary to affirm, is that conditional sales are not ipso facto unenforceable; that is… everybody understands that if instead of selling technology, you lease it, and you sign a license that imposes conditions on that lease… unless they are unreasonable, conditions that are reasonably related to exploitation of the invention are enforceable. Mr. Bowman acknowledges that. Everyone acknowledges that.
Our single submission here is that where you have a technology that cannot be leased because it will consume itself in whatever use one makes of it, and therefore has to be — an article embodying the invention has to be sold and where the invention cannot be commercialized if the inventor has to realize its full costs of development and a reasonable rate of return on the first sale. The fact that there is this necessary sale in order to commercialize the invention cannot ipso facto make all such conditions unenforceable.
Walters reserved five minutes for rebuttal, which went about as well as his initial argument. Chief Justice Roberts, Justice Scalia and Justice Breyer took turns asking difficult questions and taking issue with what they were being asked to swallow. At one point Walters stated in a matter of fact way: “The key is, does it use — is the purchaser allowed to use the invention? And under Monsanto’s theory, the purchaser isn’t allowed to do that.” Justices Breyer and Scalia pounced. Exasperated, Justice Scalia said:
[Y]ou’re saying that you are preventing him from using it.. He’s not prevented from using it. He can use it for what it’s meant for, for raising a crop. He just cannot use the product — that new crop — for replanting. That’s all. He has to sell that new crop for feed or for some other purpose. But to say that he’s prevented from using what he has bought is simply not true. He can use it, plant it, and harvest the crop.
And with that comment from Justice Scalia the argument came to a substantive conclusion.
At the end of the day the question will be whether the initial sale of seeds by Monsanto extinguishes their right to prevent others from using those very seeds to replicate. Frankly, this sounds a lot like the issues that apply to repair versus reconstruction. If you can repair a damaged product you purchased, but you cannot reconstruct it. The seeds once planted are completely consumed and create replacement seeds. Those replacement seeds were never the subject of a sale. Even if those replacement seeds are allowed, creating the next generation of replacement seeds from replacement seeds has to be infringing simply because the replacement seeds were never sold by Monsanto.
Upon reflection, it seems to me that the Bowman argument would have been a great and winning argument except for the facts and law. Walters continually wanted to say that Monsanto was preventing Bowman from using the invention (i.e., the seeds) after purchase, but the Court wouldn’t have any of that facially incorrect assertion. Bowman could use the seeds, he just couldn’t replicate the seeds. It is the making of new seeds that will be found to violate Monsanto’s patent, and I suspect the Supreme Court will affirm the well written and reasoned decision of Judge Linn.
For now we wait. The decision will come by the end of June 2013. While it is always dangerous to predict the Supreme Court, I wouldn’t be surprised if this turns out to be a 9-0 decision in favor of Monsanto, and I doubt the Supreme Court will use this case to say anything about conditional sales.