Bowman v. Monsanto Co., 133 S. Ct. 1059 (2013) (Kagan). For the Court’s slip opinion, click here.Bowman05132013
Bowman, a unanimous opinion by Justice Kagan, addresses the issue of exhaustion in the context of a patent claiming genetically modified plant seeds. Justice Kagan has a growing reputation for authoring opinions in a lucid, clear, and concise style, which sometimes use clever phrases (such as, in this case, characterizing an infringer’s position as the “blame-the-bean defense”).
The opinion begins with a short summary of the issue and holding:
“Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention. The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission. We hold that he may not.”
Exhaustion and its cousin, implied license, are important doctrines, and anyone involved in the licensing of patent rights must be keenly aware of the doctrines and their implications for downstream users of an invention. For a discussion of exhaustion, see Chisum on Patents 16.03. For recent decisions, see LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (finding implied license in context of complex computer component acquisition practices); Intel Corp. v. Negotiated Data Solutions, Inc., 703 F.3d 1360 (Fed. Cir. 2012) (implied license flowing from license of patents extends to reissues of those patents); Tessera, Inc. v. Int’l Trade Comm’n, 646 F.3d 1357 (Fed. Cir. 2011) (“sales authorized under a license do not become unauthorized or infringing sales because a licensee subsequently delays royalty payments due under that license.”).
Bowman involves a fairly special type of patented subject matter, and, therefore, its holding will have relatively little direct impact on exhaustion problems generally. However, the Court’s common sense analysis, which recognizes that a patent right must be accorded a scope effective to garner a reward to the patent owner, will likely impact lower courts in their application of exhaustion. It may also have some impact on the question of international exhaustion, discussed below in connection with the Kirtsaeng decision.
SOYBEANS GENETICALLY MODIFIED; PLANTS RESISTANT TO HERBICIDE. Two patents concerned soybean seeds genetically modified to confer on plants grown from the seeds a trait of resistance to glyphosate herbicides, such as the patent owner’s Roundup product. U.S. Pat. No. 5,352,605; U.S. Pat. No. RE39,247E.
The patent owner, Monsanto, sells (and allows other companies to sell) Roundup Ready soybean seeds, that is, ones with the patented genetic trait, to growers who consent to a “special licensing agreement.” The agreement allows the grower to plant the seed for one crop only, to consume or sell the seed resulting from the crop as a copy, but not to save seed for replanting or for supplying to others for that purpose.
A farmer (Bowman) purchased and used the patented seeds in two ways. First, for a “first crop” each season, Bowman purchased the patented seed, planted it, and sold the resulting crop of soybeans as a commodity, as the Monsanto licensing program contemplates.
Second, for a second, “late season” crop, Bowman was unwilling to pay the premium price for the patented seed. Instead, he devised a “novel way” to obtain and use seeds with the patented generic trait. He purchased “commodity seed” from a grain elevator, which the elevator had purchased from other farmers. That seed was intended for consumption, not replanting. The purchased seed included a quantity of the patented seed as well as other seed. Bowman planted the seeds, applied a glyphosate herbicide to the resulting plants, and saved seed from the surviving plants, which contained the genetic trait. He repeated the process for eight generations.
The patent owner sued the farmer for infringement. The farmer relied on the exhaustion doctrine, noting that the seeds he purchased were sold with the patent owner’s authority. The district court and Federal Circuit held that exhaustion did not apply.
The Supreme Court held that the exhaustion doctrine does not confer on a purchaser a right to “make” the invention. The doctrine is limited to the “particular item” sold with the authority. The Court noted that Bowman did not dispute the “well settled” principle that exhaustion did not extend to making a new product. Unfortunately, the principle decides the case against him. Bowman’s practice of planting seed, harvesting it, and replanting is “making” a new product, as confirmed by dictionary definitions of “making.” Because Bowman reproduced the patented invention, “the exhaustion doctrine does not protect him.”
The no-exhaustion conclusion applies however Bowman acquired the patented seeds. Exhaustion does not protect Bowman when he purchases (1) for a first crop from a licensee of the patent owner or (2) for a second crop from a grain elevator. This is not a case in which the patent owner or an affiliate sells the seed without an express license agreement. Such a case is “unlikely to arise.” If it does, “the farmer might reasonably claim that the sale came with an implied license to plant and harvest one soybean crop.” If exhaustion allows replanting, the patent owner’s “patent would provide scant benefit.” The patent owner would receive its “reward” on the first seeds it sells but, in short order, other seed companies and farmers themselves could reproduce and market it, “thus depriving Monsanto of its monopoly.” The Court stressed that “[t]he exhaustion doctrine is limited to the ‘particular item’ sold to avoid just such a mismatch between invention and reward.’ ”
The Court noted that “[o]ur holding today … follows from J.E.M. Ag Supply, Inc. v. Pioneer Hi–Bred Int’l, Inc., 534 U.S. 124 (2001).”
TWO “SEEDS-ARE-SPECIAL” ARGUMENTS. To avoid the general principle that exhaustion does not extend to “making,” the farmer Bowman posed two “seeds-are-special” arguments.
First, Bowman argued that exhaustion prevents a patent owner from controlling use after sale and, here, planting seeds is the usual use for seeds. The argument fails, as it would create “an unprecedented exception” to the boundaries of exhaustion. “[I]f simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention.” “The undiluted patent monopoly, it might be said, would extend not for 20 years (as the Patent Act promises), but for only one transaction.” And that would result in less incentive for innovation than Congress wanted. Hence our repeated insistence that exhaustion applies only to the particular item sold, and not to reproductions.” Limiting exhaustion in this case does not “prevent farmers from making appropriate use of the Roundup Ready seed they buy.” Bowman admitted “that he knew of no other farmer who employed beans bought from a grain elevator to grow a new crop.” “So a non-replicating use of the commodity beans at issue here was not just available, but standard fare.”
The patent owner does not, and, realistically, could not, preclude all planting. No “sane” farmer would buy seeds without the ability to plant them. Hence, “predictably,” the patent owner sells the seed with a license to use it to make a crop.
Second, Bowman posed a “blame-the-bean” defense, arguing that the soybeans naturally “self-replicate” and, thus, that the soybean, not Bowman, made replicas. The defense is too “tough to credit.” The farmer Bowman was “not a passive observer of his soybeans’ multiplication: “the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops.” Rather, “Bowman devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium.”
HOLDING: LIMITED; NOT EVERY ONE INVOLVING A “SELF-REPLICATING” PRODUCT. The Court concluded with a cautionary note:
“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. Cf. 17 U.S.C. § 117(a)(1) (‘[I]t is not [a copyright] infringement for the owner of a copy of a computer program to make … another copy or adaptation of that computer program provide[d] that such a new copy or adaptation is created as an essential step in the utilization of the computer program’). We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances. In the case at hand, Bowman planted Monsanto’s patented soybeans solely to make and market replicas of them, thus depriving the company of the reward patent law provides for the sale of each article. Patent exhaustion provides no haven for that conduct.”