IP Update, Vol. 16, No. 5, May 2013

Profession:McDermott Will & Emery
 
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Edited by Paul Devinsky and Rita Weeks

PATENTS

Patents / Exhaustion Defense

Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

Bowman v. Monsanto Co.

by Paul Devinsky, Cynthia Chen, Ph.D., and Lincoln Mayer

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the U.S. Supreme Court held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder's permission. Bowman v. Monsanto Co., Case No. 11-796 (Supr. Ct., May 13, 2013) (Kagan, J.).

In this case, Monsanto asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds). Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer "may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose." Bowman, a farmer who purchased Roundup Ready soybean seeds from a grain elevator, replanted those seeds in multiple years without Monsanto's permission. The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed. Bowman appealed to the Supreme Court.

At the Supreme Court, Bowman heavily relied on the "patent exhaustion" doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article. Bowman argued that the authorized sale of the Roundup Ready seeds exhausted Monsanto's patent rights in the seeds, because "right to use" in the context of seeds includes planting the seeds and reproducing new seeds.

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit's decision that Bowman's activities amounted to making new infringing articles. The Supreme Court held that "the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto's permission." Specifically, the exhaustion doctrine restricts a patentee's rights only as to the particular article sold, but "leaves untouched the patentee's ability to prevent a buyer from making new copies of the patented item." The Supreme Court noted that if Bowman's replanting activities were exempted under the exhaustion doctrine, Monsanto's patent would provide scant benefit. After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman's argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto. Rather, as the Supreme Court explained "[A]pplying our usual rule in this context ... will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation."

Tying the Supreme Court's decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court's 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc.( IP Update, Vol. 4, No. 2), in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA). PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting. However, reconciling the two forms of protection, Justice Kagan explained, "[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed's progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed."

Practice Notes: The Supreme Court's decision in Monsanto is, of course, important for agricultural industries. If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines and self-replicating DNA or RNA molecules. If subsequent cases extend the "no exhaustion" holding of Monsanto to these technologies, patent protection would extend to copies made from the "first generation" product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to "the situation before us" and is not an overarching pronouncement regarding all self-replicating products. The Supreme Court suggested that its "no exhaustion" ruling might not apply where an article's self-replication "occur[s] outside the purchaser's control" or is "a necessary but incidental step in using the item for another purpose," citing computer software (and a provision of the Copyright Act) as a possible example. As explained by Justice Kagan, "We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances." In this regard, the Supreme Court particularly noted that "Bowman was not a passive observer of his soybeans' multiplication." Instead, Bowman "controlled the reproduction" of seeds by repeated planting and harvesting. Thus, the Supreme Court suggests that a purchaser's "control" over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies. Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court's ruling.

By holding that Monsanto's restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny. Past court decisions have questioned license restrictions viewed as going beyond the scope of patent protection as potentially susceptible to an antitrust violation or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine, last addressed in Quanta ( IP Update, Vol. 11, No. 6) which held that "the initial authorized sale of a patented item terminates all patent rights in that article." This boundary line conventionally demarcated the end of a patent's protection and the beginning of a potential antitrust minefield. Some commentators may interpret the Monsanto decision to push that line further out. Importantly, however, the Supreme Court deemed the seeds at issue to be a "new product." So construed, Monsanto's restriction on replanting did not affect the product's use, as in Quanta and Univis Lens, but rather came within the well-settled principle that "the exhaustion doctrine does not extend to the right to 'make' a new product."

Patents / Abstract Ideas (§ 101)

Okay—Now What? Fractured Federal Circuit Issues Five Opinions in CLS Bank International Case

CLS Bank International v. Alice Corporation

by Paul Devinsky and Gregory S. Rabin

A fractured U.S. Court of Appeals for the Federal Circuit published its long-awaited en banc decision in CLS Bank International v. Alice Corporation. With Judge Taranto sitting on the sideline, the remaining 10 members of the en banc court split, resulting in a per curiam affirmance of the district court holding that method, computer-readable medium and system claims for technology related to "the management of risk relating to specified, yet unknown, future events" were not directed to patentable subject matter under 35 U.S.C. § 101. CLS Bank International v. Alice Corporation, Case No. 11-1301 (Fed. Cir., May 10,2012) (en banc). However, the court remained divided on the issue of whether the claims drawn to a system of implementing instructions that essentially correspond to those recited in the method claims are patent eligible, notwithstanding that a majority of the en banc court agreed that neither the corresponding method claims or computer-readable media (i.e., Beauregard) claims are patent eligible.

Plainly contemplating the likelihood that, as a consequence of the deadlock in this case, § 101 likely will be considered (once again) by the Supreme Court of the United States, in each of the published opinions the author attempts to divine the likely direction the Supreme Court will turn should it agree to consider § 101 in the context of patent claims drawn to a system for implementing a non-patent-eligible method.

The Statute

The applicable statute, 35 U.S.C. § 101, replicated on few of opinions, states, "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title."

Procedural History and Posture

Alice Corporation owns several patents, each of which share a common specification and have method, computer-readable medium and system claims directed to "the management of risk relating to specified, yet unknown, future events." In particular, the patents relate to a computerized trading platform for using a trusted third party to create a form of an escrow account to ensure the performance of financial obligation by parties to a transaction.

CLS filed suit against Alice, seeking a declaratory judgment of non-infringement, invalidity and unenforceability of Alice's patents. CLS moved for summary judgment on the basis of ineligible subject matter under § 101. For purposes of summary judgment analysis, the district court and the parties agreed that the claims required a computer including a processor and a memory for implementation. However, the district court still concluded that Alice's method claims "are directed to an abstract idea of...

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