The U.S. Supreme Court recently heard oral arguments in a case expected to have a major impact on the global agricultural industry, individual farmers, and research and development efforts directed to genetically modified crops. To decide the case, the Supreme Court must ultimately elucidate the scope of patent exhaustion in the context of self-reproducing goods and the extent to which license agreements for such technology apply to subsequent purchasers who have not signed an agreement.
The specific technology at issue is Monsanto's Roundup Ready® soybeans, which contain a chimeric gene that confers glyphosate resistance. This way, a farmer can apply Monsanto's herbicide Roundup® to weeds and soybean plants at the same time, killing only the weeds. Because soybean plants are self-pollinating, seed harvested from each successive generation of progeny plants will necessarily contain the gene. Monsanto sells its Roundup Ready® soybean seeds directly to farmers and licenses the technology to seed producers. Both are required to sign a licensing agreement which limits the use of the seeds to a single planting. The agreement also prohibits farmers and seed producers from selling the seeds to a third party or replanting seeds harvested from plants grown from the original seeds (i.e., second generation seeds). Interestingly, the agreement contains a loophole that allows seed producers to sell second generation seeds without restriction to grain elevators, who commonly resell the seed as a commodity for animal feed or replanting.
In the case, Bowman v. Monsanto, an Indiana farmer named Vernon Bowman was sued for infringing Monsanto's patents by replanting second-generation seeds he purchased from a local grain elevator, admittedly in the hopes that they were glyphosate resistant. Monsanto alleged that Bowman planted the second-generation seeds and applied herbicide to the plants that sprouted, thereby selecting for only those plants having herbicide resistance. He then harvested the seeds of plants showing herbicide resistance and replanted them. Bowman repeated this process with subsequent generations from 2000 through 2007.
Monsanto argued to the Court that Bowman is subject to the license agreement despite the fact that he did not sign it. Monsanto also argued that Bowman's seed purchase did not constitute an "authorized sale" triggering patent exhaustion. Under this theory, Monsanto would retain the right to prevent Bowman from making the patented invention by growing subsequent generations of seeds. Bowman argued that he was free to do as he wished with the seeds once he purchased them and that he is not subject to an agreement he never signed.
One the one hand, a holding for Bowman that exhaustion applies would effectively eliminate Monsanto's patent rights and much of the value in the technology since anyone could then produce Roundup Ready® seed by simply replanting and harvesting seed containing the patented technology. Permitting replication of the patented technology via traditional replanting techniques could also drastically reduce research efforts by deincentivizing investment in this expensive technology.
On the other hand, a holding for Monsanto that Bowman's generation of seeds is infringement could expose conventional and organic farmers to liability not only if they proceed as Bowman did, but also if their crops become inadvertently contaminated with the patented technology, for example, via natural cross pollination.
A decision is expected in June.
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