By Duncan Stark

On September 21, the Federal Circuit handed down its most recent Monsanto patent-related decision, Monsanto Company v. Bowman, reaffirming the company’s intellectual property rights and its licensing and enforcement strategies. This post provides some context for, and a discussion of, the issues raised in this case.

Monsanto invented the herbicide glyphosate in the 1970s (see U.S. Patent #3,799,758) and began selling it under the trade name Roundup in 1973. Roundup enjoyed great commercial success and is still widely used today. Monsanto later invented technology which allowed them to create genetically altered seeds that would grow into plants resistant to glyphosate. These genetically altered seeds, marketed as “Roundup Ready,” have similarly enjoyed great commercial success. Monsanto patents (see, e.g., U.S. Patent #5,352,605) cover the genetically modified seeds, which pass on their glyphosate-resistive properties to subsequent seed generations.

The licensing agreements under which Monsanto commercializes their Roundup Ready seed technology have generally prohibited, among other things, transfer or re-use of genetically altered seed for replanting, effectively requiring that every farmer wanting to plant Roundup Ready seed must, every season, go back to Monsanto to purchase additional seed. This policy has angered many farmers who have traditionally kept seed grown in one season to plant in the next, or purchased seed in bulk from other sources.

Monsanto has disclosed that since 1997 it has filed suit against 145 farmers for patent infringement and proceeded through trial against eleven. A handful of these cases have become high profile patent suits.

In an early Federal Circuit case regarding Monsanto’s patents and business practices, Monsanto Company v. McFarling, 302 F.3d 1291 (Fed. Cir. 2002), a farmer (McFarling) purchased Roundup Ready seeds, executed the license agreement, and planted his crop. He later admitted to having breached the license agreement by saving seeds from the first, authorized, crop, and planting them the next year. Monsanto sued for patent infringement and breach of contract and McFarling defended by charging Monsanto with antitrust violations and patent misuse for allegedly tying the sale of one year’s seeds to the next, and by arguing that he was within his rights under the doctrine of patent exhaustion. The district court granted a preliminary injunction and the Federal Circuit affirmed, holding that Monsanto was likely to prevail on the merits of the case. Specifically, the appellate court held that there was no tying relationship present because the purchase of seeds in any given year was not conditioned on purchase in any other year, and that the doctrine of patent exhaustion was not implicated because the seeds planted in the second year had never been sold by Monsanto. Further appeals stemming from this case affirmed Monsanto’s view.

A few years later, the Federal Circuit was called upon in another Monsanto suit, Monsanto Company v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006). In this case, Scruggs purchased seeds without executing the license agreement and, like McFarling, retained seeds from one season to plant in the next. Monsanto sued for patent infringement and Scruggs defended by arguing patent exhaustion, antitrust violations and patent misuse for allegedly tying the sale of Roundup Ready seeds to the sale of Roundup, that he had obtained an implied license, and invalidity of the patents at issue. The district court granted summary judgment for Monsanto and issued a permanent injunction. In affirming this decision, the Federal Circuit held that the patents were valid and cited McFarling in denying the patent exhaustion argument. The court went on to deny the implied license claim, citing the extensive marking of all packages of Roundup Ready seeds. Finally, the court said that the contractual provision conditioning the sale of Roundup Ready seeds on the use of Roundup-branded glyphosate did not create an illegal tying relationship because at the time the provision was used, Roundup was the only EPA-approved glyphosate product, so the provision in no way limited competition.

The latest Federal Circuit Monsanto decision, Monsanto Company v. Bowman, was decided on September 21. Defendant Bowman grew two crops per season for several years, one from seed purchased from Monsanto and the other from commodity seed purchased from a grain elevator. Because Monsanto authorizes growers to sell second-generation seed as a commodity, many of the seeds Bowman obtained from the grain elevator contained the patented Monsanto technology, a fact Bowman was aware of and exploited. Monsanto sued Bowman for patent infringement for using its technology without a license agreement. Bowman defended by arguing that Monsanto’s patent rights in the commodity seeds had been exhausted because their sale had been authorized.

Monsanto made two arguments against patent exhaustion on appeal. First, it argued that its rights in the commodity seed were not exhausted because the license agreement prohibited supplying any seeds incorporating the Monsanto technology to anyone for the purpose of planting. Second, it argued that even if its rights in those commodity seeds had been exhausted, Bowman was still guilty of infringement for planting the commodity seed and creating a new generation of seed incorporating its technology. The Federal Circuit agreed with at least this second line of reasoning, stating that:

“Even if Monsanto’s patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence 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.”

Based on the McFarling and Scruggs precedents, this result is not a surprise. Through these three decisions, the Federal Circuit has clearly indicated that, in their view, Monsanto’s patent rights and licensing and enforcement tactics are legally sound.