Monsanto v. Scruggs (Fed. Cir. 2006).
Back in 2000, Monsanto sued Scruggs for infringement of its patents covering Roundup Ready (R) soybeans and cotton. Scruggs, a Mississippi farmer, had allegedly replanted seeds that he had grown on his farm. Monsanto won the infringement case on summary judgment and an injunction issued.
First Sale Doctrine: On appeal, Scruggs argued that because he purchased the seeds in an unrestricted sale, he was entitled to use those seeds in an unencumbered fashion under the doctrine of patent exhaustion. Scruggs’ first sale argument failed for two reasons. First, although Scruggs never obtained a license to use the seeds, he was supposed to under Monsanto policy — therefore the sale was not “unrestricted.” Second, as the CAFC held in McFarling, rights to second generation seeds are lost by unencombered sale of first generation seeds.
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.
Antitrust Counterclaims: As a countermeasure, Scruggs asserted that Monsanto was misusing its patents and violating antitrust laws through its licensing requirements that include “an exclusivity provision, a no replant policy, a no research policy, . . . the payment of a technology fee,” and use of Roundup brand herbicide (with certain limitations). The CAFC made quick-work of these arguments — many of which were previously decided in the 2004 MacFarling case. By rearguing the previously decided in MacFarling, Scruggs appears to be set-up for a petition for certiorari based on those general principles.
In dissent from the antitrust conclusion, Judge Dyk argued Monsanto’s Roundup requirement to be unlawful tying. More particularly, the requirement to use Roundup branded herbicide should be considered unlawful tying even if not other manufactuer had regulatory approval because that license term would chill activity of competitors in seeking their own regulatory approval.
A potential herbicide competitor thus would be concerned that, even if it secured government approval of its product, use of the approved herbicide would still be barred under the contracts. The elimination of such potential competition is not permissible under the antitrust laws.
Interestingly, neither the majority nor the dissent questioned the “no research” requirement of the license that prohibited research and/or experimentation on the seeds. In fact, all three judges explicity agreed that restriction is a legitimate “field of use” restriction. (Perhaps legitimizing a contract-based anti-circumvention requirement à la DMCA.).
The CAFC appears to have also ignored the State of Mississippi’s amicus brief arguing, inter alia,
Permanent Injunction: The lower court had issued a permanent injunction based on the CAFC’s “traditional rule.” Based on eBay, the CAFC vacated the permanent injunction and remaneded for a full reconsideration of that final issue.
Read the case here:
Read about Scrugg’s failed attempt to get its insurance company to pay for patent infringement defense here;
American Antitrust Institute’s amicus brief — Professor Patterson (Fordham) argues that Monsanto’s unlawful tying comes from the fact that its patents cover only genes while the license requires purchase of seeds with the genes. The CAFC did not address that point.