Monsanto's Roundup Ready Patents Survive Appeal

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.

Notes:

• Read the case here:
• Read about Scrugg’s failed attempt to get its insurance company to pay for patent infringement defense here;
• State of Mississippi’s amicus brief;
• 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.

Comments

[Bronson]

I'm new to patent law... Actually, I'm new to the practice of law, generally... I am studying for the patent bar now. However, I am a bit perplexed by the CAFC's unquestioning acceptance of the "no research" clause. Here's why.

1. 35 USC 101 specifically allows patents for "improvements" - This doesn't make my point, but I think it lays some groundwork for the idea that contracts that prohibit research are, at least, somewhat afoul of public policy.

2. The contract theory of patent law, generally says that the patent protection is provided to the inventor in exchange for full disclosure SO THAT technology in the art may be advanced. Once again, this is a public policy argument, but I think it's even more clear.

As for the CAFC's constructive application of Monsanto's traditional contractual requirements to Scruggs, I say, "Caveat Emptor!" Monsanto allowed the unrestricted sale to Scruggs. Sure it wasn't their normal policy to do so, but tough. They are a big company, they can eat the cost of their own failure to apply their own rules in this case. Scruggs bought a lawful product without a restriction on his own use of it. I do agree that because this is a seed, and seeds are, by their nature, generally self-replicating, it would be improper to allow Scruggs to re-sell the seeds for others to plant... However, as long as his use of the seeds is an actual use of the seeds and he himself does not have a restrictive contract, none should be constructively applied to him.

That's just my 2 cents.

Don't get me wrong, though, I am generally in favor of the right to contract even for products and services that are frowned-upon by public policy (if not specifically disapproved). Just the same, I think that parties to a transaction should have to live with the deals that they make unless doing so would be a major hardship, and the otherside obtained the advantage by some amount of deceit.

Thanks for the blog!

[Lonnie E. Holder]

Monsanto has made it known through various forums that their seeds are not to be replicated. They have also made it known that restriction from replication is a condition of purchasing the seeds. I suspect that that farmer purchased the seeds from a distributor that failed to point out the restriction at the time of purchase. However, the farmer's failure to heed the restriction borders on willful ignorance. I knew of the restriction though I am neither a farmer nor am I familiar with biological arts. I picked up the restrictions just by listening to the news.

As for the "research" issue, that is something that is a point of contention with many of us. The courts have held that there is no experimental use exemption, except for pharmaceuticals as allowed by law. The United States has the most restrictive experimental use interpretation rules in the world. The effect is that a patent may act as a roadblock to further technology development in some areas while the patent is in force, and may effectively extend the life of a patent. Or, multinational companies just move the research offshore to a country where the product is not patented, which is the most likely scenario. We may not like these results, but we need to pressure congress to change the law.

[SF]

The majority states, "Lastly, the no research policy is a field of use restriction and is also within the protection of the patent laws."

There is a very narrow experimental use exception to patent infringement (basically mere curiousity or philosophic inquiry -- I don't recall the precise wording).

If the research policy was so broad as to preclude such use, couldn't there be some sort of patent misuse?

[Vacuum Cleaner]

Assuming, for a moment the resultant seeds did not perform as the original seeds, that is that the component of the original seeds that made them resistant to disease was not passed down to the offspring seeds, would the same standard still apply? I recognize that in all likelihood this is a matter of genetics, about which I’m pretty shaky, but assuming that it was the case (perhaps the seeds were designed to mutate after one generation), would the new seeds necessarily be “tainted” because they had sprung from the originals? Put another way, is the patent on the seeds themselves or on what is inside them and are those two things always so easy to separate?

[Luke Ueda-Sarson]

"Vacuum cleaner", it's a long time since I read this case, so I can't remember all the details, but to tackle your last question first, typically a biotech patent such as this will have claims for both the altered gene itself, as well as the gene put inside something, such as a seed. I assume this case was no different. The validity of these separate claims may be contested separately, of course. Whether they are "easy to separate" will depend on the facts of the case.

As for not passing on the mutation down the generations, that is technologically possible, but wasn't the case here.

If I may make a philosophical aside, in general patent laws don't distinguish between different branches of technology much.

However, there are very strong arguments (both scientific and economic) that any invention that can self-replicate is ca ompletely different kettle of fish from "normal" inventions, and should be judged, from a patent perspective, quite differently. In some cases, there may even be moral dimensions involved too.

The study of self-replicating systems, while hardly new to biology, is now an active topic of research in many other areas too, and thus patents relating to them. And in biology, traditionally an area in which patents were not awarded (much, there have *always* been exceptions), since it used to be the case that all biology was "natural" and part of the prior art, we now have patentable inventions. If they can self-replicate, which of course, is what biology is all about, then problems can occur.

There really needs to be an in-depth review about self-replication and patentability. It's a fundamental topic, but something that has yet to addressed as a coherent whole anywhere as far as I am aware.

Regards, Luke