monsanto
16 October 2013Biotechnology

Patents for self-replicating products: not so exhausting after all

Under the doctrine of patent exhaustion, a patentee should have the chance to exercise its monopoly just once per patented product.

After the product comes to market, then the patentee’s rights are exhausted. But exhaustion is item-specific: it applies only to the specific articles the patentee has allowed on to the market, and does not apply to identical articles that have not been expressly allowed.

Sounds simple enough, right? But exhaustion becomes less clear-cut when the patented product can self-replicate. For instance, a patented seed grows into a plant producing more of the same (also patented) seeds. Can the doctrine of patent exhaustion apply here too? Consider it: virtually limitless quantities of ‘patented’ daughter seeds can be obtained from just one purchased seed.

Strictly applying the exhaustion doctrine here would prevent the patentee from claiming infringement, because all progeny seeds originate from material which the patentee willingly sold.

In this scenario, the patentee stands to fall victim to its own innovation, a result quite at odds with the guiding principle that the patentee should be rewarded for publicising an invention and advancing technology. Considering this, legislators around the world have developed special exhaustion rules for self-replicating subject matter.

§9b GPA defines an exception. When the patentee markets self-replicating biological material (first generation) in the EU or European Economic Area, and this biological material replicates to produce further biological material (second generation), the patentee’s rights are exhausted when the first generation was marketed for the purpose of such replication.

But §9b GPA limits this exception to the second generation material, and the patentee’s rights remain enforceable for third generation products and beyond.

In Germany, §9a, 9b and 9c of the German Patent Act (GPA) represent the national implementation of Articles 8 to 11 of the European Biotech Directive 98/44/EC. §9a GPA defines the general rule that when a patent covers inventive biological material, the patentee’s rights extend to products of its self-replication, as long as these products have the same characteristics as the parent material.

§9c GPA is even more specific. Among other things, it states that a farmer who has produced second generation seeds may continue to use them for replication in his own business, as long as this use matches the purpose for which the seeds were originally marketed.

But even in this case, §9c GPA requires that the farmer continues to pay reasonable compensation to the patentee for each subsequent generation, albeit at a lower rate than for a normal licence.

"Monsanto argued that its patent protection must apply anew to each seed generation, and that applying the doctrine of exhaustion woud undermine any patent to sel-replicating subject matter."

Overall, in §9a, 9b and 9c GPA the legislator seeks to strike an equitable balance between the patentee’s legitimate right to a reward for innovation and the farmer’s equally legitimate expectation to profit from his own labour. Similar considerations of equitability recently occupied the US Supreme Court in a dispute between farmer Vernon Bowman and Monsanto. For years, Bowman bought Monsanto’s patented soybean seeds, which are engineered to resist Monsanto’s herbicide.

Monsanto’s purchase agreement prohibits farmers from replanting second generation seeds, but allows them to sell such seeds as animal feed. One year, Bowman purchased such feed seeds and used them for a late-season planting. These included second generation Monsanto seeds previously sold as feed, per the agreement.

These seeds proved resistant to Monsanto’s herbicide, so Bowman grew them and saved progeny seeds for later plantings. Monsanto sued Bowman for patent infringement, and Bowman’s defence invoked patent exhaustion. He argued that he was free to do what he liked with the seeds, since they had already been allowably sold (as feed) per the agreement. Since Monsanto’s rights to the second generation seed were exhausted, Bowman argued that his activities could not infringe.

Monsanto argued that its patent protection must apply anew to each seed generation, and that applying the doctrine of exhaustion would undermine any patent to self-replicating subject matter.

The particular article

The Supreme Court decided in favour of Monsanto. The court generally acknowledged the doctrine of exhaustion, but stressed that it is limited to the “particular article” sold. The doctrine does not allow the creation of new infringing articles by copying a legitimately acquired patented product. Monsanto had received its reward for the initial seeds bought, but had been deprived of its reward for the soybeans Bowman had grown and reused.

If a purchaser of a patented product could make and sell endless copies of that product, then the patentee’s legal monopoly would disappear beyond the first sale. Applying Bowman’s interpretation of exhaustion would have flooded the market with replicated soybeans from a single sale, nullifying Monsanto’s patent protection and discouraging innovation. Bowman was found guilty of patent infringement.

Had the Monsanto case been tried before a German court, one might have expected a similar ruling. The exceptions of §9b and 9c GPA, which exhaust the patentee’s rights for the second generation seeds (§9b) and allow further (compensated) use of second and later generation seeds in the farmer’s own business (§9c), depend on the purpose for which the patentee marketed or allowed marketing of the seeds.

The farmer-friendly exceptions apply if—and only if—the defendant’s use remains congruent with the original purpose for which the patented material was marketed.

In the Monsanto case, the seeds which Bowman (re)planted were sold under the Monsanto agreement for feed purposes having nothing to do with replication; the seeds were for eating, not planting, and the patentee’s consent to their existence in the public domain was subject to this limitation.

By planting these seeds, Bowman departed from this limiting purpose, so §9b and 9c GPA would not likely have applied, and the general rule of §9a GPA would likely have prevailed: there would be no exhaustion for the copies of self-replicating subject matter.

The US Supreme Court interpreted patent exhaustion for self-replicating seeds in line with what one would have expected in the EU. This bodes well for companies seeking unified patent scope for self-replicating subject matter worldwide.

Steven Zeman is a patent attorney at Grünecker, Kinkeldey, Stockmair & Schwanhäusser. He can be contacted at: zeman@grunecker.de

Heike Vogelsang-Wenke is a patent attorney at Grünecker, Kinkeldey, Stockmair & Schwanhäusser. She can be contacted at: vogelsang-wenke@grunecker.de