Supreme Court Patent Exhaustion Case Could Affect Biopharmaceuticals

A Supreme Court patent exhaustion case could affect biopharmaceuticals. Next week, the Supreme Court will hear oral arguments in Bowman v. Monsanto Co. (Docket No. 11-796), a case that may narrow patentees’ rights in self-replicating technologies. The self-replicating technology at issue in Bowman is genetically modified seeds, but it is not difficult to imagine broader implications for biotechnology.

Bowman is a farmer who planted patented soybeans that he bought from Monsanto. When the Monsanto-sold soybeans matured, Bowman sold the resulting seeds—that Monsanto’s patents still cover—to a grain elevator. Bowman argues that his agreement with Monsanto authorized sales of second-generation seeds between growers and grain elevators: specifically, that Monsanto’s initial sale of the seeds exhausted Monsanto’s future rights under the Supreme Court’s 2008 Quanta decision. Each seed sold, according to Bowman, is a “substantial embodiment” of all subsequent generations. The Federal Circuit held that went too far, leading to a “robust exhaustion doctrine that encompasses the progeny of seeds and other self-replicating biotechnologies.” Monsanto Co. v. Bowman, 657 F.3d 1341, 1346 (Fed. Cir. 2012).

In rejecting Bowman’s “robust exhaustion” argument, the court noted that “[t]he fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology.” The Federal Circuit said the stakes were high:  “Applying the [patent exhaustion] doctrine to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.” This is the “exception” to patent exhaustion that Bowman claims is improper.

The Bowman case embodies a central policy tension. On the one hand, Bowman argues that, if there is no exhaustion here, patents in self-replicating technologies fundamentally limit a basic property right (that is, they are a restraint on the alienation of personal property). On the other hand, Monsanto argues that the current law is as it should be—rights granted by the patent system are already such a restraint. In short, Monsanto says that an expanded exhaustion doctrine undermines that system’s purpose of encouraging innovation.

At least some amicus curiae seem to agree. One brief in support of Monsanto’s position argues that an expanded exhaustion doctrine means that patentees of progenitive technologies must recoup all research and development costs with the first generation of sale, essentially eliminating any incentive to invent such technologies. Another argues Bowman’s position, extending “exhaustion… to all of the claimed technologies that are present in a… biological product could devastate the… biotechnology industr[y].”

Seeds and computer programs have been the primary area implicating self-replicating technology. But the biotechnology industry is rapidly expanding the use of such technology in medicine. Biopharmaceuticals, personalized medicine, and tools used in developing new drugs all increasingly use self-replicating technologies.  Patentees and researchers of such technologies should pay attention to Bowman v. Monsanto: it is not just about seeds.