Monday, June 16, 2008

Quanta and Agricultural Biotechnology

In previous posts, I have discussed why it is important for agricultural biotechnology companies to be able to prevent farmers from saving genetically modified seeds for replanting, and the potential for Quanta to limit the ability of companies to enforce such post sale restrictions under the patent laws. To the extent Quanta prohibits enforcement of these restrictions by means of patent infringement actions, the value of many agricultural biotechnology patents could be severely eroded, which could in turn negatively impact an industry that has historically relied heavily on patents. I think most people, even those who argued in favor of the Supreme Court overruling the Federal Circuit approach to patent exhaustion, as exemplified by the Mallinckrodt and Braun decisions, would agree that enforceable post sale restrictions are important in the context of agricultural biotechnology. Concerns with the impact of the Court's decision on ag biotech is evidenced by some of the questions asked by Justice Kennedy during oral arguments, as well as a footnote in the Solicitor General's amicus brief stating that the Court has never ruled on the question of whether patent exhaustion applies to copies of a self replicating patented product, and that this question was not implicated by Quanta. In the amicus brief it filed recommending denial of cert in McFarling v. Monsanto, the Solicitor General expressed the view that patent exhaustion should not apply with respect to the progeny of patented seeds.

It appears to me that the ability of agricultural biotechnology companies to enforce these important restrictions under the patent laws has not been severely impacted by Quanta. At least, I hope this is the case. For one thing, I think that a court faced with the question would side with the Solicitor General, and find that patent exhaustion does not apply to copies made from a self replicating patented invention, particularly when the invention is a genetically modified seed. I don't think anything in Quanta would preclude such a determination, and for public policy reasons the courts would side with the innovator in a case raising the issue. I also think drawing such a line between a purchased patented product and a copy of the product would be entirely consistent with Microsoft v. AT&T, the 2007 Supreme Court decision which made an analogous distinction between software and copies of software. In Microsoft, the Court held that while software made in the US can constitute a component of a patented invention originating from the US for purposes of 271(f), copies of the software made outside the US do not originate from the US and hence cannot form the basis for infringement under 271(f).

Another element of Quanta that will facilitate the enforcement of post sale restrictions in agricultural biotechnology is the Court's endorsement of the rule announced in its General Talking Pictures decisions. As I noted in my last post, General Talking Pictures, when read in combination with other Supreme Court patent exhaustion precedent such as Univis and Quanta, creates what the solicitor General has described as an anomalous outcome which “allow[s] a patentee to achieve indirectly - through an enforceable condition on the licensee - a limitation on use or resale that the patentee could not itself impose on a direct purchaser.” Under General Talking Pictures, I think that agricultural biotechnology companies will be able to impose post sale restrictions through licensee seed companies, and enforce violations of those restrictions under the patent laws.

The facts of General Talking Pictures appear to be right on point in this regard. Recall that in that case the patent owner licensed a manufacturer to sell the product only to private users, not to commercial users. Because sales to commercial users were not authorized by the patent owner, patent exhaustion did not apply and the patent owner was permitted to sue commercial users for patent infringement, even though the seeds were purchased from licensee. If we tweak the facts only slightly, substituting seed saving farmers for commercial users, it seems clear that if a patent holding biotechnology company licenses seed companies to sell seed only for use in the production of food and a farmer saves and replants seeds, under General Talking Pictures the patent owner will not be barred from bringing suit under the patent laws. As I understand it, a company like Monsanto generally does not sell seed directly to farmers, but rather licenses seed companies to produce and sell seeds incorporating the patented technology. In a case where the patent owner is selling seeds directly to farmers, Quanta might prompt a patent owner to structure its business such that sales are made through a licensee so as to avoid patent exhaustion.

Moreover, the Federal Circuit's LGE decision (the subject of appeal in Quanta), along with earlier decisions like Mallinckrodt and Braun, suggest that the Federal Circuit generally disfavors a strong patent exhaustion doctrine that cannot be overridden by an agreement between the patent owner and purchaser to limit post-sale uses. For example, prior to Quanta, the Federal Circuit was confronted with Supreme Court precedent that on its face seemed to mandate patent exhaustion in all cases where a patented product was the subject of an authorized sale. Nevertheless, the Federal Circuit circumvented this precedent by holding that the doctrine only applies to product claims, not method claims, and even then only when the post sale restriction independently violates some other law or policy, such as patent misuse or an antitrust violation. When faced with a new fact patterns implicating patent exhaustion, the Federal Circuit might well read Quanta in a similarly narrow fashion, thereby limiting its impact, particularly with respect to self replicating products. This sort of circumvention will be facilitated by Quanta’s failure to directly address Mallinckrodt, or any other Federal Circuit decisions relating to patent exhaustion other than LGE.

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Anonymous said...

That was very informative and well written. Below is an excerpt of an article on patent exhaustion in India.

"A patent grants the Patent holder exclusive rights to prevent others from making, using, selling, offering for sale in the territory of patent grant or importing an invention into the territory of patent grant. Once an unrestricted sale of the patented invention is made, the rights of the patent holder with respect to the product are exhausted and this is called as the Doctrine of Exhaustion or First Sale Doctrine......To read more please visit:http://indianipinfo.blogspot.com/2010/10/patent-exhaustion-in-india.html

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