Anticipate This!™ | Patent and Trademark Law Blog

Monsanto Company v. Scruggs, et al.

Posted in Opinion Commentary by Jake Ward on August 22, 2006

Mississippi Farmer Cannot Save Seeds Claimed in Monsanto’s Roundup Ready Patents.

(Fed. Cir. 2006, 04-1532)

On appeal from the District Court for the Northern District of Mississippi, where Monsanto’s motions for summary judgment of patent invalidity and infringement (among other issues) were granted, Scruggs challenged an order granting Monsanto a permanent injunction.  Although finding in favor of Monsanto, the CAFC vacated the injunction and remanded for consideration in light of eBay.

The technology at issue in Monsanto’s patents (U.S. Pat. Nos. 5,352,605; 5,164,316; 5,196,525; and 5,322,938) relates to Roundup Ready and Bollgard/Roundup Ready soybeans and cotton which is resistant to glyphosate herbicide (Roundup) and certain insects.  Monsanto licenses the technology with certain restrictions, including 1) an exclusivity provision, 2) a no replant policy, 3) a no research policy, and 4) payment of a technology fee.  However, Scruggs purchased the seeds from seed companies, never signed a licensing agreement, and retained the new generation of seeds after harvesting.

On appeal, Scruggs asserted a number of arguments including, among others, 1) the doctrine of patent exhaustion, 2) the existence of an implied license to use, and 3) patent misuse.  Only these issues are summarized herein, although infringment, validity, and common law counterclaims were also discussed in the opinion.

Doctrine of Patent Exhaustion:  Scruggs argued that it purchased the Monsanto seeds in an unrestricted sale and was therefore entitled to use the seeds in an unencumbered fashion.  The first sale/patent exhaustion doctrine establishes that the unrestricted first sale by a patentee of his patented article exhausts his rights in the article.  The CAFC held, however, that the doctrine is inapplicable to this case because the use of the seeds was conditioned on obtaining a license.  Also, the new seeds grown from the original batch had never been sold, further preventing the application of the doctrine.  “The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology.

Implied License Affirmative Defense:  The CAFC held that Scruggs had no implied license.  In order to establish an implied license, the circumstances of the sale must plainly indicate that the grant of license should be inferred.  Monsanto requires all licensees to place notice on seed bags providing notice of the patents, the fact that purchase of the seeds conveys no license, and that a license must be obtained before use.  Furthermore, the sellers had no right to confer any license.  A seller cannot confer broader rights via an implied license than it has been granted by the patent holder. 

Antitrust/Patent Misuse:   Scruggs specifically asserted that Monsanto’s restrictions on seed use (exclusivity provision, no replant policy, and technology fee payments) are illegal anticompetitive practices constituting patent misuse.  The policy of the patent misuse doctrine is to prevent a patentee from using the patent to obtain market benefit beyond that which inures in the statutory patent right.  However, conduct falling within the scope of patent protection includes limited use licensing.  Additionally, no patent owner shall be deemed guilty of misuse by reason of his having refused to license or use any rights to the patent.  The CAFC found all of Monsanto’s restrictions to be a valid exercise of rights under the patent laws.

Permanent Injunction:  Although generally finding for Monsanto on all issues, the CAFC did vacate the trial court’s permanent injunction in favor of Monsanto and remanded for consideration in light of the Supreme Court’s recent opinion in eBay Inc. v. MercExchange, L.L.C.  The eBay opinion requires courts to consider the standard four part test for permanent injunctions in patent cases and reversed the traditional rule that the court issue permanent injunctions against patent infringment absent exceptional circumstances. 

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