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Monsanto’s Supreme Court case affects industries beyond seed

Monsanto Co. squares off next week against a 76-year-old Indiana farmer in a U.S. Supreme Court hearing with implications spanning industries from engineered fish to biotechnology medicines.

The court will consider whether patent owners can control the use of products that can make copies of themselves, such as soybean seeds producing plants bearing new seeds, genetically modified salmon, live vaccines, or stem cells and bacteria strains used in medical research.

“We’re dealing with laws and doctrines that were developed in the 19th century, where the idea of self-replicating technologies didn’t exist,” said Jorge Contreras, an associate law professor at American University in Washington.

The Supreme Court has scheduled arguments Feb. 19 in an appeal of a patent-infringement case by Vernon Hugh Bowman, a farmer who planted soybean seeds harvested from plants that were grown from Monsanto’s (NYSE: MON) engineered seeds. The world’s biggest seed company said Bowman violated a policy forbidding farmers from saving seeds for replanting rather than buying them anew each season from Monsanto or a licensee.

Monsanto, based in St. Louis, inserts genes into crops that allow them to withstand application of the herbicide Roundup. Farmers who buy so-called Roundup Ready seeds agree to restrictions on their use. Monsanto has sued 146 U.S. farmers for saving Roundup Ready soybeans since 1997, winning all 11 cases that went to trial, said Kelli Powers, a Monsanto spokeswoman.

Second crop

Bowman said he complied with the rules for the spring planting of soybeans, which he bought from DuPont Co.’s (NYSE: DD) Pioneer unit, a Roundup Ready licensee. For the second crop of the season, which is susceptible to low yields because of its late timing, Bowman planted beans purchased from a grain elevator. Bowman estimated he saved $30,000 for his 600-acre farm.

“I’m the only tightwad in my area that’s dumb enough to use that seed,” Bowman said in a telephone interview. “A lot of farmers wouldn’t use it because they want the tops in technology.”

Bowman says he did nothing wrong since there were no written restrictions on purchasing soybeans from the elevator and because Monsanto’s patent rights were exhausted after farmers bought the original seeds.

“You don’t lose your rights just because your technology is easily copied,” said Monsanto General Counsel David Snively. “One plant can make 80 seeds. He could set up a new company and Bowman’s Seed could be as big as Pioneer in a few years.”

Allowing farmers to plant saved seed, as Bowman did, would “radically reset the economics” of genetically altered seeds and prompt developers such as Monsanto to shift research away from crops such as soybeans, canola and wheat, Snively said. Soybeans accounted for 13 percent of Monsanto’s $13.5 billion in revenue last year, compared with 43 percent for corn and 28 percent for chemicals such as Roundup, according to data compiled by Bloomberg.

U.S. farmers spent $19.9 billion on seeds in 2012, according to data compiled by Bloomberg Industries. Biotechnology seed sales globally totaled $14.8 billion last year, according to Cropnosis, a U.K. consultant.

A victory for Bowman “would potentially kill the seed industry,” said Peter Corless of Edwards Wildman Palmer LLP in Boston, who specializes in biotechnology patents. “No one would bother doing the research. If you sold just one round of seeds, you’d never be able to price high enough to recoup the costs of development and marketing.”

Recoup costs

Genetic traits require an average of $136 million to develop and commercialize, a process that takes 13 years, according to CropLife International, an industry group.

Monsanto can use sales contracts, rather than patents, to prevent copying while permitting farmers to save seed for themselves, the Center for Food Safety, a Washington-based critic of genetically engineered foods, told the court in a brief. That would help cut farmers’ soybean seed costs that quadrupled after the 1996 introduction of Roundup Ready beans, the center said.

The U.S. Court of Appeals for the Federal Circuit in September 2011 rejected Bowman’s arguments that Monsanto’s rights were exhausted once it sold the seed. The crop from the planting was a “newly infringing article,” the court ruled in upholding an $84,456.20 award against Bowman.

“The reality is, he’s not a free-rider,” said Bowman’s lawyer, Mark Walters of Frommer Lawrence & Haug LLP in Seattle. “He paid fair value for these seeds and like any owner of personal property he should be able to use it for any purpose he chooses. It’s not competitive with first-generation seed that Monsanto sells.”

Software piracy

Monsanto is trying to claim rights over the seed when its invention is limited to the gene trait, said a group that includes the American Antitrust Institute and the National Farmers Union.

“Allowing Monsanto to control seed reproduction sets the perplexing precedent of allowing a patentee to control a defining characteristic of life,” the group said in a filing with the high court.

BSA - The Software Alliance, whose members include Apple Inc. (Nasdaq: AAPL) and Microsoft Corp. (Nasdaq: MSFT), told the court that eliminating patent protection for self-replicating seeds could facilitate software piracy. Research universities and biotechnology companies say a victory by Bowman would harm their ability to license their work in cancer research, crop protection and nutrition.

Diagnostic companies including Agilent Technologies Inc. (NYSE: A) and Life Technologies Corp. (Nasdaq: LIFE) said they often sell items for research use only, which allows them to charge lower prices by preventing replication of their products. They asked the court to uphold Monsanto’s conditions.

One mouse

“Companies are really worried they won’t be able to justify what we think are innovative products to their investors,” said Hans Sauer, deputy general counsel for the Biotechnology Industry Organization, whose members include Monsanto, Amgen Inc. (Nasdaq: AMGN) and Celgene Corp. (Nasdaq: CELG). “We have so much uncertainty in our business already.”

A company buying a genetically engineered mouse only has rights for that animal, said Elizabeth Weiswasser of Weil, Gotshal & Manges LLP in New York, who specializes in life- science patents.

“If that mouse then goes and has a litter that has the same genetic material, have you exhausted your rights in that invention?” Weiswasser said. “You’re taking advantage of a weird aspect of the invention because it can replicate itself. That just can’t be right.”

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