MVS Filewrapper® Blog: Supreme Court Rejects Patent Exhaustion Defense for Patented Bean Replanting

The Supreme Court has handed down its much anticipated decision in Bowman v. Monsanto Co., holding that the defense of patent exhaustion does not apply to the practice of planting and harvesting patented seeds through planting and harvesting without the patent holder's permission.

The case centers on the Roundup Ready gene, which confers resistance to glyphosate herbicides such as Roundup. Monsanto owns U.S. Patent Nos. 5,352,605 and RE39,247E, which cover the Roundup Ready gene, as well as seeds incorporating the gene. The Roundup Ready gene stably integrated into the genomic material of soybeans sold by Monsanto, which means that once the seeds are planted, the plants that grow from those seeds and any seeds produced by that plant also have the Roundup Ready gene.

Monsanto markets both the Roundup Ready seeds and the Roundup herbicide to farmers. However, the seeds are sold subject to a licensing agreement that permits a grower to plant the purchased seed in only one growing season-the grower in prohibited from saving any of the harvested seed for replanting in a subsequent growing season. Growers are permitted under the agreement to consume the seeds or to sell the seeds as a commodity for eventual consumption. Due to the popularity of Roundup Ready seeds, a significant proportion of commodity seeds are Roundup Ready.

Vernon Bowman purchased Roundup Ready seeds from a licensed seller each year for his first planting of the growing season. Bowman also made a second planting each season, for which he used seed that was not purchased from a licensed seller. Instead, Bowman purchased commodity seed, planted the seed, treated the plants with glyphosphate herbicide, and harvested the seed from the surviving plants, which he then used for second plantings in subsequent growing seasons. Because these seeds survived the glyphosphate herbicide treatment, they necessarily possessed the Roundup Ready gene. Ultimately, Bowman harvested eight crops through this system of growing and replanting, effectively generating a homogenous Roundup Ready source of seed that was not purchased from Monsanto.

Monsanto sued Bowman in the U.S. District Court for the Southern District of Indiana, alleging that Bowman's harvesting and replanting of Roundup Ready seeds infringed its patents. In his defense, Bowman asserted that the doctrine of patent exhaustion prevented Monsanto from controlling his use of the seeds because they were the subject of a prior authorized sale. The trial court rejected Bowman's patent exhaustion defense, finding for Monsanto. On appeal, the Federal Circuit affirmed, concluding that the patent exhaustion defense was not available to Bowman because he had created newly infringing articles through the harvesting and replanting-Bowman had replicated Monsanto's patented technology by planting the seeds and thereby creating newly infringing plants and seeds.

The Supreme Court, like the district court and the Federal Circuit, concluded that Bowman could not rely on the doctrine of patent exhaustion. The Court held that while the patent exhaustion doctrine restricts a patentee's right to control what others can do with a particular article sold, it does not affect the patentee's ability to prevent a buyer from making new copies of a patented item. Thus, the Court determined that the patent exhaustion doctrine enabled Bowman to resell the patented commodity soybeans he purchased, or consume the beans, or feed them to his animals without interference from Monsanto, but it did not enable Bowman to make additional patented soybeans without Monsanto's permission.

The Court relied on its precedent in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., where the Court explained that only a patent holder, and not the holder of a certificate issued under the Plant Variety Protection Act, could prohibit a farmer who legally purchases and plants a protected seed from saving harvested seed for replanting. The Court also dismissed Bowman's argument that patent exhaustion should apply in this case because soybeans naturally self-replicate, and therefore the seeds themselves-and not Bowman-were responsible for producing copies. Such a "blame-the-bean" defense was unpersuasive in light of the Bowman's active role in purchasing, planting, selecting, harvesting, and replanting the infringing seeds for eight successive crops.

The Court took care to limit its holding to the situation before it, stating that it is a closer question as to whether the patent exhaustion doctrine would apply where an article's self-replication occurs outside the purchaser's control, or is necessary by incidental step in using the item for another purpose.

MVS Filewrapper® Blog: New and Useful - January 31, 2013

·       In Soverain Software LLC v. Newegg Inc. the Federal Circuit vacated in part and reversed in part an Eastern District of Texas decision finding Newegg Inc. liable for infringement of U.S. Patent Nos. 5,715,314, 5,909,492, and 7,272,639, all relating to electronic commerce.  The Federal Circuit offered clarifying insight on the obviousness doctrine.  The background facts are as follows:  Soverain Software purchased three software patents through bankruptcy proceedings and then proceeded to sue seven different entities for infringing the patents.  Six of the defendants settled and entered paid up license agreements with Soverain.  The seventh defendant, Newegg, refused to settle and argued that the asserted patents are all invalid and even if valid, Newegg’s system is different and non-infringing.  At trial, the district court refused to permit Newegg to present its obviousness argument to the jury and ruled that the patents were valid as a matter of law.  The jury found that Newegg had infringed two of the patents but not the third; the district court, however, entered judgment as a matter of law that Newegg infringed the third patent.  Newegg appealed and the Federal Circuit found all three patents obvious.  The federal circuit had three major discussion points:  (1) each element of the disputed claims was found in the prior art, (2) combining those elements would be obvious to one of skill in the art, and (3) licenses entered in settlement to a lawsuit do not constitute evidence of commercial success. 

 

·       In Rexnord Industries, LLC v. Kappos the Federal Circuit reversed a BPAI decision holding claims for a mechanical conveyor belt patentable.  The patent in question was asserted by Habasit Belting, Inc. against Rexnord Industries in an infringement suit in Delaware district court.  Rexnord filed a request for inter partes reexamination.  The examiner in the reexamination found all of the claims to be unpatentable for anticipation or obviousness. Habasit appealed the examiner’s findings, and the BPAI reversed, concluding that the claims of the patent were not anticipated by any of the references cited in the reexamination, and were unobvious over the cited references.  Rexnord appealed the BPAI decision to the Federal Circuit, arguing that the BPAI erroneously refused to review all of the arguments that Rexnord had presented as grounds for unpatentability.  The PTO countered that the BPAI only needed to consider the issue raised by Habasit on appeal, and had no obligation to consider other grounds that had been presented during reexamination, relying on a BPAI rule that “bars the presentation of new arguments outside appellant’s opening brief.”  The Federal Circuit noted that Rexnord was not the appellant before the BPAI since Habasit appealed the examiner’s decision, and concluded that the alternative bases for obviousness raised in the reexamination were properly raised on appeal to the Federal Circuit because they were fully raised in the reexamination and were not an issue for patentability until after the Board reversed the examiner.  The court then found the claims obvious on these additional grounds.

       

·       In Hall v. Bed Bath & Beyond, the Federal Circuit affirmed a Southern District of New Your district court’s dismissal of counts against Bed Bath & Beyond (BB&B) executives and counterclaims filed by BB&B, but concluded that the district court’s dismissal of Hall’s design patent infringement, unfair competition, and misappropriation claims for failure to state a claim on which relief can be granted under Federal Rule of Civil Procedure 12(b)(6).  BB&B argued in its motion to dismiss, and the district court agreed, that the complaint was insufficient because if failed to include any claim construction, but the Federal Circuit held the complaint met the requirements for pleading design patent infringement previously set out by the court in Phonometrics, Inc. v. Hospitality Franchise Systems, Inc.  Specifically, the court found the complaint (i) alleged ownership of the patent, (ii) named each defendant, (iii) cited the patent that was allegedly infringed, (iv) stated the means by which the defendant allegedly infringed, and (v) pointed to the sections of the patent law invoked, and in doing so met its burden to withstand a motion to dismiss under Rule 12(b)(6), Twombly and Iqbal. 

 

·       In LG Display Co. v. Obayashi Seikou Co., 2013 U.S. Dist. LEXIS 10785 (D.D.C. 2013) The district court for the District of Columbia issued a ruling in a case between LG and Obayashi Seikou Co., LTD that goes back nearly a decade, centering on LG’s allegations that a former employee stole proprietary information and passed it along to Obayashi Seikou Co., who then obtained several patents on the technology.  Prior to the U.S. litigation, the parties had entered into a settlement agreement, and after the settlement failed, litigated the settlement agreement in the Korean courts.  In the Korean litigation LG secured a judgment from Korea’s highest court holding that the settlement agreement was valid, and the defendants were required to transfer their patents to LG, under the terms of the agreement.  LG then filed suit in the District of Columbia seeking recognition of the Korean judgment, as well as claiming misappropriation of trade secrets, conversion, and unjust enrichment.  The district court granted in part LG’s motion for partial summary judgment, recognizing the Korean judgment, but concluded that ownership of two related patents involved factual disputes and was not ready for summary judgment. 

Bayh-Dole Patent Ownership Dispute to be heard by Supreme Court

Last week, the Supreme Court announced it will review the Federal Circuit decision in Stanford v. Roche, addressing patent ownership under the Bayh-Dole Act, after granting Stanford's petition for a writ of certiorari. The Court will decide an interesting patent ownership dispute involving the contractual obligation of a University inventor to assign rights to the University and the same inventor's prior assignment of future rights to a company (which eventually became Roche).  The Federal Circuit ruled against Stanford, finding that the prior assignment of the inventor trumped the assignment obligation he later had with the University.

Whether a federal contractor university's statutory right under the Bayh-Dole Act35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor's rights to a third party.
More on Bd. of Trustees of Leland Stanford Jr. Univ. v. Roche Molecular Sys., after the jump. 
 

Ninth Circuit: AutoCAD purchasers are licensees, so first sale doctrine does not apply to resale

In a decision last week, the Ninth Circuit held the purchaser of a copy of AutoCAD software was not an owner of the copy, but instead a licensee.  As a result, the purchaser did not have the protection of the first sale doctrine (codified in 17 U.S.C. § 109(a)) when attempting to resell the software to a third party.  

The declaratory judgment plaintiff was attempting to sell used copies of AutoCAD on eBay.  Autodesk, makers of AutoCAD, sent takedown notices to eBay asserting copyright infringement, which resulted in eBay removing the auctions.  The plaintiff sued to have the sales declared noninfringing based on the first sale doctrine.  The district court agreed, holding the first sale doctrine protected the sales of the used copies of AutoCAD

The Ninth Circuit reversed.  Reconciling its earlier precedent, the court identified conditions where a purchaser is a licensee, rather than an owner of a copy.  Specifically, a purchaser is a licensee when:

[T]he copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

In this case it was undisputed the agreement stated the user was granted a license.  Further, the shrinkwrap license from Autodesk prohibited:  transfer of the software without its consent, transfer or use outside the Western Hemisphere, reverse engineering or modifying the software.  In addition, the license required destruction of prior versions of the software upon upgrading if an upgrade license was purchased.  Based on all of these restrictions, the court held the three criteria were satisfied, and the purchaser of the software was a licensee, not an owner, and therefore could not rely on the first sale doctrine as a defense to copyright infringement.

More detail of Vernor v. Autodesk, Inc. after the jump.

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Supreme Court: NFL collective licensing of trademarks not immune from Section 1 antitrust scrutiny

Monday the Supreme Court unanimously held the NFL's practice of collectively licensing the trademarks of all 32 individual teams is not immune from antitrust scrutiny under Section 1 of the Sherman Act.  The NFL argued that because the marks are all licensed through a single entity, NFL Properties, there was no "contract, combination, . . . or conspiracy" under § 1, and therefore there could be no antitrust problem.

The Court disagreed.  The Court first observed the question of whether there is a "single enterprise" is not dependent on the specific legal structure of the entities.  As stated by the Court (internal citations omitted):

The relevant inquiry, therefore, is whether there is a "contract, combination . . . or conspiracy" amongst "separate economic actors pursuing separate economic interests," such that the agreement "deprives the marketplace of independent centers of decisionmaking," and therefore of "diversity of entrepreneurial interests," and thus of actual or potential competition.

Applying this framework, the Court held the existence of NFL Properties was not sufficient to prevent a "contract, combination . . . or conspiracy" and therefore avoid § 1 scrutiny.  The teams are "sparately controlled, potential competitors with economic interests that are distinct from NFLP's financial well-being." 

Despite holding the NFL's actions were subject to review under § 1, the Court did not pass on the merits, and noted some aspects of the NFL may provide a sufficient justification of its licensing practices under the Rule of Reason.  Ultimately, it will be up to the district court to address the merits of the case and determine whether there is a § 1 violation.

Click below for more detail of American Needle, Inc. v. National Football League and links to media coverage of the case.

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En banc Federal Circuit to address potential patent misuse issues in license practices

The Federal Circuit has agreed to hear en banc an interesting issue with regard to the potential for patent misuse in licensing.  The case is Princo Corp. v. ITC.  At issue is the patent pool related to the technology used for CD-R and CD-RW discs.  The alleged infringer, Princo, admitted infringement before the ITC, but asserted the patents unenforceable due to patent misuse.  The ITC originally rejected this defense, but a divided panel of the Federal Circuit held additional factual determinations were necessary to assess the defense.  

Currently-available CD-R and CD-RW discs use analog technology to assist the recording device in determining where on the disc the recording laser is located at any given time.  Another potential alternative (that has not been implemented in the marketplace) is using digital technology to make this determination.  According to the defendant, the digital alternative was never commercialized because of an agreement between Sony and Philips (two of the owners of patents in the relevant patent pool) not to license a Sony patent covering this digital alternative for this purpose.  According to the defendant, this amounted to a type of horizontal price fixing, and was therefore patent misuse.  The ITC disagreed, and held no misuse occurred.

A divided panel of the Federal Circuit disagreed, and remanded the case to the ITC for further factual development.  The court stated the precompetitive benefits sometimes seen in the context of patent pools are completely absent in the context of an agreement not to license patents covering a potentially competing technology.  The panel majority held this was at least potentially an antitrust violation under the rule of reason.

The en banc Federal Circuit has now agreed to address this issue, with the briefing cycle to be completed shortly after the new year.  Oral argument is not yet set (update, see below), but the case has the potential to provide some clarity on when an arguably anticompetitive licensing practice crosses over into patent misuse.

Click here for the order granting rehearing en banc.

Update (10/29):  The Federal Circuit has set oral argument in the case for March 3 at 2:00 PM.

Click below for a full summary of the panel decision in Princo Corp. v. Int'l Trade Comm'n.

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In license agreement, right to "have made" implicitly granted with right to make

In a recent decision, the Federal Circuit affirmed a district court's dismissal of a patent licensor's claims for breach of a license agreement and patent infringement. The non-exclusive licensee arranged to have third parties manufacture the licensed product, but the product was sold by the licensee. The patent owner argued this was a breach of the license because the license stated the only rights granted were the rights to "make, use, and sell," with all rights not explicitly granted reserved to the patent owner. The district court held this language did not prevent the licensee from having a third party make the product, because the grant of the right to make implicitly grants the right to "have made."

The Federal Circuit affirmed. The court noted the controlling authority on point was a 1964 Court of Claims case, Carey v. United States. There, the Court of Claims held the right to "make" includes the right to engage others to do all of the work connected with its production absent express language to the contrary. Here, the Federal Circuit held because such a right is implicitly granted, the reservation of rights did not prevent the "have made" rights from being granted. As a result, utilizing a third party manufacturer did not constitute a breach of the license agreement such that the licensee may be subject to an infringement action, and the Federal Circuit affirmed the district court's dismissal of the case.

More detail on Corebrace, LLC v. Star Seismic, LLC after the jump.

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Sales of products by party under unconditional covenant not to sue exhaust patent rights

In a decision Wednesday, the Federal Circuit affirmed a district court's finding that a patentee's claims for patent infringement were barred by patent exhaustion in view of a settlement agreement between the patentee and a previous defendant in an infringement suit.  The patentee previously sued a third party, and the suit was resolved by a settlement agreement granting the third party a covenant not to sue under several patents.  The defendant in this case purchased and used products from the previously-sued third party.  The patentee sued, arguing the current defendant infringed even though it obtained the products from the party who had the covenant not to sue.  

In affirming the district court, the Federal Circuit held an unconditional covenant not to sue is, for purposes of a patent exhaustion analysis, the equivalent of a license under a patent.  Here, because the defendant purchased the allegedly infringing products from the party with the unconditional covenant not to sue, the patentee's rights were exhausted, and it could not assert the patents against the current defendant.

More detail regarding Transcore, L.P. v. Elec. Transaction Consultants Corp. after the jump.

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Existence of other licenses under patent does not preclude finding of irreparable harm

In a decision Tuesday, the Federal Circuit affirmed a district court's grant of a permanent injunction.  The district had previously granted a permanent injunction after a jury found willful infringement.  In a previous appeal, the Federal Circuit affirmed the finding of willful infringement, but vacated the permanent injunction because the district court did not consider the four-factor test mandated by the Supreme Court's decision in eBay v. MercExchange (which was decided while the appeal was pending).

On remand, the district court again granted a permanent injunction.  The Federal Circuit affirmed, holding there was no abuse of discretion, although it was a "close case."  The patentee had previously licensed the patent to two other parties (one as the result of settlement of a previous infringement suit), but the court held the existence of previous licenses did not mean an injunction could not issue.  Instead, it was one factor to consider among others when considering whether there is irreparable harm, including "the identity of the past licensees, the experience in the market since the licenses were granted, and the identity of the new infringer."  Finding no abuse of discretion by the lower court, on this or the other three factors, the Federal Circuit affirmed the injunction.

More detail of Acumed LLC v. Stryker Corp after the jump.

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Ninth Circuit: Copyright owner's ambiguous reservation of rights clarified with extrinsic evidence

In a recent decision, the Ninth Circuit reversed a district court's grant of summary judgment that a copyright holder did not have standing to sue for copyright, trademark, unfair competition, and related declaratory judgment claims.  The case involved the film Gone in 60 Seconds, produced and directed in 1974 by H.B. "Toby" Halicki, and remade in 2000.  The key issue was the construction of a 1995 Agreement that provided an option to remake the movie, and assigned certain of Halicki's rights to Hollywood Pictures (a division of the Walt Disney Company and producer of the 2000 film), and more specifically what rights were reserved to Halicki's wife (who obtained Halicki's rights after his death).  Based on the district court's construction of the agreement, the Plaintiffs did not have standing because they assigned all relevant rights in the Agreement, and specifically the rights to the remake of the famed Ford Mustang "Eleanor." 

The Ninth Circuit reversed, holding the agreement between the parties lacked explicit details about what rights the plaintiff might have in a derivative work – namely a remake of Eleanor.  However, the court found that the agreement was "reasonably susceptible to the interpretation" that the plaintiff had retained rights to the remake of Eleanor.  When combined with other extrinsic evidence not considered by the district court, it was clear to the court that plaintiff owned the rights to remake Eleanor, and therefore reversed the district court's holding of no standing to bring the copyright claim.

The court also highlighted several errors by the district court regarding trademark standing.  First, the district court held the plaintiff did not have standing to claim infringement of the "Eleanor" mark because she did not own a registration in the mark.  This was the wrong legal standard, because a plaintiff may also have standing to claim infringement if they are the owner of an unregistered mark.  The district court also held that the plaintiff did not have standing to sue on the "Gone in 60 Seconds" mark because her registrations were for toy cars and baseball caps, while the alleged infringement was for use of the mark on actual cars.  The Ninth Circuit noted the district court confused the test for infringement with the test for standing:  to establish standing under the Lanham Act, a plaintiff must only demonstrate that they are the owner of a mark for any class of products.  Because the plaintiff owned a registration for the Gone in 60 Seconds mark (even for different goods), she had standing under the Lanham Act to bring an infringement claim against the defendant.

More on Halicki Films, LLC v. Sanderson Sales & Mktg. after the jump.

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