MONSANTO COMPANY et al v. BOWMAN

Filing 103

ENTRY granting Plaintiff's 62 Motion for Summary Judgment (see Entry). Signed by Judge Richard L. Young on 9/30/2009. (PG)

U N I T E D STATES DISTRICT COURT S O U T H ER N DISTRICT OF INDIANA T E R R E HAUTE DIVISION

M O N S A N T O COMPANY, P l a i n ti f f , vs. V E R N O N HUGH BOWMAN, De fend ant.

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2:07-cv-283- RLY-WGH

E N T R Y ON PLAINTIFF'S MOTION FOR SUMM A R Y JUDGMENT

This patent infringement case is before the court on Monsanto Company's ("M onsa nto") M otion for Summary Judgment. The court identified the legal issue in d i s p u te and set forth the factual background in this court's Order of June 11, 2009 ( D o c k e t #93), wherein the parties were asked to supplement the record and provide a d d i t io n a l briefing to assist the court in determining the applicability of the doctrine of p a t e n t exhaustion to the circumstances of this case. The additional briefing has, indeed, a s s i st e d the court in its analysis of the legal issues and furthered its understanding of some of the terminology pertinent to some agronomic/agricultural processes which are r e l e v an t to this case. For the sake of efficiency, the court incorporates by reference the entire factual background as set forth in its June 11, 2009 Order and will limit its effort to r e c i te the facts here to a brief summary of events sufficient to set the table for a resolution o f the key legal issue, the applicability of the doctrine of patent exhaustion. -1-

D e f e n d a n t , Vernon Bowman ("Bowman"), admits that in the past he purchased c o m m o d i t y soybean seeds1 from a grain elevator for the purpose of planting and harv esting a second season crop. He also admits that the majority of the commodity s oyb ea ns he purchased contained, by happenstance or otherwise, the "Roundup ReadyŽ" t r a it patented by Monsanto. Roundup ReadyŽ soybeans are genetically modified soy b e a n s . The genetic modification was developed and patented by Monsanto and carries f o r w a r d into each successive crop of soybeans. Monsanto restricts the sale of seeds c o n t a in i n g its patented trait to those farmers who agree to be licensed to a single use of t h e seed or its progeny for planting. However, the soybeans produced from a licensed crop are then often sold by the farmer to a grain elevator, which may or may not segregate the soybeans as "carriers" of the patented trait. The license under which a farmer is autho rized to produce this single crop does not restrict his sale of that crop to a grain eleva tor, but does state that the farmer agrees "not to save any crop produced from this

The soybean plant is a legume. The fruit of a soy bean plant are the pods, which contain two to four seeds that are rich in proteins. It is common for these seeds to be referred to as beans. In 1995, Monsanto introduced the genetically modified Roundup ReadyŽ soybeans, which are resistant to Roundup, a commonly applied herbicide manufactured by Monsanto. In 1997, approximately 8% of soybeans cultivated for the commercial market in the United States were genetically modified. By the year 2006, that figure was 89%. See Wikipedia.org/wiki/Soy_bean. In the United States, after harvest, the beans/seeds are often sold to grain elevators/dealers. Bowman refers to the beans/seeds as "grain" when they are purchased from a grain dealer. Such a reference to beans/seeds held by a grain dealer as grain, may well be a common reference in agricultural vernacular; however, regardless of which of these terms is used by the court to describe the useful protein product from the soybean plant, it intends no distinction unless specifically explained. -2-

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s e e d for replanting, or supply saved seed to anyone for replanting."

After harvesting the crop he produced from the commodity soybeans, Bowman s a v e d some of the crop for use in the next year's second season planting and, s u p p l e m e n t e d by additional purchases of commodity soybeans (the majority of which also conta ined the Roundup ReadyŽ trait), continued that process annually until this lawsuit w a s filed by Monsanto in an effort to stop this practice by Bowman. Bowman has also p l a n t ed his first season crops with Roundup ReadyŽ soybeans pursuant to a license, but c l a im s he has never saved seed from such a planting. Monsanto claims that Bowman has i n f r in g e d on its patent through the unauthorized planting of the commodity soybeans w h i c h contain the Roundup ReadyŽ trait and via each successive crop planted with saved see d and commodity soybeans.

In defense, Bowman claims that when the soybeans from a licensed Roundup R e a d y Ž crop are harvested and sold to a grain elevator or dealer, they are sold without r e s tr i c ti o n , mixed with all other soybean crops in from the area and, therefore, when p u r c h a s e d and used by farmers to plant as seed (commodity soybeans) for another crop, t h e y are not protected by patent. Bowman has primarily argued that the doctrine of patent exha ustion applies to strip such commodity soybeans from any patent restrictions, but in this latest round of briefing he has also questioned the constitutionality of Monsanto b e i n g allowed to claim a patent violation against anyone planting a soybean/seed with the

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Rou ndup ReadyŽ trait, regardless of how that bean/seed came into their possession. In f a c t , Bowman has invited the court to go so far as to find that by granting Monsanto a u t i li t y patent for its alteration of a seed producing plant, the United States Patent and T r a d e m a r k Office has acted in violation of the Constitution. Unfortunately for Bowman, a s i d e from the broad statement that such patent protection unduly infringes the rights of farm ers and is unconstitutional, he has not developed a cogent argument with respect to the specific constitutional rights he contends have been violated.

Nevertheless, what is compelling about Bowman's argument, and the reason why t h e court sought further briefing, is the effect, intended or unintended by Monsanto, that M on sa nt o' s claim to patent protection for all soybeans that carry the Roundup ReadyŽ t r a it has had on the ability of farmers to use commodity beans/seed to plant in lieu of buying beans/seed from Monsanto or another seed producer. As Bowman points out, M o n s a n t o ' s domination of the soybean seed market, combined with the regeneration of t h e Roundup ReadyŽ trait and the lack of any restriction against the mixing of soybeans h a r v e s te d from a Roundup ReadyŽ crop from those that are harvested from a crop that wa s not grown from Roundup ReadyŽ seed, has resulted in the commodity soybeans sold by grain dealers necessarily carrying the patented trait, thereby eliminating commodity soybe ans as a low cost (but higher risk) source for planting.

Monsanto, on the other hand, has a compelling argument of its own. It has

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e xp en d ed great effort and much money to develop a type of soybean which can be grown e f f i c ie n t l y without weed problems, because the planted crop can be treated with a h e r b i c id e containing glyphosate. While this type of genetic modification to the soybean p l a n t may be controversial in other parts of the world, its widespread use in the United S t a t e s indicates that it has been readily accepted here. Unless Monsanto receives the paten t protection it is trying to enforce in this case, because the trait carries forward to e a c h successive crop, there would be nothing stopping all farmers from buying comm odity soybeans for planting from this point forward, thereby allowing such farmers t o receive the benefit of the Roundup ReadyŽ genetic modification without compensating M onsa nto for its research and development work. In essence, Monsanto's argument is that the glyphosate resistant trait is a technology that Monsanto owns and licenses. Although the beans produced as a result of planting Roundup ReadyŽ seeds belong to the f a r m e r , the technology contained in the progeny still belongs to Monsanto and, without a u t h o r iz a t io n , may not be duplicated through a planting of that progeny. In short, the p r o g e n y soybeans can be sold for any use other than planting, regardless of who is in p o s s e s s io n .

As a counterpoint to M o n sant o ' s own equitable assertion stands Bowman's c o n t e n ti o n that Monsanto could use its "Terminator gene" to assure that the progeny of R o u n d u p ReadyŽ seeds do not contain the trait and thereby protect its interest in selling additio nal soybean seed. However, there is no admissible evidence in the record with -5-

regard to the existence of such a gene or its application in these circumstances. More impo rtantly, the court is not the appropriate venue for raising a policy argument with r e s p e c t to conditions which should be placed upon an award of a utility patent for gen etica lly altered seed.

Another policy argument raised by Bowman is that Monsanto should be required t o include with its license to plant Roundup ReadyŽ seed, a requirement that the resulting crop be segregated from non-Roundup ReadyŽ crops going forward, so that commodity soybea n planting is not eliminated as an option for farmers. This later argument dovetails w i t h Bowman's claim that the doctrine of patent exhaustion applies in this case because o f the lack of a soybean crop segregation or similar restriction.2

I n the end, despite Bowman's compelling policy arguments addressing the m o n o p o l i z in g effect of the introduction of patented genetic modifications to seed p r o d u c i n g plants on an entire crop species, he has not overcome the patent law precedent w h i c h breaks in favor of Monsanto with regard to its right to patent protection against the use of the progeny of its patented Roundup ReadyŽ seeds. Said another way, the court m a y disagree with the decision to award unconditional patent protection to Monsanto for its genetically altered soybeans and their progeny, but this court does not make policy;

In a policy related argument, Bowman also spends time in his supplemental submission opining as to whether Roundup ReadyŽ soybeans are actually soybeans or, rather, a new variety of plant, which should be sold or traded within it own separate categorization. Resolution of such an issue is beyond the realm of this court. -6-

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rath er, it interprets and enforces the law, which, in this case, does not support Bowman.

The essence of Bowman's argument with regard to patent exhaustion is that the r e l a ti v e l y recent Supreme Court's decision in Quanta Computer, Inc. v. LG Electronics, Inc ., 553 U.S.__, 128 S.Ct. 2109 (2008) lends support to his contention that when a duly l i c en s e d farmer sells his crop of soybeans produced from Roundup ReadyŽ seeds, it is an autho rized unconditional sale of the patented technology and, therefore, the patent is e x h a u s t e d as to those soybeans. This court is not the first to hear a farmer rely on Quanta a s a basis for finding that the sale of Roundup ReadyŽ seed, unaccompanied by any restr ictio n on its further use, exhausts Monsanto's patent.

In Monsanto Co. v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006), the Federal Circuit r u l e d that the patent exhaustion doctrine did not apply to a farmer who had purchased R o u n d u p ReadyŽ seed for planting from an authorized distributor and saved seed from t h e progeny for purposes of successive year planting. The farming group involved had p u r c h a s e d Roundup ReadyŽ seed from a Monsanto authorized distributor without signing or agreeing to any accompanying license or restriction. They argued that without a licen sing restriction, their use of those seeds or the progeny was unencumbered. Id. at 133 5-3 6. The Federal Circuit, however, was not persuaded. Scruggs argues that it purchased the Monsanto seeds in an unrestricted sale, a n d that it was therefore entitled to use those seeds in an unencumbered f a s h i o n under the doctrine of patent exhaustion. The first sale/patent e x h a u s t io n doctrine establishes that the unrestricted first sale by a patentee -7-

of his patented article exhausts his patent rights in the article. See M a l l i n c k ro d t , Inc. v. Medipart, Inc., 976 F.2d 700, 701 (Fed.Cir. 1992); see a l s o LG Elecs., Inc. v. Bizcom Elecs., Inc., 453 F.3d 1364 (Fed.Cir. 2006). The doctrine of patent exhaustion is inapplicable in this case. There was no u n r e s tr i c te d sale because the use of the seeds by seed growers was c o n d i t i o n e d on obtaining a license from Monsanto. Furthermore, the "`first s a l e ' doctrine of exhaustion of the patent right is not implicated, as the new s e e d s grown from the original batch had never been sold." See Monsanto v. M c F a r l i n g, 302 F.3d 1291, 1299 (Fed.Cir. 2002). Without the actual sale of the second generation seed to Scruggs, there can be no patent exhaustion. The fact that a patented technology can replicate itself does not give a p u r c h a s e r the right to use replicated copies of the technology. Applying the f i r st sale doctrine to subsequent generations of self-replicating technology wou ld eviscerate the rights of the patent holder. Id.

After the Supreme Court denied certiorari, Scruggs v. Monsanto Co., 549 U.S. 1 3 4 2 (2007), the case went back to the district court for further proceedings. While the S c r u g g s case was still with the district court, the Supreme Court rendered its decision in Qu ant a. Citing Quanta as support, Scruggs sought to revitalize its exhaustion defense to M o n s a n t o ' s claim of patent infringement. The district court rejected that effort and, on Petition for Permission to Appeal pursuant to 28 U.S.C. § 1292(b), the Federal Circuit r e c e n tl y denied an interlocutory appeal of that decision. 2009 WL 1228318 (May 4, 2009 Fed . Cir.).

Bowman argues that unlike Scruggs, where the farmer saved seed from the first crop grown from the Roundup ReadyŽ seeds purchased from an authorized distributor, B o w m a n did not save seed from his first season crops (which were grown from first -8-

generation Roundup ReadyŽ seeds purchased by Bowman from a licensed distributor, P i o n e e r ). Rather, he planted progeny soybeans contained in commodity soybeans which had been sold to grain dealers without restriction. While this may appear at first blush to b e a distinction that makes a difference, it does not under established patent law. Even b e f o r e the Scruggs litigation, the Federal Circuit stated, in a case with a similar challenge to Monsanto's patent protection against replanting saved seeds, that: [ t ] h e "first sale" doctrine of exhaustion of the patent right is not implicated, a s the new seeds grown from the original batch had never been sold. The price paid by the purchaser "reflects only the value of the `use' rights c o n f e r r e d by the patentee." B. Braun Medical Inc. v. Abbott Labs., 124 F.3d 1 4 1 9 , 1426, 43 USPQ2d 1896, 1901 (Fed.Cir.1997). The original sale of the s e e d s did not confer a license to construct new seeds, and since the new s e e d s were not sold by the patentee they entailed no principle of patent e x h a u s t io n . M o n s a n t o Co. v. McFarling, 302 F.3d 1291, 1299 (Fed. Cir. 2002). The fact that M onsa nto had not sold the progeny seeds was relied on by the Federal Circuit to eliminate a defense based upon patent exhaustion.

A n o t h e r reason why the McFarling case is persuasive in these circumstances is the F e d e r a l Circuit's rejection of the farmer's reliance on United States v. Univis Lens Co., 316 U.S. 241 (1942) as support for the application of the doctrine of patent exhaustion. As we detailed in our Order of June 11, 2009, the Supreme Court turned to its analysis in t h e Univis decision to assist it in reaching its conclusion in the Quanta case.

Quanta involved the application of the doctrine of patent exhaustion to a method -9-

p a t e n t where the item which embodied the method was sold with implied authorization fro m the patent holder. Quanta, 128 S.Ct. at 2110-11. Univis involved patented eyeglass l e n s blanks, which the patentee had sold to lens makers, but still sought to control the resa le price. Univis, 316 U.S. at 247-48. In both cases, the patent exhaustion doctrine w a s found to apply because the patent holder had licensed the article at issue to another e n t i ty without sufficient conditions to protect its patent rights. The distinction found by t h e Federal Circuit in McFarling, and which exists here as well, is that the Monsanto lic en se s (and the agreements its licensees required from farmers) for Roundup ReadyŽ s o y b ea n s specifically excluded saving seed or otherwise providing anyone progeny soybe ans for purposes of planting. McFarling, 459 F.3d at 1335-36. No unconditional s a l e of the Roundup ReadyŽ trait occurred because the farmers could not convey to the gra in dealers what they did not possess themselves. Id. at 1336. It is no different in the c a s e at bar. The grain elevator/dealer from whom Bowman bought the soybeans had no rig ht to plant the soybeans and could not confer such a right on Bowman. Consequently, B o w m a n has infringed on Monsanto's patent rights by planting the commodity soybeans, w h i c h contained the patented trait, and then applying a glyphosate-based herbicide to that plan ted crop.

That brings the court to the question of damages. In its motion, Monsanto seeks c o m p e n s a t o r y damages, enhanced damages, attorney fees and interest, as well as a p e r m a n e n t injunction enjoining Bowman from using or selling its patented crop -10-

t e c h n o lo g i e s . However, this is neither an exceptional nor an egregious case; therefore, the court will not award enhanced damages, attorneys fees or prejudgment interest. Bowman never attempted to hide what he was doing and, in good faith, he believed that his actions did not violate the patents at issue. As difficult as it has proven for the court to discount a very compelling argument on the exhaustion of Monsanto's patent rights, it w a s certainly within reason for Bowman to reach a conclusion that what he was doing wa s within legal bounds.

What remains then is for the court to determine the compensatory damages and the availa bility of permanent injunctive relief. Monsanto is entitled to a reasonable royalty f o r the unlicensed use of its technology. 35 U.S.C. § 284. Monsanto has provided an expe rt assessment of, and testimony with respect to, an amount of damages it is entitled to r e c e iv e for the second season crops planted by Bowman for which he used, without licen se, soybeans which carried the Roundup ReadyŽ trait from 2002 through 2006. Monsanto has offered evidence that the analysis used by their experts to calculate a r e a s o n a b le royalty is accepted by their peers in the industry and an examination by the co ur t has discovered no basis to question the methodology used. More importantly, B o w m a n has not contested the method of damage calculation or offered an alternative m e a s u r e . The expert report submitted by Monsanto calculates the upper bounds of an e s t i m a t e d royalty for the applicable years to be $30,873.80. The report goes on to suggest t h a t because Monsanto faces constant risk of unauthorized use and must engage in such -11-

a c t iv i t ie s as crop monitoring in order to enforce its patents, the costs of such compliance m o n i t o r in g and other risk related costs should be added to the $30,873.80 figure. Under the circumstances of this case, the court does not find that any additional amount should be added to the statutorily mandated reasonable royalty, which was appropriately calc ulate d on a hypothetical basis by Monsanto's experts.

Finally, there is the issue of injunctive relief to which Monsanto is entitled. As a part of the final judgment that shall issue separately, the court will enjoin Defendant, V e r n o n Hugh Bowman, permanently, from making, using, selling or offering to sell any of M ons anto 's patented crop technologies.

CONCLUSION

B a s e d upon the facts and analysis contained in the court's prior Order of June 11, 2 0 0 9 (Docket #93) and the explication contained within this entry, Monsanto's Motion f o r Summary Judgment (Docket #62) is GRANTED and judgment shall be entered in f a v o r of Monsanto and against Vernon Hugh Bowman in the amount of $30,873.80, plus cos ts and interest from the date of judgment.

SO ORDERED this 30 th day of September 2009.

_______________________________ RICHARD L. YOUNG, JUDGE United States District Court Southern District of Indiana -12-

E l e c t ro n i c Copies to: D a n i e l C. Cox THOMPSON COBURN, LLP [e-mail] D a v i d B. Jinkins THOMPSON COBURN, LLP d j i n k in s @ t h o m p s o n c o b u r n . c o m R aym on d L. Massey THOMPSON COBURN LLP r m a s s e y@ t h o m p s o n c o b u r n . c o m J e f f r e y A. Masson THOMPSON COBURN LLP S t . Louis, MO 63101-1611 P e t e r J. Sacopulos SACOPULOS JOHNSON & SACOPULOS p e t e _ s a co p u l o s @ s a c o p u l o s. c o m C o p y to: V E R N O N HUGH BOWMAN 2 1 4 8 8 East State Road 58 S a n d b o r n , IN 47578

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