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IP is SO Exhausting!

An important, and often overlooked, question involving intellectual property rights is, “When are the rights of IP owners exhausted?”  When you buy a book, movie, computer, or software at what point does the IP owner lose the ability to control what you can do with it?  The Supreme Court has taken two important cases this term that may help answer this question.

Whether you are acquiring intellectual property rights, or are a provider of goods and services covered by intellectual property rights, you need to understand exhaustion issues if you want to control and recognize your rights.  In other words, you may not have the rights you think you have, and you may not be able to use your property the way you think you can.

The law of exhaustion is well developed for both patents and copyrights, but the expanding scope of the type of things subject to IP protection and the global nature of our economy challenge existing law.  The law is a mixture of statute and common law, the general goal of which is to limit the ability of intellectual property rights holders from exacting tribute over and over again as goods and services are sold and resold.

The first case before the Court, Bowman v. Monsanto, is a patent case dealing with the question of exhaustion in the context of self replicating plants.  Monsanto owns patents covering its genetically engineered agricultural seeds.  The seeds are modified to include genes that make the plants immune to a Monsanto herbicide (Roundup), allowing broadcast application of the herbicide, which kills everything except plants grown from the patented seeds (although it has been reported that some weeds have now developed natural immunity).  Very clever idea, but the problem is that soybeans are self-fertilizing plants and each generation is genetically identical to the parent and is therefore immune allowing farmers to hold back seed to plant the next year (instead of buying new seed).

Monsanto, like the rest of the industry, solved this problem by providing the seed in accord with very particular restrictions – so called “bag licenses,” which license the seed to farmers to use only to grow plants which can then be harvested and sold as a commodity.  The farmers are forbidden under the license from holding back any harvested seed to grow a second generation of plants.  They must buy new seeds each growing season.  This scheme allows Monsanto to avoid hitting the exhaustion question head on with its direct customers.  Since the seeds are “licensed” not sold, Monsanto maintains control over the use and can enforce the license restriction.  Without the license the right to prevent planting second generation seeds might have been exhausted when the original seeds were purchased.

Bowman, however, did not buy the seeds from Monsanto, but instead bought the seeds on the commodity market from local grain elevators and so had not signed a bag license.  Bowman believed he was free to plant the seed, and then plant the seed from the seed, without restrictions.

Monsanto, of course, took the opposite view.  Monsanto contends it does not matter whether Bowman was under a bag license, because each generation of seed is effectively a new patented invention, and its use without permission is an infringement.  That has been the position the courts have taken as this case made its way up to the Supreme Court.  Presumably, the Court has something interesting to say on the issue because this is the second time they have taken a case like this.  A few years ago the Court took up the same issue but did not reach a decision because one of the justices recused herself.  This case has huge implications for the bio-tech industry as many technologies have the potential to self-replicate, and/or attempt to control use in a manner similar to the techniques used in the agricultural seed field. Read the rest of this entry

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