Category: Agriculture

RICO Madness: Marijuana Operations Face RICO Challenges in Federal Courts

Don’t look now cannabis businesses, but your neighbors may be raising a racket. A June decision by the 10th Circuit Court of Appeals in Denver may have opened the doors to new legal challenges to marijuana operations: civil suits under the Racketeer Influenced and Corrupt Organizations Act (RICO).

RICO was originally intended to go after the mafia and other organized crime, but its broad language means it can be applied in other settings. RICO allows a private citizen to sue “racketeers” for damage to business or property due to the racketeer’s illegal activities or activities that were conducted under his guidance. Since marijuana remains illegal under federal law, the production or distribution of marijuana is considered racketeering.

In this case, a Colorado couple claimed a neighboring marijuana operation was creating “noxious odors” that drifted onto their land allegedly causing the value of their property to drop. The Reillys contended that the odors coming from the marijuana facility adjacent to their land were a nuisance because it “interfered with their present use and enjoyment of the land” and caused a “diminution in its market value.” The Reillys (aided by Safe Streets Alliance, an anti-marijuana organization that was also party to the case) argued that any business engaged in the commercial cultivation and sale of recreational marijuana is a criminal enterprise for purposes of RICO, so they were entitled to relief under federal law.

The District Court in Colorado dismissed the suit for failure to state a claim under RICO.  The District Court stated that Reillys’ injury (the noxious odors and reduced market value) was “speculative” and that they failed to provide any concrete evidence that they had provided harm. The District Court ruled that a “clear and definite” showing of damages were necessary under RICO.

On appeal, the 10th Circuit’s three-judge panel reversed the District Court’s conclusion that the Reilly’s claim of damages was merely “speculative” and thus must be dismissed. Instead, the 10thCircuit held that by alleging that the Reillys’ property has been directly injured by their neighbors’ “odorous and publicly-operating criminal enterprise,” the Reillys properly stated a claim and the case can proceed.

The 10th Circuit ruling also went out of its way to explain that the defendants’ growing marijuana as alleged would meet the elements of a RICO claim. As alleged, defendants were (a) racketeering by growing marijuana, which remains illegal under federal law; (b) were an “association-in-fact enterprise”; (c) the defendants conducted the enterprise’s affairs; and (d) that this activity constituted a “pattern” of illegal acts that is the direct cause of the Reilly’s alleged damages. By providing such analysis, it may have provided a roadmap to future plaintiffs for RICO.

Anti-legalization advocates such as the Safe Streets Alliance are likely on the lookout for more RICO cases to bring against marijuana operators. They likely believe they have found a profitable way to improve litigation risks on marijuana companies even in the event of federal inaction on marijuana and state expansion. Not only are the RICO charges relatively easy to bring, but if successful, RICO plaintiffs can receive treble damages. Treble is lawyer-speak for triple, meaning that plaintiffs can receive up to three times the actual damages. Plaintiffs, if successful, are also eligible to have their attorney’s fees covered by the defendant and have the courts shut down the marijuana operation.

For marijuana operators around the country, now is the time to assess your liability and reduce litigation risk:

  • Review leases and other documents that may contain limitations as to what you can do on your property
  • Review local ordinances on noxious odors and other nuisance rules, as they could be the basis for a dispute
  • Be in strict compliance with any and all state laws related to cannabis
  • Avoid any public disputes that could raise attention to your company
  • Moreover, perhaps above all else, determine if you have any frustrated neighbors that anti-legalization advocates could target. If you have an ongoing dispute with a neighbor, attempt to resolve it amicably before it can rise to this level

RICO charges are challenging, but a prepared company can avoid the trouble before it starts.

Proposed Bill Would Create Safeguards Against Agricultural Worker Deportation

In early May, Senators Dianne Feinstein (D-Calif.), Kamala Harris (D-Calif.), Michael Bennet (D-Colo.), Mazie Hirono (D-Hawaii), and Patrick Leahy (D-Vt.) introduced the Agricultural Worker Program Act (AWPA), a piece of legislation that will provide undocumented workers with heightened protection from deportation and aid them in obtaining legal status and citizenship. Specifically, the AWPA allows farmworkers who have worked in agriculture for at least one hundred (100) days of the past two years to earn lawful “blue card” status. Farmworkers who maintain this “blue card” status for five years may then become eligible to adjust to permanent residency or to a “green card” status. In a press release, Feinstein stated, “By protecting farmworkers from deportation, our bill achieves two goals – ensuring that hardworking immigrants don’t live in fear and California’s agriculture industry has the workforce it needs to thrive.” Bennet remarked that, “The failure to fix our broken immigration system has had real economic consequences for our farmers and ranchers. This bill serves as a necessary step until we can enact a long-term solution by passing comprehensive immigration reform.”

Advocates for the bill include Arturo Rodriguez, United Farm Workers (UFW) President, stating that “the United Farm Workers strongly supports and cheers Senator Feinstein’s introduction of the Agricultural Worker Program Act of 2017 because the act recognizes that the people who feed our nation should be able to earn the opportunity to gain legal status.” Nonetheless, others remain less optimistic for the Act, and project that the Act is unlikely to be passed under the Trump administration. The Colorado Springs Gazette remarked that the bill “has virtually no chance of becoming law, however, with President Trump in the White House and his fellow Republicans in charge of the House and Senate.” The complete text of the bill is available on Feinstein’s website.

This post was written by Aaron M. Phelps of Varnum Law.

NAFTA Renegotiation Would Intend to Benefit Farmers, Ranchers

In recent weeks, the Trump administration took the first step toward renegotiating the North American Free Trade Agreement (NAFTA). Robert Lighthizer, United States Trade Representative (USTR), sent a letter to Congress placing Congress on official notice of the Administration’s intention to renegotiate the Agreement with an eye toward advancing the interests of U.S. farmers, ranchers, workers, and businesses. The USTR’s notice to Congress created a ninety-day window before formal negotiations could begin. According to Michigan Farm Bureau (MFB) Associate National Legislative Counsel, John Kran, “This is the opportunity for the country to react to the President’s notice, and for feedback from voters and members of Congress to get surfaced and shared with the Administration before the formal negotiation process can begin.” The Administration hopes to renegotiate a new NAFTA within the next six months.

In a formal statement, Zippy Duvall, American Farm Bureau Federation (AFBF) President, said the American Farm Bureau will work with the Administration, Congress, other agricultural groups as well as with officials in Canada and Mexico to rectify issues with NAFTA which have limited the trade potential of U.S. farmers, ranchers, workers and businesses. Sonny Perdue, U.S. Secretary of Agriculture, issued the following statement: “While NAFTA has been an overall positive for American agriculture, any trade deal can always be improved. As President Trump moves forward with renegotiating with Canada and Mexico, I am confident this will result in a better deal for our farmers, ranchers, foresters, and producers.” Sonny Perdue acknowledged that while NAFTA has been good for farmers, the same cannot be said for other U.S. industries, such as manufacturing.

To stay informed on the progress of NAFTA modernization, visit the Michigan Farm Bureau’s new Trade page.

Thist post was written by Aaron M. Phelps of Varnum LLP.

Farming Remains One of the Most Dangerous Professions According to Safety Data

Farmers represent a small portion of our population, but feed the entire country and most of the world. Despite advances in agricultural technology, however, farming remains one of the most dangerous occupations. To exacerbate matters, the injury of a farmer often hurts his or her entire family, as entire families often work together and feel the pain when one of their loved ones is unable to contribute and must be cared for by the others. It is for this reason that they must be extremely mindful of safety and constantly devising safer ways of accomplishing their goals.

Over Two Million Workers are employed on Farms Each Year

According to NIOSH, over 1.8 million people are employed full-time in the agricultural field every year, with over 200,000 part time workers. Many of these workers are under the age of 20 and working for their families’ farms. Of these workers, there are a recorded 374 deaths per year on average due to agricultural related injuries, with the most common cause of death being tractor overturns.

Nonfatal injuries are far more common— 167 workers are injured every single day. Many of these workers are injured severely enough to suffer a disability for life. The rate of permanent disability is estimated at about 5% of all injuries while 50% of accidents are as minor as a strain or contusion. Over 2,700 workers under the age of 20 are injured every year as well.

Young People Represent a Third of Farm Deaths

Of the 374 deaths reported annually, an average of 113 are under the age of twenty. This is likely due to the fact that younger workers are more likely to make mistakes and lack the safety training and awareness to avoid serious injuries. Almost one quarter of the youth deaths were due to tractor related accidents and 19% involved the use of motor vehicles such as ATVs.

NIOSH began the development of a special program in the 1990s to help agricultural workers reduce their risk of serious injury through education and research. This organization has conducted research over the last two decades on injuries that include repetitive use, exposure to toxic substances, hearing loss, stress and machinery accidents in an effort to create new safety programs that can help entire farming families. These programs are based out of universities located in ten different states across the country.

USDA Releases Report On Lifecycle Greenhouse Gas Balance Of Ethanol

greenhouse gasOn January 12, 2017, USDA released a report on the lifecycle greenhouse gas (GHG) balance of corn ethanol, titled “A Life-Cycle Analysis of the Greenhouse Gas Emissions of Corn-Based Ethanol.”  The study reviewed industry and farm sector performance over the past decade and found that in the United States corn-based ethanol generates 43 percent less GHG emissions than gasoline.  Compared to previous studies, the lifecycle GHG benefits were greater due to improvements in corn production efficiency, conservation practices, and ethanol production technologies.  The report also presented two projected GHG emissions profiles for corn ethanol in 2022, with one assuming a continuation of observable trends and the other analyzing additional improvements that could further reduce the GHG emissions.

ARTICLE BY Lauren M. Graham, Ph.D. of Bergeson & Campbell, P.C.

©2017 Bergeson & Campbell, P.C.

Grants Available for Specialty Crops – March 26 Deadline

Varnum LLP

In early February 2015, a spokesperson for the Michigan Department of Agricultural and Rural Development (MDARD)announced the availability of a series of grants for Michigan specialty crop growers. The grants are funded by the Crop Block Grant Program, an initiative of the United States Department of Agriculture Ag Marketing Servicesprogram.

The grants are designed to increase the competitiveness of Michigan’s specialty crops sector. Funding will go toward myriad uses, including – but not limited to – research, education, marketing, nutrition, food safety, environmental concerns, and the general promotion of the specialty crop industry.

The grants will likely range from $10,000 to $100,000. Applications are due to MDARD no later than 3 p.m. on March 26, 2015. Eligible applicants include non-profits; local, state and federal governmental entities; and for-profit organizations.

ARTICLE BY

Aaron M. Phelps
John W. Sturgis VII
OF
Varnum LLP

Boyz In the Agrihood: Planned Communities Trade Golf Courses for Working Farms in North Carolina

Womble Carlyle Law firm

I don’t play golf.  I like golf, I’ll go out and hit around with friends or colleagues, but I don’t “play golf”.  To me, playing golf means 18 holes on a weekend, maybe 36, and perhaps a round or two during the week.  No, I don’t play golf.

And I don’t think I’m alone in my generation.  Thus, we don’t see much development anymore around golf courses, even here in North Carolina — home of famed Pinehurst and beautiful Quail Hollow. Sure, it happens, but not nearly as often as it did in the 80s, 90s and even early 2000s.

So, what takes the place of that planned living community “working” greenspace, formerly ruled by gold courses and tennis courts and pools?

Nationally, a growing number of “agrihoods” are popping up, residential developments where a working farm is the central feature.  In northern Durham County, just next to Raleigh, a group of real estate developers are seeking to build a 230-acre subdivision with 140 single family homes and featuring a 15-acre fruit and vegetable farm.  According to conceptions, weekly deliveries of produce from the farm would be included in HOA dues for Wetrock Farm, and the farm will be professionally managed.  Raleigh already has its City Farm, as do other up and coming cities in America, so this new conception of planned living appears to strive to capture what’s next for the homeowning American.  It’s mutually beneficial, as well, both to developer and purchaser:  “‘As a developer it’s been humbling that such a simple thing and such an inexpensive thing [like the farm] is the moved loved amenity,’ said Brent Herrington, who oversaw the building of Kukui’lua [community development in Kauai, Hawaii] for the developer DMB Associates.”

There are sure to be land use planning and operational challenges, of course, and we’ll be curious to identify and solve those issues.

Land Use Litigatior

“Restrictive covenants include no asphalt walkways, no garish house colors, and extra carrots.”

Copyright © 2014 Womble Carlyle Sandridge & Rice, PLLC. All Rights Reserved.
ARTICLE BY

Michael C. Thelen
OF
Womble Carlyle Sandridge & Rice, PLLC

USDA (U.S. Department of Agriculture) Finalizes Import Regulations for “Mad Cow Disease”

Varnum LLP

 

In November, the USDA announced a final rule that will align the Agency’s import regulations for bovine spongiform encephalopathy (BSE or “mad cow disease”)with international standards. According to a USDA November news release, the final regulation will allow for the safe trade of bovines and bovine product, while still protecting the U.S. from the introduction of BSE.

Michigan Senator Debbie Stabenow praised the new rule by stating, “I applaud USDA’s actions to make sure that American’s beef producers have access to new export markets…This effort is crucial to breaking down other countries’ unfounded trade barriers, and re-opening trade markets that are closed to U.S. beef. American agriculture has long set the gold standard food production. [These] actions will ensure U.S. beef producers can operate on a more level playing field and help grow our agriculture economy.”

 

Article by:

Aaron M. Phelps

Of:

Varnum LLP

How Monsanto Applies to Nonagricultural Biotechnology

Womble Carlyle

The facts behind the Supreme Court’s recent ruling in Monsanto v. Bowman are simple enough. Farmers are able to buy soybeans containing Monsanto’s patented glyphosate resistance technology under a license that permits them to plant and grow one generation of crops. Vernon Bowman skirted this program, however, by purchasing commodity soybeans from a grain elevator knowing that the seeds would nonetheless likely contain the very same Monsanto technology. He then planted the seeds, raised crops, and saved seeds from these crops to plant new crops. The Supreme Court held that Bowman’s actions infringed Monsanto’s patents because unlicensed growth of the seeds was a new making of the patented invention. Consequently, the doctrine of patent exhaustion did not provide any defense as to these new seeds.

This was not a surprising result for the biotechnology industry. The idea that patent rights in seed progeny are not exhausted by the original sale of their “parents” was well established in the United States, and is even codified in the European Biotechnology Directive.

The Court left us with a relatively clear answer regarding the scope of patent exhaustion related to seeds. The use of the purchased, licensed seeds for consumption and/or processing cannot be interfered with by the original seller, as the patent rights on those individual (sold) seeds have been exhausted. The planting and cultivation (i.e., replication) of those seeds, however, can only be done under a license from the patentee. In other words, even though someone sells you a bag of seed, you have no right to plant and grow that seed without a license (although there may be a good argument that the license should be implied in appropriate cases).

So, where does Bowman leave us when it comes to determining the infringement or enforceability of self-replication biotechnology patents outside of the agricultural context? For other patented self-replicating (or easily replicable) technologies, the circumstances may present more complicated questions.

Biotechnology inventions such as cell lines, bacteria, and other living material often must exist in a condition of continuous self-replication simply to be maintained for any use. Vectors, plasmids, etc., replicate within cells, and from generation to generation within host cells, allowing for production of vastly more nucleic acid copies than initially used for transfection. Even small linear nucleic acids such as those used for primers and probes may be “replicated” to generate large quantities relatively easily using PCR or other methods in molecular biology. In each case, (cells, viruses, vectors, probes), something analogous to planting, watering, cultivating, is required. In view of the Bowman decision, the question persists as to whether such replication will be permitted or considered an unlicensed “remanufacture” or new making of the original, patented item.

In this regard, we note that Justice Kagan left open the possibility that the replication might be “a necessary but incidental step in using the item for another purpose.”[1] Certainly, the replication contemplated in this part of the opinion is that which must necessarily occur in connection with some authorized practice of the invention. Maintenance of culture cells, for example, where the cells are necessarily replicating only for the purpose of maintaining the culture during its authorized use or in preparation for such use is one example that seems to fit comfortably within this aspect of the Court’s opinion.  In other words, a license for multigenerational use of a cell line may be implied in these circumstances, even if it is not given expressly.

Other technologies may not present quite so simple an analysis. DNA vectors can be used for a variety of purposes, not all of which require replication. For example, vectors can be used as probes or markers, they can be used to transport sequences of interest for further manipulation, or they can be used as immunizing agents. None of these uses require or specifically contemplate replication. Of course, some vectors are used in contexts where replication is likely or assumed (e.g., transfection of cells or bacteria, generation of transgenic tissues or organisms). The consideration of vectors under Bowman will, therefore, likely depend more heavily on context, including the sales and licensing practices of the patentee.

Some commentators have characterized the Bowman holding as “limited to the facts,” pointing to the Court’s comment that “[o]ur holding today is limited – addressing the situation before us, rather than every one involving a self-replicating technology.”[2] Attempts to limit Bowman to its specific facts should be taken carefully. Indeed, the Court cut through much of the surrounding facts to reach its core holding – that replication is a new making of the patented invention and an infringement in the absences of a license. Accordingly, it does appear that the holding may address the most important “situation” for all self-replicating technologies, even if it does not address all of the context-dependent permutations of the facts involving self-replication technologies.

Consequently, assertions of “self-replicating” material turning otherwise innocent parties into patent infringers are simply not credible. To paraphrase the Court in Bowman, the soybeans Bowman took home from the grain elevator didn’t plant themselves, didn’t spray themselves with glyphosate, and didn’t otherwise cultivate themselves to produce the unauthorized crop. Similarly, in biotechnology, it is likely that unauthorized and infringing activity will quite clearly fit the Monsanto “situation” and be easily recognizable as infringement. For example, maintaining an initial cell culture in the hands of the licensee-purchaser, although it also involves replication, should be easily distinguished from distribution of the culture (or vectors, or phage, etc.) to unauthorized third parties.

Nonetheless, given the potential for unnecessarily complex analysis and possible confusion of courts, patent holders should carefully consider how their license provisions may be used to clarify not only express grant and restriction provisions, but also how the license may shape an understanding of how the invention works and its intended use. The dividing line between authorized and infringing activity will be influenced by context, and parties are well advised to define that context by the licensing contract and not rely on the bare contours of the doctrine of patent exhaustion. The license is the place where the parties involved, the patent holder and the licensee, have a chance to agree on what is authorized and what is not. It is also the place where the patent holder has an opportunity to shape future interpretations of what the practice of the invention encompasses and what it does not. An effort to be as comprehensive as possible in the positive, express grant of the license may be as important as the restrictions that are expressly stated. If, as is quite possible, the restrictions fail to contemplate the full scope of intended unauthorized activities, a grant of authorization that is more specific may allow a court to more accurately determine what is “necessary but incidental” to the authorized practice of the invention and what is not.

The Bowman decision provides the biotech community some much needed clarity regarding self-replicating inventions. Perhaps equally important, the Court displayed a keen sensitivity to the negative implications of an overly broad exhaustion doctrine. While there will undoubtedly be further development of the law as it is applied to different technologies, the fundamental ability to control self-replicating inventions at each generation through the grant or withholding of a license places authority where it belongs – with the patentee. And, by reducing the need for complex work-arounds, the clarified authority and more calibrated level of control provided by theBowman decision should facilitate licensing negotiations to the benefit of both parties.

This article was written by guest bloggers Christopher Jeffers, Ph.D., Carl Massey, Jr., Thomas F. Poché, Ph.D.

[1]Although the Court referenced the copyright statute, 17 U.S.C. § 117(a)(1), in conjunction with this “necessary but incidental” fact pattern, the statute actually considers only computer programs and states there is no infringement if “a new copy or adaptation is created as an essential step in the utilization of the computer programin conjunction with a machine and that it is used in no other manner.” From this, better language in the Bowmanopinion might have been “necessary and essential” or even “necessary and incidental.” 

[2] Bowman Op. at 10.

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Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

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The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles.  While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the Supreme Court of the United States held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder’s permission.  Bowman v. Monsanto Co., Case No. 11-796 (Supreme Court May 13, 2013).

In this case, Monsanto had asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds).  Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer “may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose.”  Vernon Hugh Bowman is a farmer who purchased soybean seeds from a grain elevator.  Bowman replanted Roundup Ready® seeds in multiple years without Monsanto’s permission.  The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed.  Bowman appealed to the Supreme Court, which granted certiorari.

On appeal, Bowman heavily relied on the “patent exhaustion” doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article.  Bowman argued that the authorized sale of the Roundup Ready® seeds exhausted Monsanto’s patent rights in the seeds, because “right to use” in the context of seeds includes planting the seeds and reproducing new seeds.

Patent Implications

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit’s decision that Bowman’s activities amounted to making new infringing articles.  The Supreme Court held that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  Specifically, the exhaustion doctrine restricts a patentee’s rights only as to the particular article sold, but “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.”  The Supreme Court noted that if Bowman’s replanting activities were exempted under the exhaustion doctrine, Monsanto’s patent would provide scant benefit.  After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman’s argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto.  However, as the Supreme Court explained “[A]pplying our usual rule in this context . . . will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.”

Tying the Supreme Court’s decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court’s 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA).  PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting.  However, reconciling the two forms of protection, Justice Kagan explained, “[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed’s progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed.”

Other Self-Replicating Technologies

The Supreme Court’s decision in Monsanto is, of course, important for agricultural industries.  If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others  that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines, and self-replicating DNA or RNA molecules.  If subsequent cases extend the “no exhaustion” holding of Monsanto to these technologies, patent protection would extend to copies made from the “first generation” product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to “the situation before us” and is not an overarching pronouncement regarding all self-replicating products.  The Supreme Court suggested that its “no exhaustion” ruling might not apply where an article’s self-replication “occur[s] outside the purchaser’s control” or is “a necessary but incidental step in using the item for another purpose,” citing computer software (and a provision of the Copyright Act) as a possible example.  As explained by Justice Kagan, “We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”  In this regard, the Supreme Court particularly noted that “Bowman was not a passive observer of his soybeans’ multiplication.”  Instead, Bowman “controlled the reproduction” of seeds by repeated planting and harvesting.  Thus, the Supreme Court suggests that a purchaser’s “control” over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies.  Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court’s ruling.

Antitrust Implications

By holding that Monsanto’s restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny.  Other court decisions have called into question other license restrictions viewed as going beyond the scope of patent protection as being potentially susceptible to an antitrust or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine last addressed in Quanta, which held that “the initial authorized sale of a patented item terminates all patent rights in that article.”  This boundary line conventionally demarcated the end of a patent’s protection and the beginning of a potential antitrust minefield.  Some commentators may interpret the Monsanto decision to push that line further out.  Importantly, however, the Supreme Court deemed the seeds at issue to be a “new product.”  So construed, Monsanto’s restriction on replanting did not affect the product’s use, as in Quanta and Univis Lens, but rather came within the well-settled principle that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

The Supreme Court not only was doctrinally conservative in its Monsanto decision, it was also careful to explain that its holding is a narrow one.  Monsanto never exhausted its patent rights in the “new” seeds; indeed, it never truly “sold” them.  Rather, Bowman created new seed from seeds that Monsanto had sold.  The decision therefore may not portend a more general inclination to construe the scope of patent protection more broadly.  In fact, the Supreme Court went so far as to clarify that it could reach a different outcome were it presented with a different technology.

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