Category: Agriculture

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

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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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Congress Fails to Advance Federal Farm Bill or Disaster Assistance Bill

The National Law Review recently featured an article, Congress Fails to Advance Federal Farm Bill or Disaster Assistance Bill, by Laura L. Riske of Michael Best & Friedrich LLP:

 

Every five years, Congress takes up the Farm Bill which covers food and agriculture policy under the purview of the United States Department of Agriculture.  The current 2008 Farm Bill’s financial support programs are set to expire on September 30, 2012 unless they are re-authorized by Congress.  In recent weeks, passage of a new Farm Bill received extensive attention given both the expiration date and record drought conditions that have plagued the U.S. agriculture industry. Recently, more than half the nation’s counties had federal disaster designations that included most in Wisconsin largely because of the drought.  Unfortunately, neither the expiration deadline nor the severe drought conditions stopped the ongoing partisan gridlock in Washington, and Congress departed for a five-week August recess without having taken the critical votes needed to pass either a new comprehensive compromise farm support bill or a limited disaster assistance relief bill.  This article provides an overview of the legislative action that took place prior to the August recess on three key House and Senate bills including:

•  H.R. 6083 – Federal Agriculture Reform and Risk Management Act of 2012 (“FARRM Bill”);

http://www.gpo.gov/fdsys/pkg/BILLS-112hr6083ih/pdf/BILLS-112hr6083ih.pdf;

•  H.R. 6233 – Agricultural Disaster Assistance Act of 2012 (“ADA Bill”);

http://www.gpo.gov/fdsys/pkg/BILLS-112hr6233eh/pdf/BILLS-112hr6233eh.pdf

•  S. 3240 – Agriculture Reform, Food & Jobs Act of 2012 (“ARFJ Bill”); and

http://www.gpo.gov/fdsys/pkg/BILLS-112s3240pp/pdf/BILLS-112s3240pp.pdf

it provides an update on the outcome of the summer recess and September negotiations.

On July 12, 2012, the U.S. House Agriculture Committee passed their new comprehensive bipartisan five-year FARRM Bill. The cost of the Committee’s FARRM Bill was $491 billion and contained $36.5 billion in savings over 10 years through program cuts and reductions that included $14 billion in cuts to the commodity title, $6 billion in cuts to the conservation title and $16.5 billion in cuts to the nutrition title.  The FARRM Bill eliminated highly criticized direct payments and replaced it with new price and revenue support programs, restored the expired disaster relief program, and cut $16.5 billion from the Supplemental Nutrition Assistance Programs (“SNAP”) or food stamps.

In the House at large, Republican farm state lawmakers and some Democrats criticized the Committee FARRM Bill and indicated the impact of enormous program changes and cuts would be disastrous to those most in need, while some Republican conservatives objected to the high cost and questioned whether the cuts were deep enough.  Given this division, House Republican leaders who control the chamber were reluctant to bring the controversial Committee FARRM Bill to the full floor out of concern it could go down in defeat right before the November elections. Instead, House Republican leadership maneuvered to quell criticism of the stalemate and turned to consider either quick passage of a one-year extension of the 2008 Farm Bill, or a simple stand-alone disaster relief bill.

On July 31, 2012, with resistance from many conservative Republicans over a one year renewal of the current 2008 Farm Bill, and after several Democrats announced their opposition to this measure, House Republican leaders dropped the renewal plan and instead pressed for immediate short-term disaster assistance for drought-stricken farmers and ranchers. House Agriculture Committee Chairman Frank Lucas encouraged his colleagues to support the ADA Bill saying, “My priority remains to get a long-term five-year farm bill on the books and put those policies in place, but the most pressing business before us is to provide disaster assistance to those impacted by the drought conditions who are currently exposed.”

On August 2, 2012, the Republican controlled House passed their scaled-down short-term $383 million ADA Bill to assist farmers whose livestock losses and feed expenses had increased due to the drought conditions.  The ADA Bill would have continued programs that had already expired, those that indemnify livestock and forage programs, provided some assistance to producers of a handful of other crops, and it would have been paid for through the placement of caps on conservation programs in the current farm law.

In turn, Democrats who control the Senate refused to take up the House ADA Bill before their August recess. The Senate Democratic leaders indicated they preferred the House had taken up their sweeping five-year ARFJ Bill that had passed the full Senate on June 21, 2012 with overwhelming bipartisan support.  Senate Democrat leaders were quick to fault House Republican leaders for failing to consider the broader legislation in time.

The $500 billion Senate ARFJ Bill cut spending by approximately $25 billion over 10 years, including $15 billion in cuts to the commodity title, $6 billion to conservation and $4.5 billion to nutrition programs.  The Senate cuts were achieved primarily by replacing direct payments with an agriculture risk coverage program which protects farmers against losses in revenue, boosting crop insurance, and cutting the SNAP or food stamps.

Senate Democrats said they preferred their ARFJ Bill because it financed dozens of price support and crop insurance programs for farmers and food assistance for low-income families, and it provided more robust drought relief to other agricultural sectors. Senate Democrats also objected to the House Republican’s ADA Bill because it had deeper cuts to food stamps and offset costs through conservation fund cuts.

Moments after the House passed the ADA Bill, Senator Debbie Stabenow, Chairwoman of the Senate Agriculture Committee, took to the Senate floor and said she will work informally with House Agriculture legislators over the August recess to try to put together a new measure to present to Congress.

Although Congressional leaders in both chambers had indicated they would continue to work on the issues surrounding the Farm Bill during the summer recess, big questions remained as to whether or not they could muster the votes needed to pass a bill when Congress returned from recess in September, but it seemed more likely that a vote could be delayed until later in the year given that election season was well underway.  Upon return to Congress in early September, Senate and House officials indicated that compromise negotiations over the summer recess were not fruitful.  Then, on Friday, September 21st Congress left town again without consideration of a farm bill which has left the current farm bill to expire on September 30th.  House Speaker John Boehner indicated they would deal with the farm bill after the November elections because he didn’t believe he had the 218 votes needed to pass either an extension or new legislation.  In response, U.S. Agriculture Secretary Tom Vilsack expressed concerns that Congress would not be able to pass a farm bill in the upcoming lame duck session either.  In short, an unsuccessful lame duck session would mean that the measure would have to wait until a new Congress is sworn in, and the new Congress would have to start over again to develop a new farm bill.

We will continue to monitor and report on substantive developments surrounding the Farm Bill as it progresses through the legislative process.  In the interim, below are links that farmers can use to access drought information and assistance:

•  USDA’s Disaster and Drought Assistance programs

•  University of Wisconsin Cooperative Extension:

– Drought Resources

– Farmer-to-Farmer Hay and Forage Marketplace

– Farmer-to-Farmer Tool for Pasture Rental

•  Wisconsin Department of Agriculture, Trade and Consumer Protection

•  Wisconsin Department of Natural Resources

© MICHAEL BEST & FRIEDRICH LLP

Impact of Agriculture Reform, Food and Jobs Act of 2012 on Dairy Farmers

The National Law Review recently published an article regarding Agriculture Reform written by Kristiana M. Coutu of Varnum LLP:

Varnum LLP

This summer, the U.S. Senate voted to proceed to consideration of theAgriculture Reform, Food and Jobs Act of 2012 (2012 Farm Bill). The proposed bill can be accessed on the Senate Agriculture Committee’s website, however, be warned, it will take time and perseverance to wade through the 1010 pages of text.  While a complete study of the 2012 Farm Bill may be fascinating for some of us, the practical concern is how it will affect specific industries within agriculture and individual farms. Because Michigan dairy farms are a vital component of our state’s economy, it seems appropriate to consider how this proposed legislation will affect dairy farmers.

Two new programs will replace the current Dairy Product Price Support Payment and the Milk Income Loss Contract Program (MILC).  The new programs are the Dairy Production Margin Protection Program (“Margin Protection Program”) and the Dairy Market Stabilization Program (“Stabilization Program”) which have the stated purpose of guaranteeing dairy farmers a certain margin of milk price over feed costs and assisting in balancing the supply of milk with demand when participating dairy farms are experiencing low or negative operating margins by encouraging dairy farmers to produce less milk.  The two programs must be looked at together since any dairy operation that participates in the voluntary Margin Production Program must also participate in the Stabilization Program.

In its most basic terms, the Margin Protection Program insures farmers a minimum $4.00 margin of average national milk price, termed the “all milk price” over the national average feed price based on the price of corn, soybean meal and alfalfa.   A margin of less than $4.00 for two consecutive months triggers a government payment based 80% of historical milk production. Dairy farmers may also purchase supplemental margin protection to insure up to an $8.00 margin on 90% of historical production.  Although these programs are sometimes referred to as insurance, they are not associated with the federal crop insurance program and no insurance agents are involved.

The Stabilization Program encourages farmers to produce less milk by ordering handlers not to pay farmers for a percentage of milk shipped during any month the Stabilization Program is “in effect” based on low national margins.   Handlers must reduce the producer’s milk check when milk shipped exceeds what is called the “dairy operation’s stabilization base.”  The money that would have gone to the producer is instead paid to the Secretary of Agriculture to use for building demand for dairy products and purchasing dairy products for donation.

These new programs provide a good deal of food for thought, including questions about the effectiveness in various geographic regions of the U.S., considering the difference in milk price and input costs; the effect on various farms based on size; and whether forcing handlers to submit milk proceeds to the government is essentially a tax on dairy farmers.  Dairy farmers should evaluate these programs in light of their individual farm’s circumstances to determine the impact should these programs be included in the final Farm Bill.

It is estimated that debate on the Senate floor will be ongoing for at least the next two weeks and that several amendments to the bill will be proposed and debated.  We will continue to monitor the progress of the Farm Bill in general and also specific dairy provisions.

© 2012 Varnum LLP