TO date, seed companies' patent laws have held up in lower courts, but in Bowman vs. Monsanto, the Supreme Court will decide the fate of seed patents.
The case has the potential to transform the royalty collection model if the court sides with Bowman.
Vernon H. Bowman, an Indiana farmer, filed his brief with the nation's highest court on Dec. 3, laying out why replanting soybeans he purchased at his local elevator for a second crop planting should not make him liable for infringing on Monsanto's patents.
The dispute goes back more than a decade, when Bowman first started corresponding with Monsanto about what was allowed under his technology agreement. During an investigation by Monsanto in 2006, Bowman noted that he was using soybeans purchased from an elevator for planting after wheat. He did not know what variety he was purchasing, but most turned out to be resistant to Roundup-related chemicals, which is no surprise since nearly 90% of soybeans planted in the U.S. are resistant to the herbicide.
"Bowman argued that Monsanto's patent rights to the seeds he purchased from the grain elevator and their progeny were exhausted," the court brief noted.
Two of the major components the Supreme Court will examine in the case are whether the patent is exhausted for patented seeds even after an authorized sale and whether there is an exception to patent law for self-replicating technologies.
Patent laws allow companies to capture the value of their investment, which, for biotechnology traits, can take a number of years and billions of research dollars. Monsanto, for example, invested more than $1.5 billion in research and development in 2012.
Steve Wellman, president of the American Soybean Assn., noted that biotechnology has positively affected the industry, providing traits that improve weed and insect control and the ability to increase the nutritional value of soybeans and other crops.
"Without the ability to recover the investments, the incentive for (developing) future biotech traits and improvements will disappear. Farmers need continued development of traits as we strive to meet the global demand for soybeans," Wellman said.
Currently, a farmer buys a bag of seed, signs a contract not to resell the seed purchased and also specifies how the crop can be grown -- for instance, with a certain amount of refuge. Bowman argued that patent law is not needed and that contract law would be sufficient.
Hans Sauer, deputy general counsel for intellectual property at the Biotechnology Industry Organization (BIO), said contracts would not be sufficient. For instance, if a farmer buys seed and sells it to his neighbor, the seed company can sue for breach of contract, but the seed can't be returned at that point, and the neighbor could do something unexpected with it.
"If current contracts are the only way to reinforce the law, it wouldn't work, because the seed could end up in the hands of someone you don't have a contract with, and then, there is nothing the company can do. However, you can enforce a patent against someone you don't have a contract with," Sauer said.
The case also evaluates whether companies that make patented seed products can capture any value from subsequent generations. Sauer said Bowman's characterization of self-replicating technology is not an accurate way to describe the issue with soybean production because farmers must plant and fertilize the seeds and eventually harvest the crop.
Sauer noted that if everybody could replant patented seed forever without paying a royalty, it may require a completely different business model.
Now, when purchasing a bag of seed, farmers pay essentially a one-time royalty for the right to grow a one-time crop. If the royalty collection model was changed to one based on bushels grown and delivered to an elevator, it would be more expensive and would require more policing. It also would remove the incentive for farmers as they capture a greater margin on the technology with improved yields.
"This case is not just about planting grain from a grain elevator but is much broader," Sauer said.
BIO plans to file an amicus brief on the case to help educate the Supreme Court about the broader implications of its decision.
Many currently patented products, ranging from research instruments to medicine, are sold under conditions similar to what seed producers list on use of the seeds, Sauer noted.
"The U.S. patent system protects -- and should protect -- the rights to easily replicated technologies like herbicide-tolerant seeds, just as it does for those who invent computers or life-saving medicines," said David Snively, executive vice president and general counsel for Monsanto. "This protection is central to our nation's longstanding commitment to innovation and, if altered, could have profound consequences for a range of industries -- from agriculture to medicine to environmental science."
Monsanto's reply to Bowman's brief will be due to the Supreme Court in the second week of January. Then, the following week, any friends-of-the-court briefs in support of Monsanto will be due.
The Supreme Court will hear oral arguments sometime during the spring and likely will make a decision by next June or July.