Patent Docs: Supreme Court’s consideration of IP rights exhaustion impacts pharma, biotech industries

The U.S. Supreme Court has been considering exhaustion ofintellectual property rights this term, and in one case decided and onepending, these considerations could impact the availability of meaningfulpatent protection for drugs, vaccines and other biological products.

The case yet to be decided is Bowman v. Monsanto Co., which involves transgenic soybean seedinfringement. Patent infringement liability was found arising from FarmerBowman's unauthorized planting of so-called "commodity grain," soybean seedsobtained from a grain elevator. This grain is typically used for activitiesother than planting, but the farmer planted the seed and treated it withMonsanto's RoundUp herbicide, with the expectation that most of the seed wouldbe resistant (more than 90 percent of all soybean seed is transgenic, and asthe result, the seed is popular with farmers). Bowman contended that his use ofthe seed was permissible because having sold the seed once, Monsanto's rightsin subsequent generations of seed were exhausted. Monsanto's position, joinedin large part by the U.S. Solicitor General in an argument before the SupremeCourt, was that replanting the seeds was impermissible reconstruction of theclaimed seeds, a "remaking" of the invention that was outside the scope of anypatent rights exhausted with sale of the seed.

The questioning from the court suggested little sympathy forBowman's position, with Chief Justice Roberts and Associate Justices Scalia,Breyer, Ginsberg and Sotomayor all questioning the farmer's right to growadditional generations of the patented seed. The only traction Bowman'sarguments received was on the question of whether there could be "innocent"infringement, i.e., in this instancewhere the large proportion of Monsanto recombinant seed in the seed stock makesit difficult not to use the seed. However, Bowman's actions, which wereadmittedly undertaken with the expectation that the majority of the commodityseed would be Monsanto's recombinant seed, accompanied by the fact that hetreated his crop with Monsanto's RoundUp herbicide, seriously blunted theequitable force of this argument.

While the court did not seem sympathetic to Bowman'sargument that permitting Monsanto to restrict use of "second-generation"products of "self-replicatingtechnologies" under patent law constituted a special exemption carved out ofthe law, the consequences of a decision permitting unchecked replication oftechnologies capable of self-replication would extend far past agriculture. Forexample, if sale of a yeast strain with a particular phenotype (producedrecombinantly or by "traditional" genetic manipulations) would permit the buyerunrestricted freedom to make (and presumably sell) the products of yeastpropagation would make commercial yeast development economically untenable. Any"live" vaccine would suffer similar problems in the marketplace (certainly anoutcome not desirable for vaccines, the number of makers of which have declinedprecipitously in recent years for many reasons). Indeed, patent protection forany biological product would be threatened if not precluded by such a decision,and would either promote other avenues for protection that don't requiredisclosure or reduce the incentive for investment in such technologies.

Although the prospects for such a decision appear much lesslikely after the court's oral argument, another case the court has decided thisterm raises questions on the continued viability of provisions that permit abranded drug company from forbidding re-importation of drugs sold abroad (oftenat deeply discounted prices). This case, Kirtsaengv. John Wiley, involved the purchase of textbooks in Thailand that werereimported and sold at a discount (compared with U.S. prices) and a profit(compared with Thai prices) by Mr. Kirtsaeng, a Thai student in graduate schoolin the United States. The court, basing its decision on its interpretation ofspecific provisions of copyright law and the impact of the common-law,"first-sale" doctrine, held that Wiley did not have the right to restrictresale of the textbooks after they had been the subject of an authorized sale.This case is not dispositive for patent rights (the court has declined theopportunity to rule on international patent exhaustion), but as a policymatter, the decision does raise some issues for international drug sales. Underthe rationale in Kirtsaeng, it seemspossible that a purchaser of branded drugs made under the authorization of aninnovator drug company abroad (or purchased from a U.S. manufacturer in anauthorized sale for resale in a developing country) could reimport the drugmuch like Kirtsaeng did his textbooks, with the same or even greateropportunity for profit. The consequences of such an outcome are moresignificant, however, insofar as they might impede or reduce the availabilityof low-priced U.S. drugs in such developing countries.

In another aspect of the Kirtsaengcase, agreements on the sale of the textbooks—that they were intendedsolely for use outside of the United States—did not restrict reimportation,suggesting for the court that preventing restrictions on sale of goods protectedby intellectual property rights after a first sale is more important than anysuch negative consequences of the rule on, interalia, providing affordable drugs abroad. This result at best could fuelefforts, such as the decision in the Gleevaccase against Novartis in India in mid-April, to restrict intellectual propertyrights of U.S. drug companies in developing countries, and at worst, willimpair incentives for American companies to provide such low-cost drugs inthese countries.

Kevin Noonan is a partnerwith the law firm McDonnell Boehnen Hulbert & Berghoff LLP and representsbiotechnology and pharmaceutical companies on a myriad of issues. A formermolecular biologist, he is also the founding author of the Patent Docs weblog, http://patentdocs.typepad.com/.