Mitchell and Eddie Scruggs just cannot win. In 2004, agriculture giant Monsanto filed suit against the Scruggs farm for patent infringement because the Scruggses planted roundup-ready soybean and cotton seeds that came from plants grown from purchased seeds. The gene patents in these seeds belong to Monsanto. The Scruggses claimed
The new chapter in this saga is that upon the decision in Quanta, the Scruggses, less than one month ago, filed a motion in the same court, the Northern District of Mississippi, to reconsider the denial of their 2004 motion for summary judgment on Scruggs’s defense of patent exhaustion. Mosanto v. Scruggs, 2009 U.S. Dist. LEXIS 20829. The same judge, W. Allen Pepper, Jr., held that the sale was unauthorized and even if it was authorized, the fact that it was restricted meant that patent exhaustion was never triggered. Judge Pepper stated “the Quantadecision in no way undermines the basis for the Federal Circuit’s holding on the issue of patent exhaustion . . . The doctrine of patent exhaustion is inapplicable in this case . . . . There was no unrestricted sale. . . .” The reasoning for Judge Pepper’s conclusion that the sale was unauthorized was the same reason LG gave when they claimed that the sale to Quanta, which was at issue in Quanta, did not trigger patent exhaustion. Justice Thomas expressly rejected this reasoning in Quanta.
So in recap, Judge Pepper ruled against the Scruggses again and denied their defense of patent exhaustion. Judge Pepper’s interpretation of patent exhaustion is that it is not triggered by a restricted sale. Judge Pepper also holds that a sale is not authorized when a seller sells goods to a purchaser who then violates a restrictive license. As support for this holding, Judge Pepper relies on the Supreme Court, which has expressly stated that patent exhaustion applies in restricted sales and that a sale where a purchaser violates a license post-sale is still an authorized sale.
Comments
Quanta and Monsanto
Tod, thanks for the posting, and I look forward to reading the article. I believe the Supreme Court's decision was quite clear -- the existence of "authority," for purposes of determining whether exhaustion is triggered, is determined by looking at the status of the seller, not the purchaser, of the patented article. For example, as Intel had a full and unrestricted license under both the microprocessor and system patents, neither it nor LGE could reserve any rights against Intel's customers, even though Intel did not itself practice the system patents. Further, the Supreme Court acknowledged only one way of limiting the rights of downstream users -- the conditional manufacturer license (discussed in the Court's earlier decision, General Talking Pictures). In that case, however, the manufacturer's rights were also limited, and so it could give no rights greater than it had itself. Here, presumably (I don't know, actually), the entity that originally "made" and sold (licensed?) the seed had full rights to practice the patents, which would seem to me more akin to Intel's position, rather than that of the manufacturer in General Talking Pictures. Regardless, though, Judge Pepper's reasoning appears flawed, in that he determined whether the sale was "authorized" by looking at the purchaser rather than the seller. Unfortunately, he didn't address the more interesting question -- whether the "first sale" doctrine can be triggered by the licensure of a product, rather than a sale. And that, in turn, leads to the interesting question of when the license of a patented product is so akin to a sale that it should be deemed one, as in the Vernor vs. Autodesk copyright case (from a district couty out west, from sometime in 2008). So there are many chapters left to be written here, and thanks for the article and commentary.
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