(Updates with closing stock price in ninth paragraph.)
By Greg Stohr
May 13 (Bloomberg) -- The U.S. Supreme Court bolstered Monsanto Co.’s ability to control the use of its genetically modified seeds, ruling that companies can block efforts to circumvent patents on self-replicating technologies.
The justices unanimously upheld an $84,456 award Monsanto won in a lawsuit against Vernon Hugh Bowman, an Indiana farmer. Rather than buying herbicide-resistant soybean seeds from a Monsanto-authorized dealer, Bowman used harvested soybeans containing the technology to plant his crops.
“Bowman planted Monsanto’s patented soybeans solely to make and market replicas of them, thus depriving the company of the reward patent law provides for the sale of each article,” Justice Elena Kagan wrote for the court. Kagan rejected Bowman’s contention that he wasn’t legally responsible for making those replicas, dismissing what she called his “blame-the-bean defense.”
The case may affect makers of live vaccines, genetically modified salmon, and bacteria strains used in medical research, potentially helping makers of those products restrict use beyond the first generation. Even so, the court said its ruling was a narrow one that didn’t resolve all issues concerning patents on self-replicating technologies.
“We recognize that such inventions are becoming ever more prevalent, complex and diverse,” Kagan wrote. “In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be a necessary but incidental step in using the item for another purpose.”
The case centered on a technology that has helped make Monsanto the world’s largest seed company, with $14.7 billion in annual revenue, as well as a prime target for opponents of genetically modified food.
St. Louis-based Monsanto inserts genes into crops, letting them withstand application of the herbicide Roundup. Farmers who buy so-called Roundup Ready seeds must accept restrictions on their use, agreeing not to save the harvest for planting in a later season.
Monsanto has sued 146 U.S. farmers for saving Roundup Ready soybeans since 1997, winning all 11 cases that went to trial, the company says.
Today’s ruling “reflects the court’s sensitivity to the importance of patent protection not only for agriculture companies such as Monsanto, but for the basic incentive structure the patent system provides for innovation,” the company said in a statement. Monsanto fell 1.2 percent to $106.83 at the close in New York.
Bowman’s lawyer, Mark Walters, said in an e-mail that the ruling “makes infringers out of 95 percent of America’s soybean farmers, dependent on the grace of a single company to avoid liability.”
For Monsanto, “this is fantastic for their business model,” said Patrice Jean, a patent lawyer with Kenyon & Kenyon in New York who has a doctorate in molecular biology. “It solidifies what they can cover and enforce under the patent law. Who wants to have the technology patented and as soon as they sell it, that’s it?”
Biotechnology companies, software makers and research universities backed Monsanto in the case. Makers of replacement auto parts and the American Antitrust Institute supported Bowman. The Obama administration largely supported Monsanto.
Bowman sought to get around Monsanto’s rules from 1999 to 2007 by buying less-expensive soybeans from a grain elevator. Because the elevator accepted harvests from farmers using Monsanto seeds, the second-generation beans proved to be herbicide-resistant. The farmer says he saved $30,000 for his farm.
When Monsanto found out about the practice, the company sued Bowman. The U.S. Court of Appeals for the Federal Circuit upheld the award against Bowman in 2011.
The Supreme Court today rejected Bowman’s contention that Monsanto had “exhausted” its patent rights by the time he bought the seed.
The legal principle of patent exhaustion “does not enable Bowman to make additional patented soybeans without Monsanto’s permission,” Kagan wrote. She said the patent owner “retains an undiminished right to prohibit others from making the thing his patent protects.”
That language will help biotechnology companies protect their patented work, Jean said. “It does give a lot of teeth to people who own patents in this area,” she said.
Monsanto said before the ruling that a loss would force the seed industry to shift research away from soybeans, canola and wheat -- crops that produce exact replicas of themselves because they are self-pollinating. Grain from hybrid crops such as corn isn’t typically replanted because the offspring are less productive.
Genetic traits require an average of $136 million to develop and commercialize, a process that takes 13 years, according to CropLife International, an industry group based in Brussels. Monsanto in 2012 reported $1.51 billion in research and development spending.
The case is Bowman v. Monsanto, 11-796.