Patent Federal Circuit Update

Federal Circuit Review

Saved Seeds From Grown Crops Not Covered by the First Sale Doctrine Because They Were Not "Sold"

In Monsanto Co. v. McFarling, No. 01-1390 (Aug. 23, 2002), the Federal Circuit Court of Appeals affirmed the denial of Homan McFarling's motion to dismiss for lack of personal jurisdiction and affirmed the district court's grant of Monsanto's motion for a preliminary injunction prohibiting McFarling from using seeds saved from crops grown from Monsanto's patented Roundup Ready soybean seed.

Monsanto's Roundup Ready seed was developed to be resistant to glyphosate herbicides, such as Monsanto's Roundup brand herbicide. Accordingly, Roundup can be sprayed on Roundup Ready crops killing the weeds but not harming the crops, resulting in substantial savings in labor costs associated with weed control. Monsanto's U.S. Pat. Nos. 5,633,435 and 5,352,605 ("the '435 and '605 patents") claim the glyphosate-resistant plants, genetically modified seeds for such plants, modified genes encoding such resistance, and the method of producing the plants. Monsanto sells its patented seeds to various companies, which then sell the seeds to farmers. Each farmer is required to sign a "Technology Agreement" with Monsanto and pay a licensing fee to Monsanto for each bag of seeds purchased. The Technology Agreement provides that the seeds are to be used "for planting a commercial crop only in a single season," and that the licensee may not "save any crop produced from this seed for replanting, or supply saved seeds to anyone for replanting."

McFarling, a Mississippi farmer, signed two such Technology Agreements with Monsanto, together spanning two consecutive growing seasons. He did not dispute that he had violated the terms of the agreements by saving seeds from one season and replanting them in another season, not covered by a signed agreement. McFarling paid no licensing fee for this saved seed, which retained the genetic modifications claimed in the '435 and '605 patents.

Monsanto sued McFarling in Missouri Federal Court, asserting patent infringement and breach of contract, and sought a preliminary injunction preventing McFarling from planting saved seed. McFarling challenged the Missouri court's jurisdiction and raised various counterclaims and defenses. The district court had previously ruled, and the Supreme Court had affirmed in J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., 534 U.S. 124 (2001), that plant seeds and plants grown from seeds are statutory subject matter under section 101 of the Patent Act. On appeal before the Federal Circuit was the district court's subsequent denial of McFarling's motion to dismiss for lack of personal jurisdiction and its grant of Monsanto's preliminary injunction motion. The issues on appeal were whether jurisdiction based on a forum selection clause in the Technology Agreement was proper and whether the district court abused its discretion in enjoining McFarling.

The Federal Circuit upheld the district court's exercise of jurisdiction, relying on Supreme Court precedent providing that a forum selection clause is enforceable "unless the party challenging it clearly demonstrates that it is invalid or that enforcement would be unreasonable and unjust." The Court found that the district court had correctly viewed the issue as one of validity of the contractual forum selection clause, not an issue of minimum contacts. Monsanto argued that the clause was reasonable because Monsanto has a legitimate interest in litigating disputes arising out of its Technology Agreements in the venue of its principal place of business and because this common venue would promote judicial efficiency and uniformity of result. The Court found that McFarling failed to demonstrate that the agreed-upon Missouri forum was unreasonable.

The Federal Circuit noted that "McFarling did not dispute that his ignorance of the clause was solely the result of his voluntary failure to read what he signed." The Court noted that both Missouri and Mississippi reflect the universal rule that a "party who signs an agreement is bound by its terms, unless he was fraudulently induced not to read it or was fraudulently misled as to its content or significance." The Court concluded that "McFarling's argument that his voluntary failure to read the forum selection clause entitles him to exemption from its effect is unsupported by any law." The Court further noted that "[d]ue process as to these issues is satisfied when a party consents by contract to personal jurisdiction in a selected forum."

Having determined that jurisdiction was proper, the Court considered McFarling's appeal of the preliminary injunction. McFarling challenged the court's analysis of Monsanto's likelihood of success on the merits, arguing that (1) the asserted patents are unenforceable because the Technology Agreements represent illegal restraints of trade in violation of the Sherman Act and in misuse of the patents; and (2) the first sale doctrine prohibits the contractual restraint on producing his own seed. McFarling also argued that the Plant Variety Protection Act ("PVPA") permits saving and use of seed for his own use and complained that the price charged under the agreements was too high.

The Federal Circuit rejected McFarling's antitrust/misuse arguments because "the record [did] not support Mr. McFarling's theory that he is required to buy future patented seeds from Monsanto in order to buy present patented seeds." The Court also found that the contractual prohibition against using the patented soybeans to produce additional seeds for planting by the farmers did not implicate the first sale doctrine of exhaustion of the patent rights because "the new seeds grown from the original batch had never been sold." The Court further found that the PVPA did not permit McFarling to save seeds of plants independently patented under the Patent Act. The Court noted that the PVPA and the Patent Act are complementary forms of statutory protection providing different rights and privileges and that "there are no exemptions for research or saving seed under [the Patent Act]." (Quoting J.E.M. Ag Supply, 534 U.S. at 143.) Finally, the Court rejected McFarling's arguments of unfair pricing, stating that "in a market economy a purveyor may charge the price that the product can sustain." Accordingly, the Federal Circuit found no error in the district court's conclusion that Monsanto had a reasonable likelihood of success on the issues of infringement and breach of contract and that it was unlikely that an antitrust violation would be found.

Judge Clevenger, dissenting from the majority opinion, viewed the Technology Agreement as a contract of adhesion ineffective to surrender due process rights guaranteed by the constitution.

Issue Preclusion Does Not Apply to a Finding That Formed an Alternative Basis for a Ruling in a Prior Proceeding, if That Finding Was Not Considered in an Appeal of the Prior Decision

In Masco Corp. v. United States, No. 01-5107 (Aug. 28, 2002), the Federal...