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Patent Docs: Supreme Courtís consideration of IP rights exhaustion impacts pharma, biotech industries
May 2013
by Kevin Noonan  |  Email the author

The U.S. Supreme Court has been considering exhaustion of intellectual property rights this term, and in one case decided and one pending, these considerations could impact the availability of meaningful patent protection for drugs, vaccines and other biological products.  
The case yet to be decided is Bowman v. Monsanto Co., which involves transgenic soybean seed infringement. Patent infringement liability was found arising from Farmer Bowman's unauthorized planting of so-called "commodity grain," soybean seeds obtained from a grain elevator. This grain is typically used for activities other than planting, but the farmer planted the seed and treated it with Monsanto's RoundUp herbicide, with the expectation that most of the seed would be resistant (more than 90 percent of all soybean seed is transgenic, and as the result, the seed is popular with farmers). Bowman contended that his use of the seed was permissible because having sold the seed once, Monsanto's rights in subsequent generations of seed were exhausted. Monsanto's position, joined in large part by the U.S. Solicitor General in an argument before the Supreme Court, was that replanting the seeds was impermissible reconstruction of the claimed seeds, a "remaking" of the invention that was outside the scope of any patent rights exhausted with sale of the seed.      
The questioning from the court suggested little sympathy for Bowman's position, with Chief Justice Roberts and Associate Justices Scalia, Breyer, Ginsberg and Sotomayor all questioning the farmer's right to grow additional generations of the patented seed. The only traction Bowman's arguments received was on the question of whether there could be "innocent" infringement, i.e., in this instance where the large proportion of Monsanto recombinant seed in the seed stock makes it difficult not to use the seed. However, Bowman's actions, which were admittedly undertaken with the expectation that the majority of the commodity seed would be Monsanto's recombinant seed, accompanied by the fact that he treated his crop with Monsanto's RoundUp herbicide, seriously blunted the equitable force of this argument.  
While the court did not seem sympathetic to Bowman's argument that permitting Monsanto to restrict use of "second-generation" products of  "self-replicating technologies" under patent law constituted a special exemption carved out of the law, the consequences of a decision permitting unchecked replication of technologies capable of self-replication would extend far past agriculture. For example, if sale of a yeast strain with a particular phenotype (produced recombinantly or by "traditional" genetic manipulations) would permit the buyer unrestricted freedom to make (and presumably sell) the products of yeast propagation would make commercial yeast development economically untenable. Any "live" vaccine would suffer similar problems in the marketplace (certainly an outcome not desirable for vaccines, the number of makers of which have declined precipitously in recent years for many reasons). Indeed, patent protection for any biological product would be threatened if not precluded by such a decision, and would either promote other avenues for protection that don't require disclosure or reduce the incentive for investment in such technologies.  
Although the prospects for such a decision appear much less likely after the court's oral argument, another case the court has decided this term raises questions on the continued viability of provisions that permit a branded drug company from forbidding re-importation of drugs sold abroad (often at deeply discounted prices). This case, Kirtsaeng v. John Wiley, involved the purchase of textbooks in Thailand that were reimported 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 school in the United States. The court, basing its decision on its interpretation of specific provisions of copyright law and the impact of the common-law, "first-sale" doctrine, held that Wiley did not have the right to restrict resale 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 the opportunity to rule on international patent exhaustion), but as a policy matter, the decision does raise some issues for international drug sales. Under the rationale in Kirtsaeng, it seems possible that a purchaser of branded drugs made under the authorization of an innovator drug company abroad (or purchased from a U.S. manufacturer in an authorized sale for resale in a developing country) could reimport the drug much like Kirtsaeng did his textbooks, with the same or even greater opportunity for profit. The consequences of such an outcome are more significant, however, insofar as they might impede or reduce the availability of low-priced U.S. drugs in such developing countries.  
In another aspect of the Kirtsaeng case, agreements on the sale of the textbooksóthat they were intended solely for use outside of the United Statesódid not restrict reimportation, suggesting for the court that preventing restrictions on sale of goods protected by intellectual property rights after a first sale is more important than any such negative consequences of the rule on, inter alia, providing affordable drugs abroad. This result at best could fuel efforts, such as the decision in the Gleevac case against Novartis in India in mid-April, to restrict intellectual property rights of U.S. drug companies in developing countries, and at worst, will impair incentives for American companies to provide such low-cost drugs in these countries.  
Kevin Noonan is a partner with the law firm McDonnell Boehnen Hulbert & Berghoff LLP and represents biotechnology and pharmaceutical companies on a myriad of issues. A former molecular biologist, he is also the founding author of the Patent Docs weblog,



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