On Tuesday, the Supreme Court hears argument in Bowman v. Monsanto. Monsanto sells patented Roundup Ready soybean seeds (genetically engineered to be resistant to Roundup) and authorizes farmers to sell the genetically identical progeny seeds to grain elevators, which typically sell these seeds to the public as a commodity. Bowman purchased commodity seeds from a grain elevator and used these for planting (correctly assuming that most of them would be Roundup Ready). In general, the doctrine of patent exhaustion would prevent Monsanto from asserting rights in the second-generation seeds, but the Federal Circuit held that patent exhaustion does not apply to self-replicating technologies such as seeds.
Dennis Crouch has a nice summary of the case and the government's amicus brief (supporting Monsanto) at Patently-O. Chris Holman (UMKC School of Law) has summarized the briefs supporting Bowman, and he submitted his own amicus brief on Monsanto's side, arguing that "[b]ecause of the ease with which genetically modified soybeans can be replicated by any user who comes into possession of even a single seed, whatever the source, enforceable patent protection is essential to maintain an adequate incentive for innovation."
Jeremy Sheff (St. John's University School of Law) provides another take on the issue in his forthcoming article, Self-Replicating Technologies. Sheff states that "the historical evidence in favor of the 'incentive to invent' theory for self-replicating technologies is not especially strong," but assuming that we want to allow Monsanto to protect this kind of genetic technology, patent rights in second-generation seeds are preferable to protection with trade secrets or contracts. He points out, however, that the problem here is not with self-replicating technologies per se—there are self-replicating technologies for which the new embodiments are unlikely to affect demand for the original (such as "a replication-capable virus used as a vector to deliver genetic therapies specifically designed to target a particular patient's cancer"). While he agrees that the judgment should be affirmed and that the Federal Circuit did not err in refusing to find refusing to find Monsanto's rights in second-generation seeds exhausted, he does think it erred in carving out a wholesale exception for self-replicating technologies.
Instead, Sheff argues that exhaustion should be based on the possibility of substitution: "application of exhaustion doctrine should depend on the patentee's ability to charge supracompetitive prices in its primary market where consumers are able to substitute secondary-market embodiments." Patentees typically face competition from used goods and from other technological solutions to the same problem, but neither of these are perfect substitutes for the original products sold by the patentee in the way second-generation seeds are. The key question is a judgment of "whether such a price increase would end up narrowing demand for new embodiments to such an extent that the incentive to innovate would be undermined." Rather than focusing on categories such as self-replicating or not, Sheff argues that "courts would better serve the innovation and competition policies underlying the doctrine by frankly assessing the effects of their rulings on innovation and competition."