29 Pages Posted: 4 Dec 2012 Last revised: 29 Dec 2013
Date Written: December 3, 2012
Self-replicating technologies pose a challenge to the legal regimes we ordinarily rely on to promote a balance between innovation and competition. This article examines recent efforts by the federal courts to deal with the leading edge of this policy challenge in cases involving the quintessential self-replicating technology: the seed. In a recent series of cases involving the invocation of the patent exhaustion defense by purchasers of Monsanto’s 'Roundup-Ready' genetically engineered herbicide-resistant crop technologies, farmers have argued that Monsanto's patent rights do not extend to the second generation of soybeans grown from a patented first-generation seed. In each case, the Federal Circuit found for Monsanto and against the farmers. The Supreme Court is about to take up the issue for the first time.
In this article, I argue that the Federal Circuit reached the right result in the Roundup-Ready cases, but that it failed to articulate a satisfactory justification for its decisions. That justification, I claim, is that the patent-based policy set by the Federal Circuit is preferable to alternative legal regimes — such as trade secret and contract law — because it avoids disincentives to competition, innovation, and dissemination of new self-replicating technologies while reducing transaction costs inherent in their commercialization. Importantly, however, not all self-replicating technologies are identical, and a categorical rule exempting them from exhaustion doctrine is unwarranted. I propose instead that 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.
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