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October Term, 2012

May 13, 2013

Today the Supreme Court issued two decisions, described below, of interest to the business community.

Motor Carriers—Interstate Commerce Act—Federal Preemption

Dan’s City Used Cars, Inc. v. Pelkey, No. 12-52 (previously discussed in the December 10, 2012, Docket Report)

The Interstate Commerce Act preempts state laws “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). In Dan’s City Used Cars, Inc. v. Pelkey, No. 12-52, plaintiff Robert Pelkey brought state statutory and common-law claims against a towing company arising out of the towing company’s disposal of his car. Pelkey alleged that the towing company towed his car, failed to notify him about its plan to sell the car at auction, held the auction despite his attempt to arrange for the car’s return, and then sold the car without compensating him. The trial court granted summary judgment to the towing company, holding that section 14501(c)(1) of the Interstate Commerce Act preempted Pelkey’s claims. The New Hampshire Supreme Court reversed.

Today, the Supreme Court affirmed, holding in a unanimous decision by Justice Ginsburg that section 14501(c)(1) does not preempt “state-law claims stemming from the storage and disposal of a car, once the towing has ended.”

The holding turned on the Court’s analysis of whether the towing company’s actions were encompassed by section 14501(c)(1)’s “with respect to the transportation of property” language. The Court noted that section 14501(c)(1)’s preemption provision tracks the Airline Deregulation Act’s preemption provision, but adds this limiting phrase on the scope of preemption. Based on the limitation, the Supreme Court held that Pelkey’s claims were not preempted because they did not relate to the “movement” of his car and sought redress only for conduct that followed the “transportation” of the car.

The Supreme Court’s decision clarifies the scope of section 14501(c)(1) for all motor carriers who rely on that provision to preempt state-law claims.

Any questions about the case should be directed to Evan M. Tager (+1 202 263 3240), Andrew Tauber (+1 202 263 3324) or Richard B. Katskee (+1 202 263 3222) in our Washington office.

Patents—Exhaustion Doctrine—Self-Replicating Technologies

Bowman v. Monsanto Co., No. 11-796 (previously discussed in the October 8, 2012, Docket Report)

Under the doctrine of patent exhaustion, the initial authorized sale of a patented item terminates all patent rights to that item, and confers on the purchaser or any subsequent owner the right to use or sell the item as he sees fit. Today, the Supreme Court decided Bowman v. Monsanto Co., No. 11-796, holding that the patent-exhaustion doctrine does not permit a farmer to reproduce patented genetically modified seeds through planting and harvesting without the patent holder’s permission. The Court unanimously rejected the farmer’s argument that the patent-exhaustion doctrine and the “self-replicating” nature of the seeds allowed such use.

Monsanto’s patented Roundup Ready soybean seed is resistant to certain herbicides. Because the herbicide-resistant genes are passed down to successive generations of seed, Monsanto requires purchasers to sign a Technology Agreement that allows them to use the Roundup Ready seed to plant a commercial crop in a single season only, and prohibits them from saving any of their crop for use as seed for future plantings. Monsanto does, however, permit growers to sell second-generation seed to local grain elevators as a commodity, and does not require them to place any restrictions on the grain elevators’ subsequent use or sale of the seed.

Indiana farmer Vernon Bowman purchased Roundup Ready seed, signed Monsanto’s Technology Agreement, and used the seed for his first planting of the season. For his second planting, however, he purchased “commodity seeds” from a local grain elevator, expecting that they would possess Monsanto’s patented Roundup Ready genes. Bowman then saved some of the seed harvested from his second crop for replanting in future years. Monsanto sued Bowman for patent infringement.

The District Court and Federal Circuit rejected Bowman’s patent-exhaustion defense, holding that patent exhaustion does not confer on the first or subsequent purchasers the right to make copies of a patented article. The Supreme Court affirmed in a unanimous decision authored by Justice Kagan. The Court reasoned that the “right to use” a patented article following an authorized sale “restricts a patentee’s rights only as to the ‘particular article sold’” and “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.” Slip op. at 4-5 (quoting United States v. Univis Lens Co., 316 U.S. 241, 249–250 (1942)). The Court ruled that Bowman was “mak[ing] additional patented soybeans without Monsanto’s permission” by harvesting and replanting further generations of Roundup Ready seeds, irrespective of the fact that Bowman had initially obtained the seeds from a grain elevator after an authorized purchase.

The Court rejected Bowman’s arguments based on the “automatic” self-replicating nature of seeds, reasoning that Bowman actively engaged in infringement by planting, watering, and otherwise nurturing his crop.

The Court made clear that its holding was limited to the situation before it, and specifically recognized that the analysis might differ if the “article’s self-replication … occur[ed] outside the purchaser’s control” or was necessary to the ordinary use of the article upon the first sale. Even with that limitation, the ruling has implications for many aspects of modern agriculture and for businesses based on vaccines, cell lines, and software—all of which can involve products characterized by different types of self-replication. 

Any inquiries concerning this case should be directed to Andrew J. Pincus (+1 202 263 3220) in our Washington office.

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