Schmeiser Case Decided by Supreme Court of Canada

In what will no doubt be viewed as a landmark decision in the area of biotechnology patenting, the Supreme released its decision in Monsanto Canada Inv. v. Schmeiser, [2004] SCC 34. At issue was whether Bruno, SK farmer Percy Schmeiser and his farming corporation Schmeiser Enterprises were liable for infringement of Monsanto’s patent (Canadian Patent Serial No. 1,313,830) for glyphosate-resistant plants, commercially sold as Roundup Ready™ canola. Generally speaking, the Monsanto patent claimed a chimeric gene that conferred resistance to glyphosate (the active ingredient in Roundup™), transformation vectors containing the gene for use in transforming plant cells, and a variety of different plant cells containing the glyphosate resistance gene, among them canola.

The action began in 1998 when Monsanto filed a claim that Schmeiser was growing its genetically modified (GM) Roundup Ready™ canola without a license, therefore infringing the Monsanto patent. Monsanto had been marketing Roundup Ready™ canola under the terms of a Technology Use Agreement (TUA) under which growers paid Monsanto $15 per acre for the rights to grow the genetically modified canola.

Testing of canola samples obtained from both the road allowances bounding Schmeiser’s fields and from within a number of fields totaling some 1,030 acres revealed that 95 – 98% of the plants were Roundup Ready™, yet Schmeiser had never bought the product nor signed a TUA governing its use. Schmeiser maintained that the original source of the canola was from GM seeds that had blown onto one particular field, and which he realized were Roundup Ready™ when they continued to grow following application with the herbicide. Schmeiser also admitted to harvesting and preparing seeds from these resistant plants, and to saving the seed they had produced, but claimed to never have sprayed the crop with herbicide. It was significant at trial that the judge had found as a fact that in 1998 Schmeiser planted seed from the 1997 crop which either knew or ought to have known was Roundup Ready™.

In determining the issues, the trial judge found the patent to be valid, and further found that Schmeiser either knew or ought to have known that the seed and plants derived from it contained the patented gene. Because Schmeiser sold the "infringing" crop the judge then awarded damages for lost profits, the remedy that Monsanto had elected.

When the case went to the Court of Appeal, the issues before the court were whether:

• The trial judge had erred in deciding that Schmeiser had infringed the patent, even though he had not sprayed the crop planted from his saved seeds.
• Should Schmeiser be burdened by the Monsanto patent when he had done nothing to cause the plants to grow on his property in the first place?
• Should Schmeiser should be required to pay Monsanto for lost profits, even though he made no use of the canola’s herbicide resistant properties.

On appeal the Court decided that the patent could be infringed without having sprayed with Roundup™, since the patent claims were for plant cells containing the glyphosate resistance gene, not for a method acquiring these plant cells by spraying plants containing the gene. Going further, the Court held that even an "innocent infringer" could be liable since to allow ignorance, or lack of intent, as a defense would gut patents. It was probably significant in this regard that the trial judge had determined that Schmeiser either knew or ought to have known that he was cultivating Roundup Ready™ canola when he saved seed from the 3 acres that were sprayed, and then used those seeds in planting the following year. The Appeal Court also upheld the award of damages made at trial.

In general the appeal to the Supreme Court was made along the same general lines as the arguments put forward in the lower courts. However, by the time the case reached the Supreme Court, the decision in the "Harvard Mouse" case had been rendered. As a result, in addition to the issues of whether the lower courts had erred in interpreting the scope of the patent, whether Schmeiser had "made or constructed" the invention, whether he "used" the patented genes and cells, and what the proper remedy would be, there was the added twist of whether a plant was higher life form like that which the Court had held was unpatentable in Harvard Mouse.

In its decision the Court held that the scope and validity of the patent had been correctly interpreted, providing as well a very useful review of the law and process to follow in deciding the issue of infringement. The Court passed over the issue of whether Schmeiser had made or constructed the patented cell, as they had already determined that the patent was infringed by use. In addressing Schmeiser’s argument that a plant was not patentable by virtue of it being a higher life form, the Court distinguished this case from Harvard mouse by saying that the claims here are for a gene and a cell, both of which were held to be patentable in Harvard Mouse. The majority rejected the contention that a cell can only be a cell in a laboratory setting, and that cells in living plants out in nature are patentable subject matter.

At first blush, it might appear that this decision is a small step back from the line in the sand drawn in Harvard Mouse, where an artificial distinction was drawn between lower and higher life forms. However, where we think the decision will open eyes is on the issue of remedy.

At the outset, Monsanto elected to have their claim decided on the basis of lost profits as opposed to damages. The rationale was clear. By electing profits, Monsanto if successful would be provided a effective deterrent in that the costs of infringement would be greater than the cost of licensing Roundup Ready™ canola. Infringers would pay more for infringing and being caught than they would to simply pay the license costs after the fact.

In addressing the award made at trial and upheld on appeal that Court determined that Schmeiser would have had to make agricultural use of the patented gene in order for Monsanto to be successful in their election of lost profits. In accepting the trial judge’s finding that Schmeiser had not sprayed the 1030 acres of what turned out to be Roundup Ready™ canola, the Court held that he had not used the inherent utility of the modified plants, and therefore made no profit from simply growing the plants. As a result there was no profit for Monsanto could claim. Moreover, the Court determined that as the results of the action were mixed, each party bears its own costs.

What will be the impact? As it stands, the Court has said that unless one takes advantage of the insurance utility of the GM canola that there is no profit gained from growing Roundup Ready™ canola, as compared to non-modified plants. The plants grow similarly, and the seed sells for the same amount; there is no premium realized in simply growing Roundup Ready™ canola. An advantage will only exist if and when plants are sprayed with herbicide, invoking the utility of the inserted gene in order to reduce competition by weeds.

Consequently, what the Court decision creates is a situation where persons may infringe the patent by growing the patented seeds to produce a crop of GM canola, but the price they would pay winds up being exactly the same as they would have paid under the terms of the TUA. There is in fact absolutely no deterrent for growers not to create their own Roundup Ready™ canola seed stock by a one-time spraying operation to see what GM canola has blown into their field and then retaining everything that survives spraying – essentially what Schmeiser did initially.

However, before growers rush out to develop their own gray market Roundup Ready™ canola stocks, it should be remembered that taking agricultural advantage of the invention, i.e. spraying with herbicide as is intended when cultivating Roundup Ready™ canola would likely result in a finding of infringement and liability for profits, as long as Monsanto could prove that spraying took place. Once that is established, Monsanto could likely claim for an amount greatly than simply lost sales of canola seed.

However, without the spectre of an accounting for profits, the penalty for infringement becomes simply the cost the farmer would had to spend in the first place to legally plant the patented seed. While it is difficult to say whether individual farmers will risk legal action to save the costs of the TUA, it is a possibility. From a practical point of view though, one wonders why a farmer would go to the trouble of acquiring and planting Roundup Ready™ seed if there was no intention to utilize the agricultural advantage provided by the patented gene.

One suspects that in the end, the result will be that the Monsanto’s of the world will see an increased cost of enforcement because of the need to establish more compelling evidence that a particular infringer has made use of the patented gene, whatever that may be. Farmers and consumers will ultimately pay the price since the costs of enforcement will most probably be reflected in the cost of the TUA. However, the decision does reinforce the validity of properly drafted patents for living matter, and in part at least undoes some of the concern over the fate of biotechnology inventions in Canada that followed the release of the Harvard Mouse decision.

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