Ag-Biotech in the Courts: Patents, Privileges and Presumptions

International Consortium on

Agricultural Biotechnology Research (ICABR)

8 th ICABR International Conference on

Agricultural Biotechnology:

International Trade and Domestic Production

Ravello (Italy), July 8 - 11, 2004

Ag-Biotech in the Courts: Patents, Privileges and Presumptions1

E. Richard Gold, David Castle, L. Martin Cloutier

Centre for Intellectual Property Policy, McGill Faculty of Law, Montreal,

Quebec, Canada

Department of Philosophy, Guelph University, Guelph, Ontario, Canada

Department of Management and Technology, University of Quebec at Montreal,

Montreal, Quebec, Canada

1 This paper is the product of the work of the Intellectual Property Modeling Group (IPMG) at the Centre for Intellectual Property Policy at McGill University’s Faculty of Law. IPMG members that contributed to the work behind this paper include the authors and the following individuals: Louise Bernier, Ghislaine Cleret de Langavant, Abdallah Daar, Amy Glass and Pamela J. Smith. The authors wish to thank Sven Poysa for his research assistance, Julia Carbone for her editorial assistance, and the Social Sciences and Humanities Research Council of Canada for financial support.

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ABSTRACT

Through an analysis of a legal dispute between Monsanto and a canola farmer in Canada, this paper identifies some of the assumptions that underlie arguments relating to patents in ag-biotech. The authors point out flaws in these assumptions and lay out an alternative framework of analysis that avoids these flaws. This alternative framework provides a transdisciplinary approach to analysing the role of patent systems in encouraging research and innovation, on the development of government policy and on the link between ag-biotech patents and ethical and social concerns. Keywords : Intellectual property, patents, biotechnology, canola, genetically modified organisms, courts, jurisprudence.

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Ag-Biotech in the Courts: Patents, Privileges and Presumptions

E. Richard Gold Faculty of Law, McGill University

David Castle

Department of Philosophy, University of Guelph

L. Martin Cloutier Department of Management and Technology, University of Quebec at Montreal

The application of patent law to agricultural biotechnology has led to dispute and confusion

within countries and between countries. Farmers may not be willing to accept, for example,

that they cannot save seed from year to year in conformity with traditional practices simply

because someone has obtained a patent. Meanwhile, seed developers cite the need for patent

protection to compensate them for their investments (Liptak, 2003). At the international level,

critics of the patent system accuse it of imposing a western monoculture of knowledge on the

developing world (Shiva, 1997). The positions and interests put forward appear to be

irreconcilable, leading to deadlock (Gold, 2000a).

In this paper, we explore how the analytical framework we developed elsewhere (Gold et al.,

2004) helps us understand and eventually resolve this deadlock. We focus our discussion by

analysing an existing legal dispute before the Canadian Courts: Monsanto Canada Inc. v.

Schmeiser. This case provides access to the many complex and contradictory forces at play in

the patenting and the commercialisation of agricultural biotechnology in Canada and in other

countries.

The central feature of this analytical framework is that it is transdisciplinary. It brings together

concepts, analytical schemes and tools from several disciplines and thus provides a way to

break free of analytical assumptions made within specific disciplines. The framework

recognises that like other property rights, patents structure social relationships and

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transactions and have both anticipated and unanticipated feedback effects. The

transdisciplinary approach reveals these effects.

In using or adopting a transdisciplinary approach, one needs to move away from how

particular disciplines structure analysis and discussion. That is, rather than examining patents

from the point of view, say, of an economist who concentrates on incentives or welfare costs,

or as a political scientist examining sources of legitimate and illegitimate power, one must

take a broader approach that encompasses the interests of the various parties most affected by

the existence (or non-existence) of patent rights. This approach takes interactors as the

“lowest common denominator” common to all discipline-based analyses. We therefore

structure our analysis and discussion around the three sets of parties: inventors, technology

users, and the general public (Waldron, 1993). In the Schmeiser case these are represented,

respectively, by industry, farmers (both those who use and those who do not use genetically

modified canola), and the courts, public officials and the regulators who work in the public

interest.

Following a brief presentation of the facts of the Schmeiser case, we illustrate how the four

assumptions that we previously identified played out in the arguments put before the courts by

the various parties and participants. We then re-examine the case from a transdisciplinary

point of view.

Facts

Monsanto Company is a global provider of agricultural production inputs. The company has

operations in “virtually every region of the world,” but it conducts its business activities

principally in the United States, Argentina, Brazil, Canada, Australia, France and Japan

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(Monsanto, 2003a). It is the largest producer of genetically modified seeds (GMOs); almost

90% of the 140 million acres under biotech cultivation worldwide were sowed with the

company’s corn and soy seeds (Friends of the Earth, 2003). While the legal dispute

technically involves both Monsanto Company and its Canadian subsidiary, Monsanto Canada,

we will refer to both as “Monsanto” except where the context requires otherwise.

In 1993, Monsanto Company received a Canadian patent for an invention called Glyphosate-

Resistant plants (Patent ‘830). This patent discloses the invention of a chimeric gene that,

when introduced into plant cells, makes the grown plant more resistant to glyphosate, (a

broad-spectrum, non-selective herbicide). Both the modified gene that confers the herbicide

resistance and cells containing those modified genes are the subject of Monsanto’s patent

claims (the Monsanto Claims). As Canada does not provide patent protection over seeds or

whole plants, Monsanto received no patent claim explicitly covering entire plants.

Canola tolerant to glyphosate (Roundup Ready canola) first entered the Canadian market in

1996. Since that time, Monsanto has embarked on a program of licensing the right to grow

Roundup Ready canola seeds under a Roundup Ready Grower Agreement and a Technology

Use Agreement (together, the “TUA”). Under the TUA, the grower may only purchase

Roundup Ready canola from an authorized seed agent, agrees to use the seed for only a single

planting and to not transfer seed to any third-party or save the seed for replanting. In addition,

the TUA obliges the farmer to sell the crop for consumption to a Monsanto-authorized

purchaser (Monsanto v. Schmeiser, 2001). Another condition of the TUA requires that farmers

use only Monsanto’s Roundup herbicides instead of less expensive generic versions that have

become available since the Roundup patent expired in 2000. The TUA also stipulates that

Monsanto may inspect the contracting grower’s fields and may take samples to verify

compliance. In addition, Monsanto established a ‘1-800’ number to which calls can be made

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to report the presence of unwanted Roundup Ready seed or to report suspected cases of

unauthorized use of the seed.

Percy Schmeiser is a Saskatchewan farmer. According to the court records, he neither

purchased Roundup Ready canola seeds nor signed a TUA. However, in 1997 he observed

that some of his canola plants were resistant to glyphosate. He then sprayed a limited section

of his land (3-4 acres, or about 0.5% of his total canola acreage) to test for herbicide

resistance. 60% of the plants survived the spraying, indicating that they were Roundup Ready

plants. Nevertheless, as he had done since 1993, Schmeiser harvested the crop from the field,

saved some of the seed and planted the saved seed in 1998. Grow-out and “quick” tests

revealed that a very high percentage (between 70% and 98%) of the 1998 crop was Roundup

tolerant. The resulting crop was included in his canola production that year.

Explanations of the appearance of the Roundup Ready canola on Schmeiser’s land vary. The

initial contamination may have been the result of natural biological factors. Monsanto

acknowledges that the natural dissemination of pollen and seeds can contribute to the

“unintentional mixing” of seed of one plant variety in a different variety (Monsanto, 2003b).

At trial, it was shown that a number of local farmers had signed TUAs and were growing

Roundup Ready canola on neighboring fields. However, the uncommonly high percentage of

Roundup resistant plants suggested, according to Monsanto’s experts, that Schmeiser’s crop

was grown from commercial Roundup Ready canola seed and was not the result of seed

dissemination or out-crossing. Monsanto first warned Schmeiser against using their seeds

without authorization. When Schmeiser refused to stop, Monsanto brought suit for patent

infringement.

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The Federal Court of Canada tried the action. It agreed with Monsanto that Schmeiser had

infringed upon their patent. The court held that by having, saving and using Roundup Ready

seeds, Schmeiser took the essence of Monsanto’s invention without paying for it, thus

infringing Monsanto’s patent. The court effectively interpreted the Monsanto Claims broadly,

extending their scope to cover whole plants that contained the patented gene and cells. No

argument was presented to the court on this point, all parties seeming to have assumed that the

Monsanto Claims covered the entire plants. The court also held that it was not relevant to the

patent infringement suit whether Schmeiser actually took advantage of the Roundup resistance

of Roundup Ready canola by spraying Roundup. The court held that it was an infringement for

Schmeiser to have simply grown the Roundup Ready canola on his land as it was the

reproduction of the gene and cells that constituted patent infringement, not using the patented

invention in such a way as to extract the value of the invention.

The Federal Court of Appeal upheld the trial decision in favor of Monsanto (Schmeiser v.

Monsanto, 2002). The court held that plant material property holders, such as Schmeiser, do

not have the right to unauthorized use of patented material. Since Schmeiser used seeds and

plants that were subject to Monsanto’s patent rights, Schmeiser infringed the patent.

Nevertheless, the court’s reasons did differ slightly from those of the trial court. While

agreeing with the latter that Schmeiser’s actual use of the invention, as this was described in

the patent application, was not relevant to the question of patent infringement, the court

recognized that, in some cases, innocent infringement may not constitute a violation of the

patent. The court stated that it might have ruled differently in a case where, unlike the

situation in Schmeiser, the farmer would have had no reason to be aware of the presence of

the patented gene and had done nothing to cause or promote the propagation of the plant or its

progeny.

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The Supreme Court of Canada, in a 5-4 split, upheld the Federal Court of Appeal decision that

Schmeiser had infringed upon Monsanto’s patent but held that Monsanto suffered no damages

as Schmeiser had not obtained any value from having used the Roundup Ready seeds

(Monsanto v. Schmeiser, 2004). The majority held that Monsanto’s patents in the modified

genes and cells were valid. It then turned to the central question that it perceived was at issue:

whether Schmeiser used the invention. At this point, the majority significantly changed

Canadian patent law by holding that use was dependent on whether the alleged infringer was

furthering a “business interest” or “commercial benefit” and not simply on the question of

whether the alleged infringer put into practice the particular things described in the patent

claim. Presumably, the Court undertook this reworking of what ‘use’ means within patent law

to accommodate a potential innocent infringer: a person who not only did not use but had no

interest in using the patented invention. On the facts of the case, however, the majority held

that as Schmeiser had failed to adequately explain how genetically modified seeds ended up

on his land, he had used Monsanto’s invention. However, since he extracted no value from

this use – since he had not used Roundup – Monsanto could receive no damages.

The dissenting opinion at the Supreme Court took a different view, one arguably more in line

with established Canadian patent law. The minority stated that one must interpret patent

claims in the context in which they exist. The context in Canadian patent law is that plants are

not patentable. Given this, the minority stated, it would not be reasonable to construe a patent

over a modified gene or cell as encompassing an entire plant as this would circumvent

Canadian law. Thus, while Monsanto had a valid patent, the patent only prevented other seed

companies from creating a competing seed. The patent claim did not cover, however, a farmer

growing plants containing that seed.

Received Views

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In this part, we examine the views put forward by the various actors in the Schmeiser case and

relate them to the four assumptions that we have identified in previous work (Gold et al.,

2004). These assumptions underlie much of current academic and applied work relating to

biotechnology patents. They structure discourse surrounding patents and the analysis of their

positive and negative effects. The assumptions are that 1) patent rights provide necessary

incentive to innovate, 2) patents are an optimal policy tool for stimulating research and

development, 3) patents create undesirably distributional gradients and 4) patents are ethically

neutral.

Our point in relating the four assumptions to the views of the various actors in the Schmeiser

case is to highlight how received views coalesce around the assumptions. It is interesting to

note that none of the assumptions are seriously contradicted by any of the parties. We leave

discussion of the arguments that the parties put forward to later in our analysis.

Assumption I: Patent Rights Provide a Necessary Incentive to Innovate

This assumption holds that patents are necessary to encourage innovation. A company will

only invest in developing and commercialising an invention if the company’s returns are

larger than its costs. Even if other individuals benefit from the invention, for example,

competitors or other companies that use the invention to decrease their costs or increase their

revenue, a company will not invest where its own returns are lower than its costs. This is

inefficient where the total benefits accruing to the company and other individuals is greater

than costs. In such circumstances, society would be better off if the investment had taken

place.

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Patents remedy this inefficiency by allowing companies to capture some of the benefit

accruing to third parties. Patents provide an inventing company with a right to control access

and use of the invention. If third parties wish to extract benefit from the invention, they will

need to pay for rights to use the invention. Consequently, the company is able to increase its

revenues beyond the benefit it directly receives from its own use of the invention. This gives

the company a greater incentive to invest in inventing: an incentive that more nearly matches

the entire social benefit from the invention. Viewed in this light, patents are essential to

innovation. While this assumption is open to criticism on several important fronts, for now we

concentrate on revealing how the players in the Schmeiser case relied upon it in their

arguments.

A: Inventors: Monsanto and the ag-biotech industry

The industry’s central message during the court proceedings was the necessity of patent

protection for the development of the ag-biotech industry. Patent rights provide companies

such as Monsanto with the incentive to conduct research into herbicide resistant plants, to

translate that research into a useful product and to disclose information about the modified

gene and cells used in that process to the public. The benefits arising from the patent system

do not end there. The patent system encourages not only Monsanto’s innovation but other

similar innovation that may eventually lower prices, increase consumer welfare and enable

access to quality goods.

BIOTECanada, the biotech industry’s national lobby group, argued for the importance of

patents to the ag-biotech industry. It went so far as to argue that the Supreme Court of Canada

should overrule its earlier holding that animals and plants are not patentable in Canada as this

decision put Canada at a competitive disadvantage. BIOTECanada argued that if the Court

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fails to adequately protect biotechnological inventions, “[t]his would have the effect of not

only encouraging the flow of investment capital away from Canada to more favourable

jurisdictions, but would also have a chilling effect on the development of new and important

biotechnological inventions in Canada.”

The Canadian Seed Trade Association, the members of which include seed companies such as

Monsanto, argued that intellectual property rights are vital to the Canadian seed industry:

“Without appropriate protection mechanisms for seed and plant inventions, Canada may be

unable to attract and maintain a thriving agricultural research community.” To deny patent

protection, according to the Association, “threatens to place the Canadian seed industry at a

competitive disadvantage in relation to Canada’s major trading partners, including the United

States, the European Union, Japan, and Australia which allow the patenting of plant genes and

cells, and, indeed, of whole plants and seeds…”

Ag-West, an agency established by the Government of Saskatchewan to support the

agricultural industry, argued that without patents over ag-biotech “[e]xisting biotech research

and commercial entities would be adversely affected in a real and material way. Companies

responsible for bringing these useful technologies to the Canadian marketplace would not be

likely to continue doing so…”

B: Users: Schmeiser, GM Farmers and Organic Farmers

Schmeiser did not, for his part, challenge the incentive argument. Instead, he concentrated his

energies on arguing that, despite the benefits of patents on innovation, social concerns about

farming practices and their meaning should override patent rights. He took the position that

his freedom to engage in the farming practices of his choice was more important than the

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benefits accruing from genetically modified plants. Schmeiser was supported in his arguments

by non-genetically modified canola growers, most notably the organic farming community.

The technology user community was the most heterogeneous of those appearing before the

courts. Those who use Roundup Ready seeds, represented by the Canadian Canola Growers

Association, supported Monsanto in arguing that patents are necessary to make Canadian

farmers more efficient. The Association, representing most of Canada’s canola growers,

argued that ag-biotech patents are important to disclose “the science and technology that will

encourage additional research and development of further agricultural advances.”

C: The Public: The regulators

None of the agencies that regulate genetically-modified plants made arguments before the

courts. However, Agriculture Canada’s literature supports the use of patents and reliance on

biotech industry to advance biotechnology research and development in Canada (Agriculture

and Agri-Food Canada, 2004)

None of the trial or appeal courts examined the reasons why Canada awards patents in the ag-

biotech area.

Assumption II: Patents are an Optimal Policy Tool for Stimulating Research and

Development

A second assumption is that the patent system is the optimal policy tool to foster an

innovation economy. Given this, governments, universities and granting agencies should rely

heavily on the patent system to produce innovation. The other means of encouraging

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innovation, such as competitive research grants, income tax incentives and the establishment

of venture capital funds, are supplementary to the patent system and are not seen as

alternatives to it.

Once again, the arguments put forward by the parties illustrate how this assumption is part of

the received view.


In its arguments, Monsanto as well as the other industry representatives pointed to the clear

importance of private sector development, based on a system of strong patent rights, for the

development of canola in Canada. Ag-West went so far as to state that “[c]ompanies

responsible for bringing these useful technologies to the Canadian marketplace would not be

likely to continue doing so if they cannot protect their investment in those technologies,

particularly when the world market outside Canada is so huge.”

BIOTECanada, for its part, argued that should Canada fail to recognise patents over plants the

“development of new and promising technologies for the benefit not only of Canadians but for

all citizens of the world will be inhibited by reducing the level of research and development

for biotechnological inventions in Canada.”

Neither the courts nor any of the parties discussed the relationship between publicly financed

research and the growth of the canola industry. This omission is striking, as we will discuss

later, as canola was developed through public financing without any patent being sought.


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In his arguments, Schmeiser suggested that forms of private-sector incentive – such as plant

variety protection and trade secrets – make absolute reliance on the patent system

unnecessary. Nevertheless, he both accepted the importance of patents and reliance on the

private sector to provide society with continued innovation. Schmeiser suggested that Canada

could use other means than proprietary rights to encourage innovation. However, he did not

challenge the central assumption that it is the private sector armed with proprietary rights that

most advances research and development as opposed to the public sector, through its own

research and through research grants.


Granting agencies have also accepted the assumption that patent rights provide an optimal

tool through which to encourage innovation. Increasingly, granting agencies encourage the

patenting of funded innovation and tie funding application success to the number of patents

that funding applicants hold.

Universities, for their part, place greater emphasis on technology transfer by obtaining and

later licensing patent rights over inventions made using their facilities.

Assumption III: Patents Create Undesirable Distributional Gradients

This assumption holds that the patent system is inherently unfair because it sets up

distributional inequities by establishing exclusive rights. Patent rights create a disparity of

wealth, or aggravate existing disparities, in society by permitting individuals to control access

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to important resources such as biotechnological inventions. This disparity is thought to be

particularly unfair given that it relates to our biological heritage.


While acknowledging that patent rights place exclusive control over an invention in the hands

of the private sector, both Monsanto and the industry interveners argued that this was

necessary in order to encourage private industry to develop and commercialise

biotechnological inventions that would benefit society. BIOTECanada stated that encouraging

innovation through patents in Canada will benefit the “citizens of the world.”

Ag-West strongly argued that the benefits of patents reach far beyond the patent holder.

According to its factum, without ag-biotech patents, the “parties or entities harmed will

include the biotechnology research and development sector; farmers and their ability to access

new technologies and remain competitive in world markets; local, national and international

companies; citizens of Canada and elsewhere, who may be denied the products derived from

this research; the pharmaceutical sector, into which this technology is expanding; and Canada

itself, in that it may not be able to honor contracts with foreign nations to which Canada is a

party.”


Schmeiser’s principal argument against Monsanto’s infringement action relied on the inequity

of permitting a private actor to exercise control over biological matter. In particular,

Schmeiser claimed to be the victim of Monsanto’s economic dominance in the agricultural

sector. He stated that patent law was a vehicle through which the powerful could control the

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lives of innocent people, by holding the innocent responsible for what they unknowingly grow

on their own land.

Schmeiser argued that the lower court decisions “shift the responsibility for the consequences

of ‘gene’ pollution from those who are causing it to those who never sought the

modification.” Similarly, a group comprised of various Canadian and international public

interest groups including environmental and traditional farmers argued that “[a]n overly broad

interpretation of the patent claims may not only interfere with further innovation, a traditional

concern of patent law, but also derogate from the existing rights of third parties and adversely

effect the environment and biodiversity.” They argued that the Court ought to construe the

patent in a manner that takes into account “the serious environmental and biodiversity

consequences associated with the use and release of genetically modified and living

organisms.” The result of the trial and appeal court decisions was to shift “the burden of

contending with the unwanted consequences of the release of this invention into the

environment from the patent holder to the public.”

Schmeiser pointed to the fact that he had not even attempted to benefit from the invention

since he had not sprayed his crops with Roundup. Thus, he claimed that he did not profit from

the advantages of the invention at any point. He stated that it was unfair to award Monsanto

compensation for Schmeiser having grown the canola on his land: “By awarding Monsanto

Mr. Schmeiser’s entire crop, when its gene added no value, the Federal Court decisions

unjustly enrich Monsanto at Mr. Schmeiser’s expense.”

In fact, he stated that he had not altered any of his normal farming practices. As before, he

saved seeds, replanted those seeds and sold the resulting crop. Monsanto’s patent

infringement suit was an attempt to prevent him from carrying out these ordinary activities by

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making him liable for harvesting crops on his own land. Previously, Schmeiser had developed

his own strain of canola and so, he argued, Monsanto’s exercise of its patent rights put an end

to this: “The restriction or potential termination of seed saving rights means that individual

farmers will not longer be able to develop their own strains.” While he did not specifically

argue why it was unjust that Monsanto should have these rights, Schmeiser stated that the

patent system unjustly prevents him from carrying on as he had previously.

In contrast, the Canadian Canola Growers Association argued that patents not only benefit the

ag-biotech industry, but farmers as well: “Scientific advances are essential for Canadian

farmers to maintain and expand their position in the global marketplace. These offer farmers

the hope of increased markets and profitability through the development of specialized

products.”


On one hand, like the biotech industry, government departments in charge of industry and

agriculture as well as granting agencies accept that patent rights lead to overall social benefit

despite their private nature. Although patent rights may lead to an unequal distributional over

inventions, they lead to a broad distribution of benefits.

On the other hand, Ministries of Health are more concerned. The Attorney General for

Ontario intervened in the Schmeiser appeal to highlight the effects that patenting

biotechnology may have on the health care sector. Specifically, the Attorney General was

“concerned that the decision in this case not inadvertently restrict the ability of researchers

and health care providers to provide patient care or their ability to develop new tests and

treatments for patients.”

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For its part, the two lower courts were not oblivious to the concerns of Schmeiser. In fact, the

Federal Court of Appeal addressed the possibility of a patent holder pursuing an infringement

action against a farmer who did nothing to encourage the growing of a plant subject to patent

rights in the following terms:

However, it seems to me arguable that the patented Monsanto gene falls into a novel

category. It is a patented invention found within a living plant that may, without

human intervention, produce progeny containing the same invention. It is undisputed

that a plant containing the Monsanto gene may come fortuitously onto the property of

a person who has no reason to be aware of the presence of the characteristic created by

the patented gene. It is also reasonable to suppose that the person could become aware

that the plant has that characteristic but may tolerate the continued presence of the

plant without doing anything to cause or promote the propagation of the plant or its

progeny (by saving and planting the seeds, for example). In my view, it is an open

question whether Monsanto could, in such circumstances, obtain a remedy for

infringement on the basis that the intention of the alleged infringer is irrelevant.

Nevertheless, the Court found that by replanting seeds that he knew to be subject to the patent,

Schmeiser was not an innocent infringer.

Similarly, the majority of the Supreme Court of Canada created a small exception for innocent

infringement. It did not, however, explain how the exception would actually function and it is

unclear from its decision whether the exception would apply to farmers who find out that their

fields contain genetically-modified plants.

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Assumption IV: Patents are Ethically Neutral

It is generally assumed that patent systems do not, in themselves, raise any particular ethical

issues. While the technology underlying an invention or the terms upon which a particular

patent holder licenses use of its technology may have ethical implications – for example, the

effects of technology on the environment or the use of license agreement to prevent market

entry by would-be competitors – the mere existence of patent rights does not have these

implications.

Two elements underlie this assumption. First, patent rights are frequently described as rights

to exclude others and not rights to use. Thus, they constitute neither monopoly nor property

rights. Given that patent rights neither permit the exploitation of the invention nor are required

to exploit an invention, the patent system is disconnected from concerns relating to the use of

the technology itself. Second, any ethical concern is more properly dealt with through

government regulation of the use of the technology rather than regulation of incentives to

innovate.

None of the parties actively engaged in discussion of this assumption.


In its factum to the Supreme Court of Canada, BIOTECanada argued that patent rights are not

fully constituted property rights by stating “that a patent does not bestow ownership. A patent

merely gives the right to the patentee to exclude others.” Presumably, BIOTECanada put

forward this point to emphasize that the mere existence of patent rights in living organisms

raise no ethical concerns in themselves.

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Schmeiser seems also to have accepted that patent rights are not fully constituted property

rights in that they only granted the right to exclude others from activity. They do not provide

any positive right to use the invention.

The Canadian Canola Growers Association argued that public policy questions had no place

in patent disputes: “Parliament has deliberately chosen to keep public policy questions outside

the Patent Act.”


The courts accepted that Monsanto’s right over Roundup Ready canola was essentially a right

to prevent farmers (whether they had or had not agreed to a TUA) from saving, replanting and

selling seeds harvested on their property. In particular, both the Supreme Court of Canada and

the Federal Court of Appeal made a clear distinction between patent rights and property

rights, when discussing conflicts between these rights.

It is not surprising that the courts did not refer to ethical principles in their evaluation of the

scope and validity of the Monsanto Claims. The Canadian patent system does not contain an

ordre public or morality exclusion. The courts based their decisions on the view that

Monsanto’s innovation is crucial for the agricultural biotechnology industry and that this

innovation was deserving of strictly enforced patent rights.

Conclusion as to Received Views

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As we described in previous work (Gold et al., 2004), the four assumptions described above

lead to both incomplete and inaccurate analyses or to both an incomplete and an inaccurate

analysis. For example, by narrowing disputed questions to how best hone the incentive

provided by patent rights to maximise innovation, these assumptions fail to provide a basis for

a contextual analysis. Such an analysis would ask, for example, how the patent system

interacts with public funding policies to skew research away from foundational work or how

patent law influences intellectual property strategies and commercial relations. As we fully

describe these inadequacies elsewhere (Gold et al., 2004), we do not belabour the point.

We suggest that a different, more contextual framework is necessary to overcome the

inadequacies of the four assumptions. We propose re-examining the facts and arguments

underlying the Schmeiser case using the tools and knowledge outside of the box of any one or

two disciplinary silos. By examining these facts and arguments from the perspectives of

various disciplines simultaneously, we can better grasp the nature and extent of the issues and

better identify how assumptions skew analyses.

Reconceptualisation

In this Part, we re-examine the Schmeiser case using a transdisciplinary approach. We do so

by analyzing how patent rights affect those most interested in the inventions: inventors, users

and the public. So, instead of focusing attention on maximizing innovation and assuming that

this maximization effort benefits society, we examine how patent rights further or harm the

interests of the various parties within the contexts in which they operate.


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Incentive and Access

The primary concern of industry in relation to the patent system is that it provides it with the

ability to attract financing to carry on research and, increasingly, development of ag-biotech

products and services. Industry perceives patents as one way to ensure an inventor’s ability to

recoup its investment in research and development costs and to make a profit.

However, while a single company’s patent rights are believed to be an unmitigated good,

patents held by others, particular competitors may interfere with research and development

efforts (Phillips and Khachatourians 2001). Patent rights held by third parties represent a cost,

both in time and money, to the conduct of research (Heller and Eisenberg, 1998). Should these

costs become so significant as to make research and development uninteresting, patent rights

would decrease the ability of a company to attract financing.

This double edged-sword – the incentive-access paradigm (Lunney, Jr., 1996) – is well known

and analysed. What is less discussed is the absolutist manner in which industry puts forward

its patent right claims. This is well illustrated in Schmeiser. As the discussion above indicates,

all industry participants took the position that broad patent rights are essential to research and

development. None of these parties sought to achieve a balanced set of patent rights that took

into account not only the incentive versus access balance, but also the positive and negative

consequences of patent rights on technology users or broader social concerns such as the

environment. That is, instead of arguing for a patent system with checks and balances,

industry argued for the broadest set of rights possible.

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The argument for a broad set of rights is obviously not sustainable. Taking half a pill of

acetylsalicylic acid a day may be wise to reduce the risk of a heart attack; but taking a full

bottle a day is not healthy. Similarly, patents may be a good thing in some degree, but more

and bigger patents are not necessarily best.

One of the central problems that is missed in the assumption that patents are necessary to

encourage innovation is that there is a fine line between patent rights acting as incentives to

conduct research and pure rent-seeking (Gold, 2000b). At least in the Canadian

pharmaceutical context, there is evidence that calls for increased patent rights are undisguised

attempts at rent-seeking (Gold, 2001). In the case of Monsanto’s canola, the attribution of

rent-seeking is all the more likely when one considers that the value of the innovation can be

realized only when bundled with another Monsanto product: Roundup Ready herbicide.

Ethics and Patents

Despite industry arguments that patents have nothing to do with ethics, Monsanto’s own

pledge of ethical conduct suggests that industry knows otherwise. In its pledge, Monsanto

promises to share its knowledge and technology in order to advance scientific understanding,

to improve agriculture and the environment, to improve crops and to help farmers in the

developing world. To that end, Monsanto has donated knowledge and technology to assist

developing world needs with respect to agriculture. It is particularly interesting that Monsanto

acknowledges what it calls the ‘dilemma’ of intellectual property. It describes this as follows:

To balance incentives for innovators and the traditional rights of farmers to save seed

from their harvest, a series of plant variety protections and plant patent systems have

been adopted in many countries. These systems protect the Inventor’s new product,

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and they provide farmers with more choices than they had before. Farmers still retain

the right to replant seeds of varieties in the public domain, just as they always have. Or

they can buy protected varieties for a single planting season. Each year they have the

choice (Monsanto Company, 2003).

In its pledge, Monsanto acknowledges the importance of choice and of its obligation to

provide knowledge and information – including access to patented technology – to developing

nations. But both the question of choice and of access to knowledge is mediated through

Monsanto’s patent rights. The very fact that Monsanto feels the obligation to make reference

to intellectual property in this pledge points to the fact that patents rights have ethical

implications.

Needs of the Developing World

Despite the potential of agricultural biotechnology to address the needs of the developed

world, current incentive systems seem inadequate to bringing forth that potential for the

developing world (FAO 2004). Monsanto’s Roundup Ready canola is, for example,

principally a developed world crop as canola is neither a staple nor a commercial crop in most

of the developing world (Nuffield Council on Bioethics, 2003). Major companies have had

little interest in genetically manipulating and commercialising staple crops of developing

countries despite their arguably much larger need in terms of food security and nutritional

deficiencies – leaving aside any possible environmental risks (Nuffield Council on Bioethics,

2003; Skerritt, 2000).

It should come as no surprise that the patent system results in large agricultural companies

addressing the needs of the developed world over the needs of the developing world. Patents

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are designed to provide a financial return only where there is a market for invention (or the

product produced through the invention). Consequently, one cannot reasonably expect the

patent system to incite companies to address the needs of poor countries over the needs of

developed countries. Given that private industry controls three quarter of the new agricultural

biotechnology products (Nuffield Council on Bioethics, 2003) and relies on the patent system

to promote innovation, the needs of poor countries will not be addressed.

A distinction needs to be drawn here between low income (countries with an annual per capita

income of less than US$765 in 1999 (World Health Organisation, 2001)) and middle-income

countries (gross national product per capita equivalent to more than US$756 but less than

US$9,265 in 1999 (World Health Organisation, 2001)). The former are unlikely to derive any

benefit from the patent system since they simply have insufficient market power to derive any

benefit from the patent system’s market-based incentives. However, the later can potentially

benefit from the patent system, particularly as they reach the level of technological

sophistication to imitate and improve upon agricultural inventions.

We thus need to contextualise the analysis of patents and their effects on the developing

world. At one end of the spectrum – the end occupied by low income countries – patents will

utterly fail to provide any significant improvement in meeting food needs. This conclusion is

not due to any failure of the patent system per se but simply to the fact that the patent system

cannot provide incentives where no market exists. Nevertheless, this reality carries moral

significance. While it would be wrong to blame the patent system for this, it would be

similarly wrong to ignore the patent system’s effect of disproportionately encouraging the

expenditure of money on the needs of more affluent countries. Financial resources are limited

and asymmetrically distributed. To the extent the patent system encourages its investment in

developed world needs, there is less to spend on low income country needs. Thus, while the

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patent system is not morally culpable for failing to address food needs in these countries, the

ubiquity of the patent system creates distributional consequences of moral significance.

Middle-income countries present a more complex situation, as seen at the September 2003

Cancun Ministerial Conference. At the Cancun conference, middle-income countries banded

together as the G20 Group of countries, presenting a united force that differed in its positions

not only from developed countries, but also from that of low-income countries. Middle-

income countries have a more ambiguous relationship with agricultural patents. They may

benefit from some form of patent rights but would need to explore mechanisms that ensure

access to needed technology through compulsory licensing, broad research exemptions, and

other measures (Commission on Intellectual Property Rights, 2002).

Whether and to what extent patent rights contribute to innovation depends on the context in

which a country’s innovation system operates. While this is most obviously true with respect

to developing countries, it is also true of some high-income but middle-sized countries such as

Canada

Where Canada Stands

The ag-biotechnology industry is strong in Canada but its major market is the United States

(Thomassin and Cloutier, 2001). That is, those investing in research in Canada will reap their

returns and profits from product sales to the United States. Since US patent law, and not

Canadian law, applies to the US market, returns from Canadian-based research and

development depend on US and not Canadian law. On the other hand, researchers in Canada

that wish to access patented techniques and materials are governed by Canadian patent law.

This gives rise to an interesting dynamic that we now explore.

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The traditional incentive-access paradigm is normally thought to apply internally to a country.

A country must find a balance between the incentive provided by patent rights and the welfare

costs to access created by those rights. In Canada, however, the situation is different. The

incentive is established by US patent law; access by Canadian law and so Canada need not do

any balancing. Since patents represent a drag on research, Canada is best off reducing the

scope of patent rights over ag-biotechnology. This remains true provided that the US cannot

reduce patent rights to Canadian researchers. Fortunately for Canada, international trade

agreements make it clear that Canada can forego patents over plants and the United States

cannot retaliate. Thus, far from undermining Canadian industry incentives to innovate in

Canada, the Supreme Court of Canada ruling that plants are not patentable in Canada

increases incentives to conduct research in Canada and not the opposite.


Intention and Patent Law

According to the decisions of the trial and appeal court, Monsanto’s patent on the modified

gene and cells containing that gene permits it to prevent all others from using, growing or

selling Roundup Ready seeds without its authorization. Monsanto only provides this

authorization to farmers who agree to be bound by a TUA and to pay a license fee. The

problem is that a farmer may infringe upon Monsanto’s patents without knowing that he or

she is actually growing Roundup Ready seeds. This could happen, for example, should seeds

from a neighbor blow onto the farmer’s land. The existence of Monsanto’s patents thus

imposes an economic burden on farmers: the cost of avoiding infringement through the testing

of crops and the destroying of contaminated crops. This cost can be very high.

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The rule that knowledge is irrelevant to patent infringement may have made sense in the

context of 19th inventions contemplated by patent statutes but is problematic in the context of

biological inventions. The predecessor to current patent regimes aimed at bringing new

manufacturing methods into the legislating jurisdiction, be it 14th century Venice and Florence

or 17th century England (Walterscheid, 1994a; Walterscheid, 1994b). The law did not concern

itself with invention in the modern sense – e.g. that inventions need to be ‘new’ to the world –

but contented itself with encouraging the importation of manufacturing processes to the

territory involved so that the skill behind the process could be taught to others.

Pre-modern law therefore provided limited legal monopolies over methods of manufacture.

Even current patent laws, enacted in the 19th century, originally focused more on

manufacturing than on products themselves. Given this, it is not hard to understand why

patent law did not require evidence of intention. A purposeful decision was made to do the

acts that constitute infringement regardless of whether the person actually knew that these acts

constituted, from a legal point of view, infringement. The same situation is not true of

biological materials that can, at least in the appropriate context (e.g., DNA sequences in cells

or cells in a living plant), reproduce without human intervention (that is, unintentionally).

Since plants have this capacity to reproduce without outside intervention and since a patent

granted over the plant (or, as the lower courts ruled, modified genes and cells) also covers all

progeny of that plant, infringement – reproducing a particular plant with a particular genetic

sequence – can arise without actual knowledge by the farmer. Given the historical reasons for

the irrelevance of intention to patent infringement and the nature of biological materials, the

fact that intention is irrelevant to infringement in ag-biotech cases raises a distributional

question Who ought to bear the burden of lack of knowledge? While it is easy to attribute this

burden to those who select the use of an invention, it is far from obvious that this burden

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ought to be imposed on those who do not actively choose to use the invention (Canadian

Biotechnology Advisory Committee, 2002).

One way to resolve the problem is to recognize that patent rights are equivalent to property

rights and so, like all property holders, Monsanto ought to have both the benefits and

obligations relating to the property in question. Therefore, just as someone who negligently

uses a baseball bat is liable for injury caused, Monsanto may be liable if it does not take

reasonable care in the way it exercises its rights to exclude. For example, it is arguable under

current law that Monsanto has not only an ethical, but a legal duty of care to the owners of

land neighboring on a farm that has licensed Monsanto’s Roundup Ready canola. Since it is

foreseeable that Roundup Ready canola seed can find its way onto that neighboring lands by

wind and other means, Monsanto may be liable to those neighboring farmers for any resulting

‘contamination’ (unless Monsanto can has taken appropriate action to prevent this

contamination). In order to comply with this obligation, Monsanto may need, for example, to

require farmers planting its seeds to obey strict minimum distance requirements between land

upon which Roundup Ready canola is planted and neighboring farms. Further, Monsanto may

need to enforce this obligation as opposed to merely giving it lip service. It would not be

unreasonable to hold Monsanto responsible for the costs of removing unwanted plants since it

is in a better position than the neighboring farmer to prevent this loss.

Such an outcome would be particularly welcome by the organic farming community. Because

genetically modified canola may so easily contaminate neighboring farms, organic farmers in

Saskatchewan can no longer obtain organic certification for many of its products, leading to a

claimed loss in the range of $14 million (Organic Consumers Association 2003). The

Saskatchewan Organic Directorate has brought suit against both Monsanto and Aventis

(another seed company) seeking damages for this loss. If patent holders are held responsible

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for the use of their inventions, then Monsanto and Aventis would internalize the costs of their

products on third parties.

Saving Seeds and Ethics

If the Supreme Court of Canada upholds the trial and appeal court decisions in the Schmeiser

case, farmers who do not sign a TUA and who do not purchase Roundup Ready canola seed

will need to be careful, should they collect previous year’s seed, to ensure that they do not

inadvertently include patented Roundup Ready canola seed. This may prove difficult, if not

impossible, given the impossibility of testing every seed collected. Nevertheless, failure to

ensure complete elimination of such seed in the following year’s crop would constitute patent

infringement. The result of this is that farmers, even those who do not buy Roundup Ready

canola, may for all practical purposes lose their farmers’ privilege over canola seed given the

ease with which there may be intermixing (Canadian Biotechnology Advisory Committee,

2002). Not only does this have distributional consequences – in the form of a loss of rights –

but it violates Monsanto’s pledge to offer choice.

It is interesting to note that discussion of the technological solutions to this practical

abrogation of farmers’ privilege have existed for some time (Gray and Raybould 1998; Robert

and Baumann 1998). One of the technological tools available to Monsanto was a genetic

sterilization technique. This so-called (by its critics) Terminator technology would have

rendered Monsanto’s genetically modified seed sterile unless a particular chemical was

applied to it. In the late 1990s, Monsanto had contemplated, the purchase of Delta & Pine

Land, a company that had developed the Terminator technology together with the United

States Department of Agriculture. If Monsanto had deployed this technology in its Roundup

Ready canola, the canola seed would have only grown once and not been able to reproduce

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naturally thus eliminating the possibility of innocent infringement. This technique would have

also permitted farmers to brownbag their seeds – that is, exercise farmers’ privilege – without

risk of infringing Monsanto’s patent.

Given this technological fix, one may wonder why Monsanto did not use it. It turns out that

Monsanto gave up on the Terminator technology because of fierce opposition to its use by

environment groups and those concerned about developing country farmers (Vincent, 1999).

The critics of Terminator technology were worried that genetically-modified plants would

interbreed with wild varieties, rendering the later sterile. They were also concerned that the

technology would absolutely prevent the exercise of farmers’ privilege even in those countries

which do not provide patent protection over plants and seeds.

Public opinion in Europe, already turned against genetically-modified plants, turned against

the Terminator technology. During a six month period ending on August 24, 1999,

Monsanto’s shares lost 11% of their value while Delta & Pine shares fell 18% (Brown and

Vidal, 1999). In response, the Deutsche Bank advised investors to dump stocks in companies

involved with genetically-modified plants, including stocks in Monsanto. Critics focussed

public concern over genetically-modified plants on Monsanto, nicknaming it “Monsatan” and

“Mutanto” (Barboza, 1999). The critics used this concern to pressure Monsanto to drop its

Terminator technology. In October 1999, Monsanto relented, announcing that it had decided

to drop development of the Terminator technology (Feder, 1999).

Given the reason behind the criticism of the Terminator technology – its feared effects on

farmers saving seed – it is not without irony that we can conclude today that the decision to

withdraw the Terminator technology actually threatens the viability of farmers’ privilege in

those countries with patent protection.

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Market Power and Patent Rights

Patent rights can act as the springboard for imposing additional contractual obligations on

technology users. By requiring growers to sign TUAs rather than simply selling seeds,

Monsanto sought to obtain a different economic return than it would normally obtain through

its patent rights. It does so in two ways. First, by requiring farmers to agree to the TUA,

Monsanto used market power to extend its economic power by requiring farmers to use its

Roundup brand of herbicide rather than generic versions of the herbicide. Monsanto was thus

able to effectively extend its monopoly powers in the herbicide field even though its patents

over Roundup had expired. Second, Monsanto required farmers to refrain from re-using seed

and to only sell their plants for consumption to a commercial purchaser authorised by

Monsanto. As an aside, these two practices (tied selling and market restriction) could

interestingly be analysed in terms of their anti-competitive effects under competition

legislation.


The history of canola is well documented and is often described as one of the greatest

agricultural success stories in Canada. From very uncertain and modest beginnings, canola

now provides the greatest annual value of all grain crops in Canada (Industry Canada, 2003).

If we actually examine the history of canola, we see that patent rights actually played a very

slight role in its development.

Public institutions such as Agriculture Canada and the National Research Council were

responsible for the crucial early development of canola (Malla and Gray, 1999). It was not

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until 1990 and the introduction of Plant Breeder’s Rights (PBR) legislation that private

research became dominant. By allowing Canadian breeders to apply for intellectual property

protection in the canola they developed (although more limited protection than that offered by

the patent regime), the legislation stimulated a wave of private investment and a novel award

of property rights (Gray, Malla and Ferguson, 2001). While the recent influx of private

funding stimulated the emerging biotech industry, most experts agree that canola would not

exist as a crop “if it were not for the effort of public breeders.” However true this claim may

be, it must be balanced by noting that the success of canola comes at the cost of usurping

rapeseed as a viable crop (Kneen 1992).

The recognition of the crucial role of public researchers becomes magnified in light of recent

empirical studies. In re-examining the ‘return to research’ for investment in the canola sector

(considering, inter alia, the changes to property rights and the introduction of

biotechnologies) the authors of the studies focused on the net social benefit from yield-

increasing canola research (Gray, Malla and Phillips, 2002; Malla and Gray, 1999). During

the period in question (1960-1997), a large influx of private research investment “induced by

property rights and technologies that provided a greater opportunity to capture the benefits

from research.” dominated the small public research program. The authors noted that the

return on canola research has declined steadily during the period of study. The authors

conclude that the combination of property rights (which allow firms to capture the full social

benefit of investment) and government subsidies (for private research) lead to over-investment

in the industry. Both the history and the empirical studies show that property rights cannot be

assumed to provide optimal levels of incentive to stimulate R & D. In fact, the evidence

points in the opposite direction: greater private investment triggered by property rights led to

inefficient levels of investment.

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Given this history, public agencies – from Departments of Agriculture to granting agencies –

ought to be cautious before placing too much emphasis on patents as the method to develop

innovation. Curiosity and standing in the research community should not be ignored. Focusing

heavily on the patent system as the optimal way to encourage innovation promises, as the

canola example illustrates, perhaps unwelcome results.

Conclusion

Although presented to policy-makers as a choice between encouraging the ag-biotechnology

industry and protecting the interests of organic and traditional farmers, the Schmeiser case

reveals a much more complex reality. Through the transdisciplinary approach that we have

undertaken above, we see that industry arguments often lean much more toward rent-seeking

for established firms than a true interest in encouraging innovation. Similarly, we see that

efforts to prevent certain biotechnologies, such as the Terminator technology, may lead to

greater harm.

Our purpose in this analysis was to open discourse surrounding patent rights in ag-

biotechnology to the reality in which inventions are made and used. While our approach by its

nature is more complex than that based on standard assumptions, it leads to significantly more

subtle and, ultimately more sound, policy formulation.

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Ag-Biotech in the Courts: Patents, Privileges and Presumptions

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Transcript of Ag-Biotech in the Courts: Patents, Privileges and Presumptions