Plant Biotechnology Inventions Patent Infringement and Social Welfare

Following the landmark decision of Diamond v Chakrabarty (1980) which established that living inventions should be considered eligible subject matter for utility patents, two recent decisions reiterate the validity of utility plant patents and provide insight into the claim construction used for determining infringement. First, in J.E.M. Ag Supply, Inc. v Pioneer Hi-Bred Int'l, Inc. (2001) the US Supreme Court upheld the validity of utility patents, in light of the coexistence of competing forms of protection such as the Plant Variety Protection Act (Janis and Kesan, 2001, 2002), which provide substantially less protection (e.g. with respect to seed-saving rights) to plant breeders.

Second, as mentioned earlier, the Canadian Supreme Court ruling in Monsanto v Schmeiser (2004) upheld lower court rulings on the validity of gene patents and the finding of infringement for a user of a plant containing the patented gene, even when plants are ineligible for patent protection.3 The court also reaffirmed the lower courts' ruling that the mechanism by which the gene was transferred to the plant is not relevant to the finding of infringement, i.e. possession implies use of the invention, which constitutes infringement (Monsanto v Schmeiser, 2004). Even where likelihood of such inadvertent use through cross-pollination is relatively small (Reiger et al., 2002; Brookes, 2003), such liability can unduly favour the patentee if the competing inventor (e.g. a farmer producing his own unpatented varieties) is required to take additional precautions (such as maintaining buffer zones) to avoid infringement. In the absence of an exception for such use, competing farmers (i.e. inventors) could see their costs rise as a result of the increased diligence required to avoid infringement.

One indicator that could capture this change in welfare is simply the reduction in output or the number of different varieties resulting from the negative externality. This decrease in the number of varieties could negatively impact social welfare to the extent of reducing the diversity in the stock of germplasm from which future varieties may be developed (e.g. through hybridization). However, the social benefits provided by the patented variety, such as reduced pesticide use or increased crop yield, must be weighed against this negative externality. To understand why such trade-offs are the result of interdependent costs and benefits, consider that a patented GMO providing benefits, such as increased crop yield, can also create an undesirable externality of cross-pollinating other varieties (thereby subjecting their growers to infringement lawsuits), which reduces global biodiversity (a measure of the number of different varieties). A graphical analysis of these welfare changes is illustrated in Fig. 6.1.

Prior to the introduction of the GMO varieties, feasible combinations of yield and biodiversity are represented by the production possibilities frontier (PPF) labelled PPF1. With the enforcement of the gene patents and the subsequent introduction of RR varieties, the yield per unit of herbicide increases. Note that a portion of PPF2 lies above PPF1 along the x-axis. However, a portion also lies below PPF1 along the y-axis, which represents a loss of biodiversity.

Together, the social choice function and the available technologies (as illustrated by the respective shapes of the PPFs and social welfare functions - SWFs) determine if it is desirable to enforce patents that may hinder the development of competing technologies or result in other social trade-offs. Legal scholars and courts often ignore such possible interactions, portraying any patented invention as providing a non-decreasing change in social welfare. In Fig. 6.1, a set of

Fig. 6.1. Changes in social welfare following the introduction of a patented, genetically modified (GM) variety of plant.

preference functions is illustrated, in which both biodiversity and yield are valued almost equally.4 Thus, even though patented technology increases yield per unit of pesticide (as a result of RR replacing other varieties), it can nevertheless have the unforeseen effect of reducing biodiversity and thus social welfare, as shown by the lower indifference curve SWF2. To redress this situation, we can encourage the patentee to develop seeds that abate the negative externality.

In order to appreciate the social value of such abatement policies, we should recall that the loss in biodiversity, which ultimately limits future opportunities for developing new varieties or maintaining ecosystems, is attributed to the externality resulting from the use of the patented invention. In this example, biodiversity loss might be due to the loss of natural varieties that cannot compete (in the sense of natural selection of a species) with the GMO varieties, the reduction in the number of farmers developing their own varieties, as a result of the risks of infringement, or a preference for the patented invention that offers greater financial returns. According to Fig. 6.1, abatement of the externality would cause a non-negative change in both biodiversity and yield (e.g. a parallel shift of the PPF). However, yield may decrease relative to the situation when no abatement occurs. Abatement of the externality would thus require re-engineering the seed or taking precautions in the use of the seed, such as planting buffer zones. Such changes in agricultural practices or technologies require that, in addition to the rights of invention itself, rights to the absence of the externality be specified. Accordingly, we may then ask how the resulting bundle of legal relationships affects social welfare through the development and choice of new technologies.

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