The patent system isn’t quite broken. But it’s in need of some serious updating. And the next five years or so of patent litigation will indicate how our current legal system adapts (or doesn’t adapt) to new technology.
Several questions are currently unanswered when it comes to patent law.
Like, what counts as a true innovation? And what sort of ideas can you actually “own?”
The answers will have big impacts on all of our lives. After all, a patent system that’s too rigid stifles innovation. But one that’s too loose can hurt profits, giving companies little incentive to create new ideas.
Finding a middle ground isn’t easy, either. As technology becomes more advanced, patent decisions are getting increasingly complex.
Here are two examples…
Patent Case #1: Myriad Genetics
Myriad Genetics (Nasdaq: MYGN) developed a revolutionary test that can determine a woman’s genetic predisposition to breast cancer by checking for mutations in two specific genes.
Myriad has a patent on this test. But some argue that this particular gene is a natural feature of the human body, one Myriad shouldn’t be able to patent. Then there’s the fact that Myriad’s patents allow it to charge high prices for its test, blocking out low-cost competitors that could otherwise help more people.
Of course, like I mentioned above, if Myriad couldn’t profit from its patents, it might never have made the discoveries in the first place.
In August, Myriad received a court decision from the Federal Circuit that, for the most part, declared Myriad’s patents valid. The court’s main reason was that “isolated” DNA molecules don’t occur in nature.
Patent Case #2: Monsanto
Monsanto (NYSE: MON) is an agricultural science company that makes seeds for different crops, including genetically modified strains. The products are enormously popular. For example, Monsanto’s soybeans – which are modified to be especially tolerant to pesticides – accounted for 94% of the U.S. crop last year.*
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Of course, when you plant a seed, you end up with more seeds. And saving and planting those the following year is how farmers have operated since the days of the Fertile Crescent.
The problem is, when you buy a Monsanto seed, you can’t plant the next generation of seeds without paying Monsanto.
One farmer, Vernon Hugh Bowman, is challenging that notion – arguing for the right to use second-generation seeds without buying them from the company.
Obviously, this isn’t an open-and-shut case. There are levels of murky legal interpretations to consider. And to complicate matters more, Bowman wasn’t just buying Monsanto seeds. He was buying from a centralized grain elevator that happened to contain Monsanto seeds, along with others.
On the flip side, while some people don’t like the idea of genetically modified foods, Monsanto’s technologies have boosted agricultural yields significantly. It’s helped the industry grow to $13.5 billion in annual sales.
But can you really patent a living plant, not to mention its offspring?
The Supreme Court’s ruling will have obvious implications for the agricultural industry. But the ruling could also set important precedents that will reverberate throughout our economy.
For instance, it could affect a concept called “patent exhaustion.” This determines whether a patent holder can maintain its rights over a technology after it’s been sold, or if its rights were exhausted by the sale.
The smart money is on Monsanto winning this case. That was the decision of the appeals court. The Obama administration supports the decision. And the current, business-friendly Supreme Court will likely go the same way.
On such merits, keeping an eye on dips in Monsanto shares ahead of the decision could generate some profits. But the longer-term effects on your portfolio – and your life – could be even greater.
Ahead of the tape,
*We understand many people see Monsanto as an evil, corporate overlord out to destroy food. We don’t get into that here. We’re talking about the future of patents. So please, spare us your comments on Monsanto.