By Lawrence Hurley

WASHINGTON, Feb 19 (Reuters) - U.S. Supreme Court justices signaled on Tuesday that agribusiness giant Monsanto Co was in a strong position to claim that an Indiana farmer violated its patent for a type of soybean.

In a case closely watched by the biotechnology industry, the court is considering whether Vernon Bowman, 75, had performed an end-run around the law when he bought soybean grain typically used for animal feed but planted it instead.

The soybean crop turned out to contain Monsanto's patented genetics. Bowman said because the grain he used as seed was "second-generation" and not the first-generation sold by seed dealers, it was not covered by the patent.

The bulk of the argument focused on whether patent protections extended to multiple generations of a self-replicating product such as seeds, with several justices indicating that patent law should protect companies like Monsanto in such situations.

A ruling is expected by the end of June.

Justice Stephen Breyer told Bowman's lawyer, Mark Walters, that Bowman, who was in the courtroom for oral arguments, could use the seed he had purchased for other purposes but could not harvest the crop from the next generation of seed.

"You know there are certain things that the law prohibits," he said. "What it prohibits here is making a copy of the patented invention. And that is what he did."

Likewise, Justice Elena Kagan clashed with Walters over his assertion that Monsanto could protect its patent rights by having contracts with farmers.

"All that has to happen is that one seed escapes the web of these contracts," she said.

That single seed, "because it can self replicate in the way that it can, essentially makes all the contracts worthless," Kagan added.

INNOVATION STIFLED?

Several justices appeared concerned that a ruling for Bowman would stifle innovation.

"Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one, anybody could grow more and have as many of those seeds as they want?" said Chief Justice John Roberts.

Both sides sparred over to what extent Monsanto can exercise control over how farmers use later generations of its seeds.

Without the existing patent protections, "Monsanto could not have commercialized its invention," Monsanto lawyer Seth Waxman said.

Walters countered that the court should be wary of "choosing patent rights over private property rights" when deciding what farmers can do with seeds they have purchased.

The Obama administration intervened in the case in support of the federal appeals court ruling in Monsanto's favor.

Justice Department lawyer Melissa Sherry said a victory for Bowman would "eviscerate patent protections."

The case arose when, in 1999, Bowman sought to save money by buying commodity grain from a grain elevator.

The seed was not identified as featuring Monsanto's Roundup Ready technology, which protects seeds from herbicides. Bowman kept the seed generated from the successful crop and used it the following year. He repeated the pattern until 2007.

Monsanto objected, saying that Bowman was growing soybeans that were resistant to Roundup herbicide, meaning he was infringing on its patents.

The legal question was when Monsanto's patent protections were, in legal terminology, "exhausted."

Bowman said Monsanto's rights were exhausted because the seeds he bought from the elevator were already second-generation. The agreements farmers sign with Monsanto when they buy seeds allows them to sell commodity grain generated by the crop. This is normally used for feed rather than planting.

Once he purchased the seeds, Monsanto could not impose any limits on what could be done with the seeds, he said.

Monsanto argued that its rights were not exhausted because the agreements signed by the farmers also said that seeds could not be sold for planting.

A lower court found in favor of Monsanto and ordered Bowman to pay the company $84,456. 

(Additional reporting by Carey Gillam)

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