If you live outside the farm belt (or you’re not an antitrust junkie) you might have missed what is shaping up to be one of the biggest antitrust stories of the coming year: The set of antitrust accusations and actions against Monsanto for its alleged anticompetitive conduct in the biotech seed market.
The AP reports:
Confidential contracts detailing Monsanto Co.’s business practices reveal how the world’s biggest seed developer is squeezing competitors, controlling smaller seed companies and protecting its dominance over the multibillion-dollar market for genetically altered crops, an Associated Press investigation has found.
With Monsanto’s patented genes being inserted into roughly 95 percent of all soybeans and 80 percent of all corn grown in the U.S., the company also is using its wide reach to control the ability of new biotech firms to get wide distribution for their products, according to a review of several Monsanto licensing agreements and dozens of interviews with seed industry participants, agriculture and legal experts.
Sounds pretty awful. Until you read a bit more and if you, you know, know anything about antitrust law and economics.
Let me say at the outset that I don’t know everything one would want to know about Monsanto’s contracts in order to draw a strong conclusion. But neither does the AP reporter, not that it stopped him from drawing the firm conclusion that Monsanto’s practices are anticompetitive. The only thing lacking from his story is the usually-obligatory quote from the AAI, although the complete absence of any contrary point of view from any source other than Monsanto itself makes up for this omission.
So let’s see. The article frets that:
The company has used the agreements to spread its technology — giving some 200 smaller companies the right to insert Monsanto’s genes in their separate strains of corn and soybean plants. But, the AP found, access to Monsanto’s genes comes at a cost, and with plenty of strings attached.
I should hope so. If Monsanto is giving away its technology and failing to protect its IP it is in serious trouble with its shareholders, among others. And never mind (and the AP reporter doesn’t) that Monsanto apparently licenses its technology broadly (I assume that 200 companies is broad in this market) rather than keeping it locked up for itself (the usual complaint about firms exercising their IP rights). Isn’t this how technology markets are supposed to work?
The article goes on to quote an economist complaining that big is bad (“This level [90%] of control is almost unbelievable”), note that the DOJ is investigating, and note that a suit against Monsanto was “settled with an agreement” (I think with the implication that only the guilty settle cases, but I could just be reading that in . . .).
Moreover, the stakes are huge:
At issue is how much power one company can have over seeds, the foundation of the world’s food supply. Without stiff competition, Monsanto could raise its seed prices at will, which in turn could raise the cost of everything from animal feed to wheat bread and cookies.
Never mind that even without Monsanto’s seed traits we’d still have soybeans and corn. Even this article goes on to explain that “the benefit of Monsanto’s technology for farmers has been undeniable (followed by a “but . . .”)–and that these robust seeds wouldn’t exist at all were it not for Monsanto’s investment in the R&D that created them–a massive investment and effective licensing effort that, according to the article, propelled Monsanto from being a non-entity to being a giant player in the industry in only a few years:
First came the science, when Monsanto in 1996 introduced the world’s first commercial strain of genetically engineered soybeans. The Roundup Ready plants were resistant to the herbicide, allowing farmers to spray Roundup whenever they wanted rather than wait until the soybeans had grown enough to withstand the chemical.
The company soon released other genetically altered crops, such as corn plants that produced a natural pesticide to ward off bugs. While Monsanto had blockbuster products, it didn’t yet have a big foothold in a seed industry made up of hundreds of companies that supplied farmers.
That’s where the legal innovations came in, as Monsanto became among the first to widely patent its genes and gain the right to strictly control how they were used. That control let it spread its technology through licensing agreements, while shaping the marketplace around them.
It’s a perfect example of Scott Kieff’s “commercializing innovation” story. Yes, intellectual property is helpful for providing the incentives to innovate. But IP is at least as important in facilitating the commercialization–and the spread–of technology even after it’s been created.
Meanwhile, other companies (most notably DuPont, the company most active in complaining about Monsanto’s competition) continue to increase biotech seed investment, and continue to gain market share. Here’s a November 23, 2009 Wall Street Journal report on DuPont’s seed business:
DuPont Co.’s (DD) seed business expects “continued strong growth” in 2010 and anticipates higher market share in soybeans and corn, based on on-farm yield comparisons that suggest a strong crop.
* * *
The company said it expects to extend its soybean market-share leadership and increase its market share of global seed corn by 1 to 2 points in 2010.
In North America, the yield comparisons show that Pioneer Hi-Bred soybeans have a 1.3 bushel-per-acre yield advantage on average against “all competitive varieties.” Pioneer soybeans with the Roundup Ready gene have a 2.7 bushel-per-acre yield advantage against competitors.
* * *Shares of DuPont were up 1.9% to $35.18 in recent trading amid a broad market decline. Seed rival Monsanto Co. (MON) was off 0.6% at $79.58.
And it appears that buyers have some power, too:
Thomas Terral, chief executive officer of Terral Seed in Louisiana, said he recently rejected a Monsanto contract because it put too many restrictions on his business.
Such facts make it difficult to see evidence of foreclosure in the genetically-modified seed market Nevertheless, the article cites to some specific contract terms that it suggests are anticompetitive:
One of the numerous provisions in the licensing agreements is a ban on mixing genes — or “stacking” in industry lingo — that enhance Monsanto’s power.
Another provision from contracts earlier this decade— regarding rebates — also help explain Monsanto’s rapid growth as it rolled out new products. One contract gave an independent seed company deep discounts if the company ensured that Monsanto’s products would make up 70 percent of its total corn seed inventory.
I look forward to learning more about these contracts and discussing their competitive implications. As has been well-explored on this blog, loyalty rebates are hardly necessarily anticompetitive, and, as in other industries, rebates are common in this industry. On the stacking term, there are pro-competitive technological and business reasons to “tie-out” competitors from licensee’s products, particularly when the licensor expects to develop and attempt to market subsequent technologies that might substitute for the combined product and when it may be hard to tell which company’s technology is having what effect in a combined product. Not since the (now repudiated) “Nine No-Nos” from the DOJ in the 1970s, has anyone operated on a presumption that licensing restrictions were anticompetitive.
There is much more to this story, and much more to the article. As Mike noted recently, the DOJ and USDA will be holding hearings throughout next year on agriculture industry antitrust, and these biotech seed issues will be at the forefront. I only hope the enforcers think about the error costs, and avoid an antitrust disaster.
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Brian & Geoff, DuPont has a non-GM soybean that was bred to be resistant to DuPont’s Synchronicity(R) herbicide. They tried using contract programs to promote adoption of the seed throughout the late 90s and early 00’s (I published a paper in 2003 analyzing their contract practices).
Despite international demand for non-GMO soybeans and DuPont’s contract programs offering premiums to farmers for producing and segregating their non-GM soybeans, DuPont couldn’t effectively compete with the economics of Roundup-Ready(R) soybeans. The current litigation seems really to just be a protracted case of sour grapes … or sour soybeans.
Ewan thank you for your education on patenting pigs, pig genes. I appreciate your effort but I do find it disturbing, and I am not the only person to believe that it is. Good luck trying to convince other people. In regards to me watching “Fox News”, I don’t watch Fox News and don’t believe them as much as I don’t believe in patenting pig genes. Thank you
Brian: It’s a good point with respect to the broad question of the role of IP. The reason folks are targeting Monsanto is twofold: One, the targeting is being driven by . . . Pioneer/DuPont in the first place, so naturally the focus is not on DuPont. Second, the claim is that Monsanto has dominance in the relevant market. As an antitrust matter, this creates special problems for Monsanto that wouldn’t exist for other companies. Now, I think there is actually some debate over the degree of dominance and the proper market definition, but these are the claims, anyway, and making that claim gives rise to a special set of complaints.
What amazes me about this is that no one seems upset at Pioneer/Dupont for their patents on plants and genes. Monsanto is not the only player in this and it seems strange to me that they are at fault for a system that all the seed companies willingly have signed up for and pay to be a part of. Yes, the agreements with Monsanto are restrictive, but if you want out, all you have to do is not sell transgenic varieties.
In more IP news on Monsanto – recently they released a letter to industrial stakeholders on the upcoming expiration of the RR soybean patent (the first commercially succesful GMO patent in crops to expire, ushering in a new era potentially showing the worth of patenting rather than shrouding discoveries in secrecy)
http://accordingtomonsanto.files.wordpress.com/2009/12/stakeholder-letter00011.pdf
I’m sure conspiracy theorists can probably find something evil hidden between the lines in this, but to me it looks like the intention is not to fight things and not to force users of 2nd and 3rd generation products to exclude RR1 soybeans (which would undoubtedly be possible through contracts, and would undoubtedly be anti-competitive)
I don’t think Monsanto or anyone else is forcing farmers to do anything. My sense is that they have an incredibly effective product, and almost everyone wants it. Farmers can (and organic farmers do) certainty continue to grow soybeans without gm traits and without using Roundup.
The really interesting question is what Monsanto can and should do to commercialize its IP investment. I’m of the mind that strong IP rights and effective licenses actually help in ensuring first that investments in technology development are made and second that they are efficiently distributed. This seems exactly like what’s going on here. Of course there are always people who’d like to pay less for the things they buy. But absent a compelling story of anticompetitive conduct (which I’ve definitely not seen yet), this is just a base effort on the part of purchasers to get a better deal. Understandable, but lamentable.
I applaud farmers, but it’s hard to applaud a company’s effort that uses technological advances that forces farmers to use products like Roundup, gm seeds etc if they don’t want to. Only time will tell if these products can potentially harm our food supply, soil, animals, humans.
Lacie – the ‘patent on pigs’ is a patent on a method to breed pigs utilizing a molecular marker which is linked to better pigginess (or whatever the technical term for yield in pigs is…) – that is a specific genetic sequence which you’ll generally find in awesome pigs, and generally won’t find in non-awesome pigs – therefore to make even more awesome pigs you breed those which have the marker (which you test for in advance of making piggy introductions, or artificial insemination or whatever it is pig breeders do) and not those that do not.
The finding of this marker, the proving it works, and the initial utilization of the marker are a laborious and expensive process, therefore, to protect their investment, Monsanto patented this – giving them (or whoever subsequently owns the patent) sole rights to its use for a given period of time, to essentially recoup costs and make a profit on the discovery – essentially how all patents are designed – in return for this sole right of use Monsanto fully discloses the invention and its useage such that when the patent expires anybody ‘skilled in the art’ (ie pig breeders, or molecular biologists, or a combination thereof) is free to utilize the technology.
The alternatives to this are
a) Never researching anything because in doing so you take all the risk and anyone who wants can then utilize the technology once it is public
b) Researching and keeping it secret, hoping that nobody else figures it out.
a) results in total scientific stagnation, particularly in high investment products (such as GM crops, which cost ~$100M to commercialize from conception)
b) results in either multiple people wasting time on the same discovery, or absolute dominance of a single invention forever (and may still lead to very little in the way of profit should a competitor figure out what you did shortly after a commercial release)
I don’t understand what is disturbing about this. Although if you base your entire judgement on food inc, and videos you found on youtube (although I believe monsanto has some out there too – so it is vaguely possible to get a somewhat balanced view) then yes, the picture painted will be disturbing, in the same way that if earlier this decade your entire judgement on whether or not Iraq had WMDs was based on what fox news told you – you’d probably say yes.
Monsanto broadly licenses its technology. Even to its competitors. Where would DuPont/Pioneer or Syngenta be today without Monsanto? Would farmers have even continued to support DuPont/Pioneer or Syngenta over the past ten years without access to Monsanto’s Roundup Ready or Yeildgard technology? Monsanto’s as well as its competitors have benefited from the technologies. Monsanto has every right to protect their IP and to charge for the right to access it. It cost billions to develop and market the traits that allow farmers to efficiently and productively produce the crops that feed the world.
Farmers are intelligent enough to make up their own minds about which products to buy without having anti-biotech activists trying to tell them what they need. The simple fact is that farmers cannot raise enough food organically to feed the world.
I urge anyone that wants to eat organic to exercise their rights to do so. I also encourage any pro-organic activist to figure out just how much they will consume in a year and then figure out the number of acres required to do so, then use your calculator to figure out how many acres of cultivatable land are available in the US alone, divide this out by the population of the US and you will quickly see that at today’s yields we do not have enough land to satisfy the needs of each person in the US, let alone to support worldwide populations. Take away the advances in yield that Biotechnology had brought to the table and someone is going to go hungry.
I support Monsanto and applaud them for their efforts and foresight to be the first to market with the technological advances. These advances allow farmers worldwide the ability to produce the food to feed the world.
of course, if its on youtube its fact !!
Never heard of patenting a pig, which is laughable!? However, I actually just watched a video on youtube.com about how Monsanto wants to patent pigs??? That’s not laughable, just disturbing. After watching the movie Food Inc, I have to agree with S. Shaw, I much rather have my family eat food grown organically than to eat gmo food.
As a side note – the green revolution was more about breeding plants (to be able to grow under high inputs (dwarf wheat and rice don’t fall over when supplied with abundant nitrogen) – technically this was genetic modification, but did not involve the insertion of genes by man, just the selection of genes indirectly – traditional breeding.
Your point still stands however, utilizing organic methodology rather than high input farming would have left millions (if memory serves Norman Borlaug, the father of the green revolution, is credited with saving ~1 billion lives) dead or dying – genetic engineering can hopefully provide a second green (“gene”?) revolution less reliant on inputs (or at least reliant on less harsh inputs) to provide not only for the millions still living in hunger today, but also the billions of extra mouths to feed which we expect in coming decades.
Possibly more inartful reading on my behalf than inartful writing on your own, I was more railing against the assumption (of others) that preventing stacking was anticompetitive.
Thanks for the comments. S Shaw–I’m sure the recipients of the benefits of the “green revolution”–you know, those millions of people who actually get to live because they can afford food once it is genetically modified to be more nutritious and hearty–will happily heed your call to “eat only organic food” and just go back to dying.
Ewan R–On stacking, my claim that stacking restrictions make sense “when it may be hard to tell which company’s technology is having what effect in a combined product” was meant (inartfully, it seems) to encompass the brand integrity point. But either way, I agree: If a seed manufacturer stacks Monsanto traits with DuPont traits and something goes wrong, Monsanto may get the (undeserved) blame. Making sure its products actually work and work well is certainly among the procompetitive activities that a company undertakes, and, in this context, it seems likely that restrictions on stacking have exactly this purpose.
I’m a little concerned that the article suggests roundup ready technology allowed growers to wait until soy plants were old enough to withstand the chemical – as far as I am aware the only plants that are going to withstand the chemical are roundup ready plants – it kills any other plant, that’s why it is such a good herbicide.
In response to S Shaw – Monsanto takes legal action against those who infringe their intellectual property rights – this is completely in line with supporting farmers who pay for the technology (doing otherwise puts those who pay at a clear disadvantage) – they patent specific genetic constructs inserted into seeds for specific purposes, not ‘seeds’ or, laughably ‘pigs’ (the pig patent was on a specific genetic marker for use in pig breeding, more specifically the use of this marker in pig breeding (pigs containing the marker…. totally not patented or patentable) – and also the technology itself was sold, so is no longer a monsanto patent (although still a valuable piece of science))
On pesticides and poisons – remarkably less so than conventional non-GE agriculture (reduced insecticide use, reduced environmental impact of herbicides, reduced carbon footprint, more yield per unit input in developing countries… they’re evil I tell ya!)
On stacking… I believe another sound reason to prevent stacking of competitors traits with monsanto traits is brand integrity – Monsanto tests its internal stacked traits with each other to ensure performance is not impacted – allowing others to stack traits willy nilly could result in decreased performance which could reflect badly on the Monsanto (or genuity, or RR or whatever) brand going forwards.
If Monsanto is such a supporter of “Americas Farmers” then why are they trying to sue farmers all over the world??? They try to patent seeds and pigs??? GOD MADE SEED AND ANIMALS!!! MONSANTO YOU ARE NOT GOD!!! Your seeds are contaminating the land and our food with your pesticides and other poisons. Eat only organic food. And tell this company to stop bullying farmers. check out “millions against monsanto”
Lots of mentions of Monsanto’s patented products. Too bad the article doesn’t mention also the billions in R&D and thousands of jobs that go into developing new products.