Competition and Transgenic Seed Systems

• Author: Diana L. Moss
• Date: 01 March 2011
• DOI: 10.1177/0003603X1105600106
• Published date: 01 March 2011
• Subject Matter: Article

Competition and

transgenic seed systems

BYDIANA L. MOSS*

The transgenic seed industry provides an ideal case study of major

competition policy and antitrust enforcement questions associated

with systems. These systems consist, at a minimum, of upstream

markets for genetic traits (e.g., herbicide-tolerance and insect-

resistance) and downstream markets for traited seeds. Corn,

soybeans, and cotton are particularly important crops on which

transgenic innovations have had an impact. The article begins by

discussing the remarkable nature of the transgenic seed revolution,

the role of innovation, and the importance of patent protection. It

moves on to examine how rapid consolidation has created systems

with significant vertical and horizontal integration. These sections

help establish the framework for examining two major types of

systems—open and closed. Such systems are defined primarily by

whether the combinations or “stacks” of genetic traits contained in

traited seed involve the technology of a single firm or multiple firms.

They give rise to two major modalities of competition—intrasystem

and intersystem rivalry. In transgenic seed, the presence of a

dominant firm has arguably had a major influence on the evolution

of these modalities, particularly through licensing policies for

patented technology. The article highlights the difficult questions

associated with the nexus between intellectual property law and

antitrust law. Some progress is evident, however, as illustrated by

landmark antitrust enforcement actions that address system issues.

THE ANTITRUST BULLETIN:Vol. 56, No. 1/Spring 2011 :81

* Vice President and Director, American Antitrust Institute.

© 2011 by Federal Legal Publications, Inc.

I. INTRODUCTION

Organization of the transgenic seed industry has shifted over the past

two decades from predominantly separate ownership of agricultural

biotechnology and seed assets to systems with high levels of vertical

and horizontal integration. These systems comprise three major lev-

els: innovation of genetic transformation technologies and genomics;

genetic traits that are incorporated into and expressed in plant agro-

nomics; and seeds containing genetic traits (traited seed). The motiva-

tion for creating large seed systems is compelling. As one analyst

explained in the mid-1990s when transgenic seed first appeared in

force: “A new gene is worthless without a quality seed base to put it

in and the infrastructure to deliver it.”1Other classic economic moti-

vations are also in play, such as lower transaction costs, coordination

economies from complementarities between different parts of the

supply chain, control of distribution channels or patented technology,

and the creation or enhancement of market power.

Regardless of the motivation, the competitive issues surrounding

transgenic seed systems are worth exploring. The transgenic seed

industry is a vitally important agricultural supply chain, and

competition will have an indelible effect not only on innovation,

price, quality, and choice, but also on food safety and security.

Second, a case study of transgenic seed highlights policy questions

that are central to antitrust enforcement focused on systems. These

include how competition functions in a systems environment, the

tools of strategic competition for creating or maintaining systems,

and remedies that are best suited to resolving the competitive

concerns they raise.2

In examining the foregoing issues, the article proceeds as follows.

Part II provides some brief background on the growth of transgenic

seed. Part III discusses how the industry has capitalized on a highly

lucrative product through patent protection and private R&D. Part IV

examines the role of consolidation and ascendancy of a dominant

82 :THE ANTITRUST BULLETIN:Vol. 56, No. 1/Spring 2011

1The Agbiotech and Seed Industry, Furman Seltz LLC, Investment Report

(May 1998).

2For further discussion of systems, see Michael L. Katz & Carl Shapiro,

Systems Competition and Network Effects, 8 J. ECON. PERSP. 93 (1994).