Competition, intellectual property rights, and transgenic seed.

• Author: Moss, Diana L.
• Position: Antitrust and Competition in America's Heartland

1. INTRODUCTION

   U.S. agriculture has been the testing ground for rapid innovation and penetration of transgenic crop technologies, particularly for row crops such as corn, cotton, and soybeans. Intellectual property ("IP") rights ideally promote innovation in agricultural biotechnology and crop science by allowing patent holders to appropriate the value of their investments in research and development ("R&D") that lead to commercialization of new genetic traits ("traits") and traited seed. These technologies, which command substantial price premiums through technology fees and royalties, cover a range of agronomic plant performance features, such as herbicide tolerance ("Ht"), insect resistance ("Bt"), and drought resistance. These technologies also cover other value added characteristics, such as superior amino acid balance. The enormous value and broad scope of IP rights involving transgenic seed, which some argue is a "self-replicating" technology, are best illustrated by the steady march of patent infringement claims over the last decade. (1)

   The courts have fairly consistently found for patent holders in major infringement cases. Antitrust counterclaims by growers, seed companies, and competing traits developers have fared poorly in most cases. At the same time, the courts have avoided providing clear guidance on distinguishing the type of conduct that "crosses the line" between: (1) what is legitimately within the scope of an IP right, versus (2) what exceeds the bounds of that right through the exercise of market power that is strategically designed to limit or control competition. (2) Without clear calls on "balls and strikes" on such cross-over points, IP law threatens to work at cross-purposes to competition law. This presents a difficult tension given that both areas of law share a common goal of promoting innovation. IP law accomplishes this directly while antitrust law works to protect competition--a major driver of innovation.

   The need for guidance from antitrust enforcers and/or the federal judiciary on the question of what constitutes the appropriate balance between IP and antitrust in transgenic seed is driven by observations on more recent data and analysis on transgenic seed markets. These observations range from: a weakening correlation between R&D and market concentration; to a possible slow-down in the pace of innovation and adoption of transgenic technologies; to price increases for technology that outpace improvements in productivity. Such observations are not definitive of a cause-and-effect relationship between innovation and market structure. However, they suggest the importance of further inquiry into the potential that the effects of high concentration and single firm dominance in transgenic seed have on competition and consumers. Two major competitive issues are of particular concern, both of which have broader, systemic effects on prices, choice, and innovation. These include the effect of market structures and IP licensing practices on the: (1) innovation of important "stacked" (i.e., combined) trait products and (2) potential impairment of alternative channels of distribution to proprietary seed, including the "commodity" (i.e., seed purchased from grain elevators) and generic channels.

   The risk of suppressing competition and the consumer harm that accompanies an imbalance between IP rights and competition in transgenic seed punctuates the importance of finding workable solutions. This may require legislative policy intervention if the issues remain unresolvable by IP or antitrust enforcement alone. This article proceeds in Section II by examining the state of play in antitrust enforcement and patent infringement involving transgenic seed. (3) Section III discusses recent developments regarding the performance of transgenic seed markets, against which the tension between IP rights and competition should be carefully evaluated. (4) Section IV considers the broader systemic competitive implications of these developments, including effects on trait stacking and alternative channels of distribution to proprietary seed. (5) Section V concludes with policy implications. (6)

2. THE FACE-OFF BETWEEN INTELLECTUAL PROPERTY AND ANTITRUST IN TRANSGENIC SEED

   In 2010, the U.S. Department of Agriculture ("USDA") and U.S. Department of Justice ("DOJ") held a series of joint workshops to examine competitive issues in U.S. agriculture. One of the five workshops addressed the topic of transgenic seed. The product of the USDA-DOJ effort appeared in a May 2012 report. The summary highlighted, among other things, farmer reports lamenting high prices and lack of choice in transgenic seed and the "fear that the best and newest genetics will only be introduced with expensive patented traits stacked into them." (7) In response to public concerns over price and choice involving transgenic seed, the DOJ noted the tension between patent law and antitrust law, explaining:

   However, if conduct goes beyond the appropriate use of intellectual property and harms competition, it should be disciplined by appropriate antitrust enforcement. The Division stands ready to take the appropriate action in those cases. Thus, if the patent holder has crossed the bounds of the antitrust laws and abused his rights in a manner that leads to competitive harm, the Division is prepared to challenge that action. There may also be opportunities for clarification of how patent and antitrust law should align. (8) A test of the DOJ's position was not long in coming. In late 2012, the agency closed its investigation into Monsanto's competitive practices in genetic traits and traited crop seed markets. Notable was the lack of public transparency regarding the Antitrust Division's findings that could have shed some light on the fundamental tension between IP rights and competition that the DOJ posed in its May 2012 report.

   In early 2013, the DOJ again opined on the issue of IP rights in the government's amicus curiae brief in Bowman v. Monsanto, on appeal in the Supreme Court from the Federal Circuit. (9) The case frames the question of whether the patent exhaustion or "first sale" doctrine extends not just to saving of the progeny of seed purchased from proprietary outlets, but also to the saving of progeny of seed purchased from grain elevators (i.e., "commodity" seed). The DOJ came down on the side of IP rights, in support of the Federal Circuit, while other amici highlighted the competitive implications of creating a carve-out in the patent exhaustion doctrine (i.e., a "Bowman rule") for self-replicating technologies. (10) The tension between IP and competition law is also evident in a number of other prominent biotechnology patent infringement cases and antitrust counterclaims. These cases highlight innovators' focus on "how to license" (as opposed to "whether to license"). The major issues center on whether licensing restrictions placed on growers, seed companies, and rival biotechnology firms fall within the scope of patent-holders' rights or go beyond those rights in an attempt to limit, shape, or control competition. (11)

   Antitrust counterclaims in patent infringement cases fall in three general categories. One class of issues involves alleged exclusionary practices. For example, plaintiff seed companies alleged variously that Monsanto imposed minimum percentage purchase requirements and bundling requirements across multiple product lines, engaged in exclusive dealing, and denied access to important inputs. (12) In these cases, licensing restrictions were alleged to have exclusionary effects, such as erecting barriers to entry in traits markets and limiting rivals' ability to license other rivals' traits. A second category of competitive concerns goes to the question of whether seed saving restrictions violate the patent exhaustion doctrine. (13) Antitrust counterclaims in these cases invoke illegal tying arguments, whereby growers were allegedly required to purchase new transgenic seed every year as a condition of the initial purchase of proprietary seed. A final set of issues involves restrictions on how rivals can combine or stack their traits with competitors' traits. Such restraints allegedly had the effect of foreclosing rivals from access to inputs necessary to create new stacked products. (14)

   Antitrust counterclaims to patent infringement allegations involving transgenic seed have not fared well in the federal court system. On the merger side, the story is somewhat different. For example, in the proposed merger of Monsanto and cottonseed giant Delta and Pine Land in 2007, the Antitrust Division extracted remedies that addressed the competitive effects of IP licensing, including the condition that Monsanto remove anti-stacking restrictions in its licenses. (15) This condition, together with the divestiture of germplasm and seed assets, was most likely designed to ensure rivals' access to the technologies necessary to bring new transgenic cotton products to market. Likewise, in Monsanto's 1998 acquisition of com seed company DeKalb, the government required the wide licensing of corn germplasm. (16) Coupled with the spin-off of agrobacterium-mediated transformation technology, the remedy, as the DOJ explained: "preserve[d] competition in this newly emerging market for corn with transgenic improvements." (17)

   This brief history of the relationship between IP rights and competition in transgenic seed highlights a number of key points. For example, the failure of antitrust counterclaims to gain traction against patent infringement cases punctuates either the general difficulty associated with mounting successful cases under Section 2 of the Sherman Act (18) or a judicial preference for relatively expansive interpretation and enforcement of IP rights involving transgenic technologies, or both. A second observation is that the DOJ has been more aggressive or successful in extracting remedies that address the...