Innovation Effects in Dow/DuPont: A Patent Analysis

• Author: Michaela Wilson
• DOI: 10.1177/0003603X18823635
• Published date: 01 March 2019
• Date: 01 March 2019

Article

Innovation Effects in Dow/DuPont:

APatentAnalysis

Michaela Wilson*

Abstract

In March 2017, the European Commission conditionally approved the Dow/DuPont merger. It was

found that the transaction would lead to the significant impediment of innovation competition in the

crop protection industry, specifically in the markets for herbicides, insecticides, and fungicides. As a

result, the decision requires the divestiture of DuPont’s entire crop protection pipeline and global

research and development organization. The aim of this article is to explore through patent analysis

whether and to what extent the merging parties are competing in the relevant innovation spaces. The

results are compared and contrasted to the findings of the Commission in the agricultural chemicals,

seeds, and materials science markets.

Keywords

mergers, innovation, patents, agricultural chemicals, seeds, nonprice effects

I. Introduction

Dow and DuPont’s $77 billion merger was announced in December 2015 as part of a long-term plan to

combine the two U.S.-based chemicals companies and then split them into three separate entities. The

parties are two of the largest players in the agricultural chemicals and materials science industries, both

globally and in Europe. The European Commission (hereafter, the Commission) approved the merger

in March 2017, conditional on the divestiture of large parts of DuPont’s pesticide business and

associated research and development (R&D).

1

The Commission’s approval of the transaction follows a wave of consolidation in the agricultural

chemicals industry, including recent deals between Bayer and Monsanto and ChemChina and Syn-

genta. What makes the Dow/DuPont deal a particularly good draw for academic commentary is that it

comes at a time when competition authorities are starting to think differently about the way that

*Independent Researcher

Corresponding Author:

Michaela Wilson, 89 Gloucester Street, London, UK, SW1V 4EB.

Email: michaelaleewilson@gmail.com

1. Eur. Comm’n, Press Release, Mergers: Commission Clears Merger Between Dow and DuPont, Subject to Conditions (IP/17/

772) (Mar. 27, 2017).

The Antitrust Bulletin

2019, Vol. 64(1) 54-78

ªThe Author(s) 2019

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/0003603X18823635

journals.sagepub.com/home/abx

innovation is assessed in the merger control framework. The Commission has indicated that it is

moving away from a narrow markets approach towards a broader impact approach, which considers

in more detail the impact of the merger on innovation as well as the traditional price effects. While

innovation concerns are coming to the fore of traditional competition analysis, the literature on the

topic remains somewhat unsettled, giving the Commission a wealth of choice in terms of available

theory on which to base its approach.

The question before the Commission in Dow/DuPont was whether the merger would have a

negative effect on innovation in the crop protection market. The Commission followed the

approach advocated by Shapiro of analyzing the incentives of the merging parties and their

rivals.

2

This assessment examined deeper stages of the parties’ pipelines and considered products

that are further away from commercialization than had been subject to analysis in previous cases.

In addition, the pipelines and innovation activities of other market players became a key part of

the analysis.

Although its analysis ventured further and more broadly into the future than many previous cases,

the Commission conducted only a high-level assessment of the innovation implications of the trans-

action, particularly in its patent analysis. The Commission considers the impact on innovation at the

level of the herbicide, insecticide, and fungicide categories, but not the numerous specific innovation

spaces within them. The innovation analysis also largely excludes the market for seeds and materials

science products, where both parties are two of very few global integrated players. This article

investigates whether a more complete and more granular innovation analysis would have changed the

Commission’s findings.

II. Background

While Dow and DuPont are both major players in the agricultural chemicals industry, they are also

active in a number of other areas. Dow produces plastics, chemicals, hydrocarbon, and energy products

and services. DuPont is active in chemicals production, as well as polymers, seeds, food ingredients,

and other materials. The combined market capitalization of the parties across all relevant industries

would be approximately $130 billion.

3

Although the parties are active in a number of similar areas, they overlap significantly in only three:

agricultural chemicals, seeds, an d materials science. The focus of this article is th erefore on the

competition concerns that are raised in these industries.

A. Agricultural Chemicals

The agricultural chemicals industry typically refers to the markets for crop protection, or pesti-

cides, which includes herbicides, insecticides, fungicides, and nematocides. Herbicides, insecti-

cides, and fungicides refer to the chemical substances designed to control or destroy unwanted

plants, insects, or fungi. Nematocides are chemical pesticides used to kill nematode worms. These

markets can be further segmented based on their purpose and/or the specific crop for which they

are intended.

2. Carl Shapiro, Competition and Innovation: Did Arrow Hit the Bull’s Eye? in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY

REVISITED 361 (J. Lerner & S. Stern eds., 2012).

3. Eur. Comm’n, Case M.7932, Dow/DuPont, Decision C(2017)356, http://ec.europa.eu/competition/mergers/cases/decisions/

m7932_13668_3.pdf (hereinafter, Dow/Dupont).

Wilson 55