Competition, Intellectual Property Rights, and Transgenic Seed

Article excerpt

I. 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. …