The New York Times Gets One Right

    By Kevin E. Noonan --

Like a broken clock that nonetheless tells the right time twice a day, it was inevitable that The New York Times would eventually run a story where they got it right on patenting (see "Crop Scientists Say Biotechnology Seed Companies Are Thwarting Research").  It was, of course, a story about how large companies seem to be abusing the power conferred by the patent grant.

The story involves the following statement by 26 academic scientists to the Environmental Protection Agency:

Technology/stewardship agreements required for the purchase of genetically modified seed explicitly prohibit research.  These agreements inhibit public scientists from pursuing their mandated role on behalf of the public good unless the research is approved by industry.  As a result of restricted access, no truly independent research can be legally conducted on many critical questions regarding the technology, its performance, its management implications, IRM, and its interactions with insect biology.  Consequently, data flowing to an EPA Scientific Advisory Panel from the public sector is unduly limited.

The scientists are described on the EPA website as being "leading corn insect scientists working at public research institutions located in 16 corn producing states."  Their names are withheld from the public docket, because "virtually all of [them] require cooperation from industry at some level to conduct [their] research" according to the EPA.  (Some of them did permit their names to be used for their interviews with the Times.)  Indeed, Dr. Elson J. Shields (at right), an entomology professor at Cornell University, noted that support for agricultural research has shifted from the public to the private sector, making agricultural scientists increasingly dependent on seed companies for financing and technical support.

Their complaint stems from restrictions on their research imposed by industry, specifically companies selling herbicide-resistant and other genetically-engineered crops.  As reported in the Times on Friday by science reporter Andrew Pollack, the scientists allege that companies make purchasers of genetically-engineered seed sign an agreement used in other contexts to prevent farmers from regrowing seed (violations of these agreements by farmers have been the bases of several patent infringement and breach-of-contract lawsuits; see, e.g., Monsanto Co. v. McFarling; Monsanto Co. v. David).  For the scientists, these agreements have been used to prevent recombinant seeds from being grown for research purposes.  While companies can give scientists permission to use recombinant seeds for their research, they can also impose (and have imposed) restrictions on what research can be done, as well as demanding review of the results prior to publication, according to Mr. Pollack.

This results in de facto censorship of research, since the companies can prevent negative results from being published.  This also limits the information and evidence available to government regulators, including the EPA.  Dr. Shields says this gives the companies the opportunity to "launder the data."  Dr. Ken Ostlie (at left), a University of Minnesota entomologist, illustrated the type of control by the companies by describing a study for which he had received permission from three companies selling genetically-engineered seed, comparing how well each of their corn seed resisted predation by Minnesota rootworms.  One year later, Syngenta withdrew its permission and Dr. Ostlie was forced to discontinue the study.  And Dr. Mark Boetel described the refusal by both Monsanto and Syngenta to grant permission for a study, prior to market launch, of their genetically-engineered sugar beets and how the crop would respond to an insecticide. 

Perhaps predictably, the companies defend their behavior.  Dr. William S. Niebur (at right), Vice President for DuPont Crop Genetics Research and Development (DuPont owns Pioneer Hi-Bred), cites the need to comply with government regulations on how recombinant crops are grown to justify the restrictions.  Monsanto and Syngenta spokesmen were quoted in the article as using their intellectual property rights as a defense, as well as compliance with government regulations.  (The Syngenta agreement prohibits any comparisons between Syngenta's product and any other crop.)  An EPA spokesman, Dale Kemery, contradicted the regulatory rationale, saying that the government only required "management of the crops' insect resistance and that any other contractual restrictions were put in place by the companies" not the EPA.

The EPA has published an announcement in the Federal Register for a meeting on insect-resistant biotech crops (see 73 Fed. Reg. 75099).

The seed companies' activities are legal, of course.  The Federal Circuit has deemed the types of restrictions imposed on farmers not to be an abuse of the patent grant, and has affirmed patent infringement and breach-of-contract judgments when they have been appealed (see, e.g., McFarling; David).  However, these judgments have been in the context of commercial activity and commercial agreements.  They have involved farmers, some of whom have extensive holdings, breaching their agreements in an effort to avoid the cost of new seed.  They have also involved allegations, some persuasive, that the defendants had been less than forthcoming about their conduct or have attempted to deceive the court.  In short, in decisions favorable to Monsanto, the company's conduct (while criticized) has not been the issue.

The scientists raise very different issues.  It is one thing to prevent a customer from reneging unilaterally on commercial agreements entered into to obtain a commercial advantage (i.e., greater crop yields due to herbicide resistant recombinant seed).  It is quite another to use the exclusionary right granted under the patent laws to enforce contractual agreements restricting research use.  Genetically-modified foods, while facing much less resistance in the U.S. than in, for example, Europe, have ambiguous public support.  And in the present environment, behavior that could be characterized as an abuse of the patent grant is risky.  For example, seed companies are already at risk from the Supreme Court's Quanta Computer, Inc. v. LG Electronics, Inc. decision, which reaffirmed the principle of patent exhaustion:  a patentee's rights to a patented product are exhausted upon first sale of the product.  The contractual restrictions on reseeding can be argued to be contrary to this principle, although this theory has not yet been advanced with any success.  This is particularly relevant because this situation comprises the confluence of two private activities "affected with a public interest":  patenting and public health.  Where U.S. common law has traditionally limited legal restrictions on contract terms between two parties dealing at arms' length, the law has permitted restrictions based on public policy (limiting enforceability on adhesion contracts, for example).  The allegations by these scientists raise the real possibility that the restrictions recombinant seed companies have successfully included in their commercial contracts will, at least with regard to research science, be deemed unenforceable.  In view of the other possible consequences (such as patent misuse or antitrust allegations), such a determination may turn out to be the best the seed companies may be able to hope for.

For additional information regarding this and other related topics, please see:
• "Monsanto Announces Latest Lawsuit Settlement over Roundup Ready® Soybean Seed," September 2, 2008)
• "Quanta Computer, Inc. v. LG Electronics, Inc. (2008)," June 9, 2008
• "Monsanto Co. v. David (Fed. Cir. 2008)," February 6, 2008
• "Supreme Court Fails to Grant Certiorari in Monsanto Co. v. McFarling," January 7, 2008
• "Monsanto Co. v. McFarling (Fed. Cir. 2007)," June 4, 2007

Comments

[Dan Feigelson]

Kevin, while you're on the subject of the NYT, Thomas Friedman has a piece in today's paper urging congress to fund innovation (as opposed to dying companies like GM) - he suggests doling out $20 billion to leading VC funds and letting them decide where the money goes; if the investments are successful, the VCs would keep 20% of the profit and the other 80% of the profits would go back to the taxpayers (though how that would be returned he doesn't say). Too bad he didn't mention the role that patents play in VCs' decisions to invest...

[Baltazar]

"Genetically-modified foods, while facing much less resistance in the U.S. than in, for example, Europe, have ambiguous public support."

This ambiguity exist because there is no data (or very little) to show that GM foods are indeed safe for people and the ecosystem. It is more believeable that GM food is safe for human consumption because it is basically destroyed during cooking and processing. But there is little data to show that cross-pollination does not "contaminate" natural species, or that insects and herbivores are not harmed. The influence on ecosystems cannot be learned through short-term observation or simplified laboratory work. When patents and agreements based on these patents restrict such safety studies, then the public loses.

[Kevin E. Noonan]

Dear Balatazar:

Your point is a good one, and even more reason why academic researchers need the freedom to explore these questions.

But lest we be hasty in putting the "bad guy" label on industry, let's recognize the several levels of political issues involved. First, the academic researchers are not pure seekers of truth - they may have their own political agenda (anti-patent, anti-GMO, or just basically contrarian - look at Peter Duesberg as an example of the latter). They may also be funded by competitors, and funding can go a long way towards biasing (consciously or not) research results. Second, the company may have the obligation to report any negative research results to the FDA, USDA, etc. - even if the study is poorly done, not statistically-significant or there is countervailing evidence. Finally, the results may be unclear, which to a bureaucrat might suggest that "prudence" counsels delay or non-approval.

So while I agree that provisions that make sense in a commercial context should not be extended to academic research, it isn't a black and white question.

Thanks for the comment.

[CNS]

One distinction that was not mentioned in the NYT article, nor by Kevin, is the distinction between academic research and commercial research. I used to work for a biotech seed company, and I recall that the primary concern was about competitors doing research on our company's products. These concerns included: (1) comparing our products with theirs, and of course using the results to advertise that their products were superior; (2) analyzing our products, e.g. via genomic sequencing, in an effort to ascertain aspects that we were trying to keep as trade secrets, as well as to design-around our patents on our products; (3) using our products (i.e. germplasm) in a modern form of "flashlight breeding," i.e. finding desirable traits in our germplasm -- both transgenic and nontransgenic -- and breeding them into their own germplasm; etc. We were less concerned about pure academic research, as most commercial IP owners are in general. However, if those academic researchers were funded by our competitors, then that was another matter -- we essentially lumped them into the same boat as our commercial competitors.

As can be imagined, creating two sets of rules applying to research on a seed company's materials -- one for academic research and one for commercial research -- would be problematic from several standpoints. There isn't always such a clear line between academic and commercial research. Competitors wanting to perform research on a company's products for commercial gain would be tempted to find a way to fit their research under the "academic research" umbrella, e.g. via collaborations with academics. As unfortunate as it may be for pure academic research, a one-size-fits-all policy forbidding all research -- particularly comparisons with competitors' products -- may be seen by seed companies as the best way to thwart competition.

[Kevin E. Noonan]

Dear CNS:

As I mentioned in my response to Baltazar there are equities on both sides of the issue.

I can understand if a seed company wanted to prevent the types of problems you mention in your comment. I just think there may be other and better ways to do this than with a blanket ban. You could prevent these specific aspects, and others, in the license (as a form of label license - Hoffman-LaRoche prevents PCR from being used for human diagnostics, for example, with a label license on its Taq polymerase).

I also think the needed lines can be very easily drawn: an academic researcher at an accredited university, with the license being negotiated through the technology transfer office, with an identification of funding sources and, if a competitor is funding some research, prohibitions about cross-pollination of the research. "Collaborations" with commercial researchers could be prohibited as well.

I appreciate your input and perspective and don't mean to suggest there are not reasons for the ban - just that the ban is, in my view, counterproductive and a politically bad idea.

Thanks for the comment.

[CNS]

Sorry Kevin -- I was typing my comment while you responded to Baltazar, thus didn't see your response before I hit "Post."

I appreciate the counterpoints -- this is definitely a multifaceted issue. And I agree that it is a politically bad idea, regardless of any commercially rational intentions. I will be the first to admit that biotech seed companies have fallen short when it comes to generating good PR for their products.

[Charlie Cabernet]

"Thomas Friedman has a piece in today's paper urging congress to fund innovation (as opposed to dying companies like GM) - he suggests doling out $20 billion to leading VC funds and letting them decide where the money goes"

Thomas "Suck On This" Friedman is a very wealthy idiot whose opinions are worthless.

[Charlie Cabernet]

"These concerns included: (1) comparing our products with theirs, and of course using the results to advertise that their products were superior; (2) analyzing our products, e.g. via genomic sequencing, in an effort to ascertain aspects that we were trying to keep as trade secrets, as well as to design-around our patents on our products; (3) using our products (i.e. germplasm) in a modern form of "flashlight breeding," i.e. finding desirable traits in our germplasm -- both transgenic and nontransgenic -- and breeding them into their own germplasm; etc."

The greed is breathtaking.

[CNS]

Charlie,
I'd be curious what you think is greedy, let alone breathtakingly so, about a company trying not to help its competitors? Are you simply anti-capitalist, or do you have a more complicated explanation?

[Charlie Cabernet]

"I'd be curious what you think is greedy, let alone breathtakingly so, about a company trying not to help its competitors? Are you simply anti-capitalist,"

Too funny. What, pray tell, is "capitalist" about restrictive purchase agreements whose sole purpose is to prevent competition in the market? The market, theoretically, is meant to function as a competition between products and services, not as a competition between the lawyers of wholesalers.

There is a big difference between "trying not to help ones competitors" and "trying to kneecap ones competitors". I am sure that you knew that before you typed your post.

Try not forget that I am one of the people who gets to vote, both with my dollar and at the voting both, to decide if behavior such as the described above is "greedy" or not. I suspect the number of people who agree with me is at least twice the number of people who would characterize my views as (trying not to laugh) "anti-capitalist."

These companies can change their tune, or reap the whirlwind.

[CNS]

Very simply, Charlie, the products are PATENTED. The companies that sell them can, therefore, put whatever restrictions they want on their PATENTED products (subject of course to antitrust laws).

I'm not sure what your vote at the voting booth has to do with this. As for "voting" with your dollar, there's nobody stopping you or anyone else from refraining from purchasing products that come with conditions that offend you in some way. There are plenty of non-transgenic, non-hybrid seeds for sale at your local organic co-op, and a plenty of people who wish to buy crops grown from them. However, given the overwhelming market share that transgenic crops enjoy (in the US at least), I believe it is your math that is "suspect" (pun intended).

The business reality is that the only "whirlwind" that Monsanto, Pioneer, Syngenta, Dow Agrisciences et al. are reaping these days is the whirlwind of profits. Clearly there are at least a few farmers willing to tolerate the (admittedly imperfect) grower agreements to reap the many benefits the products provide.

[Charlie Cabernet]

"The companies that sell them can, therefore, put whatever restrictions they want on their PATENTED products (subject of course to antitrust laws)."

Yes, but noting that those restrictions are greedy and anti-competitive is not "anti-capitalistic." On the contrary.

"However, given the overwhelming market share that transgenic crops enjoy..."

And you think it's "capitalism" that led to that market share? That there was overwhelming consumer demand for genetically modified food? LOL.

"The business reality is that the only "whirlwind" that Monsanto, Pioneer, Syngenta, Dow Agrisciences et al. are reaping these days is the whirlwind of profits"

I don't doubt it. And they want to keep the profits as high as possible, by any means necessary. Hence the lawyers and the anti-competitive restrictions and the desire to prevent anyone from doing research on their products that might indicate that the products are not all that they are cracked up to be.

"I'm not sure what your vote at the voting booth has to do with this."

Don't worry about it. Dr. William S. Niebur understands and he will do all he can to defend your beloved companies on your behalf.

[CNS]

Charlie,

Do you have a bone to pick with the ag-biotech industry specifically, or are you just generally anti-corporate? A desire to keep profits as high as possible by any legal means necessary, including through the strategic use of patent rights, is certainly not unique to seed companies. Further, the last time I checked, patents are by definition "anti-competitive," at least in the short term and if you narrowly define "competition" as being able to freely copy (i.e. steal) a competitor's technology.

As I mentioned in my earlier posts, I'm not saying that the grower restrictions are without flaws. I also pointed out that their intent is primarily to deter industry competitors -- not to prevent Prof. So-And-So from growing and studying transgenic crops (unless said Prof. is funded by said industry competitors).

Now that I think about it, I'm glad our debate has evolved (devolved?) to the point where we are arguing the relative merits of companies' practices in competing with each other. Which gets back to my original point: ag-biotech companies aren't particularly interested in competing with academia. Ag-biotech companies simply don't want others to take their technology without paying for it, and given the ability of the product at issue to replicate itself, grower restrictions are one tool to try to stop that.

[Charlie Cabernet]

"Which gets back to my original point: ag-biotech companies aren't particularly interested in competing with academia.Ag-biotech companies simply don't want others to take their technology without paying for it"

Academia is perfectly willing to pay for the material and "the technology" is already covered by the patent. You admit in your original comment the frankly indisputable point that the restrictions are anti-competitive. But they are more than anti-competitive. They are anti-consumer.

I don't doubt anyone's ability to frame the issue in terms of some "business necessity." Businesses do this routinely. Whatever.

"Do you have a bone to pick with the ag-biotech industry specifically, or are you just generally anti-corporate?"

Oops, you did again. Let me just repeat myself: questioning covenants placing restrictions on activities occuring after the sale of a patented product has nothing do with being "anti-corporate."

Do I have a bone pick to pick with the ag-biotech industry specifically? No. As impossible as it may seem to you, this is only one of a many different issues affecting my life that I enjoy discussing.

[CNS]

Charlie,
What are you views on software, and the post-sale restrictions typically placed on that? When you buy some clearance software from your local soon-to-be-closed Circuit City, it comes with a shrink-wrap license that includes terms like: you can't copy it, you can only run it on one computer, you can't do this or that with it, etc. I don't see grower restrictions as any different in principle. Just like software, they are NOT unconditional sales that permit the purchaser to do whatever he/she wants with the product -- they include an IP license that is integrated into the price. If transgenic seeds WERE sold unconditionally, without any post-sale restrictions, I bet they would be a whole lot more expensive than they are. And again, nobody is forcing anyone to buy them -- if people find the post-sale restrictions unduly burdensome, they can shop elsewhere.

[Charlie Cabernet]

"What are you views on software, and the post-sale restrictions typically placed on that? "

The same as most people's.