AP Report: Secret documents detail Monsanto’s seed business domination amid antitrust fears

Part I in BeginingFarmers.org's series about corporate domination, consolidation, and possible antitrust violations in the agriculture sector.

See Part II HERE; See Part III HERE; See Part IV HERE

Associated Press IMPACT: Monsanto seed business role revealed : Secret documents detail Monsanto's seed business domination amid antitrust fears

Original article at: https://hosted.ap.org/dynamic/stories/U/US_SEED_GIANT?SITE=SCAND&SECTION=HOME&TEMPLATE=DEFAULT CHRISTOPHER LEONARD AP News Dec 13, 2009 13:45 EST Confidential contracts detailing Monsanto Co.'s business practices reveal how the world's biggest seed developer is squeezing competitors, controlling smaller seed companies and protecting its dominance over the multibillion-dollar market for genetically altered crops, an Associated Press investigation has found. With Monsanto's patented genes being inserted into roughly 95 percent of all soybeans and 80 percent of all corn grown in the U.S., the company also is using its wide reach to control the ability of new biotech firms to get wide distribution for their products, according to a review of several Monsanto licensing agreements and dozens of interviews with seed industry participants, agriculture and legal experts. Declining competition in the seed business could lead to price hikes that ripple out to every family's dinner table. That's because the corn flakes you had for breakfast, soda you drank at lunch and beef stew you ate for dinner likely were produced from crops grown with Monsanto's patented genes. Monsanto's methods are spelled out in a series of confidential commercial licensing agreements obtained by the AP. The contracts, as long as 30 pages, include basic terms for the selling of engineered crops resistant to Monsanto's Roundup herbicide, along with shorter supplementary agreements that address new Monsanto traits or other contract amendments. The company has used the agreements to spread its technology — giving some 200 smaller companies the right to insert Monsanto's genes in their separate strains of corn and soybean plants. But, the AP found, access to Monsanto's genes comes at a cost, and with plenty of strings attached.

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For example, one contract provision bans independent companies from
breeding plants that contain both Monsanto’s genes and the genes of
any of its competitors, unless Monsanto gives prior written permission
— giving Monsanto the ability to effectively lock out competitors from
inserting their patented traits into the vast share of U.S. crops that
already contain Monsanto’s genes.

Monsanto’s business strategies and licensing agreements are being
investigated by the U.S. Department of Justice and at least two state
attorneys general, who are trying to determine if the practices
violate U.S. antitrust laws. The practices also are at the heart of
civil antitrust suits filed against Monsanto by its competitors,
including a 2004 suit filed by Syngenta AG that was settled with an
agreement and ongoing litigation filed this summer by DuPont in
response to a Monsanto lawsuit.

The suburban St. Louis-based agricultural giant said it’s done nothing
wrong.
“We do not believe there is any merit to allegations about our
licensing agreement or the terms within,” said Monsanto spokesman Lee
Quarles. He said he couldn’t comment on many specific provisions of
the agreements because they are confidential and the subject of
ongoing litigation.
“Our approach to licensing (with) many companies is pro-competitive
and has enabled literally hundreds of seed companies, including all of
our major direct competitors, to offer thousands of new seed products
to farmers,” he said.

The benefit of Monsanto’s technology for farmers has been undeniable,
but some of its major competitors and smaller seed firms claim the
company is using strong-arm tactics to further its control.

“We now believe that Monsanto has control over as much as 90 percent
of (seed genetics). This level of control is almost unbelievable,”
said Neil Harl, agricultural economist at Iowa State University who
has studied the seed industry for decades. “The upshot of that is that
it’s tightening Monsanto’s control, and makes it possible for them to
increase their prices long term. And we’ve seen this happening the
last five years, and the end is not in sight.”

At issue is how much power one company can have over seeds, the
foundation of the world’s food supply. Without stiff competition,
Monsanto could raise its seed prices at will, which in turn could
raise the cost of everything from animal feed to wheat bread and
cookies.

The price of seeds is already rising. Monsanto increased some corn
seed prices last year by 25 percent, with an additional 7 percent hike
planned for corn seeds in 2010. Monsanto brand soybean seeds climbed
28 percent last year and will be flat or up 6 percent in 2010, said
company spokeswoman Kelli Powers.

Monsanto’s broad use of licensing agreements has made its biotech
traits among the most widely and rapidly adopted technologies in
farming history. These days, when farmers buy bags of seed with
obscure brand names like AgVenture or M-Pride Genetics, they are
paying for Monsanto’s licensed products.

One of the numerous provisions in the licensing agreements is a ban on
mixing genes — or “stacking” in industry lingo — that enhance
Monsanto’s power.

One contract provision likely helped Monsanto buy 24 independent seed
companies throughout the Farm Belt over the last few years: that corn
seed agreement says that if a smaller company changes ownership, its
inventory with Monsanto’s traits “shall be destroyed immediately.”
Another provision from contracts earlier this decade_ regarding
rebates — also help explain Monsanto’s rapid growth as it rolled out
new products.

One contract gave an independent seed company deep discounts if the
company ensured that Monsanto’s products would make up 70 percent of
its total corn seed inventory. In its 2004 lawsuit, Syngenta called
the discounts part of Monsanto’s “scorched earth campaign” to keep
Syngenta’s new traits out of the market.

Quarles said the discounts were used to entice seed companies to carry
Monsanto products when the technology was new and farmers hadn’t yet
used it. Now that the products are widespread, Monsanto has
discontinued the discounts, he said.
The Monsanto contracts reviewed by the AP prohibit seed companies from
discussing terms, and Monsanto has the right to cancel deals and wipe
out the inventory of a business if the confidentiality clauses are
violated.
Thomas Terral, chief executive officer of Terral Seed in Louisiana,
said he recently rejected a Monsanto contract because it put too many
restrictions on his business. But Terral refused to provide the
unsigned contract to AP or even discuss its contents because he was
afraid Monsanto would retaliate and cancel the rest of his agreements.
“I would be so tied up in what I was able to do that basically I would
have no value to anybody else,” he said. “The only person I would have
value to is Monsanto, and I would continue to pay them millions in
fees.”
Independent seed company owners could drop their contracts with
Monsanto and return to selling conventional seed, but they say it
could be financially ruinous. Monsanto’s Roundup Ready gene has become
the industry standard over the last decade, and small companies fear
losing customers if they drop it. It also can take years of breeding
and investment to mix Monsanto’s genes into a seed company’s product
line, so dropping the genes can be costly.
Monsanto acknowledged that U.S. Department of Justice lawyers are
seeking documents and interviewing company employees about its
marketing practices. The DOJ wouldn’t comment.
A spokesman for Iowa Attorney General Tom Miller said the office is
examining possible antitrust violations. Additionally, two sources
familiar with an investigation in Texas said state Attorney General
Greg Abbott’s office is considering the same issues. States have the
authority to enforce federal antitrust law, and attorneys general are
often involved in such cases.
Monsanto chairman and chief executive officer Hugh Grant told
investment analysts during a conference call this fall that the price
increases are justified by the productivity boost farmers get from the
company’s seeds. Farmers and seed company owners agree that Monsanto’s
technology has boosted yields and profits, saving farmers time they
once spent weeding and money they once spent on pesticides.
But recent price hikes have still been tough to swallow on the farm.
“It’s just like I got hit with bad weather and got a poor yield. It
just means I’ve got less in the bottom line,” said Markus Reinke, a
corn and soybean farmer near Concordia, Mo. who took over his family’s
farm in 1965. “They can charge because they can do it, and get away
with it. And us farmers just complain, and shake our heads and go
along with it.”
Any Justice Department case against Monsanto could break new ground in
balancing a company’s right to control its patented products while
protecting competitors’ right to free and open competition, said Kevin
Arquit, former director of the Federal Trade Commission competition
bureau and now a antitrust attorney with Simpson Thacher & Bartlett
LLP in New York.
“These are very interesting issues, and not just for the companies,
but for the Justice Department,” Arquit said. “They’re in an area
where there is uncertainty in the law and there are consumer welfare
implications and government policy implications for whatever the
result is.”
Other seed companies have followed Monsanto’s lead by including
restrictive clauses in their licensing agreements, but their products
only penetrate smaller segments of the U.S. seed market. Monsanto’s
Roundup Ready gene, on the other hand, is in such a wide array of
crops that its licensing agreements can have a massive effect on the
rules of the marketplace.
Monsanto was only a niche player in the seed business just 12 years
ago. It rose to the top thanks to innovation by its scientists and
aggressive use of patent law by its attorneys.
First came the science, when Monsanto in 1996 introduced the world’s
first commercial strain of genetically engineered soybeans. The
Roundup Ready plants were resistant to the herbicide, allowing farmers
to spray Roundup whenever they wanted rather than wait until the
soybeans had grown enough to withstand the chemical.
The company soon released other genetically altered crops, such as
corn plants that produced a natural pesticide to ward off bugs. While
Monsanto had blockbuster products, it didn’t yet have a big foothold
in a seed industry made up of hundreds of companies that supplied
farmers.
That’s where the legal innovations came in, as Monsanto became among
the first to widely patent its genes and gain the right to strictly
control how they were used. That control let it spread its technology
through licensing agreements, while shaping the marketplace around
them.
Back in the 1970s, public universities developed new traits for corn
and soybean seeds that made them grow hardy and resist pests. Small
seed companies got the traits cheaply and could blend them to breed
superior crops without restriction. But the agreements give Monsanto
control over mixing multiple biotech traits into crops.
The restrictions even apply to taxpayer-funded researchers.
Roger Boerma, a research professor at the University of Georgia, is
developing specialized strains of soybeans that grow well in
southeastern states, but his current research is tangled up in such
restrictions from Monsanto and its competitors.
“It’s made one level of our life incredibly challenging and
difficult,” Boerma said.
The rules also can restrict research. Boerma halted research on a line
of new soybean plants that contain a trait from a Monsanto competitor
when he learned that the trait was ineffective unless it could be
mixed with Monsanto’s Roundup Ready gene.
Boerma said he hasn’t considered asking Monsanto’s permission to mix
its traits with the competitor’s trait.
“I think the co-mingling of their trait technology with another
company’s trait technology would likely be a serious problem for
them,” he said.
Quarles pointed out that Monsanto has signed agreements with several
companies allowing them to stack their traits with Monsanto’s. After
Syngenta settled its lawsuit, for example, the companies struck a
broad cross-licensing accord.
At the same time, Monsanto’s patent rights give it the authority to
say how independent companies use its traits, Quarles said.
“Please also keep in mind that, as the (intellectual property
developer), it is our right to determine who will obtain rights to our
technology and for what purpose,” he said.
Monsanto’s provision requiring companies to destroy seeds containing
Monsanto’s traits if a competitor buys them prohibited DuPont or other
big firms from bidding against Monsanto when it snapped up two dozen
smaller seed companies over the last five years, said David Boies, a
lawyer representing DuPont who previously was a prosecutor on the
federal antitrust case against Microsoft Corp.
Competitive bids from companies like DuPont could have made it far
more expensive for Monsanto to bring the smaller companies into its
fold. But that contract provision prevented bidding wars, according to
DuPont.
“If the independent seed company is losing their license and has to
destroy their seeds, they’re not going to have anything, in effect, to
sell,” Boies said. “It requires them to destroy things — destroy
things they paid for — if they go competitive. That’s exactly the kind
of restriction on competitive choice that the antitrust laws outlaw.”
Quarles said some of the Monsanto contracts let companies sell their
inventory for a period of time, rather than be required to destroy it.
Seed companies also don’t have to pay royalty fees on the bags of seed
they destroyed.
“Simply put, it was designed to facilitate early adoption of the
technology,” he said.
Some independent seed company owners say they feel increasingly
pinched as Monsanto cements its leadership in the industry.
“They have the capital, they have the resources, they own lots of
companies, and buying more. We’re small town, they’re Wall Street,”
said Bill Cook, co-owner of M-Pride Genetics seed company in Garden
City, Mo., who also declined to discuss or provide the agreements.
“It’s very difficult to compete in this environment against companies
like Monsanto.”
Source: AP News