The letter alleges that the new variety contains a piece of technology that in fringes upon a client’s IP claims. Furthermore, the patent owner appears not even to be interested in negotiating a license. And to this day, the legendary variety sits in storage somewhere in a greenhouse or a freezer, unused and sadly neglected. Of course, it is difficult to establish the definitive reasons why a project does not come to fruition, especially when there are numerous factors simultaneously affecting the outcome. Prior patents may be just a convenient excuse — and the patent owners a scapegoat — for tough decisions made to terminate unpromising or economically unattractive projects. Still, while patents do provide convincing incentives for private firms to invest in agricultural research and development , taking the necessary steps to respect the rights of patent ownership does add an additional layer of costs for developing new crop varieties. Economists call these additional costs “transaction costs”; they include legal fees for searching and filing patents and expenses for negotiating and drafting licenses. Royalties paid for using another’s technology are not IP transac tion costs. Rather, they are “rent” paid to use the technology and to compen sate for the R&D expenditures spent to create it. Commercial developers of agricul tural biotechnologies often take mea sures to avoid incurring these IP transaction costs. They may shift their R&D strategies or even acquire other companies to avoid dependence on outside technologies, thereby limiting expenses and preventing the complications and uncertainties inherent in “renting” them . These measures, however, can be costly too. Either way,square nursery pots costs faced under an IP system can, in theory, cancel out the private incentives created by IP to pursue innovation. More troubling, IP can even prevent publicly funded innovation from having its in tended social impact.
Yet are there any good indicators of this stalling beyond just stories and rumors? And if so, can we establish links with IP?Recent U.S. Department of Agriculture registrations for field trials of transgenic crops show that R&D in horticultural crops is lagging when compared with the major row crops. Even leading transgenic horticultural crops such as melon, lettuce, straw berry, grape, apple and sunflower are hardly represented in field trials . Horticultural crops are completely dwarfed by corn, the single most commonly tested transgenic crop, which by itself is the subject of almost half of all transgenic field trials. Of course, U.S. production of any single horticultural crop is far less valuable than U.S. production of corn. Less field-testing is to be expected for less valuable crops. But, even when applying a rough calculation to account for the differences in size and value of individual crops — dividing by the annual value of each crop’s U.S. production — horticultural crops tend to show a greater farm-gate value per field trial. In other words, horticultural crops are subject to fewer genetic field trials, and presumably receive less biotech R&D, for every dollar of crop production. Furthermore, the proportion of transgenic field trials conducted by public-sector research organizations, such as state universities or the USDA, versus the proportion conducted by commercial firms, varies widely by crop type . Public-sector involvement in the field-testing of the 10 leading transgenic crops — mostly major row crops — averages just 15%. Yet, in the next 20 mostly horticultural transgenic crops, public-sector involvement averages much higher, around 40%. These numbers should be interpreted cautiously, as the samples representing many of the horticultural crops are small and the ratios are taken over just a few field trials. For example, 16 field trials have been done on transgenic papaya and only 11 on transgenic walnut . Despite this variability, there appears to be less investment in biotech for horticultural crops than for major row crops, both in absolute terms and relative to overall crop values, while a greater proportion of that smaller R&D investment in horticultural crops comes from the public sector. Involvement by commercial firms in horticultural crops seems to be missing. While this data is too sketchy to conclude outright that commercial firms are under investing in horticultural biotechnology, it al lows us to ask whether they might be, and if so, why.
After a few early excursions into horticultural crops — most notably by Monsanto, As grow and Calgene as well as by Syngenta’s predecessors at Zeneca — major agricultural biotechnology firms have virtually shut down their product development in horticultural crops. Long-shelf-life tomatoes, virus-resistant squash and insect-resistant potatoes have not taken off as did Bt corn and herbicide-tolerant soybeans. Some of the specialized vegetable seed firms, such as PetoSeed , and some of the smaller agricultural biotechnology firms that specialized in vegetable crops, such as DNA Plant Technologies , continued their bio technology efforts a bit longer. Yet those efforts appear to have all but dried up in recent years. Instead, fruit and vegetable seed companies with active research and production activities, such as Seminis, Danson, Golden Valley, Harris Moran and others, continue to pursue their product development goals through conventional breeding techniques. One exception is the Scotts Company, which is currently seeking regulatory approval for a biotech product for golf courses, a glyphosate-resistant bentgrass. Indeed, most of the biotech work in horticultural varieties is conducted in university laboratories doing basic plant science. Occasionally, those projects spin out a commercially interesting trait or technology, but university technology-transfer offices have a hard time finding commercial partners among the seed firms, nurseries or growers’ associations.As with any investment, there is a degree of risk involved in putting re sources into the development of a new transgenic horticultural variety. Future returns are uncertain, and expected re turns are weighed against costs incurred to enter the marketplace. Such considerations also apply, more generally, to public-sector investments in re search. Although the measures of success may be more in terms of scientific advancements than earned profits, the practical importance of a new discovery is still important. .The size and strength of demand for a new transgenic variety will determine the size of returns on the investment. Market uncertainties for agricultural products are nothing new, due to such factors as disruptive competition in supply, cyclical price fluctuations and changes in consumer demand. How ever,ebb and flow tray some food consumers, such as in Europe, are skeptical of foods produced using biotechnology.
While a majority of U.S. consumers seem relatively unfazed by the genetic contents of processed bulk commodities such as soybeans and feed corn, consumers could react more strongly to obvious modifications of products in the produce aisle. Yet specific market uncertainties surrounding the use of transgenics could be addressed by the selection of technologies and traits that deliver real tangible benefits to consumers in ways that are perceived as unambiguously safe.The process of regulatory approvals for GM crops is essential to assure the safety of the technology. The R&D costs associated with gaining approval are considered up-front or “sunk” investments, and they must be spent to gain access to the market. These costs can be greater if the transgenic crop contains novel proteins or pest-control components, as additional assessments are required. In major row crops, investments to obtain regulatory approval can be recouped from the small technology fees charged on each bag of transgenic seed, which are multiplied out over millions of acres planted; however, with horticultural crops the distribution of regulatory costs is often concentrated onto much smaller markets. In many horticultural crops, several different varieties are commercially important. If introgression of the new trait via back crossing is not an option, such as may be the case for clonally propagated varieties that do not breed true, each variety must be separately transformed in the lab, and each must be separately tested and approved. Regulatory costs would add up, but they could not be spread out over nearly as large a market as they could for row crops. Still, returns per acre from horticultural varieties tend to be much higher, and the costs of specialized pesticides replaced by transgenic traits may also be higher. In addition, regulatory costs can be expected to decline as more risk assessments are completed, government agencies become more adept at judging the merits of different biotechnologies, and the policies and procedures become streamlined and finely tuned. In addition, the extension of an approach similar to the IR-4 program, which provides regulatory assistance for pesticides targeted to the needs of specialty crops , could reduce the regulatory burden on transgenic specialty crops.Transaction costs for gaining freedom to operate in the relevant IP protected technologies can be consider able. As with regulatory costs, the total IP transaction costs are independent of market size, and a larger number of transgenic varieties means more costly negotiations and more deals to cut. One industry estimate put the costs of negotiating a single crop genetics deal as high as $100,000.
When multiple patented genetic technologies are stacked in a cultivar, as is increasingly the case, the problem is compounded. Uncertainty over the total amount of IP transaction costs scares off investment in R&D projects, unless the expected returns are particularly attractive. This will continue as long as there is uncertainty in the IP landscape for plant bio-technologies and genetic materials. With the number of patents in this area growing at an exponential rate, IP access could be a deterrent to biotech R&D in horticultural varieties for years to come.IP access is a general problem for all of crop biotechnology. The reasons lie in the cumulative nature of the genetics and bio-technologies embodied in transgenic varieties. Plants are complex systems, and a healthy, productive crop plant has numerous genetic and metabolic pathways functioning together. Those genetics are inherited from breeding stock or can be added using biotechnology. A genetically engineered seed or plant cultivar may contain three different kinds of technological components that can be protected as IP, including the germplasm of the plant variety, the specific genes that confer a new trait and the fundamental tools of biotechnology such as genetic markers, promoters and transformation methods. The IP situation is complicated by a number of additional factors that add to the transaction costs.Different technological components of a transgenic crop variety are covered in the United States under different forms of IP law. If a variety is clonally propagated, the germplasm — the plant variety itself — can be claimed as IP at the U.S. Patent and Trademark Office under a Plant Patent, established in 1930 by the Plant Patent Act to protect against cuttings being taken, repropagated and directly resold under another name. Seed-propagated varieties can be claimed as a form of IP under the USDA system of Plant Variety Protection certification, established by the Plant Variety Protection Act in 1970. And, since 1980 — following a landmark decision by the Supreme Court in Diamond v. Chakrabarty over the patenting of a genetically engineered microorganism — all kinds of “invented organisms,” including novel plant germplasm, have come to be claimed as IP under standard U.S. utility patents. Subsequent technological and legal developments following Diamond v. Chakrabarty now allow utility patents to protect invented genes, proteins and other gene products, as well as biotechnology tools such as transformation of genetic contents, selection using genetic markers, and regulation of expression using genetic promoters. Finally, a significant part of the value of an agricultural variety often lies not in its technological or biological characteris tics perse but rather in its recognition and reputation among consumers in the marketplace. That “brand” name can be protected as IP by registering it as a trademark with the USPTO. The challenges posed by multiple layers of IP law are, if anything, greater for horticultural varieties than for row crops: plant patents, PVPs or utility patents may cover the germplasm; util ity patents typically cover the gene and biotechnology tools used; and trade marks are more often used to protect variety names. In leading row crops such as corn and soybeans, germplasm as well as the genes and bio-technologies are protected more consistently under only utility patents. While trade marks like Roundup Ready or Liberty Link refer to input traits and may be of some value in marketing to farmers, the identities of such agronomic traits command little notice or value from final food consumers.