U.S. to Enforce Antitrust in Farming, Holder Says (Update3)
By Jack Kaskey
March 12 (Bloomberg) -- The Obama administration will probe consolidation in the agriculture industry and enforce antitrust laws where it finds excessive market power hurting competition, Attorney General Eric Holder said.
Holder and Agriculture Secretary Tom Vilsack spoke today in Ankeny, Iowa, at the first of five workshops on competition and regulation in the agriculture industry. Holder said they have already received 15,000 comments on the subject.
“Is today’s agriculture industry suffering from a lack of free and fair competition in the marketplace?” Holder said to a crowd of about 700 people at a community college. “That is the central question.”
Consolidation in meat, packing and seed markets have lowered food prices while pressuring growers and threatening the life of rural economies, Vilsack said. Companies that abuse their dominant market position to hurt competition will face Justice Department action, said Christine Varney, head of the antitrust division.
“Big is not illegal,” Varney told reporters outside the workshop, when asked whether the administration plans to break up large companies. “We are not looking to restructure the economy. We are looking to enforce the law wherever the facts take us.”
Seed Patents
The department is investigating whether patents on biotech seeds are being abused to extend or maintain companies’ dominance in the industry, Varney said. The department is looking broadly at the intersection of patent and antitrust laws, she said.
“There is a very robust patent system in this country and if you are abusing a patent to extend or maintain a monopoly, that is not legal,” Varney said. “We are looking at those very important issues.”
Monsanto Co. has begun switching seedmakers and growers from soybeans with the Roundup Ready gene, which was in 93 percent of U.S. soybean seeds last year, to the newer Roundup Ready 2 Yield version in advance of the original’s patent expiration in 2014. DuPont Co., the second-biggest seed company after Monsanto, says Monsanto is using incentives and penalties to switch the industry to the new product in a way that unlawfully extends the Roundup Ready monopoly.
Ray Gaesser, vice president of the American Soybean Association, said growers are worried that if they grow generic biotech seeds, export markets may be unavailable if approvals to import biotech grains in countries outside the U.S. aren’t maintained.
Import Approvals
Monsanto will maintain foreign import approvals for generic Roundup Ready soybeans through 2017 and is willing to provide an industry group with the necessary health and safety data to maintain foreign registrations beyond then, said Jim Tobin, a company vice president. Monsanto pays as much as $2 million a year to maintain approvals in the seven countries that require periodic renewals, he said.
Dermot Hayes, an agribusiness professor at Iowa State University, said the industry should take advantage of Monsanto’s offer with a new group or an existing one managing stewardship of generic biotech seeds.
Varney declined to comment more specifically on the focus of the seed industry probe.
“Monsanto’s place in seed is something that is a competitive issue that is before all of us,” Iowa Attorney General Tom Miller said. Iowa also is investigating the St. Louis-based company, he said.
Agriculture Mergers
Holder said he will aggressively review mergers in the agriculture industry. He highlighted the Justice Department’s Jan. 22 lawsuit against Dean Foods Co. over its acquisition of Foremost Farms USA’s consumer-products division, saying the deal hurts competition in the sale of milk to schools and stores in several states.
The partnership with the Department of Agriculture is meant to also address competition through regulation, Holder said. Vilsack highlighted concerns about increased concentration and integration in meat-packing and rapidly shrinking spot markets.
“Are farmers and ranchers in this country currently getting a fair shake? Is there sufficient transparency?” Vilsack said. “Seed companies in some cases control the lion’s share of market. Is that good or bad for farmers?”
The Justice Department may form a task force with the Department of Agriculture to pursue potential abuses by the meatpacking industry of the Packers and Stockyards Act, Varney said today.
U.S. Senator Charles Grassley, an Iowa Republican, said he will explore legislative remedies to boost competition. The cooperation between the Justice and Agriculture departments is unprecedented and “fills a big void,” he said.
To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.
Last Updated: March 12, 2010 16:24 ESThttp://www.bloomberg.com/apps/news?pid=20601127&sid=atQcOOEUTeOY
Monsanto’s Seed Patents May Trump Antitrust Claims (Update2)
March 12, 2010, 4:34 PM ESTAdds Monsanto comment in 25th paragraph.)
By Jack Kaskey and William McQuillen
March 12 (Bloomberg) -- Monsanto Co., facing antitrust probes into its genetically modified seeds, may benefit from previous court rulings in which intellectual property rights trumped competition concerns, antitrust lawyers say.
The Department of Justice and seven state attorneys general are investigating whether the world’s largest seed company is using gene licenses to keep competing technologies off the market. At issue is how the St. Louis-based company sells and licenses its patented trait that allows farmers to kill weeds with Roundup herbicide while leaving crops unharmed. The company’s Roundup Ready gene was in 93 percent of U.S. soybeans last year.
“Justice is clearly trying every way it can to see whether Monsanto is exceeding its rights under the patent,” said James Weiss, a Washington-based attorney at K&L Gates LLP who helped defend Microsoft Corp. against a federal antitrust probe. “At the end of the day, they may not be able to do much with it because of the scope of those patents. In almost all the cases, the courts come out on the side of intellectual property.”
Yet Monsanto’s seeds are so ubiquitous that they have become like AT&T’s telephone lines before the company’s 1984 breakup or Microsoft Corp.’s Windows operating system in the 1990s, said James P. Denvir, an attorney who represents rival seedmaker DuPont Co. and led the government’s AT&T case.
“Both cases involve what I think of as a classic platform monopoly,” Denvir said. “It’s a facility that competitors need access to, to compete against the monopolist.”
Monsanto and DuPont, which are suing each other over a biotech seed license, both hired former Justice Department lawyers who have handled high-profile cases.
‘Revolutionizing the Marketplace’
Monsanto’s attorney, Dan Webb, defended Microsoft in 2002 against government antitrust claims. A former U.S. Attorney in Chicago, he also prosecuted Admiral John Poindexter in the Iran- Contra affair.
Webb credits Monsanto with “revolutionizing the agriculture marketplace” and said antitrust claims such as those in DuPont’s suit aren’t an uncommon response to patent infringement cases such as Monsanto’s.
“The perception among farmers is that DuPont’s complaints about exclusivity are without merit,” said Webb, a Chicago- based Winston & Strawn LLP partner.
Denvir, who represents DuPont, said farmers are among the victims.
“Clearly, we are too,” he said. “The bigger harm, the more important harm, is to farmers in denying them the best seeds they can get at the lowest possible prices.”
Legal Monopoly
While patents provide some protection from antitrust claims, giving a company a legal monopoly for a specified time, patent rights can be abused, DuPont lawyers and others said.
“The question becomes whether or not somebody in that position has engaged in some bad acts that either got it in that position or are designed to maintain that position or to extend that position to other markets,” said Charles “Rick” Rule, a lawyer at Cadwalader Wickersham & Taft LLP who ran the Justice Department’s antitrust unit under President Ronald Reagan.
Christine Varney, who heads the antitrust division in President Barack Obama’s administration, has signaled she’ll be more aggressive than the Bush administration, Rule said.
Varney said today that the Justice Department is investigating whether biotech-seed patents are being abused to extend or maintain companies’ dominance in the industry. She is in Ankeny, Iowa, for a workshop on agriculture-market competition that was organized by the Justice Department and the Department of Agriculture.
‘Robust Patent System’
“There is a very robust patent system in this country and if you are abusing a patent to extend or maintain a monopoly, that is not legal,” Varney said. “We are looking at those very important issues.”
The department probably is reviewing whether Monsanto’s licensing restrictions on seeds have a legitimate business justification, said Rule, who occasionally advises Monsanto and isn’t working with Webb on the antitrust case.
“When you have that sort of monopoly power, it can lead to abuse, which is what we’ve been experiencing over the past several years,” said Thomas L. Sager, DuPont’s general counsel.
Wilmington, Delaware-based DuPont claims Monsanto protects its lead in biotech seeds, including the Roundup Ready seeds sold since 1996, by controlling whether competitors can add their own genetics.
Roundup Ready 2 Yield
Monsanto also has begun switching seedmakers and growers from Roundup Ready soybeans to the newer Roundup Ready 2 Yield version in advance of the original’s patent expiration in 2014. DuPont says Monsanto is using incentives and penalties to switch the industry to the new product in a way that unlawfully extends the Roundup Ready monopoly.
“This is about trying to obtain a level playing field so innovators can introduce combinations of choices to the farmer that increase yield and of course feed the world,” Sager said.
At least seven states are investigating many of the same claims, as well as whether Monsanto illegally offered rebates to distributors who limit sales of competing seed, according to one person involved in the probe who asked not to be named because he isn’t authorized to discuss it.
3M Co.’s use of rebates to induce retailers to buy more transparent tape and curtail purchases from a smaller supplier was ruled anticompetitive by the U.S. Circuit Court of Appeals in 2003.
Addressing Criticisms
Monsanto has amended its practices to address some criticisms. The company will help the introduction of generic Roundup Ready soybeans by maintaining foreign import approvals during the transition, a process that will be followed for off- patent biotech seeds in the future, Chief Executive Officer Hugh Grant said in a January interview. Monsanto last year stopped giving rebates to dealers who limited competing seeds’ sales, said Kelli Powers, a spokeswoman.
Monsanto will maintain foreign import approvals for generic Roundup Ready soybeans through 2017 and is willing to provide an industry group with the necessary health and safety data to maintain foreign registrations beyond then, Jim Tobin, a company vice president said today.
Monsanto pays as much as $2 million a year to maintain approvals in the seven countries that require periodic renewals, he said.
DuPont filed its federal antitrust case last year after Monsanto sued to block its rival from adding the Roundup Ready trait to seeds already modified to tolerate Roundup weed killer.
Trait Development ‘Stunted’
“Trait development has been stunted by the inability to get access to the Roundup Ready platform,” Denvir, an attorney with Boies Schiller & Flexner LLP, said in an interview in his Washington office. The firm was founded by David Boies, who led the government’s successful antitrust suit against Microsoft. Roundup Ready is “licensed so broadly that if you want to offer any trait, it has to be somehow combined with that trait.”
While Monsanto has promised to allow generic versions of its products to emerge, Denvir said he is unconvinced that will happen without government intervention.
Monsanto got its lead in seed biotechnology because it invested in research long before DuPont and other competitors, said Webb, Monsanto’s counsel. The company spent $6 billion on seed research in the 10 years through 2008 and $1 billion a year since then, said Powers, the company spokeswoman.
Among the cases relevant to the claims against Monsanto is a 2004 Supreme Court decision that Verizon Communications Inc. and other phone companies didn’t break laws by doing too little to encourage competition, said Rule, the former antitrust division head.
Xerox Ruling
A Federal Circuit Court of Appeals ruling in February 2000 that Xerox Corp. can’t be sued for using patents to establish or entrench a monopoly also may apply to the Monsanto disputes, he said.
The cases reflect how U.S. courts have given intellectual property owners leeway to control licensing to make the property more valuable, encourage the owner to widely license the technology and support further investment, he said.
Greg Neppl, with Foley & Lardner, agreed that intellectual property rights often trump antitrust concerns.
“The patent concerns are well protected in the law,” said Neppl. “Where the patent rights are clear, the antitrust issues are secondary. The antitrust concerns must respect the patent owner.”
Monsanto persuaded U.S. District Judge Richard Webber in September to separate the licensing case from DuPont’s antitrust counterclaim. The seedmaker won an additional incremental victory in January when Webber ruled that DuPont violated the companies’ licensing agreement by combining Monsanto’s Roundup- tolerance gene with a DuPont gene that does the same thing.
Counterclaim ‘Clutter’
Patent infringement is “a fair and proper case,” Webb said. “Monsanto will have its day in court and it will not be cluttered with the antitrust counterclaim.”
Monsanto shares climbed 1 percent to $72.35 at 4:01 p.m. in New York Stock Exchange composite trading, paring the decrease since DuPont filed its antitrust case in mid-June to 15 percent. DuPont rose 14 cents to $35.49.
Justice Department probes typically move in tandem with related civil litigation because plaintiffs share information with the government, Neppl said.
“The antitrust division today is more willing to look at assertions” of anticompetitive behavior, Rule said. “This is something they have a right to look at. Once they get into an investigation, they are pretty good at making up their own mind.”
The case is Monsanto Co. v. E.I. DuPont de Nemours & Co., 09cv686, U.S. District Court, Eastern District of Missouri (St. Louis).
--With reporting by Alison Fitzgerald in Washington and Carlyn Kolker in New York. Editors: James Langford, Peter Blumberg, Jeffrey Taylor
To contact the reporters on this story: Jack Kaskey in New York at jkaskey@bloomberg.net; William McQuillen in Washington at bmcquillen@bloomberg.net.
To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net; David E. Rovella at drovella@bloomberg.net.
Monsanto ‘Warrior’ Grant Fights Antitrust Accusations, Critics
March 04, 2010, 12:22 AM ESTBy Jack Kaskey
March 4 (Bloomberg) -- For a man trying to feed the world, Monsanto Co.’s Hugh Grant has no shortage of people trying to disrupt his dinner plans, from activists fighting genetically modified crops to the U.S. Department of Justice probing his company’s sales practices.
Grant, a salesman who became chief executive officer in 2003, says Monsanto will be vindicated on all fronts because it has licensed genetics to hundreds of rivals since the dawn of the biotech seed industry in the mid-1980s. That strategy, and billions of dollars of research, got the company’s genes into 93 percent of U.S. soybeans and 82 percent of corn last year.
“We have made the technology accessible to all comers,” Grant, 51, said in an interview. “The fact that we went for an open-architecture, broad licensing system at the very beginning rather than holding the technology ourselves, I feel very good about that approach.”
Grant’s argument will get a public hearing when the Justice Department and Department of Agriculture hold a workshop on seed-industry competition in Iowa next week. The meeting will include more than two dozen panelists, including Justice Department antitrust chief Christine Varney and Monsanto Vice President Jim Tobin.
DuPont Co. has led the charge against Monsanto, arguing in a lawsuit in federal court in St. Louis that the company uses its dominance in modified seeds to stifle competition.
“Monsanto is not allowing the best seed to get to the market and is imposing unjustified pricing that hits American farmers and independent seed producers throughout the United States,” Paul Schickler, president of DuPont’s Pioneer seed unit, said in an interview.
‘Over the Line’
David Kruse, president of commodities brokerage CommStock Investments Inc., said he’s planting Monsanto’s new Roundup Ready 2 Yield soybeans this year on his 640-acre farm near Royal, Iowa. Still, he thinks Monsanto uses its genetic licenses to keep seed companies from offering competing varieties.
“It’s OK to have a good product, but it is not OK to control competitors’ access to the market,” Kruse said by telephone. “Monsanto has stepped over the line. If you can control what can come to market, that is anticompetitive.”
Monsanto, the world’s largest seedmaker, already has begun trying to counteract the criticism from farmers like Kruse and the movie Food Inc., which argued the St. Louis-based company bullies growers who save patented soybeans to replant the following year.
Generic Seeds
Grant said in January that he won’t block generic versions of Monsanto’s modified seeds as they come off patent. The company said it’s working to help double food production by 2050 as the planet’s population reaches 9 billion and portrays itself as a friend of farmers with its americasfarmers.com Web site.
The legal and public relations fights are the latest battles for the Scotland native who rose from demonstrating weed killer in barley fields to the company’s top executive in his 29 years with Monsanto.
Grant solved intellectual property disputes early in his tenure as CEO, settling patent lawsuits with Bayer AG, Syngenta AG and Dow Chemical Co. by agreeing to cross-license technologies. The U.S. abandoned an antitrust probe focused on its herbicide in 2004.
“Hugh is a very shrewd operator and a tough warrior,” said Michael Pragnell, who squared off against Grant as CEO of Syngenta from 2000 through 2007. “He’s also a realist. You don’t fight battles you are not going to win.”
DuPont Lawsuit
The allegations the Justice Department is investigating include those at the center of the legal dispute with DuPont, the world’s second-largest seedmaker. Monsanto sued DuPont in May, seeking to prevent it from producing soybean seeds that combine DuPont’s genes with Monsanto’s Roundup Ready traits, which allow farmers to kill weeds with Roundup herbicide while leaving the crops unharmed.
DuPont countersued, claiming that Monsanto’s Roundup Ready patent is invalid and that the company abuses its control over seed technology. Monsanto won an incremental victory in January, when U.S. District Judge Richard Webber ruled that DuPont violated the companies’ licensing agreement by combining Monsanto’s Roundup-tolerance gene with a DuPont trait that does the same thing.
DuPont has hired James Denvir, an attorney with Boies Schiller & Flexner LLP who led the Justice Department’s antitrust suit against AT&T in the 1980s. Monsanto’s lead attorney is Dan Webb, the Winston & Strawn LLP partner who defended Microsoft Corp. against antitrust claims.
Justice Department Inquiry
Monsanto said in October that it received questions from the Justice Department about DuPont’s complaints. The questions weren’t a formal request, and DuPont and other companies were receiving similar inquiries as the department examines competition in farming markets.
While Grant said he takes the federal inquiry “seriously,” the company faced bigger challenges in 2003, his first year as CEO. The company had lost $1.7 billion the previous year and the seed business had yet to turn a profit. He focused the company on corn, soybeans, cotton and canola, a plan that led to seven straight profitable years and boosted Monsanto’s shares 14-fold through their June 2008 peak.
“The turnaround, frankly, is the story of a big piece of my career,” Grant said in the interview. “We had a very simple plan. It doesn’t make it easy, but it was very simple, and we executed.”
Now, the Roundup herbicide business is in decline as cheap generics from China erode sales, and the company has forecast that profit this year will drop by as much as $1.21 a share to $3.20. Monsanto shares have slumped 50 percent from their peak.
Profit Rebound
Profit will rebound as farmers upgrade to Monsanto’s new SmartStax corn, developed with Dow, and Roundup Ready 2 Yield soybeans, Grant said. Long-term growth will be driven by demand for crops that resist herbicides, bugs and drought, he said. Corn that uses less nitrogen fertilizer, soybeans with healthier oils and tastier vegetables also are on the horizon, he said.
“One piece of this is the world is going to eat more; the other piece is the Western world is going to eat healthier,” Grant said. “We have taken long-term bets on macro trends: water, fertilizer, nitrogen, nutritional planes, growth in China.”
Grant’s plan to sell higher-priced seeds may begin to falter this year, said Paul Christopherson, a Morristown, New Jersey-based analyst at Gilford Securities. Farmers may not upgrade to SmartStax corn, which has eight genetic changes, if they are happy with seeds offering similar benefits, he said.
‘Overkill’
“I question whether farmers will always pay up for more traits,” said Christopherson, the only analyst of the 19 tracked by Bloomberg who rates Monsanto’s shares “sell.” “If you have seeds with eight traits, isn’t that overkill?”
Plantings of SmartStax corn and Roundup Ready 2 soybeans may fall 20 percent short of plans this year, Monsanto said last week. Grant is counting on the two new varieties to help boost seed earnings to as much as $7.5 billion in 2012 from $4.5 billion in 2009.
Grant grew up the older of two boys in Larkhall, Scotland, an industrial town separated from Glasgow by dairy lands. As the local coal mines and steel mills closed, Grant developed a taste for the outdoors, leading him to study agriculture. He hadn’t heard of Monsanto when he responded to a company help-wanted advertisement during a year of post-graduate work at the University of Edinburgh.
That first job had him demonstrating Roundup weed control in barley fields for growers who supplied makers of Scotch whisky.
‘Lived in the Field’
“My criteria for working outdoors was massively satisfied,” recalled Grant, who stands more than 6 feet tall and sports a clean-shaven head. “I kind of lived in the field.”
He soon was promoted, helping Monsanto expand Roundup sales to European homeowners, before moving to St. Louis and then Singapore as global brand manager for Roundup. In 1998, he returned to the U.S. as head of agriculture just before the company was acquired by Pharmacia & Upjohn Inc. Grant was chief operating officer when Pharmacia spun off the agriculture business into the current incarnation of Monsanto.
After losing money in 2002, the newly independent company’s board ousted CEO Hendrik Verfaillie and was looking only at external candidates for the top spot. Grant threw his name into the ring.
“That he was clearly bright and strategic was clear on first impression,” said Robert Shapiro, Monsanto CEO from 1995 to 2000. “But what I found really impressive about Hugh is that he is thoughtful. He reflects on situations and decisions carefully before coming to a conclusion.”
Strategy Sessions
Grant starts his week with a Monday morning meeting of his 12-person executive team. He supplements those meetings with strategy sessions every six weeks that bring together biologists, regulatory specialists, regional leaders, sales and marketing executives and his top lieutenants, enabling him to make decisions on the spot.
Farmers pay a premium for Monsanto seeds because they increase yields and reduce expenses for pesticides, water and nitrogen fertilizer, Grant said. That premium will rise as the world strives to feed a growing population on limited farm land, he said.
Agricultural companies are under scrutiny because they are key actors in issues such as food availability and quality, corn-based ethanol production, water scarcity and climate change, Grant said. Monsanto can help mitigate those problems by enabling farmers to double crop yields by 2030, he said.
The success of Monsanto, which devoted $1 billion to seed research last year, has prompted competitors to develop their own technologies, Grant said. Many of those seeds are set to reach the market later this decade.
“A competitive market is getting increasingly competitive,” Grant said. “And that’s OK.”
--Editors: Kevin Orland, James Langford, Jeffrey Taylor.
-0- Mar/04/2010 05:01 GMT
To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.
To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net.
