Seed World

The History of IP and Consolidation in the U.S.

puzzle pieces representing merger of companies

There’s been a discussion in the air throughout 2022 in the seed industry, and it specifically stems from whether or not competition is being stimulated in the U.S. seed industry.

On March 11, the USDA initiated a public inquiry urging the public to reach out with their comments regarding seeds, fertilizer and retail markets. The comment period was a result of the July 9, 2021 Executive Order on “Promoting Competition in the American Economy” where President Biden put into action 72 initiatives aimed to combat what he called competition issues in the economy.

Though the USDA hasn’t announced their final decision on the matter, the commentary period ended on June 15, with different stakeholders from the seed industry reaching out to give their perspective on a multitude of aspects — including intellectual property (IP) and seed.

On our last Strategy Webinar, Seed World asked two experts an important question that’s floating around the industry: does IP protection hinder or encourage competition in the seed industry?

The History of IP and Consolidation is Newer

IP protection is one of the founding principles of the U.S. —  the founding fathers recognized the importance of legal protection for somebody’s new inventions and original works, says Joel Cape, owner of Cape Law Firm in Fayetteville, Ark. Essentially, IP was created to provide incentive for people to develop new products and new inventions.

 While IP has been a fundamental principle for a long time, as applied to plant materials, it’s still fairly recent in the realm of history.

As people become more involved with developing new varieties, the Plant Patent Act of 1930 was established — but it was more limited in scope.

“That was limited only to asexually reproduced plants — for lack of a better word, cuttings — because those were genetically identical to the parent can be reproduced in a stable fashion,” Cape says, adding that seed-reproduced plants weren’t originally included because there was a belief that you couldn’t reproduce them in a uniform and stable fashion.

As technology and scientific understanding evolved around plant variety development, the Plant Variety Protection Act was added in 1970, which was legislation that developed the protection of seed-reproducing plants.

Eventually, the Supreme Court decided that living organisms could be patented in  Diamond v. Chakrabarty, the case which established the framework for protecting plant materials with utility patents, which Cape notes is what most people think of when they think of intellectual property.

“That decision in 1980 really started laying the groundwork for a lot of the protections that we use in the seed industry today,” Cape says.

“Fundamentally, intellectual property protection is good,” says he continues. “It enables firms and people that are investing time, resources and effort developing products to better our lives to obtain what we typically call a limited monopoly — a limited time within which you can take advantage of your unique effort and financially profit from it. Those are good things that has driven the innovation of a lot of things we enjoy today, and certainly is true in the seed industry.”

In the seed industry though, some consequences have developed. Mostly due to a rapid consolidation within the sector.

“We’re seeing a lot less competition and a lot more consolidation in many industries — not just seeds,” says Phil Howard, professor in the Department of Community Sustainability at Michigan State University. “There’s a trend towards fewer and larger firms, and that’s a result of, in many cases, they are being allowed by government.”

On top of that, Howard notes that in comparison to other industries, consolidation within the seed sector has developed more rapidly than other sectors.

“In the U.S., over 80% of the beef processing market is held by just four firms,” he says, noting that the beef processing industry is an extreme example. “But the seed industry is even more consolidated, looking at it globally where you have — as of about 10 years ago — just three firms controlled about half the world’s market for proprietary seeds.”

Why has there been such a rapid growth in the seed sector so quickly? Howard notes that it actually stems from the development of the Plant Variety Protection Act of 1970 which spurred forward IP rights.

“That spurred a lot of acquisitions in the 1970s,” he says. “The seed industry in the U.S. was characterized by a lot of mom-and-pop firms that were making a living, but not making a killing. Eventually, it was the chemical companies that ended up acquiring well over 200 of the largest seed companies in the world — and those have been combined into these handful of firms.”

In the realm of IP, that means fewer firms are owning a majority of the rights. Concentration of the firms owning IP has become an issue in modern agriculture.

“Once the intellectual property is granted, these rights and the way they’re administered are fairly burdensome,” Cape says. “Partly because of the consolidation issue we’ve talked about — these rights are now held by very few firms, and when they’re held by few firms, it makes it really difficult. The licensing schemes that we see today are fairly onerous and difficult for midsize or smaller firms to handle — or frankly, to understand.”

What does this mean for seed companies in the present day? Make sure to tune into part two of this article, and watch the webinar below:

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