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Some ask whether Monsanto, Pioneer agreed to set prices for genetically modified seeds
(Tuesday, Jan. 6, 2004 -- CropChoice news) -- David Barboza, NY Times: ST. LOUIS - Senior executives at the two biggest seed
companies in the world met repeatedly in the mid- to late
1990's and agreed to charge higher prices for genetically
modified seeds, according to interviews with former
executives from both companies and to court and other
documents.
The Monsanto Company and Pioneer Hi-Bred International Inc.
acknowledge that their executives met to discuss
genetically modified seeds. Monsanto also said the
companies discussed prices, but added that they were
engaged in legitimate negotiations about changes to an
existing licensing agreement, not illegal price fixing.
Interviews with former and current executives of major seed
companies, along with company documents, however, show that
through much of the 1990's Monsanto tried to control the
market for genetically altered corn and soybean seeds.
Monsanto spent billions in the 1980's to invent specialized
seeds and sold the rights to make them to big seed
companies like Pioneer.
More than a dozen legal experts contacted by The New York
Times say that if the goal of the talks between the rivals
was to limit competition on prices, they would have
violated antitrust laws.
The talks, which occurred from 1995 to 1999, involved
licenses that let Pioneer sell altered seeds developed by
Monsanto, which is based here. In those talks, according to
interviews with dozens of executives and court and other
documents, the companies discussed prices, swapped profit
projections and even talked about cooperating to keep the
prices of genetically modified seeds high.
The talks involved top executives at both companies,
including Robert B. Shapiro, then Monsanto's chief
executive, and Charles S. Johnson, then Pioneer's chief
executive, as well as Richard McConnell, now president of
Pioneer, and Robert T. Fraley, now Monsanto's chief
technology officer, according to company officials and
documents. Together, Pioneer and Monsanto control about 60
percent of the nation's $5 billion market for corn and
soybean seeds.
Also in the late 1990's, Monsanto pressured at least two
other big seed companies to coordinate their retail pricing
strategies with Monsanto's, former chief executives at
those companies said. The executives, who ran Novartis
Seeds and Mycogen, said they rejected Monsanto's entreaties
as anticompetitive and potentially illegal.
Analysts estimate that more than $10 billion worth of
genetically altered seeds have been sold in the United
States since they were commercialized in 1996. Monsanto and
Pioneer did not have to succeed in actually raising retail
seed prices to have violated the Sherman Antitrust Act,
legal and economic experts say; just agreeing to coordinate
prices is against the law.
Companies found to have violated federal antitrust law
could be subject to criminal fines and civil class-action
litigation. In the civil lawsuits, courts can award triple
monetary damages.
"If they're talking to Pioneer about raising the ultimate
price to the farmers, that's illegal," said Austan
Goolsbee, a professor of economics at the University of
Chicago and a former Justice Department consultant on
antitrust issues. "Monsanto shouldn't care about the final
price. They should only care about the royalty payments
they receive from Pioneer."
Royalty payments were at the heart of the matter. Before it
realized how successful altered seeds would be, Monsanto
sold the technology to some companies, including Pioneer,
for relatively modest sums. When the seeds proved to be a
hit, Monsanto tried to renegotiate many of those deals to
ensure that the seeds sold for higher prices, executives
and records show.
Monsanto said it brought up those early agreements only in
the context of negotiating a licensing deal with Pioneer
for new seeds that Monsanto was developing.
"Monsanto did offer to expand and revise existing licenses
with Pioneer," Lori J. Fisher, a Monsanto spokeswoman, said
in an e-mail message. "In the context of a potentially new
license for technology, it is absolutely within the law to
discuss the price and the means of compensation to the
licensing party."
Pioneer, a division of DuPont, also denied that the
discussions were used to fix prices. "We set our own
prices," it said in a statement. "We do it independently,
and without consultation with our competitors." It added
that it believed that all of its talks with Monsanto about
technology licensing were "legitimate and appropriate
business negotiations" intended to benefit its customers.
"Pioneer at no time engaged in illegal or inappropriate
activity regarding the prices of our products," it said.
Some leading antitrust experts, however, said the talks
resembled an effort to suppress competition on retail
prices for seeds, though they cautioned that they had not
seen documents in the case.
Before Monsanto struck the 1992 and 1993 licensing
agreements with Pioneer, it had monopoly rights to its
technology and could set any price it wanted. But once
Pioneer bought the licenses, it became Monsanto's
competitor and, legal experts say, the companies were no
longer supposed to talk about how much to charge.
"Once you've created the competition," said George Hay, a
law professor at Cornell University, "you can't take other
steps to snuff it out."
The Justice Department is already looking into whether
Monsanto engaged in anticompetitive action in the herbicide
market, which it dominates with its Roundup weed killer.
The department is aware of the seed pricing talks,
according to government officials. But it is unclear if a
formal inquiry has begun. A department spokeswoman declined
comment.
And a group of farmers filed a class-action lawsuit against
Monsanto in 1999, accusing it of several misdeeds,
including seeking to organize a cartel to control the
market for biotech seeds. In September, a federal judge
here dismissed some claims, but not the accusation of price
fixing. The farmers' lawyers have appealed the judge's
rulings.
Monsanto began its work on seeds in the 1980's, when it
applied the emerging science of genetic engineering to
agriculture. One idea was to develop soybeans impervious to
Roundup, which would let farmers attack weeds without
killing crops. Another idea was to make a type of corn with
its own insect repellent, to save the cost and trouble of
killing pests.
The company spent hundreds of millions of dollars on these
and other projects, and when the first altered seeds were
ready for market, it sold the rights to produce and market
them. Pioneer was one of the first to sign up, paying
$450,000 in 1992 for nonexclusive rights to altered soybean
seeds. In 1993, Pioneer paid $38 million for nonexclusive
rights to the biotech corn.
Monsanto officials initially viewed the deals as a vote of
confidence in biotechnology, former executives said. But
soon after, some senior executives complained that the
technology had been sold too cheaply.
"I left in '93, and they tried to undo the deal," said
Geert Van Brandt, a former Monsanto executive who helped
negotiate the 1993 agreement. "They wanted more money; they
wanted to have their cake and eat it, too."
By 1995, Monsanto revamped its licensing program to what
some executives called a value capture system to reap
bigger profits. Under this system, companies that licensed
the technology had to require farmers to sign a grower
licensing agreement that forbade them to replant seeds
saved from harvest. Monsanto also required the companies to
charge a technology fee for every bag of biotech seed;
licensees were to collect the fee and pay it back to
Monsanto.
Most big seed companies - including several that Monsanto
has since acquired - agreed to use the system, which legal
experts say is a legitimate exercise of Monsanto's
licensing and patent rights.
But one major company was absent from the program: Pioneer,
which already had the right to sell Monsanto's altered
soybeans and corn. Worried that Pioneer might undercut
prices being charged by other licensees, Monsanto asked
Pioneer to renegotiate the 1992 and 1993 deals, according
to executives involved in the talks.
"We bought Roundup soybeans for about $500,000," said
Thomas N. Urban, the former chairman and chief executive of
Pioneer. "They hated us. Every time we had a meeting,
they'd say, `You need to pay us more.' We said, `Why?' "
Monsanto executives wanted to make their pricing system an
industry standard, according to former industry executives.
"We had commercial concerns about somebody willfully
trading away the value of the technology," said Arnold
Donald, Monsanto's former president and a leading figure in
the Pioneer negotiations. "If Pioneer and Asgrow went out
and charged a normal seed price and didn't put any value on
the technology, in that scenario, we have no value."
Asgrow is the nation's biggest soybean seed producer;
Monsanto bought it in 1997 for $240 million. Mr. Arnold
said he believed that what Monsanto did was legal.
Pioneer, however, was reluctant to go along, according to
current and former Pioneer executives, because it saw no
advantage in collecting a separate fee for its rival and
because it worried about offending customers by adopting
the grower agreement, effectively forcing them to buy new
seed every year.
But former executives who were briefed on the talks say
that Pioneer considered acceding to Monsanto's proposal in
exchange for more advanced seeds and for getting the
underlying genetic engineering expertise, called enabling
technologies, that Pioneer could use to develop new seeds
by itself.
Monsanto balked at sharing that technology, according to
lawyers and executives. Instead, it offered other
incentives, including $25 million, if Pioneer would adopt
the grower agreement and technology fee in 1995, according
to lawyers. At one point, Monsanto also offered to let
Pioneer keep the technology fee just so long as it charged
one.
"We said, `Just go with our form and keep the money.' And
they didn't want to go," said Mr. Donald, now the chief
executive of Merisant, a Chicago company that makes
artificial sweeteners.
When talking failed, Monsanto tried a threat. Former
Monsanto executives said they told Pioneer they would
withhold new technology from Pioneer if it did not
renegotiate.
"We said, `You paid us; you have every right,' " Mr. Donald
said. " `But now we have a value capture for the industry.'
And we said, `If you want future technology from us, you
need to honor it.' "
Monsanto and Pioneer, which is based in Des Moines,
declined to discuss specifics of their talks.
In 1997 and 1998, Pioneer executives told Monsanto they
would agree to simply charge an "elite" or premium price -
in effect agreeing not to compete with Monsanto and its
partners on price - in exchange for Monsanto's giving
Pioneer access to new varieties of modified seeds and the
technology to make others, according to people who have
seen documents relating to this.
Mr. Shapiro declined to comment when reached by telephone.
Other current executives of Monsanto and Pioneer who
participated in the talks were not made available for
comment by the companies.
In the mid- to late 1990's, Monsanto sought similar
agreements from other rivals, according to former seed
executives.
For example, Monsanto asked the seed unit of Novartis, the
Swiss maker of drugs and nutrition products, to charge
premium prices for its altered soybeans even though
Novartis, like Pioneer, had a license to market them
independently, according to former executives.
"They came to us; they did pose that question," said Ed
Shonsey, the former chief executive of Novartis's crop
science unit. "We felt it was inappropriate. We refused."
In 1995, Monsanto asked Mycogen, which is based in San
Diego, not to compete with Monsanto or its partners on the
price of biotech seeds in exchange for access to some of
Monsanto's patented technologies, according to former
executives and others who were close to the talks.
Carlton Eibl, former chief executive of Mycogen, said
Monsanto also sought to combine its seed technology with
Mycogen's to bring his company into Monsanto's pricing
system.
"They wanted us to license enough of their technology so
they could control pricing under the G.L.A.," he said,
referring to Monsanto's grower licensing agreement. "That
was a fundamental thing about controlling price that we did
not agree with. No matter how you look at it, it was
anticompetitive." Mycogen later was acquired by Dow
Chemical.
Monsanto denied it sought an agreement on price with either
Novartis or Mycogen; it said it was simply engaged in
licensing negotiations.
Source: http://www.nytimes.com/2004/01/06/business/06SEED.html?ex=1074392830&ei=1&en=7b3d1089ac4d7e3d | |
