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By Joseph Marks
Sept. 16 — Bayer AG’s $66 billion acquisition of Monsanto Co., which will make the German pharmaceutical giant the largest supplier worldwide of seeds and pesticides, is backed by a strong and courtroom-tested patent portfolio.
Patents for Monsanto’s Roundup Ready and INTACTA genetically modified seed varieties produce billions in royalties each year. They’ve also survived numerous challenges both in courtrooms and at the Patent Trial and Appeal Board, a fast-track tribunal to invalidate patents. That means royalty money isn’t likely to dry up anytime soon.
“A lot of validity issues have been tested already; the prior art’s been smoked out,” Neil Smith, a partner at Rimon P.C. and a former administrative patent judge for the PTAB’s Silicon Valley office, told Bloomberg BNA. “These patents are established as valid. There aren’t a lot of new attacks available.”
Most importantly, a 2013 Supreme Court ruling affirmed that farmers must buy new seeds resistant to Monsanto’s Roundup herbicide each year rather than saving Roundup resistant seeds from each crop to plant the next season ( Bowman v. Monsanto Co., 133 S. Ct. 1761, 1764, 2013 BL 125908, 106 U.S.P.Q.2d 1593 (2013).
Monsanto holds about 6,300 active U.S. patents and patent applications and a roughly equal number of foreign patents and applications, spokeswoman Christi Dixon told Bloomberg BNA.
The U.S. patents for the first generation of Roundup Ready seeds expired in 2014, but the patents for a second generation remain valid. Generic equivalents for first generation Roundup Ready seeds have not captured a broad share of the market.
Monsanto’s foreign patents and the regulatory hurdles that accompany them are particularly important in the genetically modified seed business because crops are commodities that are typically collected in bulk and shipped to numerous markets, with crops from the same pool going to the U.S., Europe and Asia, said Christopher Holman, a University of Missouri-Kansas City law professor specializing in intellectual property and biotechnology.
For non-commodity products, such as technology and pharmaceuticals, it’s much easier to control which markets to sell in, Holman said.
“If there’s any part of the world where it can’t be exported, that’s a disincentive,” he said.
Monsanto patents will also buoy Bayer’s position in its own patent disputes by giving it a broader portfolio with which to fight back. The German company’s crop sciences division has battled the agricultural division of Dow Chemical Co. over infringement and licensing disputes at U.S. district courts and the U.S. Court of Appeals for the Federal Circuit, as well as before the International Trade Commission.
Bayer is currently appealing a patent infringement suit it brought against Dow, concerning four patents for genetically modified plant cells, to the Federal Circuit.
Dow is also seeking to combine with DuPont Co. A combined Dow and DuPont, along with Monsanto and Bayer, would control nearly three-quarters of the U.S. market for corn seeds and about 65 percent of the soybean market, according to 2015 data from Verdant Partners, a Champaign, Ill.-based agriculture consulting firm, Bloomberg reported.
Monsanto settled a patent dispute with DuPont for licensing payments of at least $1.75 billion in 2013.
Both the Bayer-Monsanto and Dow-Dupont combinations are likely to face significant antitrust reviews, which could affect the companies’ intellectual property holdings.
Bayer and Monsanto said they will seek approval for the acquisition in 30 jurisdictions around the world, including the U.S., European Union, Canada and Brazil, and don’t expect to close until the end of 2017.
Herbicide-resistant seeds are likely to be a focus of those reviews, according to Jason Miner, an analyst at Bloomberg Intelligence.
The Bayer-Monsanto acquisition is also raising concerns among lawmakers. Some European Parliament members have started online petitions claiming the combined Bayer-Monsanto company would dominate the seed market, Bloomberg reported. Senate Judiciary Chairman Chuck Grassley (R-Iowa) expressed concern about the deal Sept. 14 and scheduled a Sept. 20 hearing to examine proposed mergers in the seed and chemical industries.
“As mergers continue to occur in the seed, agrochemical and fertilizer industries, federal antitrust regulators must be ever more vigilant to ensure a robust competitive environment in this important sector,” Grassley said in a statement.
Outside of patents, the proposed merger raises an additional intellectual property question, Smith and Holman noted. That is, whether the combined company will take advantage of the acquisition to stop using Monsanto’s name and trademark, which have been damaged by public opposition to genetically modified crops or a general reputation of beating up on small farmers.
Critics have pilloried Monsanto for regularly and successfully suing farmers for planting seeds without paying royalties. The company also won an appeals court victory in 2013 over a coalition of organic and traditional farmers who sought to force the company to promise never to sue farmers who accidentally planted seeds containing patented Monsanto traits. However, the company mostly ceased filing infringement suits after its 2013 Supreme Court victory.
“Trademarks are usually a large asset, but Monsanto’s not a very good name,” Smith said. “It will be interesting to see if they continue to use the Monsanto name or, as a result of the merger, maybe do some rebranding and dilute some of the identification.”
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