April 27, 2010

ENVC Exercise 5 – updated

Question:

Your business is bringing out a new product which adds on to an existing product, that you already produce. You are keen to ensure that the take up of the add-on product is high but your manager needs to be assured that you are aware and mindful of anticompetitive practices. Set out the arguments you would give to your manager concerning what the business can and cannot do in this context.

Example & Analysis

For the purpose of this exercise I am going to use a real case of Monsanto vs DuPont about genetically modified soybeans. In May 2009 Monsanto sued DuPont claiming it was illegally selling new line of biotech seeds, which was add on to older soybeans developed under a license with Monsanto.

Clearly in this case we have a situation where license and terms of license are the core of the problem. It touches more general issue of how much freedom do the licensees have to use the licensor’s product and develop their own products based on it.

Licensor must make clear the limit of the license, so that licensee can be sure what they are getting. In this particular situation if we apply the logic of the antitrust law we end up questioning whether Monsanto had a right to restrict the license in such manner (provided those were the Terms & Conditions). If developing new products, as add on to the license property, is in favor and benefit of the market and customers, Monsanto might not have the right to restrict the license in this direction. Also considering the fact that in the area of herbicide tolerance technology in soybeans Monsanto has 97% of market share. In fact, the judge in this case kept this point opened and DuPont is challenging its licensing agreement with Monsanto on antitrust grounds.

Another aspect, which is perhaps triggering the whole discussion, can be hidden in the license agreement. Licensor generally seeks some way to ensure that the licensee will use its best effort to exploit the property and maximize the licensor’s income. Should there be other than flat royalty agreement by which licensor would have an option to benefit from the sale of products based on its property Monsanto would probably not be so concerned with restricting the license. However, having a weak chance to benefit from sales of new add on products or having just a flat royalty payment, Monsanto is apparently losing money to recover their R&D costs. Even further, should Optimum GAT – the new product of DuPont replace Roundup Ready corn, this would have devastating effect on Monsanto.

Genetically modified organism is a subject of controversy. Modification of biological states or processes that have developed over long period of time are seen by many as intolerable. Any GMO situation potentially outside of regulatory boundaries that surface to the public (whether intentionally or unintentionally) is attracting a lot of attention and will call for legal dealing. Such situations are and will in the near future cause public discussion with politic involvement. This has certainly also contributed in the case of Montsanto vs DuPont. Final rulings in such cases are creating very influential precedence and there will be therefore a lot of attention and political/public pressure in this case.

From the above example it is clear that IPR protection with the license agreement and its terms and conditions protecting intellectual property are the key elements of the business relationship involving intellectual property rights. Protecting company’s IPR without harming the market and being accused of intention to monopolize it is sometimes challenging, probably not always possible. Monsanto existence is at stake.

Coming back to our hypothetical situation described in the question, I would firstly ensure whether the add on product bares the same IPR as the original one. If not, it is vital that right level of IPR is secured, whether in the form of patent, copyright, trademarks, etc. It will secure that we are not going to lose on the market against the fast competitors and that we recover the invested R&D.

There are also areas which need to be taken into consideration in terms of anticompetitive practices to avoid violation of articles 81 and 82 of the EC Treaty, should the situation occur in EU:

  • Price/Profits
  • Potential price reduction effect on consumption
  • Market impact of price or supply differentiation
  • Tie-ins negatively impacting competition
  • Overtake entry strategy – Trade purchase
  • Selling exit strategy – Trade sale

The principles of US Intellectual property law is practically the same as in EU and many countries around the world are aligning to the same in order to enable the right conditions for companies to come and invest.

IPR in the home country

Observing situation with IPR protection in my home country (Slovakia), it is very much aligned to European Union standards as Slovakia is part of EU. Focus is currently on allowing faster electronic based processes around registration form, which is proceeding well. In general level of IPR protection is good and companies coming to invest to Slovakia are provided fair ground for their business.

Summary:

Selecting the right type of IPR (patent, copyright, trademarks) is a number one step to protect company’s future. In case of license agreement it needs to be ensured that it is supporting the IPR protection. Last but not the least, new products or add on’s strategy needs to be assed to ensure if it is legal, not in breach of antitrust law.

References:

Burke, A. (2009). Warwick MBA: Entrepreneurship and New Venture Creation. Coventry: Warwick Business School

Bygrave W.D and Zacharakis A (2004). The Portable MBA in Entrepreneurship. 3rd ed. Hoboken, New Jersey: John Wiley & Sons, Inc.

Bioscience Technology [Online]
http://www.biosciencetechnology.com/News/FeedsAP/2010/01/court-rules-for-monsanto-antitrust-case-remains (Accessed 27 April 2010)

UPVSR Annual Report 2009 [Online] http://www.indprop.gov.sk/swift_data/source/downloads/annual_reports/r_2009.pdf (Accessed 27 April 2010)

United States Patent and Trademark Office [Online] http://www.uspto.gov/ (Accessed 27 April 2010)


- One comment Not publicly viewable

  1. Harminder Singh

    Hi Beata
    you have covered the legislation and looked at the balance of IPR and anti-competetive practices- in a situation such as this would the politics/ public opinion surrounding gmo or similar foodstuffs be a consideration? Would it make it more likely that a legal challenge by mounted?
    Regards,
    Harminder

    27 Apr 2010, 23:30


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