Frederick L. Sample, et al. Versus Monsanto Co., et al. (The Antitrust Component)

Transcription

1 Frederick L. Sample, et al. Versus Monsanto Co., et al. (The Antitrust Component) Introduction In this case Monsanto and other life science companies, the defendants, had a class action lawsuit filed against them. The lawsuit alleged that the defendants were fixing prices on genetically modified seeds and conspiring to restrict trade in this market. The plaintiffs sought treble damages for U.S. antitrust law violations, compensatory and punitive damages and injunctive relief prohibiting Monsanto s anticompetitive behavior. ( A further discussion of each side s arguments, the court s ruling, a discussion of whether a solid case can be made and more are discussed below. The Plaintiffs Four plaintiffs in this case made the accusations on behalf of themselves and as representatives of three classes: the GM Purchaser Class, the Illinois GM Purchaser Subclass and the Non-GM Grower Class. The GM Purchaser Class includes all persons and entities (excluding Defendants and their co-conspirators, their officers, directors, employees and government entities) who purchased herbicide-resistant GM soybean seed and/or Bacillus thuringiensis (Bt) corn seed for delivery in the United States, at any time from January 1, 1996, to present, directly from the Defendants, their co-conspirators and/or their selling agents. This class sought treble damages and injunctive relief under the United States antitrust laws. The Illinois GM Purchaser Class is part of the GM Purchaser Class, but also sought relief in the form of compensatory and punitive damages under the Illinois Consumer Fraud and Deceptive Business Practices Act and Uniform 1

2 Deceptive Trade Practices Act. The persons or entities in this class had to purchase the seed for delivery in Illinois. The Non-GM Grower Class includes all persons and entities (excluding Defendants and their co-conspirators, their officers, directors, employees and government entities) that have grown non-gm corn or non-gm soybeans in the United States for commercial sale from January 1, 1999, to the present. This class sought compensatory and punitive damages and injunctive relief under the common law. The four plaintiffs in this case include Frederick L. Sample, a soybean farmer from Franklin County, Illinois, who in the past has bought non-gm soybean seeds from Monsanto and the other defendants. He has also saved this non-gm seed to use for replanting the following years. The seed that Mr. Sample does not save is sold for commercial use either domestically or abroad. George Naylor is a corn and soybean farmer from Greene County, Iowa. Like Mr. Sample, Naylor in the past has been a purchaser of non-gm seed from the defendants. Naylor also occasionally saves seed to use for planting, but mostly sells it for commercial use in domestic or international markets. C-K Farms, owned by Chris Peterson, is located in Cerro Gordo County, Iowa. Peterson is a corn and soybean producer and has previously purchased Roundup Ready GM corn seed and Roundup Ready soybean seed from the defendants. Bob L. McIntosh from Pulaski, Illinois, is a corn and soybean farmer. In the past, McIntosh has purchased Roundup Ready soybean seed and Bt corn seed from Monsanto and the other defendants (United States District Court for the Eastern District of Missouri, First Amended Class Action Complaint). The Defendants The Defendants in this case are Monsanto Company (Monsanto); Pioneer Hi-Bred International, Inc. (Pioneer); Syngenta Seeds, Inc. and Syngenta Crop Protection, Inc. 2

3 (Syngenta); and Aventis CropScience USA Holding Inc. (Aventis). These four companies are transnational corporations that individually and through subsidiary corporations, produce and sell genetically modified corn and soybean seed (United States District Court for the Eastern District of Missouri, First Amended Class Action Complaint). Background Information Antitrust Regulations Antitrust regulations were a main part of this case. Generally, there are three kinds of violations of the antitrust laws. The first violation deals with conspiring to suppress competition. The use of predatory or exclusionary conduct to acquire or hold onto a monopoly is the second violation. The third type of violation deals with mergers that are likely to significantly reduce competition in a market. Antitrust regulations are in place to ensure consumers receive the benefit of competitive prices, innovation and efficiency, free from artificially imposed restraints ( Contracts, Technology Fees and GM Technologies When growers purchase a Monsanto insect- or herbicide-resistant seed, they have to sign a contract that forbids them from reusing the seed the following year. The contract also states that only Roundup can be applied to the herbicide-resistant seed. In addition, growers must pay a technology fee to the seed company, which collects them for Monsanto. The seed company, in turn, receives a small handling fee. For Bt corn, a $35 per-unit fee is assessed. However, this fee was generally more in the $15-30 range. Roundup Ready soybeans were charged a $5 per-unit fee, which has increased to $6.50 3

4 due to lower Roundup herbicide costs (Hayenga). In 1997, these fees totaled $91 million, $224 million in 1998, $221 million in 1999 and $234 million in Monsanto is a key holder of the GM technologies in this case, which it licensed to other companies. These technologies are the Roundup Ready gene, which makes soybeans resistant to Monsanto s Roundup herbicide, and one form of the Bt trait commercialized under the YieldGard name (United States District Court for the Eastern District of Missouri, First Amended Class Action Complaint). Plaintiff s Claims Price Fixing There are two counts against the defendants on this issue: Count I Conspiracy to Fix Prices in Violation of Section 1 of the Sherman Act (Against Monsanto, Pioneer and Syngenta) (Deals with GM herbicide-resistant soybean seed prices) Count V - Conspiracy to Fix Prices in Violation of Section 1 of the Sherman Act (Against Monsanto, Pioneer and Syngenta) (Deals with Bt corn seed prices) In the early 1990s Monsanto signed licensing agreements with Pioneer and Novartis (Syngenta s predecessor) for the use of Monsanto s Roundup Ready soybean technology. Prior to 1996, Pioneer and Novartis signed agreements with Monsanto to obtain access to the YieldGard technology for corn. At the time, these agreements did not require Pioneer or Syngenta to charge a technology fee. Around 1996, Monsanto began to examine the possibility of imposing a uniform technology fee at the point of sale for all seeds containing the Roundup Ready or YieldGard trait. Monsanto induced its competitors to charge these fees by sharing some of the profits from the technology fee. The percentage of this fee each defendant would receive was determined by market power. The Plaintiffs allege this fee had several purposes and effects, including: 4

5 suppressing price competition in GM seeds among companies; obtaining supra-competitive profits from growers due to uniform prices; and guaranteeing fixed margins for licensees, which prevents potential sellers of new GM traits from obtaining licenses with seed companies to bring their products to market. Reduced Competition in the Bt Corn and Herbicide-Resistant Soybean Seed Markets There are four counts against the Defendants on this issue: Count II Conspiracy to Unreasonably Restrain Trade in Violation of Section 1 of the Sherman Act (Against all Defendants) (Deals with GM herbicide resistant soybean seed) Count III Monopolization of the Technology Market for Herbicide-Resistant Traits in Soybean Seeds in Violation of Section 2 of the Sherman Act (Against Monsanto) Count IV Conspiracy to Monopolize the Herbicide-Resistant Soybean Market in Violation of Section 2 of the Sherman Act (Against Monsanto, Pioneer and Syngenta) Count VI Conspiracy to Unreasonably Restrain Trade in Violation of Section 1 of the Sherman Act (Against Monsanto, Pioneer and Syngenta) (Deals with Bt corn seed) The Licensing Agreements that the Defendants signed with Monsanto contained strict prohibitions for the Defendant companies. The Defendant companies, for example, were not allowed to add traits to the YieldGard or Roundup Ready traits, a process known as stacking. This restriction raised the barriers to entry to the market for GM corn and soybean seeds and, hence, reduced competition in the Bt corn and GM herbicide-resistant soybean seed markets. The technology user agreements users sign contain strict guidelines for growers. These agreements restrict growers with severe potential punishments for saving seed and replanting it the following year. Not allowing growers to retain seed for replanting also 5

6 reduces research and development investment in creating new seeds every year because there is less of a need to attract the growers who previously retained seed to replant. The agreements also mandate farmers use only Roundup herbicide on Roundup Ready soybeans, thus increasing Monsanto s product usage. Uniform prices have a result of reducing the initiative to develop each defendant s own GM traits for herbicide-resistant and Bt seeds. This lessened incentive results in Monsanto s Roundup Ready soybean and YieldGard corn seeds controlling a significant portion of their respective markets. Monsanto also entered into an agreement with AgrEvo (predecessor corporation to Aventis) to limit the availability of Aventis Liberty Link soybean seeds to growers. Liberty Link soybeans are genetically modified to resist glufosinate, a broad-spectrum herbicide. Liberty Link soybean seeds are the main competition for Roundup Ready soybeans because they allow for an over-the-top application of a herbicide without damaging the crop. Monsanto also signed similar agreements with smaller companies to keep other potential competing traits out of the market. The Defendants are also being accused of limiting the quality and quantity of non-gm varieties available to growers and reducing the amount of research and development on non-gm varieties, both internally and externally, by controlling research at land grant universities. Also, the Defendants have purchased non-gm seed companies in order to limit their product introductions into the market (United States District Court for the Eastern District of Missouri, First Amended Class Action Complaint). Classes 6

7 The plaintiffs sought to certify two antitrust classes in this case. Class One was based on Counts I, II, III and IV and was called The Roundup Ready Soybean Seed Farmer Antitrust Class. Class Two was based on Counts V and VI and was named The YieldGard Corn Seed Farmer Antitrust Class (United States District Court for the Eastern District of Missouri, Notice of Orders or Judgments). Defendant s Motions to Dismiss The Defendants essentially made two main arguments during their motions to dismiss the antitrust claims. The first argument dealt with Monsanto s patent rights, which the Defendants felt gave Monsanto the right to grant licenses however it deemed appropriate. The second argument the Defendants proposed was that the Court imposed a higher pleading standard on the Plaintiff s claims. The Defendants charge that the Plaintiffs have tried to take discovery from Monsanto by acquiring information that generally is not public information. The Defendants also brought up the issue of being able to construe the Plaintiff s allegations in a way that would lead to the claims being dismissed. Another point the Defendants brought up was that there was no economic motive for the Defendants to engage in antitrust activities or conspiracies. Market definitions were another issue challenged by the Defendants because they felt the definitions were implausible. The Defendants also raised the issue of the lack of factual allegations to show that Monsanto s market position was not just a result of the effectiveness and popularity of the Roundup Ready soybeans (The United States District Court for the Eastern District of Missouri, Plaintiffs Consolidated Opposition to Defendants Individual Motions to Dismiss). Class Action Standard 7

8 One or more individuals can act as representative parties on behalf of a class under the Federal Rule of Civil Procedure 23(a). In order to sue, the individuals need to be able to meet some criteria: the class has to so numerous that joinder of all members is impracticable, there are questions of law and fact common to the class, the representative individuals claims or defenses are typical across the class, and the individuals will fairly and adequately protect the class interests. The proposed class must also meet the requirements of the subcategories of Rule 23(b). Thus, the Plaintiffs must also prove that common questions predominate over any questions affecting individual members, and that class resolution is the best means for fair and efficient adjudication of the issue. Ruling The Plaintiffs met all the requirements under Rule 23(a), but failed to meet the criteria of Rule23(b). Thus, the class certification was denied. The judge made this ruling because the Plaintiffs did not sufficiently prove that there was a class wide impact. The judge identified some major issues that lead to the class certification being denied. The first issue was that GM seeds are not homogenous products, and markets for this seed vary depending on factors such as location, growing conditions, consumer preferences and others. Another issue was that the germplasm component of the seed could not be clearly identified from the rest of the seed. Germplasm is a major factor taken into account when pricing seed. Thus, the price-fixing scheme is not the sole reason for the price premiums paid for GM seeds. Defendant evidence also showed that discounts and rebates were given to growers to help offset premium seed costs, and that GM seed was in actuality not offered at a uniform price throughout the market. These issues lead to the case decision going in favor of the Defendants. 8

9 Individual Challenges In the decision to not allow class certification, the judge wrote that this issue is a highly individualized, fact-intensive inquiry that would require consideration of factors unique to individual growers. This brings up the issue of whether this ruling opens the door for individual growers to sue the defendants. The judge feels that it is highly unlikely that the alleged conspiracies could even be proved through common proof due to the reasons that the Plaintiffs were not able to obtain class certification (United States District Court for the Eastern District of Missouri, Notice of Orders or Judgments). Prices A closer look at seed costs for Roundup Ready soybeans and Bt corn will help to show how difficult it would be to win this case against the Defendants as an individual or under an antitrust suit. A bag of Roundup Ready soybeans from Garst, PSA or Asgrow initially would cost around $25 to $26. Bt corn from these suppliers would initially be priced around $144 a bag. However, rarely does a grower ever pay these prices. The grower is given discounts for items such as the quantity of seed purchased and cash discounts. When all is said and done, the growers can expect to pay around $22 for Roundup Ready soybeans and anywhere from $110 to $120 for a bag of Bt corn seed (Scott). After discounts (see Table 1), Pioneer customers can expect Roundup Ready soybean prices to be between $20 and $22. As for Bt corn, after discounts (see Table 1) the price for a bag of seed will be in the $100 to $120 range (Woodall). Table 1: Pioneer Corn Discounts (Pioneer) Pre-Season Early Season In Season Date Oct. 1, 2003 Dec. 5, 2003 Dec. 6, 2003 Jan. 16, 2004 Jan. 17, 2004 April 30,

10 Quantity Savings Published Schedule Published Schedule Published Schedule Commitment 7% 5% 1% Reward Cash Savings or Defferred Payment Terms 2% Prime 2% Prime 1% Prime + 1% Conclusion In this case, Monsanto and other life science companies (the defendants) had a class action lawsuit filed against them. The lawsuit alleged that the defendants were fixing prices on genetically modified seeds and conspiring to restrict trade in this market. The court s ruling came back on the side of the Defendants, as the antitrust class certification requests were not approved. Further lawsuits on this matter will have to be at the individual level. However, this appears to be difficult to win as well. 10

11 Bibliography 1. Marvin L. Hayenga, Structural Change in the Biotech Seed and Chemical Industrial Complex, AgBioForum, vol. 1, no. 2, Fall, 1998, pp Tim Scott, Webster City s United Coop, phone interview. 3. United States District Court for the Eastern District of Missouri, First Amended Class Action Complaint 4. United States District Court for the Eastern District of Missouri, Notice of Orders or Judgments 5. United States District Court for the Eastern District of Missouri, Plaintiffs Consolidated Opposition to Defendants Individual Motions to Dismiss 6. Alex Woodall, Pioneer District Sales Manager, phone interview