Purpose

In this era of biotechnology-enhanced seeds, broad-spectrum herbicides and corporate R&D, farmers are consumers of licensed technologies; input suppliers are developers of new "super seeds"; and governments are regulators of such technologies.

And the U.S. patent system is at the nexus of the policies and strategies of these three groups.

The patent system, however, also imposes costs. Example: the license fee for Roundup Ready soybeans can be as high as 40%.

These are direct costs for farmers which may not be entirely offset by corresponding reductions in other input costs or increases in yield, as a result of variations in commodity prices.

Yet the patent system plays an important role in improving the efficiency of production agriculture by introducing new technologies. Patents stimulate private R&D investment required for such technologies by conferring to inventors exclusive limited rights for making, selling or using the patented invention.

The purpose of this project is to develop models that will help clarify whether such inventions provide net benefits to growers as a result of license fees and higher prices that must be paid for the use of such technologies. Incorporated in this project purpose is the understanding that a patent system that fails to provide inventors with adequate patent protection ultimately reduces the scale of R&D, and hence, the supply of innovative technologies.

Objectives

The patent system provides new technologies which are ultimately adopted by producers and processors. These patents on agricultural inputs which impose costs and generate benefits for producers are a key determinant of producer welfare.

There is an incomplete understanding of the process by which the patent system creates incentives for agricultural R&D. While the benefits of such new technology, which are distributed throughout the value chain, may be evident, it remains unclear how the patent system enables the inventor to appropriate the benefits of such technologies.

In addition, scope of patent protection and rules of patent enforcement determine how rents in the agricultural value chain will be distributed among various players by virtue of the market power conferred to the seller.

This research addresses three issues for producers:

1. What is the effect of patents in inducing technical change? How does the patent system affect the speed of innovation and the type of inventions that are created?
2. How does the patent system affect rent sharing (license fees) in the agricultural value chain? Does the market power conferred by patent protection allow inventors to reap downstream profits related to transformation, processing and distribution?
3. What are the trends in patenting and R&D investment that support the propositions about technical change and rent sharing in agricultural value chains?

Impact

The study will seek to provide the following:

• A conceptual model for determining whether the gains from technical change outweigh the losses in welfare due to distortions to competition.
• A means of understanding whether improved, patented technology will likely result in increased benefits for farmers. Or will the benefits be appropriated solely by patent holders.
• Empirical evidence to corn and soybean producers regarding the benefit/cost of policies on the patent ability of genetically engineered germplasm.
• A model of the role and function of the patent system as a component of technical change in industrialized agriculture.
• Help define the role of experts and policy makers by distilling problems of rent-sharing, innovation and ownership into operational issues patent enforcement, technology licensing terms and public policies.
• A means of assessing the economic, institutional and organizational dimensions of value-adding and identity preservation.