Executive Summary

This work reassesses the role of plant variety protection in the U.S. intellectual property system. Our empirical assessment strongly suggests that the PVPA does not provide patent-like ex ante innovation and investment incentives and that the PVPA has not generated substantial ex post licensing and enforcement activity. Instead, its role in the United States appears to be very modest: it may serve as a marketing tool; it may provide some non-propagation licensing rights akin to contractual shrink-wrap rights, enforceable against those who deal in "saved" seeds; and it may provide a superior alternative to trade secret protection — for example, for seeds whose secret parent lines might otherwise be revealed through reverse engineering.

In a second arena, this project is motivated by asking why patent protection of seed and plant inventions seems to play such an important role in innovative activities in the agricultural sector despite the ongoing market consolidation in the agribusiness industry. This project finds that economic risk associated with R&D is reduced through selection and elimination processes for R&D projects, which has promoted private investments in agriculture. The findings also indicate that seed and plant patentees are struggling to decide whether to maintain their patents. Hence, one can expect continued market consolidation in the agricultural industries along with more aggressive enforcement of patent rights.

Further, this project examines enforcement of the intellectual property protection for seed and plant innovations through production contracts. A game theoretic model treating the farmer-saved-seed as moral hazards in the contract proposes dynamic pricing mechanisms for the foundation seed stock, consisting of the seed company's observable variables and credible threats against the farmer-saved-seed provided by either the seed company or the federal court system. Thus, the model suggests a contractual strategy to the seed company, which is an alternative to paying the farmer price premiums for the harvested seed.

Project Highlights

(1) We organized an international conference titled "Seeds of Change - A Link among Legal, Economic and Biotechnology Communities" from April 8th through 10th in 2004. It provided an arena where 27 research papers were presented, written by various scholars. Some of them came from outside the U.S., such as Canada, Germany, Switzerland, Unite Kingdom, Japan, and Republic of Korea. These research papers extensively discuss and tirelessly analyze issues related R&D effort in agricultural biotechnology in relation to intellectual property protection regimes. These issues promote communications interpreting intellectual property protection regimes that face ever advancing biotechnology, assessing agribusiness whose economy exhibits countless potential in marketing food products promised by commercial applications of biotechnology, and evaluating the intellectual property protection regimes in the context of international issues such as impacts that biotechnology has on farming practice and biodiversity in the developing countries.

It is the main goal of this conference to foster intellectual interests in issues that intertwine intellectual property protection regimes with advancements in agricultural biotechnology. This conference is one of the first attempts to bring together legal, economic and technological communities involved in these issues. It would mark a success by this conference if one witnesses more conferences in a future, where these communities meet and develop further discussions inspired by knowledge stored in a small cradle of life-seed.

(2) This project is motivated by asking why patent protection of seed and plant inventions seems to play such an important role in innovative activities in the agricultural sector despite the ongoing market consolidation in the agribusiness industry. This project finds that economic risk associated with R&D is reduced through selection and elimination processes for R&D projects, which has promoted private investments in agriculture. The findings also indicate that seed and plant patentees are struggling to decide whether to maintain their patents. Hence, one can expect continued market consolidation in the agricultural industries along with more aggressive enforcement of patent rights.

Further, this project examines enforcement of the intellectual property protection for seed and plant innovations through production contracts. The farmer-saved-seed is a minor concern under seed production contracts, whereas it draws a serious economic concern under contracts for seed sales. A reason for this is often attributed to price premiums that farmers under seed production contracts receive for their harvested seed from their contracting seed companies. This article examines economic rationales for this common practice by these seed companies.

A game theoretic model treating the farmer-saved-seed as moral hazards in the contract proposes dynamic pricing mechanisms for the foundation seed stock, consisting of the seed company's observable variables and credible threats against the farmer-saved-seed provided by either the seed company or the federal court system. Thus, the model suggests a contractual strategy to the seed company, which is an alternative to paying the farmer price premiums for the harvested seed.

(3) This work offers a critical reassessment of U.S. approaches to intellectual property protection for plant innovation. Three developments make this reassessment timely. First, the Supreme Court has finally confirmed that utility patent claims to plants and seeds satisfy the 35 U.S.C. Section 101 subject matter eligibility requirement. Plant innovation in the United States is now subject to utility patent protection, as well as concurrent protection under the Plant Variety Protection Act (PVPA). However, little work has been done to explain the role of PVPA protection in a system of concurrent protection, or to develop a coherent policy vision within which the utility patent and PVP systems might operate. Second, technological advancements, particularly in plant biotechnology, are making clear the value of germplasm. U.S. patent and PVPA regimes must be optimized to encourage private sector investment in germplasm development while retaining reasonable access to germplasm to accommodate farming practices and public sector activities. Third, intellectual property protection for plant innovation is a key international intellectual property issue. The TRIPS Agreement expressly allows World Trade Organization (WTO) countries the option of adopting sui generis plant variety protection systems as an alternative to — or in combination with — utility patent protection for plant innovation.

This work focuses on one facet of the reassessment project: the role of plant variety protection in the U.S. intellectual property system. We first assess U.S. plant variety protection from an historical and comparative perspective, analyzing the emergence of the concept of "breeders' rights" in Europe and its eventual appearance in the United States. We then delineate the "essential traits" of the modern PVPA and note its points of divergence from a patent-like model. Next, we conduct an empirical analysis of the modern PVPA in which we present the results of statistical PVP data and anecdotal studies of PVPA acquisition, licensing, and enforcement activity for corn and soybean crops.

We draw a number of conclusions from these studies. First, the history of plant variety protection regimes in the United States and abroad reveals that the role of plant variety protection in the overall intellectual property scheme has mutated greatly without any fundamental changes to the general statutory approach to plant variety protection. Whereas plant variety protection was initially designed as the primary (or even exclusive) form of intellectual property protection for seed-grown plants, the coming of plant biotechnology, and the dawning acceptance of utility patents for plants, has relegated plant variety protection to a secondary role. Modest statutory amendments to the PVPA have shown no real promise of lifting the PVPA up from this secondary status. Second, our empirical assessment of licensing and enforcement activities concerning U.S. plant variety protection certificates confirms that the PVPA regime as presently constituted plays only a marginal role in stimulating plant breeding research in the United States. Our assessment strongly suggests that the PVPA does not provide patent-like ex ante innovation and investment incentives and that the PVPA has not generated substantial ex post licensing and enforcement activity. Instead, its role in the United States appears to be very modest: it may serve as a marketing tool; it may provide some non-propagation licensing rights akin to contractual shrink-wrap rights, enforceable against those who deal in "saved" seeds; and it may provide a superior alternative to trade secret protection - for example, for seeds whose secret parent lines might otherwise be revealed through reverse engineering. Third, the insights from this paper have implications beyond the area of plant intellectual property rights. For example, we intend to adapt our analysis to analyze the effectiveness of other sui generis, technology-specific, legislatively created intellectual property rights, such as the Semiconductor Chip Protection Act. We then intend to formulate broader conclusions about the effectiveness of "small" and porous, technology-specific intellectual property rights regimes.

Publications

1. Designing an Optimal Intellectual Property System for Plants: A U.S. Supreme Court Debate, with M. Janis, 19 Nature Biotechnology 981 (2001).

2. Intellectual Property Protection for Plant Innovation: Unresolved Issues After J.E.M. v. Pioneer, with M. Janis, 20 Nature Biotechnology 1161 (2002).

3. U.S. Plant Variety Protection: Sound and Fury..., with M. Janis, 39 Houston Law Review 727 (2002) (Invited contribution to Symposium on The Future of Patent Law).

4. Weed-Free I.P.: The Supreme Court, Intellectual Property Interfaces and the Problem of Plants, with M. Janis, draft available, work-in-progress.

5. Seeds of Change: Intellectual Property Protection for Ag-Biotechnology, edited by Jay P. Kesan based on the Seeds of Change Conference. A publication date is scheduled for 2006.

6. Obsolescence of Utility Patents and R&D Risk in the Consolidated U.S. Seed Market with S. Umeno in the Journal of Agricultural & Resource Economics, Vol. 29, No. 3 (December 2004) as part of the Western Agricultural Economic Association Honolulu Meeting proceeding.

7. Obsolescence of Utility Patents and R&D Risk: A Cross-Industry Comparison submitted for the Journal of Industrial Economics (2004).

Presentations

1. "U.S. Plant Variety Protection: Sound and Fury…," with M. Janis, Symposium on the Future of Patent Law, University of Houston, May 31, 2002, Santa Fe, New Mexico (symposium article published in the Hous. L. Rev.).

2. "Intellectual Property and Plant Innovation," National Academy of Sciences, Board on Science, Technology and Economic Policy, Sept. 27, 2002, Washington, DC.

3. "Intellectual Property and Plant Innovation," 2002 ATRIP (International Association for the Advancement of Teaching and Research in Intellectual Property Teaching) Congress, October 6-8, 2002, New Delhi, India.

4. Speaker and Panelist, "Never Take Away a Man's Rice Bowl: The Ethics of Acquiring Patent or Trade Secret Ownership of Staple Food Genomes," ABA Mid-Year Meeting, Feb. 7, 2003, Seattle, Washington.

5. "IP Protection for Plant Innovation: What J.E.M. v. Pioneer Did Not Resolve," NC-1003 Conference on Intellectual Property and Agricultural Research: Implications for Public and Private Sectors, Feb. 28-Mar. 1, 2003, New Brunswick, New Jersey.

6. Speaker and Panelist at "Workshop on Future Public Policy and Ethical Issues Facing the Biotechnology Industry," organized by the University of Maryland School of Law and the U.S. Department of Energy, Sept. 12, 2003, Baltimore, Maryland.

7. "Imperfect Competition in Internet Markets: The Role of Network Effects in Determining Market Structure," with A. Gallo, 31st Research Conference on Telecommunication, Information and Internet Policy (TPRC), Sept. 20-21, 2003, Arlington, Virginia.

8. "Intellectual Property and GMOs," International Conference on Agricultural Science and Technology (ICAST), Oct. 12-15, 2003, Houston, Texas.

9. "Seed Production Contracts under Asymmetric Information: A Challenge for the Enforcement of IP Rights," with S. Umeno, Symposium: Seeds of Change—Intellectual Property Protection for Agricultural Biotechnology, UIUC, Apr. 8-10, 2004, Champaign, Illinois.

10. "Insecure Property Rights and Plant Varieties: The Effect on the Market for Seeds and Farmers in Argentina," with A. Gallo, Symposium: Seeds of Change—Intellectual Property Protection for Agricultural Biotechnology, UIUC, Apr. 8-10, 2004, Champaign, Illinois.

11. "Obsolescence of Utility Patents and R&D Risk in the Consolidated U.S. Seed Market," with S. Umeno, Northeastern Agricultural and Resource Economics Association (NAREA), Annual Meeting, June 20-23, 2004, Halifax, Nova Scotia.

12. "Obsolescence of Utility Patents and R&D Risk in the Consolidated U.S. Seed Market," with S. Umeno, Western Agricultural Economics Association (WAEA), Annual Meeting, June 30-July 2, 2004, Honolulu, Hawaii.

13. "Recent Developments in Intellectual Property Protection for Soybean Innovation—Law and Public Policy," 10th Biennial Conf. on the Cellular and Molecular Biology of the Soybean, Aug. 8-11, 2004, Columbia, Missouri.

14. Participant in Panel Discussion, Innovation and Dynamic Efficiency in Agricultural Biotechnology, Economic Research Service—USDA, Oct. 14-15, 2004, Washington, D.C.

15. "An Empirical Exploration of Patent and Plant Variety Protection for Plant Innovation," IP Colloquium, University of Washington School of Law, Feb. 10, 2003, Seattle Washington.

16. "Intellectual Property and Farming," Illinois Farm Bureau, Technology Issues Advisory Group, June 14, 2004, Bloomington, Illinois.

Conferences Attended

See list of conference presentations noted above.

NC1003 Conference on "Research Impacts and Decision Strategies for Biotechnology" at Donald Danforth Plant Science Center, St. Louis, Missouri, March 2004.

Other Information

This project constructs a panel data set of patent renewals for the following four industries: seed and plant, pharmaceutical, semiconductor and motor vehicle industries. This dataset consists of patents applied for between 1981 and 1990 and subsequently granted. All these patents are subject to required maintenance fee payments between 1985 and 2002.

In order to conduct econometrics analysis of this dataset, this project adjusts a model originally developed for European patents in such a way that the patent renewals are sorted by the patent application years assuming that patent application years are good approximation of invention years. Further, patents with longer prosecution periods are weighted more than those with shorter prosecution periods in the dataset. During a prosecution period, patent protection is enforceable and thus a renewal of a patent after years of prosecution is likely to indicate that technologies claimed in that patent application are more economically and scientifically important than those in a patent renewed after a shorter prosecution period. Hence, weighted counts of patents in proportion to their prosecution periods account for economic and scientific significance of the patents.

Estimating this model, this project provides econometrics results with which one can quantitatively argue economic risk of various kinds of R&D projects. They also enable one to quantitatively compare obsolescence rates of patented technologies in various industries.