Roundup-Ready Crops trial with DuPont to start
Monsanto-DuPont Trial Over Roundup-Ready Crops to Start
By Jack Kaskey and Susan Decker – Jul 9, 2012 5:00 AM GMT+0100
DuPont Co. (DD)’s Pioneer seed unit said in 2005 it would make herbicide-tolerant soybeans and corn within five years to challenge the dominance of seeds with Monsanto Co.’s widely licensed Roundup Ready trait.
According to Monsanto, DuPont couldn’t live up to that pledge and added Monsanto’s technology to its experimental seeds, in violation of licensing agreements between the companies. The world’s largest seed company sued DuPont in 2009, accusing its biggest competitor of patent infringement and breaching the 2002 contracts. DuPont countersued. A jury trial is set to begin today in Monsanto’s hometown of St. Louis.
Monsanto sought to keep DuPont from using the Roundup Ready trait, one of the biggest farming innovations in a generation, in combination with a similar genetic modification in some new competing seeds. DuPont responded by challenging the validity of a patent at the heart of Monsanto’s $11.8 billion in annual sales.
“DuPont has the most to gain if they invalidate the patent,” said Jason Dahl, a fund manager at Victory Capital Management who holds Monsanto shares and expects the patent to be upheld. “It’s not like anyone has come forward and said, ‘I developed this.’ They know it works, that’s why they want to use it. They just don’t want to pay for it.”
The trait, introduced by Monsanto 16 years ago, allows crops to survive applications of Monsanto’s Roundup, the world’s best-selling weedkiller. The genetic modification is engineered into most of the world’s soybeans and many other crops. In the years since, Monsanto has strictly enforced patents on the seeds.
“We understand why Monsanto wants to go to trial,” Mark Gulley, a New York-based analyst at Gulley & Associates LLC, said in a June 26 report. “Monsanto has won five trials and settled with DuPont on other occasions.” Gulley recommends buying shares of both companies.
Monsanto licenses its technology to other seed makers, and the trait has been embraced by American farmers. Roundup Ready seeds let growers dispatch hundreds of types of weeds with a single herbicide while leaving crops unscathed.
DuPont’s Pioneer unit may pay Monsanto about $200 million a year to use the technology under normal industry rates, although some reports have suggested the payments are as little as $30 million, said Laurence Alexander, an analyst at Jefferies & Co.
Monsanto has been under investigation for more than a decade over allegations of anticompetitive practices in the agriculture industry, including seeds.
DuPont, based in Wilmington, Delaware, says Monsanto uses monopoly power to stifle innovation, restricting use of the Roundup Ready trait while making it difficult for rivals to develop a competing trait. Those antitrust claims have been split off into a separate case, with a trial scheduled for April 2013.
The trial that begins today involves a patent issued in 1997 for the Roundup Ready trait, which Monsanto called in court documents “one of the most celebrated inventions in biotechnology.” The technology uses an enzyme that acts as an alternative food-production pathway, allowing biotech crops to survive as weeds are starved by the glyphosate herbicide Monsanto markets under the Roundup brand name.
DuPont, which denies infringing Monsanto’s patent, has focused much of its defense on challenging its validity. The company also claims Monsanto obtained its patent only by withholding information from the U.S. Patent and Trademark Office during the application process.
According to DuPont, a farmer who had been sued by Monsanto produced evidence showing the patent was invalid. Monsanto filed a request with the government to have the patent reissued with changes, without telling the agency that the purpose was to correct information that would make it vulnerable to challenges, DuPont said in its July 2009 response to the lawsuit. Monsanto denied any improprieties with its application or reissue filing.
The dispute involves DuPont’s Optimum GAT soybeans, which the company in 2005 announced it was developing as a competitor for Roundup Ready seeds. GAT stands for “glyphosate ALS tolerant,” because the seeds are genetically altered to tolerate glyphosate, the ingredient in Roundup, as well as other weedkillers known as ALS herbicides.
In 2009, DuPont disclosed that it was adding the Roundup Ready trait to its Optimum GAT seeds because a combination of Monsanto’s technology and DuPont’s worked together to boost crop yields.
Monsanto sued, saying its 2002 licensing agreement prohibits DuPont from combining the Roundup Ready technology with another glyphosate-tolerant trait. In January 2010, U.S. District Judge Richard Webber, in a pretrial ruling, sided with Monsanto’s reading of the contracts, saying they permit use of the Roundup Ready trait “only in seed products containing no other glyphosate-tolerant traits.” The trial that starts today centers on patent-related issues in the dispute.
DuPont contends the legal fight caused it to cancel plans to introduce its herbicide-tolerant corn and soybeans.
There is a chance the companies will settle the dispute rather than complete the trial, Gulley said. DuPont needs to put the Roundup Ready trait in its seeds and Monsanto wants compensation for use of its research, he said.
“Each has a good idea of the validity of each other’s case, their respective negotiating positions, and what’s at stake financially,” he said in a June 26 note to clients. With a settlement, “both parties can lower the risk of a surprising adverse jury verdict.”
In recent years, the disagreements between the companies have gotten personal. Monsanto Chief Executive Officer Hugh Grant, in a 2009 letter to DuPont’s then-chairman, Chad Holliday, said DuPont covertly pushed for the antitrust investigation and accused it of “a serious breach of business ethics far beyond honest competitor behavior.”
“Your lobbying and communications that paint your company as a victim of limiting technology licenses is dishonest, disingenuous and downright deceitful,” Grant wrote.
In defending its patents, Monsanto hasn’t limited itself to competing companies. It has sued farmers who tried to hold back harvested seeds for use the following year. A group of organic farmers unsuccessfully sued Monsanto last year, saying their crops are at risk of being contaminated by wind-blown seeds and challenging the validity of Monsanto’s patents.
The case is Monsanto Co. (MON) v. E.I. duPont de Nemours & Co., 09cv686, U.S. District Court for the Eastern District of Missouri (St. Louis).