World: GMO Seed Prices Fixed by MNCs in the 90s

Publisher Name: 
New York Times

ST. LOUIS - Senior executives at the two biggest seed companies in
the world met repeatedly in the mid- to late 1990's and agreed to
charge higher prices for genetically modified seeds, according to
interviews with former executives from both companies and to court
and other documents.

The Monsanto Company and Pioneer Hi-Bred International Inc.
acknowledge that their executives met to discuss genetically modified
seeds. Monsanto also said the companies discussed prices, but added
that they were engaged in legitimate negotiations about changes to an
existing licensing agreement, not illegal price fixing.

Interviews with former and current executives of major seed
companies, along with company documents, however, show that through
much of the 1990's Monsanto tried to control the market for
genetically altered corn and soybean seeds. Monsanto spent billions
in the 1980's to invent specialized seeds and sold the rights to make
them to big seed companies like Pioneer.

More than a dozen legal experts contacted by The New York Times say
that if the goal of the talks between the rivals was to limit
competition on prices, they would have violated antitrust laws.

The talks, which occurred from 1995 to 1999, involved licenses that
let Pioneer sell altered seeds developed by Monsanto, which is based
here. In those talks, according to interviews with dozens of
executives and court and other documents, the companies discussed
prices, swapped profit projections and even talked about cooperating
to keep the prices of genetically modified seeds high.

The talks involved top executives at both companies, including Robert
B. Shapiro, then Monsanto's chief executive, and Charles S. Johnson,
then Pioneer's chief executive, as well as Richard McConnell, now
president of Pioneer, and Robert T. Fraley, now Monsanto's chief
technology officer, according to company officials and documents.
Together, Pioneer and Monsanto control about 60 percent of the
nation's $5 billion market for corn and soybean seeds.

Also in the late 1990's, Monsanto pressured at least two other big
seed companies to coordinate their retail pricing strategies with
Monsanto's, former chief executives at those companies said. The
executives, who ran Novartis Seeds and Mycogen, said they rejected
Monsanto's entreaties as anticompetitive and potentially illegal.

Analysts estimate that more than $10 billion worth of genetically
altered seeds have been sold in the United States since they were
commercialized in 1996. Monsanto and Pioneer did not have to succeed
in actually raising retail seed prices to have violated the Sherman
Antitrust Act, legal and economic experts say; just agreeing to
coordinate prices is against the law.

Companies found to have violated federal antitrust law could be
subject to criminal fines and civil class-action litigation. In the
civil lawsuits, courts can award triple monetary damages.

"If they're talking to Pioneer about raising the ultimate price to
the farmers, that's illegal," said Austan Goolsbee, a professor of
economics at the University of Chicago and a former Justice
Department consultant on antitrust issues. "Monsanto shouldn't care
about the final price. They should only care about the royalty
payments they receive from Pioneer."

Royalty payments were at the heart of the matter. Before it realized
how successful altered seeds would be, Monsanto sold the technology
to some companies, including Pioneer, for relatively modest sums.
When the seeds proved to be a hit, Monsanto tried to renegotiate many
of those deals to ensure that the seeds sold for higher prices,
executives and records show.

Monsanto said it brought up those early agreements only in the
context of negotiating a licensing deal with Pioneer for new seeds
that Monsanto was developing.

"Monsanto did offer to expand and revise existing licenses with
Pioneer," Lori J. Fisher, a Monsanto spokeswoman, said in an e-mail
message. "In the context of a potentially new license for technology,
it is absolutely within the law to discuss the price and the means of
compensation to the licensing party."

Pioneer, a division of DuPont, also denied that the discussions were
used to fix prices. "We set our own prices," it said in a statement.
"We do it independently, and without consultation with our
competitors." It added that it believed that all of its talks with
Monsanto about technology licensing were "legitimate and appropriate
business negotiations" intended to benefit its customers. "Pioneer at
no time engaged in illegal or inappropriate activity regarding the
prices of our products," it said.

Some leading antitrust experts, however, said the talks resembled an
effort to suppress competition on retail prices for seeds, though
they cautioned that they had not seen documents in the case.

Before Monsanto struck the 1992 and 1993 licensing agreements with
Pioneer, it had monopoly rights to its technology and could set any
price it wanted. But once Pioneer bought the licenses, it became
Monsanto's competitor and, legal experts say, the companies were no
longer supposed to talk about how much to charge.

"Once you've created the competition," said George Hay, a law
professor at Cornell University, "you can't take other steps to snuff
it out."

The Justice Department is already looking into whether Monsanto
engaged in anticompetitive action in the herbicide market, which it
dominates with its Roundup weed killer.

The department is aware of the seed pricing talks, according to
government officials. But it is unclear if a formal inquiry has
begun. A department spokeswoman declined comment.

And a group of farmers filed a class-action lawsuit against Monsanto
in 1999, accusing it of several misdeeds, including seeking to
organize a cartel to control the market for biotech seeds. In
September, a federal judge here dismissed some claims, but not the
accusation of price fixing. The farmers' lawyers have appealed the
judge's rulings.

Monsanto began its work on seeds in the 1980's, when it applied the
emerging science of genetic engineering to agriculture. One idea was
to develop soybeans impervious to Roundup, which would let farmers
attack weeds without killing crops. Another idea was to make a type
of corn with its own insect repellent, to save the cost and trouble
of killing pests.

The company spent hundreds of millions of dollars on these and other
projects, and when the first altered seeds were ready for market, it
sold the rights to produce and market them. Pioneer was one of the
first to sign up, paying $450,000 in 1992 for nonexclusive rights to
altered soybean seeds. In 1993, Pioneer paid $38 million for
nonexclusive rights to the biotech corn.

Monsanto officials initially viewed the deals as a vote of confidence
in biotechnology, former executives said. But soon after, some senior
executives complained that the technology had been sold too cheaply.

"I left in '93, and they tried to undo the deal," said Geert Van
Brandt, a former Monsanto executive who helped negotiate the 1993
agreement. "They wanted more money; they wanted to have their cake
and eat it, too."

By 1995, Monsanto revamped its licensing program to what some
executives called a value capture system to reap bigger profits.
Under this system, companies that licensed the technology had to
require farmers to sign a grower licensing agreement that forbade
them to replant seeds saved from harvest. Monsanto also required the
companies to charge a technology fee for every bag of biotech seed;
licensees were to collect the fee and pay it back to Monsanto.

Most big seed companies - including several that Monsanto has since
acquired - agreed to use the system, which legal experts say is a
legitimate exercise of Monsanto's licensing and patent rights.

But one major company was absent from the program: Pioneer, which
already had the right to sell Monsanto's altered soybeans and corn.
Worried that Pioneer might undercut prices being charged by other
licensees, Monsanto asked Pioneer to renegotiate the 1992 and 1993
deals, according to executives involved in the talks.

"We bought Roundup soybeans for about $500,000," said Thomas N.
Urban, the former chairman and chief executive of Pioneer. "They
hated us. Every time we had a meeting, they'd say, `You need to pay
us more.' We said, `Why?' "

Monsanto executives wanted to make their pricing system an industry
standard, according to former industry executives.

"We had commercial concerns about somebody willfully trading away the
value of the technology," said Arnold Donald, Monsanto's former
president and a leading figure in the Pioneer negotiations. "If
Pioneer and Asgrow went out and charged a normal seed price and
didn't put any value on the technology, in that scenario, we have no
value."

Asgrow is the nation's biggest soybean seed producer; Monsanto bought
it in 1997 for $240 million. Mr. Arnold said he believed that what
Monsanto did was legal.

Pioneer, however, was reluctant to go along, according to current and
former Pioneer executives, because it saw no advantage in collecting
a separate fee for its rival and because it worried about offending
customers by adopting the grower agreement, effectively forcing them
to buy new seed every year.

But former executives who were briefed on the talks say that Pioneer
considered acceding to Monsanto's proposal in exchange for more
advanced seeds and for getting the underlying genetic engineering
expertise, called enabling technologies, that Pioneer could use to
develop new seeds by itself.

Monsanto balked at sharing that technology, according to lawyers and
executives. Instead, it offered other incentives, including $25
million, if Pioneer would adopt the grower agreement and technology
fee in 1995, according to lawyers. At one point, Monsanto also
offered to let Pioneer keep the technology fee just so long as it
charged one.

"We said, `Just go with our form and keep the money.' And they didn't
want to go," said Mr. Donald, now the chief executive of Merisant, a
Chicago company that makes artificial sweeteners.

When talking failed, Monsanto tried a threat. Former Monsanto
executives said they told Pioneer they would withhold new technology
from Pioneer if it did not renegotiate.

"We said, `You paid us; you have every right,' " Mr. Donald said. "
`But now we have a value capture for the industry.' And we said, `If
you want future technology from us, you need to honor it.' "

Monsanto and Pioneer, which is based in Des Moines, declined to
discuss specifics of their talks.

In 1997 and 1998, Pioneer executives told Monsanto they would agree
to simply charge an "elite" or premium price - in effect agreeing not
to compete with Monsanto and its partners on price - in exchange for
Monsanto's giving Pioneer access to new varieties of modified seeds
and the technology to make others, according to people who have seen
documents relating to this.

Mr. Shapiro declined to comment when reached by telephone. Other
current executives of Monsanto and Pioneer who participated in the
talks were not made available for comment by the companies.

In the mid- to late 1990's, Monsanto sought similar agreements from
other rivals, according to former seed executives.

For example, Monsanto asked the seed unit of Novartis, the Swiss
maker of drugs and nutrition products, to charge premium prices for
its altered soybeans even though Novartis, like Pioneer, had a
license to market them independently, according to former executives.

"They came to us; they did pose that question," said Ed Shonsey, the
former chief executive of Novartis's crop science unit. "We felt it
was inappropriate. We refused."

In 1995, Monsanto asked Mycogen, which is based in San Diego, not to
compete with Monsanto or its partners on the price of biotech seeds
in exchange for access to some of Monsanto's patented technologies,
according to former executives and others who were close to the talks.

Carlton Eibl, former chief executive of Mycogen, said Monsanto also
sought to combine its seed technology with Mycogen's to bring his
company into Monsanto's pricing system.

"They wanted us to license enough of their technology so they could
control pricing under the G.L.A.," he said, referring to Monsanto's
grower licensing agreement. "That was a fundamental thing about
controlling price that we did not agree with. No matter how you look
at it, it was anticompetitive." Mycogen later was acquired by Dow
Chemical.

Monsanto denied it sought an agreement on price with either Novartis
or Mycogen; it said it was simply engaged in licensing negotiations.

AMP Section Name:Food and Agriculture