Intellectual property is of tremendous importance to the seed industry, but why? And how do farmers and seed companies determine it?
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It reads like a script for a Hollywood crime thriller. Corporate spies from China steal biological secrets they intend to send back home to give their country a technological edge in the international marketplace._x000D_
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It’s not a screenplay, though. Court documents allege this is what happened in Kansas in 2013 when an employee of a biotech firm and a research geneticist for the U.S. Department of Agriculture — Zhang Weiqiang and Yan Wengui — allegedly gave patented rice seeds to a Chinese delegation visiting the United States. The seeds were found in the delegation’s luggage by border guards at the airport when they attempted to fly back to China._x000D_
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In another case reported widely in recent months, DuPont Pioneer was the victim of seed theft in an intricate case that first started in 2011, when a field manager in Iowa noticed an Asian man on his knees in a field of a new corn variety not yet released publicly by the company. The field manager confronted the suspicious man, who said he was from the University of Iowa on his way to an agricultural conference. He was accompanied by another man sitting in a parked car nearby, a rented car police would discover belonged to a man named Mo Hailong._x000D_
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Mo Hailong was arrested in December of 2013 and five other Chinese citizens have been indicted on charges of stealing trade secrets. Although the story might be an entertaining one with all the makings of a bestselling crime novel, it represents a serious reality in the North American seed industry — theft of intellectual property._x000D_
Stealing Seed Secrets
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According to Paul Heald, a law professor at the University of Illinois at Urbana in Champaign and an expert on intellectual property law, old-fashioned espionage tactics are employed in the seed industry for a simple reason — it’s the only way for thieves to actually get their hands on another seed company’s product and make serious profits off their intellectual property._x000D_
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“As long as one can keep parent lines secret, then a hybrid can usually be kept exclusive to the developer,” Heald says. “My understanding, however, is that technology has made it much easier to reverse engineer — which is totally permissible from a legal perspective — a hybrid and puzzle out what the parent lines must be.”_x000D_
That ability to figure out the genetic puzzle makes intellectual property theft appealing to those who wish to profit off the discoveries of their competitors._x000D_
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“Like any area of the economy where there is rapid innovation, there are times when people will look for shortcuts. Unfortunately, that’s what we’re seeing,” says Andy LaVigne, president of the American Seed Trade Association. “As our members invest more in research and development, other companies will naturally try to take advantage of that in order to get ahead because it’s the easy way, in some cases.”_x000D_
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According to authorities, the defendants in the Mo case visited seed testing plots in Iowa and Illinois used by Monsanto and Pioneer, to name just two seed companies they stole from. According to court documents, they hid their stolen seeds in common everyday containers like restaurant napkins and popcorn bags. The seeds that they stole were from inbred lines, which in the right hands could be crossed to create hybrid seeds that could be sold to farmers._x000D_
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According to an affidavit filed by FBI special agent Mark Betten in the Mo case, one inbred line of the seed the defendants were after takes five to eight years of research and can cost $30 million to $40 million to develop — a significant investment for a seed company. To have that investment misappropriated represents an opportunity for another seed company to use that technology to its own advantage, saving money on research and taking a shortcut to the profit stage._x000D_
Protecting Property
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For Rod Merryweather, CEO of the Saskatchewan-based seed producer FP Genetics, protecting that intellectual property is hugely important._x000D_
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“This isn’t a low-stakes game,” he says. “Intellectual property delivers huge value to the whole value chain. I’ve heard farmers say the hybridization of canola and the subsequent benefit they got from herbicide tolerance and the subsequent yield enhancement delivered $100 an acre incremental profit. And that’s just in canola,” he says._x000D_
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To have that property stolen and exploited is a huge blow to not just the seed industry, but the whole value chain, he says — including consumers._x000D_
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Intellectual property is something that’s fiercely protected in Canada and the United States. Both countries have robust legal frameworks ensuring that intellectual property is protected for the seed industry. In Canada, a variety of tools exist that allow seed industry stakeholders to protect their intellectual property, including the Canada Seeds Act, Plant Breeders’ Rights (PBR) legislation, bag and/or tag licenses, production contracts or Technology Use Agreements (TUAs), patents and trademarks._x000D_
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According to the Canadian Seed Trade Association’s website: “Protecting seed intellectual property is a shared responsibility on a local and global basis. It fosters innovation in the seed sector, providing many benefits to Canadian farmers and to society as a whole.” CSTA also notes that seed dealers play a critical role in its success both in the short term and long term._x000D_
Determining the Value of IP
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The value intellectual property has for businesses like FP Genetics can be determined by a number of factors, but for Merryweather, it’s the value it delivers to the grower that is of the utmost importance._x000D_
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“Herbicide tolerance was of huge value to the grower and consumer, but the people who saw it the most were the growers, since it reduced the cost of managing weeds, boosted yield and reduced the overall cost of farming and made direct seeding and no-till farming possible.”
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Those advancements need to be protected, he adds, because it’s their value to growers that makes their theft so attractive to some. But how does a business determine what value their intellectual property holds?_x000D_
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“The value of IP is determined by the utility or value that it potentially delivers to society and to the users of that technology,” Merryweather says. “That’s what determines value for us — the value it creates for our customers, and that’s why the industry needs that intellectual property protection.”_x000D_
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Certain crops hold higher intellectual property value than others, he adds, which can serve to complicate matters for businesses that deal in multiple crop varieties when it comes to determining the worth of their intellectual property._x000D_
“This isn’t a low-stakes game. Intellectual property delivers huge value to the whole_x000D_
value chain.”_x000D_
— Rod Merryweather
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“If you were to put herbicide tolerance into wheat, you may not see as much return on investment. The Clearfield wheat that was developed, I don’t believe delivered as much value to growers as Roundup or Liberty going into canola, and the reason was there was already a lot of technology that did a very good job of weed control in wheat,” Merryweather says._x000D_
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“That didn’t deliver as much value as it could have. A corn crop yielding 200 bushels an acre at $6 a bushel is probably more worthwhile — innovation there could deliver a lot more value than wheat, for example.”_x000D_
Rale Gjuric, president of the Manitoba-based Haplotech Inc. and director of the Plant Breeding Academy at the University of California in Davis, Calif., says that while the value of intellectual property isn’t simple or straightforward, the system that protects it in Canada and the U.S. has a long enough history to demonstrate how valuable it really is.
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“The R&D budgets in the seed industry range around 5 to 15 per cent of the total annual expenditures of a business,” he says. “It very much depends on the crop — competitiveness, biotech versus traditional, et cetera. The genetic royalties (no special traits, biotech or native, associated with special royalties) range from 8 to 12 per cent of seed retail prices (bare bulk). One would assume that royalties need to recover the R&D expenses, but not necessarily. It depends on the business model. R&D can also be seen as a long-term investment.”_x000D_
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He notes that vegetable crops usually have lower R&D budgets, and field crops have higher. Crops bred through traditional methods are cheaper to produce than biotech products, which come with enormous R&D expenses._x000D_
Prevention
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Espionage and intellectual property protection in the seed industry are becoming a hotter topic as time goes on. “It’s on the agenda more often, because as technology continues to change rapidly in the industry both domestically and globally, companies sometimes find it challenging to keep up,” LaVigne explains._x000D_
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Although intellectual property theft is a serious concern for seed companies, preventing it often isn’t easily done. David Miller, Iowa Farm Bureau research director, notes that farmers typically don’t erect security fences around their fields, and he doesn’t think that’s about to happen anytime soon._x000D_
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“Most of the research companies I know of, their early development is almost all done behind chain link fences at a research facility that has security around it. At the last stage of commercial development, you can’t do that. Once the variety goes into the expansion mode, you need acres,” Miller says._x000D_
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Often, the only security that exists around a field of seed is a few “No Trespassing” signs, he notes. A seed company’s best defence, at the end of the day, is the law._x000D_
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According to the Canadian Seed Trade Association’s official policy in intellectual property protection, CSTA “promotes the availability and use of all relevant tools to protect intellectual property in seeds, and that the implementation of these tools should protect holders to the highest degree.”_x000D_
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CSTA is a strong supporter of changes that are underway that will improve Canada’s Plant Breeders’ Rights legislation — a form of intellectual property rights by which plant breeders can protect their new varieties in the same way an inventor protects a new invention with a patent. With the grant of Plant Breeders’ Rights for a new plant variety, the owner obtains the exclusive rights to produce for sale, and to sell, reproductive material of the variety._x000D_
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That government oversight and intervention in the process is a valuable thing for the industry in Canada and beyond, Merryweather notes._x000D_
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“The government wants to better society by making food more affordable, but intellectual property protection also generates revenue that provides jobs and taxation for the government. When income is made, taxes are paid on it, which betters the country,” he says. “If we didn’t have patents and IP protection, then ultimately people won’t release that information and that benefit is gone and actually makes your industry less competitive.”_x000D_
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Ideally, however, collaboration and trust are the best ways of preventing intellectual property theft in the first place, LaVigne notes._x000D_
Global Relationships
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“You see collaboration across the board — European companies are doing business here in the United States selling seed into South America, for example,” LaVigne adds. “Those relationships are happening more frequently and the industry is becoming more global, because of the need to find varieties that might be more resistant to weather occurrences and things like that.”_x000D_
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But it’s important, LaVigne adds, that seed companies recognize that not all parts of the world have as much appreciation for intellectual property as North America does. Knowing that is key when doing business abroad._x000D_
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“International relationships are developing rapidly for all sizes of seed companies, and that’s exciting — but it’s also an area of caution for companies to try and understand what intellectual property protection looks like in other parts of the world — be it China, Brazil, India or wherever,” LaVigne says.
