by Jack Kaskey and Susan Decker
July 8, 2012
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.
Ready Soybean trait
allows crops to
survive applications of Monsanto’s Roundup ,
Source: Monsanto via
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
“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 weed-killer.
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
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
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
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
“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
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