Biotech industry shivers

BIOTECH INDUSTRY SHIVERS AT THREAT TO SEED PATENTS

March 3, 1999

Dow Jones News Scott Kilman The Wall Street Journal

A legal challenge to a fundamental premise of the biotechnology industry - the patentability of modified plants - is setting off a wave of fear inside big agriculture companies.

An Iowa seed merchant is arguing that the U.S. Patent and Trademark Office erred in granting patents on modifications to plants such as corn, soybeans and cotton. A federal appeals court agreed to rule on the issue in October, and word has been quietly spreading since. The court's action indicates that the patentability of manmade plants remains legally untested, and that places at risk much of the billions of dollars in investments by companies such as Monsanto Co., DuPont Co. and Novartis AG.

"What could be at stake is a very significant deterrent to research," says Vernon Rice, chief intellectual-property counsel at DuPont. "You'd still have a biotechnology industry, but not a robust one."

When the patent office granted the first modified-plant patent in 1985, chemical companies and seed concerns began to spend heavily on research and acquisitions. The result has been thousands of patents on products that are just now sweeping across the U.S. farm belt and South America.

Industry analysts have predicted that the premiums farmers pay annually for the seed to grow these crops, currently in the hundreds of millions of dollars, would soon leap far into the billions. But that economic model could fall apart if patents for biotech plants lose their legal force.

The issue before the appeals court represents an almost accidental test of plant patents. Certainly, 34-year-old Marvin Redenius never aspired to spearhead a landmark court case. As president of a farm-supply dealership in Belmond, Iowa, Mr. Redenius bought 600 bags of Pioneer Hi-Bred International Inc. corn seed last year from a third company for about $54,000, then resold the bags to his customers.

Pioneer got paid for the seed.. But it sued Mr. Redenius's company, Farm Advantage, in U.S. District Court in Sioux City, Iowa. Under its newly won corn-plant patents, Pioneer says, only it gets to decide who sells its corn seed. Mr. Redenius didn't have Pioneer's permission.

Mr. Redenius and his attorney came up with a straightforward defense strategy: They requested that the case be thrown out on the grounds that plant patents are illegal because Congress doesn't want the major food crops to be patented.

U.S. District Judge Donald E. O'Brien rejected Mr. Redenius's request that the case be dismissed. But he considered the contention to be serious enough to warrant the attention of a higher court, and he cleared the way for the patent-legality issue to be resolved.

In a rare procedural move, the federal appeals court in Washington that specializes in patent law decided to take up the patent-legality issue. Oral arguments could begin as early as this spring. The case itself, meanwhile, has been postponed pending the appeals court's decision.

The American Intellectual Property Law Association, a trade group of patent attorneys, is preparing a friend-of-the-court brief in favor of keeping plant patents. "This case is absolutely critical to the biotechnology industry," says Michael Kirk, executive director of the group. Undoing patents on plants "would have a significant negative impact on an entire industry," he adds.

Some company executives and intellectual-property lawyers are worried that the court case is creating an opening for anti-biotechnology groups, which question the safety of altered food and oppose corporate ownership of crops. In Europe, such groups have succeeded in requiring the labeling of genetically modified food, something not even under consideration in the U.S.

One measure of the value of plant patents is the growing determination of biotechnology companies to initiate legal action over them. Patent attorneys say that plant patents are the most legally contested variety these days, next to software.

Monsanto is currently investigating hundreds of farmers suspected of unauthorized use of its Roundup Ready soybeans. Genetically altered to survive a dousing from Monsanto's Roundup herbicide, the Roundup Ready soybeans make it far easier for farmers to chemically weed their fields.

The product is on track to reap roughly $300 million this year in revenue for the company and its partners, figures Mark Wiltamuth, an analyst at Morgan Stanley Dean Witter, New York.

All told, Monsanto owns more than a hundred patents for specialty lines of corn and soybeans, among other crops. David Snively, assistant general counsel for Monsanto, figures that the company's most valuable patents - which cover genes that it transplants into crops from microorganisms - are in the clear because they aren't from plants. But some legal experts at other companies with similar patents aren't so sure. These synthetic genes tell a plant how to make its own insecticide, for example.

The U.S. patent office began issuing plant patents in the wake of a 5-4 decision by the U.S. Supreme Court in 1980 that allowed General Electric Co. to patent a genetically altered oil-eating bacterium.

The patentability of asexually reproducing plants such as roses and fruit trees, which are grown from cuttings and grafting, was established by Congress in a 1930 law. But seeds and plant breeding are the issues in the Iowa case, and Congress has tried to ensure that rival companies could continue to use each other's seed in their breeding programs.

Lawmakers have also protected the right of farmers to save seed from their harvests for replanting the next year. Both of those activities could be prohibited by patents.

© Dow Jones News, The Wall Street Journal