Monsanto Accused of Price Manipulation of Seeds

New York Times
------------------------------------------------------------------------

January 6, 2004

Questions Seen on Seed Prices Set in the 90's
By DAVID BARBOZA

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.