T. 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.