Commenting on Microsoft’s antitrust suit 18 years ago, Milton Friedman said the following:

Your industry, the computer industry, moves so much more rapidly than the legal process, that by the time this suit is over, who knows what the shape of the industry will be.

Though the legal process seems to be moving quickly in the cases of Dow/Dupont, ChemChina/Syngenta, and Bayer/Monsanto, seed technology is moving fast as well. With recent breakthroughs in gene editing, seed technology will be more dynamic, cheaper, and likely subject to far less regulation than the current transgenic technology.

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Innovation is more and more in the spotlight as questions grow about concentration and declining competition in the U.S. economy. These questions come not only from advocates for more vigorous competition enforcement but also, increasingly, from those who adhere to the school of thought that consolidation tends to generate procompetitive efficiencies. On March 27th, the European Commission issued its decision approving the Dow-DuPont merger, subject to divestitures of DuPont’s global R&D agrichemical assets to preserve price and innovation competition.

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The US agriculture sector has been experiencing consolidation at all levels for decades, even as the global ag economy has been growing and becoming more diverse. Much of this consolidation has been driven by technological changes that created economies of scale, both at the farm level and beyond.

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How should patents be taken into consideration in merger analysis? When does the combining of patent portfolios lead to anticompetitive concerns? Two principles should guide these inquiries. First, as the Supreme Court held in its 2006 decision Independent Ink, ownership of a patent does not confer market power. This ruling came in the context of a tying claim, but it is generalizable. While ownership of a patent can provide advantages in the market, such as access to techniques that are more effective than what is available to a competitor or the ability to keep competitors from making desirable differentiations in existing products, ownership of a patent or patent portfolio does not per se confer market power. Competitors might have equally strong and broad patent portfolios. The power to limit price competition is possibly counterweighted by competition over technology and product quality.

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Ever since David Teece and coauthors began writing about antitrust and innovation in high-tech industries in the 1980s, we’ve understood that traditional, price-based antitrust analysis is not intrinsically well-suited for assessing merger policy in these markets.

For high-tech industries, performance, not price, is paramount — which means that innovation is key…

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This symposium offers a good opportunity to look again into the complex relation between concentration and innovation in antitrust policy. Whilst the details of the EC decision in Dow/Dupont remain unknown, the press release suggests that the issue of “incentives to innovate” was central to the review. Contrary to what had leaked in the antitrust press, the decision has apparently backed off from the introduction of a new “model”, and instead followed a more cautious approach. After a quick reminder of the conventional “appropriability v cannibalization” framework that drives merger analysis in innovation markets (1), I make two sets of hopefully innovative remarks on appropriability and IP rights (2) and on cannibalization in the ag-biotech sector (3).

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The US agriculture sector has been experiencing consolidation at all levels for decades, even as the global ag economy has been growing and becoming more diverse. Much of this consolidation has been driven by technological changes that created economies of scale, both at the farm level and beyond.

Read the full piece here.

Modern agriculture companies like Monsanto, DuPont, and Syngenta, develop cutting-edge seeds containing genetic traits that make them resistant to insecticides and herbicides. They also  develop crop protection chemicals to use throughout the life of the crop to further safeguard from pests, weeds and grasses, and disease. No single company has a monopoly on all the high-demand seeds and traits or crop protection products. Thus, in order for Company A to produce a variety of corn that is resistant to Company B’s herbicide, it may have to license a trait patented by Company B in order to even begin researching its product, and it may need further licenses (and other inputs) from Company B as its research progresses in unpredictable directions.

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Earlier this week the European Commission cleared the merger of Dow and DuPont, subject to conditions including divestiture of DuPont’s “global R&D organisation.” As the Commission noted:

The Commission had concerns that the merger as notified would have reduced competition on price and choice in a number of markets for existing pesticides. Furthermore, the merger would have reduced innovation. Innovation, both to improve existing products and to develop new active ingredients, is a key element of competition between companies in the pest control industry, where only five players are globally active throughout the entire research & development (R&D) process.

In addition to the traditional focus on price effects, the merger’s presumed effect on innovation loomed large in the EC’s consideration of the Dow/DuPont merger — as it is sure to in its consideration of the other two pending mergers in the agricultural biotech and chemicals industries between Bayer and Monsanto and ChemChina and Syngenta. Innovation effects are sure to take center stage in the US reviews of the mergers, as well.

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