May 1, 2009

Transactional Norms in the Agricultural Biotechnology Industry

As some of you are aware, I am currently working with intellectual capital management in Agbiotech in the US. One of the most difficult things when working in different industries, in my opinion, is to grasp the implicit structural norms that build up an industry. The major reasons for this, in my opinion, is that the norms are 1) intellectual, meaning that they are hard to "see", 2) taken for granted by the people in the industry, since they are actively shaping these just from partaking in business on the arena, 3) a competitive advantage, for those who understand them. I thought that I would share with all Intangitopia readers some of the norms that I have understood as being the skeleton of the agbio industry and hopefully initiate some discussion (and future blog posts) about norms. The focus I have chosen to describe is how transactions, highly dependent upon IPRs in this industry, can be seen as the structural building blocks that is and creates this market.

Overview
This is a dynamic industry characterized by rapid turnover of small and medium sized firms, while a few large companies dominate, with the top four patent holders, between 1990-2000, being Monsanto, Pioneer, Novartis, and DuPont. Large investments in research and development in attempts to differentiate products by developing new and better products is likely to be responsible for the high importance of patents in this industry. Hence, a major driver in this industry is successful objectification of knowledge. It should therefore not come as a surprise that one of the drivers for the function of small and medium sized firms in this industry is the availability of expertise (with the other driver being available funding).

Two Categories of Transactions
Transactions of enabling technologies in plant biotechnology, from an agricultural biotechnology actor’s perspective, can broadly be divided into several types, but I will be covering; Transactions of 1) enabling tools, and, 2) genes or traits.

1. Transactions of Enabling Tools
Enabling technologies transacted at this level are so-called upstream technologies, which mean that they provide important building blocks (often in the form of information and knowledge) and tools for the intellectual value network to provide many of the experienced utilities adding up to finalized products. Examples of enabling tools include elements in vector constructs, transformation protocols, statistical tools for genotype/phenotype selection, selection markers, and so on.
Contractual examples:
• Material Transfer Agreement – Donald Danforth Plant Science Center
• BiOS Open Source License (v1.5) - Plant Enabling Technologies

Norms: Transactions of Enabling Tools
Upstream enabling technologies are often preferred by actors to be protected by patents, or as trade secrets (if they are not going to be used primarily for transactions), either as a way to objectify know-how and information to enable transactions, or as a way to ensure freedom-to-operate within a given technology field. These transactions would normally be utilized as value propositions towards other actors by universities, SMEs, quasi-public and public actors, rather than between large vertically integrated seed companies (e.g. Monsanto Technology, Pioneer Hi-Bred Int, Syngenta, etc.), since they provide inhouse competitive advantage.

However, it is important to realize that certain types of technologies, where transformation protocols is an optimal example, require advanced capabilities and skills in order to work. This means that such technologies are extremely dependent on efficient knowledge transfer of not only the protocols and intellectual property rights, but more importantly the know-how held by the researcher that knows how to perform it. Transactions of this sort, where the knowledge is difficult to objectify, therefore often is more effectively supplied under service agreements where the know-how holder can perform the invention (e.g. transforming cells) itself and return the results (e.g. transgenic cells/organisms) rather than the tool. Hence, one evident norm at this level to adapt to, as an actor, is that all available tools in the market may not be readily useful to be used as stand-alone objects and likewise to ensure that efforts are made to ensure efficient utilization by knowledge transfer when offering such technology. Moreover, this may be one of the reasons why the biotechnology industry is highly collaborative in its nature.

2. Transactions of Genes or Traits
The two major types of objects at this level are either genes or traits. Characterization and patent protection of a gene sequence can be seen as the ‘best case’ scenario, whether it is to be used for commercial transactions or to ensure freedom to operate, where the intellectual object is claimed in combination with a function. Successful claiming of a gene sequence can result in broadscope applicability where the sequence may be used as a value proposition, often through licensing, to a number of actors simultaneously by offering exclusivity of usage in different crops. ‘Next best’ scenario is the occurrence and identification of a particular performance enhancing genetic trait (most commonly caused by a genomic mutation) in a germplasm/variety. In this case, the intellectual claim will be made for the profile of the phenotypic property instead and the claim will be narrower in scope since the applicability scope of the trait will be limited to the organism in which the trait was exemplified. Examples of traits, or genes where the sequence to the traits has successfully been isolated and characterized, may include yield performance (e.g. photosynthesis, seed development, plant structure, nutrient utilization, harvest ability), pest (e.g. disease, insect) resistance, quality traits (starch/carbohydrates, lipids/oils, proteins), nutrient conversion, or stress (heat, cold, drought) tolerance.

Norms: Transactions of Genes and Traits
The underlying object of transfer can adopt a range of forms depending on the technology. Objects of transfer for gene patents are, for instance, the genetic sequence that is commonly transferred in one of the following ways; 1) In digital form, accessed either through the licensor or through a patent database where it is stored, 2) As plasmids, with disclosed restriction sites for cloning, 3) As bacteria transformed with the plasmids. Physical transfers of biological material (i.e. 2 and 3 above) are typically accompanied by a material transfer agreement (MTA) that states terms and obligations for handling the material as well as the license that governs the intellectual elements, e.g. rights to use the invention for certain purposes. Publicly available databases based on genome projects have greatly facilitated transactions of type 1) above, since digital versions of genetic sequences can be readily accessed and downloaded by anyone.
Desired traits can be more difficult to successfully claim in patents to generate strong protection since the intellectual claims are focusing on the effects rather than the actual cause. Commonly the beneficial property is claimed (e.g. higher digestibility) in combination with a seed (germplasm) and often also the use of the beneficial property (e.g. feedstock exhibiting higher digestibility useful in biofuel production). One of the strategies to strengthen the protection of the trait is to bundle it with complementary objects such as selection markers that further define the trait by indicating its genetic “address”. Transactions in the form of licenses for a trait should in theory be rather straightforward since it is patent protected, however, in practice, that specific trait may be an integrated constituent in one of the actor’s inbred parental lines meaning that transfer of that trait would risk disclosing the full genomic profile of a valuable asset providing competitive advantage to the holder that may not have been fully IP protected at that stage (or is considered a trade secret).

Two strategies that can effectively be applied, in this case, include; 1) a restrictive license, or, 2) a crossing strategy where one party is held in the dark. The former (1) can be a license to the trait restricted to producing and using the beneficial properties of the traits, while prohibiting breeding and further development or characterizing of the plant supplied. The latter (2) strategy can be likened to a strategy appearing as a “blackbox” for the in-licensing party; First, the holder of the trait requests and receives a sample from the in-licensing party’s seed (in which the trait is desired to be incorporated). Secondly, the holder of the trait crosses* the received seed with his own seed (containing the trait) and provides the first generation offspring back to the in-licensing party along with a license stating the intellectual rights to the trait-of-interest. This ensures that the licensee never comes in physical contact with the licensor’s asset should the licensor wish to keep it undisclosed. An additional measure to prevent reverse engineering by the licensee is to breed the trait into a publicly available line that is supplied instead of using the licensee’s own seed. This may be useful in cases where it is suspected that a licensee can, by the assistance of his own knowledge about his seed genome (e.g. by the assistance of markers), quickly identify the changes in the genome and the licensor expects the licensee to use this to compete against the licensor.

* In the US, transgenic plants are field tested under the United States Department of Agriculture Animal Plant and Health Inspection Service (APHIS) guidelines; if the innovator considers the trial successful, it can then apply to APHIS for deregulation. The whole process may take a couple of years, but if APHIS grants a deregulation, the transgenic plant may be commercialized in the US, as any traditional variety, with no further regulation to specific transgenic status. Once it is deregulated by APHIS the transgenic plant can be crossed with other varieties to pass on its genetics without further involvement from APHIS.


Well, I hope that you found this interesting, and managed to finish it despite of its length. I am looking forward to your thoughts and comments.

Tobias Thornblad
(Follow me on Twitter)

See this previous post for a visualization of such transactions: http://intangitopia.blogspot.com/2009/04/iamipm-system-in-agribusiness.html

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