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

The infinity of biotechnological creativity

Some time ago (available here and here ), I wrote about how the coupling of intellectual property rights to intangible offers create an ‘artificial scarcity’, that makes an offering seem more valuable than an object that exists in abundance. I would like to continue in this post where I left off in November, by discussing how biotechnology can create not only nondurables but also durable goods, by creating IP strategies aligned with the goals of your company or organization. The case in point for this discussion is agricultural biotechnology, and due to the diversity of our readers, I find it appropriate to give a short introduction to some of the different types of right-based layers. I have categorized those that I could think of as 1) true intellectual property systems, 2) quasi-intellectual property systems, and 3) non-intellectual property systems.

Right-based control in agricultural biotechnology
True intellectual property rights in agbiotech are in total way too many to all be included here, especially since there are many variants for each of them, however, for the sake of discussion - some of them are; US utility patents (the right to exclude others from manufacture/ produce, use, sell and offer for sale, in addition to prevent others from importing the invention ), US plant patents (right to exclude others from asexually reproduce, sell or use protected plant varieties), EPO product patents claiming a transgenic plant (i.e. not a plant variety), EPO product patents claiming genes (i.e. traits in plants), Australian plant patents, etc.

Quasi-intellectual property rights is certainly a vague definition which is highly arguable, but I decided to place plant breeder’s right (PBR) under this category as it certainly fits into the intellectual property category from the following articles;
The status of being a holder of a breeder’s right provides the right to exclude others from any of the acts stated in Art 14 (1-4), for a duration of 25-30 years.
Art 14 (1-4) comprises;
• Production or reproduction (multiplication),
• Conditioning for the purpose of propagation,
• Offering for sale,
• Selling or marketing,
• Exporting,
• Importing,
• Stocking for any of the purposes above.

However, the reason for my exclusion of PBRs from the “true IP” category is because of the ‘Breeder’s exemption’ that states that a protected plant variety shall be available without restrictions, for use by others (e.g. re-sowing by farmers, other breeders, etc.) as starting material for the development of new plant varieties. This exemption creates many societal benefits, but nevertheless positions PBRs in a quasi-state in relation to true IP.

The last category include a number of different forms of protections many of which have very interesting features (which I may discuss more about in another post), such as; European variety registration (being listed in the Common Catalogue is a prerequisite for being allowed to market a variety within the EU) which prevents competitors to register a copy of your seed, legislation to uphold trade secrets, and contractual structures preventing farm-saving of seed (where so-called bag-tags or “seed-wraps“ are an interesting US solution borrowing its concept from the familiar shrink-wrap solution in software).

Durables and non-durables goods in biotech
The existence of so many different types of right-based systems in combination with the diversity of actual technologies and application areas (e.g. different crops/feedstocks), creates an immense potential for the creative entrepreneur when outlining an IP strategy.

Let’s then say that a biotech entrepreneur then starts out with a gene that provides an insect-resistant trait for a number of crop types. The entrepreneur could then decide that she would like to create a premium priced seed by incorporating the trait into a hybrid seed of, for example corn or sorghum, that will have a high yield, but will serve as no good for farm-saving and being replanted next season. Hence, a nondurable has been created.

On the other hand, the same trait could be incorporated into a crop planted as an open pollinated variety , e.g. wheat, soybean or cotton, which will create a self-replicating durable good that can be replanted with the trait somewhat conserved.

Finally, by applying different types of right-based protections other forms of control can be attained, such as prevention of farm-saving by having a US utility patent or a bag-tag attached to the seed bag when it is sold. The European protections could be a combination of plant variety protection (for the variety) and a patent for the specific trait. In addition to a number of right-based control layers there are also technical layers that may restrict propagation, e.g. so-called ‘terminator technologies’, and technical solutions to enable hybrid propagation, e.g. apomixis . However, this post is already way too long so I will just conclude by saying that the potential of biotech and IP seems to be endless, and I look forward to see what the future will bring.

Tobias Thornblad

Bundling intellectual elements into value proposition in Biotech

In this posting I aim to begin an analysis of the dynamic nature of intellectual offerings by exploring how business models are created in intellectualized business, in particular those stemming from bioscience. There are obviously a whole range of characteristics that differ intellectual objects from physical objects demanding completely different parameters for constructing business models, but I think that it is interesting to recognize that some elements remain the same in the eyes of the receiver of the value proposition (i.e. the customer/end-user or similar). The most basic, but also in my opinion most important, aspect that remains the same is the conception of scarcity. No one is willing to pay a premium price for something that is perceived to exist in abundance and is freely available. To illustrate: this is probably the notion that has changed among the general public in relation to music which a lot of people nowadays download from the internet for free while perceiving the action as a natural, and non-criminal, way of obtaining a non-scarce object (i.e. the mp3 file). Nonetheless, the value proposition of the concept ‘music’ still can be leveraged in a number of ways by packaging it in different business models and offerings such as concert tickets, Spotify (as explored by Johan in previous postings), ring tones, etc..

So what does this have to do with business models in Biotech? It is important to realize that all intellectual objects and offerings (incl. Biotech) are relying upon the intellectual conception that they exist in limited amounts, i.e. from an economical perspective - they exist in scarcity. This can be done in a number of ways including packaging them as exclusive offerings in terms of geographical scope, field of use and/or bundling them with physical artifacts (that do exist in scarcity). All of which having an enabling and more strengthening foundation in the fact that most of them are protectable by means of intellectual property rights.

An illustrating example of a immensely successful bundling of IP and material objects is the famous polymerase chain reaction (PCR) machine which by regulating thermocycles activates and deactivates the heat-stable DNA polymerase originally isolated from the bacterium Thermus aquaticus. The effect of this bundling of intellectual objects and physical objects results in a machine which may quickly replicate a stretch of DNA, but by zooming in and revealing the intellectual nature of the objects which are actually providing the functions (thermocyclers and mechanical parts aside) it is quite obvious that the assembling of DNA building blocks resulting in an exact copy of the template DNA is a spontaneous mechanism at certain temperatures. Capturing this process through intellectual property rights and offering the concept to other actors would probably had limited success as business model, whereas packaging the process in a physical object provides a valuable turnkey solution for actors interested in amplifying DNA.

Hence, it goes without saying that the value proposition has to be accepted and experienced by the receiver to be of any value. This obviously brings up a whole range of other questions, such as “how do you measure this value” as it would be an immense difference in value when offering a description in a patent of the above biological reaction to a biotech company in contrast to provide the same offering to an actor in the IT business. Well, my intention is to keep future blog posts somewhat shorter than my previous one, so this will probably be explored more in the future by me or someone of my fellow co-bloggers.

Tobias Thornblad