Law For Food: The law affects what you eat. What you buy to eat affects the law.

A Bright Side

Is American Cheese the new American Wine? Is the faltering dollar good for the domestic artisanal food industry — or at least those parts of it which don’t rely on imports?

What has been good for wine has been good for cheese. The rising wealth and strong dollar of the 1990s sent Americans flocking to Europe, returning with a new understanding and appreci­ation of continental eating. Food has emerged as hip entertainment, with its own vibrant press, TVnetworks, and rock-star chefs. Movies about food and wine have found large, sophisticated audi­ences (“Eat, Drink, Man, Woman,” “Sideways,” “Big Night,” “Like Water for Chocolate,” “Ratatouille”). Increased concern for health and a growing sus­picion of conventional agriculture, spurred by crises like mad cow, bird flu, and tainted spin­ach, have focused the nation on small-scale local farming and the sustainability and traceability of our food supply. Meanwhile, Whole Foods Market has planted 263 stores around the country (many through acquisitions of regional chains) since the first opened in 1980. And who could have pre­dicted the French Paradox—the notion, according to a bestseller about the eating habits of France, that you can eat plenty of fat and stay slim? Or Dr. Atkins urging eager dieters to eat pork and but­terfat? More recently, the flaccid dollar and robust euro have made American wines and cheeses seem veritable bargains.

I have for a while maintained that there is more excitement and energy in the U.S. artisanal cheese industry than there is in European cheese. In part, this is surely due to our having farther to go: try speaking, reading, or typing the words “American cheese” without picturing something gummy, preternaturally orange, oversalted and individually wrapped.

However, I also suspect that european cheesemakers and regulators have done the industry a disservice in the long term due to the AOC/PDO/DOP/DOC system of trademark regulation. (Each of these terms, in a different language, stands for “Controlled Name of Origin” and I shall refer to them all under the term “DOP” for simplicity’s sake.) The DOP system sets characteristics that must be met if a product is to be referred to under a traditional name; i.e., if you want to call your blue cheese Stilton you have to use milk from these sorts of cows, and make it into wheels this big and age them for this long and so on. In a number of cases, qualification is tied to a region: you can’t call your blue cheese Rocquefort, for instance, unless you have made it from sheep’s milk and then aged it in caves in the department Aveyron, where they will be exposed to the airborne, naturally-occurring penicilium rocqueforti that lives there. This system allows for the same sort of protection that individual firms get through trademark law, but enables the protection to be shared by every firm that makes a product meeting the qualification.

However, there are times and occasions in which the DOP system can backfire. Because the definitions are backed by law, it can be difficult to adapt them to new circumstances. Last year, Newcastle Brewing Company ran into this problem. Newcastle had successfully petitioned for the creation of a DOP defining “Newcastle Brown Ale” as ale that was, inter alia produced in the city of Newcastle-upon-Tyne. When the brewco decided to move its operations across the river to Gateshead, it was required to petition again to expand the legal defintion of “Newcastle Brown Ale” so that ale produced in its new facilities could be marketed under the same label.

As another example: the DOP for Stilton was written some years ago and requires that “Stilton” be made with pasteurized milk, despite the fact that pasturized Stilton is a historical latecomer, and that the cheese had been made with raw milk for centuries prior to industrial cheese production. When Joe Schneider and Randolph Hodgson revived the traditional stilton recipe, they were prohibited by law from calling the product “Stilton” and instead have had to market it under the name “Stichelton”, which is the Middle English name for the city of Stilton.

DOP protection has done some good in protecting quality standards for traditional food products, and I certainly do not oppose its use. However it seems to me that, absent DOP protection, artisanal cheesemakers in the U.S. have more opportunities to innovate in their cheesemaking techniques which are driving quality and variety in American artisanal cheesemaking. I have little doubt that if the DOP system were introduced into the U.S., it would in short order be co-opted by industrial producers, and thereby used to constrain this innovation, and I have some fears that European cheesemaking, which enjoys DOP protection, doesn’t have the same opportunities to innovate.


Food Patents and Antitrust

So, thanks to something the Ethicurean asked about last summer, I am working on a paper about Monsanto’s recently revoked seed patents, and I am unsure how I am supposed to think about a few things.

First, a short review of what I’m learning. Monsanto held the patent in glyphosate-based herbicides, which are non-selective (i.e., they kill your crop as well as your weeds) and which it sells under the RoundUp trade mark. While they held this patent they developed a way to insert DNA which codes for an enzyme into various germplasms. The coded-for enzyme confers glyphosate tolerance upon the plant. Monsanto sells crops with this nifty little bit of bioengineering under the RoundUp Ready trade mark.

The RoundUp patent expired, but the market hasn’t seen an increase in the sale or availability of generic glyphosate herbicides (which should still work with RoundUp Ready seeds) for a number of reasons.

First, Monsanto includes with the sale of RoundUp Ready seeds a crop failure guarantee called “RoundUp Rewards”, which protect farmers against crop failure. This guarantee is only available when RoundUp Ready seeds are used in conjunction with RoundUp, and is unavailable when generic glyphosate herbicide is used. Given that a crop failure guarantee adds substantial value to the RoundUp Ready seeds, farmers are unlikely to use generic glyphosate. This sews up the demand side for RoundUp.

Second, the dealer margins on herbicides are fairly slender, so Monsanto has a dealer rebate program which makes the sale of RoundUp profitable. This rebate program, however, is contingent upon the dealer hitting its sales targets with respect to the entire spectrum of RoundUp Ready seeds. This sews up the supply side for bioengineered seeds.

Farmers want RoundUp, so dealers have to sell it. Dealers want to make a profit on RoundUp, so they have to push RoundUp Ready seeds.

Now, I think there is a strong argument to be made that this behavior is in violation of section 1 of the Sherman Act and section 3 of the Clayton act, but I have to ask whether it is in the interests of opponents of genetically modified foods and of herbicides for these laws to be enforced in this case.

The aim of antitrust law (known in non-U.S. jurisdictions as competition law) is to promote competition within a market. Where an entity (be it a single corporation, or the concerted action of multiple colluding competitors) exercises market power so as to eliminate competition, the thinking is that the entire market, and therefore consumer choice and economic development, suffers. Competition brings prices down and more products to market. There are some economists who disagree, but antitrust law seems to me to be ultimately pro-market by ensuring that markets remain competitive.

Thus it seems to me that a real danger exists that if Monsanto is found to be in violation of these antitrust laws and is enjoined to cease these behaviors, the market may open up to other suppliers of generic glyphosate, which will simply reduce the total cost of growing glyphosate-resistant crops. That is, in a competitive market for glyphosate, we should expect to see an increase in the amount of glyphosate-resistant crops grown. Monsanto’s actions keep the market from being competitive, at least for now.

This is confusing to me, because in doing a lot of this reading I have developed a sense that Monsanto is a too-powerful company that needs to be stopped from abusing its patents and market power, but I have a suspicion that the harm Monsanto does to growers and dealers is that it is able to keep prices from dropping by keeping competitors out of the market. I am unsure whether this is a harm to society as a whole, given the premise that GM crops and non-selective herbicides are harmful to both our environment and our food supply.

Monsanto, Revoked Patents, Litigation Reform, and Antitrust
11 August 2007, 8:38 am
Filed under: antitrust, Economics of Eating, GMOs, Patented Foods

First, via Ethicurean, some good news: back in September 2006, the Public Patent Foundation filed a formal request with the US Patent and Trademark Office for review and revocation of four patents on bioengineered seed which were held by Monsanto.  That review did in fact lead to a revocation of those four patents.

Some better news: those four patents had been used by Monsanto to harrass, intimidate, and litigate against U.S. farmers for patent infringement. 

Ethicurean asks the salient and important question of whether these farmers will be able to receive legal fees incurred in fighting these suits, now that the patents have been revoked. These farmers fall into roughly two classes, licensee farmers and independent farmers, as defined below.

This raises the following questions:
1) Whether farmers are likely to receive an award of legal fees incurred in preparation for or defense of litigation based on breach of license of patented seeds, and on infringement of patent, when the patents upon which that litigation was based have been revoked.
2) Whether farmers are able to reclaim monies already paid in settlement of lawsuits, when those lawsuits were based on patents now revoked.
3) Whether farmers are required to make outstanding future payments pursuant to, and fulfill terms of, settlement agreements, when the underlying lawsuits are based on patents now revoked.
4) Whether settlement terms which require farmers to purchase future seeds and other products from Monsanto constitute unlawful exclusive dealing arrangements in violation of Section 3 of the Clayton act and Section 1 of the Sherman Act.

NOTE: I have to point out here that I am not a lawyer and this is not legal advice. Moreover, I have prepared this without access to a legal library, so it is even more possible that I have missed certain fine points of law. What follows is what I understand to be true in law and in fact. The legal doctrines implicated, as far as I can tell, include patent law, contract law, and possibly antitrust.

Since we are not talking about any single case here but rather a class of cases, the following review of the facts will necessarily be general, rather than specific.  Much of what follows was taken from this report by the Center for Food Safety.

Monsanto makes bio-engineered, patented seeds which are, e.g., herbicide resistant or insect-repellant, and it sells these patented seeds to farmers under a license.  These farmers we will call “licensee farmers.”  The license under which these patented seeds are sold stipulates that the licensee farmer is unable to keep any seeds for re-planting the following year.  This term disrupts the age-old practice of keeping some seeds over from one year to the next.  

Such a practice is an integral part of the economics of farming.However, many licensee farmers, whether in ignorance of this term of the contract or out of a belief that the term would not be enforced, did in fact replant patented seeds from one year to the next, as farmers have done for thousands of years.   Other farmers, whose fields were downwind of the fields planted with patented seeds, kept and replanted seeds which had been cross-pollinated with the patented seeds.  We will call these farmers, have no legal relationship with Monsanto, we will call ‘independent farmers’.

Monsanto, through investigations which seem to me to be egregious and harassing, discovered that some licensee farmers had violated the terms of their licenses, and threatened these licensee farmers with lawsuits for violation of the terms of their license, and for patent infringement.  In addition, it threatened many independent farmers, with whom it had no legal relationship, with lawsuits for patent infringement.

Monsanto has a lot of resources to put into these sorts of lawsuits, and indeed has much incentive to pursue them.   A patent-holder may be barred, under a doctrine known as laches, from an infringement action if it has waited until its patented technology has become widespread in a market. It is probable that Monsanto will use this fact as a justification for its tactics in bringing suit against both the licensee farmers and the independent farmers.

The defendant farmers, both licensee and independent, have significantly fewer resources to put into defending this sort of a lawsuit. This is not a heavy-handed attempt to shoehorn these facts into a David-and-Goliath narrative: this is fact. None of the farmers in the CFS study have a full-time legal team of even a single lawyer. Monsanto has 75 employees who do nothing other than investigate and prosecute farmers, and has dedicated $10 Million to those efforts. In addition, the investigation and subsequent litigation has a disruptive effect on the business of the farmer, while it is not unfair to say that this same investigation and litigation is a part of Monsanto’s business.

Given these imbalances, when faced with these threats of lawsuits, many farmers settle out of court. This is the rational decision. Fighting a lawsuit, even a lawsuit one is likely to win, takes time and money. Court awards of legal fees are uncertain, and may be overturned on appeal.

Settlements are often confidential, both in amount and terms. However it has been reported that settlements often will include the requirement that the farmer purchase Monsanto products in the future. Where cases have gone to trial, defendants who have lost have paid a mean judgement amount of $412,259.54. Monsanto has made a total of $15,253,602.82 from recorded judgements alone. To this amount should be added the undisclosed settlement amounts. One farmer, Carlyle Price of North Carolina, paid a settlement of $1.5 Million.

1) Whether farmers are likely to receive an award of legal fees incurred in preparation for or defense of litigation based on breach of license of patented seeds, and on infringement of patent, when the patents upon which that litigation was based have been revoked.

Probably not. One of the criticisms of the U.S. civil legal system is that legal fees are generally awarded as sanctions when a lawyer has wasted the court’s time, for instance by delaying discovery or advancing spurious arguments. This creates an imbalance in favor of parties who are able to out-litigate their opponents, and is one of the driving forces behind settlements in file-sharing cases, for instance. Defendants who are in the right may be out of pocket defending their rights, and it may make more economic sense simply to settle out of court than to subject the matter to litigation, which is lengthy and costly, even where a defendant is in the right.
In a case like this, Monsanto’s litigation efforts, by themselves, almost certainly do not qualify farmers to receive legal fees if Monsanto was at the time of suit simply enforcing the legal rights which the U.S. Patent Office had granted it in approving the patent applications, and which the licensee farmers had granted it in signing the licensing agreements. Without getting into the details of the individual suits, it seems to me likely that Monsanto’s actions, while perhaps distasteful and heavy-handed, do not demand sanction in this manner.

2) Whether farmers are able to reclaim monies already paid in settlement of lawsuits, when those lawsuits were based on patents now revoked.

Probably not. From what I can tell a settlement is an agreement not to litigate, and is therefore unlike a judgment. Thus, settlement may be considered as if it were an agreement to pay the plaintiff or potential plaintiff so as to preclude the possibility of litigation, and is therefore a calculated risk on behalf of both parties. I think it may be best to think of settlement agreements as licensing agreements made under pre-existing threat of litigation. I am unable to find a conclusive authority as to whether a licensing agreement becomes unenforceable with respect to any licensed patent subsequently revoked, but I should think it would. However, this doesn’t mean that the parties to a licensing agreement are automatically restored to their positions prior to signing that agreement following the revocation of all licensed patents. Quite the opposite, I should think.
Equitable relief may be available in the form of exemption from future action to enforce the licensing agreement, however. This is small comfort indeed to the many farmers who have been forced into bankruptcy due to Monsanto’s actions.
However, farmers who have chosen to litigate may have an advantage over those who chose to settle their cases, even if the farmers received adverse judgments at the end of that litigation. From what I can tell based on consultation of § 127 of the Restatement, Second, of Judgments, equitable relief is available where, subsequent to the judgment, facts or circumstances change such that enforcement of the judgment would be inequitable. I understand equitable relief to be distinct from legal relief, however, in that it generally does not include monetary awards. This means that an adverse judgment is unlikely to be enforced going forward, but that monies already paid in the judgment are probably no longer available.

3) Whether farmers are required to make outstanding future payments pursuant to, and fulfill terms of, settlement agreements, when the underlying lawsuits are based on patents now revoked.

I should think not, as this is contrary to the aims of patent law. The patent agreement is a contract under which each party provides something of value: the patent-holder provides the license to use in a commercial context patented technology — that is, technology which the licensee would otherwise be unable to use. The licensee provides money and/or other valuable considerations for this license. When a patent is revoked, the value of the patented technology is critically diminished in that now, unlicensed enterprises can use the technology without paying for it. Thus, continued future enforcement of agreements to license revoked patented technology place the licensee at a commercial disadvantage. The patent-holder is no longer providing anything of value.
However this may depend on the terms of the settlement agreement. If these agreements have included the continued use of other patented technology, then they may be enforceable in toto rather than in the specific portions which are not eradicated by the patent revocations. However, I should think that this sort of situation were precisely what the blue-pencil rule was invented for, and that courts might be willing to refrain from enforcing those sections of settlement or licensing agreements which solely pertain to patented technology now revoked.

4) Whether settlement terms which require farmers to purchase future seeds and other products from Monsanto constitute unlawful tying or exclusive dealing arrangements in violation of Section 3 of the Clayton act and Section 1 of the Sherman Act.

I thought this an interesting question to ask even though I don’t have the answer to it offhand. In antitrust there are two recognized offenses, tying arrangements and exclusive dealing arrangements, and the terms of the Monsanto settlement agreements may fall under one or both of those offenses. Tying arrangements occur when a seller has market power in a single market (such as computer operating systems or photocopiers) and uses that power to compel buyers to purchase a product in another market (such as web browsers or photocopier parts and services). These arrangements are generally unlawful per se.

Exclusive dealing arrangements occur when a seller compels a buyer not to do business with a competitor. These are not unlawful per se as the courts recognize that such arrangements can benefit not only the seller and the buyer but also the competitiveness of the market as a whole. Exclusive dealing arrangements do become unlawful when buyers are coerced into them by the seller and the agreements affect a substantial dollar volume of the relevant market. While patents do not always create economic power in the seller, they have been held to do so. The threat of lawsuit may, insofar as it can do irreparable harm to the buyer, also constitute coercion. A detailed inquiry on both counts is required.

Antitrust litigation on this count is likely to be detailed, lengthy, and expensive, and the outcome unclear at this time, as the details of the settlement agreements are sealed.

My conclusion, therefore, and please keep in mind that this has been done without access to a law library and should not be considered a proper brief, is that the farmers, ill-treated though they have undoubtedly been, are probably without much recourse in terms of getting back any legal fees or settlement amounts already paid, and that litigation on an antitrust basis would be a substantial risk on behalf of the farmers.

Having said all of these things, I feel the need to get up on my soapbox again and point out that this case illustrates the necessity of three reforms in the U.S. legal system and food industry.

First, the advantages that U.S. civil law gives to the plaintiff in terms of encouraging settlement. These advantages have been notably taken advantage of by the recording industry in pursuing alleged filesharers, and they are being taken advantage of here. It is an unfortunate reality that the rules relating to legal fees promote litigation by those with deep pockets and discourage litigation by those without. There exist a number of cases where people who have been critical of various organizations have been sued by those organizations for slander or copyright violation, and due to the silencing effects of settlements a number of states have passed SLAPP statutes making it unlawful for organizations to use the law to silence participation in public discourse. While SLAPP statutes are a reform to protect First Amendment rights, such reform is probably needed across the civil law playing field.

Second, it seems to me that the policy kinks have not yet been worked out with regards to GMO patents, as illustrated by suits against farmers whose crops have cross-pollinated. Much more consideration than was given is required.

Third, the economic conditions which have required U.S. farmers to use products like Monsanto’s herbicide-resistant seeds are in desperate need of consumer-driven reform of the sort that I imagine many readers of this site and the sites it links to are already promoting. Farmers are often required to grow much much more food than they will sell in order to meet the contracts they have with processors and retailers, and many have turned to GMOs in order to increase output. The story of Monsanto v. U.S. Farmers illustrates some of the many hidden costs of our bountiful food supply. We need to realize that there are better things in life than being able to buy iceberg lettuce all year long for 69¢/head. Until we do, the economic pressures that supermarkets place on farmers will keep driving them to sup with the devil, and without the benefit of a long-handled spoon.

Consolidation in the Food Industry

Worth a read: the USDA’s Report on Consolidation in the Food Industry. Gristmill has some initial thoughts.

I just downloaded it and intend to give it a look over. The effects of consolidation in a free market are somewhat controversial, but U.S. food production is so highly subsidized that calling this a free market makes a sham of the term. Part of my research this fall will be a segment on antitrust in the food industry, and I am looking forward to that.

Via Slow Food Seacoast.