Until recently, success in the seed business could be traced to the strength of a company’s classical breeding programme. But with the advent of the first transgenic plants, such breeding, as well as access to germplasm, genes and biotechnologies have become of considerable strategic importance. Genetic material, biotechnologies and their associated intellectual property rights (IPRs) are in fact leading to a new restructuring of the relations between agrochemical, agrobiotechnological, food processing, and seed companies.

The seed industry matured due to the introduction of hybrids, especially hybrid maize in North America, hybrid sugar beet in Europe, and hybrid vegetables in South-East Asia. Of the US$ 15 billion market in commercial seed at present, hybrids account for approximately 40 per cent of sales, and most of the profit.
In North America and Europe the hybrid seed industry grew from regionally based family businesses. The profitability of hybrids far outstripped that of non-hybrid open-pollinated seeds. This leads to eventual consolidation in the industry and the dominance of several key companies in particular crops. The attraction of hybrids for the seed industry is obvious: when double-cross maize hybrids were first commercialized in the USA in the early 1930s, they were priced at approximately 10 to 12 times the price of commercial grain. With the introduction of single crosses in the 1960s, hybrid maize seed prices jumped to between 20 and 25 times the commodity price. In the 1970s these high margins attracted the attention of several agrochemical companies, waiting to exploit possible synergies of the seed business with their own line of business. The acquisition of Northrup King (USA) by Sandoz (Switzerland), of Funk Seeds (USA) by Ciba-Geigy (Switzerland), of Nickerson (USA) by Shell (UK/the Netherlands), and of Asgrow (USA) by Upjohn (USA) took place during this period.
In the 1980s agrochemical companies engaged in biotechnology research began to acquire seed companies. They did so this time in the realization that seed would be the primary delivery system for their new technologies, particularly biotechnology. They believed that delivering and capturing value from new input and output traits required control over the distribution channel. This brought companies such as Dupont (USA), Elf Aquitaine (Sanofi) (France), ICI (USA), Monsanto (USA), Rohm & Haas (USA), and Unilever (the Netherlands) into the seed business. Their strategy was to capture margins along the length of the agribusiness chain from the laboratory to the field.
This strategy did not work for all new entrants. Firstly, the time required to convert the early new technologies into products took much longer than originally envisioned. Secondly, there was a conflict between the entrepreneurial management style of the comparatively smaller seed companies, and the hierarchical style of most large chemical companies. Thirdly, the learning curve has been longer and more complex than expected and has led to poor financial performance. Finally, unlike chemicals, seed cannot be marketed globally, but only in agroclimatic regions similar to where it was developed. As a result, companies such as Shell, Rohm & Haas, Sanofi, Upjohn,  began to divest themselves of their seed and biotech businesses in the 1990s.

Recent developments
Lately however, there has been a reassessment of the seed industry now that genetically engineered seed is finally reaching the market. In 1996, roughly 720,000 ha of Bt cotton (transgenic insect resistant cotton expressing a Bacillus thuringiensis gene), 80,000 ha of Bt maize and 7,200 ha of Bt potato were planted in the USA. Approximately 20,000 ha of transgenic canola, tolerant to the herbicide Liberty, were planted in Canada, and approximately 800,000 ha of transgenic soya beans, tolerant to the herbicide Roundup, in the USA.
These developments are hastening the convergence of the agricultural biotechnology, seed and chemical industries. In turn, this convergence is changing the cost structure of the traditional seed business and product pricing. Therefore, attempts are being made to separate the value of technology from the value of the seed in the form of a ‘technology premium’ to be paid by farmers when they purchase a product improved by biotechnology. For example, in 1996 the technology premium for Bt-based insect protection in cotton is over US$ 75 per ha, and roughly US$ 25 per ha for maize.
Because most transgenic plant products contain or have been developed with several biotechnologies, it is very easy for a company owning the IPR on one such technology to block development of a product. As a result, in order to maximize value recovery, minimize the threat of litigation, and secure access to technology, several strategic ‘partnerships’ were formed in 1995 and 1996. Monsanto’s acquisitions of 49.9 per cent of Calgene (USA), 45 per cent of Dekalb (USA) and 100 per cent of Agracetus (USA) were, to a large extent, driven by technology and IPR issues. The acquisition of Plant Genetic Systems International (PGS, Belgium) by AgrEvo GmbH (Germany) in August 1996 for approximately US$ 750 million is perhaps the noteworthy strategic partnership. Both Monsanto and AgrEvo have invested heavily to gain access to technologies that were subject to IPRs held by PGS and others. Similarly, Empresas La Moderna’s (ELM, Mexico) acquisition of DNA Plant Technology (USA) was driven by the latter’s technology and portfolio of delayed fruit-ripening patents. Dow Elanco’s 46 per cent participation in Mycogen (USA) was driven by the former’s desire to secure access to Bt technology and other patents. On the other hand, the Zeneca (formerly ICI, UK) and Vanderhave (the Netherlands) merger was triggered more by geographical convenience and other considerations than by IPR considerations. The Ciba and Sandoz merger was also to a large extent driven by their mutual interests in the chemical and pharmaceutical business.
With the seed industry in a state of flux, new competitive strategies are expected to emerge. These strategies are likely to focus on four areas: (1) pricing based on separating the value of technology from the value of the seed; (2) market segmentation; (3) product development using classical breeding, genetic engineering, and technologies to reduce ‘cycle time’; and (4) sales and distribution.
In the flagship USA maize seed market, for example, it is anticipated that within the next five years the seed distribution system will undergo significant changes to meet farmers’ expanding needs for more sophisticated technology and information. There will be a growing trend towards multi-channel distribution rather than the existing farmer-dealer system alone. In hybrid seed maize, the very existence of many local and regional US companies will depend upon the success of Holden’s Inc., a major supplier of foundation seed, in integrating new technologies in its proprietary germplasm. Through foundation seed (or parent seed) Holden’s is essentially the supplier of genetic material to most of the local and regional US maize seed companies. Unless Holden’s can access the new biotechnologies, those companies will be excluded from the current shift in the competitive landscape and will continue to lose market share.

Genes and enabling technologies
The technology used for the transgenic seeds which are entering the market can be broadly divided into two major groups: genes and enabling technologies. Genes encode proteins that are responsible for the (transgenic) trait. The important enabling technologies include plant transformation systems, selectable markers, gene expression techniques, and the so-called gene ‘silencing’ technologies. Plant transformation systems are employed to insert specific genes into plant cells. Methods include using Agrobacterium as a vector (Ti mediated transformation), electroporation, or particle gun. The result of these methods is the incorporation of novel DNA into the plant cell’s chromosomes. Since the incorporation of DNA, i.e. genes, is random, selectable markers are used to identify the transformed cells.
To be sure that the inserted genes function in their new environment, expression technology is employed. This technology in combination with specific gene promoters is used to specify the timing and location of gene expression. By contrast, gene silencing technologies, such as anti-sense, can be used to suppress gene expression. The Flavr Savr tomato of Calgene uses anti-sense to suppress one of the genes responsible for ripening, so that tomatoes can remain on the vine longer, and become sweeter without going soft.

IPR and access to technology
As noted, since virtually all transgenic seeds either contain several technologies or depend on them for their development IPR issues have become a new competitive element in the seed industry. Even in cases where a technology is novel and patented, it may be dependent on earlier developments, and so cannot be freely used even by the inventor. Therefore, from these first transgenic seeds a rather complicated IPR pedigree emerges. At issue is the so-called ‘freedom to operate’, which can be defined as legal access to all the technologies required to launch a product.
Already with a single-trait transgenic plant, the IPR issues are extremely complex. For example, a transgenic insect-tolerant plant may involve Plant Variety Rights (PVR), plant patents, as well as several patents relating to transformation technology, the selectable marker employed, the gene coding for the insecticidal protein, the promoter, and various regulatory elements and modifications needed to express genes adequately in plant cells (see table).
Any IPR holder of even one element could block the commercialization of an insect-tolerant variety based on this package of technologies. Alternative packages are equally complicated. Because of the difficulties of sorting through various IPRs, the cost of doing seed business will increase, as will the likelihood of litigation.
Freedom to operate will become even more complicated as companies seek to bundle traits to gain competitive advantage. A second generation of transgenic crops are likely to contain both input traits, such as insect resistance and herbicide tolerance, and output traits like altered oil and protein quality.

Example of multiple IPRs related to the development of one insect protected plant  Subject  Components Example IPR  Plant Variety  Germplasm Protected Variety Plant variety right  Selectable marker gene Promoter  Coding sequence 35S  nptII  Patent  Patent  Trait Promoter  Coding sequence TR  cryIAb Patent  Patent  TransformationTechnology Ti-plasmid pGV226 Patent  Gene Expression Technology Transcription Initiation  Translation Initiation  Codon usage viral leader  Joshi  AT -> GC Patent  -  Patent  Number of IPRs 8

The rules of the IPR game
The current restructuring of the seed industry is being driven by technology and IPR issues. The winners in this process will be those companies that are able to deal with the complexities of IPR and bring their products onto the market. Their ability to do so is limited by a number of factors:

• There are a large number of technologies involved in developing a product.
• Many products will be dependent on third-party technologies and subject to their IPRs. Those technologies may be unavailable for licensing or only available on onerous terms. If the technology owner seeks its maximum value, the cost of technology acquisition can become prohibitive and its recovery in the market almost impossible.
• Companies may be required to use their own patented technologies as trading chips to get access to third-party technology. The more such chips you have, the more chances you have of obtaining freedom to operate. Therefore, companies that started early in biotechnology and have a broad technology portfolio are at an advantage.
• The viability of the company can be affected if commercialization is delayed, especially if other sources of financing R&D are limited. Some technologies still have to be tried, tested and mastered. The learning curve this requires can be longer than anticipated.

Plant Genetic Systems N.V., J. Plateaustraat 22,
B-9000 Gent, Belgium. Fax (+32) 9 224 0694.