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CADE imposes restrictions to Monsanto licensing agreements

Restrictions

The contractual provisions would have potential to raise barriers to entry in the transgenic soybeans market
published: Aug 29, 2013 04:00 PM last modified: May 02, 2016 03:34 PM

The Administrative Council for Economic Defense ( CADE) approved four operations involving licensing agreements through which Monsanto do Brasil Ltda authorizes other companies to develop, produce and sell, in Brazil, soybean seeds with Intact RR2 PROTM technology, owned by Monsanto. All operations were approved with restrictions during the Tribunal public trial session held on August 28th, 2013. 

The companies to receive the licenses were Don Mario Sementes Ltda, Nidera Sementes Ltda, Syngenta Proteção de Cultivos Ltda, and Cooperativa Central de Pesquisa Agrícola.

The approval of the transactions was conditioned to the change of clauses that gave Monsanto the possibility to influence the strategic decisions of the licensee companies. This influence would transcend the object of the contract, as it would reach not only seed production with Intact technology but also the total production of the licensee companies.

The contractual provisions established a compensation mechanism for the licensee companies that would be based on sales of the Intact product and on the sales of certified seeds of Monsanto’s competitors.

If a licensee company chooses to expand its production by also using a patent from a competing product, the compensation from what has been produced with Intact technology will be reduced. This way, the transaction would only be economically attractive if Monsanto’s competitor counterbalanced the offer by paying for the correspondent profit reduction.

In his vote, Commissioner Eduardo Pontual Ribeiro pointed out that Monsanto's system has the potential to reduce the interest of companies that use Intact soybean technologies to develop new technologies. "Even though the incentive system does not have an exclusivity approach, it has the capacity to raise barriers to entry in the transgenic soybeans market", he explained.

Notification - According to the president of CADE, Vinicius Marques de Carvalho, the contracts enhance the possibility of the licensor to influence strategic decisions of licensee companies, so that it transcends the object of the agreement. They also significantly affect the independence between the parties, which is a structural change to the definition of mergers.

Still in accordance with the president, the case analysis involving contracts that do not fit the ordinary merger is a challenge to Cade. Nevertheless, the experience in the analysis of such cases will gradually provide elements to improve the interpretation of the new law (Law 12.529/11), regarding the need for notification of cooperative structures that do not strictly fit the legal classification, particularly associative contracts and joint ventures.

"CADE is pursuing transparent and appropriate criteria for the notification of contractual arrangements involving cooperative structures that do not fit the classic definition of merger", he said.