Chinese National Convicted of Conspiracy to Steal Trade Secrets in Kansas

Recently, Newsweek has published an article titled, “A Chinese Scientist Stole American Rice and will Spend a Decade in Prison,” by Max Kunter.  The article explains how Mr. Zhang worked for a biotechnology company, Ventria, around Manhattan, Kansas (the location of Kansas State University) and genetically modified seeds from that company were found in the baggage of Chinese research visitors from a Chinese crop research institute on their way back to China.  Mr. Zhang is Chinese national and a legal permanent resident. He has been convicted of conspiring to steal trade secrets.  He will serve 10 years in prison. 

Interestingly, the article notes:

FBI Director Christopher Wray has also warned about China. Asked during a Senate intelligence committee hearing in February about the counterintelligence risk from Chinese students in the U.S., Wray said, “The use of nontraditional collectors, especially in the academic setting, whether it’s professors, scientists, students we see in almost every field office that the FBI has around the country…. They’re exploiting the very open research and development environment that we have.”

Here are a couple of observations.  First, there could be an argument that this activity is not sponsored by the government in China.  Mr. Zhang may be acting illegally, but on his own accord.  He may realize that this seed is very valuable and that by passing the seed on to co-conspirators he may be entitled to a piece of a new company started in China selling the same seed in other markets.  The people starting the new company may similarly be operating without government approval or sponsorship.  However, it is interesting that he passed the seeds on to a Chinese crop research institute.  I wonder who sponsors the work of the research institute.  Mr. Zhang was also defended by public defenders, but I imagine that if this was state sponsored the government of China is likely not going to pay for his defense—that would look bad.  Second, I am curious to learn more about data substantiating Mr. Wray’s comments about “every field office . . . around the country.” 

Monsanto's Patent Strategy: Less Today May Be More Tomorrow

I have been under (blog)water for the better part of the last two weeks but, with the trial over, it's great to be able to comment once again. What grabbed my immediate attention is an article that appeared in the February 1 & 8 issue of Bloomberg Business Week, entitled "Monsanto Sets a Soybean Free."

Monsanto may be the world's largest seed company, and seeds are a desirable commodity to be selling. Still, circumstances have not been kind to the company. Genetically modified crops, with which it is closed identified, have been viewed in some circles as a Frankenstein with roots. As well, the U.S. Justice Department has been carrying on a civil investigation of whether the company has been liable for anti-competitive practices with respect to the soybean business. Further, DuPont -- no shrinking violet in the business, being number 2 behind Monsanto -- has sued Monsanto, claiming an abuse of its market position in the soybeans space, where Monsanto is reported to have a 93% (!) market share of the U.S. soybean crop via its first generation biotech seed. Monsanto is entitled to feel somewhat unloved both in the U.S. and abroad.

Against this backdrop, it is interesting to consider the recent moves taken by Monsanto with respect to its patent position. According to the article, the company will allow its current patents for bio-engineered farm seeds to "expire without a fight", starting with the patent on its soybean market leader, Roundup Ready, with an expiration date in 2014. As a result, competitors will be able to manufacture copycat products, presumably at a lower price. Also, farmers will be able to plant seed taken from the farmers' own harvests, without the threat of legal action by Monsanto.

While Monsanto might have some interest in enjoying the positive publicity that surrounds such a move, the primary motivation appears to be a decision to refocus its strategic focus with respect to its patent portfolio from the first generation of bio-engineered seeds, which are close to expiration, in favor of promoting new versions of gene-modified products. It has already begun to sell new versions of herbicide-resistant soybeans and corn, and it plans to launch additional genetically modified seed products in 2011. Interestingly, Monsanto is also relying on licences granted to other producers to extend the reach of these new generation seed products.

The strategy contained in these moves was described in the article as follows: "Grant [being Hugh Grant, the CEO of the company] is betting that sales of these higher-priced, second-generation seeds will more than offset the loss of sales of earlier versions as their patents expire. 'Growers will decide, do I go with the old 1996 material or do I go with some of these new varieties?' Grant says. "I am fine with that setup.'"

I meant the other Hugh Grant

Stepping back from Grant's comment, this is an interesting strategic move on Monsanto's part. Monsanto seems prepared to de-emphasize its current product line, and the IP enforcement that goes with it, in favour of promoting a new generation of products, backed up by a determination to enforce its patent rights in these new products. Further, Monsanto seems to be betting on the strength of its brand awareness, which will to allow it sell a higher-priced seed to an "installed base" of farmers who have already become accustomed to Monsanto-based genetically modified products.

In so doing, Monsanto seems to be providing a partial answer to the perennial question that bedevils a patent owner who is faced with the ultimate expiry of his patent: "What do I do the day after?" The answer is to try and make certain that there is no perceptible "day after", but rather to provide a continuous branded product stream, where today's product is able to command a premium price, backed by an explicit commitment to enforce its IP rights in the new products.

If so, the question is whether such a strategy is different in context from the incremental development strategy that has been an issue in the pharmaceutical industry. Most notably, Indian patent law contains the controversial section 3(d), which makes it much more difficult for a patent owner to enjoy continued patent protection in pharmaceuticals for incremental development (and thereby, it is argued, make it easier for the generic pharmaceutical industry in India to operate).

With respect to Monsanto's bio-engineered new generation of seeds, the issue then becomes whether we are talking about material improvements in product or "mere" incrementalism backed by the threat of enforcement of patent rights. If the former, Monsanto's effort to extract a higher price will seem reasonable. If the latter, however, one can foresee a time in the not-too-distant future where Monsanto's current patent munificence will be viewed as a Trojan horse intended simply to accelerate (unjustified?) price increases in its seed products.

Find the Seeds?