Patented agricultural biotechnology inventions, such as genetically modified (GM) plants, provide many benefits like increased crop yield. However, they can also create nuisance for neighbouring farmers if pollen drift results in patent infringement. The main concern with such negative externalities in the context of a patentee and competing farmer is its effect in reducing incentives for farmers to develop their own varieties of plants. The resulting reduction in biodiversity can, in turn, adversely affect social welfare by reducing future opportunities for innovation as a result of a reduction in the number of different varieties available as research and development (R&D) inputs.

According to Coase (1960) and depending on how rights to use such inventions are allocated, farmers can pay patentees to prevent them from releasing such inventions into the environment. Alternatively, if rights to release such genetically modified organisms (GMOs) were granted to farmers, patentees could pay farmers to maintain buffer zones. However, in practice such transactions will be difficult to conclude. We argue that rendering patents unenforceable in conditions of inadvertent use, in addition to imposing liability for crop damage, is the second-best alternative to reducing such negative externalities. Using a typology of Hohfeldian legal relationships, we specify how rights may be allocated between patentees and farmers, as well as why some technologies lend themselves naturally to such arrangements. The state can play a key role in inducing the creation of valuable inventions that create fewer negative externalities, by specifying both patent rights and a set of auxiliary rights establishing the conditions under which such inventions may be used.

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