Factors Shaping the Preferences of European Industry for Intellectual Property Protection

European corporations have long held a dominant technical and market position in chemical pesticides, the incumbent technology in the US$30 billion/year global crop protection market. The preferences of incumbent European chemical firms over policies governing biotechnology, a new radical technology entering their market, can be largely understood as dictated by three fundamental factors: (i) the extent to which biotechnology-based products prove capable of displacing chemicals for crop protection; (ii) their own capacity to innovate or assimilate this new technology; and (iii) their ability to manage the transition to developing and selling biotechnology crop protection products, while diminishing the strategic significance of their vested expertise in chemical R&D, displacing market share of their established chemical products and shifting from chemical to seed marketing channels.

Crop protection market shares

The historical status quo of European industry in agricultural chemicals is evidenced in market figures for 1991 (Fig. 17.2). European-based corporations made 55% of sales in a US$27 billion global crop protection market that, in 1991, still consisted entirely of chemical pesticides, while US firms were clearly in the second tier with only a 25% share. Since the introduction of seeds with crop-protecting genetics in the mid-1990s, farmers began adopting the new technology (in countries where it was available) at unprecedented rates. This is evidenced in the 2001 figures where genetics (agbio/seed) accounts for 16% of the US$31 billion global crop protection market just 6 years after the launching of technology.

Comparison between the global markets of 1991 and 2001 reveals four crucial trends over the decade:

1. Sales in chemicals were basically flat over the decade, indicating that it is a mature technology offering little in the way of growth opportunity for the firms in the industry.

2. Chemical sales by US firms, however, increased over the decade (from 25% to 30% of the global market), while chemical sales by European firms decreased (from 55% to 47%). This shift was likely driven, in part, by the tie-in of some chemicals with complementary genetics, especially the popular package of glyphosate with glyphosate-tolerant soybeans.

30,000

20,000

European corporations

1991

2001

Agbio/ seed

Agbio/ seed

European corporations

1991

2001

Fig. 17.2. Comparing global sales in the crop protection market in 1991 and 2001 by nationality of firms making sales.

Agbio/ seed

Fig. 17.2. Comparing global sales in the crop protection market in 1991 and 2001 by nationality of firms making sales.

3. Growth in genetics far outstripped growth in chemicals, virtually providing all the expansion in the crop protection market.

4. European firms made a disproportionately small contribution to these rapidly growing biotechnology sales, given their initial market share in the industry, and, in particular, relative to US firms.

Biotechnology is clearly emerging as the high growth segment in crop protection markets (where it is approved), and it is also clear that US firms are the leaders in introducing this new technology. Given that European firms have global reach, it might seem reasonable that they should rival or surpass US firms in introducing new products in the high growth segment of a market they already dominate, even if they were excluded from their home markets because consumers and regulators have concerns about the technology. The key question is why European firms have not introduced biotechnology products globally with the same degree of success as their US competitors.

Innovative capacity

The issue comes down to one of relative capacity to innovate in biotechnology. It is hardly controversial to generalize that - except for some notable exceptions such as

Dolly, the cloned sheep and recent initiatives in stem cells - Europe has historically followed the USA with respect to research in the life sciences and the development of a biotechnology industry. This concern is repeated frequently in the European trade and policy literatures (Alper, 2002; European Commission, 2002; Aldridge, 2004). Less obvious, perhaps, is the extent to which this trend is true in the plant sciences and the development of commercial agricultural biotechnologies, despite Europe's long-standing dominance in agrochemicals (Arundel et al., 2000; Bijman and Joly, 2001; Menrad and Reiss, 2002; Busquin et al., 2004). Although such observations are difficult to quantify systematically, two kinds of data provide at least a rough assessment of the relative capacity of European research in biotechnology in general and in agricultural biotechnology in particular.

Generation and use of genomic data

Gene sequence data are of fundamental importance to both basic research and commercially oriented biotechnology innovation. A recent study by the Harvard Business School's Life Sciences Project sought to quantify the generation and use of genomic data by country (Enriquez et al., 2002) for the purpose of creating a comparative metric of biotechnology R&D activity. Figure 17.3 depicts the super-exponential growth from 1992 to 2002 in quantities of sequence data deposited at each of the three major national genomic databases in the USA, Europe and Japan. Figure 17.4 shows quantities of sequence data accessed during a few selected months in 2000-2001, by country, as determined from records of all the Internet protocol addresses that made data downloads. By 2002, European deposits of genomic data were only 15% of the total, compared with US deposits

jS 4 to

Jan. 1992

Jan. 1995

Jan. 2000

Jan. 2002

Fig. 17.3. Generating gene sequence data: deposits of data at three national genome databases - GenBank, EMBL and DDBJ. (From Enriquez et al., 2002.)

ra 15

3.45 (8.0%)

-

7.90 (18.3%)

-

9.30 (21.5%)

-

September 2000-November 2001

■ Japanese users

□ European users

September 2000-November 2001

Fig. 17.4. Using gene sequence data: nationality of Internet Protocol addresses making downloads from the three national databases (GenBank, EMBL and DDBJ) collectively. (From Enriquez et al., 2002.)

of 75%, and European-based downloads accounted for 22% of genomic data accessed, while US downloads accounted for 52%.

Patents and patent citations

One of the best ways to specifically compare R&D strength in a given technology is to look at relative rates of patenting within that technology or industry sector. Ideally, to answer the question of relative innovative capacities in pest control technologies, US and European inventors are compared by looking at patents registered in both the USA and Europe over both biotechnology and chemical agricultural technologies. However, under the more limiting European IP policies, patents have not been granted in Europe over many of the inventions, creating an observation bias. US data alone are utilized for two reasons: (i) US patent registrations capture a much broader range of biotechnologies and crop genetics, opening a wider window for observation of the underlying innovative activities among the patent applicants; and (ii) given the very alignment of regulatory conditions in Europe and the USA, any or all European inventors would have faced significant incentive to patent whatever agricultural biotechnology inventions they had made in the USA, since it constitutes the single most significant market in the world for making a return on such a technology.

US patents granted on agricultural biotechnologies (including genes, genetic engineering of plants and GM plant varieties) and filed by North American (US

"o 300

3 200

"o 300

3 200

Year

1992 1993 1994

Fig. 17.5. Patents granted in the USA over agricultural biotechnologies, by region of lead inventor and grant date of patent, 1980-2000.

1999

2000

Year

1992 1993 1994

Fig. 17.5. Patents granted in the USA over agricultural biotechnologies, by region of lead inventor and grant date of patent, 1980-2000.

1999

2000

and Canadian) inventors began much earlier and grew significantly more rapidly than those filed by European, Japanese and other inventors, becoming numerous by the mid-1990s (Fig. 17.5, from patent data in Graff et al., 2003). Figure 17.6 illustrates the structure of inventorship in a similarly constructed sample of US patents on all agricultural chemical inventions. In agrochemicals, the number of filings by European inventors rivals and in some years exceeds those by North American inventors.

Even though European innovation is likely understated in these US patent counts, comparison of inventorship between the two fields of technology should be fairly unbiased. After 20 years, North American inventors have generated and patented in the USA about two-thirds (68%) as many inventions in agricultural biotechnology as they have in agricultural chemicals, while Europeans have generated and patented in the USA only about one-fifth (22%) as many inventions in agricultural biotechnology as they have in agricultural chemicals.

In addition to the count of patents, a measure that gives additional information about the relative trends and significance of innovation is the extent to which those patents are later cited in the patent literature. Several economic studies have linked this measure of 'forward citations' received by a patent to the value of the technology it represents (Trajtenberg, 1990; Harhoff et al., 1999; Lanjouw and Schankerman, 1999; Hall et al., 2000, 2001). Figures 17.7 and 17.8 show the estimated number of lifetime citations received by the patents for the two technology sectors shown in Figs 17.5 and 17.6, respectively. For each patent, we count

600-1

600-1

Fig. 17.6. Patents granted in the USA over agricultural chemicals, by region of lead inventor and grant date of patent, 1980-2000.
Fig. 17.7. Estimated lifetime forward citations to the agricultural biotechnology patents in Fig. 17.5, by grant date of cited patent (estimated to correct for truncation in forward citations).
Fig. 17.8. Estimated lifetime forward citations to the agricultural chemical patents in Fig. 17.6, by grant date of cited patent (estimated to correct for truncation in forward citations).

the total number of citations received by 2004 and, based on that number, estimate how many citations the patent is expected to ultimately receive over its entire lifetime (Fig. 17.9).3 The first and most striking result is the large mass of citations made to North American agricultural biotechnology inventions patented between 1985 and 1989. As shown in Fig. 17.5, this was a relatively small number of patents in each of these years, but among them were a number of key early devel-

j 50% of citations

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Citation lag (years)

90% of cita

Fig. 17.9. Time-invariant citation probability distributions for agricultural biotechnology and agricultural chemical US utility patents.

opments in the technology crucial to subsequent innovation. Second, although less striking, is the comparatively high rate of citation to North American agricultural biotechnology patents in the late 1990s, indicating that the USA effectively sustained its advantage in the development of biotechnologies. Third, citation to chemical patents granted to European inventors has been very strong throughout, showing Europe's early and sustained technological advantage in chemical technologies, both in comparison with North Americans in chemical technologies and the Europeans' significantly lower levels in agricultural biotechnology.

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