Introduction

The present exponential growth in biotechnological research is a by-product of changes in both the technology and the availability of IPRs for living organisms. The new paradigm in biotechnology patenting started after the landmark decision of the Supreme Court in Diamond v Chakrabarty (1980) that allowed the patenting of life forms. This decision opened the door to the patenting of plants and animals as standard utility patents. Certain property rights, such as the Plant Variety Protection Act (PVPA) for plant seeds and the Plant Protection Act (PPA) for tubular forms of plants, were already in place before the Supreme Court's decision. The PVPA and PPA, however, granted weaker property rights than utility patents because they permitted researcher and farmer exemptions.

The court decisions and changes in government policies created a menu of choice in plant IPRs for agricultural biotechnology firms. Seed firms with new research ideas could either apply for a Plant Variety Protection Certificate (PVPC) or a Plant Utility Patent (PUP), or both. Such choice in IPRs is unique to plants. A theoretical model by Hopenhayn and Mitchell (2001) suggests that a menu approach in patenting with different levels of property rights can induce strategic patenting behaviour by firms leading to socially suboptimal investments in property rights. This study explores the issue of availability of menu choice in plant patenting and its implications for strategic firm behaviour in the corn and soybean seed markets.

New property rights also imply increased uncertainty in the interpretation of laws. In such a dynamic scenario where laws and their interpretations are changing rapidly, firms need to be strategic in their patenting decisions, such that they can extract maximum rents from their rights. Such strategic behaviour of firms has been captured in the literature on patent lengths and breadths (e.g. Gilbert and Shapiro, 1990). The goal of this chapter is to explore another important aspect of strategic patenting behaviour: the implications of patenting rules on the intellectual portfolio choice between patents and trade secrets. This issue is explored using data on patents and other IPRs in the plant or seed industry, which had a strong tradition of using trade secrets to protect its innovations prior to the 1970s.

The chronology of patent law changes also allows us to explore the behaviour of biotechnology firms in plants. Chronologically, in the case of plant patents the regulations, litigations and decisions significantly strengthened the property rights available for plants. The following are the most significant decisions and regulation changes on plant patenting: (i) Diamond v Chakrabarty in 1980; (ii) ex parte Hibberd in 1985; and (iii) J.E.M. Ag Supply Inc.v Pioneer Hi-Bred Int'l. Inc. in 2000. The strategic behaviour of firms in patenting is analysed, given these events, using an event study methodology.

The second section of this chapter presents a brief overview of the salient aspects of IPRs in plants. The third section gives a description of the market for corn and soybean seeds. The fourth section provides a review of the economics literature on IPRs. The fifth section informs a model of the strategic game played by two firms choosing between IPRs and keeping trade secrets. The sixth section tests the analytic model by presenting empirical evidence from data on IPRs in plants during 1981-2001. The chapter ends with a conclusion.

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