An Innovation Market Approach to Analyzing Impacts of Mergers and Acquisitions in the Plant Biotechnology Industry

The groundswell of mergers and acquisitions in the plant biotechnology industry over the last decade has been driven by the research assets required to develop new biotechnology products and by the strong patent system of the United States. These mergers generate concern that the concentration of patents, plant germplasm, and markets for biotechnology among a few firms may be causing a decline in the level of research and innovation in the industry (Barton, 1998). Patents on enabling technology, such as transformation techniques, and the large number of patents on specific crops held by major companies may be reducing the incentive and ability of other companies to perform research. In addition, the cost of obtaining permission to use patented technology or genetic material may prevent some firms, particularly smaller ones, from participating in innovative research (Graff, Wright, Bennett, & Zilberman, 2004). Several policy alternatives are available to the government for preventing excessive levels of concentration: The US Patent and Trademark Office (USPTO) can reconsider its policies on issuing broad patents; the Federal Trade Commission (FTC) and US Department of Justice can use their antitrust powers to prevent abuse; and public research institutions can develop and license technologies that prevent private firms from obtaining a monopoly at any stage of the research and development process. This paper focuses on one of these policy instruments—the antitrust activities of the FTC and Department of Justice—as a basis for assessing the competitiveness of the plant biotechnology literature. This paper makes two contributions to the literature. First, we bring the FTC concept of innovation markets to bear on agricultural biotechnology in general and the development of new crop varieties in particular. Second, we present empirical evidence related to the performance of the innovation market in this industry. Our empirical evidence, based on the newly available US Department of Agriculture Economic Research Service (USDA ERS) agricultural patent database (Pray, Oehmke, & Naseem, this issue) and our concept of industrial mobility, are new to the agricultural biotechnology literature. The paper proceeds with a description of the conceptual framework underlying the innovation markets approach and the FTC approach to regulation of mergers and acquisition (M&A) activity in innovation markets. Although the FTC applies the innovation market approach to evaluate specific mergers or acquisitions, the concepts are adapted to the agricultural biotechnology industry as a whole. The paper then moves to empirical evidence on the innovation market in plant biotechnology. The final section draws conclusions. Margaret Brennan Cook College, Rutgers University