Property Rights Protection of Biotechnology Innovations

Protection of intellectual property embedded in potentially reproducible living organisms presents some unique and difficult challenges. Biological innovations like genetically modified (GM) seed are self-replicating, and as a result, represent a form of durable good with a potential product life extending far into the future. This gives rise to two problems: the need for copy protection of intellectual property contained in GM seed, and traditional durable goods price commitment problems combined with competition between new and reproduced progeny seed. In this study, we compare contracts with use of biotechnological methods to protect intellectual property in GM seeds. Specifically, we consider three regimes: current contracts commonly used in the industry, biotechnological methods, and long-term contracts. We investigate economic welfare consequences for farmers, innovators and society of the various intellectural property protection methods using a two-period framework that permits asymmetric information and posits a probabilistic enforcement environment for pirating farmers. Results indicate that biotechnological methods yield the highest expected profit for the biotech firm. An important advantage of such a technology is that all transaction costs related with enforcement and monitoring are eliminated. However, for farmers, both current and long-term contracts are preferred to implementation of biotechnical methods. Depending on monitoring costs, long-term contracts may also be socially preferred to current contracts and biotechnical methods.