Monday, October 03, 2011

Policy on accepting transgenic grain isn't commercial speech

Syngenta Seeds, Inc. v. Bunge North America, Inc., 2011 WL 4478510 (N.D. Iowa)

As is so often the case, this Lanham Act litigation offers a window into a corner of the business world, here grain storage. The court framed the issue this way: “Can a grain elevator company refuse to accept certain corn at its facilities, on the ground that the corn has not received approval from ‘major’ export destinations, and post signs stating this, when the seed producer has received clearances from the United States and several foreign countries, but not from China or the European Union?” The court found no violation of the United States Warehouse Act (USWA), 7 U.S.C. § 241 et seq., or the Lanham Act (and related state law claims).

Syngenta is a major agribusiness company. Bunge operates a number of grain and milling facilities and grain warehouses. Syngenta has developed transgenic corn sold as Agrisure Viptera; the genetic modification is designed to control insects, and also reduces the development of fungus and mycotoxins in stored corn. Viptera corn, indeed, is a federally-registered pesticide licensed under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Based on good experience with growers, “[p]rior to the parties' dispute, Syngenta had projected that Viptera seed sales would exceed twenty percent of the United States corn seed market in future years.”

Then Bunge refused to accept Viptera corn at any of its facilities, on the proffered ground that key countries (China and the EU) had not yet given it regulatory approval. Meanwhile, the USDA and EPA are totally fine with Viptera, as are Canada, Japan, Australia, Brazil, Mexico, New Zealand, the Philippines, Korea, Russia, and Taiwan. Syngenta anticipates Chinese approval by March 2012.

In Spring 2010, when Japanese and Korean approval had yet to materialize, Bunge said that it was unable to accept delivery of Viptera because it hadn’t received those approvals and those are major export destinations. Because all Bunge facilities were “integrated into the export market,” they wouldn’t accept grains or oilseeds containing unapproved products, but the notice said that Bunge would accept Viptera once it was approved in Japan and Korea.

In June, Syngenta got its Japanese approval, whereupon Bunge changed its notice to remove any reference to a specific country (and add another product to the excluded list). Syngenta got Korean approval thereafter, and Bunge changed its posted policy to remove references to Viptera. At that point, Bunge had no policy to reject Viptera until July 2011. After planting time for the 2011-2012 crop year, Bunge again changed its policy.

Bunge wanted China to speed up its approval process, because of concerns about lost sales in the US while grain handlers insisted on awaiting Chinese approval; although China has traditionally been the second largest source of corn in the world (behind the US) and thus not an importer, China suddenly increased corn imports, making it the seventh largest US market for 2009-2010 with a projected rise into the top five for 2011-2012. Bunge had several large contracts to export US corn to China. At the time, Bunge anticipated that commercial Viptera yields in 2011 would be less than half of what Syngenta claimed in this litigation. Bunge decided not to accept Viptera corn in 2011.

Thus, in early July 2011, Bunge posted a new policy on its website and at its facilities rejecting Viptera because it had not received “necessary international approval from major export destinations for the U.S.”

The parties disputed whether China was a “major importer” of US corn. Despite its past history, Bunge had sold millions of dollars of corn to China for late 2011 delivery, and China has a zero tolerance policy pursuant to which it will reject corn deliveries that contain any percentage of corn with unapproved genetic traits. It is relatively common within non-genetically modified corn markets to see a purity level of 98.5 percent; by contrast to China, the EU will accept low levels of unapproved biotech traits.

Syngenta argued that Bunge could reasonably segregate Viptera for non-export uses. But that’s not how Bunge’s facilities are currently set up, and Bunge presented testimony that it would cost $6-8 million per facility to preserve Viptera’s identity, which isn’t commercially reasonable or feasible. Other grain elevators in the same areas may accept Viptera-produced grain or have stated that they will work with farmers so that the warehouses can accept Viptera-produced grain at harvest or direct farmers to facilities that will accept Viptera corn; however, neither Cargill nor ADM will accept Viptera corn at any of their North American wet milling plants until Viptera corn receives regulatory approval from the EU. Unlike Bunge, Cargill operates feed lots and other domestic outlets it can use for such corn.

Syngenta, unsurprisingly, presented evidence of irreparable harm, though it didn’t show any instance in which a farmer was specifically turned away from a Bunge facility for bringing Viptera corn (presumably, most were well-informed enough not to show up). Syngenta argued that “farmers' anger at Syngenta suggests that farmers have been misled into believing that Syngenta did something wrong in marketing Viptera before obtaining all import approvals.” Indeed, Syngenta produced evidence that individual farmers, seed dealers, and local coops have blamed Syngenta for Bunge’s refusal to take Viptera, and one coop canceled an order for $1.5-2 million because of its displeasure over the problem. Syngenta gets between about 5 and 50 calls and about a half dozen e-mails per day from growers that are having difficulty locating outlets for Viptera corn. Some independent seed resellers believe that their own reputations have been injured because of Syngenta. The court had “little doubt” that this was substantial injury that would be difficult to measure in money damages.

Bunge said that this was Syngenta’s fault for putting Viptera on the market before China approved it. Bunge canceled approximately five growers' contracts, because they had grown Viptera corn, and though it has at times assisted farmers with determining where they could deliver Viptera corn, Bunge has no program to do so. Bunge thinks that’s Syngenta’s problem.

The court fond that, before the 2011 planting season, both parties were in a position to recognize that sales to China wouldn’t be possible, but neither made any effort to inform growers of that. Bunge’s contract spoke of rejecting goods “containing transgenic genes/traits that are not approved for sale in Japan, Mexico, The European Union and other U.S. export markets,” and Syngenta’s contract (called a Stewardship Agreement, which is of interest from a patent/bioengineering perspective) stated that “Grower agrees to ... [c]hannel grain produced from Seed to appropriate markets as necessary to prevent movement to markets where the grain has not yet received regulatory approval for import.”

As interesting as this is, does Syngenta have Lanham Act standing? No. Eighth Circuit precedent states that “commercial advertising or promotion” occurs only in statements made by a defendant in commercial competition with the plaintiff. While the parties have customers in common, their relations are at opposite ends of the production process; Syngenta doesn’t compete in grain storage and Bunge doesn’t compete in seed production.

The court went further, though, and held that Syngenta wasn’t likely to succeed because Bunge’s policy wasn’t commercial speech. The Eighth Circuit uses a three-factor test: (i) whether the communication is an advertisement, (ii) whether it refers to a specific product or service, and (iii) whether the speaker has an economic motivation for the speech. Bunge’s policy “relates” to commercial transactions, but doesn’t propose any transaction with Bunge or any rejection of a transaction with Syngenta. It’s a statement that Bunge won’t enter into transactions for Viptera. (Does this mean that refusals to deal are not commercial speech? I think the proper answer is “no,” because it can make sense to ask whether something is commercial speech for purposes of the Lanham Act and the answer might be different for application of the antitrust laws, but the doctrine is, to put it mildly, confused.) Anyway, it’s not enough that Bunge is not a “disinterested, non-commercial party”—there’s still no proposed commercial transaction and thus no likely success on the merits.

There are traditional state-law disparagement claims available against noncompetitors, but Syngenta may not be able to show the necessary level of fault, and the court here didn't give the state-law claims any separate attention.

No comments: