Part II

Federal Register: April 4, 2008 (Volume 73, Number 66)

Notices

Page 18611-18674

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr04ap08-141

Page 18611

Part II

Department of Justice

Antitrust Division

United States v. Monsanto Company and Delta and Pine Land Company;

Public Comments and Response on Proposed Final Judgment; Notice

Page 18612

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Monsanto Company and Delta and Pine Land

Company; Public Comments and Response on Proposed Final Judgment

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), the United States hereby publishes the comments received on the proposed Final Judgment in United States v. Monsanto Company and

Delta and Pine Land Company, No. 1:07-cv-00992, filed in the United

States District Court for the District of Columbia on May 31, 2007, and the United States's response to those comments.

Copies of the comments and the United States's response to the comments are available for inspection at the Department of Justice

Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-2481, and at the Office of the Clerk of the United

States District Court for the District of Columbia, 333 Constitution

Avenue, NW., Washington, DC 20001. Copies of any of these materials may be obtained upon request and payment of a copying fee.

J. Robert Kramer II,

Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

Civil Action No.: 1:07-cv-00992

United States of America, Plaintiff, v. Monsanto Company and Delta and

Pine Land Company, Defendants. Hon. Ricardo M. Urbina

Plaintiff United States's Response to Public Comments

Table of Contents

Plaintiff United States's Response to Public Comments

  1. Background

    A. The United States's Investigation of the Transaction

    B. The Traited Cottonseed Markets

    C. The Competitive Effects of the Transaction

    D. The Proposed Remedy

  2. Developments Since the Filing of the Complaint

    A. Approval of Acquirers of the Enhanced Stoneville Assets

    B. VipCot Assets Offered to Syngenta

    C. Third Party License Modifications

    D. Filing of Public Comments

  3. The Standards Governing the Court's Public Interest

    Determination

    A. The Appropriate Legal Standard

    B. The Appropriate Inquiry Is Whether the Remedy Preserves

    Competition, Not Whether It Replicates DPL

  4. Response to Comments Criticizing the Sufficiency of the Remedy

    A. Divestiture of the Stoneville Business Unit and Monsanto

    Germplasm Provide the Acquirer a Firm Foundation on Which to Compete in the MidSouth and Southeast Markets 1. Stoneville Infrastructure 2. Monsanto/Stoneville Germplasm a. The Breeding Process b. Stoneville Germplasm c. Additional Monsanto Germplasm i. Advanced Exotic Yield Lines ii. MAB Populations

    B. Additional DPL Germplasm Provides Important and Meaningful

    Value 1. The DPL germplasm is of high quality 2. The acquirer will be able to use this germplasm effectively 3. Monsanto/DPL's use of the germplasm does not diminish its value to the acquirer and provides farmers continued benefits

    C. The Remedy Preserves Incentives and Opportunities for

    Effective Traited Cottonseed and Trait Development Competition 1. Syngenta will be able to effectively use the VipCot Assets 2. The remedy will preserve opportunities for trait developers to market non-Monsanto traits in competitive cottonseed 3. The remedy should not--and does not--guarantee the introduction of DuPont's OptimumGat trait 4. The remedy will preserve the number of ``platforms'' for trait development that existed pre-merger

  5. Response to Comments That the Remedy Is Not Workable

    A. The Divestitures and License Changes Are One-Time Events, Not

    Ongoing Behavioral Remedies

    B. Monitoring Compliance With the Remedy Will Not Unduly Burden the United States or the Court

  6. Response to Comments That Raise Issues Beyond the Scope of the

    Court's Review

    A. Crops Other Than Cotton

    B. Conventional Cottonseed

    C. The Southwest and West Traited Cottonseed Markets

    D. Prices for Cottonseed Sold for Livestock Feed

    E. Alleged Monsanto Exclusionary Business Practices

  7. Conclusion

    Plaintiff United States Response To Public Comments

    Pursuant to the requirements of the Antitrust Procedures and

    Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the

    United States hereby responds to the public comments received regarding the proposed Final Judgment in this case. After careful consideration of the comments, the United States continues to believe that the proposed Final Judgment will provide an effective and appropriate remedy for the antitrust violation alleged in the Complaint. The United

    States will move the Court for entry of the proposed Final Judgment after the public comments and this Response have been published in the

    Federal Register, pursuant to 15 U.S.C. 16(d).

    On May 31, 2007, the United States filed the Complaint in this matter alleging that the proposed acquisition of Delta and Pine Land

    Company (``DPL'') by Monsanto Company (``Monsanto'') would violate

    Section 7 of the Clayton Act, 15 U.S.C. 18. Simultaneously with the filing of the Complaint, the United States filed the proposed Final

    Judgment and a Stipulation signed by plaintiff and defendants consenting to the entry of the proposed Final Judgment after compliance with the requirements of the Tunney Act. Pursuant to those requirements, the United States filed a Competitive Impact Statement

    (``CIS'') in this Court on May 31, 2007; published the proposed Final

    Judgment and CIS in the Federal Register on June 15, 2007, see United

    States v. Monsanto Co. and Delta and Pine Land Co., 72 Fed. Reg. 33336- 01, 2007 WL 1708314; and published summaries of the terms of the proposed Final Judgment and CIS, together with directions for the submission of written comments relating to the proposed Final Judgment, in The Washington Post for seven days beginning on June 28, 2007 and ending on July 4, 2007. The 60-day period for public comments ended on

    August 27, 2007, and eleven comments were received as described below and are attached hereto.

  8. Background

    A. The United States Investigation of the Transaction

    On August 14, 2006, Monsanto entered into an agreement to acquire

    DPL for approximately $1.5 billion. Over the following nine and a half months, the United States conducted an extensive, detailed investigation into the competitive effects of the proposed transaction.

    As part of this investigation, the United States issued Second Requests to the merging parties, as well as Civil Investigative Demands to all of the major cottonseed companies and cottonseed trait developers. The

    United States received and considered more than a million pages of responsive material and deposed relevant Monsanto and DPL executives.

    More than 125 interviews were conducted with customers, competitors, and others with knowledge of the industry and competitive conditions, including national and regional agricultural supply companies, grower organization representatives, USDA cotton experts, and agricultural economists and academics. The United States met repeatedly with concerned parties,

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    including DuPont, one of the commenters, analyzing their allegations and submissions.\1\

    \1\ The United States also spoke multiple times with representatives from the offices of the Attorneys General of 27 states interested in the progress of the United States investigation, including representatives of 16 of the 17 states where cotton is grown in the United States (Georgia's office elected not to participate). In this proceeding, thirteen states, representing less than 20% of U.S. cotton production, have signed onto a comment (discussed infra) questioning the proposed Final

    Judgment. Of the states signing the comment, Delaware, Kentucky,

    Rhode Island, Utah and West Virginia elected not to participate in any of the communications between the United States and states's representatives during the United States investigation. The comment does not explain either the scope of the investigation, if any, those non-participating states undertook to reach their conclusions or the reasons why none of the commenting states has initiated independent legal action to enjoin the transaction.

    In its investigation, the United States considered the potential competitive effects of this transaction on numerous products and geographic areas. For several of these, the United States concluded that the proposed merger was unlikely to reduce competition.\2\ As the

    Complaint alleges, the transaction did, however, threaten competition with respect to traited cottonseed sales in two geographic regions--the

    MidSouth and the Southeast.\3\

    \2\ Indeed, the United States concluded that, viewed as a whole, the transaction was likely to create some efficiencies that could benefit consumers. A Monsanto-DPL combination brings together firms with complementary strengths and assets. Monsanto has proficiency in transgenic trait development, and DPL had expertise in cottonseed breeding. Merging allows the two programs to operate in tandem.

    Through the integration of trait development and cottonseed breeding, traited cottonseed could reach consumers faster and at lower cost.

    \3\ See Complaint at 12-13.

    B. The Traited Cottonseed Markets

    Most cottonseed sold today contains ``transgenic traits''--genetic material from other organisms that is inserted into the cottonseed germplasm to give the cotton plant desirable characteristics. Two types of transgenic traits currently are available: (1) Herbicide tolerance traits, such as Monsanto's ``Roundup Ready'' and recently introduced

    ``Roundup Ready Flex'' (``Flex''), which make the cotton plant able to withstand spraying with particular herbicides, and (2) insect resistance traits, such as Monsanto's ``Bollgard'' and new ``Bollgard

    II,'' which make the cotton plant toxic to certain pests.

    Cotton farmers overwhelmingly prefer traited seeds because their use significantly reduces labor and input costs. In 2006, farmers planted about 87% of the cotton acres in the U.S. with traited seeds.

    USDA Cotton Varieties Planted 2006 Crop Report. Most traited cottonseed is ``stacked'' to include both herbicide-tolerant and insect-resistant traits. In the Southeast and MidSouth, 90.8% and 89.3% (respectively) of the seed sold in 2006 included both types of traits, and farmers now rarely purchase seed that contains only an insect-resistant trait.\4\

    \4\ Today, traited cottonseeds that contain only insect resistance account for less than 2% of total traited acres.

    At the time the Complaint was filed, DPL and Monsanto, via its

    Stoneville business unit, were significant producers of traited cottonseed in the United States. Indeed, DPL and Stoneville together accounted for over 90% of traited cottonseed sales in the MidSouth and

    Southeast regions of the United States where cotton farmers place the most value on insect-resistant and herbicide-tolerant traits. That vigorous competition would have been lost as a result of the transaction.

    As the Complaint alleges, Monsanto is currently the dominant provider of insect-resistant and herbicide-tolerant traits for cotton.\5\ Monsanto's insect-resistant and herbicide-tolerant traits accounted for over 96% of the transgenic traits in cottonseed nationwide in 2006; over 98% of the traited cottonseed sold in 2006 in the MidSouth and Southeast contained Monsanto's traits. Indeed,

    Monsanto's traits are the only traits found in any of the traited cottonseed DPL sold prior to the merger.

    \5\ See Complaint at 2-3.

    DPL was, however, positioning itself to move away from Monsanto's traits by exploring options with several trait producers that were developing insect-resistant and herbicide-tolerant cotton traits. The most advanced of these efforts was work with Syngenta to introduce

    VipCot--an insect-resistant trait that would compete with Monsanto's

    Bollgard traits. DPL's work with Syngenta had reached a stage where DPL had successfully introduced VipCot into 42 of its elite breeding lines.\6\ DPL had already stacked five of the VipCot traited lines with

    Flex prior to the merger and anticipated commercializing those lines in approximately 2009. Following DPL's breeding protocols, DPL anticipated that stacked versions of the other 37 VipCot lines would have been ready for commercialization sometime between 2012 through 2016.

    \6\ As discussed below, the relief provided by the proposed

    Final Judgment calls for divestiture of 43 DPL lines containing

    VipCot. The 43rd line included in the VipCot Assets is a line that

    DPL acquired from Syngenta in 2006 that already contained VipCot.

    DPL's efforts with respect to a non-Monsanto herbicide-tolerant trait were at a more preliminary stage. In the summer of 2006, DPL entered into a licensing agreement with DuPont to introduce seed with

    OptimumGat, an herbicide-tolerant trait that would compete with

    Monsanto's Flex trait. At the time the Complaint was filed, DPL had not successfully introduced OptimumGat into any of its elite breeding lines. Rather, development work to advance the OptimumGat project remained primarily with DuPont. As a backup to the OptimumGat venture,

    DPL had also entered into agreements to test two other herbicide- tolerant traits that would compete with Monsanto's Flex, including a trait being developed by Bayer called Glytol.

    Using VipCot in combination with one of the three herbicide tolerance options that DPL was exploring, DPL envisioned bringing a limited quantity of cottonseed with a non-Monsanto stack of insect- resistant and herbicide-tolerant traits to market as early as 2012. But in light of standard breeding and testing time requirements, it likely would have taken DPL several years longer to entirely phase out

    Monsanto's traits. Equally important, DPL's ability or willingness to switch totally away from Monsanto's traits was dependent on several assumptions--namely that farmers were satisfied with VipCot's performance versus Monsanto's Bollgard traits, and that DPL found a successful non-Monsanto herbicide-tolerant trait in the next few years.

    As the Complaint further alleges, Monsanto knew that DPL was working with other trait companies and feared that a possible outcome of those partnerships would be that DPL ceased offering Monsanto's traits in its cottonseeds.\7\ Monsanto thus had begun to take steps to strengthen its own proprietary seed platform to support its cottonseed trait business. In fact, the United States's investigation revealed that Monsanto was making a concerted effort to grow its share of traited cottonseed sales.

    \7\ See Complaint at 9-10.

    Foremost among these efforts was Monsanto's acquisition in 2005 of

    Stoneville, which had approximately 15% of the market for traited cottonseed nationwide and a 33% and 9% share of the MidSouth and

    Southeast markets, respectively. After acquiring Stoneville, Monsanto made significant investments in the company, including: Investing in upgrades of new buildings and

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    greenhouses, lab equipment, ginning and delinting equipment, and warehouse and equipment storage; hiring additional employees for the breeding facilities, particularly at its Maricopa, Arizona, breeding facility which targeted creating varieties for the Southeast; improving

    Stoneville's manufacturing facilities, such as adding bagging, dust collection, and handling equipment; and improving Stoneville's molecular marker capabilities and library.

    Monsanto also had been engaging in other efforts to develop proprietary cotton germplasm. Those included (a) researching exotic strains of cottonseed (which the proposed Final Judgment refers to as the ``Advanced Exotic Yield Lines''), (b) mapping molecular markers for select breeding crosses that would enable Monsanto to expedite identification and further breeding of the most promising progeny from those crosses (which the proposed Final Judgment refers to as the ``MAB

    Populations''), and (c) establishing the Cotton States program, through which Monsanto obtains licenses to promising germplasm from university breeding programs and private breeders, and, after introducing traits, licenses the resulting traited cottonseed varieties to small cottonseed companies and distributors seeking to sell traited cottonseed under their own brands.

    Monsanto's internal business plans projected that as a result of these efforts, Stoneville's market share in the Southeast and MidSouth would grow substantially over the next few years. Indeed, Monsanto projected that Stoneville, with Monsanto traits, and DPL, with non-

    Monsanto traits, would have roughly equal market shares by approximately 2015, with Dow and Bayer traited seeds holding much smaller shares. Accordingly, if unremedied, the combination of Monsanto and DPL would have combined the two largest traited cottonseed options for farmers in the MidSouth and Southeast.\8\

    \8\ The United States's investigation found that Bayer's efforts prior to the merger to develop germplasm for the Southeast and

    MidSouth, if successful, would not likely bear fruit any sooner than 2016. Given the early stage of Bayer's breeding efforts in those geographic areas, the United States did not rely on this as a source of potential entry. In contrast, Dow has developed some varieties suitable for the MidSouth and potentially the Southeast, which will enter the market some time in the 2008 to 2011 time frame. However, given limitations in its current trait licensing agreements with

    Monsanto, it was unclear that entry of Dow varieties would have a significant competitive effect in those markets.

    C. The Competitive Effects of the Transaction

    Based on this evidence, the United States determined that the merger of the two companies would likely lessen competition in the near, medium and long term. In the near term, absent the transaction,

    Monsanto's efforts to increase Stoneville share in the MidSouth and

    Southeast would give farmers more choices and could lead to lower prices.\9\ Also in the near term (beginning in approximately 2009), the entry of DPL seed containing Syngenta's VipCot trait stacked with

    Monsanto's Flex trait could have offered farmers a new insect-resistant trait option and put some pressure on the price for insect-resistant traits.\10\ The United States's investigation revealed that the most significant competitive effect of the transaction likely would have occurred in the medium term (beginning in approximately 2012) when DPL would first be able to offer cottonseed stacked solely with non-

    Monsanto traits and farmers in the MidSouth and Southeast would benefit from the emergence of competition between two germplasm/trait platforms, namely, Stoneville seed with Monsanto traits and DPL seed with VipCot and a non-Monsanto herbicide-tolerant trait.

    \9\ With its dominance in traits, Monsanto might have recaptured any seed price reductions through higher trait fees.

    \10\ Because DPL would have had to combine VipCot with a

    Monsanto herbicide-tolerant trait, Monsanto might have recaptured any reduction in fees for an insect-resistant trait through increases in fees for Monsanto's herbicide-tolerant trait.

    The United States also found that Monsanto's acquisition of DPL, if unremedied, would threaten longer term harm by deterring or delaying the entry of new types of cotton traits in the MidSouth and

    Southeast.\11\ Cotton trait developers would not have a seed partner independent of Monsanto with seeds suitable for the MidSouth and

    Southeast. Given the significance of the MidSouth and Southeast cotton growing regions, the inability to reach farmers in these regions would reduce potential returns from investments in developing cotton traits.

    And even if other potential sources of revenue for trait developers were sufficient to support continued investment in cotton trait development,\12\ the benefits of these investments would not reach farmers in the MidSouth and Southeast.

    \11\ In addition to potentially new insect resistant and herbicide tolerant traits, there is current transgenic trait research regarding, among other things, drought tolerance, nematode resistance and yield.

    \12\ These other revenue opportunities arise from the fact that

    (a) many potential cotton traits have applications across other crops, including corn and soy, that offer significantly more revenue potential than cotton, (b) the demand for traited cottonseed outside the United States is significant and growing, and (c) there is substantial cotton acreage within the United States in regions other than the MidSouth and Southeast, namely the Southwest and West.

    D. The Proposed Remedy

    The proposed Final Judgment remedies the anticompetitive effects of the acquisition alleged in the Complaint-the elimination of competition between DPL and Monsanto for the development, breeding and sale of traited cottonseed and the elimination of DPL as a partner independent of Monsanto for developers of traits that would compete against

    Monsanto-in three principal ways:

    First, the proposed Final Judgment requires Monsanto to divest the

    Enhanced Stoneville Assets to an acquirer who is capable of using the assets to compete effectively. The Enhanced Stoneville Assets include

    Stoneville's U.S. cottonseed business, key cottonseed lines developed by DPL for the MidSouth and Southeast, and additional Monsanto cotton breeding assets.

    The Enhanced Stoneville Assets provide the acquirer what it needs to continue Monsanto's efforts to increase Stoneville's share and be an effective ongoing seed competitor in the near term and beyond.

    Moreover, the acquirer will be able to use these assets, on its own or in partnership with other trait developers, to breed and commercialize high quality cottonseed for the MidSouth and Southeast with non-

    Monsanto traits, preserving medium and longer-term competition that would otherwise have been lost as a result of the merger.

    Second, the proposed Final Judgment requires Monsanto to divest the

    VipCot assets to Syngenta and to allow Syngenta to breed with the

    VipCot traited lines. This will preserve the potential for near term benefits from VipCot entry, as well as medium and longer term benefits from stacking VipCot with non-Monsanto herbicide traits (including other nascent traits) and developing improved germplasm.

    Third, the proposed Final Judgment requires Monsanto to modify two sets of licenses to eliminate restrictions on the use of non-Monsanto traits: (1) Its cottonseed trait licenses with seed companies to permit licensees to breed and sell, without penalty, cottonseed containing non-Monsanto traits and cottonseed containing both licensed Monsanto traits and non-Monsanto traits, and (2) its Cotton States licenses to remove any provision that allows Monsanto to terminate the license if the

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    licensee sells cottonseed containing other traits.

    In the United States's judgment, the asset divestitures and license modifications required by the proposed Final Judgment remedy the competitive harms identified in the Complaint.

  9. Developments Since the Filing of the Complaint

    The United States filed the Complaint and Proposed Final Judgment on May 31, 2007. The Court entered the Hold Separate and Preservation of Assets Stipulation and Order on June 1, 2007, and Monsanto completed its acquisition of DPL on that same date. Since the filing of the

    Complaint, the following events have occurred in furtherance of the requirements set forth in the proposed Final Judgment and the Tunney

    Act:

    A. Approval of Acquirers of the Enhanced Stoneville Assets

    Section IV.E. of the proposed Final Judgment requires defendants to divest the Enhanced Stoneville Assets to an acquirer acceptable to the

    United States. The acquirer must have a credible commitment to the traited cottonseed market and have the intent and capability of competing effectively. Shortly after acquiring DPL, Monsanto proffered

    Bayer CropScience (``Bayer'') and Americot Inc. (``Americot'') to the

    United States as potential acquirers of the Enhanced Stoneville Assets, with Bayer set to acquire all of the divestiture package except for certain assets relating to the Southwest market which would be sold to

    Americot. The United States evaluated the proposed acquirers, including analyzing the terms of the proposed purchase agreements, the terms of other recent contracts between Monsanto and Bayer, the market presence of both proposed acquirers, and other information bearing upon the acquirers' capabilities to use the divested assets effectively in competition with Monsanto/DPL.\13\

    \13\ The United States was already familiar with both Bayer and

    Americot's existing U.S. cottonseed operations, having interviewed representatives of these companies on numerous occasions and reviewed business documents provided by both companies during the

    Monsanto/DPL investigation.

    Bayer proposed to purchase the bulk of the Enhanced Stoneville

    Assets for $310 million. Its commitment to the cottonseed market is demonstrated by, among other things, its successful entry into the

    Southwest cottonseed market under the Fibermax and AFD brands.\14\

    Bayer's growth in this market has been impressive; it entered the

    Southwest market in 1999 and, by 2006, had a significant share of seed sales in that region and had displaced DPL as the market leader. In addition to cottonseed sales, Bayer has had an active cottonseed trait development program, which has resulted in the marketplace introduction of its Liberty Link herbicide-tolerant trait.\15\ In addition to these cottonseed efforts, Bayer also operates one of the world's largest crop protection and agricultural chemical companies, providing it ready access to agricultural distribution channels in the MidSouth and

    Southeast as well as pesticide, herbicide, and seed treatment products to complement its cottonseed offerings.

    \14\ Bayer's willingness to commit such a large amount of capital to acquiring the assets also tends to indicate Bayer's interest in using the Enhanced Stoneville Assets to create a viable competitor to Monsanto/DPL.

    \15\ Liberty Link makes cotton tolerant to glufosinate herbicides and is only available in Bayer's FiberMax cottonseeds, which are primarily used in the Southwest where they perform well.

    Despite these strengths, Bayer has not been successful in cottonseed sales in the MidSouth and Southeast, largely as a result of inferior germplasm for those regions. Acquiring the Enhanced Stoneville

    Assets will enable Bayer to become a more effective competitor in the

    MidSouth and Southeast \16\ by giving Bayer high-quality germplasm specifically targeted toward the regions' growing conditions, breeding stations focused on developing varieties for those regions, and experienced personnel.\17\

    \16\ Upon acquiring Stoneville, Bayer publicly noted, ``[t]he new germplasm and the geographic reach of the Stoneville business

    East of Texas ideally complement Bayer's cotton seed and trait business.'' See May 31, 2007 press release, ``Bayer CropScience agrees to acquire U.S. cotton seed company Stoneville for US-$310 million,'' available at .

    \17\ In its submitted comments, DuPont specifically questions

    Bayer's ability to compete in the MidSouth and Southeast, citing the fact that Bayer had not successfully penetrated those markets in the past. DuPont Comments at 18. See also AAI Comments at 16. However,

    DuPont's claim merely highlights Bayer's prior difficulty in accessing or developing competitive germplasm for these regions, rather than speaking to Bayer's ability to succeed once it has such germplasm. That Bayer can fully succeed when it has access to competitive germplasm is well documented by its successful entry in the Southwest market.

    To avoid creating any competitive issue in the Southwest where

    Bayer is strong, Bayer did not acquire that portion of the Enhanced

    Stoneville Assets best suited for producing traited cottonseed for the

    Southwest region of the United States--i.e., the assets related to

    Stoneville's NexGen brand of cottonseed.\18\ Those assets, which include cottonseed lines and a dedicated breeding program targeting the

    Southwest, generated over $16 million in sales for Stoneville in 2006, and Monsanto projected they would generate $36 million in sales by 2010. Americot, a regional cottonseed company founded in 1987 that sells seed predominantly in west Texas, acquired the NexGen assets for just over $6 million. With a recently upgraded breeding facility dedicated to developing lines for the Southwest, Americot is well positioned to use the NexGen assets effectively.

    \18\ Stoneville started its NexGen germplasm program to develop cottonseed adapted to growing conditions in the Southwest growing region. Bayer's Fibermax and AFD brands also have a significant presence in this region.

    Based on analysis of these factors, the United States determined that divestiture of the Enhanced Stoneville Assets to Bayer and

    Americot satisfied the objectives of the proposed Final Judgment and approved the proposed acquirers. Monsanto divested the Enhanced

    Stoneville Assets on June 19, 2007.\19\

    \19\ The sale of divestiture assets during the pendency of the

    Tunney Act review of a proposed final judgment is consistent with the United States's standard practice, as is permitting closing of the transaction challenged in the Complaint. The materials filed with the Complaint included a Hold Separate and Preservation of

    Assets Stipulation, requiring the parties to maintain certain assets separate after the close of the merger (in this instance, DPL's assets) until the United States was assured that the acquirer or acquirers proposed by Monsanto for the Enhanced Stoneville Assets would meet the standards set forth in the proposed Final Judgment

    (i.e., the acquirer was capable of operating a viable cottonseed business using the divested assets). This procedural setting allowed

    Monsanto and DPL to close their merger shortly after the Complaint and Proposed Final Judgment were filed and to expeditiously complete the sale of the Enhanced Stoneville Assets to Bayer and Americot, thereby ensuring that neither the Enhanced Stoneville Assets nor DPL were held in competitive limbo during the pendency of the Court's review.

    B. VipCot Assets Offered to Syngenta

    Section V of the proposed Final Judgment requires Monsanto to offer certain DPL cottonseed lines containing Syngenta's traits (the ``VipCot

    Assets'') to Syngenta. Under the proposed Final Judgment, Monsanto cannot satisfy the required divestiture of the VipCot Assets without the United States first approving the terms of the licenses pursuant to which Monsanto offers Syngenta the assets. Since May 31, 2007, the

    United States had numerous discussions with Monsanto and Syngenta regarding the terms of these licenses. On August 27, 2007, Monsanto and

    Syngenta entered into an interim Material Transfer and Use Agreement to facilitate transfer of VipCot traited cottonseed to Syngenta for further development prior to Monsanto providing final licenses that meet the

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    terms of the proposed Final Judgment. Pursuant to that agreement,

    Monsanto delivered to Syngenta certain seeds that the proposed Final

    Judgment requires Monsanto to offer to Syngenta. After obtaining approval from the United States, Monsanto, on November 27, 2007, offered to Syngenta the licenses required by the proposed Final

    Judgment.

    C. Third Party License Modifications

    Section VI of the proposed Final Judgment requires Monsanto to revise certain third-party cottonseed licenses and gives the United

    States sole discretion to approve the proposed revisions. The United

    States engaged in continuing negotiations with Monsanto to ensure that the revisions satisfied the terms of the proposed Final Judgment. On

    November 15, 2007, Monsanto, pursuant to Section VI.B. of the proposed

    Final Judgment, provided to the United States for its approval copies of the modified licenses Monsanto intended to offer to third party seed companies; the United States approved the modified licenses on November 20, 2007. Monsanto then provided to the licensees the offers containing the modified license language. The offers remain open until March 31, 2008.

    D. Filing of Public Comments

    During the 60-day public comment period called for by the Tunney

    Act, the United States received comments from the following eleven organizations and groups: the American Antitrust Institute (``AAI'');

    Attorneys General of Virginia, Arkansas, Delaware, Kentucky, Maryland,

    New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, Tennessee,

    Utah, and West Virginia (the ``States''); California Consumers United

    (``CCU''); E.I. du Pont de Nemours & Co. (``DuPont''; the Illinois

    Stewardship Alliance (``ISA''); the International Center for Technology

    Assessment/Food Safety (``ICTA''); a comment signed by the president of

    Plains Justice, the president of the Women, Food, and Agriculture

    Network, and the president of the Iowa Farmers Union (``Plains

    Justice''); a comment signed by a group of Texas cotton gins and other cotton based associations (``Texas Cotton Associations''); the Ohio

    Farmers Union (``OFU''); the Organization for Competitive Markets

    (``OCM''); and the Wisconsin Farmers Union (``WFU'').

    The criticisms offered by the Commenters generally fall into four areas: (1) The appropriate standard of review; (2) the sufficiency of the divestiture to preserve competition in the relevant markets; (3) the workability of the remedy; and (4) purported competitive harms not alleged in the Complaint. Upon careful review, the United States believes that nothing in the comments warrants any changes to the proposed Final Judgment or is sufficient to suggest that entry of the proposed Final Judgment is not in the public interest. We address these issues below and explain why the criticisms raised in the comments are not valid.

  10. The Standards Governing the Court's Public Interest Determination

    A. The Appropriate Legal Standard

    As discussed in detail in the Competitive Impact Statement (at 23- 27), the Court, in making the public interest determination called for by the Tunney Act, is required to consider certain factors listed in the Act relating to the competitive impact of the judgment and whether it adequately remedies the harm alleged in the complaint.\20\ This public interest inquiry is necessarily a limited one as the United

    States is entitled to deference in crafting its antitrust settlements, especially with respect to the scope of its complaint and the adequacy of its remedy. See generally United States v. Microsoft Corp., 56 F.3d 1448, 1458-62 (D.C. Cir. 1995); United States v. SBC Commc'ns, 489

    F.Supp.2d 1, 12-17 (D.D.C. 2007).

    \20\ See 15 U.S.C. 16(e)(1)(A) & (B). The Microsoft court explained that a court making a public interest determination under the Act should consider, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. Microsoft, 56 F.3d at 1458-62.

    With respect to the scope of the complaint, the Tunney Act review does not provide for an examination of possible competitive harms the

    United States did not allege. See, e.g., Microsoft, 56 F.3d at 1459

    (stating that the district judge may not ``reach beyond the complaint to evaluate claims that the government did not make'').\21\ The reviewing court may look beyond the scope of the complaint only when the complaint has been ``drafted so narrowly as to make a mockery of judicial power.'' SBC Commc'ns, 489 F.Supp.2d at 14. That is not the case here as the Complaint properly alleges the harm the transaction is likely to cause in the relevant product and geographic markets. Indeed, multiple commentors recognized the sufficiency of the Complaint: The

    States, for example, note that ``the United States acknowledges the significant anticompetitive effects that the acquisition will have on the development, production and distribution of cotton biotech traits and seeds.'' \22\ DuPont similarly states that ``the Complaint filed by the Justice Department's Antitrust Division details the serious harm to farmers and consumers that will result,'' and further acknowledges that the ``Complaint sets forth a clear and compelling story of the competitive injury that will result from the proposed transaction.''

    \23\

    \21\ Were a court to reject a proposed decree on the grounds that it failed to address harm not alleged in the complaint, it would offer the United States what the Court of Appeals for the D.C.

    Circuit referred to as a ``difficult, perhaps Hobson's choice,'' in that the United States would have to either redraft the complaint and pursue a case it believed had no merit, or drop its case and allow conduct it believed to be anticompetitive to go unremedied.

    Microsoft, 56 F.3d at 1456.

    \22\ States Comments at 6.

    \23\ DuPont Comments at 2 & 19.

    With respect to the sufficiency of the proposed remedy, a district court must accord due respect to the United States's views of the nature of the case, its perception of the market structure, and its predictions as to the effect of proposed remedies. E.g., SBC Commc'ns, 489 F.Supp.2d at 17 (United States entitled to ``deference'' as to

    ``predictions about the efficacy of its remedies''); see also CIS at 24-26. Under this standard, the United States ``need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F.Supp.2d at 17. DuPont, referencing the Division's review of Monsanto's abandoned attempt to purchase DPL in 1998, suggests that the

    ``government has an extra burden * * * when it changes its view on an identical transaction.'' \24\ But the assertion finds no support in the language of the statute or the caselaw. This is not surprising given that it contravenes long-established precedent holding that a prosecutor's exercise of discretion carries no estoppel effect.

    Moreover, DuPont's position would inappropriately require the court to engage in extensive fact finding of historical events--in essence, a trial within a trial--simply to determine whether the two transactions were in fact ``identical'' and whether the government accepted a less effective remedy than it would have the first time.\25\

    \24\ DuPont Comments at 3.

    \25\ In fact, DuPont's factual premise is flawed. Contrary to

    DuPont's suggestion, the fact that Monsanto abandoned its initial proposed acquisition of DPL in the face of a threatened enforcement action by the United States does not imply that no remedy would have been acceptable to the United States in 1999. Rather, it implies only that Monsanto was at that time unwilling to agree to remedies deemed necessary by the United States.

    Page 18617

    B. The Appropriate Inquiry Is Whether the Remedy Preserves Competition,

    Not Whether It Replicates DPL

    Some of the commentors criticize the remedy, particularly the

    Enhanced Stoneville Assets divestiture, for not creating a competitor that mirrors DPL in scope and independence.\26\ But they pose the wrong standard for evaluating the effectiveness of the remedy. Because the antitrust laws seek to protect competition, the purpose of the remedy is not to recreate DPL but to preserve the competition that DPL brought to the market--to ensure that cotton farmers continue to realize the competitive benefits they would have had but for the merger.

    \26\ See, e.g., States Comments at 7 (``divested Stoneville is not the equivalent of DPL''); WFU Comment at I (proposed remedy

    ``does not even come close to replacing independent DPL'').

    Thus, the key questions in evaluating the remedy are: (1) Does it ensure that farmers will continue to benefit from competition to develop, commercialize and sell cottonseed in the MidSouth and

    Southeast?, and (2) Does it preserve the likely benefits to competition that would have arisen from development of cottonseed for the MidSouth and Southeast containing non-Monsanto traits? The proposed remedy does both, as we explain in more detail below.

    For some commentors, however, no remedy would suffice for this transaction or even any other potential acquisition of DPL. They essentially argue not only that the sole effective remedy in this case would be to block the transaction outright but that DPL must be kept as it is--independent of any trait provider--in perpetuity, available at any time for partnership with any trait provider that chooses to work with it.\27\ This is a extraordinary proposition, and it is wrong. It relies on a static view of the market, presuming that DPL is essential to a competitive traited cottonseed market; it discounts the incentives and abilities of others, such as Bayer and Syngenta, to compete; it ignores market facts, such as Stoneville's efforts and growing success in the MidSouth and Southeast; and it would deny DPL and consumers the efficiencies that would come from vertical integration with a trait provider (evidenced by the significant number of seed companies that are vertically integrated into trait development).

    \27\ See, e.g., States Comments at 7 (``[S]toneville has been divested to Bayer, a trait development competitor of Monsanto.

    Because of this, Stoneville can never duplicate DPL's unique position as an independent cotton seed company that can use its successful and high-quality germplasm to partner with several different biotech companies to develop viable competitive alternatives to Monsanto's monopolies in traits.''); OFU Comments at 1 (Enhanced Stoneville Assets do ``not take the place of an independent Delta and Pine Land'').

    In short, the remedy, when considered in light of the applicable legal standard and the appropriate inquiry, satisfies the public interest requirements set forth in the Tunney Act.

  11. Response to Comments Criticizing the Sufficiency of the Remedy

    Several commenters offer criticisms regarding the sufficiency of particular aspects of the remedy.\28\ Before addressing these criticisms, it is important to note that the remedy should be evaluated as a whole. It is not necessary that each asset included within the remedy package, on a stand-alone basis, sufficiently preserves competition. Rather, the key determination is whether, as directed by the proposed Final Judgment, the entire remedy maintains competition for the development, commercialization and sale of traited cottonseed in the relevant markets. The remedy here accomplishes this goal by bringing together:

    \28\ See States Comments at 6-8; ICTA Comments at 6-8; AAI

    Comments at 8-16; DuPont Comments at 9-18; OFU Comments at 1; WFU

    Comments at 1; Texas Cotton Associations at 2; ICTA Comments at 1;

    Plains Justice Comments at 1; ISA Comments at 1; 0CM Comments at 2.

    An ongoing, historically successful cottonseed company,

    Stoneville, that has sold cottonseed in the MidSouth and Southeast since 1922, and in which Monsanto has recently invested heavily;

    Changes in Stoneville's trait licenses with Monsanto that give the purchaser of the Enhanced Stoneville Assets terms similar to those held by DPL;

    All of Monsanto's ongoing germplasm enhancement efforts that supported its internal predictions of substantial Stoneville market share growth over the next five years;

    Eight DPL elite conventional breeding lines that serve as the germplasm source for approximately 60% of DPL's sales in the

    MidSouth and Southeast;

    Twelve DPL elite conventional breeding lines that DPL anticipated would be the germplasm source for its next generation of traited seed in the MidSouth and Southeast;

    The requirement that the purchaser of the Enhanced

    Stoneville Assets be capable of and committed to using the assets to compete for traited cottonseed sales in the relevant markets;

    Divestiture to Syngenta of the VipCot development work to prevent any significant delay in bringing cottonseed with non-Monsanto traits to the marketplace; and

    Changes in Monsanto's trait license agreements with other cottonseed companies to allow them, without penalty, to stack non-

    Monsanto and Monsanto traits and to sell cottonseed that includes non-

    Monsanto traits.

    This far-reaching remedy does not depend on the future success of each and every one of its components. Even if some component of the remedy were to fall short of expectations--e.g., one of the next- generation DPL lines fails to continue exhibiting the high performance characteristics that it has exhibited thus far--it would not jeopardize the efficacy of the remedy. Taken as a whole, there is no question that the remedy satisfies its goal of curing the competitive harms alleged in the Complaint. Nevertheless, we respond below to commentors' particular concerns.

    A. Divestiture of the Stoneville Business Unit and Monsanto Germplasm

    Provide the Acquirer a Firm Foundation on Which To Compete in the

    MidSouth and Southeast Markets

    Some commenters claim that Stoneville will not provide the acquirer of the Enhanced Stoneville Assets with an adequate foundation on which to compete against Monsanto/DPL.\29\

    \29\ See DuPont Comments at 6, 13 and 14; 0CM Comments at 2;

    States Comments at 4 and 7.

    Stoneville, however, is an ongoing business, which has operated in the relevant markets for over 80 years and has significant capabilities and growth potential. It offers high quality germplasm and has a strong developmental pipeline. Its divestiture, coupled with additional cotton germplasm from Monsanto's breeding programs, will provide the principal acquirer--Bayer--a well-developed infrastructure and significant germplasm assets. 1. Stoneville Infrastructure

    When Monsanto acquired Stoneville in 2005, Stoneville was a freestanding cottonseed company with a strong breeding program, as well as a national sales and marketing force. These existing assets had been sufficient to position Stoneville as a national provider of traited cottonseed--second only to DPL in the MidSouth and Southeast. As described above, Monsanto nonetheless took several steps to enhance

    Stoneville's breeding capabilities. With these investments, Stoneville is poised for significant growth, as reflected by Monsanto's internal projections.

    DuPont nevertheless suggests that Stoneville's lack of viability as an

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    ongoing business is evidenced by trait developers choosing not to work with Stoneville between 1999 and 2005, when Stoneville was independent of Monsanto.\30\ In making this argument, DuPont fails to note the fundamental reason why trait companies, including DuPont, chose not to work with Stoneville; namely, that under Stoneville's licenses with

    Monsanto at that time, Stoneville could not stack a non-Monsanto trait with a Monsanto trait.\31\ Similarly, Stoneville was likely to be reluctant to provide a platform for an unproven trait because the terms of its Monsanto licenses became less lucrative if it worked with a non-

    Monsanto trait (e.g., it received a smaller share of the trait fee collected by Monsanto from farmers). In contrast, DPL could freely work with non-Monsanto traits, including stacking them with Monsanto traits, without risking reduction in its fee share or losing its Monsanto trait license altogether. The Enhanced Stoneville Assets include trait licenses from Monsanto that are comparable to those held by DPL pre- merger, and free of the restrictions that previously existed in

    Stoneville's licenses.

    \30\ DuPont Comments at 15.

    \31\DuPont further suggests that Stoneville's inferiority as a trait partner is evidenced by Monsanto choosing to purchase DPL.

    DuPont overlooks the important fact that DPL had a pending lawsuit against Monsanto under which Monsanto faced a potential $2 billion liability. By purchasing DPL, Monsanto eliminated that liability.

    Although not a merger-specific efficiency, eliminating this potential liability provides an explanation for Monsanto's decision to undertake the acquisition. Monsanto's desire to resolve that litigation also contradicts ISA's assertion that ``the clear reason for Monsanto's acquisition of Delta is elimination of competition in seeds.'' ISA Comments at 1.

    DuPont also claims that the divestiture is insufficient in that it does not provide the acquirer enough breeding stations, comparing DPL's eleven global breeding stations with Stoneville's two breeding stations.\32\ That comparison, however, is misleading. Though DPL has eleven breeding stations worldwide, only five develop varieties for the

    MidSouth and Southeast. The divestiture includes the two breeding facilities that Stoneville used for developing MidSouth and Southeast varieties,\33\ and Bayer has two additional breeding stations located in those regions, bringing Bayer's total to four after the divestiture.

    Accordingly, as a result of the sale of Enhanced Stoneville assets to

    Bayer, DPL-Monsanto and Bayer will have breeding infrastructures similar in size and scope focused upon developing varieties suited for the MidSouth and Southeast.

    \32\DuPont Comments at 15; see also States Comments at 3.

    \33\Monsanto also used facilities in Georgia and North Carolina in part for cottonseed development. Because Monsanto used those facilities for development of several crops besides cotton, and

    Monsanto included in the Enhanced Stoneville Assets the cottonseed- related tangible assets kept at those sites, the United States did not require divestiture of the real property supporting those facilities.

    1. Monsanto/Stoneville Germplasm

      The remedy provides the acquirer of the Enhanced Stoneville Assets all U.S. Stoneville cotton germplasm, as well as germplasm from

      Monsanto's Advanced Exotic Yield and Marker Assisted Breeding programs.

      For various reasons, commentors fail to understand the significance of these divestitures. a. The Breeding Process

      Much of the criticism results from lack of familiarity with the cottonseed breeding process. To address that deficiency, we provide below a short primer on cottonseed development.

      There are two breeding stages in the development of quality, traited cottonseed. Breeders first develop elite conventional

      (nontraited) lines and, from those, they proceed to develop commercial traited varieties. In developing an elite conventional line, the breeder begins by crossing two elite lines that the breeder anticipates will produce quality offspring. The result of that cross will be many progeny plants with differing characteristics. The breeder then evaluates and selects some subset of the progeny as promising enough to continue in the breeding process. In the greenhouse, the breeder then self-pollinates the progeny plant (i.e., crosses the plant with itself), evaluates its progeny, and makes further selections. This process is typically repeated four times in the greenhouse as the breeder continues to make selections based on observable plant characteristics. Promising lines then are grown in the field and subjected to additional testing.

      At the end of this process, which takes approximately six years, the finished line can take either or both of two paths. If the seed company intends to commercialize the line as a conventional variety, the company will subject the line to an additional year of field trials and then over the course of the next two years ``bulk'' the line up for commercial sale. If the seed company intends to use the finished line as a traited variety, the seed company will subject the line to a separate procedure. The finished line (the ``recurrent parent'') will first be crossed with a donor plant that contains the desired trait to introduce or ``introgress'' the trait into the recurrent parent line.

      After that initial cross, progeny plants are selected on the basis of agronomic characteristics and the presence of the trait. Those plants are then typically ``backcrossed'' with the recurrent parent, which involves pollinating the plants with pollen from the recurrent parent.

      Backcrossing brings the plant closer to the genetics of the recurrent parent, except that the trait is now present. Breeders typically backcross three to five times. Once the backcrossing is completed, the seed company puts the resulting traited seed through a period of increased testing and eventually bulking up for commercialization.

      Limited quantities of a traited variety from that recurrent parent will be commercially available approximately five years after the recurrent parent is available for breeding.\34\

      \34\ Breeding a traited variety from elite parents can take as little as four years or as long as seven. The seven year outer time frame can be reduced by several means, including: using counter- seasonal breeding; using molecular markers to reduce the number of crosses used in introgression and increase stages; using high quality germplasm as the trait donor, in the case of creating a stacked variety, using a trait donor that contains both of the desired traits; limiting the number of official variety trials prior to making the seed available for sale; and bringing a more limited volume of seed to market in the launch year.

      1. Stoneville Germplasm

        The proposed Final Judgment provides the acquirer of the Enhanced

        Stoneville Assets with all of Stoneville's U.S. germplasm.\35\ DuPont, however, questions the likelihood that the varieties in Stoneville's development pipeline will be successful.\36\ The evidence, however, shows the strength of the pipeline and, as Monsanto itself had predicted, its strong likelihood of commercial success.

        \35\ As discussed above, this includes all germplasm with the exception of the NexGen varieties Americot acquired.

        \36\ DuPont Comments at 9-10.

        Stoneville has over fifty lines in its pipeline for possible commercialization in the MidSouth and Southeast between 2008 and 2012.

        Stoneville's pipeline is the product of its traditional focus on mid- to full-season varieties found in the MidSouth as well as a more-recent sustained and intensive research effort to develop germplasm suitable for the Southeast.\37\ Stoneville has historically been more successful at capturing sales in the MidSouth than in the Southeast (as evidenced by its 2006 share of 16% in the MidSouth versus 8% in the Southeast) because its breeding program had focused primarily on varieties

        Page 18619

        harvestable early in the growing season. When Emergent Genetics

        (``Emergent'') acquired Stoneville in 1999, however, it saw the

        Southeast as a lucrative growth area and began taking steps to increase

        Stoneville's efforts to breed mid- to full-season varieties (i.e., varieties better suited to the longer growing season afforded in the more southern growing areas). To this end, in 2001 Emergent acquired

        Helena Chemical's breeding program, which included germplasm lines suited for the Southeast. In addition, Emergent established a breeding station in Arizona with the specific mission of breeding mid- and full- season varieties.

        \37\ Full-season varieties typically perform better in the

        Southeast than the early- to mid-season varieties that excel in the

        MidSouth.

        When Monsanto acquired Stoneville in 2005, it continued these efforts to breed varieties suitable for the Southeast, significantly increasing the number of testing plots and aggressively using counter- season production to accelerate the introduction of full-season varieties. According to Monsanto's internal field tests, conducted prior to entering the agreement to acquire DPL, several of Stoneville's lines are performing in yield trials on par with DPL's most successful varieties in the MidSouth and Southeast, DP555 and DP444. Indeed,

        Monsanto anticipated that its efforts to improve Stoneville's breeding program would result in Stoneville gradually increasing its national share from 13% in 2006 to nearly 20% by 2010 (this estimate did not include the likely share increases that would stem from germplasm being developed by Monsanto outside of Stoneville that the proposed Final

        Judgment also requires to be divested).\38\

        \38\ DuPont notes that Stoneville's share in the Southeast and

        MidSouth has been in decline as evidence that its potential to compete in the future is not bright. DuPont Comments at 14. However, because Emergent's and Monsanto's investments in Stoneville's breeding capabilities are so recent, Stoneville's share declines do not accurately reflect Stoneville's potential. In 2007, Stoneville reversed the trend of declining share. According to USDA's annual reports on cotton varieties planted, Stoneville's breeding efforts are, as Monsanto predicted, beginning to produce results. From 2006 to 2007, Stoneville's share increased from approximately 13% to 15% nationwide and from just over 8% to 11% in the Southeast.

      2. Additional Monsanto Germplasm

        The proposed Final Judgment also requires Monsanto to divest cotton lines from its valuable internal research and development efforts--the

        Advanced Exotic Yield lines and the Marker Assisted Breeding (``MAB'') populations--regardless of whether Monsanto considered those lines to be part of Stoneville. In this way, the remedy ensures that the acquirer has the breadth of Monsanto's cottonseed development programs that would have been used to compete against DPL absent the transaction. i. Advanced Exotic Yield Lines

        DuPont implicitly criticizes the inclusion of the Advanced Exotic

        Yield Lines in the divestiture package, suggesting that because the CIS describes the value of these developmental lines as ``promising,'' the lines likely will be of little commercial value to the acquirer of the

        Enhanced Stoneville Assets.\39\ Although Monsanto started its Advanced

        Exotic Yield program as a means of identifying traits in exotic cotton plants that would increase yields when bred into more traditional commercial lines, that program also resulted in the creation of finished elite lines that have achieved significantly better yields in field tests than the current leading varieties in the MidSouth and

        Southeast. As noted in the CIS, Monsanto planned to bring the first traited varieties from these lines to market by 2009. Monsanto forecasted that these traited varieties would be a significant driver of market share for Stoneville.\40\

        \39\ DuPont Comments at 11 and 15.

        \40\ Despite their origin in a trait research program, further breeding and commercialization of these lines requires only traditional breeding techniques.

        AAI suggests that the acquirer will have little incentive to commercialize these varieties because they contain Monsanto traits. The comment offers no explanation of why the acquirer would forgo a significant profit opportunity by abandoning germplasm that appears to have significant advantages relative to competing germplasm that also contains Monsanto traits. In any case, Bayer has already publicly touted its acquisition of the Enhanced Stoneville Assets as including

        ``access to additional high performing cotton products with insect- resistant and herbicide-tolerant Monsanto traits.''\41\

        \41\Bayer, Investor Handout, Q2 2007, http:// www.investor.bayer.de/user--upload/2747/.

        AAI also contends that many of the Advanced Exotic Yield Lines

        ``are of extremely limited value to the acquirer'' because they already contain Monsanto traits and ``[b]reeding out Monsanto traits and then breeding in competing traits will take a long time.''\42\ AAI's criticism, however, reflects a misunderstanding of the value of the lines and the various methods by which the acquirer can use them. In the near term, the acquirer can commercialize varieties from the

        Advanced Exotic Yield Lines that currently contain Monsanto traits.

        Sales of such varieties likely would be important for the acquirer in growing Stoneville's market share. In the medium and longer terms, the acquirer can use the lines as breeding stock to introduce varieties containing, in whole or in part, non-Monsanto traits. It can do this by two different methods. First, it could simultaneously breed out any

        Monsanto traits that are not desired while breeding in new traits.

        Under this method, it could use any of the lines, including the four recurrent parents,\43\ as a parent in crosses that ultimately result in commercial varieties containing the desired traits, including varieties containing only non-Monsanto traits. Such a process could be carried out within the five year time horizon during which DPL anticipated it could bring non-Monsanto traited seed to market.\44\ Under the second method, which would take additional time, the acquirer could breed out the Monsanto traits to make new conventional lines \45\ and then use those conventional lines as breeding stock to launch varieties containing non-Monsanto traits.

        \42\ AAI Comments at 13.

        \43\ One of the recurrent parents is a conventional line and can be used immediately for breeding a variety that contains only non-

        Monsanto traits. The other three recurrent parents were originally created by crossing a variety containing Bollgard with an exotic variety and those parents accordingly contain the Bollgard I trait.

        If Bayer chooses, it can use these three parents immediately to breed varieties that contain a stack of a non-Monsanto herbicide trait and Bollgard II (breeding in Bollgard II does not require breeding out Bollgard I).

        \44\ Under this method, a breeder would cross an Advance Exotic

        Yield Line containing Monsanto traits with a line that contains non-

        Monsanto traits. The breeder can then select from the progeny offspring that lack the Monsanto traits and advance those offspring through traditional breeding methods to create the desired variety.

        \45\ Breeders can create a finished conventional line by crossing an Advanced Exotic Yield Line containing Monsanto traits with a conventional line and then selecting progeny that lack traits for further breeding.

        Commenters' concerns regarding the rights retained by Monsanto to the Advanced Exotic Yield Lines also lack merit.\46\ The rights retained by Monsanto to these lines merely allow Monsanto to continue a trait research program that, if successful in identifying a yield trait that could be introgressed into cotton varieties, would significantly benefit cotton farmers. Moreover, the proposed Final Judgment makes clear that, whether or not its research program is successful, Monsanto cannot encumber in any way the acquirer's use of the Advanced Exotic

        Yield Lines.

        \46\ See ICTA Comments at 7; AAI Comments at 9.

        ii. MAB Populations

        AAI and DuPont question the value of the MAB lines to the acquirer of the Enhanced Stoneville Assets, pointing to language in the CIS which states that

        Page 18620

        some of the MAB lines contain Monsanto's traits.\47\ In essence, such comments suggest that the Enhanced Stoneville Assets divestiture is only effective as a remedy to the extent the divestiture gives the acquirer access to conventional cotton lines. Since the acquirer would need to breed Monsanto's traits out of some of the MAB lines to create non-Monsanto traited lines, the commenters conclude that the competitive value of the MAB lines to the acquirer is limited in the near term and at most questionable in the longer term. That conclusion is incorrect.

        \47\ AAI Comments at 13; DuPont Comments at 11.

        Monsanto's MAB cotton program involved identifying genetic markers for important agronomic characteristics in the progeny resulting from the cross of two elite lines. The goal of the MAB program was two-fold.

        First, breeders could use these markers to make better informed selections from the progeny plants and could thereby produce a variety that likely was agronomically superior to, and bred more quickly than, a variety derived from traditional breeding selection methods. Monsanto anticipated that commercial varieties from the MAB program would become available as early as 2012. Second, and in the longer term, a large library of such genotypic information would offer breeders the ability to make better decisions about what elite varieties to cross in the first instance. Accordingly, divesting the MAB populations and the accompanying molecular mapping data provides the acquirer of the

        Enhanced Stoneville Assets with germplasm and genetic information that will enhance its offerings over the medium term and provide a significant informational foundation for successful competition over the longer term.

        With respect to the specific concern that the MAB populations are of little value to the acquirer because some contain Monsanto traits, the AAI overstates the scope of the limitation articulated in the CIS.

        While many of the MAB populations are based on a cross involving a parent that contains a Monsanto trait, approximately 37% of them are not. Moreover, as explained above, the time line for creating and commercializing conventional versions from lines containing Monsanto traits, or creating versions containing traits other than Monsanto's, is approximately five years.

        B. Additional DPL Germplasm Provides Important and Meaningful Value

        Given the growth projections in Monsanto's business documents, the

        Stoneville germplasm combined with the Monsanto Advanced Exotic Yield and MAB cottonseed lines arguably would be sufficient to enable the acquirer of the Enhanced Stoneville Assets to compete effectively against DPL cottonseed. However, the proposed Final Judgment seeks to further ensure effective competition by supplementing the Monsanto assets with certain key DPL germplasm lines consisting of 20 lines representing the pedigrees of many of DPL's popular current varieties in the MidSouth and Southeast as well as a significant portion of DPL's breeding pipeline for these areas. Commenters had several concerns regarding these 20 lines,\48\ which we address below.

        \48\ See AAI Comments at 12; DuPont Comments at 12; and OCM

        Comments at 3.

    2. The DPL Germplasm Is of High Quality

      Some commenters question whether the 20 DPL lines will produce competitive traited varieties.\49\ The United States used two methods to select the 20 lines, both of which were designed to identify the lines that had the greatest chance of commercial success in the

      MidSouth and the Southeast. First, the United States looked to the germplasm in the pedigrees of the DPL varieties currently performing best in the MidSouth and Southeast (based on total sales). The eight divested DPL lines that fall into this germplasm category \50\ are prevalent in the pedigrees of the DPL varieties most successful in the

      MidSouth and Southeast today; five of these lines \51\ are the recurrent parents of the DPL varieties accounting for about 60% of

      DPL's 2006 cottonseed sales in the Southeast--the growing region where

      DPL holds the greatest share advantage.\52\ Any of these lines could be used immediately as a recurrent parent for a traited variety, as well as for breeding stock for developing new elite lines.

      \49\ For example, DuPont raises questions about the process used in selecting these 20 lines. DuPont Comments at 12. The AAI suggests that the chances of the government picking good varieties is low.

      AAI Comments at 13.

      \50\ Lines DP 5690, DP 491, DP 2156, DP 565, DP 5305, DP 5415, and Delta Pearl.

      \51\ Lines AZ2099, DP 491, DP 565, DP 415, and Delta Pearl.

      Delta Pearl is the recurrent parent of DPL's wildly successful DP 555 BGIRR (which accounted for over 18% of all U.S. cottonseed sales in 2007 and over 80% of total cottonseed sales in the Southeast in 2007). Dupont notes ``the CIS does not disclose how many other DPL germplasm lines are represented in the lineage of these currently popular varieties.'' DuPont Comments at 12. No other DPL germplasm lines are represented in the lineage of the traited varieties derived from these five lines.

      \52\ OCM's and AAI's representation that these eight lines reflect only 1% of cotton acreage is based only on their share of sales when offered as conventional commercial varieties. OCM

      Comments at 3; AAI Comments at 12. However, the relevant statistic is the one cited above and in the CIS; namely, the role these lines have had in fostering DPL's current share of traited varieties in the MidSouth and Southeast.

      Second, the United States examined what germplasm DPL was counting on for its future seed sales, recognizing that breeding programs are not static. Thus, the other twelve DPL lines included in the divestiture package--even though not currently offered for sale or found in the pedigrees of current bestsellers--were selected because

      DPL gave them the highest rating of the select group of lines that it had in the pipeline for trait introduction in its MidSouth and

      Southeast breeding programs.\53\ DPL had in fact already introgressed

      Syngenta's VipCot trait--the foundation of DPL's effort to move away from Monsanto--into these lines, revealing DPL's confidence that they were most likely to produce high yielding varieties suitable for the

      MidSouth and Southeast.\54\ These lines would likely have been the source for any non-Monsanto traited varieties that DPL would have brought to market in the MidSouth and Southeast from 2012 to 2016.

      Because these lines are finished elite lines, any competent breeder

      (such as the breeding personnel at Stoneville and Bayer) could have traited versions of any of these lines ready for commercialization within approximately the next five years, i.e., within the same time frame that DPL could bring a non-Monsanto herbicide-tolerant seed to market.\55\

      \53\ The United States's investigation revealed that over the past several years DPL's breeders have established a four-tier system for ranking the potential of germplasm the breeders have under development. From 2004 (when DPL set up the rating system) to 2007, only fifteen lines across DPL's five MidSouth and Southeast oriented breeding stations received DPL's highest internal ranking.

      The ranks assigned by DPL reflect the results of extensive field testing. Under the proposed Final Judgment, twelve of those lines will go to the acquirer of the Enhanced Stoneville Assets.

      \54\ Similarly, in 2006 DPL attempted to introduce potential

      OptimumGat events into seven DPL lines, hoping by that process to create a plant in which OptimumGat successfully imparted herbicide tolerance. While that attempt by DPL and DuPont failed to produce any potential candidates for use as an OptimumGat donor parent, the fact that all seven of the lines used in that experiment are among the twelve divested further demonstrates the high regard DPL had for these lines.

      \55\ Thus, AAI's criticism (p. 12) that the ``acquirer is therefore obtaining only the raw inputs necessary to breed varieties that could be commercially viable in the future and only after considerable expenditure'' is incorrect.

      Finally, some commenters opine that the mere fact that this germplasm has not yet been tested in the marketplace

      Page 18621

      inherently diminishes its value.\56\ As discussed above, the divested material is hardly of unpredictable quality. The twelve lines of DPL germplasm were selected precisely because those lines' superior performance had already been observed and relied upon by DPL's breeders.\57\ DPL was developing the next generation of germplasm that it planned to use in connection with marketing non-Monsanto traits.

      Divestiture of this germplasm will allow the acquirer to continue these efforts and not rely solely on currently available material.

      \56\ See, e.g., ICTA Comments at 7 (``Twelve of the 20 lines are experimental lines with unproven and hence uncertain commercial potential.'').

      \57\ In further support of its claim that 20 lines are insufficient, DuPont claims that ``DPL introduced 64 unique cotton varieties in the past eight years, but only 14 ever came to represent 1% or more of annual U.S. cottonseed acres.'' DuPont

      Comments at 16. The statistic, however, is misleading. One elite breeding line can result in multiple unique varieties in two independent ways: varieties with the same recurrent parent can be differentiated based on their trait composition; additionally, the process of introgressing a trait into a conventional elite parent may yield multiple promising and distinctive progeny that have commercial potential. For example, Delta Pearl is the recurrent parent of five traited varieties introduced by DPL between 2000 and 2006 as well as being offered as a conventional variety. Similarly,

      DP491 is the recurrent parent of four traited varieties as well as being offered as a conventional variety. Thus, divesting 20 lines provides the potential for many more than 20 commercial varieties.

    3. The Acquirer Will Be Able To Use This Germplasm Effectively

      Some commenters suggest that it will take the acquirer anywhere from eight to fifteen years to commercialize traited varieties from these 20 lines.\58\ To fact, it should take far less time. Because all 20 of the DPL lines in the Enhanced Stoneville Assets are finished elite conventional lines, they can be immediately used as a recurrent parent for a cross with a trait donor. Assuming competing traits are available to breed into them, traited varieties from these lines could reach the market in approximately five years--the same general time frame in which DPL could have introduced non-Monsanto traited varieties absent the merger.\59\

      \58\ Several commenters, citing provisions in the Complaint (] 15) and the CIS (at p. 16), provide time frames ranging from eight to fifteen years for how long it would take the acquirer to bring traited varieties of the DPL germplasm to market. E.g., States

      Comments at 6 (8-10 years); AAI Comments at 12 (10 years); and OCM

      Comments at 2 (8-15 years).

      \59\ Commenters ignore the fact that DPL has already completed the bulk of the breeding process on the divested lines (i.e., the first six or seven years of making crosses and winnowing progeny).

      Commenters' citations to the Complaint and CIS are thus inapplicable. See Complaint ] 15 (referring to the time period for bringing a new variety to market from an initial cross of two cotton lines--the divested lines are well past that stage) and CIS at 16

      (referring to DPL using the divested lines to bring varieties to market ``over'' the course of the next decade, not, as AAI suggests, for at least another ten years).

      Contrary to DuPont's suggestion,\60\ the acquirer of the Enhanced

      Stoneville Assets will not be at a disadvantage with respect to effectively using the DPL germplasm lines included in the package. The proposed Final Judgment specifically provides that the acquirer will receive applicable performance data and other information.\61\ Such information transfers are a routine practice in the seed industry when germplasm or seed companies are bought or sold (which also occurs routinely)--the books, logs, and other documentation about a breeding line are transferred with the line even if the breeder does not go to the new owner of the line. These materials will readily allow the

      Stoneville breeders to understand the work that has been done on these lines to date and to move the lines forward in their breeding program.\62\

      \60\ DuPont Comments at 13.

      \61\ See proposed Final Judgment Schedule B, Section 2.

      \62\ Bayer has already received this information from DPL in conjunction with the divestiture of the 20 DPL lines.

      The States also contend that ``even post-acquisition, Monsanto retains the right to * * * preclude [the acquirer of the divested DPL lines from us[ing] them with non-Monsanto cotton biotech traits.''

      States Comments at 7. Under the proposed Final Judgment, the acquirer of the DPL lines can freely use them to create varieties that contain

      (a) solely non-Monsanto traits, (b) Monsanto's Bollgard II and non-

      Monsanto herbicide tolerant traits, and (c) Monsanto's Flex, non-

      Monsanto insect resistant traits and non-Monsanto herbicide tolerant traits. The only limitation regarding use of non-Monsanto traits is that for a period of seven years the acquirer cannot commercialize varieties from the DPL lines that solely have Bollgard II, Flex and a non-glyphosate cotton herbicide tolerant trait currently commercialized in cotton. The only non-glyphosate cotton herbicide tolerant trait currently commercialized in cotton is Bayer's Liberty Link. This limitation adds to Bayer's incentive to introduce a non-Monsanto glyphosate tolerant cotton trait as a substitute for Monsanto's Flex. 3. Monsanto/DPL's Use of the Germplasm Does Not Diminish Its Value to the Acquirer and Provides Farmers Continued Benefits

      Some commenters claim that the fact that Monsanto retained the right to continue working with the DPL lines, so long as the commercialized variety contains Monsanto-only traits, means that these lines have little value to the acquirer \63\ and provides Monsanto an improper benefit.\64\ First, to the extent that the DPL germplasm provides the acquirer of the Enhanced Stoneville Assets with a variety that has strong agronomic characteristics, the acquirer will have every incentive to market that product. Indeed, rather than being reason for concern, Monsanto's desire to retain rights to these lines is further indication of the value of this germplasm within DPL's breeding program.

      \63\ States Comments at 7 (``even post-acquisition, Monsanto retains the right to sell the most popular seeds from those lines''); OAG at 3 (20 lines ``is not even a true divestiture'');

      DuPont Comments at 13 (divestiture of DPL germplasm is non- exclusive).

      \64\ ICTA Comments at 7; see also AAI Comments at 10; DuPont

      Comments at 13.

      Second, the licensing back of the lines to Monsanto/DPL benefits cotton farmers. For example, if Monsanto did not have a license for the to-be-divested DPL lines that are recurrent parents to existing DPL traited varieties (including DP555, which contains Monsanto's traits),

      Monsanto would have to remove these varieties from the market, significantly limiting options for cotton farmers. Similarly, without such a license, Monsanto would have to discard any varieties in DPL's developmental pipeline that have the divested lines as a recurrent parent, even if those lines already contain only Monsanto's traits. The commenters do not explain why competition would be served by denying cotton farmers these varieties.\65\

      \65\ ICTA's concern about the provision allowing DPL to sell conventional versions of the DPL divested lines is also misplaced.

      ICTA Comments at 4 (``DoJ has absolutely no basis for proposing, or assessing the adequacy of the remedy cited above''). At the time the

      Complaint was filed, the 2007 seed purchasing season was already under way and DPL was selling some of the divested lines as conventional varieties. Thus, the provision permitting DPL to continue to sell these varieties in 2007 merely avoided disruption to farmers who wanted to buy these conventional varieties for that season.

      C. The Remedy Preserves Incentives and Opportunities for Effective

      Traited Cottonseed and Trait Development Competition

      Commentors expressed concern about the opportunities for trait developers. Those concerns, however, are misplaced as discussed below. 1. Syngenta Will be Able to Effectively Use the VipCot Assets

      Some commenters \66\ express concern that certain provisions of the license

      Page 18622

      agreements accompanying the divestiture of the VipCot Assets will unnecessarily restrict Syngenta's use of the assets.\67\

      \66\ See e.g., ICTA Comments at 7-8; AAI Comments at 10.

      \67\ The proposed Final Judgment requires Monsanto to divest to

      Syngenta 43 advanced DPL germplasm lines traited with VipCot and related assets necessary to bring varieties from these lines to market.

      As noted above, the development of Syngenta's VipCot trait in DPL seed was at an advanced stage when Monsanto's acquisition of DPL was proposed. The United States required the divestiture of the most advanced of DPL's VipCot lines not to ensure that Syngenta could replace Stoneville as a competitor against DPL the Enhanced Stoneville

      Assets divestiture addresses that harm but to prevent any delay to

      VipCot's commercialization as a result of the merger. The terms of the proposed Final Judgment will provide Syngenta the rights it needs to bring VipCot to market and, thus, fulfill the goal that the VipCot

      Assets divestiture is intended to accomplish.

      As provided in the proposed Final Judgment, the divestiture of these 43 lines to Syngenta offers several possible paths to market for this traited germplasm.\68\ Syngenta could start its own seed company using this germplasm as a base either on its own or via a joint venture--and make sales of the traited seed directly to distributors or farmers. Syngenta already operates soy and corn seed companies in the

      United States and is one of the largest providers of cotton-related herbicides and insecticides in the world. Syngenta also is a partner with DuPont in a recently formed joint venture called Greenleaf

      Genetics, which the companies established to out-license the companies' proprietary corn and soybean genetics and biotechnology. In addition,

      Syngenta has the option of licensing the traited germplasm to other seed companies, such as Bayer, Dow and Americot, which already have breeding and distribution programs in place.\69\

      \68\ The United States has worked with Monsanto and Syngenta to ensure that the divestiture (including access to any required licenses) is accomplished under terms that do not restrict

      Syngenta's competitiveness and are commercially reasonable.

      \69\ Of course, Syngenta also could license just the VipCot trait to seed companies if the DPL-traited germplasm is not attractive to potential licensees or if Syngenta wished to keep the

      DPL germplasm for its own branded seed product.

      The requirement in the proposed Final Judgment that a commercialized variety derived from the VipCot Assets contain one of four listed Syngenta insect-resistant events is not unduly restrictive.\70\ These are the four ``versions'' of the insect- resistant trait that Syngenta and DPL were most confident could achieve commercial success in the near-to-medium-term. This restriction, therefore, is directly tied to the harm that divesting the VipCot

      Assets is designed to remedy; namely, delay in the introduction of the

      VipCot traits that DPL and Syngenta had been positioning to enter the market.\71\ It is unlikely that any new insect-resistant traits developed by Syngenta other than VipCot would be available for more than a decade, and any such trait likely could in any event be stacked with one of the four existing events consistent with the proposed Final

      Judgment.

      \70\ See AAI Comments at 10.

      \71\ Contrary to the apparent perception of some commentors

      (see, e.g., ICTA Comments at 8), this aspect of the proposed Final

      Judgment is not designed to ensure, by itself, an adequate platform of high-quality germplasm for future trait developers. The limitations on Syngenta's use of the germplasm are appropriate to match this aspect of the remedy to its more-narrow objective preventing the merger from delaying VipCot's commercialization--and unrestricted access to this germplasm is unnecessary in light of the other elements of the proposed Final Judgment.

    4. The Remedy Will Preserve Opportunities for Trait Developers to

      Market Nonmonsanto Traits In Competitive Cottonseed

      Some commenters expressed concern that post-merger there will no longer be a sufficient base of non-Monsanto controlled cottonseed to support future trait development.\72\ However, the Enhanced Stoneville

      Assets divestiture provided for in the proposed Final Judgment establishes a substantial future platform for cotton trait developers to use to reach farmers in the MidSouth and Southeast.

      \72\ See, e.g., OFU Comments at I (``competing seed trait developers will have great difficulty gaining access to the market''); OCM Comments at 3.

      In addition, the third party license changes required by the proposed Final Judgment promote the development and commercialization of competitive cottonseed with non-Monsanto traits by giving cottonseed companies the ability to partner with trait developers other than

      Monsanto without any financial penalty. Currently, DPL seed accounts for approximately 43 percent of U.S. cottonseed acres, leaving over half of all U.S. cottonseed acres available to trait developers who seek to compete against the merged Monsanto/DPL. Commenters fail to explain why this amount of acreage is insufficient, especially given the additional returns on investment in cotton trait research that could be gained from Stoneville's likely growth in the MidSouth and

      Southeast, possible cross-crop trait applications, and international cottonseed markets.

      With regard to the license changes, AAI suggests that Monsanto's trait licensing practices should be addressed in a separate case, claiming that the required licensing modifications do not help to remedy the loss of competition alleged in the Complaint.\73\ To the contrary, the modifications specifically address competition lost from

      Monsanto's acquisition of DPL, since DPL's licenses did not limit its ability and incentive to work with non-Monsanto trait providers.\74\

      These trait providers will now be able to work with cottonseed companies who previously had restricted licenses.

      \73\ AAI Comments at 15.

      \74\ In requiring these changes, the United States made no determination as to whether any provisions in Monsanto's licenses violated the antitrust laws.

    5. The Remedy Should Not--and Does Not--Guarantee the Introduction of

      DuPont's OptimumGat Trait

      Several commenters express concern that the remedy is insufficient because it does not ensure that DuPont's OptimumGat trait will reach the market.\75\ As discussed above, the proposed remedy preserves the potential for the development and introduction of competing herbicide- tolerant traits in the MidSouth and Southeast. OptimumGat may prove to be such a trait, but there was never any certainty of that even without the merger.\76\ Indeed, DPL was itself exploring herbicide-tolerant trait alternatives with developers other than DuPont. For example,

      Bayer and Syngenta independently have been working on herbicide- tolerant traits for cotton that could be commercialized on or before the time when DPL could have brought OptimumGat to market absent the merger. Thus, there was never any guarantee that OptimumGat would ultimately be commercialized in cotton even if DuPont were able to continue working with an independent DPL,\77\ and it would be inappropriate for an antitrust remedy to establish a guarantee that the market would not have provided.

      \75\ See, e.g, DuPont Comments at 2 (DuPont terminating research and development for OptimumGat in cotton); States Comments at 4

      (claiming that ``because of DeltaMax's termination, Monsanto's cotton herbicide-tolerant trait dominance is assured for the foreseeable future'').

      \76\ As noted above (supra p. 5), development efforts for introducing OptimumGat in DPL germplasm were at a preliminary stage.

      \77\ See DPL 2006 Form 10K.

      Page 18623

    6. The Remedy Will Preserve the Number of ``Platforms'' for Trait

      Development That Existed Pre-Merger

      Commenters suggest that because Bayer itself develops traits it will not work with other trait developers and that the remedy thus fails to preserve trait development opportunities.\78\ Even if the claim were true, the competitive harm identified in the Complaint is still addressed: pre-merger, farmers in the MidSouth and Southeast looked forward to a choice between Stoneville/Monsanto and DPL/non-

      Monsanto traited cottonseed; post-merger they still will have a choice as they will look forward to competition between Stoneville/Bayer and

      DPL/Monsanto.

      \78\ States Comments at 7.

      It is important to bear in mind that DPL itself might not have continued to work with multiple competing trait developers.

      Contemporaneous DPL business documents indicate that DPL likely would have selected only one non-Monsanto stack to bring to market in light of the costs associated with breeding traited varieties, commercially distributing multiple varieties, and managing the requirements and earning potentials of licences with trait developers. Thus, DPL likely would have chosen only one non-Monsanto insect-resistant trait and one non-Monsanto herbicide-tolerant trait to promote. It is also likely that DPL would have continued offering a Monsanto stack because of the apparent market demand for Monsanto's traits.\79\

      \79\ DPL's agreements with Syngenta and DuPont did not require exclusivity, and future market conditions (especially demand by farmers for Monsanto's proven traits) might have dictated that DPL continue offering Monsanto traits. Internal DPL business documents suggest that it planned to follow this course.

      In any event, Bayer has very strong incentives to use other third- party traits if those traits are better than the traits it can develop on its own. Indeed, Monsanto will have the same incentive. Competition from one will spur the other to try to offer the best product, regardless of whether the included trait is developed in-house or licensed from a third-party.\80\ (And, it bears remembering, such development of traits is, and would have been absent the merger, likely to occur nearly a decade in the future.)

      \80\ Recognizing this dynamic, third-party trait developers will have incentives to continue research efforts.

  12. Response to Comments That the Remedy Is Not Workable

    A number of commenters posit that the remedy provided for in the proposed Final Judgment is not in the public interest because the remedy is ``conduct-based''\81\ as opposed to ``structural,'' and because the required divestitures have ``strings attached,'' such as licenses running between Monsanto and the acquirers of the divested assets. These commenters further assert that these provisions essentially render the remedy too costly to administer, or will require too much ongoing involvement and policing by the United States or the

    Court to be effective. As explained below, the proposed Final Judgment provides an effective remedy that is clean and certain (i.e., consisting of one-time, well-defined events that do not involve costly government regulation of the market), is consistent with the Merger

    Remedy Guide issued by the United States,\82\ and does not involve cumbersome monitoring by the United States or the Court.

    \81\ See e.g., AAI Comments at 9-10; CFS Comments at 7-9; DuPont

    Comments at 13-14; States Comment at 7.

    \82\ See U.S. Dep't. of Justice, Antitrust Div., Antitrust

    Division Policy Guide to Merger Remedies, (October 2004), available at http://www.usdoj.gov/atr/public/guidelines/205108.pdf

    (hereinafter ``Merger Remedy Guide'').

    A. The Divestitures and License Changes Are One-Time Events, Not

    Ongoing Behavioral Remedies

    The remedies proposed by the United States are one-time events calling for the divestiture of identifiable and transferable assets and intellectual property as well as modifications to certain licenses.

    These are not conduct remedies that involve ongoing entanglement in market operations or regulation of Monsanto's ongoing conduct.\83\

    \83\ See Merger Remedy Guide at 7-12 (describing the differences between structural and conduct remedies).

    Specifically, the proposed Final Judgment calls for the divestiture of Stoneville, an ongoing cottonseed business that has been bought and sold on several occasions, including all of Stoneville's domestic germplasm, breeding, and sales and marketing assets, together with the information and intellectual property necessary to use those physical assets. In addition to the Stoneville business unit, the remedy calls for the divestiture of additional complementary assets, i.e., the 20

    DPL cotton germplasm lines.\84\ The transfer of this package of assets is a one-time event that constitutes a workable remedy to preserve competition and provides clear lines of ownership, with Bayer owning outright the Stoneville business, as well as the 20 lines formerly belonging to DPL. In its basic structure, this remedy is not different from the commercial transfer and licensing of germplasm and related intellectual property that occurs routinely in the marketplace.

    \84\ The Merger Remedy Guide recognizes that there may be instances when ``additional assets from the merging firms will need to be included in the divestiture package.'' Merger Remedy Guide at 12.

    Some commenters suggest that aspects of the remedy involving licensing arrangements are unworkable conduct remedies that are inconsistent with the United States's policies on merger remedies.\85\

    The United States's Merger Remedy Guide, however, explains that proper merger remedies can ``involve the sale of physical assets'' as well as the ``sale or licensing of intellectual property.'' \86\ Licensing is routine in this industry, where companies often combine the work of others (e.g., germplasm, traits, intellectual property) with their own useful developments and introduce better products for the market. The licenses in this case were crafted so that each company would know which rights it would retain after the divestiture to help ensure a workable remedy.

    \85\ ICTA Comments at 6-8; AAI Comments at 9.

    \86\ Merger Remedy Guide at 7.

    The divestiture of the VipCot Assets to Syngenta is also a workable remedy. The germplasm divestiture is accomplished though a license to

    Syngenta rather than absolute ownership, but the method of transfer will not affect Syngenta's ability to compete effectively as Syngenta will have a non-terminable and royalty-free license to use the divested lines.\87\ As discussed above, the provisions in the proposed Final

    Judgment offer Syngenta several alternatives for bringing the DPL germplasm to market, and entry of VipCot-traited varieties will alter the structure of the traited cottonseed market regardless of the means selected.

    \87\ Merger Remedy Guide at 15 n.22 (describing requirements that the Division typically imposes on structural remedies involving licensing).

    Finally, the proposed Final Judgment's requirement that Monsanto modify existing third party licenses is also a one-time event. The changes to these licenses require modification of certain terms that will enable those third parties to work more readily with non-Monsanto trait providers.

    B. Monitoring Compliance With the Remedy Will Not Unduly Burden the

    United States or the Court

    Contrary to some commenters' suggestions, the terms of the proposed

    Final Judgment do not require cumbersome monitoring of the

    Page 18624

    marketplace by the United States or the Court.\88\ For example, pointing to certain conditions and limitations placed on the germplasm to be divested under the proposed Final Judgment, AAI asserts that the divestitures are a ``conduct-based, regulatory-style `fix' that imposes on this Court a monitoring and compliance burden that it should be loathe to undertake.'' \89\ These criticisms grossly overstate monitoring issues associated with the proposed Final Judgment.

    \88\ See ICTA Comments at 8-9; AAI Comments at 11.

    \89\ AAI Comments at 11.

    As stated above, the asset divestitures and license modifications are one-time events that, in fact, have already been accomplished in their entirety or have been implemented successfully in significant part. There remains, of course, the possibility that a dispute under one of the asset purchase agreements or licenses will arise in the future. Such a possibility exists in nearly every case in which the

    United States requires divestitures. As a general matter, such disputes would not require intervention by the United States, as the parties to the dispute can rely on contract procedures and other remedial steps to reach a resolution. Accordingly, while the United States will continue to monitor Monsanto's behavior to ensure compliance with the judgment, the prospect of the United States and this Court becoming enmeshed in the types of disputes enumerated by the commenters is both exaggerated and remote.

  13. Response to Comments That Raise Issues Beyond the Scope of the

    Court's Review

    Several commenters express concerns about competitive issues not raised in the Complaint. As discussed above in Section III.A., issues beyond the scope of the Complaint are outside the purview of the Court.

    However, even if the Court were to consider the merits of these alleged concerns, the United States appropriately concluded that permitting the transaction will not give rise to the posited harms.

    A. Crops Other Than Cotton

    Several commenters expressed concern that the merger will have a detrimental impact on the development of traits for corn and soy.\90\

    These commenters argue that a reduced revenue opportunity in cotton will make trait producers hesitant to develop traits as they will have fewer opportunities to profit from their investment. Market conditions belie that prediction.

    \90\ See, e.g., States Comments at 5, 9; ISA Comments at 1; OFU

    Comments at 1; OCM Comments at 2; Plains Justice Comments at 1.

    The revenue opportunities for corn and soy traits far exceed those for cotton, based on available acres. The market for biotech soy is more than four times greater than the market for biotech cotton in the

    United States, and more than three times greater worldwide. The market for biotech corn is at least four times greater than that for cotton in the United States, and at least 1.3 times greater than that for cotton worldwide. Within the United States, the combined market opportunity to sell biotech soy and biotech corn is roughly 130 million acres, whereas there are only 15 million cotton acres.\91\ That revenue opportunity has proven sufficient for DuPont to continue its commercialization of

    OptimumGat in corn and soy and to continue research and development of other transgenic traits \92\ and likely would provide similar incentives for other trait developers.

    \91\ Monsanto estimates, from Hugh Grant, Chairman, President, and CEO, Monsanto, Presentation at Sanford Bernstein Strategic

    Decisions Conference, slide 11 (May 30, 2007), http:// www.monsanto.com/pdf/investors/2007/05-30-07.pdf.

    \92\ See Investor Day Presentation at slides 34, 36 and 40.

    B. Conventional Cottonseed

    ICTA suggests that the transaction will result in harm to a conventional cottonseed market.\93\ The merger does not, however, substantially alter incentives of seed companies to offer conventional varieties. Absent the merger, DPL's share of the trait fee charged by

    Monsanto reflected a significant share of DPL's revenues, and DPL's revenues from trait fees would have become even larger as it shifted to non-Monsanto traits. Accordingly, even without the merger, DPL would have had substantial incentives to shift sales from conventional to traited seed so as to earn these fees. Further, ICTA fails to explain why, assuming there is a core set of farmers committed to using conventional seed, Monsanto or Bayer would not continue to have sufficient incentives to provide conventional seed to them.\94\

    \93\ See, e.g., ICTA at 28, 43.

    \94\ ICTA notes that ``40%'' of the 36 conventional varieties planted in 2006 were DPL varieties. According to USDA 2006 data, DPL offered fifteen conventional varieties, with seven of those fifteen having sales in the MidSouth and Southeast. Six of those seven were divested to Bayer as part of the Enhanced Stoneville Assets.

    C. The Southwest and West Traited Cottonseed Markets

    ICTA contends that the transaction will harm competition for traited cottonseed in the Southwest and West regions of the United

    States. A close examination of the facts reveals the lack of support for ICTA's claim.\95\

    \95\ ICTA Comments at 5.

    With respect to the Southwest,\96\ DPL and Stoneville have a much smaller competitive presence than they do in the MidSouth or Southeast, in large part because their germplasm is not uniquely suited for the

    Southwest region. As reflected by the 2006 market shares for traited cottonseed in this region, there are a number of competing companies:

    Bayer 46%; DPL 26%; Stoneville 15% (Stoneville branded seed 5% and

    NexGen branded seed 10%); Americot 5%; All-Tex 3%; UAP 3% and Croplan 1%.\97\ The divestiture of the Enhanced Stoneville Assets to Bayer and

    Americot does not significantly alter the competitive situation.

    Because Stoneville developed its NexGen brand seed specifically for the

    Southwest market and Americot acquired Stoneville's NexGen-related assets, the Southwest market will continue to have three seed companies with significant shares (Bayer/Fibermax, Monsanto/DPL and Americot/

    NexGen) and three additional companies with a smaller presence (All-

    Tex, Croplan, and UAP).

    \96\ Though the USDA classifies the Southwest as comprising

    Texas, Oklahoma and Kansas, we have included New Mexico in our analysis of the region. New Mexico has two distinct cotton growing areas that can be roughly described as Eastern New Mexico and the

    Mesilla Valley. The same cotton varieties that grow successfully in

    Texas and Oklahoma are used in Eastern New Mexico whereas acala varieties are primarily grown in the Mesilla Valley. Because the vast majority of cotton acreage in New Mexico is in the eastern region, we have included data from that region in our analysis of the Southwest.

    \97\ The United States derived the above estimated shares of traited cottonseed sales in the Southwest (including New Mexico for the reasons discussed above) from USDA data and other data received during the course of the United States's investigation. These shares discount ``saved seed''--conventional seed that a farmer saves from one year's crop to plant the next year (a practice that is more prevalent in the Southwest than the other regions due to the greater use of conventional seed which seed companies do not prohibit farmers from saving). USDA data ascribes saved seed to the seed company that originally produced the seed--even if the actual sale of that seed occurred in a previous year--and thus significantly overstates branded seed companies' shares in the region.

    With respect to the West, a proper analysis must recognize that

    Arizona and California are very different and relatively small markets.\98\ In California, nearly all of the cotton grown is either pima or acala (a form of upland cotton) \99\ Stoneville does not sell pima

    Page 18625

    or acala varieties. Based on 2006 market shares for traited upland varieties grown in California (which ignores the large volume of pima cotton grown in California), Stoneville has only a 3% share, while Dow has a 43% share, Bayer 38%, DPL 13% and UAP 3%. Accordingly, the transaction does not significantly affect traited cottonseed competition in California.

    \98\ As noted above, while classified by the USDA as part of the

    West, most of New Mexico's cotton production occurs in the eastern part of the state and requires the same varieties that perform well in the Southwest.

    \99\ There are two species of cotton grown in the United States:

    Pima and upland. Furthermore, there are different types of upland cotton grown in the United States. In California, most of the upland cotton grown are acala varieties.

    Like the MidSouth and Southeast, the USDA data suggest there are two significant sources of upland cottonseed in Arizona: DPL with 73% and Stoneville with 20%. Because the proposed Final Judgment adequately addresses competition issues in the MidSouth and Southeast by requiring divestiture of the Enhanced Stoneville Assets, it also resolves any potential issues for Arizona. Further, because Arizona's geography is well-suited for seed production of Southeast and MidSouth varieties, a significant amount of the upland cotton planted in Arizona is grown by farmers under contract with DPL and Stoneville for the purpose of producing cottonseed (rather than cotton fiber).\100\ Thus, DPL's and

    Stoneville's shares in Arizona primarily reflect that they perform a substantial amount of seed production there.

    \100\ The USDA survey data does not distinguish between cotton grown primarily for seed production and cotton grown as a crop.

    D. Prices for Cottonseed Sold for Livestock Feed

    OFU predicts that prices paid for cottonseed used in livestock feed will increase due to the merger.\101\ The comment appears to misunderstand the source of cottonseed used for feed. Such seed does not come directly from the cottonseed companies. Rather, seed used for feed is the by-product of the cotton production process. The licensing agreements farmers sign in order to plant transgenic seed prevent them from planting the seed from their crop; hence, they typically sell any seed extracted from the cotton during the ginning process for oil or feed.\102\ That seed does not pass through the hands of a cottonseed company on its way to be sold as feed. Nor does the OFU explain how the merger would affect prices of cottonseed sold for feed. Historically, the price of cottonseed used as livestock feed has remained fairly stable even as the price of transgenic planting seed has increased.

    Over the past ten years the price of seed for feed has averaged $107 per short ton, a fraction of what farmers pay per bag of transgenic seed.\103\ Moreover, the price of cottonseed sold for feed is likely affected by other sources of livestock feed. Finally, even if the price paid by farmers for cottonseed for planting did affect the price of feed cottonseed, since the proposed Final Judgment preserves traited cottonseed competition, the merger should have no adverse impact on the price of feed cottonseed.

    \101\ OFU Comments at 1.

    \102\ There would be excess seed even if farmers were able to replant transgenic seed because an acre of cotton yields far more seed than is necessary to replant that acre.

    \103\ USDA, Oil crop Situation and Outlook Yearbook, May 2007, at 47. The price of $107 per short ton translates to a price of

    $2.75 per 50 pound bag. In contrast, a 50 pound bag-equivalent of

    DP555BGRR would cost a farmer in Georgia roughly $130 for the seed alone, plus an additional $292 for the trait fee.

    E. Alleged Monsanto Exclusionary Business Practices

    The States contend that Monsanto will engage in exclusionary business practices post merger, such as ``acquisitions of independent seed companies and germplasm providers to enhance its monopoly position in both seed and traits; long-term, highly restrictive licensing agreements that encourage the sale of Monsanto's biotech traits exclusively; licensing restrictions that prevent independent seed companies from combining Monsanto biotech traits with non-Monsanto traits; and bundling rebates on seeds, traits and chemicals to exclude competitors from retail distribution channels.''\104\

    \104\ States Comments at 8.

    Given both the breadth and lack of specificity of this contention, it is difficult to discern how it relates to the transaction at issue here. The actions on the laundry list articulated by the States are ones Monsanto could undertake with or without this merger, and the

    States do not explain why the transaction would change Monsanto's incentive or ability to engage in them. Nor do the States explain why such actions, if designed to have an anticompetitive effect, would be successful in light of the preservation of competition achieved by the required divestiture of the Enhanced Stoneville Assets.\105\

    \105\ Bayer, Dow, DuPont and Syngenta all have agricultural products that could be added to a bundle that includes cottonseed.

    Furthermore, though the United States made no determination regarding the competitive effect of certain business practices, some aspects of the proposed Final Judgment would make it difficult for

    Monsanto to engage in certain of the purportedly anticompetitive practices suggested by the States. For example, the proposed Final

    Judgment requires Monsanto to remove anti-stacking provisions in its licenses to other seed companies and penalties for working with competing trait providers. Also, it requires Monsanto to notify the

    United States in advance of purchases of independent cottonseed companies and germplasm providers, affording an opportunity to investigate and if necessary challenge any that might be anticompetitive.\106\

    \106\ Proposed Final Judgment at 19.

    Finally, and most fundamentally, the antitrust laws will continue to apply and would proscribe conduct by Monsanto that runs afoul of applicable legal standards.

  14. Conclusion

    After careful consideration of the public comments, the United

    States remains of the view that the proposed Final Judgment provides an effective and appropriate remedy for the antitrust violation alleged in the Complaint and that its entry would therefore be in the public interest. Although the proposed Final Judgment, like any settlement, was a product of negotiation and compromise,\107\ it fully achieved the

    United States's goals in this action. Even if the court might be inclined to view the issues differently, the purpose of Tunney Act review is not for the court to engage in an ``unrestricted evaluation of what relief would best serve the public'' \108\ or to determine the relief ``that will best serve society,'' \109\ it is simply to determine whether the proposed decree is within the reaches of the public interest--``even if it falls short of the remedy the court would impose on its own.'' \110\

    \107\ In this context, it is important to bear in mind that because Monsanto had committed to selling Stoneville as a condition of its acquisition agreement with DPL, a challenge to the acquisition by the United States would have had to overcome the adequacy of a Stoneville divestiture to remedy any alleged harm.

    \108\ United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th

    Cir. 1981)).

    \109\ Bechtel, 648 F.2d at 666.

    \110\ United States v. AT&T Co., 552 F. Supp. 131, 151 (D.D.C. 1982).

    The Court is to consider ``the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial'' \111\ Because the markets identified in the Complaint are the only ones in which competition is likely to be lessened as a result of the merger, the impact of

    Page 18626

    entry of the proposed Final Judgment will be to restore any competition lost as a result of the merger. Farmers in the MidSouth and Southeast who might have otherwise suffered injury from the violation set forth in the Complaint will retain their current and prospective competitive choices for traited cottonseed by virtue of the contemplated divestitures. Based on the factors set forth in the Tunney Act, the proposed Final Judgment is in the public interest.

    \111\ 15 U.S.C. 16(e)(l)(B).

    Pursuant to Section 16(d) of the Tunney Act, the United States is submitting the public comments and its Response to the Federal Register for publication. Our response is also being provided to each of the commenters. After the comments and the United States's Response to

    Comments are published in the Federal Register, the United States will move this Court to enter the proposed Final Judgment.

    Dated: March 05, 2008.

    Respectfully submitted,

    For Plaintiff:

    Jill A. Ptacek (WA Bar 18756)

    Trial Attorney, U.S. Department of Justice, Antitrust Division,

    Transportation, Energy & Agriculture Section, 325 7th Street, NW.,

    Suite 500, Washington, DC 20004, Telephone: (202) 307-6607,

    Facsimile: (202) 307-2784.

    Tunney Act Comments of the American Antitrust Institute on the Proposed

    Final Judgement

    The American Antitrust Institute (AAI) is an independent

    Washington-based nonprofit education, research, and advocacy organization. The AAI's mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. The AAI has had an interest in this proceeding because it raises critical issues of competition policy and consumer choice involving a key agricultural supply chain cotton. The AAI White Paper issued in November 2006 discusses some of the key issues raised by the merger.\1\

    \1\ See http://www.antitrustinstitute.org/Archives/552.ashx.

    Pursuant to Section 2(b) of the Antitrust Procedures and Penalties

    Act (APPA), 15 U.S.C. 16 (the ``Tunney Act''), The AAI submits these comments on the Proposed Final Judgment (PFJ or consent decree) in the above-mentioned case. Congress has made this Court the final arbiter of the propriety of mergers under the antitrust laws. The Court must

    ``determine that the entry of such judgment is in the public interest.'' \2\ If the Court cannot make this finding, it must reject the PFJ unless more adequate provisions are made to protect the public interest. In the following analysis, the AAI respectfully argues that for the numerous reasons set forth in these comments, the PFJ is not in the public interest and must be rejected by the Court.

    \2\ 15 USC. 16(e). See. e.g., United States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C. Cir. 1995).

  15. Competitive Issues Raised by the Proposed Merger

    At first blush, the products and markets affected by the proposed merger of Monsanto and Delta and Pine Land (Monsanto/D&PL) appear technical and complex. But some background provides ample basis for a clear understanding of the competitive issues raised by the merger.

    Cotton can be grown with three major types of seed: (1) Organic; (2) conventional, and (3) genetically modified or ``traited.'' Cotton is also grown in four regions of the U.S.--the Southeast, Mid-South,

    Southwest, and West. This has generated demand for cotton varieties that thrive in different soil types and climates.

    Cotton is also an insect-intensive crop and competes for space with weeds. As a result, agricultural biotechnology has played a major role in the development of cotton varieties that contain genetically engineered ``traits'' that make the plants resistant to insects

    (insect-resistant) and tolerant to herbicides (herbicide-tolerant), which are sprayed on the plants. Conventional cottonseed does not contain such genetic traits. Organic cotton contains neither genetic traits and is grown in a way that meets organic growing standards.

    The merger involves two major markets. One is the market for development of ``cotton traits.'' Monsanto has a 95% share of this market with its hugely attractive and successful insect-resistant traits Bollgard and successor Bollgard II and herbicide-tolerant traits

    Roundup Ready and successor Roundup Ready Flex. The second market is that for ``traited cottonseed.'' Cotton traits are ``introgressed''

    (i.e., inserted through genetic engineering) into cotton ``germplasm,'' which is the genetic material that gives a cotton variety its specific characteristics. Commercially successful varieties are obtained at the very high risk of failure, i.e., after years of costly breeding and cross-breeding that ultimately produces desirable plant characteristics demanded by cotton farmers. D&PL has a 79-87% share of the Mid-South and Southeast relevant markets for traited cottonseed. The merger raises three competitive issues:

    Horizontal-elimination of actual competition. The merger combines two competitors--Monsanto's Stoneville business and D&PL--in the market for traited cottonseed.

    Horizontal-elimination of a potential competitor. The merger eliminates D&PL as a potential partner for cotton traits developers that compete with Monsanto.

    Vertical-combination of two firms in a vertically integrated chain. The merger combines upstream cotton traits developer

    Monsanto with downstream traited cottonseed seller D&PL in a vertical combination.

  16. Summary of the DOJ Documents

    A. Complaint/Competitive Impact Statement

    The Complaint focuses on two of the three major competitive effects listed above. It first alleges that the merger of Monsanto and D&PL will substantially lessen competition in the product market for the

    ``development, commercialization and sale of traited cottonseed.''

    Farmers likely would have fewer choices of, and face higher prices for, traited cottonseed (Complaint at 11-12.) Relevant geographic markets are the Southeast and the Mid-South. (Complaint at 10.) Together, these regions account for 50% of cotton grown in the U.S. Cottonseed containing both (i.e., ``stacked'') insect-resistant and herbicide- tolerant traits comprises the vast majority of cottonseed planted in these regions.

    In the Southeast, D&PL has an 87% market share and Monsanto's

    Storteville has 8%. Combining Monsanto and D&PL increases concentration by 1,489 HHI, for post-merger concentration of 9,184 HHI. In the Mid-

    South, D&PL has a 79% market share and Monsanto's Stoneville has 17%.

    The merger increases concentration by 3,310 HHI for a post-merger HHI of 9,110. (Complaint at 11.)

    The Complaint explains that entry into the traited cottonseed market requires both the assets and expertise to breed high-performing varieties of cottonseed and to develop or access traits to breed into the cottonseed. Each step requires many years and tens of millions of dollars. (Complaint at 12.) Moreover, traits developers must have access to a sufficient supply of high-quality cotton germplasm. (CIS at 11.) The Complaint thus alleges that:

    If there were a small but significant increase in the price of traited cottonseed

    Page 18627

    within regions such as the Mid-South and Southeast, it is not likely that farmers would switch to other crops or switch purchases to conventional (non-traited) cottonseed or cottonseed varieties that are not suited to their region in sufficient volumes to make the price increase unprofitable. (Complaint at 10-11.)

    The second adverse competitive effect identified by the Complaint is the elimination of D&PL as a partner for traits developers that compete with Monsanto. D&PL has partnered with Monsanto to produce traited cottonseed. However, D&PL has recently pursued more lucrative alternative partnerships with rival firms such as Syngenta. After the merger, those efforts would be ``substantially delayed or prevented,'' as would ``efforts to develop other traits that would compete with

    Monsanto traits and that would provide benefits to United States cotton farmers * * *'' This would likely reduce choice and raise prices for traited cottonseed. (Complaint at 12.)

    B. Proposed Final Judgment

    The PFJ sets forth a three-pronged remedy to address horizontal issues raised by the merger: (1) Divestiture of the Enhanced Stoneville

    Assets; (2) divestiture to Syngenta of D&PL germplasm containing the jointly developed VipCot traits; and (3) modification of Monsanto's

    Cotton States and other third-party traits licenses. 1. Enhanced Stoneville Assets

    The PFJ proposes divestiture of the Enhanced Stoneville Assets.

    Three components make up the package of assets. First, Monsanto's

    Stoneville cotton business will be sold, including: Breeding facilities, tangible assets, brand names, breeder records, and other intangible assets. Second, the PFJ requires that Monsanto germplasm be divested. This includes four sources: (1) The ``exclusive right'' to commercialize varieties from the Advanced Exotic Yield lines; (2) all germplasm from the Marker-Assisted Breeding populations--the primary development source for Stoneville varieties; (3) a ``non-exclusive, royalty free license'' to sell and breed with varieties from the Cotton

    States program currently sold by Stoneville; and (4) all other germplasm in Monsanto's possession. Third, the PFJ requires the divestiture of 20 lines of ``elite'' D&PL germplasm. (CIS at 12-19.) 2. Syngenta/VipCot Divestiture

    This divestiture includes 43 lines of ``promising'' D&PL germplasm into which D&PL has incorporated the VipCot insect-resistance traits.

    The lines will be sold to rival traits joint developer Syngenta along with performance data and certain other information. Anticipated commercialization of five of the germplasm lines is expected by 2009, three lines by 2010/2011, and the remaining lines by 2011 or beyond.

    Under the divestiture, Syngenta has exclusive rights to commercialize varieties developed from the lines to be divested as long as they contain one or more Syngenta-developed traits, including the VipCot traits.\3\ (CIS at 19-20.)

    \3\ Monsanto will also provide the recurrent parent conventional germplasm for each line until December 21, 2014 and offer Syngenta a license to its Roundup-Ready Flex so that it can commercialize

    VipCot lines with stacked traits.

    1. Modifications to Monsanto's Cotton States and Seed Company Licenses

    The PFJ requires that Monsanto modify their Cotton States and third-party cottonseed traits licenses to remove restrictions on ability of licensees to develop, market, or sell cottonseed containing non-Monsanto traits. This includes combining (i.e., stacking) Monsanto with non-Monsanto traits. The PFJ also requires Monsanto to modify its

    Cotton States license to eliminate any provision that allows for termination if the licensee sells cottonseed containing non-Monsanto traits. (CIS at 20-21.)

  17. Mismatches Between the Complaint and the PFJ

    The AM respectfully argues that the PFJ falls seriously short of remedying the violations alleged in the Complaint. In Microsoft, the

    Court explained that in making a public interest determination under the APPA, it should consider (among other things), the relationship between the remedy secured and the specific allegation set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties.\4\

    \4\ Microsoft, 56 FJd at 1458-62.

    The Supreme Court has emphasized that the purpose of a remedy is to restore or protect competition.\5\ The CIS recognizes that ``the acquirer of the Enhanced Stoneville Assets'' * * * must have a credible commitment to the traited cottonseed market and have the intent and capability of competing effectively in the market.'' (CIS at 12.) The

    Antitrust Division Policy Guide to Merger Remedies (``Policy Guide'')

    \6\ emphasizes this point:

    \5\ Ford Motor Co., 405 U.S. at 573; du Pont, id.

    \6\ United Statement Department of Justice, Antitrust Division.

    Antitrust Division Policy Guide to Merger Remedies. October 2004. pp. 3-4.

    The goal of a divestiture is to ensure that the purchaser

    footnote omitted) possesses both the means and the incentive to maintain the level of premerger competition in the market(s) of

    concern. * * * (Policy Guide at 9.)

    The Policy Guide further states that:

    There must be a significant nexus between the proposed transaction, the nature of the competitive harm, and the proposed remedial provisions (Policy Guide at 2.)

    The consent decree meets neither of these objectives, for four major reasons. Any and all of these reasons undermine the requisite nexus between the remedy and the alleged violation that is required for the PFJ to fully restore competition and therefore be in the public interest.

    A. The ``strings attached'' approach to the divestitures of

    Monsanto and D&PL germplasm make it, in effect, a conduct-based remedy.

    Divestiture of germplasm is a key component of the remedial approach taken in the consent decree. The Complaint recognizes the crucial role of germplasm in developing and commercializing traited cottonseed when it states:

    A company with a large collection of high quality, or elite, germplasm has a competitive advantage because the company has the ability to identify the best genetic material and use it in a wide variety of possible cross combinations, resulting in a greater likelihood of developing a successful variety. (Complaint at 5.)

    In attempting to address the Complaint's concerns regarding actual and potential competition, the consent decree requires Monsanto and

    D&PL to divest various lines of germplasm. However, these divestitures come with significant ``strings attached,'' essentially making it an inadequate conduct-based remedy that masquerades as structural reform.

    The consent decree is replete with exceptions, exclusions, and conditions on the to-be-divested lines of germplasm. For example,

    Monsanto will be allowed to obtain a license back from the acquirer to continue to use the Advanced Exotic Yield lines for its ongoing trait research project. (CIS at 15.) The PFJ also requires the divestiture of a ``non-exclusive, royalty-free license'' to sell and breed with varieties from the Cotton States program sold by Stoneville. (CIS at 15.) And Monsanto ``* * * may retain, with certain limitations, certain categories of [other

    Monsanto germplasm used

    Page 18628

    predominantly in its trait development and licensing business.'' (CIS at 16.)

    Moreover, under the terms of the PFJ, the merged company can retain a license to use the 20 lines of D&PL germplasm to breed new varieties and sell exclusively varieties that contain only Monsanto traits.

    Monsanto/C&PL can continue to sell (for a limited time) conventional versions of divested varieties. The merged company may also prevent the acquirer from triple-stacking Monsanto's herbicide-tolerant and insect- resistant traits and non-Monsanto traits for a period of seven years after the divestiture. (CIS at 17-18.) Finally, divestiture of the exclusive right to the D&PL VipCot germplasm is contingent on Syngenta commercializing varieties that contain at least one of the VipCot insect-resistance traits. (CIS at 19-20.)

    There is little precedent, or logic, to support the highly- qualified divestiture of tangible germplasm assets set out in the consent decree.\7\ For example, the contingency on the VipCot divestiture ignores the possibility that Syngenta might undertake development of traits that are superior to or supersede the VipCot lines. The divestiture thus binds Syngenta to a current ``snapshot'' of the market and undermines the possibility that to effectively compete, the firm might make changes to its R&D strategy. The remedy will require: (1) Compliance with complex and varied licensing terms; (2) monitoring of the applicable time periods attached to various exclusions and limitations; and (3) policing of the specific purposes for which the merged company can retain use of the divested germplasm lines. All of this is costly, burdensome baggage that the consent decree necessarily attaches to the divestiture.

    \7\ The remedy is still problematic even if the PFJ treats the various lines of germplasm to be divested as intangible property.

    For example, the PFJ provides no explanation as to why germplasm would be considered an intangible asset or, lilt is, why anything short of relinquishing all rights to the germplasm assets is justified. Moreover, even if germplasm legitimately constitutes intangible property, the PFJ fails to address key issues such as how non-exclusivity and other restrictions on the use of the germplasm assets will fully restore competition. Such conditions may make it more difficult for the acquirer to differentiate its product from the merged firms' products. Moreover, if the acquirer is required to

    ``share'' rights to the germplasm, it may not invest in R&D and marketing to the extent that it would have if the Monsanto and D&PL had fully relinquished all rights to the germplasm.

    As a result, the germplasm ``divestitures'' required in the PFJ are really not a structural remedy at all. Rather, they are a conduct- based, regulatory-style ``fix'' that imposes on this Court a monitoring and compliance burden that it should be loathe to undertake. The logic behind the antitrust agencies' preference for structural antitrust remedies is well known. For example, the Policy Guide states that:

    A carefully crafted divestiture decree is ``simple, relatively easy to administer, and sure'' to preserve competition [footnote omitted]. A conduct remedy, on the other hand, typically is more difficult to craft, more cumbersome and costly to administer, and easier than a structural remedy to circumvent. (Policy Guide at 8.)

    In sum, the ``divesture'' of germplasm is crippled by competition- impairing restrictions and provides the merged company with ongoing access to the assets. This ``strings attached'' approach to the divestiture of tangible property is unprecedented and will virtually ensure that the acquirer does not possess the means or incentive to maintain the level of pre-merger competition in the relevant markets.

    B. The PFJ fails to create a viable competitor because it creates a patchwork of assets with no proven track record in the market.

    The Antitrust Division's policy guidelines make the point that time and incentive are of the essence in restoring competition lost by the merger:

    The package of assets to be divested must not only allow a purchaser quickly to replace the competition lost due to the merger, but also provide it with the incentive to do so [footnote omitted].

    (Policy Guide at 11.)

    The CIS appears to recognize this imperative when it explains that the divestiture of Stoneville alone would be inadequate to restore the lost competition between Monsanto and D&PL (CIS at 14.) Thus, the PFJ requires that additional Monsanto and D&PL germplasm accompany

    Stoneville, collectively making up the Enhanced Stoneville Assets. This approach, however, is inadequate to remedy the alleged violation because it creates a ``patchwork'' of assets with no proven track record in the market. A number of facts clearly illustrate this problem.

    First, the PJF merely requires the transfer of some ``promising'' and ``developmental'' lines of Monsanto and D&PL germplasm to the acquirer that have no demonstrated, immediate commercial value. For example, the CIS explains that four of the eight lines of elite D&PL germplasm include the ``recurrent conventional parents'' that account for 55% of the cotton varieties sold in the Southeast.\8\ (CIS at 16.)

    It is important to note, however, that the commercial varieties that make up this 55% resulted from breeding and cross-breeding the recurrent conventional parents. The acquirer is therefore obtaining only the raw inputs necessary to breed varieties that could be commercially successful at some time in the future and only after considerable expenditure. As they currently exist (i.e., without further breeding), the eight D&PL germplasm lines to be divested account for varieties that are planted on a mere 1% of the cotton acres in the Mid-South and Southeast.\9\

    \8\ This 55% encompasses cotton grown in only one of the two relevant markets.

    \9\ See U.S. Department of Agriculture, Agricultural Marketing

    Service--Cotton Program. Cotton Varieties Planted: 2006 Crop,

    Memphis, Tennessee, August 2006, Table I and U.S. Department of

    Agriculture, National Agricultural Statistics Service, Louisiana

    Farm Reporter 7(10), May 17, 2007.

    Moreover, twelve of the 20 D&PL germplasm lines are only in the breeding ``pipeline,'' and could produce commercial varieties only over the next 10 years. (CIS at 16) This is perilously close to the expiration of the PFJ and the time frame the CIS identifies as necessary for new entry into the market for developing, commercializing, and selling traited cottonseed. Eighty percent of the

    D&PL VipCot germplasm to be divested under the decree is also unlikely to prove up commercially success varieties for at least another five years. (CIS at 19.)

    Finally, the Advanced Exotic Yield lines and Marker-Assisted

    Breeding populations of germplasm are of extremely limited value to the acquirer. The CIS itself notes that this germplasm provides a ``* * * limited platform for introducing non-Monsanto traits because many are already introgressed with Monsanto traits.'' (CIS at 15, n. 2.) The consent decree requires the merged company to allow the acquirer to breed out Monsanto traits. Breeding out Monsanto traits and then breeding in competing traits will take a long time, assuming the acquirer even has the wherewithal to do so.

    Second, the success of the Enhanced Stoneville Assets, in part, rides on the ability of the government to pick ``winning'' lines of germplasm that can be bred into commercially successful cotton varieties. The Complaint emphasizes the importance of possessing both high-quality, and large quantities of, germplasm for competitive success. (Complaint at 5.) And the CIS, for example, describes the importance of D&PL's `` * * * extensive breeding programs, elite germplasm collection, technical service capabilities, know-how, brand recognition, and market position.'' (CIS at 8.) Given this complexity, the chances that the government picked winners in selecting

    Page 18629

    the germplasm lines to be divested are low. And it is possible that

    Monsanto/D&PL influenced the selection of germplasm lines through the information they did or did not disclose to the government (which would have been at an information disadvantage). If so, the merged firm would have no incentive to provide germplasm lines that could strengthen a rival in the market.

    Pairing a smattering of unproven lines of germplasm that could be years away from producing successful, commercial cottonseed varieties with Stoneville in an untested combination will not create the capability for extensive breeding and cross-breeding that is essential for commercial success. Arguably, to fully restore competition, the acquirer would need access to sufficiently large quantities of germplasm that is currently producing commercial varieties or that could produce successful commercial varieties in far less than 10 years. As it stands, there exists no compelling evidence that the unproven, untested combination called the Enhanced Stoneville Assets would survive in the market, regardless of the identity of the acquirer.

    C. The proposed divested assets, if acquired by Bayer, will not provide the firm with the tools necessary to be a viable competitor.

    Under the terms of the consent decree, it is highly unlikely that the proposed acquirer (Bayer) of the Enhanced Stoneville Assets will be a viable competitor to the vertically-integrated firm created by the merger. The Policy Guide specifically addresses the importance of the size and market position of the merged firm in crafting divestitures.

    For example, it states that:

    * * * integrated firms can provide scale and scope economies that a purchaser may not be able to achieve after obtaining the divested assets. When available evidence suggests that this is likely to be the case (such as where only large integrated [emphasis added] firms manage to remain viable in the marketplace), the entity that needs to be divested may actually be the firm itself, and blocking the entire transactions rather than accepting a divestiture may be the only effective solution. (Policy Guide at 14-15.)

    The Complaint acknowledges that the merged firm is enormous, with a 95% share of the cotton traits market and a 79-87% share of the relevant traited cottonseed markets. (Complaint at 2.) Presumably, it was the integration of traits development and traited seed that

    Monsanto wanted to achieve when it stated that the purpose of the merger was to `` * * * provide a complete platform of cutting-edge seed technologies to our global farmer customer base for years to come.''

    \10\ To address the alleged violation, therefore, the remedy must consider both the vertically-integrated nature and the scale and scope of the merged firm. The consent decree stops well short of fulfilling these requirements, for the following reasons.

    \10\ ``Monsanto Company to Acquire Delta and Pine Land Company for $1.5 Billion in Cash,'' Press Release dated August 15, 2006.

    Online, Available http://www.monsanto.com/monsanto/layout/media/06/ 08-15-06.asp. Many a commentator has noted the logic of vertical integration in traits development and traited seed: ``A new gene is worthless without a quality seed base to put it in and the infrastructure to deliver it. William Lesser, ``Intellectual

    Property Rights and Concentration in Agricultural Biotechnology,''

    AgBioForum 1(2), 1998, p. 59, quoting from Furman Seltz LLC investment report.

    First, without a complement of sufficient, market-tested assets in both the cotton traits and traited seed markets, it will be extraordinarily difficult for the acquirer to effectively engage in head-to-head ``platform'' competition with a behemoth Monsanto/D&PL--a firm that is likely to be impervious or even hostile to competition.

    Even the government recognizes the importance of this level of competition. For example, the CIS explains that the purpose of divesting the Enhanced Stoneville Assets is to provide:

    ``* * * the scale and scope necessary in the Southeast and

    MidSouth to be an effective and competitive platform for trait development.'' (CIS at 16.) and a `` * * * foundation on which to replicate the platform for trait development and commercialization that D&PL previously provided.'' (CIS at 13.)

    Moreover, the Complaint admits the inextricable link between the upstream traits development and downstream traited cottonseed market:

    ``Entry into the traited cottonseed business requires the assets and expertise both [emphasis added] to breed high-performing varieties of cottonseed and to develop or access traits to breed into the cottonseed.'' (Complaint at 12.)

    Second, the consent decree's failure to include a requirement that human capital and know-how accompany the Enhanced Stoneville Assets only increases the chances that the buyer will have neither the wherewithal nor the incentive to compete against Monsanto/D&PL. Pairing only ``promising'' and ``developmental'' lines of germplasm with

    Stoneville in an untested, inadequate combination is injury enough.

    Omitting the human capital that is essential for viably maintaining the specific, technically complex assets that are being divested is akin to turning over the keys to a nuclear power plant without any personnel to operate it.

    Third, and significantly, Bayer operates primarily in the Southwest where it sells its Fibermax brand of long-fiber cottonseed. As a result, it lacks experience with cotton varieties planted in the Mid-

    South and Southeast.\11\ Bayer has also been a limited player in traits development, with one commercially successful herbicide-tolerant trait--Liberty Link.

    \11\ ``Bayer's Fibermax brand has only a 2-3% share of cotton planted in the Mid-South and Southeast markets. See USDA, Cotton

    Varieties Planted: 2006 Crop, p. 2.

    In light of the large, vertically integrated nature of the merged company, it is incumbent upon the government to ensure that the consent decree produces a strong rival that can quickly and fully restore competition in the affected markets. This imperative takes on even more importance when the consent decree maintains the duopoly market structure in the Mid-South and Southeast markets. In sum, the remedy delivers none of the basic requirements to ensure that the acquirer has the tools necessary to compete with a large, integrated Monsanto/D&PL.

    D. The PFJ requirement that Monsanto modify its Cotton States and other third-party seed licenses fails to address the alleged violation.

    The final condition set forth in the consent decree is that

    Monsanto will modify its Cotton States and third-party seed licenses to remove restrictions on the ability of licensees to develop, market, or sell cottonseed containing non-Monsanto traits. The intent of this requirement is to:

    ``* * * give these rival cottonseed companies the ability to partner with trait developers other than Monsanto without financial penalty * * * and to provide traits developers with ``* * * access to close to half of the current U.S. cottonseed market without having to deal with Monsanto/D&PL'' (CIS at 21.)

    This prong of the consent decree fails on numerous counts to establish a nexus with the alleged violations in the Complaint.

    First, the consent decree essentially directs Monsanto to cease and desist from restrictive, potentially anticompetitive practices. The

    Complaint notes that ``Monsanto's trait licenses with most other cottonseed companies * * * severely restrict the ability of these companies to work with other trait developers * * *'' (Complaint at 8.)

    Indeed, competitors have alleged that Monsanto's trait licensing and pricing practices for cotton and other crops go beyond

    Page 18630

    intellectual property protection and punish licensees if they sell non-

    Monsanto traits or other competing products.\12\ By imposing the licensing modification requirement, the government seems to be trying to correct for these practices through the remedy, although they are not alleged violations in the Complaint. These practices deserve to be the subject of a complaint in an appropriate case \13\ and not merely mentioned on a list of conditions here.

    \12\ For a summary of pending legal proceedings, see, e.g.,

    Monsanto Company, Form 10-K. 2005. Online. Available http:// www.monsanto.com/monsanto/content/media/pubs/2005/MON_2005_10-

    K.pdf. More detail on specific allegations regarding Monsanto's conduct involving cotton and corn is available in, e.g., American

    Seed Co., Inc. v. Monsanto, Case I:05-cv-00535-SLR, U.S. District

    Court for the District of Delaware, July 26, 2005, Monsanto Company v. Syngenta Seeds, Inc., Second Amended Complaint, Civil Action No. 04-305-SLR (consol.), U.S. District Court for the District of

    Delaware, August 12, 2005; and E.I. DuPont de Nemours and Company v.

    Monsanto Company, Amended Complaint and Jury Demand, Civil Action

    No. 4:00-952-23, U.S. District Court for the District of South

    Carolina, May 24, 2001. These cases are provided for illustrative purposes--some are still pending and therefore outcomes are undecided.

    \13\ Moreover, Monsanto's practices should be examined not only with regard to the licensing of cotton traits, but corn and soybeans as well. It is not unusual for a company to adopt parallel competitive practices in various of its divisions, and what has been advantageous in another market might well be applied in the cottonseed market.

    Second, the license modifications are designed to eliminate prohibitions on rivals stacking their own traits with Monsanto traits.

    Such a restraint prevents--among other things--a rival producer of traited cottonseed from bringing varieties to market with both the insect-resistant and herbicide-tolerant traits that farmers demand. At the same these restrictions are ostensibly to be removed in one part of the PFJ, however, they are to be imposed in another. For example, the consent decree prevents the acquirer of the 20 lines of D&PL germplasm from stacking Monsanto and non-Monsanto traits for a period of seven years. Perversely, therefore, the remedy attempts to finally deal

    (albeit in the wrong venue) with Monsanto's restrictive practices but allows Monsanto to continue to apply them to the acquirer of the

    Enhanced Stoneville Assets.

    Third, the licensing modification requirement does not address the alleged violation that competition in the Mid-South and Southeast relevant markets will be adversely affected by the merger. The CIS refers instead to a ``U.S. cottonseed market,'' which is not defined in the Complaint at all. Had the remedy been tied to the alleged violation, it would be clear that rivals would have access--not to half of the market--but only to between 8% and 17% of the market not occupied by D&PL in the Mid-South and Southeast.

    Fourth, the consent decree contains little information on the scope of the license modification requirement. The Policy Guide warns explicitly against vagueness and lack of clarity in crafting merger remedies:

    ``Remedial provisions that are vague or that can be construed when enforced in such a manner as to fall short of their intended purposes can render the enforcement effort useless'' (Policy Guide at 5.) and that ``A defendant will scrupulously obey a decree only when the decree's meaning is clear * * *'' (Policy Guide'' at 5-6.)

    It is unclear as to whether the requirement applies to current and/ or prospective licenses or how the specific language of the Monsanto licenses will be revised. Moreover, the license modification requirement will require burdensome monitoring and compliance which, as noted earlier, the Court should be loathe to undertake.

    In sum, the licensing modification requirement contained in the PFJ represents a vague, inconsistent, and misplaced attempt to finally address restrictive, potentially anticompetitive practices long- employed by Monsanto. And while these practices should be addressed elsewhere, they do not respond to any particular violation in any defined relevant market in the Complaint. As such, the remedy will not fully restore competition in the relevant markets.

  18. Conclusion

    The Court should not give DOJ ``a pass'' in its review of this merger. The merger raises serious questions regarding a key agricultural supply chain and the many consumers that it will indelibly affect. There is little in the PFJ that is likely to preserve effective competition in the relevant markets, or to prevent the consumer harm that will flow from the impairment of competition. The proposed remedies are largely conductbased and really do not go beyond the scope of the original proposals offered up-front by Monsanto. Moreover, the

    PFJ ignores the fact that the acquirer of the divested assets must have both the means and incentive to compete with a large, vertically firm that possesses an unrivaled ``platfonn'' for trait development and traited seed commercialization. On this basis, the Court should reject the PFJ as insufficient and contrary to the public interest.

    Respectfully Submitted,

    Diana Moss,

    Vice President and Senior Fellow American Antitrust Institute, 2919

    Ellicott Street, NW., Washington, DC 20008, phone: 720-233-5971, e- mail: dmoss@antitrustinstitute.org, web: http:// www.antitrustinstitute.org.

    August 20, 2007

    Ms. Donna N. Kooperstein,

    Chief, Transportation, Energy & Agriculture Section, Antitrust

    Division, United States Department of Justice, 325 Seventh Street,

    NW., Suite 500, Washington, DC 20530.

    Re: United States v. Monsanto Company, et al.

    Dear Ms. Kooperstein:

    I am writing you today as the Board President of California

    Consumers United to voice my concerns not only for the State of

    California but for the nation as a whole. As a consumer protection coalition, California Consumers United advocates for sound legislation and strong regulations that safeguard all California consumers against unfair business and marketplace predatory practices.

    Increased agricultural concentration, which is occurring at an alarming rate, is harmful to our nation's economy and well-being.

    This concentration harms consumers and farmers in the state of

    California--and throughout the country--by leading to limited choices, higher prices, and increased costs. Monsanto's acquisition of Delta & Pine Land Company is one more example of this distressing trend.

    Monsanto, an agriulture conglomerate, already has monopoly-like shares of biotech traits in several crops, including cotton. The

    Department of Justice's consent decree regarding Monsanto's acquisition of Delta & Pine Land Company will only reinforce

    Monsanto's control over the markets for cotton seeds and cotton biotech traits. This likely will result in severe consequences to

    Californians and cause damage to consumers in the form of higher prices and fewer choices. The remedy proposed by the Department of

    Justice to cure the anticompetitive effects of this deal-- divestiture of a weak cotton seed company and a few lines of germplasm--are incapable of safeguarding competition.

    There is already not enough competition in agriculture; the

    Department of Justice should not allow one company to control access to the cotton market. We therefore urge the Department of Justice to reconsider its consent decree or, if the Department will not change course, for the Court to reject it.

    Sincerely,

    Linda Love,

    Board President, California Consumers United.

    Submitted August 27, 2007

    United States of America, Department of Justice, Antitrust

    Division, 325 7th Street, NW., Suite 500, Washington, DC 20530,

    Plaintiff, v. Monsanto Company, 800 North Lindbergh Boulevard, St.

    Louis, MO 63167 and Delta and Pine Land Company, 1 Cotton Row,

    Scott, MS 38772, Defendants.;

    Case: I:07-cv-00992

    Assigned To: Urbina, Ricardo M.

    Assign Date: May 31, 2007

    Page 18631

    Description: Antitrust

    Comments of Dupont on Proposed Final Judgment

    This case raises critical issues regarding the future competitiveness of American agriculture. The transaction at issue combines the dominant supplier of biotech traits with the dominant cottonseed company. Among other things, it eliminates head-to-head competition in the development of new traits to challenge Monsanto's established monopoly. Since biotech is as important to agriculture as agriculture is to the U.S. economy, the competitive implications cannot be overstated.

    There is no question that Monsanto's acquisition of DPL would violate the antitrust laws, and the Complaint filed by the Justice

    Department's Antitrust Division details the serious harm to farmers and consumers that will result. Nor is there any question that significant remedies are necessary, including divestitures and reform of Monsanto's restrictive licensing practices as proposed. The only question before the Court under the Tunney Act is whether the Antitrust Division settled for too little, i.e., whether the patchwork quilt of proposed remedies provides a viable alternative to the competitive presence of an independent DPL, such that trait developers will continue to incur the significant cost and risk of competing with Monsanto.

    The answer to that key question, DuPont respectfully submits, is

    ``no.'' The objective facts on the face of the Complaint make plain that the ``Enhanced Stoneville'' collection of assets, even combined with their new owner Bayer, does not come close to creating a viable trait development partner that can replace DPL in terms of resources and market access for cottonseed. Accordingly, DuPont has determined that it cannot justify further investment in developing competing cotton traits, and is terminating that work. The bottom line is that, without substantial additional remedies, this transaction will reduce choices and raise prices for farmers and consumers.

    A. Standard of Review

    The Tunney Act imposes a duty on the reviewing court to evaluate the remedies proposed in light of the competitive injury detailed in the Division's Complaint. The statute requires that ``[b]efore entering any consent judgment proposed by the United States * * *, the court shall determine that the entry of such judgment is in the public interest.'' 16 U.S.C. 15(e)(1). In applying this ``public interest'' standard, the burden is on the government to ``provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.'' United States v. SBC v. Verizon, 2007 WL 1020746, *16 (D.D.C. 2007), citing United States v. Microsoft Corp., 56

    F.3d 1448, 1460-61 (D.C. Cir. 1995).

    The Government has an extra burden, we submit, when it changes its view on an identical transaction within a span of only a few years. In 1999, the Division decided to challenge Monsanto's proposed acquisition of DPL,\1\ indicating that no acceptable remedy was available. Since that time, the marketplace has changed in ways that make this combination even more competitively harmful:

    \1\ As a senior Antitrust Division official testified before

    Congress, Monsanto called off its 1999 attempt to purchase DPL after

    DOJ ``indicated that it was prepared to sue to prevent consummation of the transaction.'' John M. Nannes, Statement Before the

    Subcommittee on Antitrust, Business Rights, and Competition, United

    States Senate Judiciary Committee (Sept. 8, 2000) (available at http://www.usdoj.gov/atr/public/testimony/6581.pdf).

    Monsanto's share of traits in cotton is higher;

    DPL's seed share in key cotton-growing regions is higher;

    DPL is actively engaged in joint development of traits that, but for this acquisition, would compete with Monsanto's trait monopoly.

    In light of these heightened competitive concerns, the Court should expect that the Division will explain in detail the basis for the different outcome.

    B. Acknowledged Competitive Harm

    For the benefit of the reviewing Court, this section will distill the salient allegations underlying the violation alleged in the

    Complaint.

    The Complaint begins with an arresting fact: Monsanto's share of biotech traits in cotton is ``over 96%.'' Complaint ] 3. The Division's subsequent characterization of Monsanto as the ``dominant'' supplier of traits thus is an understatement. Id. at ] 6. For important traits that are used in ``almost all'' cottonseed planted today to lower farming costs and increase yield (i.d. at ] 18-19, 22), Monsanto is essentially the only game in town.

    There are challengers to Monsanto's trait monopoly, and that competition is what is at stake in this proceeding. As the Complaint recognizes, DPL was working with other biotech companies including

    DuPont to develop and commercialize traits and seed ``that would compete with'' Monsanto's existing traits. Id. at ] 26. DPL's competitive activity ``jeopardized'' Monsanto's trait monopoly, id. at

    ] 6, as Monsanto ``recognize[ed] the potential for a successful pairing of DPL's cottonseed with competing traits.'' Id. at ] 7. So Monsanto now has acquired DPL in a transaction that ``will * * * eliminate DPL as a partner independent of Monsanto for developers of traits that would compete against Monsanto,'' and therefore ``will likely delay if not deter efforts to develop other traits that would compete with

    Monsanto traits.'' Id. at ] 42 (emphasis added). As a result, ``farmers likely will have fewer choices of, and face higher prices for, traited cottonseed.'' Id. (emphasis added).

    Importantly, the Complaint backs up these conclusions of severe competitive harm in violation of the Clayton Act with key facts regarding DPL's unique role as a trait development partner. Developing and commercializing a new trait to compete with Monsanto's entrenched position is no mean feat. It not only takes time and money, but requires specialized resources that DuPont and others do not have so were relying on DPL to supply, in several categories. 1. Germplasm: First, the Complaint explains the importance of germplasm, which is the genetic material that encodes agronomic characteristics of a plant, such as yield. Id. at ] 14-16. Successful cottonseed is created by combining (or ``crossing'') different lines of germplasm to enhance the performance characteristics of the plant. Id.

    As stated in the Complaint, this is not a one-shot effort, but rather an on-going one: ``to be competitive, cottonseed companies must continually work on developing new and improved cottonseed varieties through their breeding programs.'' Id. at ] 15 (emphasis added). The product of the initial cross is then ``further cross[ed]'' with still other germplasm lines. Id. This breeding process ``often requires thousands of attempts'' before germplasm with the right genetics is created that will be the basis for a successful commercial variety. Id. at ] 28 (emphasis added). It generally ``takes eight to ten years * * * until a new cottonseed variety is ready for market.'' Id. at ] 15

    (emphasis added).

    So there is no dispute that one very important key to successful breeding is the ``quantity and quality'' of germplasm lines available to be used in the thousands of crosses required to breed competitive cottonseed. Id. at ] 16. The Complaint states that a ``large collection of high quality * * * germplasm'' creates a ``competitive advantage.''

    Id. The obvious reason is that a company

    Page 18632

    with such assets is best positioned to engage in the ``wide variety of possible crossing combinations'' necessary to produce a ``successful variety.'' Id.

    In this regard, the Complaint acknowledges that DPL is unique. Not only is it the ``largest cottonseed producer in the world,'' but it has

    ``the largest cotton germplasm collection.'' ID. at ] 13, 17 (emphasis added). Indeed, the Complaint recounts that Monsanto itself chose DPL as its development partner because it had, quite simply, ``the best germplasm.'' Id. at ] 20 (emphasis added). And DPL remains an

    ``attractive partner'' because of ``the strength and breadth of its germplasm base.'' Id. at ] 26 (emphasis added). 2. Breeding Infrastructure: Another key factor is the specialized facilities to effectively use the germplasm collection in a successful breeding program over time. Again, the Complaint sets DPL apart from other cotton companies. Its large network of facilities gives it ``more breeding capabilities than any competitor.'' Id. at ] 17 (emphasis added). 3. Experienced Breeders: The Complaint recognizes DPL has

    ``experienced and knowledgeable cotton breeders'' (id. at ] 5) with the

    ``know how'' and ``technical service capabilities'' to use all these assets in a highly effective manner that well exceeds that of any alternative cottonseed company. Id at ] 26. The Complaint states in unequivocal terms that DPL's ``over ninety years of germplasm development'' has produced not just the greatest breeding track record, but ``by far the greatest track record of success'' in the breeding of cottonseed varieties that are attractive to farmers. Id. at ] 17

    (emphasis added). 4. Market access: This success is manifest in DPL's high share. It is again an understatement for the Complaint to say DPL has the best

    ``brand recognition'' and ``market position'' to support development and commercialization of competing traits. Id. at ] 26. In the

    ``important'' cotton growing regions of the Southeast and MidSouth, id. at ] 8, DPL has breathtakingly high shares of 87% and 79%. Id. at ] 4.

    Obviously, this level of market access is not only unique, but is extremely valuable to a trait development partner seeking a return on investment through a successful commercial launch. 5. Stacking rights: Another advantage of partnering with DPL is it has IP rights that the Complaint says ``most other cottonseed companies'' do not. Id. at ] 27. Since farmers want multiple traits, seed increasingly is sold with multiple traits ``stacked'' in it.

    Monsanto generally uses licensing terms that ``severely restrict'' the ability of a seed company to stack a non-Monsanto trait with a Monsanto trait. Id. DPL, as further evidence of its strong competitive presence, had stacking rights that are important in introducing new traits. 6. Business Strategy: Finally, DPL was motivated to support

    Monsanto's competitors like DuPont. It ``publicly stated its intent'' to work with other trait developers to ``replace Monsanto traits in its products.'' Id. at ] 6. This business ``strategy to replace (or `trade- out') the Monsanto traits'' would be ``profitable for DPL.'' Id. at 25

    * * *.

    For all these reasons, DPL was not just an ``attractive partner'' for Monsanto's trait competitors (id. at ] 26), it was ``an unparalleled avenue through which to commercialize and market'' traits.

    Id. at ] 5 (emphasis added). No other cottonseed company has the combination of key resources, again in the superlative terms of the

    Division's Complaint:

    The ``LARGEST'' cotton germplasm collection, and

    The ``BEST'' germplasm, and

    ``MORE'' breeding capabilities ``than any competitor,'' and

    ``BY FAR THE GREATEST'' track record of success in breeding new cotton varieties, and

    ``87% and 79%'' of cottonseed sales in ``important'' regions, and

    STACKING RIGHTS ``most other cottonseed companies'' do not have, and

    An announced ``STRATEGY'' of working with Monsanto's competitors to develop and commercialize competing traits.

    DuPont agrees with the Antitrust Division that this combination of resources is what makes DPL ``unparalleled'' in its ability to support the development and launch of competing traits. That is why DuPont was partnered with DPL to develop Optimum(tm) GAT(tm) for cotton, a new trait offering resistance to two different classes of herbicide that would provide a competitive alternative to Monsanto's RoundUp Ready monopoly. And DuPont agrees that significant divestitures and reform of

    Monsanto's ``severely restrict[ive]'' licensing terms are necessary parts of effective relief.

    But DuPont respectfully submits that, even upon cursory review, the

    Complaint's exposition of DPL's competitive significance as a trait development partner makes clear that the remedies proposed fall far short of creating a viable alternative. Therefore they do not satisfy the legal standard of ``restoring competition'' to Monsanto's current trait monopoly. The following section analyzes why the proposed remedy does not adequately address the violation alleged in the Complaint.

    C. Inadequacy of the Proposed Remedy

    To settle the case, the Division offers a Proposed Final Judgment

    (``PFJ'') that is explained in the Competitive Impact Statement

    (``CIS''). The CIS sets the bar correctly: To ``ensure the continued presence of a cottonseed company independent of Monsanto with sufficient germplasm and breeding capabilities to serve as an effective platform for development of cottonseed traits in competition with

    Monsanto.'' Id. at 12. But the PFJ does not deliver: The remedies are self-evidently insufficient to provide a viable alternative to DPL as a trait development partner and thereby restore the competitive harm alleged in the Complaint. As discussed below, there is no ``factual basis'' on which the Court could conclude that the Proposed Final

    Judgment contains ``reasonably adequate remedies for the alleged harms'' and is in the public interest. 1. Proposed Remedy a. Stoneville: First, Monsanto is required to divest its U.S.

    Stoneville business, including Stoneville's germplasm and assets, together with expanded stacking rights. PFJ at 3-4; CIS at 13-14.

    Describing Stoneville as ``the second largest traited cottonseed company in the MidSouth and Southeast'' (CIS at 9) greatly overstates its relative position. The CIS itself contains the share data making clear Stoneville pales in comparison to DPL: ``In the MidSouth, DPL and

    Stoneville account for approximately 79% and 16%, respectively, of traited cottonseed sales. In the Southeast, DPL and Stoneville account for approximately 87% and 8%, respectively, of traited cottonseed sales.'' Id. at 10. Further, published data from USDA demonstrates that

    Stoneville's share in those regions has declined over the past three years.\2\

    \2\ USDA Agricultural Marketing Service--Cotton Program,

    ``Cotton Varieties Planted'' 1998-2006, Table 1 [hereafter ``USDA

    Cotton Data''].

    Stoneville's germplasm pipeline is said to include: ``Approximately 35 mid-to full- and full-season lines for potential commercialization in the MidSouth and Southeast between 2008 and 2012.'' Id. at 13. The

    CIS does not explain what the likelihood this ``potential'' will come to fruition is, nor what share Stoneville predicts it could achieve.

    Nor, tellingly, does it state

    Page 18633

    comparable figures for the number of lines DPL will offer in the same regions.

    Although divesting Stoneville ``remedies'' the horizontal effect of increased concentration at the cottonseed level, it does not address the competitive harm at the trait level, as Stoneville is clearly an inadequate trait development platform. b. Additional Monsanto Cotton Germplasm: Because of the inferiority of the Stoneville assets, Monsanto is required to divest other cotton germplasm that was not integrated into the Stoneville business. PFJ at 3-4, Schedule B. These assets are described as follows:

    (i) ``Advanced Exotic Yield Lines:'' These ``promising developmental germplasm lines'' are derived from ``exotic cotton plants that could be bred into commercial varieties to increase yield.''

    Monsanto reportedly ``anticipated'' that seed varieties that could be developed from this germplasm would be ``well-suited'' for the Mid-

    South and Southeast regions. Although the rights are termed

    ``exclusive,'' Monsanto retains the ability to obtain a ``license back'' for ``ongoing trait research.'' CIS at 14-15 (emphasis added).

    (ii) ``Marker Assisted Breeding (MAW) Populations:'' This germplasm was developed in a ``program * * * intended to enable breeders to use sophisticated molecular technology to aid in the selection of promising lines * * *'' Id. at 15. Again, Monsanto is said to have

    ``anticipated'' that this germplasm could be used to develop seed products over four years. But the CIS acknowledges it is only a

    ``limited platform'' for competing traits because the purchaser will have to take the time and expense of first breeding out Monsanto traits. Id. at n. 2.

    (iii) ``Cotton States Germplasm'' and ``Other Germplasm:'' Monsanto must divest only a non-exclusive license ``to sell and breed with varieties from Monsanto's recently established Cotton States program that Stoneville currently sells today.'' Monsanto also must divest only its rights ``to commercialize varieties that result from pre-existing crosses of Stoneville germplasm and Cotton States Licensors germplasm.'' And Monsanto must divest ``all other germplasm'' it currently holds, ``except * * * certain categories of germplasm used predominantly in its trait development and licensing business.'' Id. at 15-16. c. DPL Germplasm: Yet a third tranche of divested germplasm consists of twenty DPL conventional varieties, including eight ``in the pedigrees of many of DPL's popular current varieties in the MidSouth and Southeast.'' PFJ at Schedule B; CIS at 16 (emphasis added). The CIS does not disclose how many other DPL germplasm lines are represented in the lineage of these currently popular varieties. Nor does it explain how many ``parents'' are required to develop a single competitive cotton variety.

    The other twelve varieties reportedly ``constitute a significant portion of DPL's breeding pipeline for the MidSouth and Southeast and represent the varieties, and breeding stock for the varieties, that DPL had chosen to bring to market over the next decade.'' Id. Although we are told that ``[o]ver the past four years, each of these twelve varieties has been ranked by DPL * * * as falling within DPL's top category for conventional lines * * *'' Id. at 17, important questions remain unanswered, including:

    Where do these lines rank?

    How many other varieties are so ranked?

    How many other germplasm lines were required to create the twelve lines to be divested?

    How many would be required to create the next generation of these varieties?

    The twenty DPL varieties to be divested will, like the non-

    Stoneville Monsanto germplasm, be released to their purchaser as stand- alone assets. They are not integrated within the Stoneville cotton development program, so will have several competitive disadvantages, including:

    They will not be accompanied by any of the development resources (breeding experts, infrastructure, etc.) used to create them at DPL.

    They will not be divested with access to ``performance data and other information'' deemed necessary to the divestiture of certain germplasm to Syngenta. Id. at 19.

    The CIS does not explain how an acquirer could integrate all these disparate germplasm lines into an effective breeding program that might produce commercial varieties, or how long that would take.

    Moreover, divestiture of the DPL germplasm is non-exclusive, in that Monsanto and DPL will ``retain a license to continue using these twenty lines to breed new varieties and to sell exclusively varieties that contain only Monsanto's traits.'' Id. at 17. That unusual weakening of the remedy is defended as necessary ``to preserve DPL's current competitiveness, prevent disruption to its breeding program, and provide DPL the ability to compete effectively in the future.'' Id.

    There is no explication of factual support for those conclusory statements.

    The bottom line is that the acquirer of ``Enhanced Stoneville'' has the right to breed certain parent lines but not, in Dupont's experience, the resources to create commercial varieties in any reasonable amount of time. It must do so in competition with a combined

    Monsanto/DPL that retains all those resources, know how, and marketplace advantages. Nor, given that Monsanto/DPL retains parallel rights, does the CIS explain how the purchaser would have an incentive comparable to the incentive DPL's exclusive rights gave it invest in developing these lines before the merger. 2. Independent DPL vs. ``Enhanced Stoneville''

    This is not a close call. The monopolist has acquired the premier development partner with all the necessary resources its rivals were relying on to be competitive. As a substitute, it proffered a cobbled- together combination of disparate germplasm and other assets with all sorts of strings attached that have no comparable competitive presence today or in the future, and then sold them to a company that brings no meaningful complementarity. This remedy plainly does not return the marketplace to the level of competitive trait development resources eliminated by the transaction. Taken alone, each element lacks attributes that DPL brings to the competitive landscape. Taken together, they are a ``mix and match'' group of assets that lack the necessary prospect of competitive viability the Antitrust Division itself says is critical to effective merger remedies. Rather, the combined Monsanto/DPL team is off and running in this competitive race while the Bayer/Stoneville team is stuck at the starting line trying to find the right shoes to put on.

    First, the CIS acknowledges that ``[d]ivesting Stoneville by itself would not fully restore the lost competition between Monsanto and DPL.*

    * *'' Id. at 14. As has been discussed, Stoneville has a perennially low, and of late declining, share in areas identified as important for traits by the DOJ. The fact that DPL is 5 to 10 times larger than

    Stoneville reflects the inferiority of the Stoneville germplasm and breeding program.

    There is no evidence Stoneville's germplasm is likely to improve significantly over time. Stoneville's breeding program lags DPL's significantly. For example, DPL has ``eleven strong worldwide plant breeding programs developing new elite

    Page 18634

    genetics to integrate existing and new biotechnology,'' compared to just two at Stoneville. ``Cotton and Soybean Seed Research,'' http:// www.deltaandpine.com/research.asp; ``Delta & Pine Land Quarterly

    Summary,'' GARP Research and Securities (April 10, 2007).

    Other industry participants have acknowledged Stoneville's inferiority as a development partner by their conduct. Although

    Stoneville was an independent cottonseed company between 1999 and 2005, the period during which various partnerships began work on non-Monsanto traits for cotton, companies like Dow, DuPont, Syngenta, and Bayer did not choose to collaborate with Stoneville, but with DPL. See Complaint

    ] 26. Even Monsanto would prefer to work with DPL rather than continue

    ``building its own cotton business'' with Stoneville. CIS at 8.

    Divestitures of ``other Monsanto germplasm'' and select strains of

    DPL germplasm do not close the wide gap between DPL and Stoneville. The

    CIS contains many carefully chosen descriptions of the ``Enhanced

    Stoneville'' that clearly are damning with faint praise. For example, the CIS characterizes the ``Enhanced Stoneville Assets'' as providing

    ``tools'' that can be ``a significant base'' and even a ``foundation'' for competing trait developers. Id. at 13. Further, the CIS repeatedly describes the divested germplasm in aspirational terms, as

    ``promising'' and ``anticipated'' to be developed into competitive seeds at some point in the future. These characterizations are not a sufficient basis to conclude the remedy will meet the Division's own standard of creating a cottonseed company that competing trait developers can rely upon in making investment decisions.

    Analysis of the USDA data further demonstrates the divested assets are inadequate to create a viable development partner. First, very few newly introduced varieties become commercial successes. DPL introduced 64 unique cotton varieties incorporating traits in the past eight years, but only 14 ever came to represent 1% or more of annual U.S. cottonseed acres USDA Agricultural Marketing Service--Cotton Program,

    ``Cotton Varieties Planted'' 1998-2006, Table 1. Thus, current expectations about the germplasm lines likely to produce competitive products in the future are not reliable, and clearly no substitute for

    DPL's ``by far the greatest track record of success'' in developing new cottonseed.

    Moreover, what is successful for certain growing conditions will not necessarily be successful in others. That is why DPL has offered consistently over 20 commercial varieties in a single growing region.

    Indeed, again based on the USDA data, we find that 30 of the 40 varieties DPL offered in the Southeast or MidSouth regions in 2006 had less than 1% share in both of those regions. well over half of the varieties DPL offered in the Southeast or Mid South regions (48/73) never achieved a 1% share. Id.

    Second, current market success is not a good predictor for the future commercial appeal of existing varieties or their offspring. Each year, roughly a third of American cotton acres are planted with new varieties that were commercialized within the previous three years, and roughly two-thirds of acres are planted with varieties less than five years old. 4. Even if the proposed germplasm divestitures created a lineup of competitive varieties in 2008, there is no assurance they will address the longer term loss of competition.

    This point is key for trait developers facing major investment decisions. Traits must be sold in successive generations of popular cotton varieties, because most trait value is realized through sales in varieties that were not yet invented on the date of the trait's commercial introduction. For instance, analysis of the USDA data shows that, just three years after Monsanto's BollgardfRoundup Ready trait stack was introduced in 1997, over half of the acres planted with that stack were cotton varieties introduced after 1997.

    For that reason, firms will only invest in trait development if they are working with a development partner with the germplasm and other resources to support the consistent introduction of new, commercially appealing varieties over the longer term. The ``Enhanced

    Stoneville'' assets do not warrant such a significant financial commitment. Further, divestiture of the other Monsanto and DPL germplasm under the proposed terms is even less likely to restore lost competition because it is, in many cases, nonexclusive and/or bound up with Monsanto intellectual property.

    In a broader sense, the proposed divestitures are flawed because they lack organizational and developmental context. In its policy statements about remedies, the Division has explained that

    ``[r]estoring competition requires replacing the competitive intensity lost as a result of the merger.'' Policy Guide to Merger Remedies at 5.

    To ensure that this is the case, the Division emphasizes its preference for ``divestiture of an existing business entity that has already demonstrated its ability to compete in the relevant market.'' Id. at 12.

    By contrast, the collections of germplasm to be divested are unrelated to one another and are not integrated into a single breeding program, as DPL was. These disparate assets thus lack many of the complements required to restore competition, including the breeders who have experience working with the assets in question, key historical information about performance and breeding history, and regional breeding facilities well-suited to the growing of distinct varieties.

    Stripped of their context in an existing business entity, the additional germplasm assets have ``not demonstrated the ability effectively to compete'' as set forth in the Division's internal policies. Id. at 13.

    Bayer, which acquired the ``Enhanced Stoneville,'' offers no solace to trait developers. Bayer's 2006 share of cotton acres planted was just 3.1% in the Southeast region and 2.5% in the Mid South region.

    Between 1999 and 2006, according to USDA, Bayer introduced just one cotton variety that gained a share of 5% or more in either of these regions, compared to ten such varieties from DPL. So it has no track record of success in these key regions to build on. Adding ``Enhanced

    Stoneville'' and stacking rights is simply too little too late to make

    Bayer a viable trait development partner.

    All these factors obviously increase the risk for any trait developer, and DuPont is no exception. It has invested millions of dollars in its joint development project with DPL. But, after evaluating its options in the wake of this transaction, it concluded that further investment with a cobbled-together Bayer/Stoneville does not make economic sense. DuPont therefore has initiated the process of terminating the project. The result, of course, is that Monsanto's monopoly in herbicide tolerant cotton traits will be preserved, so farmers will face fewer choices and higher prices.

    D. Additional Remedies

    The Complaint is clear that what makes the opportunity for cotton trait development attractive is the availability of an exceptional cottonseed company as a development partner. As discussed above, that company, DPL, has the best of all necessary attributes as a trait development partner: The best market access, best germplasm, best breeding programs, best track record of introducing successful new varieties, best IP rights, and best incentive to compete. The Complaint makes clear that DPL is by far the most attractive and efficient development partner,

    Page 18635

    indeed in DuPont's view the only viable partner in cotton.

    The remedy therefore that would restore competition is one that maintains the competitive resources needed to develop new traits. Any remedy that eliminates an independent DPL has significant risks. But the only remedy DuPont can envision that would have a reasonable chance of preserving competition would be divesting all of DPL's germplasm and its breeding operations, as well as associated IP rights.

    E. Conclusion

    The Complaint sets forth a clear and compelling story of the competitive injury that will result from the proposed transaction. The remedy proposed in the Final Judgment falls far short of what would be necessary to have a reasonable prospect of maintaining competition in trait development. The result is clear: harm to farmers and consumers from a further entrenched Monsanto monopoly.

    For the foregoing reasons, DuPont respectfully submits that the

    Proposed Final Judgment does not meet the ``public interest'' standard of the Tunney Act.

    Respectfully submitted,

    Thomas L. Sager,

    Vice President and Assistant General Counsel, E.I. du Pont de

    Nemours & Company, 1007 Market Street, D-7038-3, Wilmington, DE 19898.

    Dated: August 27, 2007.

    Of Counsel:

    Wm. Randolph Smith, Jeane A. Thomas, Ryan C. Tisch, Crowell & Moring

    LLP, 1001 Pennsylvania Avenue, NW., Washington, DC 20004.

    August 10, 2007

    Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture

    Section, Antitrust Division, United States Department of Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.

    Re: United States v. Monsanto Company, et al., Case No. 1:07-cv- 00992

    Ms. Kooperstein:

    I am writing on behalf of our organization to object to the proposed final judgment that the U.S. Department of Justice

    (``DOJ'') has filed in the above-referenced lawsuit. Monsanto's acquisition of Delta and Pine Land Company (``Delta'') will solidify

    Monsanto's monopoly in the market for cotton seed and will have harmful ripple effects for Illinois's farmers, consumers and agricultural economy.

    The State of Illinois has the second largest acreage of corn and soybeans planted in the United States. We are concerned that

    Monsanto's proposed acquisition of Delta is another step in its efforts to monopolize the market for seeds and biotech traits not just in cotton, but also in corn and soybeans. Monsanto is rapidly acquiring a variety of seed companies to commercialize its monopoly traits. In fact, its current iron grip on the corn seed market is an issue of extreme concern to our member farmers. With monopoly control over cotton, Monsanto will be able to prevent competing varieties from coming to market--alternative varieties that could have important application in corn and soybeans. The result will be devastating to Illinois farmers who need new and improved varieties to increase productivity in their crops and battle environmental conditions that threaten their livelihoods. Without market competition, our farmers will suffer from lack of alternative products and higher prices. We are disappointed that, by allowing this acquisition to proceed, the DOJ is ignoring the interests of our farmers and consumers.

    The clear reason for Monsanto's acquisition of Delta is elimination of competition in seeds. There is nothing about the acquisition or the DOJ's proposed final judgment that will increase competition in cotton, or for that matter, in corn or soybeans. The divestiture of Stoneville, a much smaller cotton company, together with limited access to a limited line of seed germplasm, is not an adequate remedy. The acquisition hurts farmers and consumers, while only benefiting Monsanto.

    Sincerely,

    Bridget Holcomb,

    Agricultural Policy Coordinator.

    Tunney Act Comments of the International Center for Technology

    Assessment and Center for Food Safety on the Proposed Final Judgement

    The International Center for Technology Assessment (CTA) is a non- profit, bipartisan organization committed to providing the public with full assessments and analyses of the impacts of technologies on society. CTA is devoted to fully exploring the economic, legal, ethical, social and environmental impacts that can result from applications of technologies or technological systems. The Center for

    Food Safety (CFS) is a national nonprofit membership organization founded by CTA to educate the general public and decisionmakers on the social, environmental and other impacts of agricultural technologies and systems; to secure adequate regulations to protect the general public and farmers from ill effects of agricultural technologies and systems; and to promote sustainable agriculture.

    In February 2007, CTA and CFS published a comprehensive review of the proposed merger entitled ``Cotton Concentration Report: An

    Assessment of Monsanto's Proposed Acquisition of Delta and Pine Land''

    (which we are also submitting as part of these comments).

    CTA and CFS submit these comments and attachments pursuant to

    Section 2(b) of the Antitrust Procedures and Penalties Act (APPA), 15

    U.S.C. 16 (the ``Tunney Act''). For the reasons discussed below, CTA and CFS believe that the Dept. of Justice's proposed final judgement

    (PJF) in this case is not in the public interest, and therefore must be rejected by this Court.

  19. Background on the Cotton Seed Industry

    Some basic background on the cotton seed industry is required to understand the competitive issues raised by the proposed merger.\1\

    There are two major types of cotton seed: (1) Conventional; and (2) genetically modified or ``traited'' cotton seed. Cotton is grown in four major regions of the U.S.: The Mid-South, Southeast, Southwest and

    West. Many different varieties of cotton have been developed by breeders. Cotton varieties have been bred for different combinations of properties, such as yield, disease resistance, suitability to certain climates or soil types, as well as quality characteristics such as fiber strength and length. ``Traited'' cotton seed is developed from conventional cotton varieties by means of genetic modification, which is used to introduce or ``introgess'' ``cotton traits.'' At present, cotton traits are limited to ``herbicide-tolerance'' (HT) and ``insect- resistance'' (IR). The HT trait allows farmers to spray herbicides on the cotton plant to kill surrounding weeds. The IR trait protects cotton from certain insect pests. Conventional cotton does not contain these traits. In 2006, the USDA identified 203 cotton varieties planted in the U.S.: 36 conventional varieties and 167 traited varieties (CTA,

    Figure 7). \2\

    \1\ Throughout these comments, we reference the attached

    ``Cotton Concentration Report'' for fuller discussion of issues raised. References are of the form ``CTA, Section '').

    \2\ Unless otherwise noted, statistics on cotton varieties planted in the U.S. are derived from USDA, Agricultural Marketing

    Service, ``Cotton Varieties Planted'' report for 2006, which contains detailed information on varieties of cotton planted.

    Reference in CTA, Bibliography.

    The merger involves two major markets. One market is the development, commercialization, and sale of cottonseed, both conventional and traited. The top three firms in this market are responsible for 92-93% of U.S. sales: DPL (51%), Bayer CropScience

    (30%) and Monsanto's Stoneville (12%) (CTA, Figure 1). The second is the ``upstream'' market for development of cotton traits. Monsanto has a 96% market share in traits, with Bayer and Dow accounting for the rest. Monsanto's HT traits are Roundup Ready and Roundup Ready Flex, both of which confer resistance to glyphosate herbicide; Monsanto's IR traits are

    Page 18636

    Bollgard and its successor, Bollgard II. The only other commercialized cotton traits are Bayer's LibertyLink (HT) and Dow's Widestrike (IR). 95% of traited cottonseed contains only Monsanto trait(s); 4% only

    Bayer's trait; and 1% a combination of a Monsanto and either a Bayer or

    Dow trait (CTA, Figure 2).

  20. DoJ Construes Relevant Product Market Too Narrowly

    DoJ defines the relevant product and geographic markets as ``the development, commercialization, and sale of traited cottonseed for the

    MidSouth and Southeast'' (CIS, p. 9). The DoJ bases its product market definition (``traited cottonseed'') on several empirically false statements. First ``Farmers grow substantially all of this important crop [cotton] from cottonseed that has been enhanced through the introduction of biotechnology traits (``traited cottonseed'')''

    (Complaint at 2). Second: ``Today, almost all cottonseed varieties planted in the United States are traited. * * *'' (Complaint at 22). In fact, USDA data show that this is far from the case. First, of the 203 cotton varieties planted in 2006, just 167, or 82%, were traited. The remaining 36 varieties (18%) were conventional varieties. Hence, more than 1 of every 6 cotton varieties was conventional in 2006. Thus, traited cottonseed can by no stretch of the imagination be considered to comprise ``almost all of cottonseed varieties planted in the United

    States.''

    Acreage planted to traited vs. conventional cottonseed breaks down in a similar manner. USDA data report 88% of U.S. cotton acreage planted to transgenic varieties, versus 12% planted to conventional varieties. 12% of the 15 million acres of cotton planted in 2006, or 1.8 million acres, were hence conventional. To say the least, it is difficult to understand how DoJ can claim ``substantially all'' U.S. cotton is produced from traited seed when nearly one in eight acres, comprising almost 2 million acres, is planted to conventional seed.

    This overly narrow definition of the relevant product market leads

    DoJ to neglect several anticompetitive effects of the merger.

    A. Declining Availability of Conventional Cottonseed, Higher Seed

    Prices

    As noted above, DoJ defines the relevant product market as

    ``traited cottonseed.'' This definition implicitly ignores the very existence of conventional cottonseed, which forms a significant share of both cotton varieties and acreage planted in the U.S. However, the

    PJF proposes a partial remedy, albeit in an incidental and unsatisfactory manner, for this sector of the cottonseed market (i.e., conventional cotton varieties) that goes completely unanalyzed in the

    Complaint and CIS: ``The proposed Final Judgement allows Defendants to continue, for a limited period of time, to sell conventional versions of some of the divested DPL varieties currently being sold by DPL in and outside the United States, providing for a continuity of supply of conventional cottonseed'' (PJF, pp. 17-18, emphasis added). The evident need for a remedy expressed in the PJF stands in stark contradiction to

    DoJ's complete neglect of conventional cottonseed in its definition of the relevant product market in the Complaint and CIS. Because the CIS completely lacks an analysis of conventional cottonseed, and in fact virtually ignores its existence, DoJ has absolutely no basis for proposing, or assessing the adequacy of, the remedy cited above.

    In fact, the merger will very likely have a number of serious anticompetitive impacts related to the conventional cottonseed market.

    First, availability of conventional cottonseed varieties will decline.

    DPL sold 15 conventional varieties in 2006, 40% of the 36 conventional varieties planted in 2006 (CTA, 3.2). Monsanto intends to reduce the number of conventional varieties offered by DPL, through

    ``accelerat[ing] biotech trait penetration'' (CTA, 3.2). Secondly, because conventional seed varieties are on average two to four times less expensive than traited seeds (CTA, 3.3, Figure 5, Appendix 3, and related discussion in text), farmers who prefer conventional seeds but cannot find suitable varieties will face substantially increased seed costs. See CTA, 2.4 for further discussion of the merger's adverse impacts on the conventional cottonseed market.

    B. Declining Availability of Less Costly Traited Seeds, Increasing Seed

    Prices

    A closely related impact of the merger is reduced offerings of cotton varieties with less expensive single vs. more expensive

    ``stacked'' (two) traits, and reduced offerings of less expensive first-generation vs. more expensive second-generation Monsanto traits.

    For instance, Monsanto has pledged to ``invest in penetration of higher-margin traits in Delta and Pine Land offerings.'' These proposed changes to DPL's product offerings (with respect to both conventional and traited seeds) are clearly not merely Monsanto's anticipated responses to farmer demand, but are expressions of a Monsanto strategy to increase profits through exercize of market power. These anticompetitive effects of the merger (reduced choices, increased seed prices) are addressed in detail in CTA 2.5, 3.3; Figures 5 & 6, Table 1 and Appendix 3).

  21. DoJ Construes the Relevant Geographic Markets Too Narrowly

    A striking feature of DoJ's settlement documents is the lack of any broader analysis of the cottonseed industry. One searches in vain for some argument or justification to explain DoJ's failure to analyze either (1) the national market in cottonseed; or (2) DoJ's restriction of the relevant geographic markets to the MidSouth and Southeast regions. On the first point, the CIS states clearly that: ``The

    Complaint alleges that the likely effect of this acquisition would be to substantially lessen competition in the market for the development, production, and sale of traited cottonseed * * *'' (CIS, p. 1), without, initially at least, restricting the anticompetitive impacts to specific geographic regions. On the second point, beyond a bare mention of the existence of the Southwest and West geographic markets, neither the Complaint nor the CIS discusses the Defendants' involvement in these markets. Yet despite DoJ's failure to analyze either of these two markets, or the national market, the CIS and PJF propose one remedy that explicitly addresses anticompetitive issues relevant to the national market in cottonseed, thus the Southwest and West markets as well as the MidSouth and Southeast (CIS, p. 21, discussed further below).

    In fact, analysis of USDA data show that the Defendants together have a substantial presence in both markets: 29.16% of cottonseed sales in the important Southwest market (which includes Texas, the nation's leading cotton producer); and a still greater 40.51% of sales in the

    West.\3\

    \3\ USDA AMS 2006, cited above and attached. See Table entitled

    ``Estimated percentage of upland cotton planted to leading specified brands by growth area, 2006 crop'' p. 3. Note that DPL owns the

    Paymaster as well as the Deltapine brand. For documentation, see

    CTA, 2.1.1.

    In the Southwest market, the merger would effectively result in

    Monsanto increasing its market share from 8.04% (Stoneville) to 21.12%

    (DPL), or an increase of over 2.5-fold. In the West market, Monsanto's post-merger share of cottonseed sales increases 3.6-fold, from 8.80%

    (Stoneville) to 31.71% (DPL).\4\

    \4\ Here, we assume that the market shares cited in the following discussion will not be altered by the Defendants' divestitures beyond that of Stoneville. The additional divestitures

    (e.g. of 20 DPL lines to Stoneville's acquirer and 43 lines to

    Syngenta) are described only in relation to the MidSouth and

    Southeast markets.

    Page 18637

    At present, these two geographic markets represent the only cottonseed markets in which the Defendants' competitors have a significant presence. The DoJ's CIS provides absolutely no analysis of how this substantial increase in Monsanto's post-merger market presence in these two important markets would affect competitiveness in the West and Southwest regions.

    The concentration in these markets would increase substantially as a result of the merger, especially when considered in combination with

    Bayer's prospective acquisition of the Enhanced Stoneville Assets. Even without Stoneville, Bayer has a commanding 60.28% share of the

    Southwest market.\5\ With Stoneville, this presence increases to 68.32%, or over two-thirds of the market. In the West, acquisition of

    Stoneville would increase Bayer's market share from 20.22% (note that

    Bayer purchased CPCSD in 2006, see CTA, 2.11 for documentation) to 29.02%.

    \5\ USDA AMS 2006, see table cited above. Note that Bayer owns not only the Bayer CropScience Fibermax brand, but also AFD Seed, which it purchased in 2005, and CPCSD (California Planting Cotton

    Seed Distributors), which it purchased in 2006. For documentation, see CTA, 2.1.1.

    Post-merger, the combined market share of the top two firms in the important Southwest market (which as noted above includes Texas, the nation's largest cotton producer) increases to an astounding 89.44%, and the corresponding market share in the West market to 60.73%. Top 3 market share would become 93.29% in the Southwest, and 96.60% in the

    West. The post-merger share of the national cottonseed market of just the top two firms rises to 92%, creating a virtual duopoly in cottonseed, with the Defendants controlling roughly 50% of the national market and Bayer controlling 42% (CTA, Figure 1).

    Clearly, DoJ was remiss in not analyzing the merger's potential anticompetitive effects in the Southwest, the West, and nationally. The need for such an analysis is clearly indicated by DoJ's proposed remedy to the anticompetitive effects of Monsanto's restrictive licensing practices with third parties, which have allowed Monsanto to terminate licenses granted to cottonseed firms (licensees) which sell cottonseed containing non-Monsanto traits: ``These changes will give these competing cottonseed companies the ability to partner with trait developers other than Monsanto without any financial penalty and to offer traits desired by farmers. Trait developers will thereby have access to close to half of the current U.S. cottonseed market, without having to deal with the combined Monsanto/DPL'' (CIS, p. 21, emphasis added). Without having conducted any analysis of the national market in cottonseed, and having excluded from consideration two important geographical markets, DoJ is in no position to propose, or assess the adequacy of, a remedy that involves consideration of the national market in cottonseed.

    The truth of this assertion is brought home by DoJ's reference, in the passage cited above, to ``competing cottonseed companies.'' If DoJ had analyzed the national market, it would have found that there are virtually no ``competing cotton seed companies'' of any size still active, due primarily to numerous acquisitions over the past decades, and particularly the last few years, resulting in an extremely high level of concentration in the cottonseed industry. USDA data show clearly that the number of cottonseed firms with sales appreciable enough to register in its surveys has declined dramatically over the past several decades (CTA, 21.1, Appendices I & 2), and particularly over the last four years: From 19 in 2003, to just 9 in 2006.

    Accordingly, the number of smaller cottonseed suppliers other than the top three firms (pre-merger) has declined from 16 to just six (CTA, 3.1). In short, DoJ's proposed remedy in favor of ``competing cottonseed companies'' may soon be irrelevant, if the exit of smaller companies from the market continues, and is accelerated by the merger, as appears likely. Clearly, DoJ should have analyzed the merger's potential to accelerate the exit of smaller companies from the cottonseed market, and the associated anticompetitive harms this would likely have (declining choice of cottonseed varieties, increased costs).

  22. DoJ's PJF Represents an Unwieldy and Unenforceable Conduct-Based

    Remedy Masquerading as a Structural Remedy Based on ``Divestitures'' of

    Germplasm

    The primary means by which DoJ addresses the anticompetitive harms presented by the merger involves ``divestiture'' of germplasm. DoJ acknowledges the crucial role of germplasm in developing and commercializing cottonseed in the Complaint:

    ``A company with a large collection of high quality, or elite, germplasm has a competitive advantage because the company has the ability to identify the best genetic material and use it in a wide variety of possible cross combinations, resulting in a greater likelihood of developing a successful variety.'' (Complaint at 5.)

    In addition, DoJ recognizes that divesting Stoneville alone would not be sufficient to restore competition lost by the merger Monsanto and DPL (CIS, p. 14). Accordingly, the PJF requires Monsanto and DPL to

    ``divest'' various lines of germplasm beyond that represented by

    Stoneville. Below, we discuss a few of the many exceptions and conditions attached to these divestitures of germplasm that render them ineffective as a remedy.

    A. DPL Germplasm

    DoJ states that: ``Defendants will divest twenty DPL conventional varieties'' (CIS, p. 16). First, only 8 of these 20 varieties are either commercial lines, and/or parents of lines that have been sold commercially. Six of these eight lines are listed as commercially sold varieties in 2006, when they comprised, collectively, just 1.76% of

    U.S. cotton planted in that year.\6\ DoJ makes much of the fact that some of DPL's best-selling cotton varieties were derived, over years of breeding efforts, from four of these eight lines (CIS, p. 16). Yet as

    DoJ also acknowledges elsewhere, development of successful commercial cotton varieties from even high-quality parental lines can take 8-10 years, and cost tens of millions of dollars. Whether an acquirer will be able to develop commercially successful varieties from such parental lines at all, especially given the presence in the marketplace of successful varieties already developed from them, is extremely uncertain. The time required for breeding work that might result in commercially successful varieties is also uncertain, but could be substantial, and too long to promptly redress competitive harm, as merger guidelines require.

    \6\ See Table B of Schedule B--Enhanced Stoneville Assets.

    Reference to USDA AMS 2006, cited above, shows that collectively, 00W12 (DP393), Delta Pearl, DP5690, DP491, DP565 and DP5415 comprised 1.76% of U.S. cotton acreage in 2006.

    Twelve of the 20 lines are experimental lines with unproven and hence uncertain commercial potential. The acquirer (Bayer) may also lack the requisite expertise with cotton varieties of this type to effectively utilize them in breeding programs.

    Still more troubling, Monsanto retains, or has the right to reacquire, substantial rights with respect to these 20 varieties (see

    Schedule B, Section 2, DPL Germplasm for the following discussion). For instance, Monsanto is entitled to re-acquire an exclusive

    Page 18638

    license to sell varieties that are derived or bred from the DPL lines, and also contain only Monsanto traits. Recall that the chief value of these lines is as breeding stock. Secondly, Monsanto retains exclusive rights to sell any of the ``divested'' lines for sale in foreign countries where DPL is currently selling them and retain sufficient quantities of these lines for breeding purposes. Again, Monsanto can continue to breed with lines that DoJ chooses to designate as

    ``divested.''

    Similarly, the ``divestiture'' of ``advanced exotic yield hues'' also comes with numerous strings attached. As with DPL Germplasm,

    Monsanto may retain ``research quantities'' of these lines ``to enable them to continue their trait development research.'' This exception is particularly curious in that DoJ's rationale for the exceptions (here and elsewhere) is to allow Monsanto ``to retain assets (and research rights to germplasm) that directly relates to trait development, while the advanced exotic yield lines were developed by Monsanto as part of a non-transgenic yield enhancement project; that is, as part of a project that involving traditional, non-biotech breeding work for development of higher-yielding varieties (CIS, p. 14-15). We note also that even

    DoJ admits that these lines will likely be unsuitable, at least within the term of the PFJ.

    Finally, the ``divestiture'' of 43 of DPL's VipCot lines to

    Syngenta is similarly conditioned. Syngenta's ``exclusive rights'' to commercialize varieties developed from these lines is restricted to varieties that contain one of four traits (see Schedule C). If Syngenta were to develop a new trait not listed in Schedule C, and introgress it into one of these 43 lines, it could no longer commercialize it. This limitation is a significant restriction in light of the extremely high failure rate in agricultural biotechnology (CTA, 3.11, Appendix 7).

    This condition in effect puts DoJ in the unenviable position of

    ``picking a winner'' in a field littered with failed development projects. The commercial prospects of any of these 43 lines is also highly uncertain. DPL once promised commercialization of VipCot varieties by 2006 (CTA, 3.4.1). The commercialization date for eight of these lines is now projected for 2009-2011, with the majority pushed off until beyond 2011. These projected commercialization dates are notoriously unreliable, and DoJ's reliance on them as remedies to restore competition is naive.

    These are just a few of the many exceptions, exclusions and conditions related to the ``divestiture'' which renders them ineffective as remedies. We would note that such restrictions have two weakening effects. First, they limit the ability of extremely weak competitors to successfully develop competing traited cottonseed varieties in a field in which Monsanto already has overwhelming dominance (as evidenced by its 95-96% market share in traits).

    Secondly, they provide the virtual monopolist Monsanto with rights to continue to sell certain of the ``divested'' lines, and/or to utilize

    ``divested'' germplasm in further breeding work, advantages which can only act to consolidate its monopoly position and forestall meaningful competition. For a fuller discussion of the competitive strength of a post-merger Monsanto-DPL, see CTA, 3.10 and Appendix 5.

    B. DoJ's Conduct-Based Remedy Imposes Undue Obligations for Regulatory

    Oversight, Which DoJ Has Neither Time Nor Resources To Oversee

    The numerous conditions attached to the sharing of rights to

    ``divested'' germplasm between Monsanto-DPL and Bayer-Stoneville and

    Syngenta imposes oversight obligations on DoJ which the Antitrust

    Division is ill-equipped to undertake. For instance, DoJ may be called upon to rule as to whether Monsanto has in fact complied with its obligation to provide Bayer with materials the latter needs to obtain regulatory approval of varieties Bayer develops from Null Lines derived from the ``divested'' advanced exotic yield lines, or as to whether compensation Monsanto seeks from Bayer for this task is in fact

    ``reasonable'' (Definitions, Null Line). Or, DoJ may have to rule on whether any retention by Monsanto of research quantities of advanced exotic yield lines does or does not adversely affect Bayer (Schedule B, clause 4c). Clause 4d of Schedule B may further require DoJ to police

    Bayer with respect to acquisition of certain patents, as well as enforce breeding and resale restrictions, in relation to the advanced exotic yield lines. These are just a very few of the oversight and enforcement responsibilities with which DoJ has saddled itself in the

    PJF. An examination of Schedules reveals many, many more. Not only is

    DoJ likely unequipped, in terms of expertise, to fairly adjudicate these matters, the resource burdens placed on DoJ in attempting to do so are unacceptable. Finally, the exceedingly complex terms in the PJF provide numerous opportunities for evasion of the terms of the settlement, which could easily subvert the remedies proposed.

  23. Conclusion

    DoJ's PJF is clearly inadequate to remedy the substantial anticompetitive impacts of the proposed merger. We have shown that DoJ has construed the relevant product and geographic markets too narrowly, and thereby failed to account for the merger's likely impact of reducing availability of conventional and less expensive traited cottonseed, thereby leading to reduced seed choices and increased seed costs for cotton growers. Likewise, by ignoring the national and two important regional markets, DoJ has neglected the precipitous decline in competition in the cottonseed industry as a whole that would likely be wrought by the merger, which also promises reduced choices and increased costs for cotton growers.

    We have also pointed out the unwieldy, ``regulatory'' nature of this supposed structural remedy, which in fact is an extremely burdensome conduct-based remedy of just the sort that DoJ has neither the resources nor the expertise to police.

    Finally, the proposed merger will create an extremely concentrated cottonseed industry dominated by two huge, vertically-integrated players (Monsanto and Bayer) which together will control 92% of the cottonseed market. Monsanto will consolidate and extend its near- monopoly position in cotton traits, with adverse impacts on U.S. agriculture as a whole (CTA, 2.7 to 2.9, 3.10) as well as anticompetitive impacts resulting in fewer choices and higher seed and cotton production prices for America's cotton farmers.

    Therefore, we respectfully request the Court to reject DoJ's proposed final judgement as insufficient and contrary to the public interest.

    Respectfully Submitted,

    Bill Freese,

    Science Policy Analyst, International Center for Technology

    Assessment, Center for Food Safety, 660 Pennsylvania Ave., SE, Suite 302, Washington, DC 20003, Phone: 202-547-9359, e-mail: bfreese@icta.org, Web site: http://www.icta.org; http:// www.centerforfoodsafety.org.

    Cotton Concentration Report

    An Assessment of Monsanto's Proposed Acquisition of Delta and Pine Land

    Bill Freese,

    Science Policy Analyst, Center for Food Safety (CFS), International

    Center for Technology Assessment (CTA)

    February 2007

    Center for Food Safety is a national non-profit membership organization working to protect human health and the environment by curbing the use of harmful food production technologies

    Page 18639

    and promoting organic and other forms of sustainable agriculture.

    The International Center for Technology Assessment (CTA) is a non- profit, bi-partisan organization committed to providing the public with full assessments and analyses of technological impacts on society. CTA is devoted to fully exploring the economic, ethical, social, environmental and political impacts that can result from the applications of technology or technological systems.

    Main Office, 660 Pennsylvania Avenue, SE., Suite 302, Washington,

    DC 20003, http://www.centerforfoodsafety.org, http://www.icta.org.

    Table of Contents

    Executive Summary 1. Introduction 2. Current Status of the Cotton Industry 2.1 Cotton Industry Already Highly Concentrated 2.1.1 Concentration in cotton seeds 2.1.2 Concentration in cotton traits and research and development 2.1.3 Concentration in cotton farms 2.2 Cotton Seed Price Increase with the Rise of Biotechnology 2.3 Biotechnology Trait Premiums and Added Value 2.3.1 Herbicide tolerance 2.3.2 Insect resistance 2.3.3 Yield 2.3.4 Pesticide use 2.3.5 Summary of added value 2.4 Biotech versus Conventional Seed: Farmers' Choice? 2.5 Single-Trait versus Stacked Cotton 2.6 Biotech Cotton Failures 2.7 Glyphosate-Resistant Weeds 2.8 Glyphosate Use Linked to Plant Disease, Mineral Deficiencies and Reduced Yields; Roundup Toxic to Amphibians 2.9 Inadequate Regulatory Oversight 3. Assessment of the Proposed Merger 3.1 Further Concentration in Cotton Seed 3.2 Declining Availability of Conventional Cotton Seed 3.3. Accelerated Rise in Cotton Seed Prices 3.4 Reduced Availability of Cotton with Non-Monsanto Traits 3.4.1 Cotton with Syngenta's VipCot insecticidal protein 3.4.2 Cotton with DuPont's GAT herbicide tolerance 3.4.3 Other biotech cotton trait R&D 3.5 Production Costs and Productivity of Cropland 3.6 Impacts on Growers of Other Crops 3.6.1 Concentration in seeds and traits other than cotton 3.6.2 Cross-crop trait deployment 3.6.3 Fewer trait choices and adverse impacts on other crops 3.7 Organic Cotton 3.8 Seed Sterility Technology (Terminator) 3.9 International Perspective 3.9.1 Monsanto in India 3.9.2 Monsanto's bribery in Indonesia 3.9.3 Monsanto's questionable soya lawsuits in Europe 3.10 Monsanto-DPL a Virtually Unchallengeable Competitor 3.11 Conduct-Based Solutions in Light of the High Failure Rate in Agricultural Biotechnology 4. Conclusion 5. Recommendations

    Bibliography

    Figures

    Figure 1: U.S. CottonSeed Market Share by Firm: 2006

    Figure 2: U.S. Cotton Trait Market Share by Firm: 2006

    Figure 3: Number and Average Size of U.S. Cotton Farms: 1987 to 2002

    Figure 4: Per Acre Cotton Seed Cost versus Transgenic Share of

    U.S. Cotton

    Figure 5: Technology Fees as Proportion of Cotton Seed Price

    Figure 6: Breakdown of Traits in Biotech Cotton in the U.S.: 2006

    Figure 7: Number of Conventional and Biotech Cotton Varieties

    Planted: 2003 to 2006

    Figure 8: Percentage of U.S. Cotton Planted to Bayer's Two Top

    Conventional Lines vs. Biotech Variants of the Same Lines: 2004-2006

    Tables

    Table 1: Per Acre Cost of Biotech Seed by Trait and Generation

    Table 2: Potential for Further Trait Penetration in Cotton Seed

    Table 3: Monsanto's Acquisitions Through American Seeds, Inc.: 2004 to 2006

    Appendices

    Appendix 1: Cotton Seed Market Share of Selected Companies in the U.S.: 1970 to 2006

    Appendix 2: Market Share of Four Largest Private Seed Firms:

    Cotton, Corn and Soybeans

    Appendix 3: Cost of Cotton Seed: Conventional versus Biotech

    Appendix 4: Average Cotton Yields in the U.S.: 1930 to 2006

    Appendix 5: Acreage of Biotech Cotton Field Trials in the U.S.: 2000 to 2006

    Appendix 6: Monsanto's Acquisitions and Collaborations

    Appendix 7: Approved versus Commercially Grown Genetically

    Engineered Crops

    Acknowledgements

    The author and the Center for Food Safety would like to thank the

    Cornerstone Campaign for their generous support, without which this report would not have been possible. The author would also like to thank those who reviewed a draft of the manuscript and otherwise offered valuable suggestions, in particular Will Rostov, senior attorney at CFS; Diana Moss, Vice-President of the American Antitrust

    Institute; and Martha Crouch, PhD in biology. However, the author is solely responsible for the content of this report.

    Executive Summary

    On August 15, 2006, Monsanto announced that it would acquire the

    Delta and Pine Land Company (DPL). DPL is the eleventh largest seed company in the world, sells over half of the cotton seed in the U.S., and holds a pivotal position as the only major cotton seed firm that is not also a biotechnology trait provider. Monsanto dominates the market for biotechnology traits in cotton and other crops, and is also the largest seed firm in the world. The proposed merger deserves close scrutiny, particularly in light of the extraordinarily high degree of concentration already existing in the cotton industry.

    Cotton Industry Already Highly Concentrated Pre-Merger

    Cotton seed: Just three firms sell 92% of U.S. cotton seed to farmers (Section 2.1.1, Figure 1, Appendix 1), a much higher concentration than other major crops (Appendix 2)

    Biotechnology traits: Over 87% of U.S. cotton is biotech. 96% of biotech cotton contains Monsanto traits, and 95% contains only Monsanto traits (Section 21.2, Figure 2)

    Research and development: Monsanto has similar dominance in R&D for future cotton traits, accounting for 94% of the experimental biotech cotton planted in the U.S. from the year 2000 to present (Section 3.4.3, Appendix 5)

    Cotton farms: The average size of U.S. cotton farms more than doubled from 1987 to 2002. One of every five cotton farms ceased operations in just the five years from 1997 to 2002 (Section 2.1.3,

    Figure 3).

    Market Power and Anticompetitive Effects

    High cost of cotton seed: The cost of cotton seed has risen 3.4- fold from 1995 to 2005, due primarily to rising technology fees charged for biotech traits (Section 2.2, Figures 4 & 5, Table 1, Appendix 3).

    The value added by biotech traits does not justify these steep premiums

    (Section 2.3), as the trend of increasing cotton yield since 1930 has not accelerated during the biotech era (Appendix 4)

    Limited choice: Farmers have fewer choices of quality conventional cotton seed, and fewer choices of cotton varieties with one trait vs. two, as cotton seed firms and trait providers aggressively pursue

    ``increased technology penetration'' to maximize profits (Sections 2.4

    & 2.5, Figures 7 & 8)

    Page 18640

    Agronomic, Environmental Consequences of Monsanto's Trait Monopoly

    Crop failures: Monsanto's biotech cotton has failed numerous farmers since its introduction, often resulting in sharp drops in yield. Near-total reliance on any agricultural technology, including one company's limited set of biotech traits, is unwise (Section 2.6)

    Resistant weeds: The dramatically increased use of glyphosate-based herbicides (e.g. Roundup) associated with Roundup Ready cotton and other crops has fostered a rapid and dangerous development of weeds resistant to the herbicide, a threat to the cotton industry compared by one expert to the boll weevil (Section 2.7)

    Other impacts: Recent scientific studies suggest that excessive use of glyphosate, which has increased six-fold from 1992-2002, is linked to plant disease, crop mineral deficiencies, reduced yields and (in the case of Roundup) amphibian mortality, and may pose a long-term threat to the productivity of American agriculture (Section 2.8).

    Anticompetitive Effects of the Merger

    Oligopoly to duopoly? USDA data show that the number of significant cotton seed firms other than the top three has declined by more than half from 2003 to 2006. Bayer's rising market share since 1999 is concentrated in the Southwest, and has not diversified other regional seed markets. A divested Stoneville may well be uncompetitive and ripe for takeover, possibly resulting in a cotton seed duopoly controlling over 90% of the market (Section 3.1).

    Reduced choice: Monsanto's commitment to ``increased technology penetration'' would likely lead to accelerated phase-out of DPL's conventional cotton varieties, which comprised 40% of conventional lines planted in 2006, and fewer high-quality ``generation one'' and

    ``single-trait'' options, reducing choices for farmers (Sections 3.2 & 3.3).

    Increasing cotton seed prices: Monsanto's pledge to ``invest in penetration of higher-margin traits in DPL offerings'' would accelerate the steep rise in cotton seed prices (Section 3.3, Table 2).

    Consolidation of trait monopoly: DPL is the only seed firm among the top four (Bayer, MonsantoStoneville, Dow-Phytogen) that is not also a trait provider. Acquisition of DPL by Monsanto would likely result in exclusion of non-Monsanto traits in over half of U.S. cotton, extending

    Monsanto's current trait monopoly in cotton (Section 3.4) and other crops (Section 3.5) well into the future. It would also exacerbate the adverse agronormic and environmental impacts of trait monopoly in all crops. The high failure rate in agricultural biotechnology means that conduct-based solutions, such as compulsory licensing agreements to force Monsanto to deploy competitors' traits in DPL germplasm, are risky and likely to fail to achieve their competitive ends (Section 3.11).

    Other Likely Impacts of the Merger

    Organic cotton: The booming market in organic cotton is threatened by transgenic contamination, herbicide spray drift damage, and potentially by decreased conventional seed availability. The proposed combination would exacerbate such risks for organic cotton growers in the U.S. and overseas, and potentially reduce U.S. consumers' choice of organic cotton products (Section 3.7).

    Seed sterility: DPL holds major patents on seed sterility technology (i.e. Terminator), a biological means to eliminate the millennia-old farmer's practice of saving and replanting seeds.

    Monsanto is known for aggressive prosecution of farmers who (allegedly) save its patented seeds. The merger would increase the likelihood that internationally-condemned Terminator cotton and other crops will be introduced, to the detriment of the world's farmers (Section 3.8).

    International impacts: Monsanto is known for questionable business practices to promote its interests overseas, including illegal actions such as bribery of Indonesian government officials, which resulted in

    SEC prosecution and a $1.5 million fine in 2002. Acquisition of DPL's substantial international cotton seed business would give Monsanto, already the world's largest seed firm (Appendix 6), additional scope for such activities (Section 3.9).

    Conclusion and Recommendations

    The proposed combination would negatively impact farmers through reduced seed choices, increased seed prices, rising production costs and increased reliance on one company's technology well into the future. The merger would also increase the cotton industry's already near-total dependence on one company's herbicide-tolerance traits, exacerbating glyphosate-resistant weeds and potentially endangering the productivity of American agriculture through the effects of excessive glyphosate use. Finally, acquisition of DPL would invest Monsanto with more power to pursue questionable business practices overseas, and increase the likelihood of introduction of internationally-condemned sterile seed technology.

    The Center for Food Safety and International Center for Technology

    Assessment call on the Department of Justice (DoJ) to unconditionally oppose the proposed acquisition of Delta and Pine Land by Monsanto, and to oppose future acquisitions leading to increased concentration in the cotton seed industry. We also urge the U.S. Dept. of Agriculture to increase funding for public-sector development of affordable, conventional seed varieties neglected by the private sector and to deny applications by entities seeking to field test any seed sterility technology. 1. Introduction

    The Center for Food Safety (CFS) and International Center for

    Technology Assessment (ICTA) have conducted an independent assessment of the proposed acquisition of Delta and Pine Land Company by the

    Monsanto Company. CFS and ICTA are sister non-profit public interest groups with more than a decade of experience in the legal, agronomic, environmental and public health issues raised by agricultural biotechnology.

    On August 15, 2006, the Monsanto Company announced its intention to acquire the Delta and Pine Land Company (DPL) for $1.5 billion in cash

    (Monsanto 2006a). Monsanto previously attempted to acquire DPL in 1998, but abandoned its bid in December 1999 (Kilman 2006) due to stiff conditions imposed by antitrust regulators (Kaskey 2006). DPL countered that Monsanto did not try hard enough to win approval, and sued the company for $2 billion in damages. The current agreement requires

    Monsanto to pay DPL up to $600 million if regulatory approvals are not obtained (Pollack 2006). After the transaction was dropped, a

    Department of Justice official testified that the Antitrust Division would have opposed the merger because it ``would have significantly reduced competition in cotton seed biotechnology to the detriment of farmers'' (Nannes 2001).

    Monsanto has proposed to divest its Stoneville cotton seed business in order to gain approval of the merger (Monsanto 2006a). Monsanto first acquired Stoneville in 1997, divested it in 1999 as part of its prior attempt to acquire DPL (Fernandez-Comejo 2004, Table 20, ft. 4), then re-acquired it from Emergent Genetics, Inc. in 2005 (Monsanto 2005b). Stoneville accounts for about 12 percent of the U.S. cotton seed market.

    Page 18641

    The proposed merger deserves close scrutiny for many reasons, particularly in light of the extraordinarily high degree of concentration already existing in the cotton industry. Delta and Pine

    Land is the eleventh largest seed company in the world (ETC 2005), the biggest cotton seed firm in the U.S., and holds a pivotal position as the only major cotton seed seller that is not also a biotechnology trait provider. Monsanto dominates the market for biotechnology traits in cotton and other major crops, and is also the largest seed firm in the world (ETC 2005). Our analysis suggests that the merger would result in:

    (1) Increased cotton seed prices;

    (2) Reduced choice of conventional and some types of biotech cotton seed;

    (3) Consolidation of Monsanto's virtual trait monopoly in cotton and other crops well into the future; and

    (4) Adverse agronomic and environmental effects, as well as increased production costs, stemming from Monsanto's near-monopoly in herbicide-tolerance traits.

    The merger could also result in:

    (5) Increased concentration in the cotton seed market;

    (6) Harm to organic cotton growers, and reduced choice of organic cotton products for consumers;

    (7) Harm to farmers in the U.S. and elsewhere by facilitating the introduction of sterile seed technology (``Terminator''); and

    (8) Increased scope for Monsanto to pursue illegal and questionable business activities overseas, to the detriment of the world's farmers.

    We first examine the recent history and current state of the cotton industry (Section 2). This helps inform our analysis of the likely impacts of the proposed combination between Monsanto and Delta and Pine

    Land (Section 3) The conclusion (Section 4) is followed by recommendations (Section 5). 2. Current Status of the Cotton Industry 2.1 Cotton Industry Already Highly Concentrated

    The cotton industry is by most measures the most highly concentrated of any major crop industry. Below, we briefly discuss four major aspects of this concentration: cotton seeds, biotechnology traits in cotton, research and development for biotechnology traits in cotton, and cotton-growing land. 2.1.1 Concentration in Cotton Seeds

    Over the past 16 years, the market in cotton seeds has become highly concentrated. Appendix I shows some degree of competition from 1970 to 1989, with the top four private suppliers selling from 46 to 70% of total cotton seeds sold to farmers. The ``top four'' market share rose rapidly in the 1990s, reaching the 90% level in 1996.

    Concentration increased still further from 2000-2006, with just the top three firms--Delta and Pine Land, Bayer and Stoneville--controlling on average 91% of the market. In 2006, the combined market share of the top three stood at 92% (Figure 1). Based on available data, concentration in cotton seed exceeds that in other major crops, such as corn and soybeans, and by a considerable margin (Appendix 2).\1\

    \1\ In this report, we focus on ``upland cotton,'' which accounts for about 97% of U.S. production. The remaining 3% is

    American Pima or extra-long staple, grown primarily in CaIi[ornia, and used mainly for high-value products such as sewing thread and expensive apparel (USDA ERS 2006a).

    Major factors driving this concentration include (see Appendix I and Fernandez-Cornejo 2004, Table 20)):

    (1) The virtual disappearance of public sector (university) breeding efforts, from 12-25% of cotton seed sold to farmers in the 1970s and 1980s, to less than 1% today;

    (2) Numerous mergers and acquisitions, such as DPL's acquisition of

    Lankart and Paymaster brands in 1994 (SEC 1996) and Sure-Grow in 1996; and Stoneville's acquisition of Coker Pedigreed Seed and McNair in 1990, Brownfield Seed and Delinting Co. in 2000, and Germain's Cotton

    Seeds in 2001 (SEC 1997, Stoneville 2001);

    (3) The rise of biotechnology and utility patents on biotech traits and plants, which prompted large chemical biotechnology firms to vertically integrate through acquisition of cotton germplasm, as seen with Monsanto's acquisition and re-acquisition of Stoneville in 1997 and 2005; Bayer's acquisition of Aventies CropScience in 2001 (Bayer 2001), AFD Seed in 2005, and California Planting Cotton Seed

    Distributors (CPCSD) in 2006 (Bayer 2006); and Dow's joint-venture with

    J.G. Boswell, Phytogen, in 1998 (DFP 2005). 2.1.2 Concentration in Cotton Traits and Research and Development

    Biotechnology traits are specific properties conferred on a crop variety through the process of genetic engineering. As shown in Figure 2, the market in biotechnology traits (hereinafter ``traits'') deployed in cotton seed is even more concentrated than the cotton seed market, with the top three trait providers accounting for the traits in l00% of biotech seed planted in 2006. Yet market share is far from evenly distributed even among these few competitors. In 2006, over 96% of biotech cotton planted in the U.S. contained Monsanto traits, and 95% contained only Monsanto traits. Cotton with only Bayer (3.7%) or only

    Dow (0.06%) traits accounted for less than 4% of biotech cotton, with roughly one percent stacked with traits from Monsanto and either Bayer or Dow.\2\

    \2\ Unless otherwise noted, all statistics on conventional and biotech cotton varieties planted from 2003 to 2006 are derived from government data in ``Cotton Varieties Planted'' reports for the relevant year, based on surveys conducted by the U.S. Dept. of

    Agriculture's Agricultural Marketing Service. See USDA-AMS (2003- 2006) in the Bibliography.

    A graph appearing here in the comment is illegible upon reprinting.

    The graph is available at the Department of Justice Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514- 2481, and at the Office of the Clerk of the United States District

    Court for the District of Columbia, 333 Constitution Avenue, NW.,

    Washington, DC 20001.

    A graph appearing here in the comment is illegible upon reprinting.

    The graph is available at the Department of Justice Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514- 2481, and at the Office of the Clerk of the United States District

    Court for the District of Columbia, 333 Constitution Avenue, NW.,

    Washington, DC 20001.

    Interestingly, the market in cotton traits was once at least slightly less concentrated. In 1998 and 1999, Bayer's herbicide- tolerant Buctril cotton (resistant to the herbicide bromoxynil) had a 13% share of biotech cotton (calculated from May et al. 2003, Table 1).

    Research and development (R&D) efforts are also highly concentrated. Here too, Monsanto has overwhelming dominance, with 94% of experimental biotech cotton acreage since the year 2000 (see Section 3.4.3 and Appendix 5). 2.1.3 Concentration in cotton farms

    Finally, the rise of biotechnology in cotton has also been accompanied by accelerating concentration of cotton-producing land in fewer hands. Figure 3 shows a drop in the number of cotton farms from 1987 to 1992, followed by a smaller decline through 1997, the beginning of the biotech era. In just the following five years, the number of cotton farms declined steeply by over 21%, representing a loss of one of every five U.S. cotton farms. Cotton farm size has also risen dramatically, particularly

    Page 18642

    since 1997, when the size of the average cotton farm already exceeded that of any other major field crop. In addition, the percentage of cotton farms 500 acres or larger has increased from 12% in 1987 to 29% in 1997 (Meyer and MacDonald 2001).

    While, the declining number and increasing size of cotton farms is a long-term historical trend in 1949, 1.1 million presumably mixed crop farms harvested an average of 24 acres of cotton each) (USDA ERS 1996), biotechnology has helped facilitate consolidation over the past decade, as discussed further below.

    A graph appearing here in the comment is illegible upon reprinting.

    The graph is available at the Department of Justice Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514- 2481, and at the Office of the Clerk of the United States District

    Court for the District of Columbia, 333 Constitution Avenue, NW.,

    Washington, DC 20001. 2.2 Cotton Seed Price Increase With the Rise of Biotechnology

    The increasing use of transgenic cotton since 1995 has been accompanied by a dramatic rise in cotton seed prices paid by farmers. 1-listorical price data from USDA show that the per acre cost of cotton seed has risen 3.4-fold in just the eleven years from the start of the biotech era in 1995 to 2005, when transgenic varieties accounted for 83% of U.S. cotton (Figure 4). The proportion of overall on-farm operating expenses attributable to seed expenditures increased nearly three-fold in the same brief time span (data not shown).

    A graph appearing here in the comment is illegible upon reprinting.

    The graph is available at the Department of Justice Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514- 2481, and at the Office of the Clerk of the United States District

    Court for the District of Columbia, 333 Constitution Avenue, NW.,

    Washington, DC 20001.

    A comparison of present-day prices for conventional and transgenic cotton seed shows that biotech traits are indeed primarily responsible for this rapid price increase. Appendix 3 plots the prices of 140 varieties of cotton seed sold in the Lubbock, Texas area in 2006, broken down by conventional and various biotech trait categories. The data show that the average per acre cost of transgenic cotton seed ranges from two to over four times as much as that of conventional seed. (We will discuss these findings in more detail below.) The price differential is attributable primarily to ``technology fees'' charged by trait providers. Figure 5, based on prices for the same 140 varieties portrayed in Appendix 3, shows that technology fees comprise from 31% to 59% of the overall price paid by farmers for cotton seed.

    Technology fees increase with a) newer generation traits; and b) number of incorporated traits. Table I shows that the price of cotton seed rises roughly 40% when a second transgenic trait is ``stacked'' with a first and for a variety with second generation versus first generation trait(s).\3\ A farmer pays on average nearly twice as much for a second generation variety with two traits as for a first generation variety with one trait.\4\ At present, biotech cotton is limited to one or two

    (stacked) traits, though three or more are possible in the future, as we are starting to see in the corn seed market, with so-called triple- stack corn (Gullickson 2006).

    \3\ Note that seed prices vary considerably based on numerous factors: Region, time of purchase, package deals with chemicals. etc.

    \4\ The term ``generation 2'' was originally used to denote promised biotech crops with ``output'' traits desirable to consumers, such as enhanced nutrition, versus ``generation 1'' crops with ``input'' traits of interest to farmers, such as herbicide tolerance (HT) and insect resistance (IR). However, the biotech industry has failed to make a commercial success of any true generation 2 ``output'' trait biotech crop. Monsanto chooses to call its Roundup Ready Flex and Bollgard II traits ``second generation'' even though they are merely variations on the original generation 1 input traits, Roundup Ready and Bollgard.

    Page 18643

    GRAPHIC

    TIFF OMITTED TN04AP08.006

    Cotton seed providers are actively transitioning the cotton varieties they offer from conventional to biotech, from one to two biotech traits, and from first to second generation traits. For instance, the short-term goals cited in a 2004 Delta and Pine Land presentation to investors EDPL 2004, slide 6) are:

    *``Increased technology penetration (share, stacked traits vs. single trait);'' and

    *``Accelerated transition to MON [Monsanto] second generation traits.''

    Table 1.--Per Acre Cost of Biotech Seed by Trait and Generation

    Price rise 1>1 in the United

    States in acres of corn and soybeans planted. See ``Acreage,''

    National Agricultural Statistics Service, USDA (June 30, 2006, and

    June 29, 2007). While Monsanto's acquisition of Delta and Pine Land directly impacts the cotton markets, Monsanto's stronghold in the cotton markets will have serious effects on the corn and soybean markets as well.

    Farmers and consumers benefit from competition in the marketplace. Monsanto's acquisition of Delta and Pine will end competition in cotton biotech seed traits, by cutting off competing trait developers from access to Delta and Pine's superlative breeding and distribution programs. These competing trait developers will have no incentive to invest in R&D for cotton seed traits, and they will not have the needed resources to invest in trait development for other crops, such as the key crops of corn and soybeans. With no alternatives, the cost of seed to farmers will continue to climb through the roof, and the end costs to consumers will likewise rise dramatically. Further, innovation will be stifled and seed quality will suffer.

    The DOJ's PFJ does not remedy the harms that will occur from

    Monsanto's monopoly position. The divestiture of Stoneville plus a sell-off of a few lines of germplasm, will not take the place of an independent Delta and Pine. The PFJ does not restore competition and is not in the public interest.

    Sincerely,

    Carrie La Seur,

    Founder & President, Plains Justice.

    Denise O'Brien,

    President, Women, Food & Agriculture Network.

    Chris Peterson,

    President, Iowa Farmers Union.

    August 24, 2007.

    Donna N. Kooperstein, Chief, Transportation, Energy & Agriculture

    Section, Antitrust Division, United States Department of Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.

    Re: United States v. Monsanto Company et al., No 1:07-cv-00992

    (D.D.C. filed May 31, 2007) (Urbina, J.)

    Dear Ms. Kooperstein:

    Pursuant to 15 U.S.C. 16(b), the Attorneys General of Virginia,

    Arkansas, Delaware, Kentucky, Maryland, New Mexico, North Carolina,

    Ohio, Oklahoma, Rhode Island, Tennessee, Utah, and West Virginia hereby submit the attached comments related to the Proposed Final

    Judgment pending in the above-referenced matter. Please contact me at (804) 786-6557 if you have any questions.

    Sincerely,

    Sarah Oxenharn Allen,

    Assistant Attorney General, Antitrust and Consumer Litigation

    Section, Office of the Virginia Attorney General.

    Attachment

    Comments of the Attorneys General of Virginia, Arkansas, Delaware,

    Kentucky, Maryland, New Mexico, North Carolina, Ohio, Oklahoma, Rhode

    Island, Tennessee, Utah, and West Virginia on the Proposed Final

    Judgment in United States v. Monsanto Company, et al.

    Pursuant to ] 2(b) of the Antitrust Procedures and Penalties

    Act, 15 U.S.C. 16, the Attorneys General of Virginia, Arkansas,

    Delaware, Kentucky, Maryland, New Mexico, North Carolina, Ohio,

    Oklahoma, Rhode Island, Tennessee, Utah, and West Virginia

    (hereinafter, ``the Attorneys General''), submit the following comments on the Proposed Final Judgment (``PFJ'') produced to the court by the United States Department of Justice (``the United

    States'' or ``DOJ'') in the above-referenced matter.

  24. Introduction

    As the chief law enforcement officers of their respective states, the Attorneys General are charged with enforcing state and federal antitrust laws. The Attorneys General often are called upon to evaluate and gauge the competitive benefit or harm of proposed business acquisitions to the citizens and economies of their respective states. The Attorneys General strive to preserve fair competition, protect their citizens from unlawful restraints, and promote the development, production and distribution of alternative product choices in the marketplace. As a result, the Attorneys

    General have a strong interest in antitrust enforcement actions by the United States that will impact their states.

    Agriculture is an important industry affecting local and state economies, as well as the Gross National Product. Its gross outputs account for more than $250 billion of the gross domestic product and more than $68 billion in exports. See ``Gross Domestic Product by

    Industry Accounts,'' U.S. Department of Commerce, Bureau of Economic

    Analysis, available at http://www.bea.gov/industry/gpotables/gpo_ action.cfm?anon=52440&table&--id=19025&format&--type=0; ``Foreign

    Agricultural Trade of the United States,'' U.S. Department of

    Agriculture (``USDA''), available at http://www.ers.usda.gov/Data/

    FATUS/monthlysummary.htm. Cotton, together with corn and soybeans, accounts for nearly 60% of the value of all U.S. crops. See ``Crop

    Values--2003 Summary,'' USDA, National Agricultural Statistics

    Service. These three crops have a combined annual value of more than

    $58 billion. See ``Crops & Plants--National Statistics,'' USDA,

    National Agricultural Statistics Service. In 2006, the cotton market alone generated more than $5 billion in annual revenues for U.S. farmers. See DOJ Complaint (``Complaint''), at ] 1.

    Biotechnology (alternatively, ``biotech'') has revolutionized

    U.S. agriculture by enabling farmers to protect crops from certain insects, the effects of herbicides, and other soil and plant conditions that evolve over time. By altering the genetic makeup of seeds to produce crops with desirable traits, such as insect resistance and herbicide tolerance, biotechnology has made it possible for farmers to increase production yields and decrease costs, particularly the costs of pesticides sprayed on crops after planting. Today, approximately 87% of cotton, 91% of soybeans, and 73% of corn grown in the United States is from genetically modified seeds. See ``U.S. Farmers Plant Largest Corn Crop in 63 Years,''

    USDA, available at http://www.nass.usda.gov/Newsroom/2007/06_29_ 2007.asp.

    Despite the increasingly important role of biotech seeds in U.S. agriculture, barriers to entry in the market are extremely high.

    Successful entry requires long lead times, large capital expenditures, highly trained and experienced personnel, retail distribution outlets, and access to a broad collection of elite germplasm (the genetic material required for the development of traits that gives the plants their characteristics. See Complaint, at ] 5.). Desirable traits have to be developed in laboratories, successfully crossed with varieties of elite germplasm to produce seeds that have the proven desirable qualities, and field-tested in conditions farmers actually confront. See generally Jane Dever and

    E. Margaret Hamill, ``Breeding: Approaches to Fiber Quality

    Improvement,'' 2005 EFS Systems Conference Presentations, available at http://www.cottoninc.com/2005/ConferencePresentations; and

    Monsanto.com, ``The DNA of Our Business,'' available at http:// www.monsanto.com/Monsanto/content/media/pubs/2005/MON_2005_DNA_ of_our_business.pdf. The process often requires thousands of attempts before a trait can be developed and used to breed commercial seed varieties. See Complaint, at ] 28. Once a trait is successfully developed, it must receive regulatory approval by multiple agencies, in both the United States and abroad, which can cost millions of dollars. Id. Market acceptance of new biotech traits also takes time. Farmers tend to be conservative in adopting new biotech seed varieties, and therefore these seed varieties often take several seasons to attain maximum penetration and market share in various regions. As the United States acknowledges in its

    Complaint, the development of a single trait ``typically takes eight to twelve years and costs over $40 million.'' Id. at ] 28. See also id. at ] 43. Because of these extraordinarily high barriers to entry, there are a limited number of companies in the world capable of successfully developing biotech traits.

    Monsanto Company (``Monsanto'') is the dominant biotech trait company in the United States. Delta and Pine Land Company (``DPL'') is the largest cotton seed company in the United States. The

    Attorneys General are concerned that Monsanto's acquisition of DPL will eliminate competition in the market for cotton biotech traits and seeds, stifle innovation and product choice, and result in supra-competitive prices to U.S. farmers and consumers. Monsanto will be able to eliminate competition in cotton biotech trait development and commercialization by foreclosing other companies from developing

    Page 18671

    cotton biotech traits with DPL or from incorporating competing traits into DPL seeds. The Attorneys General also are concerned that the acquisition will have ripple effects that will stall or eliminate the development of competing biotech traits for other crops, such as corn and soybeans, allowing Monsanto to maintain a degree of control over U.S. agriculture that has never before been possessed by a single company. The acquisition also may allow

    Monsanto to engage in exclusionary business practices in cotton.

    Such exclusionary business practices could include long-term, highly restrictive licensing agreements, ``loyalty'' programs, bundling requirements, and other restrictions that effectively could prevent competing cotton traits from coming to market.

    While DOJ recognizes the serious anticompetitive effects of the acquisition, its PFJ fails to sufficiently remedy those effects and, therefore is not in the public interest.

  25. The Acquisition Cements Monsanto's Current Monopoly Position in

    Biotech Traits and Will Give the Company Market Power in Cotton Seeds

    No other company has experienced Monsanto's level of success in the development, production and distribution of biotech traits. It is undisputed that Monsanto enjoys large monopoly shares with respect to every commercially important trait in cotton, corn and soybean seeds. In 2006, over 96% of all cotton planted with biotech traits contained Monsanto traits, while 95% contained only Monsanto traits--the 1% difference is attributable to Monsanto traits that were combined with either Bayer CropScience or Dow's Phytogen traits. See Complaint, at ] 3. See also Bill Frecse, ``Cotton

    Concentration Report: An Assessment of Monsanto's Proposed

    Acquisition of Delta and Pine Land,'' International Center for

    Technology Assessment, February 2007, at 8-9.

    DPL also has had unparalleled success, with a 50% national share of the U.S. cotton seed market. See Evren Ergin, ``DPL-Monsanto:

    Antitrust/Merger Analysis,'' Lehman Brothers, September 12, 2006, at 3. In the cotton-growing states of the South, where biotech traits are especially valued, DPL's dominance is even greater. It holds an 86% market share in the Southeast region, which includes the states of Florida, Georgia, Alabama, South Carolina, North Carolina, and

    Virginia, and a 73% market share in the MidSouth region, which includes the states of Louisiana, Arkansas, Mississippi, Tennessee, and Missouri. See ``Cotton Varieties Planted, 2006 Crop,'' USDA,

    Agricultural Marketing Service Cotton Program, September 22, 2006, available at http://www.ams.usda.gov/cottonrpts/MNPDF/mp_cn833.PDF.

    These market shares are slightly higher for DPL seeds that include biotech traits--an 87% share of traited cottonseeds in the Southeast and a 79% share in the MidSouth. See Complaint, at ] 4.

    DPL's success reflects the high quality of its germplasm library and its proven ability to develop and commercialize new cotton biotech seed varieties. See id. at ] 26. As a result, DPL is the primary and most important vehicle for biotech trait developers to get competing cotton biotech traits to market. No other seed company can match DPL as a development partner because of DPL's extensive and unique library of elite germplasm--which is suitable across a full range of geographic regions--brand name loyalty, and industry- leading technical personnel with unmatched breeding expertise and capabilities. See Competitive Impact Statement, at ] II(B)(2). In fact, DPL claims to have three times the breeding capabilities of any other seed company in the world. See Tom Jagodinski, ``Delta and

    Pine Land'' (presentation, 2006 Merrill Lynch Agricultural Chemicals

    Conference, June 14, 2006 (Slide 3)). In 2006 alone, DPL spent almost $25 million, or 6% of revenues, on research and development. See Delta & Pine Land Co., Annual Report (Form 10-

    K)(November 14, 2006), at 42.

    The Attorneys General are concerned that, if approved, the PFJ will enhance Monsanto's monopoly power in cotton biotech trait markets. Requiring Monsanto to divest itself of its current cotton seed company, Stoneville \1\, as a condition to approve the acquisition, the United States only strengthens Monsanto's monopoly position by permitting Stoneville's 12% market share to be traded for DPL's market shares of 50-86%. Further, Monsanto secures complete control of DPL's breeding programs and seed sales. As a result, Monsanto could, and likely will, undermine DPL's collaborations with Monsanto's competitors to the detriment of U.S. cotton farmers and consumers.

    \1\ With only four significant seed companies prior to the PFJ

    (DPL, Bayer CropScience, Stoneville and Dow's Phytogen Seed Company) and a handful of smaller seed companies, the cotton seed market is highly concentrated. Stoneville, which was recently acquired by

    Bayer CropScience in connection with the PFJ, has a 12% share of the cotton seed market, making it the third largest cotton seed company.

    See Evren Ergin, ``DPL-Monsanto: Antitrust/Merger Analysis,'' Lehman

    Brothers, September 12, 2006, at 3.

  26. The Acquisition Has Serious Anticompetitive Effects

    The acquisition threatens to substantially reduce competition in the development, production and distribution of cotton biotech traits and seeds. DPL, in partnership with other companies, is a significant trait development competitor of Monsanto, which now will have the ability and incentive to eliminate, or at least significantly delay, DPL's trait development partnerships with competitors. See Competitive Impact Statement, at ] 11(A). As the

    United States acknowledges in its Complaint, DPL ``is an attractive partner that is well suited to quickly introduce new trait technologies due to the strength and breadth of its germplasm base and breeding programs as well as its technical service capabilities, know-how, brand recognition and market position.'' Complaint, at ] 26. No other seed company has the combination of assets and experience to foster trait development collaborations and bring to market competing cotton biotech traits and seeds.

    Monsanto's acquisition of DPL likely will end DPL's development partnerships, eliminating the only near-term challenges to

    Monsanto's monopoly position in cotton biotech. DeltaMax, DPL's joint venture with E.I du Pont de Nemours and Company (``DuPont'') and Pioneer Hi-Bred International, Inc. (``Pioneer'') to develop a trait known as OptimumTM GATM, would provide cotton farmers a competitive herbicide-tolerant trait alternative for the first time.

    However, the Attorneys General understand that DuPont and Pioneer have exercised their right to terminate DeltaMax as a result of

    DOJ's decision to allow their competitor, Monsanto, to consummate its merger agreement with DPL during the pendency of the Tunney Act proceeding. DeltaMax's demise is a serious loss of potential competition that threatened Monsanto's dominance in herbicide- tolerant traits. Herbicide tolerance is considered the most important biotech trait by farmers in most states. See ``2007

    Acreage Report,'' USDA, National Agricultural Statistics Service, at 25, available at http://usda.mannlib.cornell.edu/usda/current/Acre/

    Acre-06-29-2007.pdf (report generally shows that market penetration for herbicide-tolerant seeds is higher in most states than that of insect-resistant seeds). Because of DeltaMax's termination,

    Monsanto's cotton herbicide-tolerant trait dominance is assured for the foreseeable future. The Attorneys General are not aware of the current status of DPL's collaboration with Syngenta AG to develop an insect-resistant cotton biotech trait called VipCotTM, which would pose a competitive threat to Monsanto's almost complete monopoly of insect-resistant traits in cotton.

    The acquisition also harms competition by eliminating DPL as the vehicle for biotech trait developers to commercialize and distribute competing cotton biotech traits. Once under Monsanto's control, DPL will lack the incentive to sell competing traits at the expense of

    Monsanto's monopoly biotech traits. With its 50-86% shares of the highly concentrated cotton seed market, DPL is the primary engine of biotech trait developers to bring competing new traits to market through finished seeds. Without an independent DPL, competing cotton biotech trait developers may not have sufficient non-DPL outlets to license their traits.

    In addition, as DOJ acknowledged in its Complaint at ] 27, certain aspects of Monsanto's current license provisions to seed companies harm competitors by prohibiting combining, or

    ``stacking,'' of non-Monsanto biotech traits with Monsanto traits.

    The Attorneys General understand that Monsanto's licenses with regional corn and soybean seed companies, which, like DPL, are known as independent seed companies, contain similar restrictions. These restraints severely limit the ability of Monsanto licensees to deal with Monsanto competitors and appear to lack any legitimate business purpose. The PFJ addresses this competitive concern by requiring

    Monsanto to modify its biotech trait licenses with cotton seed companies to remove the stacking prohibitions. See Competitive

    Impact Statement, at ] 111(C). The Attorneys General applaud this remedy. Unfortunately, as discussed below, this remedy, along with the divestiture of Stoneville to Bayer

    Page 18672

    CropScience (``Bayer'') and the nonexclusive licensing of a small number of germplasm lines, will not restore the competition that will be lost as a result of Monsanto's acquisition of DPL.

    If biotech trait developers are unable to commercialize and distribute to farmers the competing traits they develop, they will not be able to justify their significant research and development expenditures and will be deterred from entering the cotton biotech market. The lack of opportunities in cotton biotech may spill over to other important cash crops where Monsanto also enjoys a dominant position in biotech traits. The cottonseed traits that DPL is developing in partnership with Monsanto's competitors have numerous cross-crop applications. Denying biotech trait developers market opportunities in cotton will deprive them of the revenues required to sustain expensive research and development programs in other important crops, such as corn and soybeans. Knowledge that otherwise would have been transferable to other crops will be lost, putting other trait developers at a competitive disadvantage. Monsanto's domination in cotton also may increase its leverage over retailers, particularly national retailers who sell DPL cotton seed in the

    South, possibly making it even more difficult to compete effectively with the bundles Monsanto packages that include crop protection chemicals and seeds across multiple crops.

    These anticompetitive effects are more significant today than in 1999, when DOJ blocked Monsanto's first attempt to acquire DPL.

    Biotech traits are more important and valued today than in 1999.

    DPL's market shares, particularly in the cotton-growing regions of the South, are even higher today. Compare ``Cotton Varieties

    Planted, 1999 Crop'' and ``Cotton Varieties Planted, 2006 Crop,''

    USDA, Agricultural Marketing Service--Cotton Program. Unlike 1999, however, Monsanto's monopoly traits were about to face real and meaningful competition in the near future as a result of joint development partnerships that did not exist then. The harm to competition today is real and immediate, and regrettably, the PFJ does not remedy it.

  27. The PFJ Does Not Remedy the Anticompetitive Effects

    In its Complaint, the United States acknowledges the significant anticompetitive effects that the acquisition will have on the development, production and distribution of cotton biotech traits and seeds. Complaint, at ] 37-42. The United States concludes that the acquisition violates the antitrust laws because it ``will eliminate competition between DPL and Monsanto for the development, breeding, and sale of traited cottonseed.'' Id. at ] 41.

    Nonetheless, the United States has agreed to settle its action against Monsanto and DPL by requiring Monsanto to (1) divest

    Stoneville to an approved buyer, which DOJ has subsequently approved to be Bayer, and (2) provide nonexclusive access to Stoneville of

    (a) twenty lines of elite DPL germplasm and (b) certain Monsanto cotton germplasm lines. See Competitive Impact Statement, at ] 111(A). The settlement fails to remedy the likely anticompetitive effects of the acquisition.

    A. The Divestiture of Stoneville Fails To Preserve Meaningful

    Competition in Cotton

    A divested Stoneville falls far short of replicating the assets and expertise that DPL offers. The United States has recognized that

    ``[a] company with a large collection of high quality, or elite, germplasm has a competitive advantage because the company has the ability to identify the best genetic material and use it in a wide variety of possible crossing combinations, resulting in a greater likelihood of developing a successful variety.'' Complaint, at ] 16.

    As DOJ acknowledges, DPL has ``over ninety years of germplasm development.'' Id. at ] 17. DPL also has ``the largest cotton germplasm collection, with by far the greatest track record of success in the important MidSouth and Southeast regions, and an extensive breeding program,'' and ``more breeding capabilities than any competitor.'' Id.

    The new Bayer-Stoneville entity will have access to only 20 lines from DPL's extensive germplasm library, the largest collection of cotton germplasm in the United States. Complaint, at ] 17.

    Stoneville was first acquired by Monsanto in 1996, see Competitive

    Impact Statement, at ] II (B)(3), but then sold in 1999 and reacquired in 2005 as part of Monsanto's efforts to develop a cotton seed unit. See Complaint, at ] 32. The divestiture of Stoneville appears to conflict with DOJ's own Antitrust Division Policy Guide

    To Merger Remedies (``Policy Guide'') (Oct. 2004). Those guidelines make clear that ``[t]he Division favors the divestiture of an existing business entity that already has demonstrated its ability to compete in the relevant market.'' See id. at 12. As Monsanto's cotton seed unit, Stoneville has only a limited track record in demonstrating its ``ability to compete in the relevant market.'' In fact, the divested ``parts'' that the PFJ pieces together have never been operated as a unit and would require substantial reconfiguration. Even if Stoneville could operate as a single unit with the licensed parts, it necessarily will have to start from scratch to duplicate DPL's success in the breeding of commercial varieties--a process DOJ acknowledges takes at least eight to ten years. See Complaint, at ] 15. The time and expense required to establish the Bayer-Stoneville combination as a viable and effective partner for competing biotech trait developers necessarily precludes any real competition with Monsanto for a period of time that is well outside of the two-year window typically used by the federal competition authorities to define effective new entry under ] 12 of the 1992 Horizontal Merger Guidelines, jointly issued by DOJ and the

    Federal Trade Commission. In the meantime, Monsanto will use its head start in the development and distribution of cotton biotech traits to its competitive advantage.

    Furthermore, it is clear that DPL's technology, infrastructure, breeding capabilities and expertise are significantly superior to

    Stoneville's. The PFJ does not remedy the disparity by providing the divested Stoneville with any of DPL's breeding expertise, personnel, facilities or development assets that the United States acknowledged made DPL an attractive development partner. See Complaint, at ] 26.

    In this respect, the PFJ is inconsistent with DOJ's Policy Guide, which provides that ``[a]n existing business entity should possess not only all the physical assets, but also the personnel, customer lists, information systems, intangible assets, and management infrastructure necessary for the efficient production and distribution of the relevant product.'' See Policy Guide, at 12.

    Without the breeding assets and personnel that have made DPL the partner of choice for biotech trait developers, a divested

    Stoneville cannot replace DPL's ability to bring to market biotech traits that can compete with Monsanto's monopoly varieties.

    In addition, Stoneville has been divested to Bayer, a trait development competitor of Monsanto. Because of this, Stoneville can never duplicate DPL's unique position as an independent cotton seed company that can use its successful and high-quality germplasm to partner with several different biotech companies to develop viable competitive alternatives to Monsanto's monopolies in traits. Even if it were technically possible for a rival trait company to successfully develop a biotech trait that could compete against a

    Monsanto trait, it must have a seed vehicle with which to partner to commercialize the trait and bring it to market so that farmers could actually benefit from having the choice of which trait to buy.

    Stoneville will not have the motivation, as DPL did, to partner with outside trait developers since it is owned by a trait development company, so there will no longer be a feasible alternative to DPL's independence as a cottonseed company and a trait development partner.

    Even apart from the loss of an independent cottonseed company,

    DOJ also implicitly recognizes that a divested Stoneville is not the equivalent of DPL by requiring Monsanto to provide Stoneville access to 20 lines of DPL germplasm. However, the availability of 20 lines of DPL germplasm does not ``restore competitive conditions the merger would remove.'' Policy Guide, at 4. The PFJ makes clear that

    Stoneville's access to those germplasm lines is non-exclusive. See

    Competitive Impact Statement, at ] III(A)(2). Thus, even post- acquisition, Monsanto retains the right to sell the most popular seeds from those lines and even preclude their use with non-Monsanto cotton biotech traits. This also is inconsistent with DOJ's Policy

    Guide, which recognizes that permitting a merged firm ``to retain access to the critical intangible assets may present a significant competitive risk.'' Policy Guide, at 16. Because the PFJ fails to enhance Stoneville's breeding capabilities, access to such lines will not challenge Monsanto's monopoly position, even with respect to any of those 20 lines.

    B. Access to Identified Cotton Germplasm Ignores the Evolving

    Nature of Biotech Traits and Seeds

    The PFJ's requirement that Monsanto provide access to certain lines of cotton germplasm lines does not remedy the

    Page 18673

    anticompetitive effects of the acquisition for yet another reason.

    The PFJ ignores the reality that elite germplasm is constantly being improved upon to enhance the effectiveness of the underlying traits to address evolving plant, soil, and other conditions that change over time. As a result, the best germplasm today becomes obsolete in a relatively short period of time. See generally declining market shares of existing germplasm lines as newer lines are introduced in

    ``Cotton Varieties Planted, 1999 Crop'' through ``Cotton Varieties

    Planted, 2006 Crop,'' USDA, Agricultural Marketing Service--Cotton

    Program. Thus, to stay competitive, cotton biotech trait developers must have access to new and improved lines of germplasm.

    The availability of certain existing lines of cotton germplasm cannot replace the need for Monsanto's competitors to have ongoing access to improved germplasm. One of DPL's strengths has been its ability to continually develop new lines of elite germplasm. Once

    DPL falls captive to Monsanto's control, access by Monsanto's competitors to DPL's next generation of germplasm will terminate.

    With an overwhelming monopoly in biotech traits, Monsanto will have no incentive or obligation to make DPL's next generation of germplasm available to competitors. See Complaint, at ] 16-17.

    In addition, the 20 lines of cotton germplasm that the PFJ licenses to Stoneville constitute only a very small subset of DPL's extensive germplasm library. Some of those lines are merely under development, and there is no guarantee that they will be commercially successful in the future. Further, the PFJ does not provide the divested Stoneville with any of DPL's facilities or personnel with expertise handling those lines. Instead, it allows

    Monsanto to retain access to those lines, as well as the facilities and expertise DPL has employed to develop them. Consequently, the availability of a limited number of cotton germplasm lines does not guarantee or enhance Stoneville's ability to effectively compete against Monsanto.

  28. The Acquisition Potentially Allows Monsanto To Engage in

    Exclusionary Business Practices

    The acquisition potentially allows Monsanto to engage in exclusionary behavior, which could include a series of acquisitions of independent seed companies and germplasm providers to enhance its monopoly position in both seeds and traits; long-term, highly restrictive licensing agreements that encourage the sale of

    Monsanto's biotech traits exclusively; licensing restrictions that prevent independent seed companies from combining Monsanto biotech traits with non-Monsanto traits; and bundling rebates on seeds, traits and chemicals to exclude competitors from retail distribution channels. These restrictions potentially could stymie innovation, limit product choices and result in higher prices. With DPL under its control, Monsanto will have the ability to foreclose competing cotton biotech traits from entering the cotton seed markets.

    Monsanto's monopolization of the cotton biotech trait market also may create an incentive to impose supra-competitive technology fees for seeds containing Monsanto's traits, which would eliminate any efficiencies farmers otherwise would realize from the merger or in a competitive cotton biotech trait market.

    The Attorneys General are concerned that the acquisition of DPL may permit Monsanto to maintain and consolidate its monopoly position in biotech traits. The lack of viable competition in cotton traits, coupled with Monsanto's market power in the other seed trait markets, compels a closer examination of the potential anticompetitive effects of Monsanto's business practices in all markets.

  29. Conclusion

    The PFJ fails to remedy the anticompetitive effects of the acquisition in the markets for cotton biotech traits. If approved in its present form, the acquisition will further cement Monsanto's monopoly in those markets with severe and unwarranted consequences for farmers and consumers. With Monsanto's huge head start, biotech trait developers will have no incentive to expend the necessary research and development costs that are required for the successful entry of competing traits and seeds. Current joint development efforts with DPL will terminate or stagnate--eliminating the only near-term opportunities for meaningful competition in cotton-- innovation will be stifled, and cotton farmers and consumers will suffer from the lack of market choices and the imposition of supra- competitive product prices.

    The adverse consequences of the acquisition also will extend beyond cotton. The loss of revenue that the acquisition will cause in cotton will impact the ability of trait developers to bring to market biotech traits in other crops, such as corn and soybeans.

    Research and development efforts investigating traits in cotton that could be developed and incorporated into other crops now will be lost.

    The PFJ fails to effectively restore competition in the market for cotton biotech traits, and should be rejected.

    Respectfully Submitted,

    Robert F. McDonnell,

    Attorney General of Virginia, Office of the Attorney General, 900 E.

    Main Street, Richmond, VA 23219.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Dustin McDaniel,

    Attorney General of Arkansas, Office of the Attorney General, 323

    Center Street, Suite 1100, Little Rock, AR 72201.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Joseph R. Biden, III,

    Attorney General of Delaware, Office of the Attorney General,820 N.

    French Street,Wilmington, DE 19801.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    On Behalf of the Commonwealth of Kentucky

    Respectfully submitted,

    Gregory D. Stumbo,

    Attorney General, Office of the Attorney General, 700 Capitol

    Avenue, Suite 118, Frankfort, Kentucky 40601, (502) 696-5300.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Douglas F. Gansler,

    Attorney General of Maryland, Office of the Attorney General, 200

    St. Paul Place, Baltimore, Maryland 21202.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Gary K. King,

    Attorney General of New Mexico, Office of the Attorney General, 408

    Galisteo Street, Santa Fe, New Mexico 87501.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Sincerely,

    Roy Cooper,

    Attorney General of North Carolina, Office of the Attorney General, 114 W. Edenton Street, 9001 Mail Service Center, Raleigh, NC 27699- 9001.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Marc Dann,

    Attorney General of Ohio, Office of the Attorney General, 30 East

    Broad Street, Columbus, OH 43215.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    W.A. Drew Edmondson,

    Oklahoma Attorney General, 313 NE. 21st Street, Oklahoma City, OK 73105.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Patrick C. Lynch,

    Attorney General of Rhode Island, Department of the Attorney

    General, 150 South Main Street, Providence, RI 02903.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Robert E. Cooper, Jr.,

    Attorney General of Tennessee, Office of the Attorney General and

    Reporter, 425 Fifth Avenue North, Nashville, TN 37202.

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Mark L. Shurtleff,

    Attorney General of Utah, Office of the Attorney General of Utah,

    State Capitol Complex, Suite E320, Salt Lake City, Utah 84114-2320.

    Page 18674

    Comments of the Attorneys General on Proposed Final Judgment in

    United States v. Monsanto Company, et al.

    Respectfully submitted,

    Darrell v. McGraw, Jr.,

    Attorney General of West Virginia, Office of the Attorney General,

    State Capitol, Charleston, WV 25305.

    August 20, 2007.

    Ms. Donna N. Kooperstein, Chief, Transportation, Energy &

    Agriculture Section, Antitrust Division, United States Department of

    Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.

    Re: United States v. Monsanto Company, et al., Case No. 1:07- cv.00992.

    Dear Ms. Kooperstein:

    Preserving competition in agriculture biotechnology markets is essential for greater choice and lower costs to Texas farmers and consumers. The lack of competition in these markets hurts farmers and consumers, who wind up paying higher prices. Today, Texas farmers and consumers are already struggling in the face of rapid agricultural consolidation and concentration. The latest example of this dangerous trend is Monsanto's acquisition of Delta & Pine Land, which promises to strike a crushing blow to the Texas cotton industry. It is for this reason that we submit this letter and urge the court to reject the Department of Justice's ``Proposed Final

    Judgment'' regarding this acquisition.

    Cotton is a critical thread in the fabric of the Texas and national economy. Texas is the 1 producer of cotton in the

    United States. Each year Texas farmers plant over 6 million acres of cotton seed--the 2006 crop had a value of over $1.4 billion. Cotton growers in Texas and throughout the country are increasingly reliant on biotechnology, which allows farmers to grow cotton resistant to certain insects and tolerant of certain herbicides. In 2007, 87% of cotton acreage in the U.S. was planted with biotech seed varieties.

    See United States Department of Agriculture, U.S. Farmers Plant

    Largest Corn Crop in 63 Years (http://www.nass.usda.gov/Newsroom/ 2007/06_29_2007.asp).

    Monsanto currently enjoys monopolies in cotton traits. Monsanto controls approximately 96% of herbicide tolerant cotton traits and approximately 99% of insect resistant cotton traits. Monsanto has already used its dominant position to dramatically increase the prices farmers are paying for these traits. This ultimately leads to consumers paying higher prices for products containing cotton.

    If Monsanto is permitted to acquire Delta & Pine Land, the largest cotton seed company in the world, there will be even more anticompetitive consequences for Texas cotton farmers and consumers throughout the country. First, Monsanto will shut out all competition in cotton traits because all of the competing cotton traits are being developed with Delta & Pine Land, which Monsanto will now control. Second, once it acquires Delta & Pine Land,

    Monsanto will control over 50% of the national cotton seed market and even higher percentages in key cotton growing areas such as the

    South Central and Southeast regions of the U.S. Given its dominance in cotton traits and cotton seeds, Monsanto will be able to effectively kill competition in cotton and leave farmers and consumers with no choice except the monopolist Monsanto's products.

    The remedy devised by the Department of Justice to remedy the clear anticompetitive effects of acquisition will do little to protect farmers and consumers. Requiring Monsanto to divest a weak cotton seed company and approximately 20 lines of germplasm is entirely inadequate to replace the loss of an independent, thriving competitor to Monsanto in the development of biotechnology traits and a critical distribution channel for those traits.

    With its acquisition of Delta & Pine Land, Monsanto is poised to enhance its position as an agricultural titan. This deal will significantly diminish competition and stifle innovation in the cotton biotech seed trait markets and cotton seed market, leading to higher prices for farmers and consumers. Because the Department of

    Justice's proposed final judgment will not restore much needed competition in cotton, it should be rejected.

    Sincerely,

    Heethe Burleson, On Behalf of the Associated Cotton Growers,

    Crosbyton, Texas.

    Arvil Campbell, For the Texas Farmers Union.

    Jeff Turner, On Behalf of the Willacy Co-op Gin, Raymondville,

    Texas.

    Chris Breedlove, For Olton Co-Op Gin, Olton, Texas.

    Glen Campbell, On Behalf of Lorenzo Co-Operative Gins, Inc.,

    Lorenzo, Texas.

    Johnny Shepard, On Behalf of Citizens Co-Op Gin, Shallowater, Texas.

    Randy Arnold, Founder, High Plains Cotton Growers Association,

    Crosbyton, Texas.

    Jonathan Hernandez, For the Texas Oaks Neighborhood Association,

    Austin, Texas.

    Lynda Rodriguez, For the South San Antonio Chamber of Commerce, San

    Antonio, Texas.

    Benny Robertson, Seed and Feed Supplier, Star Feed and Seed Supply,

    Spur, Texas.

    Larry Thornbough, On Behalf of Trans-Pecos Cotton Association,

    Coyanosa, Texas.

    Sid Brough, On Behalf of EdCot Co-Op Gin, Odem, Texas.

    Glen Ivens, On Behalf of Cotton Center Farmers Co-Op Gin, Cotton

    Center, Texas.

    Tom Byars, On Behalf of the Lockney Co-Op Gin, Lockney, Texas.

    Bobby Moss, For the Fiber-Tex Co-Op Gin, Brownfield, Texas.

    Charles Macha, United Cotton Growers, Levelland, Texas.

    Glenn Klesel, On Behalf of Posey Gin, Slaton, Texas.

    Scott LaRue, For the Blackland Prairie Gin, Deport, Texas.

    August 27, 2007

    Ms. Donna N. Kooperstein, Chief, Transportation, Energy &

    Agriculture Section, Antitrust Division, United States Department of

    Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.

    Re: United States v. Monsanto Company, et al, Case No. 1:07-cv- 00992.

    Dear Ms. Kooperstein:

    Monsanto's acquisition of Delta & Pine Laud promises to stifle innovation, limit choice for Wisconsin farmers and consumers, and ultimately drive prices higher.

    The agricultural sector is already highly concentrated, including biotechnology traits where one company--Monsanto--controls monopoly trait shares in cotton, corn, and soybeans. By acquiring

    Delta & Pine Land, Monsanto is effectively removing its principal cotton trait competitor and positioning itself to limit farmer choice to Monsanto branded traits.

    In addition, by acquiring Delta & Pine Land and its 50% market share of the cotton seed market, Monsanto will control not only cotton traits but cotton seeds. Permitting one company to be the dominant company in cotton traits and cotton seeds is just bad policy and increases the vulnerability of farmers and consumers by subjecting them to the whims of one company.

    The Department of Justice's proposed consent decree regarding this acquisition offers little hope in terms of greater competition and increased choice for Wisconsin farmers and consumers. The consent decree, which requires Monsanto to divest Stoneville (with its limited market share) and a few lines of germplasm, does not even come close to replacing an independent Delta & Pine Land, and is inadequate to restore competition. Wisconsin Farmers Union therefore urges the Department of Justice to withdraw its consent decree or, if it does not do so, for the court to reject it.

    Sincerely,

    Susan Beitlich,

    President.

    FR Doc. E8-5578 Filed 4-3-08; 8:45 am

    BILLING CODE 4410-11-M

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