Cambridge, United Kingdom
May 16, 2011
Author: Chris Green, Senova Ltd. / Breeders Intellectual Property Office
This is an extract that we submitted to the Community Plant Breeders Rights review, which is currently being undertaken by the CPVO (Community Plant Varieties Office)
In our mature seed market, we are increasingly challenged to secure improved value for varietal improvements. This position will remain as long as we hide the cost of royalty. We must adopt a more transparent approach and one is explained in the attached document.
For more details:
- Senova Ltd.
- Breeders Intellectual Property Office (BIPO Ltd)
Royalties and farm saved seed
Farm Saved Seed
Is this a concern?
YES AND NO
There are two answers to this question. Dealing with the YES first; we can say that as a seeds company the legal existence of farm saving seed of protected varieties erodes the potential of selling certified seed and therefore reduces the tonnage that goes through dedicated seed processing units. The costs of producing to certified seeds standards are high and can be expected to increase dramatically as governments look to secure full cost recovery for their certification schemes. A seed processor makes no profit from fss. As a plant breeder the answer can also be a Yes due to the high and unacceptable levels of evasion, the weak management control through not having burden of proof and finally the “sensibly lower rate” of royalty on fss actually devalues the genetics by more than a half. We can see no rational argument for why royalty should be less just because it is fss. After all it is because the grower appreciates the genetic value of the variety (its performance) on the farm that they opt to grow the variety again as fss.
And now to the No. As a plant breeder we develop and deliver genetic value. The problem has been that the traditional method of securing returns for the investment has been through the collection of royalties on certified seed sales. Regrettably once the certified seed has been sold, capture of any further royalties, such as that used as fss becomes difficult and costly. On the basis that the genetic delivery of a variety should be the same regardless of the origin of the planted material (certified or fss) then it is the system that is the problem. As royalty is part of the cost of certified seed and is not shown as a separate item the grower has then no understanding on either the cost or value of the genetics. Faced with this industry problem and continued evasion our company developed a new approach opting for a single unified royalty rate and invoicing the grower directly. This approach has now found favour with other plant breeders and is now being operated by a dedicated collection agency BIPO Ltd. (see later). The point here is if a breeder can secure royalty from all users of the protected variety (certified and fss) then fss as such is not a problem.
Do you try to enforce royalty collection? If so, how? What other organisations do you work with to help with enforcement/collection? If you do not pursue enforcement, why not?
Yes absolutely. Plant breeding is an activity, but the actual business should be about managing Intellectual Property. The BSPB system of royalty collection has been effective both for certified and fss royalty collection. However the continued unacceptable levels of evasion (especially in our minor crops) and the weak IP management (lack of burden of proof) led to our company initiating a new approach to royalty collection based on area planted ..hence the name Royalty Area Collection.
Royalty Area Collection
Royalty Area Collection (RAC) is the name given to a new business model for royalty collection which has been introduced by a number of British breeding companies and is now administered by a specialist company BIPO Ltd (Breeders Intellectual Property Office) www.bipo.org.uk
Royalty Transparency
Through innovation, plant breeders deliver new improved genetic varieties. The RAC approach addresses the industry need to have a greater transparency on the genetic value being delivered by improved new varieties. The certification system has proved a very convenient route for the collection of royalty and has served the industry well over many decades. This traditional system of royalty collection is largely based on royalty being included in the overall cost of certified seed. As such the actual cost, and therefore value of the genetics is lost as it is not shown as a separated costed item. It is important to appreciate the distinction between seed and genetics. PBR protected varieties have a unique genetic makeup. It is this make up that delivers the difference in performance from one variety to another. The challenge to the plant breeding industry is in some way to have the functional benefits of a variety more financially transparent. What the RAC endeavours to achieve is transparency through a genetic charge per hectare. In this way genetics can be treated as an input cost in the same way as agrochemicals or fertilizer. It must be remembered that the primary reason why a grower opts to save their own seed is that the variety performed well on that farm. If the performance was poor or did not fit that farm practice then it would not be grown. In providing a value per hectare then the grower can make a more informed financial decision on the worth of that variety.
Burden of Proof
In order to collect royalties on a protected variety the onus is on the breeder to have evidence on its usage. In the instance of certified seed this is relatively easy through the use of various licensing methods, but it becomes more difficult where that seed is subsequently taken as farm saved seed. A successfully bred variety will entry the market at Pre Basic or Basic stage from which point through successive seasons stocks are built up through its multiplication. This escalation increases the complexity of keeping track on usage.
At the onset of commercialisation a breeder will know to whom they have sold the seed. However from that point, with further multiplication and sales, the identity of the user becomes unclear. As volumes increase over time the actual management of the intellectual property becomes weaker. This is not a good position.
The RAC is a contract based approach with invoices going directly from the breeder to the grower. In this way a complete inventory on the users of a particular variety will be known to the breeder. This is significantly important on two counts. The first is that it provides the burden of proof of a user and hence better transparency and better management of the breeder’s IP, but importantly it can create a more dynamic relationship between the grower and the developer. For instance in the situation of a new variety with very specific quality characters the breeder can directly engage with the grower either assisting them with in season advice on such matters as disease warnings, inputs, or at harvest time, with quality analysis and post harvest exchanges regarding on the growers views and experience with that variety. It also opens up the opportunity for conducting performance or economic
Benchmarking. In some value chains it could also be used to harness considerable logistic benefits such as specific deliveries into the end user.
Equitable remuneration and fair for all
If the genetic expression of a variety remains the same regardless if it were established from certified or farm saved seed then the level of royalty should be the same. There is nothing equitable about the present system that is discriminatory in its reduction of genetic value by more than half when farm saved seed is used.
Breeders operating the RAC approach in Britain have adopted a single unified royalty rate with no distinction between certified and fss usage. This rate has been set at a lower value that would normally be charged on certified.
Value capture
Plant breeders receive their return for investment and innovation through internationally accepted Intellectual Property Rights (IPR) either via Patents, or Plant Variety Rights. IPR provides the legal basis not only to structure mechanisms to secure those returns (normally some form of royalty), but to have these rights enforced. Royalties are only paid on the success of a variety: there are no returns for failure. The rate of royalty charged should have some commercial correlation to the value, or added value being delivered from a specific variety. Unfortunately the traditional method of royalty collection on broad acre crops is through an inclusive charge on the cost of certified seed. In so doing this front end loading of the royalty charge actually increases the cost disparity between certified and farm saved seed. The continually need for breeders to secure returns on the basis of collecting royalties on certified seed exacerbates this imbalance.
The commercial model adopted by RAC users detaches the royalty from both certified seed and the volume of seed used and allows a level playing field for the exploitation of the genetics. Consider for one moment a new cereal variety with a yield advantage of 5%. This increased yield will be achieved without increasing the costs of agrochemicals, fertilizer or other growing costs. If the gross output (yield /per hectare X £ /tonne) of the standard cereal variety is £1,240 /ha then the variety with a 5% yield advantage delivers an additional £62 /ha. With one tonne of certified seed planting 7 hectares then the added value being delivered by each tonne of certified seed is equivalent to £434. How then should this added value be shared when the prevailing royalty rates in the UK hover in the mid £70s? Any substantial uplift in royalty (£10 -£15/ tonne) will be met with derision. Should that variety be a success on the farm and the grower opts for farm saved seed then the return to the breeder will be at best 50% of the certified rate yet the grower will still benefit from the net gain equivalent of £434 per tonne of seed planted. RAC moves the collection point and has a better commercial relationship to the value being added from improved genetics.
IPRs are successful in stimulating innovation as they operate in a free market and are fair to the innovator, user and society at large. In the case of seeds, especially broad acre crops, where reproduction (copying of the invention) is easy the traditional system has certain weaknesses which the RAC seeks to address through the adoption of a unified royalty rate and its transparent charges (royalty) imposed directly to the user of that IP ie the grower.
Legitimacy of Contract based systems
The Commission Regulation (EC)No 1768/95 implementing rules on the agricultural exemption provide for in Article 14 (3) of Council Regulation (EC) No 2100/94 on Community Plant variety rights allow under Chapter 3 for remuneration to be “the object of a contract between the holder and the farmer concerned”.
An important aspect of the RAC is the binding contract and conditions of sale that is offered to the grower and care must be exercise and in its communication along the supply chain.
The RAC is only one example of new value capture models being considered and others such as close loop contracts and end point royalties are also being developed.
Further information on the experiences of operating the Royalty Area Collection scheme may be had from contacting Chris Green at Senova 00 44 1223 890777
or e mail chris.green@senova.uk.com or from BIPO Ltd chris@bipo.org.uk
Topics
Species
