Focus on Life Sciences: The Importance of Intellectual Property Protections in the Plant Sciences Industry
Intellectual property ("IP") can be a source of significant change in an industry. The innovation that flows from new inventions, processes, or designs can have a tremendous impact on the direction and growth of industries. Of equal importance are the protections that creators place on their IP. IP protections help establish a framework that provides incentives to innovate. This is true within all industries, but the focus here highlights IP protections and their impact on the Plant Sciences industry.
The introduction of hybrid corn in the 1920s and its commercialization in the 1930s significantly transformed the field crop seed industry. Hybrid corn out-performed traditional open-pollinated varieties by providing superior yields and increased grower income. However, the increase in yields was not the only critical factor in creating the demand and initiating the birth of the seed industry that exists today. It was another characteristic – that hybrid offspring does not yield as much as the parent. If a farmer saved the seed from the hybrid crop to plant next year, they would typically see a significant drop in yield (and income). Hybrid corn had a natural form of IP protection that created demand for a product that previously didn't exist and helped create what has become a multi-billion dollar global industry. IP protection is a critical component in the process of developing and commercializing IP and in advancing industries or your firm's place within an industry.
Types of IP protection within Plant Sciences
Hybrid corn displays "hybrid vigor." In other words, saving seed from a hybrid corn crop to plant in the next season will result in a significant drop in yield. This is a natural form of IP protection. There is no legally recognized protection, but the inventor or breeder can still be protected from misappropriation of their IP. For example, seed breeders who develop and sell hybrid seed can be assured that they will not be competing against "saved seed" and that demand for their product will exist from year to year, creating an incentive for them to continue to research and breed in an attempt to develop the best hybrids. Other forms of natural (or non-legally created) IP protection include Trade Secrets and Know-How, which are related concepts that refer to specialized knowledge held by one or a few individuals or entities who guard the knowledge in order to prevent competitors from obtaining it or to prevent its widespread, public dissemination.
Hybrid corn and the natural IP protection inherent in it transformed the seed industry back in the 1930's. However, other major crops did not enjoy the same natural protection and the seed industry was primarily focused on corn. It was not until the Plant Variety Protection Act ("PVPA") was passed in 1970 that the seed industry took another evolutionary step forward. The PVPA was passed to "encourage the development of novel varieties of sexually reproduced plants and to make them available to the public, providing protection available to those who breed, develop, or discover them, and thereby promoting progress in agriculture in the public interest." The PVPA restricts the ability of others to sell a variety as seed, but does allow for growers to save seed to plant in subsequent seasons. The PVPA also allows use for research purposes. The PVPA helped spur the next evolution in the seed industry, and private breeders started focusing on other types of seed such as cotton, soybean, and vegetable seed. However, the PVPA was limited in its usefulness (partially because of its allowance of the practice of saving seed) and it wasn't until the development of genetically modified ("GM") seed that the industry advanced to its current state.
Patents provide legal protection to the patent holder by permitting the holder to restrict, or exclude altogether, others from utilizing the invention, process, or design protected by the patent for a specified period of time. GM seed can be protected through patents (seed varieties with genetic modifications can also be protected through PVPA certificates). The patentability of GM seed significantly reduced the practice of saving seed and created additional demand for patented seed for crops such as cotton, soybean, and others that do not display the natural IP protection of hybrid corn. There are a variety of patent types issued by the U.S. Patent and Trademark Office including Utility, Design, Plant, Reissue, and Statutory Invention Registration. For the Plant Sciences industry, Utility Patents and Plant Patents are the most relevant, both of which provide protection for up to twenty years from the date of the patent application filing:
- Utility Patents are issued for the invention of a process, machine, manufacture, or composition of matter, or improvements thereof. Most patents issued are Utility Patents, which are also referred to as "patents for invention."
- Plant Patents are issued for a new and distinct, invented, or discovered asexually reproduced plants including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state.
It is interesting to see how significant moments in the evolution of the commercial seed industry coincided with the discovery or creation of IP protection. These protections were a critical component in the creation and advances in the industry, creating the legal framework for entities to innovate and profit from those innovations.
RubinBrown has a dedicated group focused on the Life Sciences Industry to provide assurance, tax, and business advisory services for entities participating in the Life Sciences industry or supporting those that do. Specialized segments include Animal Health, Plant Sciences, Human Health, and Renewable Energy. For more information, please contact:
Steve Hays, CPA
Felicia Malter, CPA
Todd Pleimann, CPA
Kansas City Managing Partner
Rodney Rice, CPA
Jason Mannello, CFA
Plant Sciences Segment Leader
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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