Last week, the European Commission confirmed that it had cleared the proposed merger between Bayer and Monsanto, the third mega-merger in recent times between seeds / pesticides giants following those between ChemChina and Syngenta, and Dow and DuPont.
In common with the previous mergers in the sector, the Commission has required divestments and commitments by the parties in order to remove problematic areas of overlap. And these again focussed not only on existing products, but on areas of innovation where both parties had active R&D projects.
The full decision is not yet available, so it is unclear whether the Commission has gone as far in identifying potential ‘innovation spaces’ as in Dow/DuPont, where it used a patent citation analysis to measure ‘innovation output’ (see the relevant section of our Survey of IP/competition law developments from 2017 for more detail). However, it has identified a number of areas of where innovation needed to be protected before the merger could be approved, including innovation competition in:
• GM and non-GM traits (i.e. specific plant features traceable to identifiable genes) conferring herbicide tolerance or insect resistance, and
• herbicides / herbicide systems (i.e. herbicide combined with a trait ensuring herbicide tolerance).
Other areas of innovation (e.g. biological pesticides) were not considered to raise competition concerns.
Relevant commitments offered by Bayer include divestment of its vegetable seed and broadacre (i.e. large-scale agricultural) seeds and traits businesses, including the associated R&D units in each case, as well as three specific lines of research for non-selective herbicides (to be divested to BASF, subject to a separate merger approval). Bayer also committed to license its digital agriculture offering and pipeline to BASF, allowing it to replicate Bayer’s position in the EEA (where Monsanto was otherwise the main competitor to Bayer’s system).
The increased focus on very early stage product developments is controversial. In its focus on ‘innovation spaces’, the Dow/DuPont merger traversed new ground in merger analysis, considering product pipelines at a time even before specific products may have been identified. Our new CLIP of the month, by Andrea Lofaro, Stephen Lewis and Paulo Abecasis is an ideal introduction to the economic questions involved, including whether consolidation is likely to decrease incentives to innovate (as the Commission fears) or whether it may in fact encourage innovation (both by the parties and by others in the market) and enhance the ability to take advantage of innovation that has been carried out.
Debate will no doubt continue over these questions for some time to come. In the meantime, Bayer and Monsanto will continue their efforts to obtain clearance for the transaction from other authorities, including the USA.