May 10, 2019

Syngenta’s settlement: Will this create barriers to the pipeline of biotech crops?

Thomas Redick

Syngenta, an agricultural company that produces agrochemicals and seeds, faces litigation for disrupting U.S. corn exports to China. The verdicts and settlements in these grower and grain trader negligence cases could create potential barriers for biotech crops in the future. With new tools for plant breeding arriving on the market in the form of genetic editing, the threat of liability could undermine innovation for years to come.

Factual background—misleading messages on China approval

Major market approval policies were invented by growers, in particular, the American Soybean Association—my client—in 1998 in negotiations to mitigate potential trade disruption by biotech crops that had not yet received approval by foreign regulatory agencies. A “major” market is calculated using a five-year rolling average of exports of U.S. soybeans, with the top 10 markets clearly “major” for soybeans and the rest subject to biannual confidential negotiations whereby growers, grain traders, and seed companies come to consensus (for corn exports, however, only Japan has been considered a “major” market historically, with Mexico, China, and Taiwan emerging as possible major markets). Seed companies participate in these meetings knowing that if they violate these industry standards their company could, according to these policies, be liable in a common law negligence lawsuit for causing adverse economic impacts to growers and grain traders (with billions of dollars in compensation paid to growers and grain traders). As seen below, however, recent litigation involving the company Syngenta, seeks to extend this duty to regulatory approval in markets that have not necessarily become “major” at a given moment in time, but might qualify as a “major” market in the future. These trends may prove difficult for seed companies to manage, however. Predicting grain trade should arguably be reserved for commodity traders, not seed companies with limited resources, which now face uncertain, perhaps unmanageable, liability risks.

The Syngenta litigation illustrates why this is so. In 2011, Syngenta obtained regulatory approval for the sale of its biotech corn trait, Agrisure Viptera® MIR162 (Viptera) from regulatory authorities in a host of countries: the United States, Argentina, Japan, Canada, and the European Union. It had not obtained such approval in China. Syngenta touts Viptera’s ability to control above-ground insects. Syngenta commercialized and began selling Viptera in the United States that year, and nationwide planting of Viptera corn began.

Syngenta sought importation and cultivation approval from China’s Ministry of Agriculture in March 2010, and expected approval to be issued in 2012. However, China had not yet indicated any intent to buy significant shipments of U.S. corn in 2011. In mid-2011, citing “market signals” coming from China about its corn needs and anticipated selling of corn to China, major grain trading companies told growers that they would not buy Viptera corn.

Syngenta ignored grain trader warnings, however, and continued to sell Viptera in the United States in 2011 and 2012. Syngenta’s decision had the support of the National Corn Growers Association (NCGA) and followed industry precedent. In so doing, NCGA appeared to place innovation needs (e.g., to kill insects) ahead of export-related concerns. China went from importing 1.2 million metric tons (MMT) of U.S. corn in 2009–10 (China was at that time the sixth largest U.S. corn market) to 0.98 MMT in 2010–11 (downgraded to the fifth largest U.S. corn market). Based on these minimal exports, which were declining, NCGA did not consider China to qualify as a “major” market in 2011, when Viptera was sold to corn growers.

Meanwhile, China steadily increased its U.S. corn imports and kept buying U.S. corn with traces of these unapproved corn varieties for two years, testing and banning U.S. corn only in November 2013 after finding the presence of Viptera. Like most nations, China had a zero-tolerance policy on the import of biotech corn traits that had not been approved by its government. (The United States and other nations with regulatory approval for biotech crops also impose zero or very low tolerances for unapproved varieties.) After China banned all U.S. corn imports, a grain trade association economist in April 2014 stated that Syngenta’s decision to market corn without China’s approval caused billion-dollar economic impacts. See Max Fisher, Lack of Chinese Approval for Import of U.S. Agricultural Products Containing Agrisure Viptera™ MIR 162: A Case Study on Economic Impacts in Marketing Year 2013/14, Nat’l Grain & Feed Ass’n (Apr. 16, 2014). Then, in late 2014, China approved Viptera.

These events seem to suggest that Syngenta’s chief executive officer was ill-advised when he told stakeholders that China would approve Viptera in March 2012. Syngenta should have known, perhaps, based on feedback from regulatory agencies in China, that approval might take until 2014. See Paul Christensen, Chinese Approval of Syngenta Agrisure Viptera, Seed in Context Blog (Feb. 21, 2012).

Summary of litigation against Syngenta

The fallout from these events led to litigation in U.S. courts. Certain corn growers asserted claims in state and federal court; at the same time, certain grain traders brought claims for negligence and various other claims. See, e.g., Hadden Farms Inc. v. Syngenta Corp., No. 3:14-cv-03302-SEM-TSH (C.D. Ill. filed Oct. 3, 2014) (“Syngenta Corn Class Action”). The federal grower cases were consolidated in multidistrict litigation (MDL) in the U.S. District Court for the District of Kansas. Plaintiffs claimed that Syngenta had (a) failed to follow industry standards for stewardship by allowing Viptera to disrupt exports and additionally (b) falsely told growers that China would approve Viptera in 2012 (not 2014). In the first test-plaintiff MDL trial against Syngenta in June 2017, the jury awarded plaintiffs (over 7,000 Kansas-based farmers) a total of $217.7 million.

In another case, an Ohio state court’s verdict held Syngenta liable for causing “physical harm” to growers but held that the economic loss sought by growers was barred by the “economic loss doctrine.” Fostoria Ethanol, LLC vs. Syngenta Seeds, Inc., Ct. of Common Pleas of Seneca Cnty., Ohio, Case No. 15-CV-0323 (June 28, 2017) (granting motion to dismiss).

Parallel negligence actions in Louisiana state court brought by Cargill will be going to trial in mid-2019, with delays possible into September. Louis Dreyfus Co., another grain trader, has brought a similar case pending in Kansas District Court (the trial is set to take place in September). Efforts to settle as of April 2019 have been fruitless in both cases, according to counsel for Syngenta. Other cases have been successfully settled. For example, in 2017, Syngenta settled grower class actions for up to $1.5 billion, excluding pending cases filed by grain traders Cargill, Louis Dreyfus Co. and Archer Daniels Midland Co. This court-approved settlement would include over 600,000 corn growers in the U.S. Corn Belt. Tiffany Dowell, Syngenta Settlement: What Producers Need to Know, Texas Agriculture Law Blog (May 7, 2018).

Conclusion

The decisions and settlements discussed above will define the boundaries of tort law in agricultural biotechnology. In particular, the new pipeline of genetic editing traits, including those developed by smaller companies, may not be able to meet the high cost of seeking overseas approvals that will be needed prior to marketing a crop in “major” markets. This could prevent the realization of benefits of new forms of genetic engineering and preclude the creation of perhaps the safest and most sustainable crops ever planted.

Thomas Redick

Thomas Redicks solo practice is Global Environmental Ethics Counsel, LLC in Spring Lake, Michigan. He is the Articles vice chair for the Section’s Agricultural Management Committee.