Syngenta And Corteva Sued By FTC And States For Using Illegal Pay-to-Block Scheme

Date:10-04-2022

The Federal Trade Commission and a bipartisan coalition of 10 state attorneys general have filed a complaint in federal court against pesticide manufacturers Syngenta Crop Protection and Corteva, Inc. for allegedly paying distributors to block competitors from selling their cheaper generic products to farmers.

The complaint alleges that these big pesticide firms run so-called "loyalty programs" in which distributors only get paid if they limit business with competing manufacturers. Cutting off competition has allowed the defendants to inflate their prices and force American farmers to spend millions of dollars more for their products. The complaint seeks to shut down this illegal pay-to-block scheme and restore competition to affected markets.

"The FTC is suing to stop Syngenta and Corteva from maintaining their monopolies through harmful tactics that have jacked up pesticide prices for farmers," said FTC Chair Lina M. Khan. "By paying off distributors to block generic producers from the market, these giants have deprived farmers of cheaper and more innovative options. Our lawsuit in partnership with a bipartisan state coalition makes clear that we are united in our fight to stop abusive monopolies from squeezing America's farmers."

Syngenta and Corteva are two of the largest pesticide manufacturers operating in the United States. Syngenta, based in Switzerland, is a subsidiary of a Chinese state-owned company. Corteva, headquartered in Indianapolis, is the successor to the agriscience businesses of DuPont and Dow Chemical Company, which merged in 2017.

The FTC complaint centers on the two firms' efforts to artificially extend their patent monopolies. When a company creates a new pesticide, it can patent that invention, preventing anyone else from selling it for 20 years. Ordinarily, when the patent expires, generic versions of the product enter the market to compete with the original brand-name version. The arrival of generics pushes prices down. Instead of one company wielding a monopoly over a new product, many manufacturers can compete for farmers' business.

Syngenta and Corteva, however, take illegal steps to stop generic pesticides from eating into their monopoly profits, the complaint alleges. The companies set up "loyalty" programs in which they make payments to distributors-as long as the distributors keep their purchases of competing generic pesticides beneath a very low threshold.

Under this scheme, Syngenta and Corteva make more money than they would if they had to compete fairly with generics. Boxing out the competition allows them to keep charging such high prices that, even after compensating the distributors, they can maintain a large profit margin. Distributors pass those high prices along to farmers. And those prices are ultimately passed on to consumers.

The complaint alleges several ways in which the defendants' "loyalty" programs harm farmers, smaller pesticide manufacturers, and consumers:

*Inflating prices for farmers: By stifling generic competitors, Syngenta and Corteva maintain artificially high prices for their pesticides even after patents expire. They share some of the proceeds with distributors, who pass the higher prices down to farmers, who are stuck paying more for the products they need to protect their crops.

*Inflating prices for consumers: Rising input prices are passed along to the end consumer.

*Suppressing competition and innovation in the pesticide market: The loyalty payments deter distributors from dealing with generic manufacturers, and even keep some generics from entering the market at all-including with innovative new mixtures of existing pesticides that could compete with Syngenta's and Corteva's products.

The FTC's complaint is part of a broader push to unlock competition and innovation in the American economy, protect consumers and small businesses, and crack down on unfair tactics by dominant companies. The FTC has a long track record of suing to stop pay-for-delay schemes that reward generic drug makers for not competing. And this past June, the agency announced that it would ramp up enforcement against illegal rebates and kickback schemes to middlemen in the pharmaceutical industry aimed at keeping generic drugs out of the market-an anticompetitive tactic similar to the one alleged in today's complaint.

The complaint details the defendants' monopoly and market power, and the anticompetitive effects of their conduct, with respect to six particular crop-protection active ingredients. Syngenta has monopoly and market power in the United States with respect to azoxystrobin, a fungicide; and mesotrione and metolachlor, both herbicides. Corteva, meanwhile, has monopoly and market power in the United States with respect to the herbicide rimsulfuron and the insecticide and nematicide oxamyl. Corteva also has market power with respect to the herbicide acetochlor.

The complaint was approved by a unanimous vote of 4-0-1, with Commissioner Noah Joshua Phillips recused. It alleges that the defendants violated federal antitrust law by using unfair methods of competition, unlawfully conditioning rebates on the exclusion of competitive products, unreasonably restraining trade, and unlawfully maintaining monopolies. The defendants also violated state competition and consumer protection laws in California, Colorado, Illinois, Iowa, Indiana, Minnesota, Nebraska, Oregon, Texas, and Wisconsin, according to the complaint.

The complaint was joined by the attorneys general of California, Colorado, Illinois, Iowa, Indiana, Minnesota, Nebraska, Oregon, Texas, and Wisconsin.