United States v. Monsanto Company and Delta and Pine Land Company; Public Comments and Response on Proposed Final Judgment

Federal RegisterApr 4, 2008

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DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Monsanto Company and Delta and Pine Land Company; Public Comments and Response on Proposed Final Judgment

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), the United States hereby publishes the comments received on the proposed Final Judgment in

United States

Monsanto Company and Delta and Pine Land Company

, No. 1:07-cv-00992, filed in the United States District Court for the District of Columbia on May 31, 2007, and the United States's response to those comments.

Copies of the comments and the United States's response to the comments are available for inspection at the Department of Justice Antitrust Division, 325 Seventh Street, NW., Room 215, Washington, DC 20530, (202) 514-2481, and at the Office of the Clerk of the United States District Court for the District of Columbia, 333 Constitution Avenue, NW., Washington, DC 20001. Copies of any of these materials may be obtained upon request and payment of a copying fee.

J. Robert Kramer II,

Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

[Civil Action No.: 1:07-cv-00992]

United States of America, Plaintiff, v. Monsanto Company and Delta and Pine Land Company, Defendants. Hon. Ricardo M. Urbina

Plaintiff United States's Response to Public Comments

Table of Contents

Plaintiff United States's Response to Public Comments

I. Background

A. The United States's Investigation of the Transaction

B. The Traited Cottonseed Markets

C. The Competitive Effects of the Transaction

D. The Proposed Remedy

II. Developments Since the Filing of the Complaint

A. Approval of Acquirers of the Enhanced Stoneville Assets

B. VipCot Assets Offered to Syngenta

C. Third Party License Modifications

D. Filing of Public Comments

III. The Standards Governing the Court's Public Interest Determination

A. The Appropriate Legal Standard

B. The Appropriate Inquiry Is Whether the Remedy Preserves Competition, Not Whether It Replicates DPL

IV. Response to Comments Criticizing the Sufficiency of the Remedy

A. Divestiture of the Stoneville Business Unit and Monsanto Germplasm Provide the Acquirer a Firm Foundation on Which to Compete in the MidSouth and Southeast Markets

1. Stoneville Infrastructure

2. Monsanto/Stoneville Germplasm

a. The Breeding Process

b. Stoneville Germplasm

c. Additional Monsanto Germplasm

i. Advanced Exotic Yield Lines

ii. MAB Populations

B. Additional DPL Germplasm Provides Important and Meaningful Value

1. The DPL germplasm is of high quality

2. The acquirer will be able to use this germplasm effectively

3. Monsanto/DPL's use of the germplasm does not diminish its value to the acquirer and provides farmers continued benefits

C. The Remedy Preserves Incentives and Opportunities for Effective Traited Cottonseed and Trait Development Competition

1. Syngenta will be able to effectively use the VipCot Assets

2. The remedy will preserve opportunities for trait developers to market non-Monsanto traits in competitive cottonseed

3. The remedy should not—and does not—guarantee the introduction of DuPont's OptimumGat trait

4. The remedy will preserve the number of “platforms” for trait development that existed pre-merger

V. Response to Comments That the Remedy Is Not Workable

A. The Divestitures and License Changes Are One-Time Events, Not Ongoing Behavioral Remedies

B. Monitoring Compliance With the Remedy Will Not Unduly Burden the United States or the Court

VI. Response to Comments That Raise Issues Beyond the Scope of the Court's Review

A. Crops Other Than Cotton

B. Conventional Cottonseed

C. The Southwest and West Traited Cottonseed Markets

D. Prices for Cottonseed Sold for Livestock Feed

E. Alleged Monsanto Exclusionary Business Practices

VII. Conclusion

Plaintiff United States Response To Public Comments

Pursuant to the requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h) (“APPA” or “Tunney Act”), the United States hereby responds to the public comments received regarding the proposed Final Judgment in this case. After careful consideration of the comments, the United States continues to believe that the proposed Final Judgment will provide an effective and appropriate remedy for the antitrust violation alleged in the Complaint. The United States will move the Court for entry of the proposed Final Judgment after the public comments and this Response have been published in the

Federal Register

, pursuant to 15 U.S.C. 16(d).

On May 31, 2007, the United States filed the Complaint in this matter alleging that the proposed acquisition of Delta and Pine Land Company (“DPL”) by Monsanto Company (“Monsanto”) would violate Section 7 of the Clayton Act, 15 U.S.C. 18. Simultaneously with the filing of the Complaint, the United States filed the proposed Final Judgment and a Stipulation signed by plaintiff and defendants consenting to the entry of the proposed Final Judgment after compliance with the requirements of the Tunney Act. Pursuant to those requirements, the United States filed a Competitive Impact Statement (“CIS”) in this Court on May 31, 2007; published the proposed Final Judgment and CIS in the

Federal Register

on June 15, 2007, see

United States

Monsanto Co.

and Delta and Pine Land Co., 72 Fed. Reg. 33336-01, 2007 WL 1708314; and published summaries of the terms of the proposed Final Judgment and CIS, together with directions for the submission of written comments relating to the proposed Final Judgment, in The Washington Post for seven days beginning on June 28, 2007 and ending on July 4, 2007. The 60-day period for public comments ended on August 27, 2007, and eleven comments were received as described below and are attached hereto.

I. Background

A. The United States Investigation of the Transaction

On August 14, 2006, Monsanto entered into an agreement to acquire DPL for approximately $1.5 billion. Over the following nine and a half months, the United States conducted an extensive, detailed investigation into the competitive effects of the proposed transaction. As part of this investigation, the United States issued Second Requests to the merging parties, as well as Civil Investigative Demands to all of the major cottonseed companies and cottonseed trait developers. The United States received and considered more than a million pages of responsive material and deposed relevant Monsanto and DPL executives. More than 125 interviews were conducted with customers, competitors, and others with knowledge of the industry and competitive conditions, including national and regional agricultural supply companies, grower organization representatives, USDA cotton experts, and agricultural economists and academics. The United States met repeatedly with concerned parties,

including DuPont, one of the commenters, analyzing their allegations and submissions.

The United States also spoke multiple times with representatives from the offices of the Attorneys General of 27 states interested in the progress of the United States investigation, including representatives of 16 of the 17 states where cotton is grown in the United States (Georgia's office elected not to participate). In this proceeding, thirteen states, representing less than 20% of U.S. cotton production, have signed onto a comment (discussed infra) questioning the proposed Final Judgment. Of the states signing the comment, Delaware, Kentucky, Rhode Island, Utah and West Virginia elected not to participate in any of the communications between the United States and states's representatives during the United States investigation. The comment does not explain either the scope of the investigation, if any, those non-participating states undertook to reach their conclusions or the reasons why none of the commenting states has initiated independent legal action to enjoin the transaction.

In its investigation, the United States considered the potential competitive effects of this transaction on numerous products and geographic areas. For several of these, the United States concluded that the proposed merger was unlikely to reduce competition.

As the Complaint alleges, the transaction did, however, threaten competition with respect to traited cottonseed sales in two geographic regions—the MidSouth and the Southeast.

Indeed, the United States concluded that, viewed as a whole, the transaction was likely to create some efficiencies that could benefit consumers. A Monsanto-DPL combination brings together firms with complementary strengths and assets. Monsanto has proficiency in transgenic trait development, and DPL had expertise in cottonseed breeding. Merging allows the two programs to operate in tandem. Through the integration of trait development and cottonseed breeding, traited cottonseed could reach consumers faster and at lower cost

See Complaint at 12-13.

B. The Traited Cottonseed Markets

Most cottonseed sold today contains “transgenic traits”—genetic material from other organisms that is inserted into the cottonseed germplasm to give the cotton plant desirable characteristics. Two types of transgenic traits currently are available: (1) Herbicide tolerance traits, such as Monsanto's “Roundup Ready” and recently introduced “Roundup Ready Flex” (“Flex”), which make the cotton plant able to withstand spraying with particular herbicides, and (2) insect resistance traits, such as Monsanto's “Bollgard” and new “Bollgard II,” which make the cotton plant toxic to certain pests.

Cotton farmers overwhelmingly prefer traited seeds because their use significantly reduces labor and input costs. In 2006, farmers planted about 87% of the cotton acres in the U.S. with traited seeds.

USDA Cotton Varieties Planted 2006 Crop Report

. Most traited cottonseed is “stacked” to include both herbicide-tolerant and insect-resistant traits. In the Southeast and MidSouth, 90.8% and 89.3% (respectively) of the seed sold in 2006 included both types of traits, and farmers now rarely purchase seed that contains only an insect-resistant trait.

Today, traited cottonseeds that contain only insect resistance account for less than 2% of total traited acres.

At the time the Complaint was filed, DPL and Monsanto, via its Stoneville business unit, were significant producers of traited cottonseed in the United States. Indeed, DPL and Stoneville together accounted for over 90% of traited cottonseed sales in the MidSouth and Southeast regions of the United States where cotton farmers place the most value on insect-resistant and herbicide-tolerant traits. That vigorous competition would have been lost as a result of the transaction.

As the Complaint alleges, Monsanto is currently the dominant provider of insect-resistant and herbicide-tolerant traits for cotton.

Monsanto's insect-resistant and herbicide-tolerant traits accounted for over 96% of the transgenic traits in cottonseed nationwide in 2006; over 98% of the traited cottonseed sold in 2006 in the MidSouth and Southeast contained Monsanto's traits. Indeed, Monsanto's traits are the only traits found in any of the traited cottonseed DPL sold prior to the merger.

See Complaint at 2-3.

DPL was, however, positioning itself to move away from Monsanto's traits by exploring options with several trait producers that were developing insect-resistant and herbicide-tolerant cotton traits. The most advanced of these efforts was work with Syngenta to introduce VipCot—an insect-resistant trait that would compete with Monsanto's Bollgard traits. DPL's work with Syngenta had reached a stage where DPL had successfully introduced VipCot into 42 of its elite breeding lines.

DPL had already stacked five of the VipCot traited lines with Flex prior to the merger and anticipated commercializing those lines in approximately 2009. Following DPL's breeding protocols, DPL anticipated that stacked versions of the other 37 VipCot lines would have been ready for commercialization sometime between 2012 through 2016.

As discussed below, the relief provided by the proposed Final Judgment calls for divestiture of 43 DPL lines containing VipCot. The 43rd line included in the VipCot Assets is a line that DPL acquired from Syngenta in 2006 that already contained VipCot.

DPL's efforts with respect to a non-Monsanto herbicide-tolerant trait were at a more preliminary stage. In the summer of 2006, DPL entered into a licensing agreement with DuPont to introduce seed with OptimumGat, an herbicide-tolerant trait that would compete with Monsanto's Flex trait. At the time the Complaint was filed, DPL had not successfully introduced OptimumGat into any of its elite breeding lines. Rather, development work to advance the OptimumGat project remained primarily with DuPont. As a backup to the OptimumGat venture, DPL had also entered into agreements to test two other herbicide-tolerant traits that would compete with Monsanto's Flex, including a trait being developed by Bayer called Glytol.

Using VipCot in combination with one of the three herbicide tolerance options that DPL was exploring, DPL envisioned bringing a limited quantity of cottonseed with a non-Monsanto stack of insect-resistant and herbicide-tolerant traits to market as early as 2012. But in light of standard breeding and testing time requirements, it likely would have taken DPL several years longer to entirely phase out Monsanto's traits. Equally important, DPL's ability or willingness to switch totally away from Monsanto's traits was dependent on several assumptions—namely that farmers were satisfied with VipCot's performance versus Monsanto's Bollgard traits, and that DPL found a successful non-Monsanto herbicide-tolerant trait in the next few years.

As the Complaint further alleges, Monsanto knew that DPL was working with other trait companies and feared that a possible outcome of those partnerships would be that DPL ceased offering Monsanto's traits in its cottonseeds.

Monsanto thus had begun to take steps to strengthen its own proprietary seed platform to support its cottonseed trait business. In fact, the United States's investigation revealed that Monsanto was making a concerted effort to grow its share of traited cottonseed sales.

See Complaint at 9-10.

Foremost among these efforts was Monsanto's acquisition in 2005 of Stoneville, which had approximately 15% of the market for traited cottonseed nationwide and a 33% and 9% share of the MidSouth and Southeast markets, respectively. After acquiring Stoneville, Monsanto made significant investments in the company, including: Investing in upgrades of new buildings and

greenhouses, lab equipment, ginning and delinting equipment, and warehouse and equipment storage; hiring additional employees for the breeding facilities, particularly at its Maricopa, Arizona, breeding facility which targeted creating varieties for the Southeast; improving Stoneville's manufacturing facilities, such as adding bagging, dust collection, and handling equipment; and improving Stoneville's molecular marker capabilities and library.

Monsanto also had been engaging in other efforts to develop proprietary cotton germplasm. Those included (a) researching exotic strains of cottonseed (which the proposed Final Judgment refers to as the “Advanced Exotic Yield Lines”), (b) mapping molecular markers for select breeding crosses that would enable Monsanto to expedite identification and further breeding of the most promising progeny from those crosses (which the proposed Final Judgment refers to as the “MAB Populations”), and (c) establishing the Cotton States program, through which Monsanto obtains licenses to promising germplasm from university breeding programs and private breeders, and, after introducing traits, licenses the resulting traited cottonseed varieties to small cottonseed companies and distributors seeking to sell traited cottonseed under their own brands.

Monsanto's internal business plans projected that as a result of these efforts, Stoneville's market share in the Southeast and MidSouth would grow substantially over the next few years. Indeed, Monsanto projected that Stoneville, with Monsanto traits, and DPL, with non-Monsanto traits, would have roughly equal market shares by approximately 2015, with Dow and Bayer traited seeds holding much smaller shares. Accordingly, if unremedied, the combination of Monsanto and DPL would have combined the two largest traited cottonseed options for farmers in the MidSouth and Southeast.

The United States's investigation found that Bayer's efforts prior to the merger to develop germplasm for the Southeast and MidSouth, if successful, would not likely bear fruit any sooner than 2016. Given the early stage of Bayer's breeding efforts in those geographic areas, the United States did not rely on this as a source of potential entry. In contrast, Dow has developed some varieties suitable for the MidSouth and potentially the Southeast, which will enter the market some time in the 2008 to 2011 time frame. However, given limitations in its current trait licensing agreements with Monsanto, it was unclear that entry of Dow varieties would have a significant competitive effect in those markets.

C. The Competitive Effects of the Transaction

Based on this evidence, the United States determined that the merger of the two companies would likely lessen competition in the near, medium and long term. In the near term, absent the transaction, Monsanto's efforts to increase Stoneville share in the MidSouth and Southeast would give farmers more choices and could lead to lower prices.

Also in the near term (beginning in approximately 2009), the entry of DPL seed containing Syngenta's VipCot trait stacked with Monsanto's Flex trait could have offered farmers a new insect-resistant trait option and put some pressure on the price for insect-resistant traits.

The United States's investigation revealed that the most significant competitive effect of the transaction likely would have occurred in the medium term (beginning in approximately 2012) when DPL would first be able to offer cottonseed stacked solely with non-Monsanto traits and farmers in the MidSouth and Southeast would benefit from the emergence of competition between two germplasm/trait platforms, namely, Stoneville seed with Monsanto traits and DPL seed with VipCot and a non-Monsanto herbicide-tolerant trait.

With its dominance in traits, Monsanto might have recaptured any seed price reductions through higher trait fees.

Because DPL would have had to combine VipCot with a Monsanto herbicide-tolerant trait, Monsanto might have recaptured any reduction in fees for an insect-resistant trait through increases in fees for Monsanto's herbicide-tolerant trait.

The United States also found that Monsanto's acquisition of DPL, if unremedied, would threaten longer term harm by deterring or delaying the entry of new types of cotton traits in the MidSouth and Southeast.

Cotton trait developers would not have a seed partner independent of Monsanto with seeds suitable for the MidSouth and Southeast. Given the significance of the MidSouth and Southeast cotton growing regions, the inability to reach farmers in these regions would reduce potential returns from investments in developing cotton traits. And even if other potential sources of revenue for trait developers were sufficient to support continued investment in cotton trait development,

the benefits of these investments would not reach farmers in the MidSouth and Southeast.

In addition to potentially new insect resistant and herbicide tolerant traits, there is current transgenic trait research regarding, among other things, drought tolerance, nematode resistance and yield.

These other revenue opportunities arise from the fact that (a) many potential cotton traits have applications across other crops, including corn and soy, that offer significantly more revenue potential than cotton, (b) the demand for traited cottonseed outside the United States is significant and growing, and (c) there is substantial cotton acreage within the United States in regions other than the MidSouth and Southeast, namely the Southwest and West.

D. The Proposed Remedy

The proposed Final Judgment remedies the anticompetitive effects of the acquisition alleged in the Complaint-the elimination of competition between DPL and Monsanto for the development, breeding and sale of traited cottonseed and the elimination of DPL as a partner independent of Monsanto for developers of traits that would compete against Monsanto-in three principal ways:

First, the proposed Final Judgment requires Monsanto to divest the Enhanced Stoneville Assets to an acquirer who is capable of using the assets to compete effectively. The Enhanced Stoneville Assets include Stoneville's U.S. cottonseed business, key cottonseed lines developed by DPL for the MidSouth and Southeast, and additional Monsanto cotton breeding assets.

The Enhanced Stoneville Assets provide the acquirer what it needs to continue Monsanto's efforts to increase Stoneville's share and be an effective ongoing seed competitor in the near term and beyond. Moreover, the acquirer will be able to use these assets, on its own or in partnership with other trait developers, to breed and commercialize high quality cottonseed for the MidSouth and Southeast with non-Monsanto traits, preserving medium and longer-term competition that would otherwise have been lost as a result of the merger.

Second, the proposed Final Judgment requires Monsanto to divest the VipCot assets to Syngenta and to allow Syngenta to breed with the VipCot traited lines. This will preserve the potential for near term benefits from VipCot entry, as well as medium and longer term benefits from stacking VipCot with non-Monsanto herbicide traits (including other nascent traits) and developing improved germplasm.

Third, the proposed Final Judgment requires Monsanto to modify two sets of licenses to eliminate restrictions on the use of non-Monsanto traits: (1) Its cottonseed trait licenses with seed companies to permit licensees to breed and sell, without penalty, cottonseed containing non-Monsanto traits and cottonseed containing both licensed Monsanto traits and non-Monsanto traits, and (2) its Cotton States licenses to remove any provision that allows Monsanto to terminate the license if the

licensee sells cottonseed containing other traits.

In the United States's judgment, the asset divestitures and license modifications required by the proposed Final Judgment remedy the competitive harms identified in the Complaint.

II. Developments Since the Filing of the Complaint

The United States filed the Complaint and Proposed Final Judgment on May 31, 2007. The Court entered the Hold Separate and Preservation of Assets Stipulation and Order on June 1, 2007, and Monsanto completed its acquisition of DPL on that same date. Since the filing of the Complaint, the following events have occurred in furtherance of the requirements set forth in the proposed Final Judgment and the Tunney Act:

A. Approval of Acquirers of the Enhanced Stoneville Assets

Section IV.E. of the proposed Final Judgment requires defendants to divest the Enhanced Stoneville Assets to an acquirer acceptable to the United States. The acquirer must have a credible commitment to the traited cottonseed market and have the intent and capability of competing effectively. Shortly after acquiring DPL, Monsanto proffered Bayer CropScience (“Bayer”) and Americot Inc. (“Americot”) to the United States as potential acquirers of the Enhanced Stoneville Assets, with Bayer set to acquire all of the divestiture package except for certain assets relating to the Southwest market which would be sold to Americot. The United States evaluated the proposed acquirers, including analyzing the terms of the proposed purchase agreements, the terms of other recent contracts between Monsanto and Bayer, the market presence of both proposed acquirers, and other information bearing upon the acquirers' capabilities to use the divested assets effectively in competition with Monsanto/DPL.

The United States was already familiar with both Bayer and Americot's existing U.S. cottonseed operations, having interviewed representatives of these companies on numerous occasions and reviewed business documents provided by both companies during the Monsanto/DPL investigation.

Bayer proposed to purchase the bulk of the Enhanced Stoneville Assets for $310 million. Its commitment to the cottonseed market is demonstrated by, among other things, its successful entry into the Southwest cottonseed market under the Fibermax and AFD brands.

Bayer's growth in this market has been impressive; it entered the Southwest market in 1999 and, by 2006, had a significant share of seed sales in that region and had displaced DPL as the market leader. In addition to cottonseed sales, Bayer has had an active cottonseed trait development program, which has resulted in the marketplace introduction of its Liberty Link herbicide-tolerant trait.

In addition to these cottonseed efforts, Bayer also operates one of the world's largest crop protection and agricultural chemical companies, providing it ready access to agricultural distribution channels in the MidSouth and Southeast as well as pesticide, herbicide, and seed treatment products to complement its cottonseed offerings.

Bayer's willingness to commit such a large amount of capital to acquiring the assets also tends to indicate Bayer's interest in using the Enhanced Stoneville Assets to create a viable competitor to Monsanto/DPL.

Liberty Link makes cotton tolerant to glufosinate herbicides and is only available in Bayer's FiberMax cottonseeds, which are primarily used in the Southwest where they perform well.

Despite these strengths, Bayer has not been successful in cottonseed sales in the MidSouth and Southeast, largely as a result of inferior germplasm for those regions. Acquiring the Enhanced Stoneville Assets will enable Bayer to become a more effective competitor in the MidSouth and Southeast

by giving Bayer high-quality germplasm specifically targeted toward the regions' growing conditions, breeding stations focused on developing varieties for those regions, and experienced personnel.

Upon acquiring Stoneville, Bayer publicly noted, “[t]he new germplasm and the geographic reach of the Stoneville business East of Texas ideally complement Bayer's cotton seed and trait business.” See May 31, 2007 press release, “Bayer CropScience agrees to acquire U.S. cotton seed company Stoneville for US-$310 million,” available at <

http://www.bayercropscience.com/bayer/cropscience/cscms.nsf/id/20070529_EN?open&ccm=400

In its submitted comments, DuPont specifically questions Bayer's ability to compete in the MidSouth and Southeast, citing the fact that Bayer had not successfully penetrated those markets in the past. DuPont Comments at 18. See also AAI Comments at 16. However, DuPont's claim merely highlights Bayer's prior difficulty in accessing or developing competitive germplasm for these regions, rather than speaking to Bayer's ability to succeed once it has such germplasm. That Bayer can fully succeed when it has access to competitive germplasm is well documented by its successful entry in the Southwest market.

To avoid creating any competitive issue in the Southwest where Bayer is strong, Bayer did not acquire that portion of the Enhanced Stoneville Assets best suited for producing traited cottonseed for the Southwest region of the United States—i.e., the assets related to Stoneville's NexGen brand of cottonseed.

Those assets, which include cottonseed lines and a dedicated breeding program targeting the Southwest, generated over $16 million in sales for Stoneville in 2006, and Monsanto projected they would generate $36 million in sales by 2010. Americot, a regional cottonseed company founded in 1987 that sells seed predominantly in west Texas, acquired the NexGen assets for just over $6 million. With a recently upgraded breeding facility dedicated to developing lines for the Southwest, Americot is well positioned to use the NexGen assets effectively.

Stoneville started its NexGen germplasm program to develop cottonseed adapted to growing conditions in the Southwest growing region. Bayer's Fibermax and AFD brands also have a significant presence in this region.

Based on analysis of these factors, the United States determined that divestiture of the Enhanced Stoneville Assets to Bayer and Americot satisfied the objectives of the proposed Final Judgment and approved the proposed acquirers. Monsanto divested the Enhanced Stoneville Assets on June 19, 2007.

The sale of divestiture assets during the pendency of the Tunney Act review of a proposed final judgment is consistent with the United States's standard practice, as is permitting closing of the transaction challenged in the Complaint. The materials filed with the Complaint included a Hold Separate and Preservation of Assets Stipulation, requiring the parties to maintain certain assets separate after the close of the merger (in this instance, DPL's assets) until the United States was assured that the acquirer or acquirers proposed by Monsanto for the Enhanced Stoneville Assets would meet the standards set forth in the proposed Final Judgment (i.e., the acquirer was capable of operating a viable cottonseed business using the divested assets). This procedural setting allowed Monsanto and DPL to close their merger shortly after the Complaint and Proposed Final Judgment were filed and to expeditiously complete the sale of the Enhanced Stoneville Assets to Bayer and Americot, thereby ensuring that neither the Enhanced Stoneville Assets nor DPL were held in competitive limbo during the pendency of the Court's review.

B. VipCot Assets Offered to Syngenta

Section V of the proposed Final Judgment requires Monsanto to offer certain DPL cottonseed lines containing Syngenta's traits (the “VipCot Assets”) to Syngenta. Under the proposed Final Judgment, Monsanto cannot satisfy the required divestiture of the VipCot Assets without the United States first approving the terms of the licenses pursuant to which Monsanto offers Syngenta the assets. Since May 31, 2007, the United States had numerous discussions with Monsanto and Syngenta regarding the terms of these licenses. On August 27, 2007, Monsanto and Syngenta entered into an interim Material Transfer and Use Agreement to facilitate transfer of VipCot traited cottonseed to Syngenta for further development prior to Monsanto providing final licenses that meet the

terms of the proposed Final Judgment. Pursuant to that agreement, Monsanto delivered to Syngenta certain seeds that the proposed Final Judgment requires Monsanto to offer to Syngenta. After obtaining approval from the United States, Monsanto, on November 27, 2007, offered to Syngenta the licenses required by the proposed Final Judgment.

C. Third Party License Modifications

Section VI of the proposed Final Judgment requires Monsanto to revise certain third-party cottonseed licenses and gives the United States sole discretion to approve the proposed revisions. The United States engaged in continuing negotiations with Monsanto to ensure that the revisions satisfied the terms of the proposed Final Judgment. On November 15, 2007, Monsanto, pursuant to Section VI.B. of the proposed Final Judgment, provided to the United States for its approval copies of the modified licenses Monsanto intended to offer to third party seed companies; the United States approved the modified licenses on November 20, 2007. Monsanto then provided to the licensees the offers containing the modified license language. The offers remain open until March 31, 2008.

D. Filing of Public Comments

During the 60-day public comment period called for by the Tunney Act, the United States received comments from the following eleven organizations and groups: the American Antitrust Institute (“AAI”); Attorneys General of Virginia, Arkansas, Delaware, Kentucky, Maryland, New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, Tennessee, Utah, and West Virginia (the “States”); California Consumers United (“CCU”); E.I. du Pont de Nemours & Co. (“DuPont”; the Illinois Stewardship Alliance (“ISA”); the International Center for Technology Assessment/Food Safety (“ICTA”); a comment signed by the president of Plains Justice, the president of the Women, Food, and Agriculture Network, and the president of the Iowa Farmers Union (“Plains Justice”); a comment signed by a group of Texas cotton gins and other cotton based associations (“Texas Cotton Associations”); the Ohio Farmers Union (“OFU”); the Organization for Competitive Markets (“OCM”); and the Wisconsin Farmers Union (“WFU”).

The criticisms offered by the Commenters generally fall into four areas: (1) The appropriate standard of review; (2) the sufficiency of the divestiture to preserve competition in the relevant markets; (3) the workability of the remedy; and (4) purported competitive harms not alleged in the Complaint. Upon careful review, the United States believes that nothing in the comments warrants any changes to the proposed Final Judgment or is sufficient to suggest that entry of the proposed Final Judgment is not in the public interest. We address these issues below and explain why the criticisms raised in the comments are not valid.

III. The Standards Governing the Court's Public Interest Determination

A. The Appropriate Legal Standard

As discussed in detail in the Competitive Impact Statement (at 23-27), the Court, in making the public interest determination called for by the Tunney Act, is required to consider certain factors listed in the Act relating to the competitive impact of the judgment and whether it adequately remedies the harm alleged in the complaint.

This public interest inquiry is necessarily a limited one as the United States is entitled to deference in crafting its antitrust settlements, especially with respect to the scope of its complaint and the adequacy of its remedy.

See generally United States

Microsoft Corp.,

56 F.3d 1448, 1458-62 (D.C. Cir. 1995);

United States

SBC Commc'ns,

489 F.Supp.2d 1, 12-17 (D.D.C. 2007).

See 15 U.S.C. 16(e)(1)(A) & (B). The Microsoft court explained that a court making a public interest determination under the Act should consider, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. Microsoft, 56 F.3d at 1458-62.

With respect to the scope of the complaint, the Tunney Act review does not provide for an examination of possible competitive harms the United States did not allege.

See, e.g., Microsoft,

56 F.3d at 1459 (stating that the district judge may not “reach beyond the complaint to evaluate claims that the government did

not

make”).

The reviewing court may look beyond the scope of the complaint only when the complaint has been “drafted so narrowly as to make a mockery of judicial power.”

SBC Commc'ns,

489 F.Supp.2d at 14. That is not the case here as the Complaint properly alleges the harm the transaction is likely to cause in the relevant product and geographic markets. Indeed, multiple commentors recognized the sufficiency of the Complaint: The States, for example, note that “the United States acknowledges the significant anticompetitive effects that the acquisition will have on the development, production and distribution of cotton biotech traits and seeds.”

DuPont similarly states that “the Complaint filed by the Justice Department's Antitrust Division details the serious harm to farmers and consumers that will result,” and further acknowledges that the “Complaint sets forth a clear and compelling story of the competitive injury that will result from the proposed transaction.”

Were a court to reject a proposed decree on the grounds that it failed to address harm not alleged in the complaint, it would offer the United States what the Court of Appeals for the D.C. Circuit referred to as a “difficult, perhaps Hobson's choice,” in that the United States would have to either redraft the complaint and pursue a case it believed had no merit, or drop its case and allow conduct it believed to be anticompetitive to go unremedied. Microsoft, 56 F.3d at 1456.

States Comments at 6.

DuPont Comments at 2 & 19.

With respect to the sufficiency of the proposed remedy, a district court must accord due respect to the United States's views of the nature of the case, its perception of the market structure, and its predictions as to the effect of proposed remedies.

E.g., SBC Commc'ns,

489 F.Supp.2d at 17 (United States entitled to “deference” as to “predictions about the efficacy of its remedies”); see also CIS at 24-26. Under this standard, the United States “need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.”

SBC Commc'ns,

489 F.Supp.2d at 17. DuPont, referencing the Division's review of Monsanto's abandoned attempt to purchase DPL in 1998, suggests that the “government has an extra burden * * * when it changes its view on an identical transaction.”

But the assertion finds no support in the language of the statute or the caselaw. This is not surprising given that it contravenes long-established precedent holding that a prosecutor's exercise of discretion carries no estoppel effect. Moreover, DuPont's position would inappropriately require the court to engage in extensive fact finding of historical events—in essence, a trial within a trial—simply to determine whether the two transactions were in fact “identical” and whether the government accepted a less effective remedy than it would have the first time.

DuPont Comments at 3.

In fact, DuPont's factual premise is flawed. Contrary to DuPont's suggestion, the fact that Monsanto abandoned its initial proposed acquisition of DPL in the face of a threatened enforcement action by the United States does not imply that no remedy would have been acceptable to the United States in 1999. Rather, it implies only that Monsanto was at that time unwilling to agree to remedies deemed necessary by the United States.

B. The Appropriate Inquiry Is Whether the Remedy Preserves Competition, Not Whether It Replicates DPL

Some of the commentors criticize the remedy, particularly the Enhanced Stoneville Assets divestiture, for not creating a competitor that mirrors DPL in scope and independence.

But they pose the wrong standard for evaluating the effectiveness of the remedy. Because the antitrust laws seek to protect competition, the purpose of the remedy is not to recreate DPL but to preserve the competition that DPL brought to the market—to ensure that cotton farmers continue to realize the competitive benefits they would have had but for the merger.

See,

e.g.

, States Comments at 7 (“divested Stoneville is not the equivalent of DPL”); WFU Comment at I (proposed remedy “does not even come close to replacing independent DPL”).

Thus, the key questions in evaluating the remedy are: (1) Does it ensure that farmers will continue to benefit from competition to develop, commercialize and sell cottonseed in the MidSouth and Southeast?, and (2) Does it preserve the likely benefits to competition that would have arisen from development of cottonseed for the MidSouth and Southeast containing non-Monsanto traits? The proposed remedy does both, as we explain in more detail below.

For some commentors, however, no remedy would suffice for this transaction or even any other potential acquisition of DPL. They essentially argue not only that the sole effective remedy in this case would be to block the transaction outright but that DPL must be kept as it is—independent of any trait provider—in perpetuity, available at any time for partnership with any trait provider that chooses to work with it.

This is a extraordinary proposition, and it is wrong. It relies on a static view of the market, presuming that DPL is essential to a competitive traited cottonseed market; it discounts the incentives and abilities of others, such as Bayer and Syngenta, to compete; it ignores market facts, such as Stoneville's efforts and growing success in the MidSouth and Southeast; and it would deny DPL and consumers the efficiencies that would come from vertical integration with a trait provider (evidenced by the significant number of seed companies that are vertically integrated into trait development).

See, e.g., States Comments at 7 (“[S]toneville has been divested to Bayer, a trait development competitor of Monsanto. Because of this, Stoneville can never duplicate DPL's unique position as an independent cotton seed company that can use its successful and high-quality germplasm to partner with several different biotech companies to develop viable competitive alternatives to Monsanto's monopolies in traits.”); OFU Comments at 1 (Enhanced Stoneville Assets do “not take the place of an independent Delta and Pine Land”).

In short, the remedy, when considered in light of the applicable legal standard and the appropriate inquiry, satisfies the public interest requirements set forth in the Tunney Act.

IV. Response to Comments Criticizing the Sufficiency of the Remedy

Several commenters offer criticisms regarding the sufficiency of particular aspects of the remedy.

Before addressing these criticisms, it is important to note that the remedy should be evaluated as a whole. It is not necessary that each asset included within the remedy package, on a stand-alone basis, sufficiently preserves competition. Rather, the key determination is whether, as directed by the proposed Final Judgment, the entire remedy maintains competition for the development, commercialization and sale of traited cottonseed in the relevant markets. The remedy here accomplishes this goal by bringing together:

See States Comments at 6-8; ICTA Comments at 6-8; AAI Comments at 8-16; DuPont Comments at 9-18; OFU Comments at 1; WFU Comments at 1; Texas Cotton Associations at 2; ICTA Comments at 1; Plains Justice Comments at 1; ISA Comments at 1; 0CM Comments at 2.

• An ongoing, historically successful cottonseed company, Stoneville, that has sold cottonseed in the MidSouth and Southeast since 1922, and in which Monsanto has recently invested heavily;

• Changes in Stoneville's trait licenses with Monsanto that give the purchaser of the Enhanced Stoneville Assets terms similar to those held by DPL;

• All of Monsanto's ongoing germplasm enhancement efforts that supported its internal predictions of substantial Stoneville market share growth over the next five years;

• Eight DPL elite conventional breeding lines that serve as the germplasm source for approximately 60% of DPL's sales in the MidSouth and Southeast;

• Twelve DPL elite conventional breeding lines that DPL anticipated would be the germplasm source for its next generation of traited seed in the MidSouth and Southeast;

• The requirement that the purchaser of the Enhanced Stoneville Assets be capable of and committed to using the assets to compete for traited cottonseed sales in the relevant markets;

• Divestiture to Syngenta of the VipCot development work to prevent any significant delay in bringing cottonseed with non-Monsanto traits to the marketplace; and

• Changes in Monsanto's trait license agreements with other cottonseed companies to allow them, without penalty, to stack non-Monsanto and Monsanto traits and to sell cottonseed that includes non-Monsanto traits.

This far-reaching remedy does not depend on the future success of each and every one of its components. Even if some component of the remedy were to fall short of expectations—e.g., one of the next-generation DPL lines fails to continue exhibiting the high performance characteristics that it has exhibited thus far—it would not jeopardize the efficacy of the remedy. Taken as a whole, there is no question that the remedy satisfies its goal of curing the competitive harms alleged in the Complaint. Nevertheless, we respond below to commentors' particular concerns.

A. Divestiture of the Stoneville Business Unit and Monsanto Germplasm Provide the Acquirer a Firm Foundation on Which To Compete in the MidSouth and Southeast Markets

Some commenters claim that Stoneville will not provide the acquirer of the Enhanced Stoneville Assets with an adequate foundation on which to compete against Monsanto/DPL.

See DuPont Comments at 6, 13 and 14; 0CM Comments at 2; States Comments at 4 and 7.

Stoneville, however, is an ongoing business, which has operated in the relevant markets for over 80 years and has significant capabilities and growth potential. It offers high quality germplasm and has a strong developmental pipeline. Its divestiture, coupled with additional cotton germplasm from Monsanto's breeding programs, will provide the principal acquirer—Bayer—a well-developed infrastructure and significant germplasm assets.

1. Stoneville Infrastructure

When Monsanto acquired Stoneville in 2005, Stoneville was a freestanding cottonseed company with a strong breeding program, as well as a national sales and marketing force. These existing assets had been sufficient to position Stoneville as a national provider of traited cottonseed—second only to DPL in the MidSouth and Southeast. As described above, Monsanto nonetheless took several steps to enhance Stoneville's breeding capabilities. With these investments, Stoneville is poised for significant growth, as reflected by Monsanto's internal projections.

DuPont nevertheless suggests that Stoneville's lack of viability as an

ongoing business is evidenced by trait developers choosing not to work with Stoneville between 1999 and 2005, when Stoneville was independent of Monsanto.

In making this argument, DuPont fails to note the fundamental reason why trait companies, including DuPont, chose not to work with Stoneville; namely, that under Stoneville's licenses with Monsanto at that time, Stoneville could not stack a non-Monsanto trait with a Monsanto trait.

Similarly, Stoneville was likely to be reluctant to provide a platform for an unproven trait because the terms of its Monsanto licenses became less lucrative if it worked with a non-Monsanto trait (e.g., it received a smaller share of the trait fee collected by Monsanto from farmers). In contrast, DPL could freely work with non-Monsanto traits, including stacking them with Monsanto traits, without risking reduction in its fee share or losing its Monsanto trait license altogether. The Enhanced Stoneville Assets include trait licenses from Monsanto that are comparable to those held by DPL pre-merger, and free of the restrictions that previously existed in Stoneville's licenses.

DuPont Comments at 15.

DuPont further suggests that Stoneville's inferiority as a trait partner is evidenced by Monsanto choosing to purchase DPL. DuPont overlooks the important fact that DPL had a pending lawsuit against Monsanto under which Monsanto faced a potential $2 billion liability. By purchasing DPL, Monsanto eliminated that liability. Although not a merger-specific efficiency, eliminating this potential liability provides an explanation for Monsanto's decision to undertake the acquisition. Monsanto's desire to resolve that litigation also contradicts ISA's assertion that “the clear reason for Monsanto's acquisition of Delta is elimination of competition in seeds.” ISA Comments at 1.

DuPont also claims that the divestiture is insufficient in that it does not provide the acquirer enough breeding stations, comparing DPL's eleven global breeding stations with Stoneville's two breeding stations.

That comparison, however, is misleading. Though DPL has eleven breeding stations worldwide, only five develop varieties for the MidSouth and Southeast. The divestiture includes the two breeding facilities that Stoneville used for developing MidSouth and Southeast varieties,

and Bayer has two additional breeding stations located in those regions, bringing Bayer's total to four after the divestiture. Accordingly, as a result of the sale of Enhanced Stoneville assets to Bayer, DPL-Monsanto and Bayer will have breeding infrastructures similar in size and scope focused upon developing varieties suited for the MidSouth and Southeast.

DuPont Comments at 15; see also States Comments at 3.

Monsanto also used facilities in Georgia and North Carolina in part for cottonseed development. Because Monsanto used those facilities for development of several crops besides cotton, and Monsanto included in the Enhanced Stoneville Assets the cottonseed-related tangible assets kept at those sites, the United States did not require divestiture of the real property supporting those facilities.

2. Monsanto/Stoneville Germplasm

The remedy provides the acquirer of the Enhanced Stoneville Assets all U.S. Stoneville cotton germplasm, as well as germplasm from Monsanto's Advanced Exotic Yield and Marker Assisted Breeding programs. For various reasons, commentors fail to understand the significance of these divestitures.

a. The Breeding Process

Much of the criticism results from lack of familiarity with the cottonseed breeding process. To address that deficiency, we provide below a short primer on cottonseed development.

There are two breeding stages in the development of quality, traited cottonseed. Breeders first develop elite conventional (nontraited) lines and, from those, they proceed to develop commercial traited varieties. In developing an elite conventional line, the breeder begins by crossing two elite lines that the breeder anticipates will produce quality offspring. The result of that cross will be many progeny plants with differing characteristics. The breeder then evaluates and selects some subset of the progeny as promising enough to continue in the breeding process. In the greenhouse, the breeder then self-pollinates the progeny plant (i.e., crosses the plant with itself), evaluates its progeny, and makes further selections. This process is typically repeated four times in the greenhouse as the breeder continues to make selections based on observable plant characteristics. Promising lines then are grown in the field and subjected to additional testing.

At the end of this process, which takes approximately six years, the finished line can take either or both of two paths. If the seed company intends to commercialize the line as a conventional variety, the company will subject the line to an additional year of field trials and then over the course of the next two years “bulk” the line up for commercial sale. If the seed company intends to use the finished line as a traited variety, the seed company will subject the line to a separate procedure. The finished line (the “recurrent parent”) will first be crossed with a donor plant that contains the desired trait to introduce or “introgress” the trait into the recurrent parent line. After that initial cross, progeny plants are selected on the basis of agronomic characteristics and the presence of the trait. Those plants are then typically “backcrossed” with the recurrent parent, which involves pollinating the plants with pollen from the recurrent parent. Backcrossing brings the plant closer to the genetics of the recurrent parent, except that the trait is now present. Breeders typically backcross three to five times. Once the backcrossing is completed, the seed company puts the resulting traited seed through a period of increased testing and eventually bulking up for commercialization. Limited quantities of a traited variety from that recurrent parent will be commercially available approximately five years after the recurrent parent is available for breeding.

Breeding a traited variety from elite parents can take as little as four years or as long as seven. The seven year outer time frame can be reduced by several means, including: using counter-seasonal breeding; using molecular markers to reduce the number of crosses used in introgression and increase stages; using high quality germplasm as the trait donor, in the case of creating a stacked variety, using a trait donor that contains both of the desired traits; limiting the number of official variety trials prior to making the seed available for sale; and bringing a more limited volume of seed to market in the launch year.

b. Stoneville Germplasm

The proposed Final Judgment provides the acquirer of the Enhanced Stoneville Assets with all of Stoneville's U.S. germplasm.

DuPont, however, questions the likelihood that the varieties in Stoneville's development pipeline will be successful.

The evidence, however, shows the strength of the pipeline and, as Monsanto itself had predicted, its strong likelihood of commercial success.

As discussed above, this includes all germplasm with the exception of the NexGen varieties Americot acquired.

DuPont Comments at 9-10.

Stoneville has over fifty lines in its pipeline for possible commercialization in the MidSouth and Southeast between 2008 and 2012. Stoneville's pipeline is the product of its traditional focus on mid- to full-season varieties found in the MidSouth as well as a more-recent sustained and intensive research effort to develop germplasm suitable for the Southeast.

Stoneville has historically been more successful at capturing sales in the MidSouth than in the Southeast (as evidenced by its 2006 share of 16% in the MidSouth versus 8% in the Southeast) because its breeding program had focused primarily on varieties

harvestable early in the growing season. When Emergent Genetics (“Emergent”) acquired Stoneville in 1999, however, it saw the Southeast as a lucrative growth area and began taking steps to increase Stoneville's efforts to breed mid- to full-season varieties (i.e., varieties better suited to the longer growing season afforded in the more southern growing areas). To this end, in 2001 Emergent acquired Helena Chemical's breeding program, which included germplasm lines suited for the Southeast. In addition, Emergent established a breeding station in Arizona with the specific mission of breeding mid- and full-season varieties.

Full-season varieties typically perform better in the Southeast than the early- to mid-season varieties that excel in the MidSouth.

When Monsanto acquired Stoneville in 2005, it continued these efforts to breed varieties suitable for the Southeast, significantly increasing the number of testing plots and aggressively using counter-season production to accelerate the introduction of full-season varieties. According to Monsanto's internal field tests, conducted prior to entering the agreement to acquire DPL, several of Stoneville's lines are performing in yield trials on par with DPL's most successful varieties in the MidSouth and Southeast, DP555 and DP444. Indeed, Monsanto anticipated that its efforts to improve Stoneville's breeding program would result in Stoneville gradually increasing its national share from 13% in 2006 to nearly 20% by 2010 (this estimate did not include the likely share increases that would stem from germplasm being developed by Monsanto outside of Stoneville that the proposed Final Judgment also requires to be divested).

DuPont notes that Stoneville's share in the Southeast and MidSouth has been in decline as evidence that its potential to compete in the future is not bright. DuPont Comments at 14. However, because Emergent's and Monsanto's investments in Stoneville's breeding capabilities are so recent, Stoneville's share declines do not accurately reflect Stoneville's potential. In 2007, Stoneville reversed the trend of declining share. According to USDA's annual reports on cotton varieties planted, Stoneville's breeding efforts are, as Monsanto predicted, beginning to produce results. From 2006 to 2007, Stoneville's share increased from approximately 13% to 15% nationwide and from just over 8% to 11% in the Southeast.

c. Additional Monsanto Germplasm

The proposed Final Judgment also requires Monsanto to divest cotton lines from its valuable internal research and development efforts—the Advanced Exotic Yield lines and the Marker Assisted Breeding (“MAB”) populations—regardless of whether Monsanto considered those lines to be part of Stoneville. In this way, the remedy ensures that the acquirer has the breadth of Monsanto's cottonseed development programs that would have been used to compete against DPL absent the transaction.

i. Advanced Exotic Yield Lines

DuPont implicitly criticizes the inclusion of the Advanced Exotic Yield Lines in the divestiture package, suggesting that because the CIS describes the value of these developmental lines as “promising,” the lines likely will be of little commercial value to the acquirer of the Enhanced Stoneville Assets.

Although Monsanto started its Advanced Exotic Yield program as a means of identifying traits in exotic cotton plants that would increase yields when bred into more traditional commercial lines, that program also resulted in the creation of finished elite lines that have achieved significantly better yields in field tests than the current leading varieties in the MidSouth and Southeast. As noted in the CIS, Monsanto planned to bring the first traited varieties from these lines to market by 2009. Monsanto forecasted that these traited varieties would be a significant driver of market share for Stoneville.

DuPont Comments at 11 and 15.

Despite their origin in a trait research program, further breeding and commercialization of these lines requires only traditional breeding techniques.

AAI suggests that the acquirer will have little incentive to commercialize these varieties because they contain Monsanto traits. The comment offers no explanation of why the acquirer would forgo a significant profit opportunity by abandoning germplasm that appears to have significant advantages relative to competing germplasm that also contains Monsanto traits. In any case, Bayer has already publicly touted its acquisition of the Enhanced Stoneville Assets as including “access to additional high performing cotton products with insect-resistant and herbicide-tolerant Monsanto traits.”

Bayer, Investor Handout, Q2 2007,

http://www.investor.bayer.de/user_upload/2747/

AAI also contends that many of the Advanced Exotic Yield Lines “are of extremely limited value to the acquirer” because they already contain Monsanto traits and “[b]reeding out Monsanto traits and then breeding in competing traits will take a long time.”

AAI's criticism, however, reflects a misunderstanding of the value of the lines and the various methods by which the acquirer can use them. In the near term, the acquirer can commercialize varieties from the Advanced Exotic Yield Lines that currently contain Monsanto traits. Sales of such varieties likely would be important for the acquirer in growing Stoneville's market share. In the medium and longer terms, the acquirer can use the lines as breeding stock to introduce varieties containing, in whole or in part, non-Monsanto traits. It can do this by two different methods. First, it could simultaneously breed out any Monsanto traits that are not desired while breeding in new traits. Under this method, it could use any of the lines, including the four recurrent parents,

as a parent in crosses that ultimately result in commercial varieties containing the desired traits, including varieties containing only non-Monsanto traits. Such a process could be carried out within the five year time horizon during which DPL anticipated it could bring non-Monsanto traited seed to market.

Under the second method, which would take additional time, the acquirer could breed out the Monsanto traits to make new conventional lines

and then use those conventional lines as breeding stock to launch varieties containing non-Monsanto traits.

AAI Comments at 13.

One of the recurrent parents is a conventional line and can be used immediately for breeding a variety that contains only non-Monsanto traits. The other three recurrent parents were originally created by crossing a variety containing Bollgard with an exotic variety and those parents accordingly contain the Bollgard I trait. If Bayer chooses, it can use these three parents immediately to breed varieties that contain a stack of a non-Monsanto herbicide trait and Bollgard II (breeding in Bollgard II does not require breeding out Bollgard I).

Under this method, a breeder would cross an Advance Exotic Yield Line containing Monsanto traits with a line that contains non-Monsanto traits. The breeder can then select from the progeny offspring that lack the Monsanto traits and advance those offspring through traditional breeding methods to create the desired variety.

Breeders can create a finished conventional line by crossing an Advanced Exotic Yield Line containing Monsanto traits with a conventional line and then selecting progeny that lack traits for further breeding.

Commenters' concerns regarding the rights retained by Monsanto to the Advanced Exotic Yield Lines also lack merit.

The rights retained by Monsanto to these lines merely allow Monsanto to continue a trait research program that, if successful in identifying a yield trait that could be introgressed into cotton varieties, would significantly benefit cotton farmers. Moreover, the proposed Final Judgment makes clear that, whether or not its research program is successful, Monsanto cannot encumber in any way the acquirer's use of the Advanced Exotic Yield Lines.

See ICTA Comments at 7; AAI Comments at 9.

ii. MAB Populations

AAI and DuPont question the value of the MAB lines to the acquirer of the Enhanced Stoneville Assets, pointing to language in the CIS which states that

some of the MAB lines contain Monsanto's traits.

In essence, such comments suggest that the Enhanced Stoneville Assets divestiture is only effective as a remedy to the extent the divestiture gives the acquirer access to conventional cotton lines. Since the acquirer would need to breed Monsanto's traits out of some of the MAB lines to create non-Monsanto traited lines, the commenters conclude that the competitive value of the MAB lines to the acquirer is limited in the near term and at most questionable in the longer term. That conclusion is incorrect.

AAI Comments at 13; DuPont Comments at 11.

Monsanto's MAB cotton program involved identifying genetic markers for important agronomic characteristics in the progeny resulting from the cross of two elite lines. The goal of the MAB program was two-fold. First, breeders could use these markers to make better informed selections from the progeny plants and could thereby produce a variety that likely was agronomically superior to, and bred more quickly than, a variety derived from traditional breeding selection methods. Monsanto anticipated that commercial varieties from the MAB program would become available as early as 2012. Second, and in the longer term, a large library of such genotypic information would offer breeders the ability to make better decisions about what elite varieties to cross in the first instance. Accordingly, divesting the MAB populations and the accompanying molecular mapping data provides the acquirer of the Enhanced Stoneville Assets with germplasm and genetic information that will enhance its offerings over the medium term and provide a significant informational foundation for successful competition over the longer term.

With respect to the specific concern that the MAB populations are of little value to the acquirer because some contain Monsanto traits, the AAI overstates the scope of the limitation articulated in the CIS. While many of the MAB populations are based on a cross involving a parent that contains a Monsanto trait, approximately 37% of them are not. Moreover, as explained above, the time line for creating and commercializing conventional versions from lines containing Monsanto traits, or creating versions containing traits other than Monsanto's, is approximately five years.

B. Additional DPL Germplasm Provides Important and Meaningful Value

Given the growth projections in Monsanto's business documents, the Stoneville germplasm combined with the Monsanto Advanced Exotic Yield and MAB cottonseed lines arguably would be sufficient to enable the acquirer of the Enhanced Stoneville Assets to compete effectively against DPL cottonseed. However, the proposed Final Judgment seeks to further ensure effective competition by supplementing the Monsanto assets with certain key DPL germplasm lines consisting of 20 lines representing the pedigrees of many of DPL's popular current varieties in the MidSouth and Southeast as well as a significant portion of DPL's breeding pipeline for these areas. Commenters had several concerns regarding these 20 lines,

which we address below.

See AAI Comments at 12; DuPont Comments at 12; and OCM Comments at 3.

1. The DPL Germplasm Is of High Quality

Some commenters question whether the 20 DPL lines will produce competitive traited varieties.

The United States used two methods to select the 20 lines, both of which were designed to identify the lines that had the greatest chance of commercial success in the MidSouth and the Southeast. First, the United States looked to the germplasm in the pedigrees of the DPL varieties currently performing best in the MidSouth and Southeast (based on total sales). The eight divested DPL lines that fall into this germplasm category

are prevalent in the pedigrees of the DPL varieties most successful in the MidSouth and Southeast today; five of these lines

are the recurrent parents of the DPL varieties accounting for about 60% of DPL's 2006 cottonseed sales in the Southeast—the growing region where DPL holds the greatest share advantage.

Any of these lines could be used immediately as a recurrent parent for a traited variety, as well as for breeding stock for developing new elite lines.

For example, DuPont raises questions about the process used in selecting these 20 lines. DuPont Comments at 12. The AAI suggests that the chances of the government picking good varieties is low. AAI Comments at 13.

Lines DP 5690, DP 491, DP 2156, DP 565, DP 5305, DP 5415, and Delta Pearl.

Lines AZ2099, DP 491, DP 565, DP 415, and Delta Pearl. Delta Pearl is the recurrent parent of DPL's wildly successful DP 555 BGIRR (which accounted for over 18% of all U.S. cottonseed sales in 2007 and over 80% of total cottonseed sales in the Southeast in 2007). Dupont notes “the CIS does not disclose how many other DPL germplasm lines are represented in the lineage of these currently popular varieties.” DuPont Comments at 12. No other DPL germplasm lines are represented in the lineage of the traited varieties derived from these five lines.

OCM's and AAI's representation that these eight lines reflect only 1% of cotton acreage is based only on their share of sales when offered as conventional commercial varieties. OCM Comments at 3; AAI Comments at 12. However, the relevant statistic is the one cited above and in the CIS; namely, the role these lines have had in fostering DPL's current share of traited varieties in the MidSouth and Southeast.

Second, the United States examined what germplasm DPL was counting on for its future seed sales, recognizing that breeding programs are not static. Thus, the other twelve DPL lines included in the divestiture package—even though not currently offered for sale or found in the pedigrees of current bestsellers—were selected because DPL gave them the highest rating of the select group of lines that it had in the pipeline for trait introduction in its MidSouth and Southeast breeding programs.

DPL had in fact already introgressed Syngenta's VipCot trait—the foundation of DPL's effort to move away from Monsanto—into these lines, revealing DPL's confidence that they were most likely to produce high yielding varieties suitable for the MidSouth and Southeast.

These lines would likely have been the source for any non-Monsanto traited varieties that DPL would have brought to market in the MidSouth and Southeast from 2012 to 2016. Because these lines are finished elite lines, any competent breeder (such as the breeding personnel at Stoneville and Bayer) could have traited versions of any of these lines ready for commercialization within approximately the next five years,

i.e.

, within the same time frame that DPL could bring a non-Monsanto herbicide-tolerant seed to market.

The United States's investigation revealed that over the past several years DPL's breeders have established a four-tier system for ranking the potential of germplasm the breeders have under development. From 2004 (when DPL set up the rating system) to 2007, only fifteen lines across DPL's five MidSouth and Southeast oriented breeding stations received DPL's highest internal ranking. The ranks assigned by DPL reflect the results of extensive field testing. Under the proposed Final Judgment, twelve of those lines will go to the acquirer of the Enhanced Stoneville Assets.

Similarly, in 2006 DPL attempted to introduce potential OptimumGat events into seven DPL lines, hoping by that process to create a plant in which OptimumGat successfully imparted herbicide tolerance. While that attempt by DPL and DuPont failed to produce any potential candidates for use as an OptimumGat donor parent, the fact that all seven of the lines used in that experiment are among the twelve divested further demonstrates the high regard DPL had for these lines.

Thus, AAI's criticism (p. 12) that the “acquirer is therefore obtaining only the raw inputs necessary to breed varieties that could be commercially viable in the future and only after considerable expenditure” is incorrect.

Finally, some commenters opine that the mere fact that this germplasm has not yet been tested in the marketplace

inherently diminishes its value.

As discussed above, the divested material is hardly of unpredictable quality. The twelve lines of DPL germplasm were selected precisely because those lines' superior performance had already been observed and relied upon by DPL's breeders.

DPL was developing the next generation of germplasm that it planned to use in connection with marketing non-Monsanto traits. Divestiture of this germplasm will allow the acquirer to continue these efforts and not rely solely on currently available material.

See, e.g., ICTA Comments at 7 (“Twelve of the 20 lines are experimental lines with unproven and hence uncertain commercial potential.”).

In further support of its claim that 20 lines are insufficient, DuPont claims that “DPL introduced 64 unique cotton varieties in the past eight years, but only 14 ever came to represent 1% or more of annual U.S. cottonseed acres.” DuPont Comments at 16. The statistic, however, is misleading. One elite breeding line can result in multiple unique varieties in two independent ways: varieties with the same recurrent parent can be differentiated based on their trait composition; additionally, the process of introgressing a trait into a conventional elite parent may yield multiple promising and distinctive progeny that have commercial potential. For example, Delta Pearl is the recurrent parent of five traited varieties introduced by DPL between 2000 and 2006 as well as being offered as a conventional variety. Similarly, DP491 is the recurrent parent of four traited varieties as well as being offered as a conventional variety. Thus, divesting 20 lines provides the potential for many more than 20 commercial varieties.

2. The Acquirer Will Be Able To Use This Germplasm Effectively

Some commenters suggest that it will take the acquirer anywhere from eight to fifteen years to commercialize traited varieties from these 20 lines.

To fact, it should take far less time. Because all 20 of the DPL lines in the Enhanced Stoneville Assets are finished elite conventional lines, they can be immediately used as a recurrent parent for a cross with a trait donor. Assuming competing traits are available to breed into them, traited varieties from these lines could reach the market in approximately five years—the same general time frame in which DPL could have introduced non-Monsanto traited varieties absent the merger.

Several commenters, citing provisions in the Complaint (¶ 15) and the CIS (at p. 16), provide time frames ranging from eight to fifteen years for how long it would take the acquirer to bring traited varieties of the DPL germplasm to market. E.g., States Comments at 6 (8-10 years); AAI Comments at 12 (10 years); and OCM Comments at 2 (8-15 years).

Commenters ignore the fact that DPL has already completed the bulk of the breeding process on the divested lines (

i.e.

, the first six or seven years of making crosses and winnowing progeny). Commenters' citations to the Complaint and CIS are thus inapplicable. See Complaint ¶ 15 (referring to the time period for bringing a new variety to market from an initial cross of two cotton lines—the divested lines are well past that stage) and CIS at 16 (referring to DPL using the divested lines to bring varieties to market “over” the course of the next decade, not, as AAI suggests, for at least another ten years).

Contrary to DuPont's suggestion,

the acquirer of the Enhanced Stoneville Assets will not be at a disadvantage with respect to effectively using the DPL germplasm lines included in the package. The proposed Final Judgment specifically provides that the acquirer will receive applicable performance data and other information.

Such information transfers are a routine practice in the seed industry when germplasm or seed companies are bought or sold (which also occurs routinely)—the books, logs, and other documentation about a breeding line are transferred with the line even if the breeder does not go to the new owner of the line. These materials will readily allow the Stoneville breeders to understand the work that has been done on these lines to date and to move the lines forward in their breeding program.

DuPont Comments at 13.

See proposed Final Judgment Schedule B, Section 2.

Bayer has already received this information from DPL in conjunction with the divestiture of the 20 DPL lines.

The States also contend that “even post-acquisition, Monsanto retains the right to * * * preclude [the acquirer of the divested DPL lines from us[ing] them with non-Monsanto cotton biotech traits.” States Comments at 7. Under the proposed Final Judgment, the acquirer of the DPL lines can freely use them to create varieties that contain (a) solely non-Monsanto traits, (b) Monsanto's Bollgard II and non-Monsanto herbicide tolerant traits, and (c) Monsanto's Flex, non-Monsanto insect resistant traits and non-Monsanto herbicide tolerant traits. The only limitation regarding use of non-Monsanto traits is that for a period of seven years the acquirer cannot commercialize varieties from the DPL lines that solely have Bollgard II, Flex and a non-glyphosate cotton herbicide tolerant trait currently commercialized in cotton. The only non-glyphosate cotton herbicide tolerant trait currently commercialized in cotton is Bayer's Liberty Link. This limitation adds to Bayer's incentive to introduce a non-Monsanto glyphosate tolerant cotton trait as a substitute for Monsanto's Flex.

3. Monsanto/DPL's Use of the Germplasm Does Not Diminish Its Value to the Acquirer and Provides Farmers Continued Benefits

Some commenters claim that the fact that Monsanto retained the right to continue working with the DPL lines, so long as the commercialized variety contains Monsanto-only traits, means that these lines have little value to the acquirer

and provides Monsanto an improper benefit.

First, to the extent that the DPL germplasm provides the acquirer of the Enhanced Stoneville Assets with a variety that has strong agronomic characteristics, the acquirer will have every incentive to market that product. Indeed, rather than being reason for concern, Monsanto's desire to retain rights to these lines is further indication of the value of this germplasm within DPL's breeding program.

States Comments at 7 (“even post-acquisition, Monsanto retains the right to sell the most popular seeds from those lines”); OAG at 3 (20 lines “is not even a true divestiture”); DuPont Comments at 13 (divestiture of DPL germplasm is non-exclusive).

ICTA Comments at 7; see also AAI Comments at 10; DuPont Comments at 13.

Second, the licensing back of the lines to Monsanto/DPL benefits cotton farmers. For example, if Monsanto did not have a license for the to-be-divested DPL lines that are recurrent parents to existing DPL traited varieties (including DP555, which contains Monsanto's traits), Monsanto would have to remove these varieties from the market, significantly limiting options for cotton farmers. Similarly, without such a license, Monsanto would have to discard any varieties in DPL's developmental pipeline that have the divested lines as a recurrent parent, even if those lines already contain only Monsanto's traits. The commenters do not explain why competition would be served by denying cotton farmers these varieties.

ICTA's concern about the provision allowing DPL to sell conventional versions of the DPL divested lines is also misplaced. ICTA Comments at 4 (“DoJ has absolutely no basis for proposing, or assessing the adequacy of the remedy cited above”). At the time the Complaint was filed, the 2007 seed purchasing season was already under way and DPL was selling some of the divested lines as conventional varieties. Thus, the provision permitting DPL to continue to sell these varieties in 2007 merely avoided disruption to farmers who wanted to buy these conventional varieties for that season.

C. The Remedy Preserves Incentives and Opportunities for Effective Traited Cottonseed and Trait Development Competition

Commentors expressed concern about the opportunities for trait developers. Those concerns, however, are misplaced as discussed below.

1. Syngenta Will be Able to Effectively Use the VipCot Assets

Some commenters

express concern that certain provisions of the license

agreements accompanying the divestiture of the VipCot Assets will unnecessarily restrict Syngenta's use of the assets.

See e.g., ICTA Comments at 7-8; AAI Comments at 10.

The proposed Final Judgment requires Monsanto to divest to Syngenta 43 advanced DPL germplasm lines traited with VipCot and related assets necessary to bring varieties from these lines to market.

As noted above, the development of Syngenta's VipCot trait in DPL seed was at an advanced stage when Monsanto's acquisition of DPL was proposed. The United States required the divestiture of the most advanced of DPL's VipCot lines not to ensure that Syngenta could replace Stoneville as a competitor against DPL the Enhanced Stoneville Assets divestiture addresses that harm but to prevent any delay to VipCot's commercialization as a result of the merger. The terms of the proposed Final Judgment will provide Syngenta the rights it needs to bring VipCot to market and, thus, fulfill the goal that the VipCot Assets divestiture is intended to accomplish.

As provided in the proposed Final Judgment, the divestiture of these 43 lines to Syngenta offers several possible paths to market for this traited germplasm.

Syngenta could start its own seed company using this germplasm as a base either on its own or via a joint venture—and make sales of the traited seed directly to distributors or farmers. Syngenta already operates soy and corn seed companies in the United States and is one of the largest providers of cotton-related herbicides and insecticides in the world. Syngenta also is a partner with DuPont in a recently formed joint venture called Greenleaf Genetics, which the companies established to out-license the companies' proprietary corn and soybean genetics and biotechnology. In addition, Syngenta has the option of licensing the traited germplasm to other seed companies, such as Bayer, Dow and Americot, which already have breeding and distribution programs in place.

The United States has worked with Monsanto and Syngenta to ensure that the divestiture (including access to any required licenses) is accomplished under terms that do not restrict Syngenta's competitiveness and are commercially reasonable.

Of course, Syngenta also could license just the VipCot trait to seed companies if the DPL-traited germplasm is not attractive to potential licensees or if Syngenta wished to keep the DPL germplasm for its own branded seed product.

The requirement in the proposed Final Judgment that a commercialized variety derived from the VipCot Assets contain one of four listed Syngenta insect-resistant events is not unduly restrictive.

These are the four “versions” of the insect-resistant trait that Syngenta and DPL were most confident could achieve commercial success in the near-to-medium-term. This restriction, therefore, is directly tied to the harm that divesting the VipCot Assets is designed to remedy; namely, delay in the introduction of the VipCot traits that DPL and Syngenta had been positioning to enter the market.

It is unlikely that any new insect-resistant traits developed by Syngenta other than VipCot would be available for more than a decade, and any such trait likely could in any event be stacked with one of the four existing events consistent with the proposed Final Judgment.

See AAI Comments at 10.

Contrary to the apparent perception of some commentors (see, e.g., ICTA Comments at 8), this aspect of the proposed Final Judgment is not designed to ensure, by itself, an adequate platform of high-quality germplasm for future trait developers. The limitations on Syngenta's use of the germplasm are appropriate to match this aspect of the remedy to its more-narrow objective preventing the merger from delaying VipCot's commercialization—and unrestricted access to this germplasm is unnecessary in light of the other elements of the proposed Final Judgment.

2. The Remedy Will Preserve Opportunities for Trait Developers to Market Nonmonsanto Traits In Competitive Cottonseed

Some commenters expressed concern that post-merger there will no longer be a sufficient base of non-Monsanto controlled cottonseed to support future trait development.

However, the Enhanced Stoneville Assets divestiture provided for in the proposed Final Judgment establishes a substantial future platform for cotton trait developers to use to reach farmers in the MidSouth and Southeast.

See, e.g., OFU Comments at I (“competing seed trait developers will have great difficulty gaining access to the market”); OCM Comments at 3.

In addition, the third party license changes required by the proposed Final Judgment promote the development and commercialization of competitive cottonseed with non-Monsanto traits by giving cottonseed companies the ability to partner with trait developers other than Monsanto without any financial penalty. Currently, DPL seed accounts for approximately 43 percent of U.S. cottonseed acres, leaving over half of all U.S. cottonseed acres available to trait developers who seek to compete against the merged Monsanto/DPL. Commenters fail to explain why this amount of acreage is insufficient, especially given the additional returns on investment in cotton trait research that could be gained from Stoneville's likely growth in the MidSouth and Southeast, possible cross-crop trait applications, and international cottonseed markets.

With regard to the license changes, AAI suggests that Monsanto's trait licensing practices should be addressed in a separate case, claiming that the required licensing modifications do not help to remedy the loss of competition alleged in the Complaint.

To the contrary, the modifications specifically address competition lost from Monsanto's acquisition of DPL, since DPL's licenses did not limit its ability and incentive to work with non-Monsanto trait providers.

These trait providers will now be able to work with cottonseed companies who previously had restricted licenses.

AAI Comments at 15.

In requiring these changes, the United States made no determination as to whether any provisions in Monsanto's licenses violated the antitrust laws.

3. The Remedy Should Not—and Does Not—Guarantee the Introduction of DuPont's OptimumGat Trait

Several commenters express concern that the remedy is insufficient because it does not ensure that DuPont's OptimumGat trait will reach the market.

As discussed above, the proposed remedy preserves the potential for the development and introduction of competing herbicide-tolerant traits in the MidSouth and Southeast. OptimumGat may prove to be such a trait, but there was never any certainty of that even without the merger.

Indeed, DPL was itself exploring herbicide-tolerant trait alternatives with developers other than DuPont. For example, Bayer and Syngenta independently have been working on herbicide-tolerant traits for cotton that could be commercialized on or before the time when DPL could have brought OptimumGat to market absent the merger. Thus, there was never any guarantee that OptimumGat would ultimately be commercialized in cotton even if DuPont were able to continue working with an independent DPL,

and it would be inappropriate for an antitrust remedy to establish a guarantee that the market would not have provided.

See, e.g, DuPont Comments at 2 (DuPont terminating research and development for OptimumGat in cotton); States Comments at 4 (claiming that “because of DeltaMax's termination, Monsanto's cotton herbicide-tolerant trait dominance is assured for the foreseeable future”).

As noted above (supra p. 5), development efforts for introducing OptimumGat in DPL germplasm were at a preliminary stage.

See DPL 2006 Form 10K.

4. The Remedy Will Preserve the Number of “Platforms” for Trait Development That Existed Pre-Merger

Commenters suggest that because Bayer itself develops traits it will not work with other trait developers and that the remedy thus fails to preserve trait development opportunities.

Even if the claim were true, the competitive harm identified in the Complaint is still addressed: pre-merger, farmers in the MidSouth and Southeast looked forward to a choice between Stoneville/Monsanto and DPL/non-Monsanto traited cottonseed; post-merger they still will have a choice as they will look forward to competition between Stoneville/Bayer and DPL/Monsanto.

States Comments at 7.

It is important to bear in mind that DPL itself might not have continued to work with multiple competing trait developers. Contemporaneous DPL business documents indicate that DPL likely would have selected only one non-Monsanto stack to bring to market in light of the costs associated with breeding traited varieties, commercially distributing multiple varieties, and managing the requirements and earning potentials of licences with trait developers. Thus, DPL likely would have chosen only

one

non-Monsanto insect-resistant trait and one non-Monsanto herbicide-tolerant trait to promote. It is also likely that DPL would have continued offering a Monsanto stack because of the apparent market demand for Monsanto's traits.

DPL's agreements with Syngenta and DuPont did not require exclusivity, and future market conditions (especially demand by farmers for Monsanto's proven traits) might have dictated that DPL continue offering Monsanto traits. Internal DPL business documents suggest that it planned to follow this course.

In any event, Bayer has very strong incentives to use other third-party traits if those traits are better than the traits it can develop on its own. Indeed, Monsanto will have the same incentive. Competition from one will spur the other to try to offer the best product, regardless of whether the included trait is developed in-house or licensed from a third-party.

(And, it bears remembering, such development of traits is, and would have been absent the merger, likely to occur nearly a decade in the future.)

Recognizing this dynamic, third-party trait developers will have incentives to continue research efforts.

V. Response to Comments That the Remedy Is Not Workable

A number of commenters posit that the remedy provided for in the proposed Final Judgment is not in the public interest because the remedy is “conduct-based”

as opposed to “structural,” and because the required divestitures have “strings attached,” such as licenses running between Monsanto and the acquirers of the divested assets. These commenters further assert that these provisions essentially render the remedy too costly to administer, or will require too much ongoing involvement and policing by the United States or the Court to be effective. As explained below, the proposed Final Judgment provides an effective remedy that is clean and certain (i.e., consisting of one-time, well-defined events that do not involve costly government regulation of the market), is consistent with the Merger Remedy Guide issued by the United States,

and does not involve cumbersome monitoring by the United States or the Court.

See e.g., AAI Comments at 9-10; CFS Comments at 7-9; DuPont Comments at 13-14; States Comment at 7.

See U.S. Dep't. of Justice, Antitrust Div., Antitrust Division Policy Guide to Merger Remedies, (October 2004), available at

http://www.usdoj.gov/atr/public/guidelines/205108.pdf

(hereinafter “Merger Remedy Guide”).

A. The Divestitures and License Changes Are One-Time Events, Not Ongoing Behavioral Remedies

The remedies proposed by the United States are one-time events calling for the divestiture of identifiable and transferable assets and intellectual property as well as modifications to certain licenses. These are not conduct remedies that involve ongoing entanglement in market operations or regulation of Monsanto's ongoing conduct.

See Merger Remedy Guide at 7-12 (describing the differences between structural and conduct remedies).

Specifically, the proposed Final Judgment calls for the divestiture of Stoneville, an ongoing cottonseed business that has been bought and sold on several occasions, including all of Stoneville's domestic germplasm, breeding, and sales and marketing assets, together with the information and intellectual property necessary to use those physical assets. In addition to the Stoneville business unit, the remedy calls for the divestiture of additional complementary assets, i.e., the 20 DPL cotton germplasm lines.

The transfer of this package of assets is a one-time event that constitutes a workable remedy to preserve competition and provides clear lines of ownership, with Bayer owning outright the Stoneville business, as well as the 20 lines formerly belonging to DPL. In its basic structure, this remedy is not different from the commercial transfer and licensing of germplasm and related intellectual property that occurs routinely in the marketplace.

The Merger Remedy Guide recognizes that there may be instances when “additional assets from the merging firms will need to be included in the divestiture package.” Merger Remedy Guide at 12.

Some commenters suggest that aspects of the remedy involving licensing arrangements are unworkable conduct remedies that are inconsistent with the United States's policies on merger remedies.

The United States's Merger Remedy Guide, however, explains that proper merger remedies can “involve the sale of physical assets” as well as the “sale or licensing of intellectual property.”

Licensing is routine in this industry, where companies often combine the work of others (e.g., germplasm, traits, intellectual property) with their own useful developments and introduce better products for the market. The licenses in this case were crafted so that each company would know which rights it would retain after the divestiture to help ensure a workable remedy.

ICTA Comments at 6-8; AAI Comments at 9.

Merger Remedy Guide at 7.

The divestiture of the VipCot Assets to Syngenta is also a workable remedy. The germplasm divestiture is accomplished though a license to Syngenta rather than absolute ownership, but the method of transfer will not affect Syngenta's ability to compete effectively as Syngenta will have a non-terminable and royalty-free license to use the divested lines.

As discussed above, the provisions in the proposed Final Judgment offer Syngenta several alternatives for bringing the DPL germplasm to market, and entry of VipCot-traited varieties will alter the structure of the traited cottonseed market regardless of the means selected.

Merger Remedy Guide at 15 n.22 (describing requirements that the Division typically imposes on structural remedies involving licensing).

Finally, the proposed Final Judgment's requirement that Monsanto modify existing third party licenses is also a one-time event. The changes to these licenses require modification of certain terms that will enable those third parties to work more readily with non-Monsanto trait providers.

B. Monitoring Compliance With the Remedy Will Not Unduly Burden the United States or the Court

Contrary to some commenters' suggestions, the terms of the proposed Final Judgment do not require cumbersome monitoring of the

marketplace by the United States or the Court.

For example, pointing to certain conditions and limitations placed on the germplasm to be divested under the proposed Final Judgment, AAI asserts that the divestitures are a “conduct-based, regulatory-style ‘fix’ that imposes on this Court a monitoring and compliance burden that it should be loathe to undertake.”

These criticisms grossly overstate monitoring issues associated with the proposed Final Judgment.

See ICTA Comments at 8-9; AAI Comments at 11.

AAI Comments at 11.

As stated above, the asset divestitures and license modifications are one-time events that, in fact, have already been accomplished in their entirety or have been implemented successfully in significant part. There remains, of course, the possibility that a dispute under one of the asset purchase agreements or licenses will arise in the future. Such a possibility exists in nearly every case in which the United States requires divestitures. As a general matter, such disputes would not require intervention by the United States, as the parties to the dispute can rely on contract procedures and other remedial steps to reach a resolution. Accordingly, while the United States will continue to monitor Monsanto's behavior to ensure compliance with the judgment, the prospect of the United States and this Court becoming enmeshed in the types of disputes enumerated by the commenters is both exaggerated and remote.

VI. Response to Comments That Raise Issues Beyond the Scope of the Court's Review

Several commenters express concerns about competitive issues not raised in the Complaint. As discussed above in Section III.A., issues beyond the scope of the Complaint are outside the purview of the Court. However, even if the Court were to consider the merits of these alleged concerns, the United States appropriately concluded that permitting the transaction will not give rise to the posited harms.

A. Crops Other Than Cotton

Several commenters expressed concern that the merger will have a detrimental impact on the development of traits for corn and soy.

These commenters argue that a reduced revenue opportunity in cotton will make trait producers hesitant to develop traits as they will have fewer opportunities to profit from their investment. Market conditions belie that prediction.

See, e.g., States Comments at 5, 9; ISA Comments at 1; OFU Comments at 1; OCM Comments at 2; Plains Justice Comments at 1.

The revenue opportunities for corn and soy traits far exceed those for cotton, based on available acres. The market for biotech soy is more than four times greater than the market for biotech cotton in the United States, and more than three times greater worldwide. The market for biotech corn is at least four times greater than that for cotton in the United States, and at least 1.3 times greater than that for cotton worldwide. Within the United States, the combined market opportunity to sell biotech soy and biotech corn is roughly 130 million acres, whereas there are only 15 million cotton acres.

That revenue opportunity has proven sufficient for DuPont to continue its commercialization of OptimumGat in corn and soy and to continue research and development of other transgenic traits

and likely would provide similar incentives for other trait developers.

Monsanto estimates, from Hugh Grant, Chairman, President, and CEO, Monsanto, Presentation at Sanford Bernstein Strategic Decisions Conference, slide 11 (May 30, 2007),

http://www.monsanto.com/pdf/investors/2007/05-30-07.pdf.

See Investor Day Presentation at slides 34, 36 and 40.

B. Conventional Cottonseed

ICTA suggests that the transaction will result in harm to a conventional cottonseed market.

The merger does not, however, substantially alter incentives of seed companies to offer conventional varieties. Absent the merger, DPL's share of the trait fee charged by Monsanto reflected a significant share of DPL's revenues, and DPL's revenues from trait fees would have become even larger as it shifted to non-Monsanto traits. Accordingly, even without the merger, DPL would have had substantial incentives to shift sales from conventional to traited seed so as to earn these fees. Further, ICTA fails to explain why, assuming there is a core set of farmers committed to using conventional seed, Monsanto or Bayer would not continue to have sufficient incentives to provide conventional seed to them.

See,

e.g.

, ICTA at 28, 43.

ICTA notes that “40%” of the 36 conventional varieties planted in 2006 were DPL varieties. According to USDA 2006 data, DPL offered fifteen conventional varieties, with seven of those fifteen having sales in the MidSouth and Southeast. Six of those seven were divested to Bayer as part of the Enhanced Stoneville Assets.

C. The Southwest and West Traited Cottonseed Markets

ICTA contends that the transaction will harm competition for traited cottonseed in the Southwest and West regions of the United States. A close examination of the facts reveals the lack of support for ICTA's claim.

ICTA Comments at 5.

With respect to the Southwest,

DPL and Stoneville have a much smaller competitive presence than they do in the MidSouth or Southeast, in large part because their germplasm is not uniquely suited for the Southwest region. As reflected by the 2006 market shares for traited cottonseed in this region, there are a number of competing companies: Bayer 46%; DPL 26%; Stoneville 15% (Stoneville branded seed 5% and NexGen branded seed 10%); Americot 5%; All-Tex 3%; UAP 3% and Croplan 1%.

The divestiture of the Enhanced Stoneville Assets to Bayer and Americot does not significantly alter the competitive situation. Because Stoneville developed its NexGen brand seed specifically for the Southwest market and Americot acquired Stoneville's NexGen-related assets, the Southwest market will continue to have three seed companies with significant shares (Bayer/Fibermax, Monsanto/DPL and Americot/NexGen) and three additional companies with a smaller presence (All-Tex, Croplan, and UAP).

Though the USDA classifies the Southwest as comprising Texas, Oklahoma and Kansas, we have included New Mexico in our analysis of the region. New Mexico has two distinct cotton growing areas that can be roughly described as Eastern New Mexico and the Mesilla Valley. The same cotton varieties that grow successfully in Texas and Oklahoma are used in Eastern New Mexico whereas acala varieties are primarily grown in the Mesilla Valley. Because the vast majority of cotton acreage in New Mexico is in the eastern region, we have included data from that region in our analysis of the Southwest.

The United States derived the above estimated shares of traited cottonseed sales in the Southwest (including New Mexico for the reasons discussed above) from USDA data and other data received during the course of the United States's investigation. These shares discount “saved seed”—conventional seed that a farmer saves from one year's crop to plant the next year (a practice that is more prevalent in the Southwest than the other regions due to the greater use of conventional seed which seed companies do not prohibit farmers from saving). USDA data ascribes saved seed to the seed company that originally produced the seed—even if the actual sale of that seed occurred in a previous year—and thus significantly overstates branded seed companies' shares in the region.

With respect to the West, a proper analysis must recognize that Arizona and California are very different and relatively small markets.

In California, nearly all of the cotton grown is either pima or acala (a form of upland cotton)

Stoneville does not sell pima

or acala varieties. Based on 2006 market shares for traited upland varieties grown in California (which ignores the large volume of pima cotton grown in California), Stoneville has only a 3% share, while Dow has a 43% share, Bayer 38%, DPL 13% and UAP 3%. Accordingly, the transaction does not significantly affect traited cottonseed competition in California.

As noted above, while classified by the USDA as part of the West, most of New Mexico's cotton production occurs in the eastern part of the state and requires the same varieties that perform well in the Southwest.

There are two species of cotton grown in the United States: Pima and upland. Furthermore, there

are different types of upland cotton grown in the United States. In California, most of the upland cotton grown are acala varieties.

Like the MidSouth and Southeast, the USDA data suggest there are two significant sources of upland cottonseed in Arizona: DPL with 73% and Stoneville with 20%. Because the proposed Final Judgment adequately addresses competition issues in the MidSouth and Southeast by requiring divestiture of the Enhanced Stoneville Assets, it also resolves any potential issues for Arizona. Further, because Arizona's geography is well-suited for seed production of Southeast and MidSouth varieties, a significant amount of the upland cotton planted in Arizona is grown by farmers under contract with DPL and Stoneville for the purpose of producing cottonseed (rather than cotton fiber).

100

Thus, DPL's and Stoneville's shares in Arizona primarily reflect that they perform a substantial amount of seed production there.

100

The USDA survey data does not distinguish between cotton grown primarily for seed production and cotton grown as a crop.

D. Prices for Cottonseed Sold for Livestock Feed

OFU predicts that prices paid for cottonseed used in livestock feed will increase due to the merger.

101

The comment appears to misunderstand the source of cottonseed used for feed. Such seed does not come directly from the cottonseed companies. Rather, seed used for feed is the by-product of the cotton production process. The licensing agreements farmers sign in order to plant transgenic seed prevent them from planting the seed from their crop; hence, they typically sell any seed extracted from the cotton during the ginning process for oil or feed.

102

That seed does not pass through the hands of a cottonseed company on its way to be sold as feed. Nor does the OFU explain how the merger would affect prices of cottonseed sold for feed. Historically, the price of cottonseed used as livestock feed has remained fairly stable even as the price of transgenic planting seed has increased. Over the past ten years the price of seed for feed has averaged $107 per short ton, a fraction of what farmers pay per bag of transgenic seed.

103

Moreover, the price of cottonseed sold for feed is likely affected by other sources of livestock feed. Finally, even if the price paid by farmers for cottonseed for planting did affect the price of feed cottonseed, since the proposed Final Judgment preserves traited cottonseed competition, the merger should have no adverse impact on the price of feed cottonseed.

101

OFU Comments at 1.

102

There would be excess seed even if farmers were able to replant transgenic seed because an acre of cotton yields far more seed than is necessary to replant that acre.

103

USDA, Oil crop Situation and Outlook Yearbook, May 2007, at 47. The price of $107 per short ton translates to a price of $2.75 per 50 pound bag. In contrast, a 50 pound bag-equivalent of DP555BGRR would cost a farmer in Georgia roughly $130 for the seed alone, plus an additional $292 for the trait fee.

E. Alleged Monsanto Exclusionary Business Practices

The States contend that Monsanto will engage in exclusionary business practices post merger, such as “acquisitions of independent seed companies and germplasm providers to enhance its monopoly position in both seed and traits; long-term, highly restrictive licensing agreements that encourage the sale of Monsanto's biotech traits exclusively; licensing restrictions that prevent independent seed companies from combining Monsanto biotech traits with non-Monsanto traits; and bundling rebates on seeds, traits and chemicals to exclude competitors from retail distribution channels.”

104

States Comments at 8.

Given both the breadth and lack of specificity of this contention, it is difficult to discern how it relates to the transaction at issue here. The actions on the laundry list articulated by the States are ones Monsanto could undertake with or without this merger, and the States do not explain why the transaction would change Monsanto's incentive or ability to engage in them. Nor do the States explain why such actions, if designed to have an anticompetitive effect, would be successful in light of the preservation of competition achieved by the required divestiture of the Enhanced Stoneville Assets.

105

Bayer, Dow, DuPont and Syngenta all have agricultural products that could be added to a bundle that includes cottonseed.

Furthermore, though the United States made no determination regarding the competitive effect of certain business practices, some aspects of the proposed Final Judgment would make it difficult for Monsanto to engage in certain of the purportedly anticompetitive practices suggested by the States. For example, the proposed Final Judgment requires Monsanto to remove anti-stacking provisions in its licenses to other seed companies and penalties for working with competing trait providers. Also, it requires Monsanto to notify the United States in advance of purchases of independent cottonseed companies and germplasm providers, affording an opportunity to investigate and if necessary challenge any that might be anticompetitive.

106

Proposed Final Judgment at 19.

Finally, and most fundamentally, the antitrust laws will continue to apply and would proscribe conduct by Monsanto that runs afoul of applicable legal standards.

VII. Conclusion

After careful consideration of the public comments, the United States remains of the view that the proposed Final Judgment provides an effective and appropriate remedy for the antitrust violation alleged in the Complaint and that its entry would therefore be in the public interest. Although the proposed Final Judgment, like any settlement, was a product of negotiation and compromise,

107

it fully achieved the United States's goals in this action. Even if the court might be inclined to view the issues differently, the purpose of Tunney Act review is not for the court to engage in an “unrestricted evaluation of what relief would best serve the public”

108

or to determine the relief “that will best serve society,”

109

it is simply to determine whether the proposed decree is within the reaches of the public interest—“even if it falls short of the remedy the court would impose on its own.”

110

107

In this context, it is important to bear in mind that because Monsanto had committed to selling Stoneville as a condition of its acquisition agreement with DPL, a challenge to the acquisition by the United States would have had to overcome the adequacy of a Stoneville divestiture to remedy any alleged harm.

108

United States

BNS, Inc.

, 858 F.2d 456, 462 (9th Cir. 1988) (citing

United States

Bechtel Corp.

, 648 F.2d 660, 666 (9th Cir. 1981)).

109

Bechtel, 648 F.2d at 666.

110

United States

AT&T Co.

, 552 F. Supp. 131, 151 (D.D.C. 1982).

The Court is to consider “the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial”

111

Because the markets identified in the Complaint are the only ones in which competition is likely to be lessened as a result of the merger, the impact of

entry of the proposed Final Judgment will be to restore any competition lost as a result of the merger. Farmers in the MidSouth and Southeast who might have otherwise suffered injury from the violation set forth in the Complaint will retain their current and prospective competitive choices for traited cottonseed by virtue of the contemplated divestitures. Based on the factors set forth in the Tunney Act, the proposed Final Judgment is in the public interest.

111

15 U.S.C. 16(e)(l)(B).

Pursuant to Section 16(d) of the Tunney Act, the United States is submitting the public comments and its Response to the

Federal Register

for publication. Our response is also being provided to each of the commenters. After the comments and the United States's Response to Comments are published in the

Federal Register

, the United States will move this Court to enter the proposed Final Judgment.

Dated: March 05, 2008.

Respectfully submitted,

For Plaintiff:

Jill A. Ptacek (WA Bar #18756)

Trial Attorney, U.S. Department of Justice, Antitrust Division, Transportation, Energy & Agriculture Section, 325 7th Street, NW., Suite 500, Washington, DC 20004, Telephone: (202) 307-6607, Facsimile: (202) 307-2784.

Tunney Act Comments of the American Antitrust Institute on the Proposed Final Judgement

The American Antitrust Institute (AAI) is an independent Washington-based nonprofit education, research, and advocacy organization. The AAI's mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. The AAI has had an interest in this proceeding because it raises critical issues of competition policy and consumer choice involving a key agricultural supply chain cotton. The AAI White Paper issued in November 2006 discusses some of the key issues raised by the merger.

See

http://www.antitrustinstitute.org/Archives/552.ashx.

Pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (APPA), 15 U.S.C. 16 (the “Tunney Act”), The AAI submits these comments on the Proposed Final Judgment (PFJ or consent decree) in the above-mentioned case. Congress has made this Court the final arbiter of the propriety of mergers under the antitrust laws. The Court must “determine that the entry of such judgment is in the public interest.”

If the Court cannot make this finding, it must reject the PFJ unless more adequate provisions are made to protect the public interest. In the following analysis, the AAI respectfully argues that for the numerous reasons set forth in these comments, the PFJ is not in the public interest and must be rejected by the Court.

15 USC. 16(e). See.

e.g.

United States

Microsoft Corp.

, 56 F.3d 1448, 1458 (D.C. Cir. 1995).

I. Competitive Issues Raised by the Proposed Merger

At first blush, the products and markets affected by the proposed merger of Monsanto and Delta and Pine Land (Monsanto/D&PL) appear technical and complex. But some background provides ample basis for a clear understanding of the competitive issues raised by the merger. Cotton can be grown with three major types of seed: (1) Organic; (2) conventional, and (3) genetically modified or “traited.” Cotton is also grown in four regions of the U.S.—the Southeast, Mid-South, Southwest, and West. This has generated demand for cotton varieties that thrive in different soil types and climates.

Cotton is also an insect-intensive crop and competes for space with weeds. As a result, agricultural biotechnology has played a major role in the development of cotton varieties that contain genetically engineered “traits” that make the plants resistant to insects (insect-resistant) and tolerant to herbicides (herbicide-tolerant), which are sprayed on the plants. Conventional cottonseed does not contain such genetic traits. Organic cotton contains neither genetic traits and is grown in a way that meets organic growing standards.

The merger involves two major markets. One is the market for development of “cotton traits.” Monsanto has a 95% share of this market with its hugely attractive and successful insect-resistant traits Bollgard and successor Bollgard II and herbicide-tolerant traits Roundup Ready and successor Roundup Ready Flex. The second market is that for “traited cottonseed.” Cotton traits are “introgressed” (i.e., inserted through genetic engineering) into cotton “germplasm,” which is the genetic material that gives a cotton variety its specific characteristics. Commercially successful varieties are obtained at the very high risk of failure, i.e., after years of costly breeding and cross-breeding that ultimately produces desirable plant characteristics demanded by cotton farmers. D&PL has a 79-87% share of the Mid-South and Southeast relevant markets for traited cottonseed. The merger raises three competitive issues:

•

Horizontal-elimination of actual competition.

The merger combines two competitors—Monsanto's Stoneville business and D&PL—in the market for traited cottonseed.

•

Horizontal-elimination of a potential competitor.

The merger eliminates D&PL as a potential partner for cotton traits developers that compete with Monsanto.

•

Vertical-combination of two firms in a vertically integrated chain.

The merger combines upstream cotton traits developer Monsanto with downstream traited cottonseed seller D&PL in a vertical combination.

II. Summary of the DOJ Documents

A. Complaint/Competitive Impact Statement

The Complaint focuses on two of the three major competitive effects listed above. It first alleges that the merger of Monsanto and D&PL will substantially lessen competition in the product market for the “development, commercialization and sale of traited cottonseed.” Farmers likely would have fewer choices of, and face higher prices for, traited cottonseed (Complaint at 11-12.) Relevant geographic markets are the Southeast and the Mid-South. (Complaint at 10.) Together, these regions account for 50% of cotton grown in the U.S. Cottonseed containing both (i.e., “stacked”) insect-resistant and herbicide-tolerant traits comprises the vast majority of cottonseed planted in these regions.

In the Southeast, D&PL has an 87% market share and Monsanto's Storteville has 8%. Combining Monsanto and D&PL increases concentration by 1,489 HHI, for post-merger concentration of 9,184 HHI. In the Mid-South, D&PL has a 79% market share and Monsanto's Stoneville has 17%. The merger increases concentration by 3,310 HHI for a post-merger HHI of 9,110. (Complaint at 11.)

The Complaint explains that entry into the traited cottonseed market requires both the assets and expertise to breed high-performing varieties of cottonseed and to develop or access traits to breed into the cottonseed. Each step requires many years and tens of millions of dollars. (Complaint at 12.) Moreover, traits developers must have access to a sufficient supply of high-quality cotton germplasm. (CIS at 11.) The Complaint thus alleges that:

If there were a small but significant increase in the price of traited cottonseed

within regions such as the Mid-South and Southeast, it is not likely that farmers would switch to other crops or switch purchases to conventional (non-traited) cottonseed or cottonseed varieties that are not suited to their region in sufficient volumes to make the price increase unprofitable. (Complaint at 10-11.)

The second adverse competitive effect identified by the Complaint is the elimination of D&PL as a partner for traits developers that compete with Monsanto. D&PL has partnered with Monsanto to produce traited cottonseed. However, D&PL has recently pursued more lucrative alternative partnerships with rival firms such as Syngenta. After the merger, those efforts would be “substantially delayed or prevented,” as would “efforts to develop other traits that would compete with Monsanto traits and that would provide benefits to United States cotton farmers * * *” This would likely reduce choice and raise prices for traited cottonseed. (Complaint at 12.)

B. Proposed Final Judgment

The PFJ sets forth a three-pronged remedy to address horizontal issues raised by the merger: (1) Divestiture of the Enhanced Stoneville Assets; (2) divestiture to Syngenta of D&PL germplasm containing the jointly developed VipCot traits; and (3) modification of Monsanto's Cotton States and other third-party traits licenses.

1. Enhanced Stoneville Assets

The PFJ proposes divestiture of the Enhanced Stoneville Assets. Three components make up the package of assets. First, Monsanto's Stoneville cotton business will be sold, including: Breeding facilities, tangible assets, brand names, breeder records, and other intangible assets. Second, the PFJ requires that Monsanto germplasm be divested. This includes four sources: (1) The “exclusive right” to commercialize varieties from the Advanced Exotic Yield lines; (2) all germplasm from the Marker-Assisted Breeding populations—the primary development source for Stoneville varieties; (3) a “non-exclusive, royalty free license” to sell and breed with varieties from the Cotton States program currently sold by Stoneville; and (4) all other germplasm in Monsanto's possession. Third, the PFJ requires the divestiture of 20 lines of “elite” D&PL germplasm. (CIS at 12-19.)

2. Syngenta/VipCot Divestiture

This divestiture includes 43 lines of “promising” D&PL germplasm into which D&PL has incorporated the VipCot insect-resistance traits. The lines will be sold to rival traits joint developer Syngenta along with performance data and certain other information. Anticipated commercialization of five of the germplasm lines is expected by 2009, three lines by 2010/2011, and the remaining lines by 2011 or beyond. Under the divestiture, Syngenta has exclusive rights to commercialize varieties developed from the lines to be divested as long as they contain one or more Syngenta-developed traits, including the VipCot traits.

(CIS at 19-20.)

Monsanto will also provide the recurrent parent conventional germplasm for each line until December 21, 2014 and offer Syngenta a license to its Roundup-Ready Flex so that it can commercialize VipCot lines with stacked traits.

3. Modifications to Monsanto's Cotton States and Seed Company Licenses

The PFJ requires that Monsanto modify their Cotton States and third-party cottonseed traits licenses to remove restrictions on ability of licensees to develop, market, or sell cottonseed containing non-Monsanto traits. This includes combining (i.e., stacking) Monsanto with non-Monsanto traits. The PFJ also requires Monsanto to modify its Cotton States license to eliminate any provision that allows for termination if the licensee sells cottonseed containing non-Monsanto traits. (CIS at 20-21.)

III. Mismatches Between the Complaint and the PFJ

The AM respectfully argues that the PFJ falls seriously short of remedying the violations alleged in the Complaint. In

Microsoft,

the Court explained that in making a public interest determination under the APPA, it should consider (among other things), the relationship between the remedy secured and the specific allegation set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties.

Microsoft, 56 FJd at 1458-62.

The Supreme Court has emphasized that the purpose of a remedy is to restore or protect competition.

The CIS recognizes that “the acquirer of the Enhanced Stoneville Assets” * * * must have a credible commitment to the traited cottonseed market and have the intent and capability of competing effectively in the market.” (CIS at 12.) The Antitrust Division Policy Guide to Merger Remedies (“Policy Guide”)

emphasizes this point:

Ford Motor Co., 405 U.S. at 573; du Pont, id.

United Statement Department of Justice, Antitrust Division. Antitrust Division Policy Guide to Merger Remedies. October 2004. pp. 3-4.

The goal of a divestiture is to ensure that the purchaser [footnote omitted) possesses both the means and the incentive to maintain the level of premerger competition in the market(s) of concern. * * * (Policy Guide at 9.)

The

Policy Guide

further states that:

There must be a significant nexus between the proposed transaction, the nature of the competitive harm, and the proposed remedial provisions (Policy Guide at 2.)

The consent decree meets neither of these objectives, for four major reasons. Any and all of these reasons undermine the requisite nexus between the remedy and the alleged violation that is required for the PFJ to fully restore competition and therefore be in the public interest.

A. The “strings attached” approach to the divestitures of Monsanto and D&PL germplasm make it, in effect, a conduct-based remedy.

Divestiture of germplasm is a key component of the remedial approach taken in the consent decree. The Complaint recognizes the crucial role of germplasm in developing and commercializing traited cottonseed when it states:

A company with a large collection of high quality, or elite, germplasm has a competitive advantage because the company has the ability to identify the best genetic material and use it in a wide variety of possible cross combinations, resulting in a greater likelihood of developing a successful variety. (Complaint at 5.)

In attempting to address the Complaint's concerns regarding actual and potential competition, the consent decree requires Monsanto and D&PL to divest various lines of germplasm. However, these divestitures come with significant “strings attached,” essentially making it an inadequate conduct-based remedy that masquerades as structural reform.

The consent decree is replete with exceptions, exclusions, and conditions on the to-be-divested lines of germplasm. For example, Monsanto will be allowed to obtain a license back from the acquirer to continue to use the Advanced Exotic Yield lines for its ongoing trait research project. (CIS at 15.) The PFJ also requires the divestiture of a “non-exclusive, royalty-free license” to sell and breed with varieties from the Cotton States program sold by Stoneville. (CIS at 15.) And Monsanto “* * * may retain, with certain limitations, certain categories of [other] Monsanto germplasm used

predominantly in its trait development and licensing business.” (CIS at 16.)

Moreover, under the terms of the PFJ, the merged company can retain a license to use the 20 lines of D&PL germplasm to breed new varieties and sell exclusively varieties that contain only Monsanto traits. Monsanto/C&PL can continue to sell (for a limited time) conventional versions of divested varieties. The merged company may also prevent the acquirer from triple-stacking Monsanto's herbicide-tolerant and insect-resistant traits and non-Monsanto traits for a period of seven years after the divestiture. (CIS at 17-18.) Finally, divestiture of the exclusive right to the D&PL VipCot germplasm is contingent on Syngenta commercializing varieties that contain at least one of the VipCot insect-resistance traits. (CIS at 19-20.)

There is little precedent, or logic, to support the highly-qualified divestiture of tangible germplasm assets set out in the consent decree.

For example, the contingency on the VipCot divestiture ignores the possibility that Syngenta might undertake development of traits that are superior to or supersede the VipCot lines. The divestiture thus binds Syngenta to a current “snapshot” of the market and undermines the possibility that to effectively compete, the firm might make changes to its R&D strategy. The remedy will require: (1) Compliance with complex and varied licensing terms; (2) monitoring of the applicable time periods attached to various exclusions and limitations; and (3) policing of the specific purposes for which the merged company can retain use of the divested germplasm lines. All of this is costly, burdensome baggage that the consent decree necessarily attaches to the divestiture.

The remedy is still problematic even if the PFJ treats the various lines of germplasm to be divested as intangible property. For example, the PFJ provides no explanation as to why germplasm would be considered an intangible asset or, lilt is, why anything short of relinquishing all rights to the germplasm assets is justified. Moreover, even if germplasm legitimately constitutes intangible property, the PFJ fails to address key issues such as how non-exclusivity and other restrictions on the use of the germplasm assets will fully restore competition. Such conditions may make it more difficult for the acquirer to differentiate its product from the merged firms' products. Moreover, if the acquirer is required to “share” rights to the germplasm, it may not invest in R&D and marketing to the extent that it would have if the Monsanto and D&PL had fully relinquished all rights to the germplasm.

As a result, the germplasm “divestitures” required in the PFJ are really not a structural remedy at all. Rather, they are a conduct-based, regulatory-style “fix” that imposes on this Court a monitoring and compliance burden that it should be loathe to undertake. The logic behind the antitrust agencies' preference for structural antitrust remedies is well known. For example, the

Policy Guide

states that:

A carefully crafted divestiture decree is “simple, relatively easy to administer, and sure” to preserve competition [footnote omitted]. A conduct remedy, on the other hand, typically is more difficult to craft, more cumbersome and costly to administer, and easier than a structural remedy to circumvent. (Policy Guide at 8.)

In sum, the “divesture” of germplasm is crippled by competition-impairing restrictions and provides the merged company with ongoing access to the assets. This “strings attached” approach to the divestiture of tangible property is unprecedented and will virtually ensure that the acquirer does not possess the means or incentive to maintain the level of pre-merger competition in the relevant markets.

B. The PFJ fails to create a viable competitor because it creates a patchwork of assets with no proven track record in the market.

The Antitrust Division's policy guidelines make the point that time and incentive are of the essence in restoring competition lost by the merger:

The package of assets to be divested must not only allow a purchaser quickly to replace the competition lost due to the merger, but also provide it with the incentive to do so [footnote omitted]. (

Policy Guide

at 11.)

The CIS appears to recognize this imperative when it explains that the divestiture of Stoneville alone would be inadequate to restore the lost competition between Monsanto and D&PL (CIS at 14.) Thus, the PFJ requires that additional Monsanto and D&PL germplasm accompany Stoneville, collectively making up the Enhanced Stoneville Assets. This approach, however, is inadequate to remedy the alleged violation because it creates a “patchwork” of assets with no proven track record in the market. A number of facts clearly illustrate this problem.

First, the PJF merely requires the transfer of some “promising” and “developmental” lines of Monsanto and D&PL germplasm to the acquirer that have no demonstrated, immediate commercial value. For example, the CIS explains that four of the eight lines of elite D&PL germplasm include the “recurrent conventional parents” that account for 55% of the cotton varieties sold in the Southeast.

(CIS at 16.) It is important to note, however, that the commercial varieties that make up this 55% resulted from breeding and cross-breeding the recurrent conventional parents. The acquirer is therefore obtaining only the raw inputs necessary to breed varieties that could be commercially successful at some time in the future and only after considerable expenditure. As they currently exist (i.e., without further breeding), the eight D&PL germplasm lines to be divested account for varieties that are planted on a mere 1% of the cotton acres in the Mid-South and Southeast.

This 55% encompasses cotton grown in only one of the two relevant markets.

See U.S. Department of Agriculture, Agricultural Marketing Service—Cotton Program. Cotton Varieties Planted: 2006 Crop, Memphis, Tennessee, August 2006, Table I and U.S. Department of Agriculture, National Agricultural Statistics Service, Louisiana Farm Reporter 7(10), May 17, 2007.

Moreover, twelve of the 20 D&PL germplasm lines are only in the breeding “pipeline,” and could produce commercial varieties only over the next 10 years. (CIS at 16) This is perilously close to the expiration of the PFJ and the time frame the CIS identifies as necessary for new entry into the market for developing, commercializing, and selling traited cottonseed. Eighty percent of the D&PL VipCot germplasm to be divested under the decree is also unlikely to prove up commercially success varieties for at least another five years. (CIS at 19.)

Finally, the Advanced Exotic Yield lines and Marker-Assisted Breeding populations of germplasm are of extremely limited value to the acquirer. The CIS itself notes that this germplasm provides a “* * * limited platform for introducing non-Monsanto traits because many are already introgressed with Monsanto traits.” (CIS at 15, n. 2.) The consent decree requires the merged company to allow the acquirer to breed out Monsanto traits. Breeding out Monsanto traits and then breeding in competing traits will take a long time, assuming the acquirer even has the wherewithal to do so.

Second, the success of the Enhanced Stoneville Assets, in part, rides on the ability of the government to pick “winning” lines of germplasm that can be bred into commercially successful cotton varieties. The Complaint emphasizes the importance of possessing both high-quality, and large quantities of, germplasm for competitive success. (Complaint at 5.) And the CIS, for example, describes the importance of D&PL's “ * * * extensive breeding programs, elite germplasm collection, technical service capabilities, know-how, brand recognition, and market position.” (CIS at 8.) Given this complexity, the chances that the government picked winners in selecting

the germplasm lines to be divested are low. And it is possible that Monsanto/D&PL influenced the selection of germplasm lines through the information they did or did not disclose to the government (which would have been at an information disadvantage). If so, the merged firm would have no incentive to provide germplasm lines that could strengthen a rival in the market.

Pairing a smattering of unproven lines of germplasm that could be years away from producing successful, commercial cottonseed varieties with Stoneville in an untested combination will not create the capability for extensive breeding and cross-breeding that is essential for commercial success. Arguably, to fully restore competition, the acquirer would need access to sufficiently large quantities of germplasm that is currently producing commercial varieties or that could produce successful commercial varieties in far less than 10 years. As it stands, there exists no compelling evidence that the unproven, untested combination called the Enhanced Stoneville Assets would survive in the market, regardless of the identity of the acquirer.

C. The proposed divested assets, if acquired by Bayer, will not provide the firm with the tools necessary to be a viable competitor.

Under the terms of the consent decree, it is highly unlikely that the proposed acquirer (Bayer) of the Enhanced Stoneville Assets will be a viable competitor to the vertically-integrated firm created by the merger. The

Policy Guide

specifically addresses the importance of the size and market position of the merged firm in crafting divestitures. For example, it states that:

* * * integrated firms can provide scale and scope economies that a purchaser may not be able to achieve after obtaining the divested assets. When available evidence suggests that this is likely to be the case (such as where only

large integrated

[emphasis added] firms manage to remain viable in the marketplace), the entity that needs to be divested may actually be the firm itself, and blocking the entire transactions rather than accepting a divestiture may be the only effective solution. (

Policy Guide

at 14-15.)

The Complaint acknowledges that the merged firm is enormous, with a 95% share of the cotton traits market and a 79-87% share of the relevant traited cottonseed markets. (Complaint at 2.) Presumably, it was the integration of traits development and traited seed that Monsanto wanted to achieve when it stated that the purpose of the merger was to “ * * * provide a complete platform of cutting-edge seed technologies to our global farmer customer base for years to come.”

To address the alleged violation, therefore, the remedy must consider both the vertically-integrated nature and the scale and scope of the merged firm. The consent decree stops well short of fulfilling these requirements, for the following reasons.

“Monsanto Company to Acquire Delta and Pine Land Company for $1.5 Billion in Cash,” Press Release dated August 15, 2006. Online, Available

http://www.monsanto.com/monsanto/layout/media/06/08-15-06.asp.

Many a commentator has noted the logic of vertical integration in traits development and traited seed: “A new gene is worthless without a quality seed base to put it in and the infrastructure to deliver it. William Lesser, “Intellectual Property Rights and Concentration in Agricultural Biotechnology,” AgBioForum 1(2), 1998, p. 59, quoting from Furman Seltz LLC investment report.

First, without a complement of sufficient, market-tested assets in both the cotton traits and traited seed markets, it will be extraordinarily difficult for the acquirer to effectively engage in head-to-head “platform” competition with a behemoth Monsanto/D&PL—a firm that is likely to be impervious or even hostile to competition. Even the government recognizes the importance of this level of competition. For example, the CIS explains that the purpose of divesting the Enhanced Stoneville Assets is to provide:

“* * * the scale and scope necessary in the Southeast and MidSouth to be an effective and competitive platform for trait development.” (CIS at 16.) and a “ * * * foundation on which to replicate the platform for trait development and commercialization that D&PL previously provided.” (CIS at 13.)

Moreover, the Complaint admits the inextricable link between the upstream traits development and downstream traited cottonseed market:

“Entry into the traited cottonseed business requires the assets and expertise

both

[emphasis added] to breed high-performing varieties of cottonseed and to develop or access traits to breed into the cottonseed.” (Complaint at 12.)

Second, the consent decree's failure to include a requirement that human capital and know-how accompany the Enhanced Stoneville Assets only increases the chances that the buyer will have neither the wherewithal nor the incentive to compete against Monsanto/D&PL. Pairing only “promising” and “developmental” lines of germplasm with Stoneville in an untested, inadequate combination is injury enough. Omitting the human capital that is essential for viably maintaining the specific, technically complex assets that are being divested is akin to turning over the keys to a nuclear power plant without any personnel to operate it.

Third, and significantly, Bayer operates primarily in the Southwest where it sells its Fibermax brand of long-fiber cottonseed. As a result, it lacks experience with cotton varieties planted in the Mid-South and Southeast.

Bayer has also been a limited player in traits development, with one commercially successful herbicide-tolerant trait—Liberty Link.

“Bayer's Fibermax brand has only a 2-3% share of cotton planted in the Mid-South and Southeast markets. See USDA, Cotton Varieties Planted: 2006 Crop, p. 2.

In light of the large, vertically integrated nature of the merged company, it is incumbent upon the government to ensure that the consent decree produces a strong rival that can quickly and fully restore competition in the affected markets. This imperative takes on even more importance when the consent decree maintains the duopoly market structure in the Mid-South and Southeast markets. In sum, the remedy delivers none of the basic requirements to ensure that the acquirer has the tools necessary to compete with a large, integrated Monsanto/D&PL.

D. The PFJ requirement that Monsanto modify its Cotton States and other third-party seed licenses fails to address the alleged violation.

The final condition set forth in the consent decree is that Monsanto will modify its Cotton States and third-party seed licenses to remove restrictions on the ability of licensees to develop, market, or sell cottonseed containing non-Monsanto traits. The intent of this requirement is to:

“* * * give these rival cottonseed companies the ability to partner with trait developers other than Monsanto without financial penalty * * * and to provide traits developers with “* * * access to close to half of the current U.S. cottonseed market without having to deal with Monsanto/D&PL” (CIS at 21.)

This prong of the consent decree fails on numerous counts to establish a nexus with the alleged violations in the Complaint.

First, the consent decree essentially directs Monsanto to cease and desist from restrictive, potentially anticompetitive practices. The Complaint notes that “Monsanto's trait licenses with most other cottonseed companies * * * severely restrict the ability of these companies to work with other trait developers * * *” (Complaint at 8.) Indeed, competitors have alleged that Monsanto's trait licensing and pricing practices for cotton and other crops go beyond

intellectual property protection and punish licensees if they sell non-Monsanto traits or other competing products.

By imposing the licensing modification requirement, the government seems to be trying to correct for these practices through the remedy, although they are not alleged violations in the Complaint. These practices deserve to be the subject of a complaint in an appropriate case

and not merely mentioned on a list of conditions here.

For a summary of pending legal proceedings, see, e.g., Monsanto Company, Form 10-K. 2005. Online. Available

http://www.monsanto.com/monsanto/content/media/pubs/2005/MON_2005_10-K.pdf

. More detail on specific allegations regarding Monsanto's conduct involving cotton and corn is available in, e.g.,

American Seed Co., Inc.

Monsanto,

Case I:05-cv-00535-SLR, U.S. District Court for the District of Delaware, July 26, 2005,

Monsanto Company

Syngenta Seeds, Inc.,

Second Amended Complaint, Civil Action No. 04-305-SLR (consol.), U.S. District Court for the District of Delaware, August 12, 2005; and

E.I. DuPont de Nemours and Company

Monsanto Company,

Amended Complaint and Jury Demand, Civil Action No. 4:00-952-23, U.S. District Court for the District of South Carolina, May 24, 2001. These cases are provided for illustrative purposes—some are still pending and therefore outcomes are undecided.

Moreover, Monsanto's practices should be examined not only with regard to the licensing of cotton traits, but corn and soybeans as well. It is not unusual for a company to adopt parallel competitive practices in various of its divisions, and what has been advantageous in another market might well be applied in the cottonseed market.

Second, the license modifications are designed to eliminate prohibitions on rivals stacking their own traits with Monsanto traits. Such a restraint prevents—among other things—a rival producer of traited cottonseed from bringing varieties to market with both the insect-resistant and herbicide-tolerant traits that farmers demand. At the same these restrictions are ostensibly to be removed in one part of the PFJ, however, they are to be imposed in another. For example, the consent decree prevents the acquirer of the 20 lines of D&PL germplasm from stacking Monsanto and non-Monsanto traits for a period of seven years. Perversely, therefore, the remedy attempts to finally deal (albeit in the wrong venue) with Monsanto's restrictive practices but allows Monsanto to continue to apply them to the acquirer of the Enhanced Stoneville Assets.

Third, the licensing modification requirement does not address the alleged violation that competition in the Mid-South and Southeast relevant markets will be adversely affected by the merger. The CIS refers instead to a “U.S. cottonseed market,” which is not defined in the Complaint at all. Had the remedy been tied to the alleged violation, it would be clear that rivals would have access—not to half of the market—but only to between 8% and 17% of the market not occupied by D&PL in the Mid-South and Southeast.

Fourth, the consent decree contains little information on the scope of the license modification requirement. The

Policy Guide

warns explicitly against vagueness and lack of clarity in crafting merger remedies:

“Remedial provisions that are vague or that can be construed when enforced in such a manner as to fall short of their intended purposes can render the enforcement effort useless” (Policy Guide at 5.) and that “A defendant will scrupulously obey a decree only when the decree's meaning is clear * * *” (

Policy Guide

” at 5-6.)

It is unclear as to whether the requirement applies to current and/or prospective licenses or how the specific language of the Monsanto licenses will be revised. Moreover, the license modification requirement will require burdensome monitoring and compliance which, as noted earlier, the Court should be loathe to undertake.

In sum, the licensing modification requirement contained in the PFJ represents a vague, inconsistent, and misplaced attempt to finally address restrictive, potentially anticompetitive practices long-employed by Monsanto. And while these practices should be addressed elsewhere, they do not respond to any particular violation in any defined relevant market in the Complaint. As such, the remedy will not fully restore competition in the relevant markets.

IV. Conclusion

The Court should not give DOJ “a pass” in its review of this merger. The merger raises serious questions regarding a key agricultural supply chain and the many consumers that it will indelibly affect. There is little in the PFJ that is likely to preserve effective competition in the relevant markets, or to prevent the consumer harm that will flow from the impairment of competition. The proposed remedies are largely conductbased and really do not go beyond the scope of the original proposals offered up-front by Monsanto. Moreover, the PFJ ignores the fact that the acquirer of the divested assets must have both the means and incentive to compete with a large, vertically firm that possesses an unrivaled “platfonn” for trait development and traited seed commercialization. On this basis, the Court should reject the PFJ as insufficient and contrary to the public interest.

Respectfully Submitted,

Diana Moss,

Vice President and Senior Fellow American Antitrust Institute, 2919 Ellicott Street, NW., Washington, DC 20008, phone: 720-233-5971, e-mail: dmoss@antitrustinstitute.org, web: http://www.antitrustinstitute.org.

August 20, 2007

Ms. Donna N. Kooperstein,

Chief, Transportation, Energy & Agriculture Section, Antitrust Division, United States Department of Justice, 325 Seventh Street, NW., Suite 500, Washington, DC 20530.

Re:

United States

Monsanto Company, et al.

Dear Ms. Kooperstein:

I am writing you today as the Board President of California Consumers United to voice my concerns not only for the State of California but for the nation as a whole. As a consumer protection coalition, California Consumers United advocates for sound legislation and strong regulations that safeguard all California consumers against unfair business and marketplace predatory practices.

Increased agricultural concentration, which is occurring at an alarming rate, is harmful to our nation's economy and well-being. This concentration harms consumers and farmers in the state of California—and throughout the country—by leading to limited choices, higher prices, and increased costs. Monsanto's acquisition of Delta & Pine Land Company is one more example of this distressing trend.

Monsanto, an agriulture conglomerate, already has monopoly-like shares of biotech traits in several crops, including cotton. The Department of Justice's consent decree regarding Monsanto's acquisition of Delta & Pine Land Company will only reinforce Monsanto's control over the markets for cotton seeds and cotton biotech traits. This likely will result in severe consequences to Californians and cause damage to consumers in the form of higher prices and fewer choices. The remedy proposed by the Department of Justice to cure the anticompetitive effects of this deal—divestiture of a weak cotton seed company and a few lines of germplasm—are incapable of safeguarding competition.

There is already not enough competition in agriculture; the Department of Justice should not allow one company to control access to the cotton market. We therefore urge the Department of Justice to reconsider its consent decree or, if the Department will not change course, for the Court to reject it.

Sincerely,

Linda Love,

Board President, California Consumers United.

Submitted August 27, 2007

United States of America, Department of Justice, Antitrust Division, 325 7th Street, NW., Suite 500, Washington, DC 20530, Plaintiff, v. Monsanto Company, 800 North Lindbergh Boulevard, St. Louis, MO 63167 and Delta and Pine Land Company, 1 Cotton Row, Scott, MS 38772, Defendants.;

Case: I:07-cv-00992

Assigned To: Urbina, Ricardo M.

Assign Date: May 31, 2007

Description: Antitrust

Comments of Dupont on Proposed Final Judgment

This case raises critical issues regarding the future competitiveness of American agriculture. The transaction at issue combines the dominant supplier of biotech traits with the dominant cottonseed company. Among other things, it eliminates head-to-head competition in the development of new traits to challenge Monsanto's established monopoly. Since biotech is as important to agriculture as agriculture is to the U.S. economy, the competitive implications cannot be overstated.

There is no question that Monsanto's acquisition of DPL would violate the antitrust laws, and the Complaint filed by the Justice Department's Antitrust Division details the serious harm to farmers and consumers that will result. Nor is there any question that significant remedies are necessary, including divestitures and reform of Monsanto's restrictive licensing practices as proposed. The only question before the Court under the Tunney Act is whether the Antitrust Division settled for too little, i.e., whether the patchwork quilt of proposed remedies provides a viable alternative to the competitive presence of an independent DPL, such that trait developers will continue to incur the significant cost and risk of competing with Monsanto.

The answer to that key question, DuPont respectfully submits, is “no.” The objective facts on the face of the Complaint make plain that the “Enhanced Stoneville” collection of assets, even combined with their new owner Bayer, does not come close to creating a viable trait development partner that can replace DPL in terms of resources and market access for cottonseed. Accordingly, DuPont has determined that it cannot justify further investment in developing competing cotton traits, and is terminating that work. The bottom line is that, without substantial additional remedies, this transaction will reduce choices and raise prices for farmers and consumers.

A. Standard of Review

The Tunney Act imposes a duty on the reviewing court to evaluate the remedies proposed in light of the competitive injury detailed in the Division's Complaint. The statute requires that “[b]efore entering any consent judgment proposed by the United States * * *, the court shall determine that the entry of such judgment is in the public interest.” 16 U.S.C. 15(e)(1). In applying this “public interest” standard, the burden is on the government to “provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.”

United States

SBC

Verizon

, 2007 WL 1020746, *16 (D.D.C. 2007), citing

United States

Microsoft Corp.

, 56 F.3d 1448, 1460-61 (D.C. Cir. 1995).

The Government has an extra burden, we submit, when it changes its view on an identical transaction within a span of only a few years. In 1999, the Division decided to challenge Monsanto's proposed acquisition of DPL,

indicating that no acceptable remedy was available. Since that time, the marketplace has changed in ways that make this combination even more competitively harmful:

As a senior Antitrust Division official testified before Congress, Monsanto called off its 1999 attempt to purchase DPL after DOJ “indicated that it was prepared to sue to prevent consummation of the transaction.” John M. Nannes, Statement Before the Subcommittee on Antitrust, Business Rights, and Competition, United States Senate Judiciary Committee (Sept. 8, 2000) (available at

http://www.usdoj.gov/atr/public/testimony/6581.pdf

• Monsanto's share of traits in cotton is higher;

• DPL's seed share in key cotton-growing regions is higher;

• DPL is actively engaged in joint development of traits that, but for this acquisition, would compete with Monsanto's trait monopoly.

In light of these heightened competitive concerns, the Court should expect that the Division will explain in detail the basis for the different outcome.

B. Acknowledged Competitive Harm

For the benefit of the reviewing Court, this section will distill the salient allegations underlying the violation alleged in the Complaint.

The Complaint begins with an arresting fact: Monsanto's share of biotech traits in cotton is “over 96%.” Complaint ¶ 3. The Division's subsequent characterization of Monsanto as the “dominant” supplier of traits thus is an understatement. Id. at ¶ 6. For important traits that are used in “almost all” cottonseed planted today to lower farming costs and increase yield (i.d. at ¶ 18-19, 22), Monsanto is essentially the only game in town.

There are challengers to Monsanto's trait monopoly, and that competition is what is at stake in this proceeding. As the Complaint recognizes, DPL was working with other biotech companies including DuPont to develop and commercialize traits and seed “that would compete with” Monsanto's existing traits. Id. at ¶ 26. DPL's competitive activity “jeopardized” Monsanto's trait monopoly, id. at ¶ 6, as Monsanto “recognize[ed] the potential for a successful pairing of DPL's cottonseed with competing traits.” Id. at ¶ 7. So Monsanto now has acquired DPL in a transaction that “will * * * eliminate DPL as a partner independent of Monsanto for developers of traits that would compete against Monsanto,” and therefore “will

likely delay if not deter efforts to develop other traits that would compete with Monsanto traits

.” Id. at ¶ 42 (emphasis added). As a result, “farmers likely will have

fewer choices

of, and face

higher prices

for, traited cottonseed.” Id. (emphasis added).

Importantly, the Complaint backs up these conclusions of severe competitive harm in violation of the Clayton Act with key facts regarding DPL's unique role as a trait development partner. Developing and commercializing a new trait to compete with Monsanto's entrenched position is no mean feat. It not only takes time and money, but requires specialized resources that DuPont and others do not have so were relying on DPL to supply, in several categories.

Germplasm:

First, the Complaint explains the importance of germplasm, which is the genetic material that encodes agronomic characteristics of a plant, such as yield. Id. at ¶¶ 14-16. Successful cottonseed is created by combining (or “crossing”) different lines of germplasm to enhance the performance characteristics of the plant. Id. As stated in the Complaint, this is not a one-shot effort, but rather an on-going one: “to be competitive, cottonseed companies must continually work on developing new and improved cottonseed varieties through their breeding programs.” Id. at ¶ 15 (emphasis added). The product of the initial cross is then “further cross[ed]” with still other germplasm lines. Id. This breeding process “often requires thousands of attempts” before germplasm with the right genetics is created that will be the basis for a successful commercial variety. Id. at ¶ 28 (emphasis added). It generally “takes eight to ten years * * * until a new cottonseed variety is ready for market.” Id. at ¶ 15 (emphasis added).

So there is no dispute that one very important key to successful breeding is the “quantity and quality” of germplasm lines available to be used in the thousands of crosses required to breed competitive cottonseed. Id. at ¶ 16. The Complaint states that a “large collection of high quality * * * germplasm” creates a “competitive advantage.” Id. The obvious reason is that a company

with such assets is best positioned to engage in the “wide variety of possible crossing combinations” necessary to produce a “successful variety.” Id.

In this regard, the Complaint acknowledges that DPL is unique. Not only is it the “largest cottonseed producer in the world,” but it has “the largest cotton germplasm collection.” ID. at ¶¶ 13, 17 (emphasis added). Indeed, the Complaint recounts that Monsanto itself chose DPL as its development partner because it had, quite simply, “the best germplasm.” Id. at ¶ 20 (emphasis added). And DPL remains an “attractive partner” because of “the strength and breadth of its germplasm base.” Id. at ¶ 26 (emphasis added).

Breeding Infrastructure:

Another key factor is the specialized facilities to effectively use the germplasm collection in a successful breeding program over time. Again, the Complaint sets DPL apart from other cotton companies. Its large network of facilities gives it “more breeding capabilities than any competitor.” Id. at ¶ 17 (emphasis added).

Experienced Breeders:

The Complaint recognizes DPL has “experienced and knowledgeable cotton breeders” (id. at ¶ 5) with the “know how” and “technical service capabilities” to use all these assets in a highly effective manner that well exceeds that of any alternative cottonseed company. Id at ¶ 26. The Complaint states in unequivocal terms that DPL's “over ninety years of germplasm development” has produced not just the greatest breeding track record, but “by far the greatest track record of success” in the breeding of cottonseed varieties that are attractive to farmers. Id. at ¶ 17 (emphasis added).

Market access:

This success is manifest in DPL's high share. It is again an understatement for the Complaint to say DPL has the best “brand recognition” and “market position” to support development and commercialization of competing traits. Id. at ¶ 26. In the “important” cotton growing regions of the Southeast and MidSouth, id. at ¶ 8, DPL has breathtakingly high shares of 87% and 79%. Id. at ¶ 4. Ob

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