The Problem of Social Cost in a Genetically Modified Age

Hastings Law Journal, Vol. 58, No. 1 (2006-2007), pp. 87-151. Originally uploaded at SSRN

Abstract

One fundamental impetus for the development of modern law stems from the need to settle disputes between neighbors. Indeed, the focus of the most-cited article in law review history, Ronald Coase's The Problem of Social Cost, is firmly on the issue of how the law should deal with someone who interferes with the use of a neighbor's property. The myriad of uses to which Coase's analysis has been put over the last forty years has obscured the relatively straightforward nature of the question that interested him: Should the law force an entity to bear the full cost of its behavior? When one neighbor harms another, should the law impose liability in the form of a damages action, or in the form of a tax (as suggested famously by Pigou), or, perhaps, do nothing at all?

The original conundrum contemplated by Coase arises with spectacular clarity in the context of the emerging problem of pollen drift. Genetically modified (GMO) crops constitute a significant segment of agricultural production, and pollen from these crops drifts inexorably across property lines. Consider the situation faced by farmers in the United States who grow non-genetically modified (non-GMO) crops for buyers in jurisdictions that heavily regulate or forbid the sale of genetically modified food products, like the European Union or Japan, or who sell to purveyors of organic food products in the United States or elsewhere. The market for non-GMO crops is enormous, and such goods often command a premium price, but due to the widespread planting of GMO crops, non-GMO farmers run the constant risk of contamination by pollen from patented genetically modified plants. If a farmer has a forward contract for non-GMO corn for sale in Europe, and her corn fields are pollinated by a neighbor's genetically modified crop, then the anticipated premium from selling the non-GMO crop will be lost. More importantly, the non-GMO farmer may find herself unable to sell the contaminated crop at all. If her plants are now found to contain patented cell structures claimed by the patentee of the GMO corn, then the farmer is arguably a patent infringer and selling her crop without the patentee's permission will be fraught with risk.

The possibility of patent law exacerbating the harm done to the victim of this type of pollution adds an intriguing twist to the original problem. Although the fact of contamination through pollen drift is very real for non-GMO farmers, the danger posed by patent law may seem far-fetched because, in most areas of the law, passive bystanders have a complete defense. Patent law, however, is based on the concept of strict liability. If a department store sells an infringing product, for example, the store is liable whether it knew the product was infringing or not. A scientist working in her lab is guilty of patent infringement even if she has no idea that the new compound she has just synthesized happens to fall within the claims of an existing patent. Monsanto Corporation, the world's leading agricultural biotech company, has been particularly active in using federal law to police anyone it finds to be growing its patented plants. For instance, in the famous Schmeiser litigation, Monsanto, and other commentators, took the position that a bystanding farmer could be liable for patent infringement stemming from windblown GMO pollen. In fact, Monsanto's lead in its industry is certainly due in part to its use of forceful investigations and prosecutions against those it suspects of patent infringement, regardless of whether such infringers act willfully or are even aware of their alleged infringement. In short, Monsanto is in the unique position of being able to take a problem that it created--the contamination of non-GMO plants by pollen drift from GMO plants--and use it to its advantage by prosecuting those bystanding farmers whose crops become contaminated.

In Part I of this Article, we apply the Coase Theorem and its most useful corollary to the problem of pollen drift. We conclude that the liability of pollen polluters should be governed by balancing rules under nuisance law, to be applied on a case-by-case basis, rather than by a blanket liability or immunity rule. We also conclude that truly bystanding non-GMO farmers should have a viable defense to patent infringement because liability would result in the application of a reverse Pigovian tax that cannot be justified under accepted economic theory. Only a contextual approach can account for the wide variety of costs that must be identified before determining whether liability for genetic pollution is socially desirable.

In the rest of this Article, we demonstrate that existing legal doctrines support the adoption of the framework we advocate. In order to do that more effectively, we briefly provide the background science of genetically modified plants and how their patented characteristics can be adventitiously transferred, and we also highlight the consequences of pollen drift by canvassing the multi-billion dollar market for non-GMO crops. Then, we discuss the common law nuisance and trespass doctrines that may provide farmers with an affirmative cause of action when pollen drift causes a reduction in the value of a planted crop. Finally, we discuss patent law defenses that may be available to patent infringement defendants who characterize themselves as victims of pollen drift (bystanding farmers). We find significant opportunities for true bystanding farmers to rebut patent infringement claims in the voluntary act doctrine and in the doctrines of patent misuse, unclean hands, and volenti non fit injuria. In the spirit of truly descriptive law and economics analysis, we conclude that applicable common law and equitable doctrines appear to be efficient.

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