In the United States, the number of plant varietal rights applications per year has grown rapidly, particularly in the past 20 years. As of 2010, the total of all these varietal rights were 34,559 with plant patents (61% of the total), plant variety protection (PVP, 20%), and utility patents (10%). Both agricultural and horticultural plants have, on average, experienced similar growth rates in the past 20 years, and the largest portion (71%) of plant varietal IP rights is for horticultural plants. Plant patents are 61% of all varietal rights and virtually all are for horticultural plants (Drew, 2010). Ornamental plants account for 77% of all horticultural IP rights and 84% of all plant patents (Drew, 2010). The steady growth of bedding and gardening plant rights is the driver of the growth of ornamental rights. Bedding plants accounted for 12% of all plant patents in 1980 and the share has increased to 60% in 2008 (Drew, 2010). In contrast, for the same period, the number of IP rights for nursery industry plants remained fairly constant and had an approximate share of 13% of all rights. Ornamental plants primarily use plant patents, the oldest form of IP for plants in the United States (Drew, 2010).
Likewise, the horticultural markets, in particular, ornamental markets, have also grown in real value of production. Horticultural crop value of production grew from 19% of all agricultural crops in 1924, to 40% in 2004 (Drew, 2010). Of the major horticultural crop groups (i.e., fruit and nuts, vegetables, and greenhouse and nursery), ornamental crops of the greenhouse and nursery industries had the fastest and steadiest growth. Since the early 1990s, the nursery and bedding/gardening plant industries have remained the largest growing ornamental sectors (Drew, 2010; Jerardo 2007).
Coinciding with the increases in plant IP and growing markets, the number of commercially available cultivars of horticultural plants in Canada and the United States have increased from ≈29,000 in 1987 to ≈107,000 in 2010 (Drew et al., 2010; Isaacson and Allen, 2010). Recently, in addition to plant patents, there has been a rapidly growing effort to brand these high-valued ornamental crops and gain additional value premiums from the protection of cultivar innovations via other forms of legal protection such as trademarks (Aguirre, 2006; Schoellhorn, 2009). There has been a lack of consistency in how trademarks are used in connection with cultivar names where proper use, marketing, policing, and ingenuity are required to generate additional value from trademarks (Aguirre, 2006). In addition, the difficulties in maintaining quality standards in plant products have negative effects on branding programs.
Most prior studies have failed to empirically reveal any significant or sizable effects of IP rights for plant cultivars. Several studies (Alston and Venner, 2002; Butler and Marion, 1985; Penna, 1994; Perrin et al., 1983; Stallmann, 1986) analyzed the welfare effects of IP rights for plants through research and development (R&D) investment and increases of new cultivars. Overall crops these studies showed the effects were weak to nonexistent with some finding significant effects on just a few crops such as increased breeding efforts for soybeans (Perrin et al., 1983), increased investment in R&D for self-pollinated wheat and soybeans (Butler and Marion, 1985; Knudson and Pray, 1991), and increased cultivar releases in roses and strawberries (Penna, 1994). Stallmann (1986) found that woody crops were particularly unaffected by the institution of plant patents due to the lengthy breeding process and difficulties in detecting infringement. Welfare analysis of the quality changes from the institution of PVP in 1970 reveals yields for soybeans increased slightly with PVP (Perrin et al., 1983) and showed no significant change in wheat varieties (Alston and Venner, 2002). Rangnekar (2002) found that quality changes were systematically small and posited that this was a form of planned obsolescence. Studies of price effects of PVP show IP for plants to have slight (Alston and Venner, 2002; Hansen and Knudson, 1996; Lesser, 1994) to substantial effects (Butler and Marion, 1985) with price gains diminished by farmer-saved seeds (Hansen and Knudson, 1996). Perhaps, the revealed size of the effects of IP for plants has been small because the research is dominated by studies specific to food crops and agricultural crops derived from biotechnology.
In the United States, plant breeders can protect their inventions with a plant patent (asexually propagated plants), PVP certificate (sexually propagated plants or tuberous asexually propagated crops such as potatoes), or a utility patent (plants, genes, or germplasm for asexually or sexually propagated crops). For more information, refer to “The Roots and Fruits of Plant Varietal Rights: an Economic Evaluation of Intellectual Property Rights in the US Horticultural Sector” (Drew, 2010). Of the three forms of IP for plants, the plant patent is the most prevalent in the ornamental plant industry and has been in use since the 1930 Townsend-Purcell Plant Patent Act (Drew, 2010). Commonly used on horticultural plants before 1930, trademarks were abandoned with the introduction of plant patents (Stallmann, 1986), and only until recent years have regained popular use, often in conjunction with the plant patent (Aguirre, 2006; Schoellhorn, 2009).
An economic criticism of varietal IP rights of the plant patent and PVP is that the protection offered may be too weak to provide incentive in developing new cultivars (Butler and Marion, 1985; Lesser, 1994; Penna, 1994; Stallmann, 1986). In addition, the effects of the rights are different between crops (Butler and Marion, 1985; Penna 1994; Stallmann, 1986). Stallmann (1986) theorized that these differences could be due to plant differences that affect breeding, production/marketing costs, and costs of enforcing the plant patent such as a longer juvenile period, greater space requirements, stability of reproduction, greater uncertainties with respect to research success, and market acceptance. For a pertinent example, woody species, in particular tree species, have longer juvenile periods and greater space requirements which increase breeding and reproduction costs. In addition, they are durable and last for months or years; consumers tend to be reticent in replacing existing plants in their landscapes. The higher costs and stability of reproduction associated with woody plants can give competitive growers an incentive to infringe on plant IP rights (Stallmann, 1986).
Ornamental plant marketing involves a complex flow of new and existing plant cultivars and information through market channels (Drew et al., 2010). Vertical production stages for plant products begin with the production of new cultivars via independent public and private sector plant breeders and plant introduction firms and end with consumer purchases of plant products. Ornamental plants are bred with specific target breeding attributes (phenotypes) such as size, shape, form, texture, and flower/foliage color (Anderson, 2006). Producer firms propagate new cultivars, many of which are patented, branded or both, along with other cultivars to sell in the wholesale market. These firms may also supply new cultivars either as a by-product of their activities or through an “in house” breeding facility. Marketing studies of wines have shown that firm reputation is important for selling agricultural products because these products have many attributes that are not readily known to the buyer (Ali et al., 2008; Schamel, 2003; Schamel and Anderson, 2003). Ornamental firm reputations are built upon highly variable and difficult to ascertain attributes such as customer service, quality of product (particularly innovative qualities), cultivar selection, and plant performance.
On the other side of the wholesale market are growers, retailers, and landscapers. Wholesale buyers choose plant cultivars based on expected plant health and quality, plant offering size, form and price, growing requirements, shipping costs, which plants are offered through their broker, anticipated consumer preferences, and the level/effectiveness of promotions.
Recent structural developments in the ornamental industry may be in response to the relatively weak IP rights inherent in a plant patent. Royalty administration companies with an international reach, act as agents for breeders matching markets to new cultivars, policing cultivar IP rights, and administering the collection and distribution of royalties (Aguirre, 2006). Marketing firms have emerged to aggressively promote a nursery’s or a group of nurseries’ newer plant cultivars. These firms orchestrate the marketing approach throughout the distribution chain, which includes trademarking, branding, and licensing agreements that assure plants are produced to prescribed quality standards, sold with required tags, and plants with patents are not propagated without authorization (Aguirre, 2006). If these efforts are effective, they reduce the time it takes for a new cultivar to be adopted in both wholesale and retail markets, and increase the incentives, through premiums, for firms and individual breeders to innovate.
The objectives of this article focus on the value of IP rights for ornamental plants of the horticultural sector where there are higher per-unit prices and considerable effort and expense go into seeking and exercising plant varietal IP rights for horticultural plants. We re-examine the role of IP rights pertaining to plant innovations and assesses the economic consequences of IP rights for plants by analyzing their impacts on plant values using the hedonic price framework. A hedonic pricing model is adapted to the U.S. wholesale ornamental plant market and, in particular, the bedding and garden plant and nursery plant markets to analyze two forms of IP rights used on plants (i.e., the plant patent and the trademark). By controlling plant-specific attributes that might affect plant values such as the type of plant, size, form, growth habit, resistance to biotic and abiotic stresses, and a variety of marketing variables such as the size and form of the marketed plant, our empirical analysis will determine the price premium effects of the plant patent that may have been masked in previous studies of IP rights for plants. Premiums from the use of trademarks are more modest, but when used in conjunction with the plant patent may decrease plant value depending on the species. By fitting our hedonic model using a multiple equation approach and fitting a hedonic price equation for each species, we can test for significant differences between species in price premiums and discounts for IP used on plants, as well as address several specification issues prevalent in hedonic literature (i.e., collinearity, heteroskedasticity) (Unwin, 1999). Unlike many hedonic models, ours is not driven by the availability of data, but is a model for which the data were collected.
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