$218 million Syngenta verdict exposes biotech firms to whims of foreign regulators

By Daniel Fisher | Jul 6, 2017

KANSAS CITY, Kan. (Legal Newsline) - A Kansas jury’s recent $217.7 million verdict against Syngenta for releasing genetically modified corn before it had been approved in China demonstrates a familiar complaint for companies working at the boundaries of science and global trade: U.S. law takes time to catch up.

In this case, jurors in the U.S. District Court for the District of Kansas applied centuries-old concepts of negligence and liability to find that Syngenta, a Swiss agricultural products giant, should have known China would reject imports of any farm products tainted with its Viptera seed, which is genetically modified to resist bugs and mycotoxins and had been approved by the United States.

The decision essentially orders Syngenta to indemnify farmers against the actions of Chinese regulators.

“The industry moves so fast, it takes the law a little longer to catch up,” A. Bryan Endres, a professor at the University of Illinois who has written extensively about biotech liability in the agricultural sector, told Legal Newsline.

“There’s caution” in the biotech industry, he added. “But they also know, `hey, if we have a good product, it’s going to get approval.’”

Syngenta has said it will appeal the June 23 decision, but it settled another class action scheduled to begin trial July 10 in Minnesota and faces tough decisions about pending lawsuits by farmers in 22 other states. 

The company says the lawsuits are based on the flawed legal theory that it must indemnify farmers against the arbitrary actions of foreign regulators. 

Plaintiffs say Syngenta is liable for the economic damages that flowed from releasing a new GM trait into the global market before obtaining approvals in all the necessary countries.

Syngenta released Viptera in the U.S. in 2011 after receiving U.S. and European approval, but China didn’t approve Viptera until 2014. In the meantime, global corn prices plunged, giving plaintiffs lawyers an opening to argue “contamination” with Viptera seed caused the decline. 

Syngenta argued prices fell before China rejected the first U.S. corn shipments in 2013 and that a company shouldn’t be held liable for politically driven regulatory actions in China.

In a statement after the verdict, Syngenta – ironically now owned by ChemChina – said the verdict “will only serve to deny American farmers access to future technologies even when they are fully approved in the U.S.”

If the jury’s reasoning in the Kansas case holds in other pending trials, that may be true. Previous lawsuits over the impact of GM traits entering the commercial marketplace have mostly ended in settlement, leaving the law in this critical area uncertain.

If companies guess wrong about whether their product will be approved by foreign regulators, the economic stakes can be huge. Aventis and Advanta agreed to pay $110 million in 2003 for selling genetically modified corn that mistakenly was introduced into the human food supply although it had only been approved by the Environmental Protection Agency for animal use. 

Bayer agreed to pay $750 million to rice farmers in 2009 after trace amounts of its GM “Liberty Link” rice was found in the commercial rice supply. The trait was unapproved for commercial use or export to Europe, and the disclosure caused a global plunge in rice prices.

In the Syngenta case, lawyers uncovered evidence Syngenta executives had discussed the possibility China would reject corn containing the MIR 162 trait but decided to release Viptera anyway. It had been approved by all of the major importers of U.S. corn and China, a big importer of soybeans, historically had imported negligible amounts of U.S. corn.

That was changing by 2011, however, as China ramped up imports of corn for ethanol fuel production. Grain export associations and big shippers including Bunge and Cargill tried to convince Syngenta not to sell Viptera until China had approved the GM corn and then tried to refuse to allow it into common bins in grain elevators out of fear Chinese inspectors would detect MIR 162 and reject all U.S. corn.

Plaintiff lawyers – including Don M. Downing of Gray, Ritter & Graham in St. Louis; Patrick J. Stueve of Stueve Siegel Hanson in Kansas City; and law firms in Dallas and Birmingham, Ala. – argued rising China imports made it a “key country” that required approval before the first GM seeds hit the U.S. market. 

The term “key country” comes from the Biotechnology Innovation Organization’s guidelines for introducing GM agricultural products, which say companies should obtain regulatory approval in key markets.

“They have a duty just like the other biotech companies to act reasonably with respect to the launch of a new commercial GMO trait,” said Stueve, who represents tens of thousands of farmers in other pending cases. 

“These cases are based on bedrock negligence principles, based on the duty toward those for whom there is foreseeable harm.”

Syngenta argues China fails to meet other important standards for in the BIO guidelines, however. Those guidelines assume foreign countries have a “functioning regulatory system” that is predictable, utilizes scientific judgment and isn’t subject to undue political interference.

China failed on all those counts, according to Syngenta. In a motion urging the judge to dismiss the case at the close of trial, Syngenta said it had no duty to “suppress or limit the introduction of U.S.-approved biotechnology in the U.S. simply to cater to the demands of a foreign country that has no functioning regulatory system.”

“Any other result would hold U.S. advances in agricultural technology hostage to the whim of foreign regimes that are concededly arbitrary, capricious, or riddled with political considerations in restricting GM imports and to countries that have no established importance for preserving an American export market in the commodity in question,” Syngenta argued.

It also rejected the legal theory it could be required to indemnify farmers against the actions of foreign regulators, citing Exxon v. Amoco, a 1989 decision by the U.S. Court of Appeals for the Fourth Circuit that said it went against public policy to hold private companies liable for “the arbitrary acts of government bureaucracy.”

Plaintiffs lawyers rejected Syngenta’s defenses, saying the company knew there was a risk China’s protectionist regulators would deny imports for arbitrary reasons.

Syngenta’s own evidence is that China has long and openly used its regulatory system as means of trade barrier, the lawyers for the farmers argued. “Giving Syngenta the benefit of that evidence, and even assuming its theory that China used MIR162 as a `pretext for the rejections,’ such use was not unforeseeable but actually foreseen by Syngenta," they said.

As cases like this go to trial, courts will continue to refine the limits of liability for introducing genetically modified DNA into the marketplace, Endres said. One of the risks is that regardless of the safety or usefulness of a new trait, it could run afoul of regulators who can crater an entire market by preventing the movement of crops or declaring an entire country’s output to be contaminated.

“The problem in this case is the biotech industry knows about this problem,” Endres said. “They’ve talked about this problem.”

What makes agricultural biotech a particularly big target is the political sensitivities that it arouses. Left-leaning activists decry the control patented GM crops give global seed giants over local food production and others worry that modified crops are harmful to humans.

“The reason is the consumer reaction,” Endres said. “That’s what is driving the government reactions in these other markets.”

Syngenta vowed to appeal the Kansas verdict but already reached a settlement in next case teed up for trial. Further large settlements will leave the law in flux until another biotech giant decides to test its defenses in court.

From Legal Newsline: Reach Daniel Fisher at Dan@waldenconsultants.com.

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