Chem Companies Defend Loyalty Programs

LINCOLN, Neb. (DTN) -- Syngenta Crop Protection and Corteva Inc. asked a federal court to dismiss a lawsuit brought by 10 state attorneys general and the Federal Trade Commission that alleged the companies paid distributors to block competitors from selling less-expensive generic products to farmers.

In two separate motions filed with the U.S. District Court for the District of Middle North Carolina, the companies defended the legality of so-called loyalty programs at the center of the complaint.

The FTC and the states have alleged distributors only get paid if they limit business with competing manufacturers. Such arrangements, the complaint said, are "cutting off" competition and allowing the companies to "inflate their prices and force American farmers to spend millions of dollars more for their products."

In particular, the lawsuit alleged Syngenta has monopoly and market power on the fungicide azoxystrobin, and the herbicides mesotrione and metolachlor. The suit cites Corteva's herbicides rimsulfuron and acetochlor and the insecticide and nematicide oxamyl.

COMPANIES: LOYALTY DISCOUNTS "COMMON, LAWFUL"

"Plaintiffs ignore the fact that loyalty discounts, which come in many forms are not only 'extremely common' but also 'presumptively lawful in all but a few carefully defined circumstances,'" Corteva said in a motion to dismiss.

"Exclusive dealing arrangements offer numerous procompetitive benefits, such as maintaining customers' incentives to invest in a manufacturer's products, ensuring consistent purchases by customers over time and reducing free riding by customers and competitors.

"Plaintiffs also elide the fact that Corteva's loyalty programs, which have been in place for many years, relate to a small number of its products, have significantly decreased prices to its customers over many years, and have successfully encouraged its customers to invest in services, stewardship and support for Corteva's products."

Syngenta said in its motion to dismiss that the lawsuit advances an "unprecedented and unfounded theory" that an industry-standard rebate program offering a "modest, optional discount" to customers to incentivize increased purchases violates antitrust laws.

"Rebate programs that reduce prices to above-cost levels are permissible as a matter of law, except in narrow circumstances where customers are forced to participate by coercive non-price features," Syngenta said. "Nothing of the sort is pleaded or present here."

The company said the lawsuit describes a "standard, above-cost rebate program" that offers lower prices to incentivize customers to purchase more of a particular Syngenta product line.

"This program is entirely lawful," Syngenta said in its motion. "As courts have repeatedly recognized, the only 'harm' that such a program could cause is pressuring rivals to compete more vigorously."

Syngenta said if the complaint is upheld by the court, there's concern that "virtually any loyalty rebate program" could "plausibly be alleged" to be anticompetitive.

"That is not the law, and the court should not create new law that would punish the very conduct -- price cutting -- the antitrust laws are designed to promote," Syngenta said.

"The amended complaint's deficiencies are particularly glaring given that: (i) the FTC investigated Syngenta -- obtaining nearly unlimited discovery from Syngenta and third parties -- for three years before filing this lawsuit; and (ii) plaintiffs have now taken the opportunity to amend in response to Syngenta's original motion to dismiss. If any facts could have been pleaded to bolster plaintiffs' claims, they would have been pleaded."

Corteva said in its motion the loyalty programs are "purely voluntary" and offer discounts to distributors that choose to participate, and "no one is forced" to take part in the programs.

"The programs are one year in duration and do not obligate distributors to purchase any Corteva products at all," the motion said.

"Distributors are free to cease purchasing Corteva's products at any time with the sole consequence being the loss of a discount. And they do not result in below cost or predatory pricing. Plaintiffs have not alleged -- and could not allege -- otherwise.

"Rather, they merely recast the rebates awarded under the programs as 'payments' and declare them to be exclusionary. More is required. Tellingly, the loyalty programs for each of the three Corteva AIs at issue were implemented many years ago, in two cases at least a decade after the statutory exclusivity protections on the products expired."

Syngenta and Corteva are two of the largest pesticide manufacturers operating in the United States. Syngenta, based in Switzerland, is a subsidiary of a Chinese state-owned company. Corteva, headquartered in Indianapolis, is the company formed as part of a merger between DuPont and Dow Chemical Company.

COMPLAINT PART OF BROADER PUSH TO UNLOCK COMPETITION

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

The complaint alleges Syngenta and Corteva take "illegal" steps to stop generic pesticides from eating into their profits. The loyalty programs include making payments to distributors -- as long as the distributors keep their purchases of competing generic pesticides beneath a certain threshold.

The FTC said the complaint was part of a "broader push to unlock competition and innovation in the American economy" as well as to "protect consumers and small businesses and crack down on unfair tactics by dominant companies."

The complaint also alleges the companies violated state-competition and consumer protection laws in California, Colorado, Illinois, Iowa, Indiana, Minnesota, Nebraska, Oregon, Texas and Wisconsin.

Read more on DTN:

"Syngenta, Corteva Sued by FTC, States," https://www.dtnpf.com/….

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @DTNeeley

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