Assessing Innovator and Grower Profit Potential under Different New Plant Variety Commercialization Strategies

This research is motivated by the sharp increase in the number of patented fruit varieties developed by breeding programs at public universities in the United States. Such varieties are licensed to growers as a way to generate revenue for universities through the use of fees and royalties. Although the use of fees and royalties for patents has been well discussed in the economic literature, there is very little empirical work that examines these questions for varietal innovations in agriculture. Horticultural variety innovations are particularly interesting as they typically involve a demand-enhancing innovation rather than a cost-inducing innovation, and because, in most cases, the new varieties are only intended to replace a small share of production dedicated to existing varieties. We found evidence that fixed-fees under an exclusive contract was the most profitable for growers. For the innovator, the most profitable scheme was the exclusive per-box royalty contract. Our findings on potential profits for both adopters and innovators signal that exclusive contracting would outperform the non-exclusive licensing schemes. Given that the innovations are occurring at land-grant universities and that the technology is largely being distributed to U.S. growers, further work might consider the net societal impacts of the various licensing strategies; this would extend our analysis to consider the economic effects from licensing for the innovator as well as the effects for producers.