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Monsanto Company (MON): Bet On the Bully!

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Monsanto Company (NYSE:MON) has always been one of the most controversial and intriguing stocks in the market. The agricultural giant, best known for its genetically engineered, herbicide-resistant seeds, has raised a serious question — can life be patented? Monsanto certainly thinks so, and has consistently rolled over any farmers or consumer groups that have gotten in its way.

However, a farmer from Indiana recently squared off with Monsanto in the Supreme Court, challenging the company’s assertion that second-generation seeds from its genetically engineered ones are also protected under existing patents. Just how far do Monsanto’s patents extend, and why are they so critical for the company’s survival? Does the company’s apparent stranglehold on the country’s farming industry also mean that it is a solid investment, despite lingering ethical issues? Let’s take a look at how Monsanto operates.

genetically modified foodsA Simple Business Model

Monsanto’s business model is fairly easy to understand. First, it produces Roundup, an herbicide also known as glyphosate. Second, it manufactures genetically altered seeds (soybean, corn, sorghum and others), labeled as Roundup Ready, that are specifically designed to be immune to Roundup, and not other herbicides.

Monsanto’s straightforward strategy is to dominate both businesses by introducing farmers into one product to require them to buy both.  That simple strategy has allowed its seed business to take over 90% of the United States soybean farms since the first seed was introduced in 1996. Monsanto requires farmers to buy new seeds every year, and restricts them from collecting second-generation seeds, which the company claims are patented technology.

Monsanto has repeatedly sued individual farmers accused of hoarding second-generation seeds to avoid paying Monsanto for new ones. It has even gone as far as to introduce self-terminating seeds, which become infertile after their first generation.

David vs. Goliath

Vernon Hugh Bowman, a 75-year-old farmer from Indiana, recently clashed with Monsanto in the Supreme Court after the company accused him of violating its patents by knowingly planting second-generation Monsanto seeds. Throughout most of his career, Bowman had been a loyal Monsanto customer, purchasing its engineered soybean seeds every year and signing an agreement that prohibited him from gathering or planting second-generation seeds.

However, during the off-season, Bowman purchased additional seeds from a crop elevator, which consists of “junk” seeds usually used for animal feed. Bowman identified and separated the second-generation Monsanto seeds and planted them. For this violation, Monsanto is seeking $84,000 in damages from Bowman.

Similar cases have occurred in the past, where second-generation Monsanto seeds were blown into neighboring non-Monsanto farm’s fields. Monsanto sued those farmers as well for patent violations.

Goliath crushes David

In the Bowman case, the Supreme Court sided with Monsanto, crushing hopes that a small-town farmer would be David to Monsanto’s Goliath.

Chief Justice John Roberts defended the company, claiming, “Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?”

Monsanto’s critics have often claimed that no company should ever be allowed to patent nature, while its supporters have compared the unauthorized creation of second-generation Monsanto crops to software, movie or music piracy. Purchasing a single copy of a patented or copyrighted product doesn’t give a consumer the right to reproduce the product and sell it for a profit.

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