Current Liability Debates in the US

1
Current Liability Debates in the US EU

• A. Bryan Endres
• Asst. Prof. of Agricultural Law

2
Outline

• Current status of the liability debate within the
  United States and the European Union
• Property damage vs. Market disruptions
• Picking a winner
• A modern fence-in/fence-out debate
• Contracts
• Risk Management or Magnification?
• Opportunities for risk management tools at the
  state/local level
• Discussion

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Definitions

• Conventional production method using a seed
  variety developed through conventional breeding
  techniques rather than modern genetic engineering
  technologies
• Coexistence ability of farmers to choose
  between conventional, organic or GM crop
  production and achieve required purity levels
• Adventitious Presence unintended and, to some
  extent, unavoidable presence of genetically
  engineered DNA in conventional or organic
  products (also referred to in shorthand as
  contaminationnot intended to be pejorative)

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Where is the Potential Liability?

• Property specific damages
• Environmental Damage/Loss of Biodiversity
• Nuisance/Trespass/Negligence/Strict Liability
• Products Liability
• Larger issue for life-science company
• Intellectual Property
• Not likely on an adventitious presence basis
• Contract-based liability
• Loss of marketing opportunity (cost vs.
  liability)
• Traceback liability for commingled shipments

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A Question of Duty Fence-In or Fence-Out?
OR
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Common Law of Coexistence

• In the absence of regulatory or other legal
  action, the market has selected its winners and
  losers
• Accepted the introduction of GM varieties
• Placed 100 of the burden of identity
  preservation/segregation on the non-users of GM
  technologies (conventional or organic farmers)

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How have some EU Member States Approached
Liability Coexistence?

• Regional Bans
• Burden on GM producers
• Strict, joint and several liability for loss of
  marketing opportunity
• Compensation funds / Insurance

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Current Regulatory Landscape

• Not a layer cake
• Ag sector is 2X more reliant on exports than
  other economic sectors

Intl Treaties National Rules
State Responses
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Where to from Here?

• At this stage, what tools are available at the
  state level to foster coexistence and/or reduce
  liability exposure for non-GM producers?
• Shift the existing burden of segregation and/or
  impose strict liability on GM?
• Implement tools to equalize the playing field?
• Implement tools to assist production and
  marketing of a GM free harvest?

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Opportunity 1 Facilitate Formation of Grower
Districts

• Alters current allocation of duty
• Lower segregation costs to group
• Common in seed production systems where a large
  company can contract with geographically distinct
  area of farms
• Grower districts provide similar economies of
  scale
• Currently, GM production enjoys economies of
  scale, in-part, because of uncompensated negative
  externalities

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Grower District Variations

• GM-Free (Pharma-Free) zones
• Coexistence through Prohibition
• Much ado about nothing
• Variety specific zones
• Look to Idaho/Washington re Rapeseed
• San Joaquin Cotton District
• Variety licensing boards
• Stakeholder run State oversight
• California Arkansas Rice Licensing Statutes
• Voluntary grower districts
• The Missouri Experiment

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Contracts the FarmerRisk Mitigation or
Magnification

• Seed Purchase Agreements
• Grain Marketing Contracts

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Grain Marketing ContractsThe Lowest Common
Denominator

• Tolerance/Coexistence demands driven by specific
  end-user requirements
• EU rules L.C.D.
• 0.9 for approved GM
• Labeling Traceability Rules for A.P. gt 0.9
• ZAP for unapproved
• Same rule applies in the U.S. (e.g., Prodigene)
• Lesson Learned?
• Liberty Link soybeans
• Roundup Ready Alfalfa lawsuit filed Feb. 16, 2006

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Opportunity 2 State Intervention in the
Market

• Block commercialization/sale/cultivation of
  varieties with ZAP potential
• Public nuisance suit by state AG
• Stand-alone legislation/regulation
• Prevent sale/planting
• Agronomic restrictions
• Mitigate economic loss bar to tort claims
  arising from loss of marketing opportunity
• Statute defines injury as loss of price
  premium

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Opportunity 2 Additional Options

• Compensation Funds / Insurance Policies
• Prevent IDIOT claims
• Importer-Driven Inconsistent Outcome Testing
• Cenex Harvest States v. Perdue Shafer (Can.)
• Agra Marke v. Aventis (StarLink litigation)
• Payment contingencies on initial vs. final
  approval
• Production Contract Statutes
• E.g., 505 ILCS 17/1 et. seq.
• Clarity
• Technical terms
• Readability
• Termination clauses
• Testing protocol

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Seed Purchase Agreements Seed Purity

• Typical Liability-Shifting Clause

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Seed Purity Status

• Where are we with seed purity?
• Union of Concerned Scientists
• Bt 10
• Where are we headed?
• USDA audit / State-directed audit?
• Are the most critical flaws already thru the
  system?
• What can states do?

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Opportunity 3 State Oversight of Seed Purity

• Trust but Verify
• Test conventional seed for GM content
• Test procedures/sequences for all field-tested GM
  crops
• Revise Labeling Laws to bring into line with
  market requirements for coexistence/traceability/l
  abeling in major export markets
• EU working to establish seed tolerances
• Prohibit liability shifting clauses on seed
  sales?
• With respect to only unapproved GMOs?
• Economic Loss doctrine (at least as applied in
  the StarLink decision) would prohibit tort claims
  where farmer unknowingly purchased GM seed or
  seed with unapproved GM content as a result of
  contamination of the seed breeders inventory.

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Opportunity 4 State Oversight of Field Trials

• State-level response to APHIS audit
• State or 3rd party audits of permit compliance?
• Private AGs for permit enforcement?
• Myths of Voluntary Compliance
• State oversight/enforcement of bio-farmer
  contracts with developer
• Balancing new economies with coexistence
• Forum shopping (Ventria)
• Iowa State report re benefit of pharma crops
• Opportunity for grower districts

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Preemption

• No consensus among commentators
• Health and Safety vs. Economic Issues
• Careful drafting
• Veggie Libel laws
• Bates v. Dow Agrosciences, 125 S. Ct. 1788 (2005)
• Trend to state flexibility?
• Seed Labeling
• Specifically envisions state-specific augmentation

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Final Thought

• There are risks and costs to a program of action.
  But they are far less than the long-range risks
  and costs of comfortable inaction.
• John F. Kennedy

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A. Bryan Endres(217) 333-1828bendres_at_uiuc.edu
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References

• R.M. Bratspies, Myths of Voluntary Compliance
  Lessons from the StarLink Corn Fiasco, William
  Mary Envtl L. Policy Rev. (2003).
• A.B. Endres, Coexistence Strategies in a Biotech
  World Exploring Statutory Grower Protections,
  Missouri Entl L. Policy Rev. (forthcoming
  2006).
• A.B. Endres, Revising Seed Purity Laws to Account
  for the Adventitious Presence of Genetically
  Modified Varieties, J. of Food L. and Policy
  (2005).
• A.B. Endres, GMO Genetically Modified Organism
  or Gigantic Monetary Obligation, Loyola of L.A.
  Intl Comparative L. Rev. (2000).
• M.R. Grossman, Biotechnology, Property Rights and
  the Environment, Am. J. of Comparative L. (2002).
• D.L. Kershen, Legal Liability Issues in
  Agricultural Biotechnology, Crop Sci. (2004).
• T.P. Redick, Biopharming, Biosafety, and Billion
  Dollar Debacles, Drake J. Agric. L (2003).
• J.A. Miller, Contracting in Agriculture
  Potential Problems, Drake J. Agric. L. (2003).
• Agra Marke, Inc. v. Aventis, 2005 WL 327020 (Feb.
  8, 2005).
• Cenex Harvest States v. Perdue Shafer, Inc.,
  Arbitration Case No. 2027 (May 1, 2003).
• In re StarLink Corn Prods. Lit., 212 F. Supp. 2d
  828 (July 11, 2002).
• Geertson Farms, Inc. v. Johanns,
  306-CV-01075-CRB (N.D. Cal) (filed Feb. 16,
  2006).