Innovation in Merger Analysis – How the EU Commission Evaluated the Case of Bayer-Monsanto
In September 2016, the German drugs and chemicals group Bayer announced its intention to acquire the multinational Monsanto, known for its Roundup herbicide and GMOs. This merger would produce the world’s most powerful company in the seed and pesticide industry. On 21 March 2018 the EU commission released a Press Release announcing their approval of the acquisition of Monsanto by Bayer. The merger was approved on the conditional divestiture of an extensive remedy package, which addresses the parties’ overlaps in seeds, pesticides and digital agriculture. It is for determining such inconspicuous aspects of a merger, like technology overlap, that the EU commission relied on the LexisNexis® PatentSight® database and our award-winning business intelligence software solution for the merger analysis.
Why look into technology overlaps?
In the Press Release, Commissioner Margrethe Vestager said, ‘Our decision ensures that there will be effective competition and innovation in seeds, pesticides and digital agriculture markets also after this merger.’ The commission reached this conclusion after performing extensive analysis on the portfolios of both Bayer and Monsanto from a technology landscape perspective rather than a market share position perspective.
As quoted in the Global Competition Review magazine’s online article, “Enforcers must be careful when they analyse mergers for innovation concerns, because current market shares are not such a good predictor of what competition for research and development will look like. It is not enough to describe the world of pesticides or traits as differentiated product markets.”, said Thomas Deisenhofer, the Head of Unit for Merger Controls at the DG COMP. “It’s not one world, it is many worlds; and that translates to multiple different innovation efforts directed at different innovation spaces within those industries”, he further explained. As a competition control agency, it is important that the DG COMP neutralizes any partnerships that could lead to a concentration of specific technological competencies within a specific innovation space at the merged entity.
Methodology followed by the European Commission
In their Case M.8084 decision on Bayer vs. Monsanto, the European Commission’s Directorate-General for Competition used a comparable approach as in the 2017 Case M.7932 decision on Dow vs. DuPont. Using patent data obtained from PatentSight® Business Intelligence Analytics Software, the Directorate was able to identify the technological strengths of firms in several innovation areas pertaining to the parties and potential innovation-related effects of the Bayer-Monsanto merger by looking at joint patent shares, as depicted in the image below.
Herein, the Directorate made use of the search and analytical options available in PatentSight, for e.g. by concentrating analyses on specific technology fields only. Moreover, using our smart patent indicator Technology Relevance, the Directorate was able to discern patent qualities based on citations, corrected for different ages and the diverse citation propensities observed at different patent offices and in different technology fields. As a result of our process of tracing ownership structures, self-citations could also be discerned from citations by third parties. Finally, restricting analyses to top-quality patents only allowed to identify relative positions based on those patents that are inherent to firms’ technological bases and balances of power. With these tests and robustness checks, the Directorate was able to gain a more insightful overview of the innovative positions of the parties and competitors in the selected technology fields using PatentSight’s patent data.
Having partnered with various international authorities in merger control proceedings, we at PatentSight can attest that technology and innovation are increasingly being considered important factors when it comes to decisions on merger control. This trend of shifting focus towards an innovation-based approach ensures that approved mergers do not prove to be detrimental to competition in markets where there is an increased concentration of resources and technology.
With our high quality, accurately mapped patent and company information, along with a team of experts to offer seamless support to our users, PatentSight is well equipped to support such endeavours. If you are interested to know more about the Directorate General of Competition at the EU Commission’s evaluation of the Bayer Monsanto merger, please click here.
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About the author: Carsten Guderian
Carsten is a Senior Project Leader and has a background in Economics and Business Administration, particularly innovation management and patent analytics. He has been affiliated with PatentSight since 2012.