Apple’s commercial success has often been linked to its intellectual property. Today IP and apples’ success is in the news again–the other apple, the kind you eat. The story involves the theme of tension about the way universities pursue technology transfer.

The story begins with the University of Minnesota and their agricultural research that led to the delicious and wildly successful Honeycrisp apple. That apples was the subject of a 1990 US plant patent, US PP07197, “Apple Tree: Honeycrisp” by inventors Jim Luby and David Bedford. That patent recently expired, but brought substantial revenue to the University (at least $8 million). So what’s next? How about the SweeTango, also called “the Honeycrisp killer,” an apple that builds upon and exceeds the Honeycrisp? This advanced apple was also developed at the University of Minnesota during a decade of research and is now being marketed through an exclusive license. That’s the problem: exclusivity. A lot of apple orchards could benefit from this tree, but the University of Minnesota has chosen to license it to only one group. The competitors have chosen to sue, claiming that it’s inappropriate for a public university to benefit just one company. The story made it to BusinessWeek in the Sept. 17, 2010 story, “Licensing Deal for Hot New Apple Comes Under Fire” by Steve Karnowski.

The university chose Minnesota’s largest orchard, Pepin Heights, to commercialize its new apple. But 15 other orchards say it’s not a sweet deal for them, and they’re suing. The school counters that research universities everywhere award exclusive rights to all kinds of intellectual property, and that the royalties are crucial for replacing shrinking public funding for research. It also says the deal is needed to protect the quality of an apple it spent more than a decade developing.

“When Pepin and the university signed this agreement, they had no consideration for what it would do to the Minnesota apple industry,” Frank Femling said. “The only thing they considered was their financial interests.”

The Femlings grow 13 kinds of apples at Afton Apple Orchard, about 15 miles southeast of downtown St. Paul. Most of their varieties came from the university, including the hugely successful Honeycrisp. They’re not growing the SweeTango, and they fear what will happen if it becomes as popular as the Honeycrisp. Cindy Femling said they’re already losing sales.

Mark Rotenberg, the university’s general counsel, said the school partners with private industry all the time to bring technology to the marketplace — not just apples but a myriad of other innovations as well, including lifesaving drugs and medical devices.

“This has become, for research universities across the United States, the dominant way in which basic research is made available to benefit the community at large,” Rotenberg said.

As an example, Rotenberg pointed to the technology transfer program at the University of Wisconsin-Madison. The 75-year-old Wisconsin Alumni Research Foundation is considered a leader in turning university research into products that benefit society, and using the licensing income to support further scientific investigation.

Emily Bauer, a licensing manager at the foundation who specializes in plant technology, said it generally prefers nonexclusive licensing because it wants the technology to be widely used. She said the foundation doesn’t usually award exclusive licenses for agricultural products. But in some cases, she said, exclusive licensing is the only way to get the technology into the marketplace.

Rotenberg said the university believed Pepin Heights could do the best job of quickly getting SweeTango apples into the market.

Dennis Courtier, owner of Pepin Heights in Lake City, said restrictions on who grows it are necessary to protect the quality as it competes with other snack foods, including candy bars and potato chips….

[The university] also wanted to avoid a repeat of a significant problem with the Honeycrisp. Anybody could plant it anywhere, and the quality suffered in warmer growing areas, hurting its reputation. So it picked Courtier and Pepin Heights, who formed the “Next Big Thing” cooperative to manage and safeguard the SweeTango. It has 45 growers in five states — Washington, Minnesota, Wisconsin, Michigan and New York — plus Quebec and Nova Scotia in Canada.

The university is hoping the deal yields a repeat of the more than $8 million it earned from the Honeycrisp. Besides a $1 per tree royalty, Next Big Thing pays the university 4.5 percent of the apple’s net wholesale sales.

Orchards outside of Minnesota that don’t join the co-op can’t grow it. Minnesota growers who aren’t in the co-op must sign an agreement with Pepin Heights and accept restrictions that plaintiffs such as the Femlings consider one-sided.

While we leave it to the parties involved to resolve the particular issues in this case, we do recognize that it is painful when competitors acquire a technology that has a competitive advantage. However, intellectual property owners generally have rights in determining how their property is used and by whom. Universities in the United States under the 1980 Bayh-Dole Act have an obligation to look for ways to benefit from IP that they develop. That doesn’t mean that they can only consider non-exclusive licenses. In this case, preserving the quality of the SweeTango brand may logically require a controlled approach to distribution of the crop, and the choice of one particular channel with added limitations in planting might make sense. Yes, the terms offered may be one-sided, which is the advantage of having a superior product and IP on your side. Those on the other side can agree to the terms or walk away and pursue alternatives, including developing or acquiring their own sources of competitive advantage. But we’ll have to let this case play out to see where the courts rule–there may be many details beyond the brief story we see in the press that could lead to unpredictable outcomes.

Nothing is safe in the business world. Disruption is always a threat. You may have a great product and a valuable crop, and the next day someone may develop something superior and not choose to let you in on the action or give you the terms you want. There’s a temptation to cry foul and look to the courts to even the playing field, but that’s rarely a fruitful approach.

Here’s a promotional video about SweeTango that discusses how long it takes to develop an innovation in apples. I especially enjoyed this because it features an inventor, the lead apple developer at the University of Minnesota, David Bedford.

I especially appreciate the story of SweeTango innovation since I’m an avid apple grower and apple processor myself. OK, I only have two trees, both Jonathans, but they put out about 1,000 pounds of amazing fruit that keeps me very busy for a couple of weekends and evenings in the first week of October–we’ll can well over 200 quarts of our secret-recipe applesauce, make dried apples, apple leather, various apple concoctions, and give away a couple hundreds pounds or so. The tart, juicy taste of our particular fruit when picked on a cool fall day beats that of nearly any product you can find in the grocery store, in my biased opinion, but I welcome every advance in this field and look forward to trying SweeTango.

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