Key takeaways
Blocking generics: When Syngenta faced generic competition for a valuable fungicide, it tried to prevent the cheaper product from reaching farmers, including suing and demanding hundreds of millions in damages.
Incentivizing loyalty: One tactic it used was a “loyalty program” for retailers of its fungicide. The program rewarded retailers for selling its products and disregarding cheaper alternatives.
Government scrutiny: The federal government is suing over the loyalty programs, which it called “unlawful exclusionary schemes.” Syngenta said the programs are “the essence of competition.”
Brian Heinze was out to lunch when he received the call to return to the office. It was early 2015, and his Oregon-based business, just a couple of years old, had quickly grown. It sold generic pesticides — cheaper alternatives for farmers at a time when the agriculture economy was faltering. After the call, Heinze rushed back. A man had been waiting to serve him papers.
One of the world’s most profitable pesticide companies, Syngenta, was suing him.
Heinze’s company, Willowood USA, had started competing against a flagship Syngenta product, a fungicide that kills crop diseases. The company’s money-printing fungicide’s chemical backbone — an active ingredient named azoxystrobin — had recently gone off patent. Now generic producers like Willowood could make their own versions, and Syngenta was losing money.
Syngenta had tried to box out Willowood by incentivizing retailers to only carry its products, and now it was going to court. It alleged Willowood and its business partners in China infringed on patented technology.
Heinze was unnerved, but he decided to project an image of confidence to his staff. “If anything, it motivated us more to kick them in the you know what,” he said. “If this is a game you want to play, we know how to play it as well.” Willowood was on solid ground, he thought.
Patents reward innovation by allowing a temporary monopoly over a product. They’re not meant to deter competition indefinitely.
But the Willowood episode illustrates how the U.S. pesticide industry, controlled by a handful of mammoth multinational corporations, has tried to extend profitability for years after patents expire — often at the expense of struggling farmers, according to Investigate Midwest’s review of government and court records, and interviews with several people who have knowledge of the pesticide industry.
Generic pesticide products are supposed to provide cheaper alternatives to farmers who can often be squeezed between heavy expenses and sagging sales. Since 2004, pesticide prices have increased about 40%, peaking in 2022.
Generic producers “deserve the opportunity to compete and to try to carve out part of the market for themselves,” said Claire Kelloway, a researcher focused on food and agriculture at the Open Markets Institute. “It is an important way to provide more options and give consumers a way to save money.”
When it learned of Willowood’s plans to enter its market, Syngenta aimed to snuff out its competition, according to court records.
Before Willowood debuted its product, Syngenta’s powerful attorneys threatened legal action. As it lost profits, Syngenta altered its agreements with retailers to prevent farmers from having access to Willowood’s generic options. Ultimately, it sued, demanding up to about $300 million in damages.
Evidence introduced in court showed Willowood trying to avoid violating Syngenta’s patents. Ultimately, in 2017, a jury decided there was infringement but it was not willful. Syngenta was awarded about $1 million, which was less than what Willowood had offered to settle, Heinze said.
Heinze believes Syngenta was sending a message. “I think we were singled out because we were quite successful,” he said. In the lawsuit’s aftermath, at least one other generic producer decided against entering the azoxystrobin market, according to court records.
Syngenta, which has reported profits of more than $6 billion annually over the past several years, declined to comment.
The company has said Willowood’s infringement was an unfair market advantage, and the company needs to defend its heavy investments in research and development. Getting just one pesticide to market takes years and tens of millions of dollars. “Customers,” the company said, “depend on Syngenta’s ability to innovate.”
Syngenta’s actions against Willowood — and other generic competitors — have been heavily scrutinized lately. In 2022, the Federal Trade Commission sued Syngenta and its industry peer, Corteva Agriscience, which also produces pesticides and seeds, for anticompetitive business practices. The lawsuit is ongoing. A class-action lawsuit, led by farmers, is also meandering through courts now. The FTC and the class action attorneys are jointly pursuing discovery, which could reveal internal documents and communication.
The cases’ central tenet is that the companies’ use of loyalty programs prevents legitimate generic competition. Under these programs, companies pay retailers an incentive to stock their products, resulting in fewer generic options for farmers. Retailers often rely on the incentive, which the FTC said can be substantial.
Internally, company staff have recognized the programs’ effectiveness, according to documents obtained by the FTC. A Corteva manager said, “Our team truly has done an A+ job blocking generics.” Another said farmers wanted cheaper options but purchased branded products because “nobody sells generics.”
The loyalty programs helped preserve the monopoly protections that patents provided, said Rick Pinto, an attorney in the class-action lawsuit. “That has resulted in huge profits and higher prices for farmers,” he said. “It’s hurting the farmers, and it’s putting inappropriate profits into the pockets of these manufacturers.”
“They’re rebating you back some of your own money if you behave the way that they want you to behave. It is absolutely designed to fend off generic competitors.”
Brian heinze, Willowood’s president and CEO
Syngenta has said the “modest” incentives are “optional” and “an industry standard rebate.”
“The only ‘harm’ that such a program could cause is pressuring rivals to compete more vigorously against above-cost prices,” the company said in court records. “This is the essence of competition.”
Many of the government’s findings, which also form the basis for the class-action suit filed in 2023, remain redacted in court records. However, Syngenta’s lawsuit against Willowood — much of which they tried to withhold from public disclosure — offers a rare glimpse into controversial industry decision-making.
Heinze began his career in the pesticide industry in the 1980s. That’s when he learned about loyalty programs, or the industry’s “velvet handcuffs,” he said.
It worked this way: Manufacturers sold their products to retailers, which then sold to farmers. At year’s end, the middlemen could receive money back based on how much of a manufacturer’s product it had sold. At the time, the middlemen did not know how much money they would get back until the end of the sales year. It could be 2%, it could be 8%. “It’s like Christmas,” Heinze said. “You shake it, you know what’s in it.”
The point was to train retailers, Heinze said. “They’re rebating you back some of your own money if you behave the way that they want you to behave,” he said. “It is absolutely designed to fend off generic competitors.”
Eventually, Heinze started his own generic pesticide company. He sourced chemicals from abroad. He believed generics provided the same quality to farmers. “We always had a saying,” he said. “‘How dead is a dead weed? Is it $10 an acre dead, or is it $5?’”
After selling his company in the mid-2000s and serving his non-compete agreement, he embarked on his next venture. During his overseas business trips, he met the founder of a generics company in Asia. The man wanted him to lead a U.S. operation.
In late 2009, Willowood USA was formed.
As Willowood got started, Syngenta faced a problem. Its line of azoxystrobin fungicides was a primary moneymaker. The product promised to keep two crops powering much of American agriculture — corn and soybeans — greener for longer, meaning more production and more money for growers. But the return on investment was lower than executives expected.
While pesticide patents provide almost two decades of legal monopoly pricing, products are not often on the market for the entire life of the patent. Perfecting the product and gaining government approval, an often laborious and time-consuming process, can create delays, shortening the amount of time companies can recoup their heavy investments.
Worldwide, Syngenta’s azoxystrobin products haul in $1 billion annually. But, in 2009, U.S. sales were slumping. Executives had predicted $250 million in sales, only to fall short by about $100 million. Farmers were trying to recover from the Great Recession and a massive drought. As tough times continued, Syngenta kept failing to meet its goals, court records show.
In the early 2010s, another potential hit to its bottom line was fast approaching. The patent covering azoxystrobin’s formula would expire in early 2014, and other companies could start selling generic versions.
Syngenta was well-prepared. Planning for generic competition began “day one” of an active ingredient’s life, an executive testified. A whole team, led at the time by Rex Wichert, was dedicated to the issue. Wichert coached colleagues on “the tactics (Syngenta) would plan and likely deploy” to address generics, he testified.
One essential tactic was the loyalty programs. Internally, they were called “channel profit.”
In industry parlance, the channel is the cadre of middlemen that sell to farmers. Like the pesticide industry, the channel is highly concentrated, according to the FTC. Just seven companies account for about 80% of all U.S. pesticide sales.
To promote loyalty, Syngenta rebated channel companies. If a company sold a certain percentage of Syngenta products in a year, usually more than 85%, it would get its incentive, which ranged from 4% to 19% of total sales, according to court records.
Syngenta’s policy was to augment the incentive in the face of competition. “As generics enter and pressure the marketplace, we’ll generally increase the programs,” Wichert testified. “We call them discounts, the amount of money given to a retailer to help support our product line and make sure they can service their customers with our products.”
Though executives had a plan for generic competition, they testified that they did not anticipate needing to deploy them in the azoxystrobin market anytime soon. There were two main reasons.
For one, while the formula patent was expiring, Syngenta had patented the company’s process of manufacturing azoxystrobin. That would expire in late 2015.
Second, it had secured another azoxystrobin patent in 2012, just two years before its formula patent would expire. This one covered a very specific part of the manufacturing process. It would expire in 2029. The coming legal battle would hinge on this particular patent.
By early 2013, Willowood was preparing to get to market by summer 2014, several months after Syngenta’s original patent would expire. The company relied on a manufacturing contractor to produce the active ingredient, and, to get started, it imported five kilograms of the chemical.
Around the same time, its lawyer raised concerns about possibly infringing on Syngenta’s manufacturing patent. Heinze, Willowood’s president and CEO, pursued a fix, court records show.
In June 2013, he emailed two colleagues who worked in offices in mainland China and Hong Kong. “There is one step in the manufacturing process that our patent attorney is concerned about being in violation of the existing patent,” he wrote.
He asked them to contact the Chinese manufacturer to ensure the chemical could be produced in an alternative way. Willowood needed the problem resolved so it could apply for federal registration, which laid the groundwork for getting to market.
The Hong Kong employee was not optimistic. “All the manufacturers in China for this product are using the same process,” he wrote to Heinze. The process “is very difficult to avoid. That’s the reason (Syngenta) patented this step.”
To avoid infringement, the company explored substituting one of the chemicals in the production process, but that would have created impurities. Ultimately, nothing would be sold until Syngenta’s original patent expired. Willowood moved forward. In August 2013, it submitted its registration application, which the U.S. Environmental Protection Agency approved.
Syngenta had its first indication competition loomed.
As 2014 dawned, Syngenta heard troubling reports from its retail and distribution customers, executives testified. Willowood pitched it could offer the same volume as Syngenta but at reduced prices.
Andrew Fisher, who oversaw fungicides at Syngenta, traveled around the country, assessing the damage. He aimed to assure retailers that Syngenta had a plan, he testified. Generic entry unnerved retailers because lower prices for farmers would eat into their profits, too. “Whatever margin they’re making, they’re no longer making it,” Fisher said. “They have to cut people and headcount and locations. I went out and was calming them down with the overall strategy.”
Syngenta was preparing for a fight. If it didn’t, it predicted its profits would erode, according to the FTC. But, if it punched back, profits would at least remain flat for several years. In an internal document, described by the FTC in court records, Syngenta said it adopted a strategy to “aggressively defend [its] azoxystrobin share position while upholding market value.”
It implemented a loyalty program. To receive the new incentive, at least 98% of a retailer’s inventory would have to come from Syngenta. If retailers wanted to purchase generic options for farmers, they had little wiggle room. Many feared missing the mark, even by a small amount, because the payout was high.
“We were trying to hold price,” Fisher testified.
While Fisher and his team assured retailers, Syngenta’s lawyer, Russell Levine, focused on its new competition. Levine was a top litigator at Kirkland & Ellis, which helped defend the tobacco industry in the 1990s and represented BP after the Deepwater Horizon oil spill.
In January 2014, he sent Heinze a letter. Syngenta suspected Willowood was infringing on its formula patent, which would expire the following month. Syngenta suspected Willowood had imported the chemical from China and was intending to sell it, Levine wrote.
“Please confirm Willowood will not engage in any such activities prior” to the patent expiring, he added. “Syngenta reserves its right to pursue any and all available remedies against Willowood, including damages and/or injunctive relief.” He demanded Heinze respond within five days.
Heinze responded that Willowood was not infringing. “We are, quite frankly, puzzled by your statements,” he wrote.
At the same time, Willowood continued to sort out whether it was violating the manufacturing patent. The active ingredient required multiple steps. Essentially, to be clear of the patent, Willowood’s contractor in China needed to find at least one subcontractor to perform at least one of the steps.
In May 2014, Heinze told his colleagues in China the company needed to pay special attention to this point.
“I cannot overemphasize how important it is for us to make absolutely sure at least two of the three manufacturing steps are done by an intermediate factory,” he emailed. “I know this is a very cumbersome process, but we cannot afford to get caught up in a lawsuit that we could potentially lose because of patent infringement.”
Willowood barreled ahead. After its product hit the market in summer 2014, it promoted what it saw as a positive impact on the azoxystrobin market. Syngenta had begun offering cheaper versions of its own products, known as fighting brands.
In an email with a potential channel customer, a Willowood executive said, “All we can do is continue to tell everyone that these fighting brands would not exist if it weren’t for generics.”
(The customer, who retailed to farmers, later testified that, though he did not like the price decrease, Willowood’s product was just as good as Syngenta’s — “there’s no problem with that.”)
With a generic competitor now a reality, Syngenta upped the ante.
In August 2014, Levine sent Heinze another letter. It implied Willowoodc might be infringing on several other patents Syngenta held, including the ones expiring in late 2015 and 2029. He asked Heinze to detail how Willowood’s process did not violate the patents. “In the event you believe your method is a trade secret,” he wrote, “Syngenta is willing to execute a confidentiality agreement prior to viewing your method.”
“All we can do is continue to tell everyone that these fighting brands would not exist if it weren’t for generics.”
a willowood executive, according to court records
This time, Willowood’s attorney at Hayden Stone PLLC responded. The law firm, based near Washington D.C., specialized in patent law. The law firm had reviewed the patents and concluded no infringement existed, the attorney wrote. Also, Syngenta is “not entitled” to Willowood’s confidential business information, he added.
About a month later, Levine fired back. He had drafted a confidentiality agreement Willowood executives could sign.
They didn’t.
In early 2015, Syngenta’s Central Steering Committee, a meeting of high-level executives, convened. Jeff Cecil, a marketing executive, had prepared a presentation on azoxystrobin products’ recent performance.
It was not promising. Faced with generic competition, Syngenta lowered its profit expectations. For the 2014 season, it had predicted about $166 million in sales, but it had, again, fallen short by more than $40 million.
As Cecil continued his presentation, he compared Syngenta’s products to Willowood’s alternatives. It demonstrated just how reliant retail distributors were on Syngenta.
If a retailer wanted to transition away from Syngenta, it would face a steep climb to profitability. Generics would have to make up a minimum 60% of its inventory in order to break even. Cecil knew generics could struggle to meet Syngenta’s level of production: “Generics rarely affect volume,” he later testified. “They mostly affect price.” For retailers, it would be much easier, and more profitable, to stay with Syngenta.
Syngenta anticipated its profits would continue to slump, however. Its forecast for 2015 was already low, at about $99 million.
In March 2015, Syngenta sued Willowood.
As 2015 progressed, Syngenta and Willowood pushed each other on price. As the companies dueled, the agricultural economy was reeling. Farm income dropped precipitously as prices for corn and soybeans — crops that azoxystrobin is sprayed on — crashed. In February 2015, a Willowood fungicide could be bought for as low as $110 per gallon, significant savings for farmers facing financial duress.
Around mid-year, Willowood learned Syngenta had dropped the price of one of its azoxystrobin fungicides, Quilt Xcel, so much it was perilously close to the generic. Heinze wanted to undercut Syngenta by about $5 per gallon. His fellow executives strenuously objected, but he pushed forward.
“We have had repeated calls from our customers over the last week that Quilt Xcel can be bought on the broker market for as low as $85 a gallon,” he emailed. “It is obvious that Syngenta is losing market share and offering special deals locally to preserve share. As a generic alternative, we always have to be priced below the brand to earn market share.”
Other former Willowood executives did not return requests for comment.
As the year ended, one of Syngenta’s best-selling products had fallen about 40%, on average, from the previous year, according to internal Syngenta data revealed at trial. It dropped from about $190 per gallon to about $118.
In September 2017, after about two years of depositions and discovery, Syngenta and Willowood executives met in a courtroom in Greensboro, North Carolina, where Syngenta’s U.S. corporate office is located. Willowood was on Syngenta’s home turf, with unequal footing.
Syngenta controlled about 70% of the azoxystrobin market. In 2015, a lean year, it had made about $93 million in sales. In contrast, Willowood’s market share was “so minimal (less than 5%),” it said in court filings. Between summer 2014 and summer 2016, it had about $25 million in sales. Also, Willowood had set aside much less than Syngenta to fight the legal battle.
With the trial underway, Heinze was called to the witness stand. In documents filed before trial, Willowood admitted it had infringed one Syngenta patent by importing the chemical into the U.S. However, it maintained, this was just for research, not for selling.
During closing arguments, Levine, Syngenta’s attorney, lambasted Willowood. “Calling it gross negligence is just another in a long list of excuses that Willowood has made during this trial,” he said.
Then he reminded jurors of Heinze’s response to Levine’s first letter in early 2014. “He hid the ball. He didn’t say that Willowood had already imported (azoxystrobin). He didn’t admit infringement.”
Willowood’s attorney, Steven Tiller, argued Heinze’s actions were a costly, but unintentional, blunder. “The simple fact was, he wasn’t thinking. We’ve all done it. This was a big mess-up, but it was a mistake.”
Willowood could have easily infringed on Syngenta’s patents and just run with it, Tiller added, but they didn’t: “This is not a situation where he said, ‘Whoa, man, getting our azoxystrobin into the market in 2014 is going to be really, really difficult. I’m going to have to jump through a thousand different hoops. I’m just going to infringe, let’s see if they sue me.’ This was not that type of situation.”
Then, Syngenta’s patent that would expire in 2029 took center stage. The patent involved the use of a chemical agent named DABCO. Willowood argued it was invalid because another company had already been granted a similar patent. Also, it told the court it had tested its product for the presence of DABCO. Those tests did not detect it, Willowood said.
Syngenta had performed its own tests on different samples, it told the court. Its tests showed DABCO was present, it said.
Heinze told Investigate Midwest his contractors had told him throughout the process that Willowood was in the clear. “I visited the plant, went through their labs, had 150% reassurances that DABCO was not used,” he said.
When the jury exited the courtroom to deliberate, Heinze headed to a separate room in the Greensboro courthouse. Four hours passed. Then — a knock on the door.
The verdict was in. Palms sweaty, Heinze’s heart began to race.
The jury determined Willowood had not imported the five kilograms of azoxystrobin for the purpose of selling, but it awarded Syngenta $75,600 in damages. The jury also decided Willowood had infringed the DABCO patent, but Willowood had not acted willfully. For that, Syngenta was owed an additional $900,000. (At trial, Levine had argued Syngenta needed at least $75 million to be made whole.)
Syngenta declared victory. In a statement after the trial, it said the outcome was an “important win” that would allow “innovators like Syngenta to continue investing and developing solutions growers need to remain productive and competitive.”
Heinze had a different take. The small amount of damages proved “Syngenta had a weak case to begin with,” he said, especially given the case was on Syngenta’s home turf. “They didn’t convince the jury people from Greensboro.”
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