A federal judge has refused to throw out the Federal Trade Commission’s case against Syngenta’s Key AI loyalty rebate program, ruling that a jury could find it kept generic crop protection products out of distributor channels and grower prices higher than competition would have. U.S. District Judge Thomas D. Schroeder denied Syngenta’s motion for summary judgment on Oct. 22 in the Middle District of North Carolina.
The ruling does not find that Syngenta broke the law. The court viewed the evidence “in the light most favorable to Plaintiffs,” as summary judgment rules require, and concluded the dispute is for jurors. In Schroeder’s words: “Whether a jury would agree must remain for trial.”
In a statement from Syngenta, the company said: Syngenta is disappointed that the Court did not grant the motion for summary judgment. Importantly, the Court did not determine that Syngenta violated antitrust laws. Rather, it concluded that disputed factual issues must be resolved at trial, where plaintiffs retain the burden of proving their claims.
The FTC leads the case, joined by 12 states: California, Colorado, Illinois, Indiana, Iowa, Minnesota, Nebraska, Oregon, Tennessee, Texas, Washington and Wisconsin. They challenge “manufacturers’ use of distributor loyalty rebate programs as an illegal restraint on trade.”
This court decision comes as events are evolving what distribution in ag retail will look like in terms of structure, incentives and more.
Co-defendant Corteva “has since reached a proposed settlement with Plaintiffs, approval of which is pending before the court,” which leaves the Syngenta entities as the remaining defendants. Corteva did not admit wrongdoing.
Earlier this year, Bayer confirmed its changing relationship with Simplot as a distributor and WinField United as a distributor specifically in seed.
Syngenta called Key AI a price cut. The court said that is for the jury to sort out
The court noted that the five distributors that dominate the traditional channel “control at least 61% of the crop protection sales market through their integrated retail chains.” And when Syngenta argued the analysis should stop at its sales to distributors, the judge rejected that, writing that such a limit “would foreclose consideration of Key AI’s effect on competition throughout the channel of distribution, including the end-purchaser, which is the point of the Nation’s antitrust laws.”
Syngenta’s lead argument was that Key AI is simply a pricing practice. Under the price-cost test, a program is lawful if the manufacturer sells above cost, and the plaintiffs “do not dispute that Syngenta prices its AIs above cost.” If that test applied, the plaintiffs understood their claims “would fail as a matter of law.”
Syngenta also argued that loyalty programs are common among crop protection manufacturers. The court was not persuaded that this settles the question. In the case Syngenta leaned on, retailers demanded exclusive arrangements. Here, the judge wrote, “it is Syngenta and other brand manufacturers who allegedly elect to engage in exclusive dealing arrangements in order to maintain prices by forcing out lower-priced generic competition. There is no evidence that the distributors or the retailers require loyalty programs. Instead, Plaintiffs present evidence that the reverse is true.”
Thresholds above 90% left distributors little room for generics
For reference, Syngenta promoted Key AI as “a loyalty rebate program for all major pesticide distributors.” A distributor qualifies for rebate payments “if it sources a very high percentage of its annual AI consumption from Syngenta.” In 2016 and again in 2021, Syngenta required distributors to source over 90% of their azoxystrobin, mesotrione and metolachlor from it, and “[s]ome payments are conditioned on meeting thresholds for multiple AIs.”
The court described how that math played out for distributors. The thresholds “are based on sales and are high (leaving very little ‘headspace’), and distributors may not be able to calculate these sales percentages until the end of the year.” One distributor executive testified his company would buy less than 50% of its azoxystrobin and mesotrione from Syngenta if not for Key AI. It actually bought between 89.6% and 100% of those products from Syngenta. Another distributor’s executive testified it steered customers away from generic azoxystrobin, mesotrione and metolachlor “in part to ‘ensure compliance with Syngenta loyalty.’”
Distributors testified that being cut off was “the nuclear option”
The plaintiffs’ retaliation evidence centers on a distributor the court calls “Distributor A.”
- It carried branded products and also “developed and sold its own line of generic products.”
- It missed Key AI thresholds in 2016 and 2017, and Syngenta terminated it in 2017.
- It then had to get Syngenta products through another distributor or broker.
- Syngenta didn’t resume business with it until “another company acquired the distributor in 2020.”
While negotiating a new contract, that distributor said its members, meaning retailers, “were forced to buy Syngenta products from the members’ own competitors” and “at price points that don’t allow them the competitive positions needed in a hyper competitive market.”
Other distributors took notice. One executive testified that termination is “always an ultimate nuclear option for the supplier. . . . [I]t’s just as effective to give us access but not give us a good enough price net . . . that we can compete with. . . . [T]he end result’s the same. You can’t sell much. You can’t compete.”
The same executive said leaving Key AI “would be suicide as far as our ability to sell Syngenta products.”
A distributor president testified it is “naive” to think a manufacturer will “treat you like a trusted value partner on the rest of their portfolio” if the distributor fights it on loyalty-program products.
Syngenta tracked its markets one active ingredient at a time
The plaintiffs allege a separate market for each of three active ingredients: azoxystrobin, mesotrione and metolachlor.
Syngenta argued that is too narrow because growers choose among products with different active ingredients, and noted that the Justice Department has defined crop protection markets by function in past merger reviews. Syngenta also pointed to retailer testimony that “there are many different chemistries that growers can choose from to serve the same need.”
The judge wrote: “This indicates Syngenta viewed the market defined by AIs. Even the name of the rebate program – Key AI – is some evidence of Syngenta’s AI-by-AI evaluation of the market.” From court documents, a mesotrione workshop deck share targets of 90% by volume and 95% by value.
Generics reached 36% share, and the court said that does not end the question
Syngenta’s expert put generic share at 31% for azoxystrobin, 32% for mesotrione and 36% for metolachlor.
The court noted that Syngenta acknowledges its Key AI distributors “control at least 60% of the crop protection product sales market,” and that plaintiffs read the 36% peak to mean generics have not penetrated at least 64% of the market. “These two facts could support a jury finding that generic entry remains substantially foreclosed.”
The court described the traditional benchmark: “the market foreclosure threshold must be at least 40% to be substantial,” though some courts lower it for monopolists.
The judge was direct about the generic inroads: “Defendants are correct that in this case there is greater generic penetration than in the cases relied upon by Plaintiffs. But they overstate Plaintiffs’ burden to survive summary judgment. It is enough that the target of the anticompetitive conduct has gained less market share than it would have in a competitive environment because ‘exclusive dealing measures that slow a rival’s expansion can still produce consumer injury.’”
The court wrote that “Syngenta’s internal documents show that the company acknowledges that Key AI is designed to maintain higher prices.” In 2015, Syngenta predicted azoxystrobin would suffer a 50% to 60% price erosion if loyalty partners did not support the brand and generics entered. In 2020, a Syngenta employee predicted that cutting metolachlor’s Key AI threshold from 90% to 85% “would reduce profits by tens of millions of dollars.”
The opinion’s summary of the evidence the plaintiffs presented:
- Syngenta purposely constructed Key AI to prevent or slow generics from capturing a significant portion of the market
- key distributors refused to purchase generic versions of the AIs at issue
- generic manufacturers faced significant and sometimes prohibitive difficulties in introducing generic AIs to the market
- Key AI kept prices higher for growers than they would have been in a competitive market.
Syngenta says savings reach growers, and the court left that for trial
Syngenta’s defenses are on the record. It maintains that “[d]istributors and retailers pass through savings earned through Key AI rebates, benefiting growers with lower prices,” and that generic “barriers to entry are low and that Key AI has not prevented robust generic entry and expansion.”
It disputes whether the terminated distributor lacked access to Syngenta products and says the termination was mutual. It also notes that some generic makers run their own loyalty programs and that some sell through channels outside the five major distributors.
