an overly broad interpretation of Section 10. Section 10 was not intended to allow companies to extend the lives of their patents nor, if properly administered, does it do so. Section 10 should be interpreted no more broadly than the Restatement of Torts' definition, without regard to the alleged desires of industry to monopolize their markets or the Agency's desire for administrative convenience. We disagree with the EPA and Justice Department's inferences that efforts to protect trade secrets are related to any effort to extend patent lives, and that these efforts to protect trade secrets occurred because a significant number of pesticide patents were running out. Many of the most significant patents in the pesticide industry, notably the patents on phenoxy herbicides, ran out many years before this emphasis on trade secrets. The reason for this emphasis was not that patents were running out, but that data requirements were increasing rapidly and becoming excessively expensive. The concern in 1972, as it is today, was not with the extension of patent life, but with the protection of the substantial investment which a company must make in research data before it can market a pesticide product. We also disagree with the information supplied to the Justice Department that generation of data reduces patent protection from 17 years to about 12 years. The facts clearly indicate that the reduction is much more substantial, reducing the patent life remaining upon registration from 17 years to between 8 and 10 years normally, and sometimes to as little as 5 years, as it takes approximately 9 years to generate the data necessary for registration.1 We consider it misleading for the Justice Department to argue that the "patent-pending" period prior to issuance of a patent allows sufficient time to generate this data, and thus eliminates the need for any extension of patent lives for pesticides. However long such patent-pending period is, it applies to all products, pesticide or otherwise. Therefore, the diminution of that period by the time required to generate registration data gives pesticides less patent protection than other products. Dow is not currently pursuing amendment of the patent laws, but we do not agree that the patent-pending period provides an argument against special treatment for pesticides. 3. Compensation.-We again note that the Justice Department refers to a 15 to 17 year period of patent protection, which is inaccurate, as discussed above. With reference to the example of a price decline on DDT when the patent expired, we feel that the Committee should note that much of this decline occurred at the cost of American jobs, as imported materials entered the American market at lower prices. Another fact of great significance here is that companies are being required to submit large amounts of expensive data to maintain the registrations of products on which the patents ran out long ago. This is true of many of Dow's major products, and other companies as well. Without protection, no company will be willing to make the investment to maintain these products, costing jobs and raising prices throughout the agricultural and food production businesses. The Justice Department's assertion that "the provision could provide a tool for extending patent monopoly by pricing data out of reach of small competing manufacturers" is erroneous. The law clearly provides that registration shall proceed without regard to the existence of disputes over compensation, and if the parties are unable to agree on compensation, the Administrator shall determine reasonable compensation. This gives the owner of the data less power than he has in the free market, and not enough to set his price high enough to monopolize the market. Furthermore, the "me-too" registrant can have the data produced elsewhere, making competitive pricing possible in the data area as elsewhere. Dow believes that such a market would develop and provide a healthy stimulus for the entire industry, if mandatory licensing were abolished. We agree that the present system may be subject to abuse by companies attempting to monopolize their markets, but flexibility is necessary in any system if it is to operate equitably in all situations. There is no single formula which fairly and equitably grants "reasonable" compensation in every situation. Any abuse of this system should be subject to the sanctions of the antitrust laws, as was demonstrated in the Justice Department's own prosecution of Union Carbide Corporation. In settling that litigation, Union Carbide agreed to extraordinary limitations on its ability to regulate the use of its data by others. We believe that the sanctions available under existing anti-trust laws are sufficient to regulate and prevent abuses of the compensation scheme currently provided by FIFRA. 1 See p. 250. "The Costs of Commercializing Pesticides", Dr. C. A. I. Goring, 1977. Finally, we support EPA and the Justice Department in proposing a technical chemical registration system, which would result in an abbreviated list of data requirements for the registration of formulated products, as compared to technical active ingredients. If Section 3 (c) (1) (D) would be retained in FIFRA, it would foster healthy competition. Basic manufacturers would compete with other basic manufacturers and formulators would compete with other formulators. In addition, we should not remove economic protection from the formulators by denying them compensation for use of their data. 4. Vertical Effects.-Again, we are in agreement with the Justice Department that abuse of compensation provisions of FIFRA should not be permitted to enable data owners to exert vertical control in the marketplace. However, this problem would be better avoided by separating the registration of technical grade chemicals from the registration of formulations than by narrowly defining trade secrets. Furthermore, existing anti-trust remedies are still available to the Justice Department for prosecution of such abuses. 5. Product Leverage.-We agree with the Justice Department, but we are unable to ascertain the relevance of this argument to the basic issues of data compensation and trade secrets. 6. Impact of Reregistration.-The Department of Justice incorrectly interprets Section 3(c) (1) (D) in this paragraph. The exemption of trade secrets from mandatory licensing applies only to data submitted on or after January 1, 1970, and the Act is silent on pre-1970 data. Therefore, such data is presumbly available without restriction, and this argument is invalid. We would also like to comment that many of the "me-too" registrations were granted, not prior to 1972, but prior to the Agency's "implementation" of the 1972 amendments over a year later. The Agency has consistently refused to acknowledge that registrations granted during that period were subject to the compensation provisions of the Act, despite the clear intent of Congress to the contrary. 7. Data on Impurity Standards. We do not take the position that the trade secret provisions of Section 10 prohibit EPA from comparing pesticide formulae to determine whether the "me-too" manufacturer's pesticide is identical to the original. However, this argument is probably meaningless, since in order to make the same product, the "me-too" manufacturer should have analyzed the original product and compared his to it. There is nothing in the Act to prevent the Administrator from relying solely on this comparison data to determine whether or not the products are sufficiently similar to allow him to rely on data developed with one product in support of registration of another. Thus, this data should be available without additional cost to any responsible "metoo" registrant. 8. Conclusion.-We agree that the EPA report adequately addresses the competitive impact of the impasse which has arisen over these issues of FIFRA. However, we submit that the report ignores the true reasons for that impasse. As demonstrated by the EPA documents attached to our public testimony, the Agency, not the industry, is clearly the instigator and originator of this impasse. The reason that data owners are currently able to block registrations in court is the obvious refusal of the Agency to implement and effectively administer the trade secret and compensation provisions of FIFRA. Thus, if FIFRA were being administered as it was originally enacted and intended to operate, the ability of a company to enjoin the Agency from using its data under Section 3 (c) (1) (D) would be minimal, and abuses could be effectively regulated and prosecuted under the anti-trust laws. The reason companies can now readily obtain injunctions is that the Agency has so flagrantly refused to administer the system according to the law. While some members of the industry may be seeking a broad definition of trade secrets in court, we dispute the inference that data producing firms are urging the "adoption of (a) broad definition of trade secrets" by Congress. We are only asking that the Restatement of Torts definition, which is not intended to be either overly broad or overly narrow, and which was originally considered by Congress in adopting these provisions of FIFRA, be implemented by urging the adoption of a narrower definition of trade secrets than centuries of legal evolution has developed, purely for administrative convenience. Such a definition would constitute a taking of vested property rights, entitling the owners of such data to compensation under the Constitution. While we have already expressed our views on lengthening patent protection for pesticide products, we would also submit that it is not the proper role of the Department of Justice to take any position on the patent laws, since these laws were clearly intended to create an exception to the free enterprise system and the anti-trust laws to encourage research and development of new products. If a longer period of time is necessary to encourage pesticide development, it is of no concern to the Department of Justice, and their opinion has no place in the record of these hearings. We understand that the National Agricultural Chemicals Association and the Pesticide Formulators Association have proposed a compromise amendment calling for exclusive use of registration data for a 10-year period of time, and that the Subcommittee has referred that proposal to the Justice Department for comment. It should be clear from our earlier testimony that Dow does not totally support such a position, because it establishes a limitation on the life of vested property rights. We believe that a free market for data, which is what "exclusive" use of data actually means, is the most desirable system. However, in view of the great concern for preventing "abuse" of such a free market system, we believe that the existing compensation provisions of the law represent the most equitable compromise. The NACA-PFA position constitutes a recognition of the inability of Congress to require EPA to administer the law as it was written in 1972. The documents submitted with our original testimony convincingly show that it was deliberate unwillingness, not inability, to implement these provisions of the law which has lead to the present impasse in the registration system. Dow does not recognize such an inability on the part of Congress, and we submit that a Congressional mandate requiring the EPA to implement the present law, not an amendment of that law to suit the Agency's convenience, is the proper remedy at this time. Thank you for this opportunity to comment further on these issues. We hope this information will be of assistance to the Subcommittee in its consideration of these issues. Sincerely yours, Re Senate bill 1678. Hon. PATRICK J. LEAHY, JOHN E. DONALDS, Agricultural Products Department. DOW CHEMICAL U.S.A., Midland, Mich., June 20, 1977. Chairman, Subcommittee on Agricultural Research and General Legislation, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is to further supplement our testimony on the FIFRA issues addressed in Senate Bill 1678 which you introduced on June 10, 1977. The Dow Chemical Company has expressed its position on these issues at length in two written documents already submitted. For ease of consideration in relation to this Bill, we would like to take this opportunity to briefly restate our position on certain of its provisions. Dow is in complete agreement with all but four sections of the Bill, and we agree in principal with two of these provisions as well. Therefore, we will simply address these provisions directly. 1. Section 2.-Use of the word "me-too" seems inappropriate in a congressional act, and should be replaced with a more descriptive term, or at least defined. More importantly, we disagree completely with the substance of this provision, as it cannot assure reasonable compensation for the use of trade secrets in registration of a competitor's product. While we believe that compensation for use of the majority of routinely generated test data represents a reasonable compromise of the interests of data owners and data users, trade secrets cannot be similarly handled without ignoring their unique value. Some flexible formula for determining the value of routinely generated data can be derived based on the cost of regenerating the same data. The unique value of trade secrets, how ever, has no relation to the cost of generating such secrets. The value of such trade secret, on the other hand, may be of great value, and such value may be specifically related to the registration process. In this instance, a valuable trade secret is stripped of its value, a provision which would be very harmful indeed to the incentive for others to do their own research. While it is desirable to encourage companies to share the cost of generating routine data and avoid duplication, that it is still valuable to encourage creative research in those areas where potential trade secrets remain to be discovered. Otherwise, the pesticide industry will concentrate on copying existing pesticides, rather than on developing better and safer pesticides. The existing law is better designed to accomplish this than the proposed change. As for the argument that companies can use this to prevent competition, we have adequately discussed its erroneous assumptions in our prior submissions. 2. Section 3(2)(C).—While Dow agrees completely with the principle of technical active ingredient registrations, we feel that the intent could be better accomplished with different language. First, this provision should be added to Section 3(c) (1) (D), immediately following the language which it was proposed to delete in Section 2 of the Bill. Second, the language should be couched in terms of what the Administrator may require of an applicant, rather than what the applicant is or is not required to submit, in order to be consistent with the language of the rest of the Act. Third, the word "purchase. from another producer" should be changed to read "use a registered pesticide active ingredient (s)", in order to accommodate formulators who wish to manufacture active ingredients. This system provides a better organized registration system, and there is no reason not to make it apply to everyone. 3. Section 7.-In paragraph (f) (1), the words "notice of intent to cancel a registration" should be amended to read "notice of intent to cancel a conditional registration or conditional amendment", in order to prevent the Administrator from canceling an existing registration for failure to meet the conditions of a conditional amendment, without regard to the other provisions of Section 6. 4. Section 8.-We object to this provision in its entirety, for reasons already discussed in our public testimony. In addition, I would like to take this opportunity to make specific objections to the language contained in this Bill. The language "all information concerning" is far too all-encompassing, and should be changed to involve "reports" instead of "information". Otherwise, data may be made available completely out of context, and the Agency may be required to dissect individual reports to remove trade secret information. While it would not be unfair to prevent registrants from using a small trade secret to exempt a large volume of data, it is unfair to both the Agency and the registrant to require this degree of extra review. As for the rest of the language down to the proviso, we can hypothesize true trade secrets in every single type of information listed, and provide actual examples of true trade secrets which Dow currently possesses in many of these categories. Therefore, since this proposal would unequivocally make available such data to the public, it clearly constitutes a taking of private property in the constitutional sense. In the proviso, the language "deliberately added inert ingredient" is too restrictive, in that it to a large extent negates the protection intended for manufacturing processes. In many, if not most manufacturing contexts, revelation of the identity and percentage quantity of inert ingredients in a pesticide product will reveal both the manufacturing process and the entire confidential formula. Since these are areas which the Agency recognizes as containing many trade secrets, the most restrictive proposal should provide adequate protection in these areas. Permitting public disclosure of such confidential information in the context of an administrative hearing represents an unnecessary taking of private property, as well as an unintended incentive for more such hearings to be demanded. The practice of treating such matters "in camera" is a long recognized practice in American judicial proceedings, and we can see no justification for permitting deviation from such practices in this setting. Dow takes the position that this entire provision is both unnecessary and unconstitutional. Rather than trying to fix a definition of an undefinable concept, we recommend Congress make clear that Section 10 was not intended to provide blanket protection of all data, and that data for which reasonable compensation could be provided under Section 3 (i.e., routinely generated data) was not to be protected, so that the Agency could proceed with registrations, and registrants would realize that litigation solely to prevent competition would be fruitless. If Congress is persuaded that a definition of trade secrets is necessary, we would endorse the NACA-PFA compromise proposal for such a definition. This position represents a reasonable compromise reached by two organizations whose members' viewpoints are diametrically opposed on this issue, but who have a valid proprietary interest in the trade secrets involved. The Agency position, as proposed in this Bill, ignores the proprietary rights of the owners of data in favor of administrative convenience and open disclosure. While Dow supports the concept of public scrutiny of public agency activities, it is the Agency, not the public or any vested interest group, which has been given responsibility for regulating pesticides. Therefore, privately owned trade secret data should not be publicly revealed, and should not be revealed at all without appropriate safeguards to assure continuing confidentiality. Thank you for this opportunity to comment on Senate Bill 1678. In the interest of the agricultural industry and the consuming public, we urge and support the prompt passage of this legislation, with the exceptions and amendments discussed above. Sincerely yours, JOHN E. DONALDS, STATEMENT OF JOHN E. DONALDS, GENERAL MANAGER, AGRICULTURAL PRODUCTS DEPARTMENT, Dow CHEMICAL A. SECTION 3(C)(1) (D), 3(C)(2) AND 10 The Dow Chemical Company today finds it necessary to go on record before this Committee in support of the provisions of Sections 3(c) (1) (D) and 10 of the Federal Insecticide, Fungicide and Rodenticide Act, as amended, as they were intended to protect the proprietary rights of pesticide registrants in their registration assets. It is our purpose to provide this Committee with the information necessary to fully understand the problems at issue here. We believe that this information will show that the problems which the Environmental Protection Agency faces today have arisen not as a result of the inherent problems of the existing statute, but as a result of various other internal and external pressures on the Agency. We further intend to show that the injunction entered by Judge James Harvey against the Agency does not further complicate those problems and does not permit Dow to gain any unfair advantages over its smaller competitors. The facts also demonstrate that the concerns of some that the present Act can be used to extend the lives of patents and otherwise monopolize the market place are unfounded. Finally, we will present a method whereby EPA can overcome its difficulties. In summary, we intend to demonstrate that amendment of these provisions of the Act at this time would be both unnecessary and counterproductive. I. Background (a) Legislation: The use of chemicals in agriculture began with the trend toward intensive farming in the mid-nineteenth century. Cultivation of specialized crops created imbalances in nature which provided insects and other pests ideal conditions in which to multiply. By the latter half of the nineteenth century, United States agriculture was on the way toward becoming a commercial production industry. Federal regulation of the agricultural chemicals industry began with the Federal Insecticide Act of 1910. This Act basically prevented the manufacture, sale or transportation of adulterated or misbranded insecticides and authorized regulation of sales of such products. The current regulatory system was initially set up by the Federal Insecticide, Fungicide and Rodenticide Act in 1947. This Act provided for the registration of pesticides prior to their sale or transportation. A second type of regulation was introduced in 1954 by an amendment to the Food and Drug Act known as the "Miller Amendment," which provided for the establishment of residue tolerances of pesticides on food crops. This type of regulation was greatly expanded in 1966 through the promulgation of FDA regulations. Authority over the regulation of food crop tolerances was transferred to the Environmental Protection Agency subsequently. FIFRA was substantially amended in 1972. At that time, provisions were added providing for protection of the proprietary rights of registrants in the data which they submitted in support of their registrations. (b) The Pesticide Market: Paralleling this history of regulation, there has been a tremendous expansion in both the markets and the technologies of pesti |