Comment: Who profits from proprietary produce?

How often do you hear marketers and agencies tell others they should leave the marketing to the experts?

In intellectual property law, lawyers often clash with marketing agencies over strategies for promoting brands and building goodwill – fundamental concepts when it comes to trademarks. But it would be naïve to think legal professionals have nothing constructive to add to boosting a brand’s recognition.

For commercial breeding programmes that turn out proprietary fresh produce varieties – take table grapes or blueberries, for example – the typical supply chain comprises breeders, nurseries, growers, marketers, retailers, and consumers. Each link in the chain is integral to success. In theory, the success of such a breeding enterprise, where it connects retailers and consumers, does not call for anything different to marketing other branded goods.

There are countless stories in which the branding and marketing of goods have either secured, or not secured, the success of the goods. Look no further than offerings over time in fashion, footwear, electronics, and fast food. Brand recognition is fundamental to promoting goods or services under a trademark or brand. Effective marketing can be the difference between demand exceeding supply, and vice versa.

In today’s digital age, territorial constraints are no obstacle to international marketing. When presenting consumers with new and exciting proprietary fresh produce varieties, and driving demand, marketers should lead. If those marketers believe they have the expertise to drive demand, they should deliver on that claim. For most breeding programmes, separate entities handle production and marketing. Yet, in many cases it is the producer, not the marketer, who pays to secure a licence. It is not uncommon for the holder of a marketing licence to pay no fee to the licensor.

Why should a producer pay to grow a proprietary variety, but the marketer of that produce pay nothing for the licence to market and sell it? There are exceptions, for example where the marketer pre-purchases the crop. But in most producer-marketer relationships, the producer pays the marketer a fee (‘commission’) for services, whether or not the marketer has purchased rights.

Time to get even?

The reality in nearly every breeding programme is that the marketer earns – via fees or commissions – at a rate higher than what the producer pays the licensor for the licence. What’s more, the marketer is also reimbursed by the producer for most expenses incurred in providing ‘marketing services’ – packaging, storage, shipping. It’s hard not to conclude fees received by the marketer are almost pure profit.

In the chain of participants in a breeding programme for a proprietary produce variety, what could be the rationale for a scenario where the participant remunerated most is the one with no actual financial outlay? When both the fees from a producer to the breeder and the commission to the marketer are calculated as a percentage of the same sale price, the conclusion is the marketer makes more money on the produce sold than either breeder or producer.

It’s a concern that producers of licensed table grape varieties, for example, find themselves having to generate consumer demand, for a product they’ve already licensed to produce. Does this not reflect negatively on the performance of the licensed marketers, and possibly also on the breeder?

If there is potential to increase demand and no clear long-term oversupply, then apart from ensuring supply, you could argue the marketer’s job remains incomplete, and the licensor has failed to support the producer.

Producers have long complained about the financial burden of participating in proprietary variety commercialisation. Whether these complaints are valid or not, it is difficult not to see inequity in arrangements where only the producer pays for a licence. How should those producers feel when they consider opportunities to increase demand – locally and overseas – have been missed?

Financial returns to everyone ‘up’ the food chain from the marketer depend on the marketer’s efforts. So it is difficult to accept that the marketer should not also have some ‘skin in the game’ and make a financial commitment to the rights it has. If nothing else, a more equal investment in the licensed rights might reduce fees paid by the producer, without impacting returns to the licensor.

Toward a fairer model

None of this is to say companies do not take on the role of licensed marketers with good intentions. In other licensing scenarios, including franchising, it is almost standard to require a licensee commitment to marketing spend. That spend can be structured in different ways – a percentage of revenues, or a fixed amount based on turnover paid into a marketing fund – but it is long recognised that licensees perform better when they make a financial commitment, and where there are other performance criteria.

If licensed producers now feel the need to market products they’ve paid to grow, surely the time has come for marketing licences to include performance criteria, in the form of spending obligations and an approved marketing schedule?

At the same time, a realignment of financial commitments for both producers and marketers is overdue. Even where a licensed marketer pays a one-time fee for its licence, surely the licensor can see the advantages for all stakeholders – including itself – to maximise brand recognition and demand.

As with all major aspects of any breeding programme, marketing considerations must be constantly reviewed and adjusted.

Darron Saltzman is the founder of Hort-IP Law and has over 30 years’ experience as a lawyer and trademark attorney, specialising in the horticulture and agriculture industries. More information at www.hortip.com