GREENSBORO, N.C. — The ongoing dispute over the future of fipronil between BASF and Makhteshim, along with its U.S. subsidiary Control Solutions Inc. (CSI) – which lay dormant for much of the winter, at least publicly – has entered a new, potentially critical phase as the parties once again squared off in U.S District Court in early May.
In the latest round of the high-stakes legal battle, which began more than two years ago, BASF asked Judge William L. Osteen, Jr. of the U.S. District Court for the Middle District of North Carolina to find Makhteshim Agan of North America (MANA) in contempt for allegedly violating a court order restricting the company from producing fipronil-based termiticides using any manufacturing process other than that set forth in the original order, a charge Makhteshim denies.
U.S. District Court Consent Judgment at Center of Latest Dispute
Although more than 17 months old, a Consent Judgment signed by U.S. District Court Judge William L. Osteen, Jr. on Oct. 27, 2010, is at the center of a legal battle between BASF and Makhteshim Agan of North America (MANA), along with its U.S. subsidiary, Control Solutions Inc. (CSI).
The Consent Judgment states that BASF would not prosecute a claim against MANA and CSI for the current manufacturing process of Patent ‘945 as long as the Defendants and their affiliated companies did not “Materially Change the Currently Intended Process to make Fipronil.”
According to the Consent Judgment, a “Material Change” includes any of the following:
• “eliminating, adding to, or changing any of the reactants, reagents or materials (including starting materials) used in any of the steps of the Currently Intended Process;
• “changing the order of addition of reactants or reagents in any of the steps of the Currently Intended Process; and/or
• “eliminating or adding step(s) to the Currently Intended Process.”
What the Consent Judgment does not consider a “Material Change” includes:
• “changing any solvents used in any of the steps of the Currently Intended Process;
• “changing the temperature at which any of the steps in the Currently Intended Process is carried out; and/or
• “any changes made to the method of isolation (e.g., filtering), recrystallization or purification of the final product or intermediates used in the Currently Intended Process.”
At the center of the dispute is whether or not Makhteshim infringed on a BASF manufacturing “process” patent for fipronil, and thus is in violation of an October 2010 consent agreement signed by the two parties (see timeline). In addition to restricting MANA from entering the U.S. market with fipronil-based termiticides using a manufacturing process other than that which they represented at that time would not infringe BASF’s manufacturing patents (‘943 and ‘945), the consent agreement states MANA must promptly notify BASF of any “material change” in the company’s manufacturing process for fipronil, marketed in the U.S. as Taurus SC.
According to BASF’s motion for contempt, which was filed on April 30, MANA and CSI “violated that Consent Judgment by selling in the United States fipronil made with a materially different process and providing BASF with no notice at all. BASF believes the new process is likely to infringe one of its patents and seeks further information to confirm that conclusion.”
Jan Buberl, director of specialty products, BASF North American Crop Protection, said that in the company’s ongoing testing of Taurus SC, BASF discovered a certain chemical reactant, trifluoraetic acid (TFA), “that was not permitted or disclosed as part of the manufacturing process identified by Makhteshim in connection with the agreed upon order,” according to a company press release.
CSI President Mark Boyd disputes that claim, noting MANA has “never varied in the way that it makes fipronil technical,” a point echoed by Moshe Nussbaum, global head of insecticide sector, Makhteshim Agan Industries (MAI). “Our position remains the same – that there has been no change at all, nor any material change, in the manufacturing process of fipronil,” he said. “MAI manufactures fipronil using a proprietary process and has filed a patent application to protect its intellectual property rights to this process.”
It’s important to note that the recent motion filed by BASF is not a patent infringement claim, but rather a motion for discovery. “It will be a question for the court to determine whether MANA is using TFA,” Buberl said. “As indicated in our pleadings, BASF has replicated its findings of TFA in multiple samples of Taurus. The original formulation as disclosed by MANA is subject to a protective order. The conclusion would be if you find the reactant in the final product there is a high likelihood that it was used in the manufacturing process. That is why we are asking the court for new discovery on this issue.”
In addition to seeking further information about the reactant issue, as part of its motion for contempt BASF is asking the Court to provide various forms of relief for the “harm incurred due to Defendants’ non-compliance with the Court’s Order.” Specifically, they are asking the Court to:
• Prevent MANA/CSI from making, selling or offering for sale in the United States any products containing fipronil manufactured by any process other than the “currently intended process” as defined in the original consent judgment;
• Order MANA/CSI to provide BASF with an accounting of all sales in the United States of Taurus SC, or any other fipronil-containing products manufactured by the Defendants, occurring after the date of the court’s order, identifying for each sale the product sold; the date of the sale; the quantity sold; the batch identification of the product sold; and whether the batch was made by other than the currently intended process;
• Order MANA/CSI to provide BASF with discovery on the process(es) by which all fipronil in Defendants’ U.S. fipronil-containing products has been made;
• Order MANA/CSI to pay BASF damages for all sales of Taurus SC product, or any other fipronil-containing product, manufactured in violation of the court’s order;
• Order MANA/CSI to verify that all existing inventory produced in violation of the court’s order and intended for sale in the United States has been destroyed; and
• Order MANA/CSI to pay BASF all costs, expenses and fees, including but not limited to reasonable attorneys’ fees, incurred by BASF in connection with the case.
Buberl said predicting what the Court ultimately will decide is “speculation,” but there are a wide range of options available including “remedies or sanctions” if the Court finds in BASF’s favor.
While recognizing the high-stakes nature of the litigation, Makhteshim’s Nussbaum remains confident in the company’s position. “We quite simply don’t see that BASF’s motion has merit,” he said. “We are also confident in our belief that the court will deny the motion and recognize their ongoing efforts as an attempt to disrupt the marketplace and our customer relationships.”
In fact, three days after BASF’s motion was filed with the Court, MANA and CSI provided a “preliminary response” opposing the motion and highlighting recent correspondence between the parties that it claims illustrates a desire on BASF’s part to “interfere” with the company’s channel relationships and customers.
“Based on the timing of the recent court filing, BASF delayed this legal action until April 2012, which is the peak time for termite control,” observed Nussbaum. “Our assumption is that BASF strategically planned another attempt to negatively impact MAI/CSI channel sales alongside causing interference with customers and channel relationships regarding the case. At this time, MAI and CSI are confident in their ability to ‘call out’ BASF allegations as untrue, claim BASF findings are once again without technical merit, and believe the U.S. court system will deny the motion – recognizing their intent to interrupt both organization’s business and relationships successes in the marketplace.”
BASF’s Buberl, however, disagrees with Makhteshim’s characterization of its motivation for filing the motion. “BASF is only trying to enforce its rights under the Consent Judgment,” he said. “Prior to its May 1, 2012 filing, BASF did seek to discuss this issue with MANA but ultimately had no choice but to seek the court’s intervention.”
With the termite season in full swing and favorable weather conditions throughout the United States contributing to a solid start to the season, the financial stakes are high, raising concerns for Control Solutions, Inc., Makhteshim’s U.S. affiliate. “We view BASF’s recent filing to have the potential to cause hardship to CSI’s existing and potential CSI customer base, especially if product is unavailable during a critical use season,” CSI’s Boyd said. “We also might anticipate severe economic losses to CSI as a result of BASF’s various attempts to confuse and disrupt the marketplace. I think it is very distracting for the industry to have this kind of issue at the height of the termite season and when the market wants to know that high quality key solutions will be available to meet marketplace demand.”
Raising the stakes even higher is the market uncertainty caused by ongoing litigation between BASF and Makhteshim, both major players in the global pesticide market, including the U.S. structural pest control industry where Termidor, BASF’s industry-leading termiticide boasts 65 percent of the liquid termiticide market. “What is very clear is that the risk and exposure of using Taurus has increased,” Buberl said, “and with this finding the question is around the IP of the entire fipronil AI (active ingredient) not just the use patents.”
Despite the market uncertainty, both BASF and Makhteshim, along with Control Solutions, Inc., are moving ahead with their plans for the pest control industry, looking to take advantage of this year’s strong start to the termite season. “MAI (Makhteshim Agan Group) and CSI will defend their legal rights to compete in the marketplace with Taurus SC,” said Shaul Friedland, head of MAI’s Americas region.
“MAI and CSI have opposed BASF’s motion and will continue to seek all available remedies to resolve the ongoing nature of this case,” added Boyd. “In the immediate, MAI and CSI will continue its sales and marketing initiatives which started after the court ruled in our favor early last year.”
For its part, Buberl said BASF will continue to “vigorously defend” its intellectual property and “invest in innovation” as illustrated by the recent introduction of Termidor HE Copack, which features the addition of a BASF proprietary molecule that temporarily “boosts” the transport of fipronil, the active ingredient in Termidor, into the soil and creates an enhanced protection zone around the structure being treated, resulting in both labor and cost savings, as well as greater eco-efficiency. “We remain vigilant in protecting our intellectual property,” said Buberl “Providing innovative products to support customers’ success is our reason for being.”
As the parties continue to serve their respective customers, while preparing for battle in court, Judge Osteen – the same judge who presided over previous patent disputes between the two companies – held a telephone conference on May 3 to review the various steps leading up to a final hearing on the contempt motion, questioning the various parties on the need for discovery. Following that discussion, according to the court docket, he ordered MANA to file a full response brief. Once MANA responds, Judge Osteen will hold a status conference to determine whether depositions are needed or discovery is necessary to resolve the issues before the Court.
As a result, despite the positive “buzz” being generated by this year’s strong termite season, PMPs likely haven’t heard the last of the ongoing litigation between these two industry heavyweights, which have so much at stake as market conditions improve and the housing sector shows modest signs of life in the wake of the Great Recession.
The author is publisher of PCT magazine.
MANA/CSI Respond to BASF’s Motion for Contempt
In a preliminary response to BASF’s motion for contempt, Makhteshim Agan of North America (MANA) and Control Solutions, Inc. (CSI) referenced correspondence from April 19 to April 30, 2012 between the parties that they say provides “additional context for the Court” as it considers BASF’s motion. MANA and CSI summarized the interaction in the following fashion:
Thursday, April 19, 11:39 a.m., letter from BASF to Defendants: “BASF informed Defendants of their concern that Defendants had violated the Consent Judgment by making a material change to their process of making fipronil. BASF based its allegation on allegedly finding trifluoracetic acid (“TFA”) in Defendants products. BASF further stated that it would approach the Court unless it receive(d) a detailed explanation by noon on Monday, April 23.”
Thursday, April 19, 9:49 p.m., e-mail from Defendants to BASF: “Defendants informed BASF that they would not have sufficient time (due to time zone differences) to make inquiries of Makhteshim employees to investigate BASF’s allegations as Makhteshim’s offices in Israel had closed for the week. Defendants also requested additional information regarding BASF’s testing and test results to assist with their investigation of BASF’s allegations.”
Friday, April 20, 8:12 a.m., e-mail from BASF to Defendants: “BASF stated that Defendants’ request for additional information had no bearing on the inquiry and again asked for a response from Defendants by noon on Monday, April 23.”
Monday, April 23, 10:46 a.m., letter from Defendants to BASF: “Defendants informed BASF that they had confirmed that there had been no “material changes” made to their process of manufacturing fipronil. Defendants also informed BASF that the process used to make Defendants’ fipronil did not use TFA and that Makhteshim’s factory in Israel does not have permission to use, manufacture, distribute and/or hold TFA for any purpose. Defendants also offered to make their plant available for inspection.”
Tuesday, April 24, 5:30 p.m., letter from BASF to Defendants: “BASF responded stating that they still believed TFA was being used in Defendants process and offering to set up a telephone conference between scientists and lawyers at which point BASF would describe the general nature of its testing and test results and seek an explanation from Defendants’ scientists. BASF stated that the telephone conference needed to take place by Thursday, April 26, 2012.”
Thursday, April 26, 10:22 a.m., letter from Defendants to BASF: “Defendants informed BASF that a conference by Thursday was not possible as Wednesday, April 25 and Thursday, April 26 were legal holidays in Israel and the required personnel were not available. However, Defendants indicated that such a conference could take place on the morning of Monday, April 30. Defendants also requested that BASF provide information prior to the call to enable Defendants’ scientists to respond to BASF’s allegations or alternatively schedule a follow-up call at which time Defendants would address BASF’s allegations based on the information BASF provided.”
Monday, April 30, 4:28 p.m., letter from BASF to Defendants: “BASF informed Defendants that it could not agree to Defendants’ conditions and that in their view, a telephone conference would be unproductive. BASF filed its motion within three hours of sending this letter.”
May 1, BASF press release: “BASF issued a press release discussing their filing of a motion for contempt for violation of the Consent Judgment.”
“BASF informed MAI and CSI of their allegations less than two weeks before their court filing,” noted Moshe Nausbaum, global head of insecticide sector, Makhteshim Agan Industries. “Despite repeated requests, BASF refused to inform either organization of the details, or the basis of their allegations. BASF refused our offer to discuss the matter and did not make any good faith effort to avoid court involvement. With that, we aren’t surprised that BASF approached the court.”
“Despite our repeated offers to discuss the matter to avoid court involvement, BASF also refused the invitation to visit the plant where fipronil is manufactured so as to verify for themselves that the process has not been materially changed,” Nussbaum added. “We found this rejection to be revealing regarding what we assume to be the objective to the recent filing.”
However, Jan Buberl, director of specialty products, BASF North American Crop Protection, disagrees with MANA’s characterization of the events. “BASF does not believe one visit to one manufacturing plant could sufficiently address the issue,” Buberl said. “Prior to its May 1, 2012 filing, BASF did seek to discuss this issue in specific terms with MANA but ultimately had no choice but to seek the court’s intervention. BASF is only trying to enforce its rights under the Consent Judgment.”
A Brief History of the Litigation
The high-stakes legal battle between BASF and Makhteshim – along with its U.S. subsidiary Control Solutions, Inc. – began more than two years ago. Since the original court filings on April 8, 2010, more than 250 different motions, court orders and other related legal actions have taken place as the parties jockey for position in the high-profile litigation that will have wide-ranging implications for the pest management industry, whatever the ultimate outcome.
Termidor, BASF’s flagship termiticide, generates more than $75 million in annual revenues, representing about 35 percent of the U.S. termite control market and approximately 65 percent of the liquid termiticide market. More than 4 million structures have been treated with the non-repellent termiticide since it was introduced to the industry more than a decade ago. As a result, there’s a lot at stake in any litigation relating to the future of fipronil.
At the center of the proceedings have been several fipronil-related patents, the broad-spectrum phenylpyrazole insecticide found in Termidor, the most widely used liquid termiticide in the United States. One of those patents (’940), covering the fipronil molecule itself, expired on Aug. 3, 2010. Two additional manufacturing process patents (’943 and ’945) will expire in 2023 and 2025, respectively, while the method-of-use patents – sometimes referred to as "perimeter use patents" (’010 and ’743) – will expire in 2017. The "perimeter use patents" are owned by Bayer S.A.S. and exclusively licensed by BASF Agro.
Joining BASF as a plaintiff in the lawsuits is Bayer CropSciences, which exclusively licenses two of the patents to BASF. In October of 2010, Makhteshim Agan of North America agreed not to introduce any fipronil-related products that would infringe on BASF’s "process patents." At the time, BASF’s Jan Buberl called it a "major milestone for defending our intellectual property." but in late May 2011, Judge Osteen denied BASF’s bid for a preliminary injunction and dissolving the TRO, paving the way for the introduction of Taurus Termiticide/Insecticide from Control Solutions, Makhteshim’s U.S. subsidiary.