Any agreement that does not fully contemplate relevant regulations has the potential to expose parties to risk and leave money on the table. This is especially true for cost-share agreements regarding pesticide data development.
Scientific data supporting pesticide registrations is highly proprietary and expensive. Protecting registrants’ investments is paramount, especially when the data is collectively developed pursuant to a cost-share agreement amongst two or more registrants. The primary line of protection is a carefully drafted cost-share agreement.
FIFRA Data Call-Ins: Costs of the Pesticide Business
The Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”) requires registration of all pesticides with the U.S. Environmental Protection Agency (“EPA”). This includes submission of a significant and costly amount of supporting scientific data demonstrating efficacy and safety of pesticides. To ensure that this data remains current with technology and scientific advances, FIFRA requires that EPA review pesticide registrations every fifteen years through a registration review process.
The EPA has less than three years left to complete its ongoing registration review process for all pesticides registered as of October 1, 2007. This means that those pesticide registrants have likely seen a blitz of various Data Call-Ins (“DCIs”) over the past handful of years. DCIs are the EPA’s method to require updated or new scientific data from pesticide registrants in support of their pesticide registrations. If a registrant wants to continue marketing its pesticide product, it must satisfy the DCI.
Cost-Share Agreements Provide Some Financial Relief
Fulfilling DCIs can be extraordinarily costly for registrants depending on the scope of data EPA requires, often ranging into the hundreds of thousands of dollars. To alleviate the financial burden of fulfilling DCIs, registrants commonly enter into cost-share agreements to develop a single set of data to satisfy a DCI on behalf of all affected registrants.
Too often, however, cost-share agreements ignore FIFRA implications and leave registrants exposed to direct and indirect loss.
Overlooked Gaps in Cost-Share Agreements Prove Costly
Overlooking key regulatory provisions will leave expensive gaps in a cost-share agreement. At a minimum, a FIFRA cost-share agreement should address the following details:
- Termination. If an agreement does not protect data ownership rights for the full FIFRA data compensation period, registrants may be left unprotected.
- Data Ownership. Determine whether (i) parties can use the data for domestic and/or international use, (ii) data is assignable without approval of all parties, (iii) rights will terminate upon a merger, (iv) a new entity should be formed for purpose of ownership, and more. The specific terms of data ownership should be the heart of the agreement.
- Future Use. The parties should pre-determine the process and added premium (if applicable) in the case a new entity wishes to cite to the data during the compensable period or formally join the agreement.
Consider this basic example: two parties are each subject to the same DCI requiring extensive scientific data. They contract to equally share the cost of $750,000 for data development in satisfaction of a DCI. The contract terminates five years after execution. In the sixth year, a third party compensates only one of the original two parties to selectively cite to the new data and enter into the marketplace with its new registration. Not only has the uncompensated party missed out on financial return, it now has a new competitor in the marketplace. This is because the cost-share agreement terminated too early and did not adequately address data ownership.
Purposeful Cost-Share Agreements and Amendments
In the above example, FIFRA’s specific data compensation rules left one party with a diluted investment because its cost-share agreement did not fully address FIFRA data compensation requirements.
The key is to ensure that agreements are not hastily drafted with boilerplate language in ignorance of relevant regulations. Rather, a deliberately drafted agreement addressing regulatory implications will provide parties with the best protection. Contact Audrey Patterson or another member of the Environmental Law Practice Group for questions or to discuss related matters such as:
- Amendments to existing or new cost-share agreements;
- Business entity formation for purpose of owning data;
- Business and asset valuation;
- Financial arrangements associated with the costs of data development;
- Regulatory compliance; and
- Dispute resolution.