Licensing Deal for Hot New Apple Comes Under Fire
A new breed of apple has been a hit with consumers lucky enough to find it. Cindy and Frank Femling, however, are among the growers who fear it could put them out of business.
The SweeTango, with its juicy crunch and intense sweet-tart flavor with a note of spice, just entered its second year of limited release across U.S. It's marketed by a select group of growers under an exclusive licensing deal with the University of Minnesota.
The university chose Minnesota's largest orchard, Pepin Heights, to commercialize its new apple. But 15 other orchards say it's not a sweet deal for them, and they're suing. The school counters that research universities everywhere award exclusive rights to all kinds of intellectual property, and that the royalties are crucial for replacing shrinking public funding for research. It also says the deal is needed to protect the quality of an apple it spent more than a decade developing.
"When Pepin and the university signed this agreement, they had no consideration for what it would do to the Minnesota apple industry," Frank Femling said. "The only thing they considered was their financial interests."
The Femlings grow 13 kinds of apples at Afton Apple Orchard, about 15 miles southeast of downtown St. Paul. Most of their varieties came from the university, including the hugely successful Honeycrisp. They're not growing the SweeTango, and they fear what will happen if it becomes as popular as the Honeycrisp. Cindy Femling said they're already losing sales.
Mark Rotenberg, the university's general counsel, said the school partners with private industry all the time to bring technology to the marketplace—not just apples but a myriad of other innovations as well, including lifesaving drugs and medical devices.
"This has become, for research universities across the United States, the dominant way in which basic research is made available to benefit the community at large," Rotenberg said.
As an example, Rotenberg pointed to the technology transfer program at the University of Wisconsin-Madison. The 75-year-old Wisconsin Alumni Research Foundation is considered a leader in turning university research into products that benefit society, and using the licensing income to support further scientific investigation.
Emily Bauer, a licensing manager at the foundation who specializes in plant technology, said it generally prefers nonexclusive licensing because it wants the technology to be widely used. She said the foundation doesn't usually award exclusive licenses for agricultural products. But in some cases, she said, exclusive licensing is the only way to get the technology into the marketplace.
Rotenberg said the university believed Pepin Heights could do the best job of quickly getting SweeTango apples into the market.
Dennis Courtier, owner of Pepin Heights in Lake City, said restrictions on who grows it are necessary to protect the quality as it competes with other snack foods, including candy bars and potato chips.
"This is about share of stomach. ... The fact is, sorry, red delicious (apples) just don't compete with Cheetos," Courtier said.
As the university's lucrative patent on the Honeycrisp was about to expire, the school launched the SweeTango—a cross between the Honeycrisp and its Zestar!—to keep revenue flowing to support its cold-climate fruit research.
It also wanted to avoid a repeat of a significant problem with the Honeycrisp. Anybody could plant it anywhere, and the quality suffered in warmer growing areas, hurting its reputation. So it picked Courtier and Pepin Heights, who formed the "Next Big Thing" cooperative to manage and safeguard the SweeTango. It has 45 growers in five states—Washington, Minnesota, Wisconsin, Michigan and New York—plus Quebec and Nova Scotia in Canada.
The university is hoping the deal yields a repeat of the more than $8 million it earned from the Honeycrisp. Besides a $1 per tree royalty, Next Big Thing pays the university 4.5 percent of the apple's net wholesale sales.
Orchards outside of Minnesota that don't join the co-op can't grow it. Minnesota growers who aren't in the co-op must sign an agreement with Pepin Heights and accept restrictions that plaintiffs such as the Femlings consider one-sided.
The restrictions let them sell the apples at their own orchards, at farmers markets and to local stores, but they can't pool with other growers to sell in larger volumes. The plaintiffs say that shuts them out of the wholesale market and major grocery chains. And they're limited to no more than 1,000 trees apiece with a cap of 50,000 trees statewide.
Courtier said more than 85 Minnesota growers outside the co-op have signed the agreement, and only a handful have planted the maximum 1,000.
The lawsuit seeks to void the licensing deals, saying they unfairly restrain free trade, plus unspecified financial damages.
"I have every confidence that we are in compliance with state and federal laws," Courtier said.
Fred Wescott, a producer and wholesaler in Elgin who joined the lawsuit after losing out to Pepin Heights to manage the SweeTango, said a settlement that drops restrictions on Minnesota growers would be the best way to end the lawsuit. Rotenberg wouldn't discuss what settlement the university might accept.
Cindy Femling said anything developed at the university should be available to Minnesota growers because its research is still partly taxpayer supported.
"If it wasn't for us Minnesota growers, the Honeycrisp wouldn't have been as popular as what it is. And then now they're insulting us by telling us that we cannot grow a quality apple," Frank Femling said.