Battle Over $200-a-Vial Bull Semen May Rock Dairy Farms

Farm Bill With $8.6 Billion in Food-Stamp Cuts Passes U.S. House

Cattle return to a barn after being milked at a dairy farm in Illinois.

Photographer: Daniel Acker/Bloomberg
  • Rivals challenge Sexing Technologies' dominance in breeding
  • Dairy farmers use sex-sorting to get milk-producing females

When it comes to breeding cows, Oakfield Corners Dairy in upstate New York would rather not let nature take its course.

To ensure his prime milk-makers produce daughters, Oakfield partner Jonathan Lamb is willing to pay as much as $200 a vial for bull semen that has been processed so that it only contains X chromosomes.

One reason for the high price, according to competitors, is that a single company, Sexing Technologies, controls more than 90 percent of the sexed-semen market, which has annual sales of $50 million in the U.S. and $220 million abroad. They’ve mounted a flurry of actions that could bring down the cost for farmers: filing an antitrust lawsuit, challenging the company’s patents, and, in a battle that began Monday in a Denver court, fighting over contractual rights to the technology.

“As dairy farmers, what we’re trying to do constantly is become more efficient to feed the world population,” said Lamb, who only uses sex selection in 5 percent of the 2,000 breedings per year he oversees. “It is expensive now, and we would definitely use it” more if the price came down.

Artificial Insemination

The dairy industry embraced artificial insemination after World War II. Gender-sorted semen has been used for only about the last decade, according to the National Association of Animal Breeders.

Farmers use gender selection not only to propagate the milkers, but to expand herds and avoid having to buy replacement cows. It’s also safer for heifers having their first calf, since female calves are smaller than males.

In an industry built wholly on female animals, sex-selection would be more
widely used if the technology got better and the price came down, said Matt Gould, Philadelphia-based analyst for the Dairy & Food Market Analyst newsletter. For example, conception rates are lower for semen that has undergone the process, he said.

Number of milk cows in top 23 U.S. producing states in thousands.
Number of milk cows in top 23 U.S. producing states in thousands.

“Heifers are more valuable than bull calves throughout the industry,” said Erick Metzger, manager for herd services at American Jersey Cattle Association, which has about 2,400 active members. “If you can create more females, that can be a source of revenue for producers.”

‘Magnum’ & ‘Modesty’

Sexing Technologies -- its legal name is Inguran LLC -- sets up labs at stud farms and processes semen as soon as it’s collected. It also owns bulls. Farmers select a sire from the company’s online catalog with such listings as that for “Magnum,” a Jersey bull known for fathering cows with high milk production.

Sexing Technologies says on its website the sex-sorting technique is 93 percent accurate.

Its technology uses a machine that applies a fluorescent dye to cells that reacts differently on female X chromosomes than male Y chromosomes. As the dyed cells flow past a laser beam, the amount of fluorescence is detected and an electrical charge is applied, which deflects the cells into different containers. The sorted semen is then sold in vials known as straws.

For Paul Paddock, co-owner of Paddock’s Breeding and Dairy Services in Warsaw, New York, which serves around 300 dairies in the region, sexed-semen straws account for about 10 percent of sales volumes and 20 percent of revenues. A straw from the likes of “Modesty,” a top-performing bull, costs $200 a pop, Paddock said. Prices for run-of-the-mill bull semen start at about $25.

Control of Patents

The beef against Sexing Technologies is its dominance of the market obtained by patents and contracts. Genus Plc’s ABS Global of Wisconsin, a stud company that wants to enter the sex-sorting business, filed an antitrust lawsuit in 2014 accusing Sexing Technologies of monopolizing the market. That case goes to trial in August. ABS is also in a fight at the U.S. Patent and Trademark Office with Sexing Technologies over the validity of each others’ patents.

Meanwhile, a trial started Monday in Denver involving  Trans Ova Genetics, an
Iowa company. It is being sued by a company Sexing Technologies bought, XY LLC,
for breach of contract and patent infringement. Trans Ova’s defense is that XY
wrongfully terminated the contract and obtained the patents by misleading the
patent office.

XY dropped one of its patent-infringement claims because a board within patent office said Jan. 11 that the patent is invalid, based on a challenge by ABS.

USDA Invention

The U.S. Department of Agriculture developed the sex-selection process in the early 1990s. XY, then a standalone company, gained control of the government patent and improved the system so it worked more quickly and improved fertility rates. XY’s contribution -- and a hugely important one by all accounts -- was to modify the machines and the system so it destroyed fewer cells.

XY licensed the USDA patent and its own patents to other companies, including Trans Ova, ABS and Sexing Technologies, based near Houston. In 2006, XY and Sexing Technologies were in the midst of a contract dispute; a year later, Sexing Technologies owned XY. That’s when the trouble began, according to court documents filed by both Trans Ova and ABS.

Sexing Technologies, which also has been buying patents from other companies including Monsanto Co., “was able to use its monopoly power to exact onerous terms from ABS, including unreasonably high prices, an ‘evergreen’ provision that makes the contract effectively perpetual,” and limit research by a would-be competitor, ABS contends.

Sexing Technologies contends the ABS antitrust suit was filed “to pressure Inguran into renegotiating the contract’s terms,” while Trans Ova is just trying to avoid being found liable for using the technology without a license.

Officials with the three companies declined to comment for this story, citing the pending litigation.

Gorillas, Dolphins

There’s interest from other industries. While the procedure has worked in many species from gorillas to dolphins, techniques are currently being perfected for other livestock species, according to Jere Mitchell, technical director at the National Association of Animal Breeders.

Though the beef industry doesn’t widely use artificial insemination, it has an incentive to to produce more males, as bull calves are more efficient at making meat.

For dairy farmers, the technology is especially powerful, said Paddock, the Warsaw, New York dairy-services provider.

“Short-term, it’s more expensive. But long term, it’s an investment,” Paddock said. “More competition, in the end, it’d be better for the dairymen.”

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