It should come as no surprise that many startups face a backlash from the industries they aim to disrupt as they threaten the status quo and ultimately create competition or redundancy. But it can be surprising when technologies, aiming to make an existing process faster, cheaper, more efficient, or more enjoyable, face hurdles from incumbent players that they’re not necessarily competing with.
This is the case for two agrifood tech startups operating at very different ends of the supply chain: Phytelligence, a biotech micropropagation business, and food assistance app developer Propel are both in disputes with industry players about the rollout of their technologies that could impact their success to the detriment of the industries they serve.
Phytelligence, the first agtech spin out of Washington State University’s College of Agricultural, Human, and Natural Resource Sciences, is currently involved in two lawsuits with the University over the prized apple variety, Cosmic Crisp.
Cosmic Crisp is Washington State University’s answer to the Honey Crisp Apple, a sweet and crunchy variety that has been a major success for The University of Minnesota. The Cosmic Crisp is reportedly headed to grocery stores in 2019 after being in the works for 20 years — tree crops move slow.
Phytelligence’s patented and trademarked tissue culture process enables apples, cherries, peaches, pears, grapes, hops, berries and nuts to grow five times faster with fewer inputs using a non-soil, nutrient-dense growing medium. This speeds up the process for growers to get new, designer fruit trees to market as well as alleviating age-old industry bottlenecks. Phytelligence spun out of Washington State University as founder, and CSO Professor Amit Dhingra was working with local Washington farmers to develop new apple varieties using micropropagation. He founded Phytelligence when the demand from farmers became too great to meet in an academic setting. Now the company offers tissue culture and genetic testing for trees already in the field, as well as selling rootstock and plants.
Join Us! Sign up for our next fund here.
According to Phytelligence CEO Ken Hunt, the startup has a research license with WSU to propagate Cosmic Crisp for research and also had an option in its tech transfer contract to apply for a commercial license to grow the coveted variety commercially. A year ago, Phytelligence requested a commercial license to sell Cosmic Crisp trees and took deposits from growers and begun growing Cosmic Crisp “budwood” — the branches carrying the varietal that are grafted to a tree or “rootstock” — anticipating that the license would be granted.
Phytelligence has still not received the license and filed suit in February asserting the company’s right to propagate Cosmic Crisp apples.
“In 2012, we were granted an option for a license from WSU or its agent to commercially propagate Cosmic Crisp,” Phytelligence CEO Ken Hunt said in a March statement. He continued, “We have exercised that option; however, WSU and its agents have not yet provided the license to Phytelligence. Our efforts have been met with repeated delays and misinformation, ultimately preventing us from propagating Cosmic Crisp to date. During this time, Washington state growers have been increasingly frustrated with unnecessarily restricted access to Cosmic Crisp.”
In reaction to Phytelligence’s suit, WSU countersued for breach of contract — essentially patent infringement. WSU alleges that Phytelligence sold 135,000 Cosmic Crisp trees without obtaining the necessary license, according to a March statement. Hunt denies this claim although he concedes that the company grew 200 budwood and temporarily transferred them to a grower without grafting them to rootstock in anticipation of obtaining a license. Hunt says that the company has since returned the funds and taken back the budwood.
“We have no choice but to vigorously defend our intellectual property rights against this serious breach of contract and infringement of our patent,” Chris Keane, WSU vice president for research said in an article on the University’s news site.
“Phytelligence’s actions threaten nearly two decades of work and the financial support provided by apple growers in the state of Washington. We owe it to all those companies that have followed the rules. We have to protect the significant investment the University and Washington growers have made to bring this new product to market.”
Furthermore, WSU granted an exclusive propagation contract to Washington state marketing firm Proprietary Variety Management (PVM) in 2014 — which Hunt claims WSU could not technically do because Phytelligence still had an option signed back in 2012.
PVM licensed Cosmic Crisp to propagator the Northwest Nursery Improvement Insitute (NNII), a nonprofit membership-based organization (and competitor of Phytelligence) also based in Washington. Hunt says that he offered to become a member and requested application instructions and none were provided.
So why all the bad blood when Phytelligence is a successful spinout of WSU in the first place? WSU has equity in the company after all. Hunt suggests that these events may be based on Phytelligence’s disruptive role in the Washington State apple propagation landscape.
“The reason we exist is to help growers, and the reason we’re getting so many orders from growers is that we’re really disrupting this space in agriculture. I’m sure that there’s certainly sentiment at our link in the value chain where people don’t want us to have access to Cosmic Crisp because we could service so much of the demand right out of the gate and our competitors would not want us to do that,” said Hunt.
“I don’t have a smoking gun or direct evidence of anything, but where there’s smoke there’s fire,” said Hunt. The cases will likely go before a judge in 2019 unless some resolution can be reached between the parties themselves.
WSU did not respond to requests for comment in time for publication.
On the other side of the country, a Brooklyn tech startup disrupting the way food assistance recipients manage their aid in the US is also feeling the heat from an entrenched player. Propel offers services to recipients of US government food assistance through the Supplemental Nutritional Assistance Program (SNAP). The company has developed an app, called FreshEBT, that allows SNAP recipients to see their balance, find locations that accept SNAP, find coupons, plan meals and even apply for jobs. Propel makes money from referral charges coming from the job ads, coupons, and some other advertising.
Propel executives told the New York Times that major government contractor Conduent — a company that handles the digital record structure behind the SNAP electronic benefits system — is denying Propel access to its data. Propel uses Conduent data like personal finance management apps use banking data so that users can track and manage their spending, according to NYT. Without this data, Propel can no longer provide its most valuable service, helping SNAP recipients keep track of their benefits balance, which was a cumbersome process before Propel entered the picture.
Conduent is allegedly blocking Propel from getting access to its data in 25 states causing Propel users to effectively lose access to the service — some 60% of the app’s users have reduced access to the data needed to make the app useful.
Further Conduent has developed its own app called ConnectEBT.
Though pushback from the status quo may not be surprising in either case, both startups were clearly not expecting the obstacles thrown down in the way of their progress. Propel may not yet be headed to court like Phytelligence, but both companies are looking to win in the court of public opinion.
Times journalist Steve Lohr called the Propel-Conduent conflict “a textbook case of a digital newcomer running into resistance from the old order.” Strangely, just as Phytelligence isn’t a threat to WSU’s business (in fact its looking to make the university money in both licensing fees and increased company value), Propel is not looking to upset Conduent’s role in SNAP benefits. But both threaten the existing order of players in their fields.