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August 22, 2016

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Case of Monsanto Private Rights Versus Public Interest


- Ranjan Narula, Managing Partner [ RNA, IP Attorneys ]
- Suvarna Pandey, Associate [ RNA, IP Attorneys ]

Ranjan Narula & Suvarna Pandey

The licensing and sub-licensing of Monsanto’s patented genetically modified cotton has brought both macro and micro issues to the fore where it will be interesting to see how the government balances domestic compulsions while maintaining an investor friendly regime On May 18, 2016, Ministry of Agriculture issued a notification with detailed guidelines regulating the maximum sale price of cotton seeds and the royalty fees to be paid to biotech companies in the context of Monsanto’s genetically modified Bt cotton. In less than one week, on May 24, 2016, the government took an about turn and recalled its earlier notification and instead put the “Licensing and Formats for GM Technology Agreements Guidelines, 2016” in the public domain for 90 days.

The subject has become debatable and has raised concerns about a) India’s strategy for strengthening Innovation; b) extent of Government’s interference in technology licensing fees between two private parties; c) extent of overlap between Intellectual Property Rights (IPR) and Competition law and last but not the least; d) should IP rights take precedence over public interest.

Facts

Monsanto produced genetically modified cotton plant (Bt Cotton) by introducing relevant genes (imparting the pesticidal property) to the plant for imparting resistance property against pests like bollworm. Monsanto obtained a patent grant on this technology of gene modification which involves incorporation of Bacillus thuringiensis gene (Bt gene), in a plant cell to render it free of disease/infection like Bollworm etc. Monsanto licensed its Patent rights to its joint-venture company in India trading as Mahyco Monsanto Biotech (India) Ltd (MMBL). MMBL further sub-licensed the technology to various Indian seed companies - which eventually developed seed varieties by using the licensed Bt Technology. Thus, finally these genetically modified seeds resistant to Bollworm infection (made with the help of Monsanto’s patented technology) were supplied to the end customer i.e. farmers. One of the constant tussles between seed companies (sub - license) and MMBL has been technology fees or licensing fees charged by them. This had become a major concern for seed companies as various State governments were reducing the retail price of seed and Monsanto refused to reduce the “licensing fee” citing existing contractual terms mandating a minimum price. The National Seeds Association of India had also been complaining that Monsanto’s technology licensing fees for Indian seed companies are too high. It demanded that the Government take robust action to bring the “trait value” i.e. licensing fees under control.

The War Over Price Control And Technology Licensing

  1. In December 2015, the Ministry of Agriculture passed an order not only regulating the maximum sale price of cotton seeds but also the possibility of government interference for controlling royalty fees in licensing arrangements and private agreements. The order derived its authority from the Essential Commodities Act, 1955 (this has generally been used to control price of generic drugs). The Agricultural Ministry decided to cut royalty fees by 70 percent on cotton seeds and also put a cap on seed prices across all states. The decision came under criticism for it was the first time that the government was using its powers to control royalty fees of a patented technology.
  2. At the same time, a complaint to the Competition Commission of India was made by agriculture ministry on November 15, 2015 and separately by (the erstwhile licensees of MMBL) Nuziveedu Seeds Ltd. (NSL), Prabhat Agri Biotech Ltd. (‘PABL’) and Pravardhan Seeds Pvt. Ltd. (‘PSPL’) over pricing of Monsanto’s pestresistant cotton genes. The commission considered it a fit case for further enquiry by the Director General. The Commission came to the conclusion that MMBL holds a dominant position in the seed market and its role needs to be investigated. Further, the contracts entered with PABL, PSPL and NSL were prima facie found to contain stringent conditions.
  3. A number of seed companies (the erstwhile licensee of MMBL) refused to pay outstanding royalties to MMBL and as a result, MMBL ended the license agreement with the seed companies and commenced arbitration proceedings before the Bombay High Court. Further, it brought trademark and Patent infringement proceedings before the Delhi High Court (against Nuziveedu Seeds Ltd).
  4. Monsanto challenged the Agriculture Ministry notification of March 8, 2016 before the Delhi High Court to quash provisions pertaining to the price control order fixing Maximum Retail price of Bt cotton seeds and lowering the ‘trait value’ that licence providers (MMBL) would charge.
  5. Another petition to challenge the notification of March 8, 2016 was filed by the Association of Biotechnology Led Enterprises Agriculture Group (ABLE-AG), of which MMBL is a member, against the Centre’s price control order before the Karnataka High. The Karnataka High Court in an interim order stated that the Centre cannot regulate the ‘trait value’ (licence fee) for seed technology as it is based on mutual agreement entered into between two parties imparting relief to some extent to Monsanto. However, the court did not interfere with that part of the government’s price control order, which fixed a uniform maximum retail price for all genetically modified (Bt) cotton seeds.

To Sum Up

The controversy has brought forth macro and micro IP issues as outlined below. It will be interesting to see the direction government takes while balancing the domestic compulsions and at the same time maintaining investorfriendly regime.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

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