By Paramjeet Singh
The Conundrum of Contracts
Some claim that the contours of the Trait Licensing Agreements are a matter of mutual negotiation between the consenting parties. The State should not interfere in the private contract. Also, it should not try to fix the modalities of the same. This notion inherently goes against the sovereign powers of the state and the concept of governance. It also violates the principles and provisions of the law of contract and the constitutional guarantees. The government has every right and should interfere if the nature of the situation so demands. However, this interference should not be arbitrary and merely a mechanical exercise. It should be subject to judicial scrutiny. As long as the dynamics of the contractual relations are affecting only the consenting parties, the State should stay at bay. The question is, can a private contract be allowed to frustrate the larger public interest? The answer is ‘no’. If the stipulations in a contract have wider connotations that extend beyond the domain of the contract, then the state has the right to interfere. This should be the case even if addressing those extraneous connotations have an impact on the contractual obligations.
Favouritism and Fixations
The move to regulate the price of the cotton seeds is one thing, and the move to regulate the components of the maximum sale price (MSP) is another. Trait value and seed value are the constituents of the maximum sale price. The moment the government ventures beyond the MSP of cotton and into its components, it becomes very likely that the government is attempting to favour the domestic seed companies. This is because farmers are only affected in the context of maximum sale price of the BT cotton seeds. The profit margins of the domestic seed companies fall if they have to pay high trait value to Monsanto. The Indian farmers do not have enough financial capacity to pay such high trait value. Therefore, this is no longer only about the farmers.
The Government of India is an authority competent enough to fix the MSP, as well as the price components of the MSP (the trait value and seed value), according to the Clause 5(5) of the Order. However, clause 5(8) of said Order deals only with the format of the License Agreement. It does not impose any restriction on the nature of substantial stipulations therein. The notification was passed by the government only in the exercise of the powers conferred by sub-clause (8) of clause 5 read with sub-clause (b) of clause 4 of the Cotton Seed Price (Control) Order, 2015. These powers are also conferred by the central government, based on the advice of the Controller and after consultation with the Committee referred to in sub-clause (2) of clause 5. The scope of notification was to prescribe licensing guidelines and formats for the GM Technology Agreements.
Essential Commodities Act
The government is in possession of wide powers under section 3 of the Essential Commodities Act. This becomes clear from the language of Section 3(2) of the Act that takes into account the generality of the powers conferred onto the government. However, the scope of the section has also been defined by Section 3(1) of the Act. It provides discretion to the central government in the context of maintaining or increasing the supplies of any essential commodity, or for securing their equitable distribution, and availability at fair price. The sanctity of any action taken under Section 3 should be judged by the judging the character of the action. Moreover, the legal provision is too open-ended. It renders uncertainty in the regulatory environment of the country. Trait value affects the Indian seed companies more as the same reduces their profit margins; and then there is their inability to transfer the burden of the same onto the poor farmers of the country. Therefore, the government, given the wide powers, can justify their actions for maintaining equitable distribution. It can also make the availability of cotton seed at fair and affordable prices possible.The Act allows the government to take action that ‘directly’ leads to the final goal of ‘fair prices’. Also, it allows the government to act as per its discretion ‘keeping in mind’ the final goal mentioned therein. The modus operandi has been left open to the government and there is no limit to the same stipulated therein. The preamble to the Act provides for “An Act to provide, in the interest of the general public, for the control of the production, supply and distribution of, and trade and commerce, in certain commodities.”
Other Requirements: SEPs and FRAND
SEPs and FRAND requirements – An article in the Colorado Law Review titled ‘Genetically Modified Seeds as De Facto Standard Essential Patents’ (2014), makes an attempt to solve the problem of unusually high awards passed against farmers in GM patent infringement suits that are filed by companies like Monsanto, and bring them within the realm of economic reality. The scope of the article is limited but it does suggest 3 requirements that when satisfied may entitle a patents in relation to GM seeds as de facto SEPs. The requirements are: (1) IP holder has dominance in the relevant market, (2) it is practically impossible to expect that a farmer will do agriculture without infringing the patent, and (3) the crop grown is used to meet basic human need.
In the Context of Monsanto
In the present case, BT technology does qualify as de facto SEPs. Monsanto does have market dominance in the field of Bt cotton technology. Bt technology is unable to be practically substituted with the conventional use of pesticides. The modes of achieving the “consequential aspect” by both are vastly different. The characteristics are different, and so are the price and basic nature of the intended use. The whole dynamic and the underlying concept of the two are different.The relevant upstream product market is, as pointed out by CCI, that of the ‘provision of BT cotton technology’, and the relevant downstream product market is ‘manufacture and sale of Bt cotton seeds’. Also, 95% of land under cotton cultivation uses BT cotton technology. More than 8 million farmers and 20 million farm labourers rely on it. Therefore, it is practically impossible to expect that a farmer will grow other variety of cotton. Moreover, cotton is grown to meet the basic need of human beings. Mr. Prashant Reddy, in his post on SpicyIP, mentions that FRAND is supposed to be a voluntary act. The practicalities of the disputes in the domain of SEPs indicate otherwise. The voluntary commitment to license on FRAND does not help in establishing an all-accepted understanding as to its import and interpreting its principles and their application. Further, when the concept of FRAND is imported into the sphere of GM seeds, the details will undergo a change. Yet, the underlying principles of the concept will remain the same.
CCI, in its order, concluded that the terms and conditions imposed by Monsanto in the licensing agreements were unfair. It also concluded that the termination conditions were stringent. These discouraged the sub-licensee from dealing with competitors. They also restricted development of substitutable BT cotton technologies. It also noted that the charging of trait value on maximum sale price has no economic justification, in the light of other factors featuring in the performance of Bt cotton, and thus was unfair. Prashant Reddy, in his post on IPKat, says that the termination conditions are merely boilerplate clauses in any TT contract and reflect industry standards. This argument, in my opinion, is not proper. The boilerplate clause does have any meaning. Their insertion into an agreement is not merely mechanical. If they have some implications, they should be brought under the scrutiny of the court.
Moreover, industry standard agreements are often marred by the theory of unequal bargaining power, which is no longer new to Indian contract law. If the negotiations are not among equal players and the weaker party is at a disadvantage, the validity of the contract or the relevant provisions needs to be subjected to judicial review.
Some scholars advance a reasoning that the Indian government consults the Order and the notification is trying to circumvent the provisions of the Patents Act. This argument loses its relevance in view of the fact that patent law cannot be used as an excuse to bar the government from intervening in any situation that calls for the exercise of powers, in the context of other applicable laws, such as the Essential Commodities Act. However, the prescribing of a format of licensing agreement should act only as a format and no substantial rights should be conferred therein. What cannot be done directly should not be done indirectly. Objective 3 of the National Intellectual Property Rights Policy is “to have strong and effective IPR laws, which balance the interests of rights owners with larger public interest”. Therefore, it becomes clear that IP regime is a comprehensive regime. It not only benefits IP holders with the express rights stipulated in the statutes; rather, it also seeks to protect larger public interests.
Trade-related Aspects of Intellectual Property Rights
Prashant Reddy, in his post, raises the issue of Trade-Related Aspects of Intellectual Property Rights (TRIPS) compliance, especially Article 31. One view is that the article in question is not at all applicable to this case. The article talks about the Indian law allowing alternate uses of the subject matter of a patent, i.e., BT technology. Here, the law is the Essential Commodities Act. It doesn’t directly allow any other use of BT technology. But, if we assume that the law in question is the subordinate legislation, i.e., the Order and the notifications thereunder, then the issue becomes more complex. It has to be analysed whether or not the application of the withdrawn application amounts to ‘compulsory license’ or it can be termed as use ‘without authorisation’.
The Indian Protection of Plant Variety and Farmers’ Rights Act
There is no doubt that according to Section 3(1)(iv) of the Indian Protection of Plant Variety and Farmers’ Rights Act, 2001 (PVP Act), farmers are allowed to “save, use, sow resow, exchange, share or sell his farm produce including seed of a variety protected under this Act in the same manner as he was entitled before the coming into force of this Act”.This is rendered useless because Monsanto licenses its Bt technology to only those seed companies that make sterile seeds or F1 hybrids. Dr. Mrinalini, in her SpicyIP post, deals with the point. The seed cannot be saved and sown by farmers in the next season as the yield sufficiently decreases. It implies that the farmers have to pay the price of the same IPRs each successive season. The practice also suits the Indian seed companies. She rightly talks about the control of genetic resources by some corporations. She also gives an insight into the business model of the licensor and the Indian seed companies. Her discussion on the prospects of incorporating BT II technology into straight varieties brings out the reality of the seed industry.
In view of the aforementioned, it becomes clear that the economic interests of various stakeholders – Indian seed companies and big multinationals like Monsanto – guide the politics. The legislations passed and the regulatory mechanisms adopted reflect the same.
However, the farmer-centric public narrative of the Bt cotton seed scenario in India has been misguiding the general public about the hidden agenda.
It has shifted the focus onto agriculture and innovation. FDI and other investment related concepts are being followed blindly and are driven by speculations.
The domestic seed companies have been able to ‘use’ the farmer plank in getting the Order and the notifications passed. Companies like Monsanto wield huge political power and have huge economic resources at its disposal. The same is highlighted by the withdrawal of the notification. Farmers are at the receiving end of all of this. Regardless, the importance of law cannot be ignored. The provisions have to be understood and interpreted in the correct way so that justice is delivered.
Paramjeet Singh is a lawyer practising before the Supreme Court of India.
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