Bt Cotton Seed Patent, Competition & Price Regulation In India Conference on the Global Food Value Chain: Competition Law and Policy at Crossroads St Petersburg May 2016 Ujjwal Kumar, CUTS International 1

Presentation Outline Background Case at Competition Commission of India HC cases challenging Govt.’s price control order Issues – Intervention by Competition Authority into licencing agreement of a patented tech – Fixation of royalty/trait fee by govt. of Bt Cotton Technology – a patented product – Gene patents & its licencing on FRAND terms Conclusion 2

Background Actors Involved Monsanto Group – Monsanto Inc. USA (MIU) – Monsanto Holdings Private Limited (MHPL) (100% subsidiary of MIU) – Maharashtra Hybrid Seeds Company (MHYCO) (MHPL holds 26% stake) – Mahyco Monsanto Biotech (India) Limited (MMBL) a 50:50 joint venture formed between MHPL and MHYCO engaged in sublicensing of Bt cotton technology of MIU in India Governments (State Govt. & Central Govt.) Domestic seed companies & Farmers’ groups Competition Commission of India (CCI); Delhi & Karnataka High Courts 3

Competition Commission of India In 2006, Monopolistic and Restrictive Trade Practices Commission (CCI’s predecessor), dealing similar matter had observed: “There is a basic difference between royalty and trait value … In any case the lumpsum payment of Rs.5mn may be considered as royalty, but the future payments on sale cannot be termed as royalty”. “… MMBL is directed…to fix a reasonable trait value…”. CCI found prima facie case of ‘abuse of dominance’ and ‘anti-competitive agreements’ and orders investigation by DG 4

Competition Commission of India Abuse of dominance – More than 99% of the area under Bt cotton cultivation in India – Conditions in licensing agreement found to be stringent and unfair – Termination of license would have effect of denial of market access – Restriction of development of alternate Bt cotton technologies – Charging of trait value payable on the basis of MRP is unfair Anti-competitive agreements – Notification requirements coupled with the stringent termination conditions are in the nature of refusal to deal and exclusive supply agreements – The agreements have the effect of foreclosing competition in the upstream Bt Technology market which is characterised by high entry barriers CCI Order challenged in Delhi HC, which refused interim stay but asked CCI not to pass any final order till its next hearing (i.e. 18Jul16) 5

Cotton Seeds Price (Control) Order, 2015 On 7Dec15, Central Govt. issued CSPCO under Essential Commodities Act,1955; “cotton seed” being an essential commodity. CSPCO to provide an effective system for fixation of sale price for cotton seeds to ensure their availability to the farmers at fair, reasonable and affordable prices Govt. empowered to fix and notify Maximum Sale Price (MSP) of Bt Cotton seed, including capping ‘trait value’ Can also prescribe licensing guidelines and format for all the GM Technology Licensing Agreements Contravention can attract punishment or fine or both 6

Actions under CSPCO On 8Mar16, GOI notified MSP for Sl. No. Components BG-I version of Bt. Cotton hybrid BG-II version of Bt. Cotton hybrid 1Seed Value (in rupees) Trait value including taxes (in rupees) 049 3Maximum sale price (in rupees)

CSPCO & HC Cases MMBL filed writ petition in Delhi HC, challenging CSPSO provisions regulating ‘trait value’ as illegal, arbitrary and unconstitutional. Delhi HC refused interim stay; final judgement awaited Association of Biotechnology Led Enterprises Agriculture Group (ABLE-AG; MMBL is a member), filed WP in Karnataka HC, which granted interim stay vide order dated 21Mar16 Karnataka HC observed:“…prima facie it is seen that the trait value is not one of the components to be included for fixing the price. …Fixation of trait value under the (government) notification shall not be given effect... since it would be a matter between (companies)... based on agreements entered into amongst themselves” 8

CSPCO & HC Cases Karnataka HC by an interim order on 3 rd May, 2016, removes its earlier order. HC observed: – it is prima facie seen that the source of power to fix the MSP including trait value is available – to continue the interim order [of 21 st March] would not be in public interest – it is the govt.’s duty to ensure production and supply of cotton seeds at a fair price and the interim order was hampering this The case in Karnataka HC is ongoing Issue of ‘forum shopping’ has been raised in Delhi HC 9

Whither CCI intervention? Arguments against It does not have jurisdiction on matters of patented tech; to be dealt under Patents Act. Negotiating certain clauses in the contract with parties and invoking them does not amount to abuse of dominance The licensing agreements are not anti-competitive in nature Arguments for It can intervene as Competition Act is “in addition to, and not in derogation of” any other Act. Delhi HC, in Ericsson Vs. CCI, endorses this in its order dated 30Mar16. CCI’s preliminary findings re ‘abuse of dominance’ & ‘anti- competitive agreements’ are well reasoned. A thorough investigation is needed. 10

Fixation of royalty by government? Arguments against ECA does not mandate regulation of licensing agreement of a proprietary technology It is arbitrary It will discourage foreign investors and would hit India’s credibility in protecting IPR R&D will suffer Arguments for ECA provisions are wide enough to cover this. Kar HC reverses its order An elaborate mechanism is at place India is a huge market and would attract investment. “Agriculture” & “Health” traditionally looked upon differently vis-à-vis IPRs India’s patent law is suitable for R&D 11

Should Bt Cotton Tech licensing be on FRAND terms? Arguments against Patent holders should be allowed to recoup its investment Patent Act bestows exclusive rights to patent holders Arguments for Bt cotton tech has set a new standard in cotton cultivation The base varieties in which Bt genes are inserted are itself protected under PPVFR Act – a softer approach than patents 12

Conclusion CCI does seem to have mandate to decide upon “abuse of dominance” and “anti- competitive agreements” of a patented tech Fixation of royalty by Central govt. seems to be a “middle path” Bt Cotton is not a ‘food’ and discussed cases are still pending, yet it is an harbinger to emerging jurisprudence in India relevant to the theme of this conference 13

Appendix Chronology of event November 27, 2015: Govt. of India made a Reference to CCI December 7, 2015: GOI issued Cotton Seeds Price (Control) Order December 15, 2015: 3 Seed cos filed Information with CCI December 19, 2016: MMBL challenges CSPSO in Delhi HC January 27, 2016: GOI set up Committee u/CSPCO February 10, 2016: CCI Orders investigation by DG March 3, 2016: GOI served patent revocation notice to MMBL March 4, 2016: Delhi HC refuses to grant interim stay March 8, 2016: GOI notified the fixed MSP March 21, 2016: Karnataka HC grated stay on the Mar8 GOI Order May 3, 2016: Karnataka HC removes its interim stay order of 21Mar 14

Thank You 15