Government Withdraws Guidelines Fixing FRAND Terms on the Licensing of Bt Cotton

As our readers would recall, the Ministry of Agriculture had issued a set of guidelines with far-reaching implications on May 18th, requiring patentees such as Monsanto to provide access to their GM technology to seed companies on a fair, reasonable and non-discriminatory (FRAND) basis. Prashant had analyzed the guidelines here.

In case you were thinking that the face-off between the government/ Indian seed companies on the one hand and Monsanto on the other could not get any messier, you are in for a surprise. In the latest development in this unprecedented saga, the Government has withdrawn the May 18th notification in light of the fact that it came in for considerable flak from all quarters and has stated that it will re-issue the guidelines on the completion of a wider consultative exercise.

In order to understand the full import of this development, let’s begin with the basics. As some of our readers would no doubt remember, the Government has, over the last six months, deployed all the legally permissible (and also impermissible?) tools at its disposal to compel Monsanto to make its patentable technique, that involves the introgression of a soil bacterium called bacillus thuringiensis (BT) into cotton crops to make them pest-resistant available at an affordable price to Indian seed manufacturers and ultimately to farmers.
These sporadic moves of the Government, although well-intentioned, are emblematic of the reactive, unprincipled and ad hoc way in which most policies are formulated in India. Viewed through this lens, the recent withdrawal of the May 18th guidelines is not an idiosyncratic development, but is merely a concrete manifestation of the malaise that besets policy-making in India.

As Prashant noted in his analysis, at least 3 features of the May 18th guidelines were very troubling.
First, it stated that the maximum trait value that licensors like Monsanto could charge seed manufacturers could not exceed 10% of the maximum sale price of Bt cotton for the first 5 years after the introduction of any new variety. Further, it envisaged a progressive reduction in the trait value by 10% each year on the expiry of the first 5 years from the introduction of any new GM variety, thereby making it virtually impossible for patentees to recover the R and D cost involved in the development of new GM varieties.
Second, the guidelines essentially institutionalized a license of rights system in India by virtue of which Monsanto was compelled to share its technology with any seed manufacturer wishing to use its technology and was completely deprived of any discretion in selecting its commercial partners. The guidelines went so far as to state that a failure by Monsanto to respond to any request for licensing within 30 days would imply its consent to the grant of the license.
Finally, the guidelines sought to apply the fair, reasonable and non-discriminatory (FRAND) framework, used in the context of standard essential patents in the telecom sector, to Gm seeds where its application is inapposite.
Cumulatively viewed, these infirmities made the guidelines legally untenable, constitutionally indefensible and logically unacceptable.

While the precise reasons that prompted the withdrawal of the guidelines are unclear, the decision seems to have been driven in large part by a desire to ensure that the guidelines do not act as an impediment to the success of Prime Minister Modi’s upcoming much-hyped U.S. visit.
The Government’s decision to keep the notification in the public domain for 90 days before making a final decision also seems to accord with the Supreme Court’s plea to the government in the recent call drop case to institutionalize a transparent procedure for public consultation before formulating delegated legislation.
It would be profitable to quote the relevant part of para 74 of the Supreme Court’s decision: “…we would exhort Parliament to take up this issue and frame a legislation along the lines of the U.S. Administrative Procedure Act (with certain well defined exceptions) by which all subordinate legislation is subject to a transparent process by which due consultations with all stakeholders are held, and the rule or regulation making power is exercised after due consideration of all stakeholders’ submissions, together with an explanatory memorandum which broadly takes into account what they have said and the reasons for agreeing or disagreeing with them. Not only would such legislation reduce arbitrariness in subordinate legislation making, but it would also conduce to openness in governance. It would also ensure the redressal, partial or otherwise, of grievances of the concerned stakeholders prior to the making of subordinate legislation. This would obviate, in many cases, the need for persons to approach courts to strike down subordinate legislation on the ground of such legislation being manifestly arbitrary or unreasonable.”

As Somasekhar Sundaresan notes in this eloquently articulated analysis of the wider ramifications of the judgment, the actions of most policy making agencies in India are premised upon the assumption that “No diagnosis of the real ailment is necessary. If the intended medicine were to fail, one could always tweak the dosage and prescribe another medicine on intuition.”
While it remains to be seen what form and shape the Notification finally takes on the expiry of 3 months, I’d like to use this flip-flop by the government to make 4 larger points.

First, as Montek Singh Ahluwalia notes in this evocative piece, the actions of the Ministry of Agriculture fly in the face of the objects and language of the Government’s newly released National IPR Policy. More specifically, in light of the fact that the Policy emphasizes the critical role of creating “a stable system of laws” for fostering research and development, it is difficult to defend the Government’s sporadic attempts to regulate the price of Bt cotton because they are not animated by a coherent set of goals or principles and are completely antithetical to one of the central objects underpinning the National IPR Policy.

Second, as Ashok Gulati and Shreya Sarkar have noted, these developments call into question the real motive driving the Government’s actions, in light of the fact that none of the measures that the Government has taken thus far has translated into a significant reduction in the price of Bt cotton for the farmers who are the ultimate purchasers of Bt cotton. While the Government has slashed the trait value that is charged by Monsanto by nearly 70%, the ultimate price of Bt cotton has gone down merely by 4%. In addition to the fact that Monsanto’s contractual freedom has been substantially impaired without any significant benefits for the ultimate consumers of Bt cotton, the Government’s actions may also be constitutionally indefensible because they essentially amount to the Government taking sides in what is, at root, a commercial dispute. The argument that these restrictions on Monsanto’s contractual freedom have largely emanated from extensive lobbying by seed manufacturers is further fortified by a recent attempt by the National Seeds Association of India (NSAI) to ensure that the power to certify the efficacy of genetically modified cotton seeds is transferred from Monsanto to the Genetic Engineering Approval Committee (GEAC) on the completion of appropriate tests by public sector labs.
I haven’t been able to conduct a lot of meaningful research on whether such malafide governmental intervention that is actuated by the sole motive of furthering the commercial interest of a certain stakeholder can be legally or constitutionally struck down (the Vodafone case immediately comes to mind), so I would appreciate any comments from our readers on this issue. The American Supreme Court’s recent judgment in Bank Markazi versus Peterson may be germane to the issue of ascertaining the constitutionality of a legislative intervention that is exclusively designed to favour one party in the midst of ongoing litigation.

Third, the fact that the Government has been compelled to take a slew of measures against a single company to make cotton seeds available at an affordable price is also reflective of the larger failure of the Government to appropriately incentivize the growth and expansion of the desi cotton industry. As this article notes, this failure has resulted in the share of desi cotton being reduced to a paltry 3% of the overall cotton acreage in India. As studies conducted by the Central Institute of Cotton Research which is based out of my home town, Nagpur, have indicated, desi varieties of cotton have the potentiality to yield higher profits and are available at cheaper prices, so this debate might just serve as the ideal starting point for the Government to take a hard look at existing policies relating to the promotion of desi cotton.

Finally, a closer scrutiny of all the regulatory and legal actions that Monsanto’s BT technology has spawned makes for an interesting read.

1. A public interest petition was filed before the DIPP, exhorting the Department to revoke Monsanto’s patent in the exercise of the power vested in the Government by Section 66 of the Patents Act. Mathews has analyzed the ramifications of this course of action here. Pursuant to this petition, the DIPP has served a notice to Monsanto, asking it to show cause as to why its patent relating to Bt cotton technology should not be revoked.
2. A legal challenge by Monsanto to the fixation of trait value by the Telangana Government which resulted in the Government’s order being stayed by the A.P. High Court. The stay was later vacated. Would appreciate any comments from those in the know as regards any recent developments in this case. The Bharatiya Kisan Sangh, a wing of the RSS, has also reportedly challenged the validity of Monsanto’s patent in the Telangana High Court on the ground that the patent has been non-effective.
3. Institution of patent and trademark infringement suits by Monsanto against seed companies, which resulted in Nuziveedu consenting to refrain from selling Bt cotton seeds and paying outstanding royalties to Monsanto as per this order. Further, Indian seed companies have also challenged the validity of Monsanto’s patent in the Delhi High Court by way of a counterclaim.
4. The Central Government’s 7th December price control order, issued under Section 3 of the Essential Commodities Act, 1955, imposing a maximum sale price on Bt cotton and envisaging governmental interference in the fixation of trait value and licensing arrangements. I covered the order here. Mahyco Monsanto Biotech has challenged the legality of the Order in the Delhi High Court.
5. An order by the Government, in pursuance of the 7th December order, fixing the trait value at 49 rupees per packet. This order, dated 8th March, 2016, has also been challenged by Monsanto in the Delhi High Court and the matter is listed for the 31st of August.
6. The ordering of a probe by the CCI against Monsanto and its Indian partners in which it has a substantial stake to ascertain whether or not they have been abusing their dominance and forcing anti-competitive agreements down the throats of Indian seed companies. The Delhi HC has also issued orders from time to time relating to this investigation.
7. Grant of stay by the Karnataka High Court to the 8th March order, capping trait value at 49 rupees per packet, on a petition being filed by the Association of Biotechnology-Led Enterprises.

In light of these developments, I am reminded of James Madison’s following question articulated in Federalist No. 62: “What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government?”
In sum, if there is one lesson that this saga teaches us, it is this: the Government would do well to realize that the nobility of means is as important as the nobility of the end; that stability and predictability cannot be sacrificed at the altar of uniformity and affordability; and minimum government, maximum governance will only remain a slogan so long as the powers that be are not able to cultivate the ability to objectively and dispassionately weigh the competing interests that have to be reconciled in any policy that is worth the paper that it is written on.