In what will come as a huge relief to agricultural biotechnology companies, the Karnataka High Court has stayed the Central Government’s order dated March 8th, 2016, which slashed the royalty fee that agriculture biotechnology companies like Monsanto charge for the genetic modification of cotton seeds by a whopping 74%.
As we’ve noted on this blog before, the Ministry of Agriculture issued a price control order on the 7th of December, 2015, which envisaged the imposition of a maximum sale price on the sale of Bt cotton as well as the fixation of trait value that biotechnology companies charge for the purpose of genetically modifying the cotton seeds that are produced by Indian seed manufacturers.
Pursuant to Clause 5.1 of this Order, the Ministry on March 8th fixed the maximum sale price of a 450 gram packet of the BG-I variety of Bt Cotton at Rs. 635 and Rs. 800 for the BG-II variety. More importantly, the Order completely foreclosed the possibility of any trait value being charge for the BG-I variety and fixed the trait value for the BG-II variety at Rs. 49 per packet.
As a result, the Association of Biotechnology-Led Enterprises (“ABLE”), an industry representative of agricultural biotechnology companies, filed a petition in the Karnataka High Court, contending that the fixation of trait value was legally untenable. More specifically, ABLE contended that Section 3 of the Essential Commodities Act, upon which the price control order is founded, does not empower the government to fix the price of discrete components of an essential commodity such as license fee that comprise the final sale price; the Government can only fix the maximum sale price of the commodity itself.
Agreeing with the petitioner’s contention, the Court, while referring to the grant of stay on the fixation of trait value by a single judge of the Andhra Pradesh High Court, held: “Though a detailed consideration on that aspect of the matter would be required, prima facie it is seen that the trait value is not one of the components to be included for fixing the price.”
Noting that such a restriction would unduly impede the contractual freedom of seed manufacturers and biotechnology companies, the Court held: “it (fixation of trait value) would be a matter between the first petitioner its members including the second petitioner and their manufacturers based on the agreements entered into amongst themselves.” At the same time, the Court also made it clear that the Order cannot be construed in a manner that would render its laudable object redundant and held that the maximum sale price fixed by the Order would continue to remain in force.
While the wider ramifications of this prima facie determination by the Karnataka High Court on the several legal battles that this issue has spawned remain to be seen, there are at least 3 immediate effects that it is likely to have.
First, this order is likely to play a significant role in allaying the well-founded fears of biotechnology companies about the Indian Government’s misuse of its wide powers to prevent the full exploitation of patented technology through the adoption of clandestine modalities. Indeed, at a time when Monsanto has publicly declared that it is re-evaluating its India business on account of the Government’s arbitrary and potentially destructive interventions, this order is likely to weather the storm to a considerable degree.
Second, this order lends further credence to the argument that has been repeatedly made by critics of the Price Control Order to the effect that The Essential Commodities Act cannot, by any stretch of imagination, be so construed as to vest in the government the power to regulate the licensing fee charged by patentees, in the existence of compulsory licensing provisions in the Patents Act for ensuring affordable access to patented technology and the Competition Act for preventing the arbitrary fixation of licensing fee by monopolists.
Finally, this order will hopefully make the Government recognize the importance of following a transparent, consultative and fair approach for regulating the licensing of patented technology, even if such regulation is for the noblest of objects.
By staying the arbitrary reduction of trait value of the BG-I variety from Rs. 123 to 0 per packet and of BG-II from 183 to 49, the Court has sent a powerful signal. Now the onus is on the Government to act on it while being cognizant, not just of the interests of India’s 8 million impoverished cotton farmers, but also of private companies without whose ingenuity and constant innovation the Government’s dream of doubling farmers’ income in 5 years will remain just that.