Competition Law Patent

Monsanto case: IP and Competition Law dimensions


91My friend Prashant has recently written an excellent post in IPKat titled ‘A Monsanto case that could alter the dynamics of technology transfer to India’. The post is a good read.  I have decided to play the ‘devil’s advocate’ to some of the issues raised by Prashant. Basically, the idea is to present the other side of the coin and thereby, simplify the issues for the benefit of the readers. If this exercise is to deliver its intended result, reading Prashant’s post is a pre-requisite. Therefore, I request all the readers to go through his post. Prashant’s post inter alia sets out the context and facts which are relevant for this discussion. I also request the readers to go through this guest post which has more or less argued on lines similar to that of Prashant. [For latest report, see this.]

a) Can Essential Commodities Act be used to control the royalty fees payable in patented technology?

Prashant has hinted against the use of the aforesaid statute for controlling the royalty fees. I beg to differ here. Essential Commodities Act gives wide powers to the government. It is 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.” Further, the Act gives powers to regulate or prohibit “any class of commercial or financial transactions relating to foodstuffs or cotton textiles which, in the opinion of the authority making the order, are, or, if unregulated, are likely to be, detrimental to the public interest.”

The Patents Act, 1970 doesn’t ‘eclipse’ the provisions of Essential Commodities Act, 1955 vis-à-vis patented products. Going by the canons of interpretation, the enactments should be read together unless there is an express provision to the contrary. The enabling provisions of Essential Commodities Act, 1955 cannot be made simply otiose. It is evident that higher license fees are, in fact, leading to higher seed prices. If the government can prove its stand using verifiable data, its stand is tenable.

Does this act of government tantamount to issue of compulsory licence through the backdoor? I don’t think so. There may be some convergence when viewed from the perspective of consequentialism. But that doesn’t make it a non-TRIPS compliant provision or a provision which tantamounts to issue of compulsory licence through the backdoor. Note that there is a growing jurisprudence on issue of licence with respect to Standard Essential Patents (SEPs) on FRAND terms. It may be argued that even imposing FRAND terms in a way tantamount to issue of compulsory licence through the backdoor. But that is a weak argument since patent law doesn’t function in silos. As holistic appreciation is warranted for appreciating any law including patent law, the Patents Act, 1970 and Essential Commodities Act, 1955 should be read together unless the legislature decides otherwise. [For more on SEPs and FRAND see here, here and here.]

b) Revocation request under Section 66 of Patents Act, 1970

I will have to agree with Prashant here.

Section 66 states as follows: “Where the Central Government is of opinion that a patent or the mode in which it is exercised is mischievous to the State or generally prejudicial to the public, it may, after giving the patentee an opportunity to be heard, make a declaration to that effect in the Official Gazette and thereupon the patent shall be deemed to be revoked.”

Theoretically, a sovereign nation can just go ahead and revoke the patent. But no nation is absolutely sovereign today. Therefore, I do agree with Prashant when he stated that “It is quite unlikely that the Government of India will use these powers under Section 66 because the provision isn’t exactly TRIPS compliant and any action under this provision is likely to stir controversy on the international stage.”

c) Competition Commission Investigations

I disagree with him. According to Prashant, “while there is no denying that MMBL has virtually 99% of the market share, the issue of dominance should be judged by the ability of MMBL to operate independently of competitive forces prevailing in the market. In other words, if the market offers alternatives whereby the downstream player is able to substitute MMBL’s technology or survive without MMBL’s technology, the company should not be found to be the dominant player.” This defies logic and goes against mankind’s right to development as set out by various UN Conventions. I shall explain my argument with a hypothetical example: Say, somebody has come up with a technology which enables usage of car at a fraction of the existing cost and carbon footprint. Basically, this technology has revolutionised the industry. Can this person be allowed to enjoy more than his “due” share? Is it a cogent argument to state that the market offers an alternative (which is less-efficient) and therefore, there is no issue of dominance? As I see it, the aforesaid arguments, flout the basic principles of IPR and Competition law jurisprudence. At the end of the day, the society must obtain a net advantage by awarding the monopoly. If that is not possible, the very essence of patent is lost. John Locke’s natural law theory doesn’t hold good vis-à-vis patents. Extrapolating the arguments vis-à-vis Bt technology, Monsanto has set a new standard in the market which is way above the earlier standards. It cannot now argue that (evidently a less-efficient) alternative is available and therefore, issue of dominance doesn’t arise at all. TRIPS and mankind’s right to development should be read together. [The right to development was proclaimed in the Declaration on the Right to Development, adopted in 1986 by the United Nations General Assembly (GA) in its resolution 41/128. This right is also recognized in the African Charter on Human and Peoples’ Rights and the Arab Charter on Human Rights and re-affirmed in several instruments including the 1992 Rio Declaration on Environment and Development, the 1993 Vienna Declaration and Programme of Action, the Millennium Declaration, the 2002 Monterrey Consensus, the 2005 World Summit Outcome Document and the 2007 Declaration on the Rights of Indigenous Peoples.]

As Swami Vivekananda once said, “motion is the sign of life”. We cannot afford to retreat to our earlier stages of progress for the sake of Monsanto. As to make my argument clearer, on a hypothetical note, can it be argued that India can now go back to traditional varieties of rice and wheat? That is simply not possible because a new ‘standard’ has been set by the High Yielding Varieties. India cannot even think of going back to pre-Green Revolution era where the nation virtually relied on external support like PL480 to feed its poor. In fact, Norman Borlaug will definitely turn in his grave if he hears about a proposal like this one!

The issue of ‘dominance’ in competition law is a dynamic concept. It should adhere to ‘changing standards’ test so as to meet the growing challenges of our economy. In this regard, I am confident that the Monsanto case law jurisprudence will be a value-addition to the growing Competition law jurisprudence in the country. Just because an alternative exists, it doesn’t ipso facto mean that Monsanto is not a dominant player.

Further, according to Prashant, “After finding that MMBL had a dominant position, the CCI also found that the company was abusing its dominant position because the termination conditions imposed by MMBL in its licences were allegedly unreasonable and beyond what was required to legitimately protect its IP rights……The termination conditions which the CCI finds to be an ‘abuse’ are basically the boiler-plate clauses in any technology transfer contract and are the industry standard. …Unfortunately, the CCI’s analysis does not cover any of these issues. Hopefully the investigation by the Director General will bring out these points in more detail.” I agree with him on the point that the CCI Order needs to be well-reasoned. It is extremely important considering the nascent stage of Indian Competition Law jurisprudence. However, if the ‘standard clauses’ are anti-competitive, the qualification of being ‘standard’ doesn’t make them competitive.

Some thoughts on the topic:

I am of the view that FRAND terms must be adopted in case of seeds and other essential commodities as well. All patents are not alike.  Unfortunately, appreciation of this fact hasn’t yet gained grounds. FRAND cannot be confined to SEPs alone. In fact, can’t the scenario set by Bt crops, which has revolutionized the then prevalent agriculture scene, be compared to SEPs? Just as SEPs have revolutionized the existing standards in technology and led to rapid growth in the sector, Bt technology has, in fact, revolutionized the cotton sector.

As Prashant pointed out, the Monsanto case may even involve litigating upon gene patents. I had earlier penned down an article in NUJS Law Review on ‘Gene Patents and Right to Health’. I may or may not agree with all the arguments of the article now. However, I still maintain the stand that gene patents are of ‘special’ nature. We cannot afford to use a straight-jacket formula for all patents. Regulating the exercise of certain patents is inevitable for social good. I am not arguing that FRAND must be extended to all licensing of patents. At least, I don’t have the evidence to argue so. But I am of the view that, with the growing evidence in hand, FRAND mustn’t be limited to SEPs alone. Such a measure defies logic.

I am aware that my arguments may invite criticisms like a) they will deter companies from investing in India and b) price control in a way leads to expropriation of property right. As far as the first criticism is concerned, the sheer market size of India and assurance of just and reasonable profit (read it as FRAND) will definitely attract companies. Even in pre-liberalisation era, India did attract foreign investments by virtue of its huge geographical market. Therefore, in the light of growing Indian economy, the first criticism will not stand. As far as the second criticism is concerned, it is premised on natural law justification of IPR. As I have mentioned elsewhere, natural law justification stands on a weak wicket in today’s world. Utilitarian justification or say, variants of utilitarian justification is/are accepted vis-à-vis justification of patents. As there is no question of ‘property right’ vis-à-vis patent, the issue of ‘expropriation’ doesn’t even arise. Therefore, the second criticism is untenable.

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Mathews P. George

Mathews P. George

Mathews is a graduate of National University of Juridical Sciences, Kolkata. His interest in intellectual property was kindled when he bagged the second position in his very second year in the prestigious Nani Palkhiwala Essay Competition on Intellectual Property. Winner of almost a dozen essay competitions in his law school days, he was involved in various research and policy initiatives relating to intellectual property. His stint as a student of Prof. Shamnad Basheer further accentuated his interest in intellectual property.

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