Delhi High Court makes a decision in Hybrid Cotton Seeds case
The Delhi High Court ruled in favour of Nuziveedu Seeds Limited in Monsanto Technology’s case against Nuziveedu on 28th March 2017.
India is the world’s largest producer of cotton, accounting for about 26% of the world’s total cotton production. Naturally, a case concerning the sale of cotton seeds involved in patent and trademark issues becomes important. This decision is related to a particular type of hybrid cotton seeds manufactured by Monsanto Technology called Bt cotton seeds, which are resistant to an insect called Bollworm that has the ability to destroy cotton crops and cause huge losses to farmers.
The Plaintiffs in this case are Monsanto Technology, Monsanto Holdings Private Limited and Mahyco Monsanto Biotech, all part of a multi-national agrochemical and agricultural biotechnology corporation and a leading producer of genetically engineered seeds. The Plaintiffs filed a case against Nuziveedu Seeds Limited, Prabhat Agri Biotech Limited and Pravardhan Seeds Private Ltd. (Defendants), which are Indian agribusiness companies that market seeds and supply hybrid seeds to Indian farmers.
The Plaintiffs alleged that the Defendants continued to market and sell Genetically Modified Hybrid Cotton Planting Seeds despite the termination of sub-license agreements between the Plaintiffs and the Defendants. The Plaintiffs also alleged violation of intellectual property rights of their registered patent (IA 214436) and their trademark sub-licenses for ‘Bollgard’ and ‘Bollgard II’. The Plaintiffs alleged trademark infringement and ‘passing off’ by the Defendants when they sold their products with labels of ‘Bollgard’. The Plaintiffs wanted to initiate a permanent injunction against the Defendants, along with disclosures, recalls of infringing products and award of damages.
RECAP OF PRIOR EVENTS
Monsanto developed and commercialised Bt cotton technology named BG I and BG II, and sub-licensed these technologies to Indian seed manufacturers including the Defendants in 2004, and renewed the license in 2015. A lifetime fee of Rs. 50 lakh was charged along with a recurring ‘trait value’ as compensation. Trait values are generally high, and contribute to a significant cost for the cotton seed producers. However, due to disputes related to the high trait value of the Bt cotton seeds, several states like Andhra Pradesh, Maharashtra, Gujarat and Telangana enacted price-control measures between 2007 and 2009, thus fixing the cotton seed prices and the trait values chargeable by the seed developer. The fixed trait values were significantly lower than the ones charged by Monsanto, making them more affordable for cotton-growing farmers.
In July 2015, Nuziveedu approached Monsanto to discuss charging the cotton seed packets at the trait value rates determined by the local government, and reconciling accounts for the excess trait value that was paid after comparison with the trait value set by the legislation. Monsanto however, refused and sent a notice to Nuziveedu in November 2015 regarding the termination of their sub-license with Nuziveedu for non-payment of duties. Consequently, Nuziveedu and some other seed producers approached the Competition Commission of India (CCI), alleging “abuse of dominant position” and “anti-competition agreements” by Monsanto. Subsequently, the Commission found that Monsanto violated Sections 3 and 4 of the Competition Act, 2002, which involve the allegations mentioned previously.
Meanwhile, during these proceedings, the central government fixed the minimum support price (MSP) and trait value of Bt cotton seed packets for the financial year 2016-2017 for the whole of India under the Cotton Seeds Price (Control) Order, 2015. The MSP for BG I was fixed at Rs. 635 per packet with zero payable trait value and Rs. 800 per packet for BG II, inclusive of seed value, trait value and taxes.
Further, the Government of India published the "Licensing and Formats for GM Technology Agreement Guidelines, 2016" through the Ministry of Agriculture and Farmers Welfare. The Guidelines obliges the licensor and licensees to ensure that all agreements executed by them "fulfil the criteria" provided therein, primarily ensuring non-discriminative licensing to encourage competition and availability of GM cotton seeds to cotton farmers at fair and reasonable prices. In particular, the fourth para of these Guidelines direct the Licensor and the Licensee to conform the sale of cotton seeds with the trait value, seed value and MSP values fixed by the Central Government, for the benefit of cotton farmers.
Subsequently, the Plaintiffs initiated the present lawsuit in February 2016 before the Delhi High Court. The High Court allowed the Defendants to sell seeds that were manufactured and packed before 30th November 2015 and include the Plaintiff’s trademark on the packaging. The High Court ordered the Defendants not to sell seeds manufactured after that date until further orders of the Court. These directions were subsequently modified by various subsequent orders from the High Court. The next issue of contention involved subsequent seeds that may be reaped from the planted Bt cotton seeds.
DECISION OF THE HIGH COURT
When the Plaintiffs alleged infringement by the Defendants, the Defendants responded by filing a counter-claim seeking revocation of the suit patent. However, the Court decided not to look into the issue of patent validity at the interim stage as it would have required evidence to be led through a trial.
The Defendants also tried to make use of Section 26 of the Plant Variety Protection Act, which may be used when a new plant variety is registered under the same Act. According to this Act, a party that developed a new plant variety, of which genetic material has been used in an invention, may seek to share potential benefits arising from the invention. The Court rejected the Defendant’s claims related to Section 26.
The Plaintiff on the other hand, argued that their contract allowed the termination of the contract if royalty payments were not received within a fixed period. The Defendant countered that the Plaintiff was required to renegotiate the rates following the revision of cotton seed rates by various State Governments.
The High Court was of the opinion that the termination of the contract by the Plaintiffs was incorrect. The Judge states: “the Plaintiffs were duty bound to consider the request of the defendants as made by the communications beginning July 2015, for modification of the terms as to the rate of trait fee payable under the 2015 sub-license agreements for which the mechanism had earlier been agreed upon in the form of Article 11.03. Since the plaintiffs did not adhere to their obligation under the contract, the demand of payment under the contract terms being not lawful, it apparently being higher than the trait fee permitted by the law in force, the defendants could not have been found to be in default or to have breached their obligations within the meaning of Article 9.02” (Emphasis added)
The High Court emphasized on two points: Article 11.03 of the sub-license agreement between the Plaintiffs and the Defendants, which obliges the parties to keep the contract in accordance with the local laws at all times; and Section 23 of the Indian Contract Act, 1872 which forbids unlawful consideration. Further, the High Court pointed out the illegality of Monsanto’s sudden termination of the contract and hence, upheld the contract between the Plaintiffs and Defendants. Additionally, the Court allowed the Defendants to continue using the technology by paying trait fees in accordance with the prevalent State laws.
This matter related to Bt cotton seeds saw multiple parties playing important roles, from the Plaintiffs and Defendants to the State and Central Governments, including a few other government bodies. However, what comes as a relief is that in the end, the order was favourable towards the real beneficiaries of this situation, namely, the numerous Indian farmers who wish to continue growing cotton crops at reasonable and affordable costs.
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