Column: Bt cotton price control against R&D

Monsanto could argue that, with more than 90% farmers using its seed, price is not a concern

The central government has brought genetically-modified Bt cottonseed under price control by exercising its powers under the Essential Commodities Act, conceding a demand of the National Seed Association of India (NSAI), some of whose members, including its chairman’s company, are locked in a dispute with Monsanto-Mahyco Biotech (MMBL) over trait value or technology fee.

The notification issued by the agriculture ministry notes that Bt cottonseed is ‘highly priced’ and needs to be made available at ‘fair, reasonable and affordable prices.’ Currently, four states have price controls on Bt cottonseed. The central government intends to bring uniformity in pricing across the country. It will fix the maximum retail price through a committee chaired by the joint secretary (seeds) with seven members, including one each representing farmers and the seed industry. The rest are government nominees. There is no representation in the committee of technology providers, in this case MMBL, the dominant player.

The rate will be fixed by the end of the financial year, based on seed value, trade margin, trait or technology fee and taxes.  The tussle between the seed companies and MMBL flared up after the Maharashtra government reduced the price of Bollgard I and Bollgard II by R100 each, setting the maximum retail price (MRP) at R830 and R930 per pack of 450 grams. Cotton prices had slumped this year as China has stopped imports. Bollgard I has one insect-resistant Bt gene and Bollgard II has two of them. The first was approved for cultivation in 2002, and the second, in 2006. There are four other players in this business, but they do not count for much.

The Telangana government retained the price at R930 for Bollgard II but reduced the trait fee to R50 a pack. MMBL said the fee of R163.29 was valid up to the retail price of R930. It was governed by private agreements and governments could not interfere. It cited a 2010 verdict of the Andhra High Court which had struck down a similar order of the (undivided) Andhra government revising the trait fee downwards.

MMBL has 49 franchisees. Twenty seven of them are members of NSAI and  21 of them made a representation to it to take up the matter with the government and bring Bt cottonseed under price control across the country. This, the association did in August. Eight members have refused to pay their trait fee dues for this year to MMBL, which in turn, has dragged them to court. The biggest of them is Nuziveedu Seeds Limited (NSL), whose managing director, M Prabhakar Rao, is also chairman of NSAI.

NSAI had also sought the opinion of BN Srikrishna, former justice of the Supreme Court, who had given the opinion that cottonseed prices could be regulated as the government had brought them under the Essential Commodities Act in 2010. This was also possible under the Patent Act. He referred to controls on the prices of essential drugs. Justice Srikrishna averred that MMBL was in a dominant position and its agreements with Bt cottonseed franchisees on a ‘preliminary’ examination of the terms were ‘exclusionary and exploitative.’ So, the central government could ask the Competition Commission of India (CCI) to investigative whether the sub-licence agreements were anti-competitive.

NSAI has also petitioned the Competition Commission of India seeking not only a restraint on MMBL but also disgorgement of a part of the trait fee already paid by the franchisees. ‘We think that MMBL is ‘definitely monopolistic’ and has ‘100% abused its position,’ says Kalyan Goswami, executive director of NSAI. A spokesperson of MMBL said he would need time to make an official statement.

NSAI is also pushing for ‘fair, reasonable and non-discriminatory’ or FRAND licensing terms to be legislated. It says MMBL’s Bt cottonseed has become the industry standard by virtue of its dominant share and should be considered as a ‘standard, essential patent’ (SEP), subject to FRAND terms.

NSAI has been citing an article in the Colorado Law Review which refers to two examples. In one, a US farmer, in 1998, purchased 264 fifty-pound bags (5,940 kg) of Monsanto’s GM soyabean seed that is resistant to the herbicide, glyphosate. He paid a technology fee of $5 per bag. A soybean plant with 22 pods can produce 55 seeds. The farmer used 796 bags of seed from the 1998 harvest in the 1999 growing season and 438 bags of seed from the 1999 harvest in the 2000 growing season.

Monsanto said the license was for use of the seed only for the 1998 growing season and sued him. The farmer offered to pay $6,170 as technology fee at the rate of $5 per bag for 796+438 bags. But the court held that simply awarding the technology fee would be inadequate deterrence. Future farmers would have no incentive to follow the law. They could infringe the patent and pay royalty fee only if caught. The total damages entered against the farmer finally reached $2.93 million. He filed for Chapter 11 bankruptcy protection to save his farm.

‘To remedy the problem of inflated damage awards against farmers using GM seed’, the authors of the article, ‘propose that patents governing GM seeds be deemed de facto SEPs, when certain requirements are met, namely: (a) the patent holder has achieved dominance in a given field (b) it is impractical to expect that a farmer could operate without infringing the patent and (c) the farmer is growing a crop used to meet a basic human need. Once the GM seed has been labelled a de facto SEP, courts can find an implied licence between Monsanto and farmers. As a result of an implied licence, courts can transform patent infringement from a tort to a contract dispute. This would change the damages regime from one based in compensation, deterrence and punishment to one based in compensation only. This ‘balanced’ approach would recognise Monsanto’s right to protect its patents and that its patents can be a force for good. Farmers would be able to pursue their age old occupation (of using saved seed) without increasing the potential for bankruptcy. This would also allow patent-holders to receive compensation for unauthorised use of their patented technologies.

MMBL could argue that the fact that more than 90% of farmers use its patented Bt cottonseed is proof that price is not the main issue and they see a clear benefit in enhanced yields and vastly reduced pesticide usage. MMBL is unlikely to accept the trait value fixed by the government. The legal battle will get protracted.

The agro-biotechnology industry’s morale is quite low because no new genetically-modified crop has been approved for cultivation since 2002, after Bt cotton. Companies have sunk huge sums into research, and their establishments, for close to a decade and a half, without getting any worthwhile return on it. A high-handed approach on royalties or trait fees might have a chilling effect on research and development in the agriculture sector which cries out for more of it.

The author is editor of

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