Lays – Potatoes, PepsiCo, IPR And Farmers’ Rights 

Most of the reportage was about how a big multinational company was intimidating poor small farmers – a story that seemed to confirm all our fears from the 1990s when the TRIPS system was being negotiated. One only has to search the internet for ‘Dunkel Draft’ and ‘Uruguay Round’ to read about the widespread protests expressing fear that the new intellectual property regime would favour MNCs and bring ruin to small and traditional farmers.

But how much of that is scaremongering?

Does PepsiCo really have some IPR over a variety of potatoes?
Is the IPR a patent or a trademark?
Are the farmers guilty of infringement and liable for huge amounts of money as damages?

While trademarks and patents have become terms of common usage, there isn’t enough public awareness about the IPR regime for plant varieties. Many of the reports of this matter in the press refer to PepsiCo’s claims as trademark and patent infringement. Unlike most other countries, India doesn’t grant patents for plant varieties and instead, has a unique (sui generis) regime under The Protection of Plant Varieties and Farmers’ Rights Act, 2001 (the Act). As is evident from the title of the legislation, the primary objective is to balance the rights of breeders who create new plant varieties and the rights of the farmers to continue with their traditional methods of farming.

The recent controversy surrounds an existing, commonly known variety of potatoes which were protected under the Act and granted a certificate in 2016. Haribhai Patel, one of the farmers being sued by PepsiCo in a civil court in Gujarat seem to have grown the FL2027 variety of potatoes which PepsiCo uses for its “Lays” brand of chips. Most farmers who are given this variety of seeds by PepsiCo grow the potatoes which are then bought by PepsiCo under its contract farming scheme.

So what rights does PepsiCo have and did the farmers do anything wrong?

Section 28 of the Act confers a monopoly on PepsiCo to produce, sell, market, distribute, import or export the FL2027 variety and PepsiCo, as a result of this right, sold the seeds to many farmers who grow the FL2027 variety of potatoes.

What does PepsiCo allege the farmers did wrong?

PepsiCo seems to allege that the farmers were guilty of infringement of its rights by

• using seeds which they were not licensed to use to grow the FL2027 variety of potatoes, or
• were reusing seeds from their crop, or
• selling seeds to other farmers in packaging that looked like PepsiCo’s packaging and FC-5 trademark.

PepsiCo sought an injunction against the farmers growing this potato variety and Rs 1.05 crore in damages. Since PepsiCo has not identified a third party which was selling these seeds without a license from PepsiCo, there are only two possibilities: farmers had bought seeds from other farmers or had used seeds from a previous crop, both of which they are entitled to do pursuant to Section 39 of the Act. The Act prohibits farmers from selling seeds of the FL2027 variety using the FC-5 trademark (or a deceptively similar mark) similar to “passing off” under trade mark law. The Act specifically permits farmers to sell seeds from their own crop, often referred to as ‘brown bagging’, to other farmers. The plaint filed by PepsiCo against Haribhai Patel suggests that the farmers sold seeds in packaging with trademark similar to PepsiCo’s FC-5.

What was the real motivation for the litigation?

One can only speculate that PepsiCo had some commercial issues and the farmers who were sued were merely collateral damage. Was PepsiCo trying to lock in uncontracted farmers to sell their produce exclusively to PepsiCo and be a part of its contract farming system, under which it sells not just seed but also other consumables on condition that farmers sell all the produce to it? PepsiCo would then be able to sell the farmers its potato seeds for every crop and stop them from using seeds from a previous crop. If farmers use seeds from the previous crop, PepsiCo would lose the revenue (and profit) from selling seeds to farmers for every season.

But is that the only commercial concern?

There has been growing competition from, and loss of market share to, Balaji Wafers Pvt. Ltd., a local Gujarat-based company with a turnover of almost Rs 2,000 crore, with products competing with Lays sold primarily in the western and central states of Gujarat, Rajasthan, Maharashtra, Goa and Madhya Pradesh. Media reports suggest that the directors of another company, Tirupati Balaji Chips Potato Pvt. Ltd., a company incorporated in Gujarat with a paid up capital of just Rs 3,00,000 and no institutional financing (a quick search of the public information about the corporate entities and their directors doesn’t indicate any connection to Balaji Wafers), have been buying the potato produce from farmers like Haribhai Patel, but it is not clear what Tirupati Balaji does with the produce.

It is hard to believe that a multinational entity like PepsiCo would sue a few small farmers on a very weak charge of selling its seeds without a license under the Act.

Now that the litigation has been withdrawn and the Gujarat government seems to have brokered some deal, one waits to see whether PepsiCo has succeeded in achieving its objective through “official channels” rather than the courts. The test will be whether these and other farmers are able to use their seeds as the law permits them to or will they have to sign up to the PepsiCo contract farming scheme.

The next potato harvesting season in Gujarat will have some answers.

Murali Neelakantan is an expert in healthcare laws.

The views expressed here are those of the author’s and do not necessarily represent the views of Bloomberg Quint or its editorial team.