The Chaos That The Monsanto Patent Battle Has Become

While Indian seed companies have won the battle to pay lower royalty and continue to reap benefits of their partnership with Monsanto, the agriculture giant gets to hold on to its patent (for now) and royalties. But Monsanto’s fate is back in the hands of Delhi High Court’s single-judge bench or trial court.

This week, the Supreme Court struck down the verdict by Delhi High Court’s division bench and reinstated the trial court’s interim order, asking it to now finally decide on the validity of Monsanto’s patent.

The good news is that the adverse observations of the Delhi High Court with regard to patentability of biotechnological products have been nullified by the Supreme Court, leaving it open for the trial court to determine the issue. This is a welcome relief for the industry, Deepa Tiku, partner and practice lead (biotech-biosciences) at law firm K&S Partners, told BloombergQuint.

That adjudication on validity of a patent is a trial court function and that the appellate court, in this case the division bench, cannot get into a summary proceeding on patent validity is also a key takeaway from the Supreme Court order, according to Ashwin Julka, managing partner at law firm Remfry & Sagar.

But first, the facts and timeline of the important aspects of the case.

Key Facts & Timeline

• February 2004: Monsanto and Indian seed companies, Nuziveedu Seeds Ltd., Prabhat Agri Biotech Ltd. and Pravardhan Seeds Pvt. Ltd., signed sub-licence agreements for a technology which rendered cotton plants resistant to attacks by bollworm. The consideration for the licence was a contractually determined fee.
• Sub-licence agreement was extended till March 2015. Subsequently, new sub-agreements were executed in March 2015 for an initial term of five years, to be extended on a mutual written agreement. The agreement could be terminated upon breach, if it remained unremedied for 90 days.

• 2004 - 2015: – State governments fixed maximum value of the royalty or “trait fee”.
• July 2015: The seed companies stopped making trait fee payments citing the price control orders.
• November 2015: Monsanto terminated the agreement on grounds of non-payment of trait fee and initiated arbitration to recover dues.
• February 2016: Monsanto filed a claim against the seed companies to prevent infringement of its intellectual property rights.
• Seed companies responded with two requests: to reinstate the sub-licence agreement; and revoke Monsanto’s patent.
• March 2017: Trial court findings: (a) the sub-license agreements were illegally terminated by Monsanto and are therefore reinstated; (b) the trait fee payable by the seed companies will be as set by the appropriate government, and not as per the contractual terms agreed to by the parties.
• April 2018: The division bench of the Delhi High court, on appeal, held Monsanto's patent invalid without going into any detailed arguments.

Supreme Court’s Limited View

The apex court reprimanded the division bench of the Delhi High Court for having dealt with the technical question of patentability in a summary fashion—without seeking evidence to corroborate the findings. It reinstated the findings of the trial court, without adjudicating on any other aspect.

The trial court has now been directed to deliberate on the validity of Monsanto’s patents. In its March order, the trial court had hinted at the seed companies’ hypocrisy in challenging the patent. Having been beneficiaries of the patented technology and having commercially exploited it since 2004, the seed companies cannot now challenge its validity, the court had said.

It is indeed a pertinent observation which weighs on the conduct of the parties inasmuch as it notes that asserting a counterclaim of invalidity should not be a tool or weapon that a “licencee” can use to get out of an existing agreement, Julka said.

What’s Next?

• Besides the validity of Monsanto’s patent, the litigation is likely to be argued on three key areas:
  Can Monsanto be directed to return a proportion of royalties to the seed companies?
  Does Monsanto have an option to terminate the contracts with seed companies?
  And, what happens if the trial court and arbitral tribunal, which is also seized of the matter, give contrary rulings?

Royalty Payback

The key issue in the ongoing litigation is whether Monsanto has been granted a patent over a plant or only over a genetic construct. Under Indian law, plants cannot be patented but can receive protection under Protection of Plant Variety and Farmers Rights Act, 2001.

If the patent is held to be invalid, it will raise a question of whether Monsanto needs to return a proportion of royalties it has received towards its patent from the seed companies under the sub-licence agreements.

Prashant Reddy, senior resident fellow at Vidhi Centre for Legal Policy, pointed out that it is likely that the seed companies may not be able to recover the royalties paid towards the licensing of Monsanto’s patent over the years due to the principle of “estoppel”.

Does Monsanto Have A Way Out?

For now, the licence agreements between Monsanto and the individual seed companies have been reinstated. But does that mean that Monsanto will be compelled to be bound by a contract even if it does not wish to?

The trial court’s order was misdirected in the way it dealt with the sub-licensing agreement, Reddy said. It forced Monsanto to licence its technology even after it intended to cease doing so by terminating the contract, which was Monsanto’s commercial decision, he said. If this decision was not in accordance with the terms of agreement, then a case can be made for damages, according to Reddy. But contractually, the courts should not force the parties to do something they don’t want to do, unless a suit for specific performance has been filed, he said.

Overlapping Jurisdiction

The trial court’s order had reproduced an extract of the the sub-licence agreement between Monsanto and the seed companies. This extract indicated that all matters relating to the sub-licence agreement, including validity and termination, are to be determined by an arbitral tribunal. Interestingly, in 2015, Monsanto commenced arbitration proceedings against the seed companies to recover dues for non-payment of loyalties.

But the trial court reinstated the sub-licence agreement in its March order once. If this issue is contested by the parties again and the trial court proceeds to hear them, what happens if the arbitral tribunal rules the other way?

It is going to be chaotic if the arbitral tribunal interprets the contract one way and the trial court another.

This might lead to contradictory findings and multiple litigations and appeals, Reddy said. To avoid this, the trial court will have to frame the issues in such a manner that is not overlapping with the jurisdiction of the tribunal, which it has failed to do so far, he said.

Julka agreed and pointed to a December 2018 verdict by the Supreme Court that laid down that unless a court is approached for a special remedy or a remedy that can’t be granted by an arbitral tribunal, it cannot concurrently adjudicate on the same matter.

Besides Monsanto and the seed companies, this litigation will significantly impact the outlook of intellectual property owners, according to Reddy. The Monsanto case has been poorly handled at each level of adjudication—whether on principles of intellectual property rights or commercial and contract law, he said.

“This is going to make intellectual property owners skeptical of the judicial process, which means that instead of relying on predictable and rational jurisprudence, parties may protect their interest via burdensome obligations in the underlying contracts, making licences more restrictive,” he said. “This in turn will make technology transfers to Indian partners a lot more expensive and difficult.”