Andhra Pradesh to centre: invoke compulsory licence or cancel Bt cotton patent

Andhra Pradesh agriculture minister Prathipati Pulla Rao, in a letter dated 1 February to commerce minister Nirmala Sitharaman, accused Monsanto of abusing its monopoly position as the technology provider in the genetically modified Bt cotton seed market.

Excessive royalty charged by the US-based agricultural firm is making the seeds unaffordable to farmers and the firm is abusing its patent rights by challenging a central order on price control, said the letter, a copy of which has been reviewed by Mint.

The missive comes on the heels of a price control order issued by the central agriculture ministry on 7 December 2015 that will regulate Bt cotton seed prices and royalty fees charged by technology providers such as Monsanto on seeds produced and sold by Indian seed firms.

The ministry also wrote to the Competition Commission of India on 27 November, requesting it to probe whether Mahyco Monsanto Biotech India Pvt. Ltd (MMBL), a joint venture between Mahyco and Monsanto, which licenses its patented Bollgard II technology to 49 seed companies in India, abused its dominant position. MMBL has challenged some provisions of the price control order—specifically those allowing the centre to determine trait or royalty fees—in the Delhi high court.

The multiple court cases and lobbying by cotton growing states and industry bodies will determine how India views its intellectual property rights regime and, more immediately, how the upcoming kharif season will play out for 8 million farmers who grow the Bt variant in 95% of the cotton growing areas.

The Andhra Pradesh government’s request for a compulsory licence on Monsanto’s patent seeks invoking an extraordinary power under Section 92 of the Patents Act, 1970.

Alternatively, it sought a revocation of Monsanto’s patent in public interest under Section 66 of the Act.

Public interest, and farmers’ interest seem to be the driving motive behind the Andhra Pradesh government’s move, as Section 92 is a special provision for this reason.

A compulsory licence on Monsanto’s patented technology would enable licencees to manufacture seeds at a much lower royalty rate. Moreover, any seed company wishing to enter the market would only have to approach the Controller General of Patents for a licence.

In the first compulsory licence granted in India to manufacture a generic version of cancer drug from German drug maker Bayer AG, Natco Pharma was required to pay a royalty of 6%.

“Monsanto is having a monopoly and through one-sided sub-licence agreements is completely controlling all the cotton seed firms and, thereby, collecting excessive royalties," the letter from the Andhra Pradesh government said.

“They (MMBL) are disregarding the government actions to make Bt cotton seeds affordable to the farmer by challenging the order on the strength of their patent to sustain their wrongful activities," the letter added.

The letter also noted that MMBL’s termination of licence agreements with a few firms can cause “severe disruption of seed supplies in the ensuing kharif season, starting from February 2016" and “this can lead to an extraordinary situation".

The reference is to MMBL terminating its contract with Hyderabad-based Nuziveedu Seeds Ltd (NSL) and two of its units (Prabhat Agri Biotech and Pravardhan Seeds) on 14 November as NSL refused to pay MMBL trait or royalty fees (amounting to ₹ 138 crore) for using its proprietary Bt cotton technology.

Emailed queries sent to MMBL elicited no response from the company as of press time.

MMBL has filed an arbitration petition on the non-payment of trait fees by eight firms including NSL in the Bombay high court. The companies owe MMBL about ₹ 450 crore in trait fees on the grounds that several states have put in place price controls which also mandated lower trait fees than what was agreed upon bilaterally between seed companies and MMBL.

The letter from the Andhra government—similar to the centre’s affidavit in the Delhi high court case—argues that the Bt cotton technology has become ineffective against pest (pink bollworm) attacks and therefore is not providing any economic value to farmers. (The USP of the Bt cotton technology was its effectiveness against the bollworm, thus reducing pesticide sprays by farmers)

The letter said grant of a compulsory licence would “ensure licences to all desiring seed companies at reasonable rates".

“The government may invoke this provision, as more seed companies and even such companies, which were closed down due to pick and select policy of MMBL and failure to obtain Monsanto’s licence, will once again enter into cotton seed production and distribution."

The letter added that the centre “may revoke the patent under Section 66 of the Patent Act," else, farmers will “pay high royalties on a technology which lost its economic value".

A commerce ministry official aware of the issue said the ministry is yet to receive the letter. However, the official, speaking on condition of anonymity, said due process of law will be followed in the case.

“There are legal remedies which need to be accessed. Procedure that is applied for compulsory licensing in case of pharmaceutical companies, same procedure will be applied here. The cause needs to be justifying the merits," he added.

Nearly a decade ago, it was the Andhra Pradesh government which approached the Monopolies and Restrictive Trade Practices Commission (MRTPC), a predecessor to antitrust regulator Competition Commission of India, against Monsanto.

The government alleged Monsanto engaged in restrictive trade practices by charging trait or royalty fee of ₹ 1,250 for 450 gm packs of seed with Bollgard I technology. By an order of 11 May 2006, MRTPC directed Monsanto to fix a reasonable trait fee.

Presently MMBL charges trait fees of ₹ 163 and ₹ .175 for Bt cotton seed packets (450 grams) that are sold to farmers (by different seed companies) at ₹ 930 and ₹ 1,100.

Asit Ranjan Mishra contributed to this story.