Competition Law versus Patent Law – The Monsanto Conundrum

Back in 2010, while reading about genetically modified cotton and Brinjals in a biology lecture, I became aware of Monsanto. Monsanto has been a pioneer in the field of genetically modified hybrid seeds for embedding a genetic trait, which is resistant to bollworms and the technology is patented[1] under the Patents Act, 1970. Through its subsidiaries, it has sublicensed this technology to various seed manufacturers. One of the clauses of the license agreement, which happens to be the core of the dispute, provides that, a recurring trait value fees fixed on the basis of the maximum retail price of the Bt. Cotton Hybrid Seeds have to be paid by the seed manufacturers.  For better understanding of the dispute it is important to look at the history of the dispute. Back in 2006 the erstwhile antitrust watchdog, Monopolies and Restrictive Trade Practices Commission (MRTPC) had passed a temporary injunction restraining Monsanto from charging a trait value of Rs. 900 per 450 grams packet and directed them to fix a reasonable trait value. Subsequent to this, there were a string of termination notices for non-payment of trait fees between Monsanto and licensee seed manufacturers leading to termination of agreements and institution of pre-arbitration interim relief applications resulting in either settlement or grant of interim relief for securing payments.

In 2015, a group of seed manufacturers and the Ministry of Agriculture and Farmers Welfare filed an application under section 19(1) of the Competition Act, 2002 before the Competition Commission of India (CCI). It was alleged that Monsanto, a leader in the upstream market of licensing of Bt. Cotton technology had abused its dominant position in the market by charging excessive and unfair prices. In the application submitted to the CCI, it was submitted that the charging of trait value linked to MRP was unreasonable and was aimed at removing all potential competition by including restrictive and unfair conditions. The CCI passed two orders under section 26(1) and section 33 ordering investigation against the activities by Monsanto and a show cause notice was issued asking Monsanto as to why an interim order should not be passed against them, respectively. Prima facie it was held that Monsanto held a dominant position in the relevant market of provision of Bt. Cotton Technology in India as well as the downstream market of manufacture and sale of Bt. Cotton seeds in India. Additionally, it was held that the conditions imposed in the Sub-license agreements were unreasonable.

Aggrieved by the above, an application was filed by Monsanto at the High Court of Delhi. But the Court refused[2] to review the matter on merits. Hence, Monsanto has appealed[3] the dispute to a division bench of the High Court and the next date of hearing has been fixed on 27th August 2020.

Before the single bench of the Delhi High Court, Monsanto challenged the jurisdiction of CCI in examining the issues raised and restraining Monsanto from exercising the rights granted to it under the Patents Act. To determine this, certain provisions of both the Acts need to be examined.

Firstly, keeping in mind the conflict between proprietary rights and free market economy, section 140 of the Patents Act clearly declares that restrictive conditions in agreements are void ab initio. It specifically states that restrictive conditions imposed by the patent holder by tie-ins, restrictive use of the patented products or processes, exclusive grant-backs, coercive package licensing or prevention to challenges of the patent’s validity by the licensor are deemed to be restrictive.  Further section 140(2), vehemently designates such conditions as void, notwithstanding whether the clauses are part of the license agreement or entered into separately, whether before or after the contract relating to the sale, lease or license of the patented article or process. This section may also be utilized as a ground of defense in an infringement suit. 

Moreover, while section 60 of the Competition Act, clearly provides that the act has an overriding effect, section 62 states that the Act does not prohibit the application of other laws. Although section 60 has an overriding effect, it should be viewed as a compulsory field test for all agreements or practices, which may otherwise be permissible under any other law. Section 62 conveys that the Competition Act is to be treated as a supplement to the other laws and it does not replace or brings down the effect of any of the subsisting laws.

The competition Act is equipped with reciprocity provisions such as section 21A, which enables the CCI to refer a matter to any statutory body if it proposes to make a decision contradicting any statute. Section 21 empowers any statutory authority to refer to CCI in case they propose to make a decision, which may be conflicting with the Competition Act.

Further, the court also looked into the interpretation of Section 3(5) of the Competitions Act. Monsanto contended that the language of the Section 3(5) indicates that a patentee can impose reasonable conditions for protecting rights granted under the Patents Act and the same are subject to be examined solely under the Patents Act, hence excluding the jurisdiction of the CCI. The court while rejecting this argument, confirmed the jurisdiction of CCI in determining the limitations of restraints to prevent patent infringement and reasonable conditions to protect the rights of the patentee. Further, the Competition Act also does not confer upon the patentee the right to incorporate onerous conditions under the guise of protecting its rights.

Previously, the Delhi High Court in the Telefonaktiebolaget L.M. Ericsson case[4] stated that there was no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act and, therefore, the jurisdiction of the CCI to entertain complaints regarding abuse of dominance in respect to patent rights could not be excluded.

Furthermore, the Supreme Court in Bharti Airtel Ltd. case[5]observed that the nature of the role performed by a Controller of Patents cannot be on equal ground with that of the functions of Telecom Regulatory Authority of India (TRAI). Also, this decision of the Supreme Court should not be treated as an absolute precedent in circumstances where the complaint must be first brought before the Regulator and examination of a complaint by the CCI is dependent on the findings of such Regulator.

With the flow of technology and capital across the world, it is important to look at the legal systems beyond one’s own to better understand the law. In the United States of America, the USPTO is the statutory body for examining applications and grants patents on inventions. But when it comes to adjudicating competition law disputes, there is a demarcation between the statutory bodies, which can bring in criminal and civil enforcement. The Federal Trade Commission (FTC) possesses the power to enforce the Sherman and Clayton Acts (the US Competition Laws) through use of civil actions. Whereas, the Courts, acting in response to charges brought by the Department of Justice (DOJ), have criminal enforcement powers. The Antitrust Guidelines for the Licensing of Intellectual Property creates antitrust safety zones where, the DOJ and FTC will not challenge a restraint in an IP licensing arrangement if the restraint is not anti-competitive and the licensor and licensee collectively account for no more than 20 per cent of the relevant goods market affected by the restraint.

Apart from the United States, another global hub, the European Union, is regulated by the Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between undertakings, which restrict competition, and Article 102, which prohibits abuse of a dominant position.

Besides this, there are several horizontal and vertical Block Exemption Regulations for making it easier for undertakings to cooperate in ways that are economically desirable and without adversely affecting competition law or policy.  These exemptions provide a percentage capping of market share of the buyer and the supplier within which it is permissible to have certain agreements. There are guidelines providing guidance on how to define the relevant market and for calculating the market shares. Even if an agreement exceeds the given percentage it is not automatically assumed that there has been a violation of Article 101 and it is examined on a case-to-case basis.

Right now what we need is a competition law regime that will include exemptions based on the market share of the licensee and the licensor within which it would be permissible to have certain agreements. Further, as India heads towards a technology-driven growth there is a need for guidelines that would define the relevant market for the concerned technology. The one size fits all approach would not work here due to the diversity in technology, variation in market share and its application to the society.

[1] Patent titled as “methods for transforming plants to express bacillus thuringiensis delta-endotoxins” bearing the patent number IN 214436

[2] Monsanto Holdings Private Limited Vs. Competition Commission Of India W.P. (C) No.1776/2016 and W.P. (C) No. 3556/2017. Decided on 20th May 2020.

[3] Monsanto Holdings Private Limited Vs. Competition Commission Of India, LPA 150/2020, C.M. Nos.11724-11731/2020. Order dated 3rd June 2020.

[4] Telefonaktiebolaget LM Ericsson vs. Competition Commission Of India, W.P.(C) Nos. 464/2014 & 1006/2014, decided on 30th March 2016.

[5] Competition Commission of India vs. Bharti Airtel Ltd. And Ors., Civil Appeal No. 11843/2018, decided on 5th December 2018.

About Shatrunjay Bose 0 Articles
Shatrunjay Bose is an Advocate practicing at the High Court at Calcutta and has been engaged in several Patent and Trademark litigations involving pharmaceutical companies and FMCGs. Besides this, he also appears as an Arbitration Counsel on behalf of financial institutions. Prior to this, he has worked as a Patent Associate at a leading firm in Kolkata.

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