Series Article: Monsanto vs. Nuziveedu: The whole saga

Sparks of Dispute

Monsanto developed a gene modification technology known as Boll Guard II, which makes cotton immune from Bollworms, the pest which causes the most damage to cotton crops in India. This received a patent in the year 2007 and is registered under Indian Patent No. 214436 titled ‘Method for Transforming Plants to Express Bacillus Thuringiensis Delta-Endotoxins.’ This technology was sub-licensed by Monsanto (through its Indian joint-venture with Maharashtra Hybrid Seed Co. known as Monsanto Mahyco) to many Indian companies including Nuziveedu Seed Ltd. These companies used the Monsanto Bt seeds as a basis to create different kinds of cotton immune to various pests, the process known as hybridisation. In consideration for the same, these companies paid ‘trait-value’ to Monsanto. Trait-value means the amount of royalty along with the money paid for use of trade knowledge/secrets. 

In 2015, various state governments indirectly and the Central Government directly intervened in the trait-value paid for patented technology by including it under the ambit of Maximum Selling Price mechanism which limits the selling price of seeds by local companies. It notified a cotton seed price control order following which it reduced royalties on Bt Cotton seeds by 74%—from Rs163 to Rs43 (excluding taxes) per packet.^[1] Because of this, major seed companies asked Monsanto for a reduction in the ‘trait-value’ paid by them. Monsanto responded citing contractual terms which fix the minimum trait-value mandatory. As a response, 8 of the top cotton companies stopped the payment of royalties to Monsanto. Consequently, Monsanto terminated its sub-license agreements with the defaulters and approached arbitration to recover its Rs. 400 crores worth royalties. In 2016, Monsanto also instituted a patent and trademark infringement suit against three companies Nuziveedu Seed Ltd., Prabhat Agri Biotech Ltd. and Pravardhan Seeds Pvt. Ltd. in the Delhi High Court for continuing the use of is patented technology and its trademark despite the termination of the said sub-license agreement.

This is where the series of lawsuits and varied judgments come in play. Before going into detail regarding individual judgments, we need to enlist the issues which form part of this whole saga:

1. Recovery of unpaid royalty – Arbitration approached by Monsanto.
    
2. Termination of Sub-Licensing Agreement – Litigation at Delhi HC and Supreme Court (Presently remanded by SC to Single bench of Delhi HC).
    
3. The validity of the Patent – Litigation at Delhi HC and Supreme Court (Presently remanded by SC to Single bench of Delhi HC)

I- The Single Bench Judgment: Monsanto Technology LLC and Ors. v. Nuziveedu Seeds Ltd. & Ors. ^[2](2017)

This 96-page long judgment delivered by Justice R.K. Gauba of the Delhi High Court touches upon various aspects such as the question of patent infringement as well as the issue of termination of the sub-license agreement:

The validity of Patent and Plant Variety

It is to be noted that Nuziveedu had filed a counter-claim questioning the validity of Monsanto’s patent. Nuziveedu stated that both sections 3(h) and 3(j) of the Patent Act, 1970 disqualify ‘method of agriculture or horticulture’ from patentability. Justice Gauba decided that the matter of validity of the patent is a subject matter determinable by trial and the HC could not decide on the same. Arguments in favour of Plant Variety Protection: ‘research defence’ and ‘benefit sharing’ were also held to be inapplicable by the Court.

Termination of the Sub-License

Justice Gauba analysed the two clauses of the Licensing Agreement which were put forward by the parties Article 9.02 and Article 11.03. Monsanto relied on Article 9.02 which enabled it to terminate the Agreement in case royalties were not paid in time. However, Nuziveedu pointed out Article 11.03 which underlined that if any provision of the agreement becomes contrary to the laws of either of the nations then appropriate modifications can be made to the Agreement. Agreeing to the Defendant’s stance Justice Gauba holds the following:

“129. …the plaintiffs were duty bound to consider the request of the defendants […] for modification of the terms as to the rate of trait fee payable under the 2015 sub-license agreements for which the mechanism had earlier been agreed upon in the form of Article 11.03. Since the plaintiffs did not adhere to their obligation under the contract, the demand of payment under the contract terms being not lawful, it apparently being higher than the trait fee permitted by the law in force, the defendants could not have been found to be in default or to have breached their obligations within the meaning of Article 9.02 As a sequitur, the termination of the sub-license agreements by […] appears prima facie to be illegal and arbitrary.”

Hence, the Court held the termination to be prima facie illegal and arbitrary. Moreover, it allowed the reinstatement of the Licence Agreement which enabled the Defendant companies to keep using the patented technology subject to the payment of royalties as modified in accordance with state laws. 

Subsequent to the holdings of the Court both parties filed cross-appeals against the same. Monsanto opposed the reinstatement of the terminated the Sub-License Agreement. Nuziveedu and other Defendant companies challenged the decision regarding the validity of patents.

II- The Division Bench Judgment: Nuziveedu Seeds Ltd. & Ors. v. Monsanto Technology LLC and Ors.^[3] (2018)

The Division Bench consisting of Justice S. Ravindra Bhat and Justice Yogesh Khanna delivered this 60-page judgment deciding against the validity of Monsanto’s patent.  The Bench decided the same relying on Section 3(j) of the Patent Act, 1970. Section 3(j) prohibits the registration of following as patent:

“plants and animals in whole or any part thereof other than micro-organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals”

The Court hence goes on to state in Paragraph 98 that:
“Thus, the exclusion of transgenic plants and seeds propagated after hybridization from patentability under section 3(j) of the Patents Act, 1970, is congruent with the amendment of Article 53(b) of the EPC, wherein, patents cannot be granted in respect of plants or animals exclusively obtained by means of essentially biological process. The conclusion that the court draws, therefore, is that transgenic plants with the integrated Bt. Trait, produced by hybridization (that qualifies as an “essentially biological process”[…]) are excluded from patentability within the purview of section 3(j), and Monsanto cannot assert patent rights over the gene that has thus been integrated into the generations of transgenic plants.”

So it made clear that it considered the process of hybridisation (discussed in the beginning) as an ‘essentially biological process’ which, as per Rule 26(5) of the European Patent Convention (EPC) means “a process for the production of plants or animals is essentially biological if it consists entirely of natural phenomena such as crossing or selection.” 

Basing on the same the court concluded in Paragraph 100:

“[…]the moment the DNA containing the nucleotide sequence (subject patent) is hybridized to produce the transgenic seeds/plants; the seeds/plants fall within the purview of the PV Act, and, above, the process of creation of such seeds/plants are also excluded from patentability as they squarely fall within the meaning of an “essentially biological process” that is exempted from patentability within the meaning of section 3(j), as well. For these reasons, it is held that the subject matter, the concerned nucleotide sequence over which Monsanto has patent rights and the process is unpatentable by reason of Section 3 (j) of the Patents Act.”

Failed Claim Construction

The striking down of Monsanto’s patent received a lot of criticism on the grounds of erroneous claim construction by the court which concluded the whole process explained above as essentially biological process since human intervention formed an essential part of the same. Moreover, the Court’s confusing explanation of what is the invention at dispute was stated to be a failure of interpretation of the claim.

Termination of Sub-License:

The Bench decided not to interfere with the orders of the Single Judge regarding the termination of the sub-licensing agreement. The Bench agrees to the Single-Judge’s decision and states that Monsanto “[…]is under an obligation to supply the seeds and varieties it has for the “trait value” fixed by the Central Government” and that its Bt Cotton “ as an essential commodity, the supply of which is regulated by law (including the control of trait value), Monsanto is obliged to maintain the supplies, to facilitate production of Nuziveedu‟s varieties.” 

The Division Bench granted the certificate of leave to appeal to the Supreme Court citing the presence of a substantial question of law. 

III- The Supreme Court Judgment^[4]

The Supreme Court bench consisting of Navin Sinha and Rohinton F. Nariman JJ on January 8, 2019, delivered this brief 27-page judgment for the special leave petition setting aside the Division Bench judgment stating “the suit involved complicated mixed questions of law and facts with regard to patentability and exclusion of patent which could be examined in the suit on basis of evidence.” Henceforth, it remanded the matter to the learned Single Judge of the HC and also restored the March 2017 order of the Judge stating “The order of the Division Bench is set aside. The order of the Single Judge dated 28.03.2017 is restored and the suit is remanded to the learned Single Judge for disposal in accordance with law.”

Takeaways

1. The setting aside of the Division Bench Judgment does not mean that Monsanto’s patent for the Bt Seeds is restored, this issue has been remanded to the Single Judge and SC has observed that the issue of validity cannot be determined without trial. The issue of patent validity is still undecided as of date.
    
2. It is to be noted that the restoration of Single Judge’s 2017 order entails that Nuziveedu will be able to use the Monsanto’s patent after paying the royalty (as per Government laws) until the pendency of the suit.
    
3. These three judgments delivered by respective courts have made the issue of patentability of genetically modified cotton more complex as no standards have been set for such patentability.  The issue of the validity of the patent which will now be determined by the trial court will bring in whether or not the man-made genetic construct as patented by Monsanto amounts to a “plant” or “plant part”, which will, in turn, determine the future plant related patents in India. The matter, once it goes through the trial stage, is most likely to go through the High Court and ultimately to the Supreme Court again. 

(Note: This article was last updated on January 30, 2019, and will be further updated as the issue progresses)

^[1] Livemint. “Monsanto Termination of Nuziveedu Seeds Sub-Licence Pact Illegal: Delhi HC.” Https://Www.livemint.com/, Livemint, 28 Mar. 2017, www.livemint.com/Companies/AcYyKVDiJapVuSfQ6zvh2L/Delhi-HC-Monsanto-termination-of-Nuziveedu-Seeds-sublicenc.html.

^[2]CS (COMM) 132/2016 – IA No.2406/2016

^[3]FAO (OS) (COMM) 86/2017

^[4]MANU/SC/0027/2019