Of virus, seeds, patents, competition

Published: Business Line, November 17, 2006
By Pradeep S Mehta

India is facing a series of public health disorders due to dengue, chikungunya and other diseases for which the doctors have only one answer: Virus. What virus and why, is a question that begs answers. One of the crucial issues resolved at the Doha meeting of the World Trade Organisation was about flexibility in the TRIPs (Trade Related Aspects of Intellectual Property Rights) Agreement. That is, the power of a government to order compulsory licensing when medicines are required to deal with public health problems.

Another contentious area of TRIPs is patenting of seeds, which relates to food security. But that has not been addressed as yet, because it is not sensational. But a related issue cropped up in the Indian courts in the recent past, when some State governments actioned Monsanto, the US biotech company, for charging what they call very high prices for patented seeds. The battle is not yet over. This raises the larger question of intellectual property rights and competition.

Monsanto owns 90 per cent of the GM seed patents in the world. To protect its rights, Monsanto has filed hundreds of suits against farmers in North America on a variety of violations. It has been awarded over $15 million, with one payment of $3.05 million against one farmer. This does not include the millions of dollars it collects from farmers for out-of-court settlements, when the farmers are faced with expensive litigation.

AP takes action

Faced with protests by farmers, the Andhra Pradesh Government made a reference to the MRTP Commission (MRTPC) alleging restrictive trade practices by six entities including Monsanto Mahyco Biotech Ltd (MMBL), the Indian subsidiary, and Monsanto Company, US.

It sought a temporary injunction under the MRTP Act 1969, which would restrain MMBL and five others from collecting Rs 1,250 per 450 gm for Bt cotton seed from the farmers (later reduced to Rs 900).

The State Government argued that the royalty fee fixed by MMBL was not proportionate to the actual cost incurred on the invention of the new technology and urged MMBL not to charge more than Rs 750 ($16) per 450 gm pack of genetically modified Bt Cotton seeds. Seven States (Maharashtra, Gujarat, Karnataka, Tamil Nadu, Punjab, Madhya Pradesh and West Bengal) joined cause with Andhra Pradesh.

The MRTPC report stated that an excessively high royalty fee was being charged by MMBL for its Bt gene, and in the interim order, asked MMBL to sell the seeds up to a maximum of Rs 750 on 450 gm pack.

Appeal in SC

Before the Supreme Court, MMBL contended that the MRTPC cannot fix prices of a product and has over-stepped its jurisdiction. Monsanto also pleaded that royalty fee is part of the price charged to farmers and is used both to support current production in the market and research that would deliver new products. It moved the Supreme Court to stay the MRTPC order. But this was declined, though the case has been admitted for arguments.

Can regulator fix price?

An interesting battle is on the cards. The main question is whether or not determination of price by the regulator is the best mechanism to ensure competition in the market (that is the key objective of the Indian Competition Act, 2002, which however is not yet in force).

Pricing in most countries is controlled either by price control orders (for instance, India's Drug Price Control Order) or laws.

For example, Canada has the Patented Medicine Price Review Board, which examines excessive pricing and persuades the relevant firms to lower their prices.

In the European Community, charging an excessive price is seen as an abuse of a dominant position, when its appeals court held that intellectual property rights are all right but not its abuse (Hoffman v. Centraform etc).

In the present situation, the most important action is to bring into force the Competition Act, 2002. Secondly, the law must cover abuses due to intellectual property rights explicitly.

This is important not only to check transgressions by firms but also to exploit the flexibility provided under the TRIPs Agreement.

The case law in North America can be seen as relatively insignificant if India is able to develop a clear and a strong legal framework that would not provide for such cases to occur.

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