Licensing of GM Technology on FRAND terms

In May 2016, the Government released draft guidelines for GM technology licensing agreements; the draft Guidelines propose that GM technology providers (such as Monsanto) shall license their technology on fair, reasonable, and non-discriminatory (FRAND) terms.

Using the concept of FRAND as it applies in the telecommunications industry, I would be assessing whether the same can be applied to the licensing of GM technology.

The concept of FRAND is taken from telecommunications industry which adopts standards to promote inter-operability of telecommunication devices. The patents which are covered by standards are known as standards-essential patents (SEPs) and once a particular technology is adopted as a standard, the SEP-holder agrees to license their technology on FRAND terms to standard-implementers. This facilitates the availability of the standard technology to other telecom players who can then incorporate it to conform to the adopted standards.

Although FRAND is not defined, it implies a good-faith basis of licensing (usually understood as the terms on which the technology would have been licenced before it was adopted as a standard).[1] Licensing of technology on FRAND terms is important in cases where a particular technology has no competing technology (leading to a dominant position of the SEP-holder in a particular market). This is true in case of SEPs in telecom because the adoption of a particular standard precludes all other technology which does not conform to that standard. If the SEP is not licensed on FRAND terms, the SEP-holder can compel standard-implementers to pay excessively high royalties in order to continue using the technology.

While the Bt cotton technology is not in the nature of an SEP[2], Monsanto’s Bt cotton technology is akin to an SEP because it is used in more than 99% of the area under cotton cultivation in India[3]; this effectively eliminates all competing technologies for the production of cotton in India. Left unchecked, Monsanto can use its dominant position to command unfair and excessive trait fee from Indian seed companies who would have little option but to pay the exorbitant trait fee; a preliminary order by the CCI found that Monsanto has indeed been indulging in anti-competitive practices while licensing its GM technology.[4]

Licensing on FRAND terms has two implications; (a) that the technology would be licensed (b) that the licensing would take place on FRAND terms. Interestingly, the CCI had found that Monsanto had been using its dominant position as a provider of GM technology to leverage its position in the downstream market of Indian seed manufacturing companies.[5] If Monsanto is compelled to license on FRAND terms it cannot eliminate competition in the downstream market by refusing to license its technology, nor can it discriminate while licensing to its own subsidiaries and to the other Indian seed companies.

Critics of FRAND licensing of GM technology argue that the Government should not regulate the trait value because IP licensing agreements are private contracts between the parties, who enjoy the autonomy to decide the terms of the contract. A counter-argument to this can be found in competition law i.e. the ‘essential facilities’ doctrine. One may argue that the Bt cotton technology has acquired the status of an essential facility in India and that Monsanto therefore is under an obligation to provide access to its technology. It follows that this would have no meaning unless the technology is also made available on affordable terms to the licensees. Therefore, the technology should be licensed on FRAND terms.

A departure from the FRAND licensing norms in the telecom industry is witnessed in the draft Guidelines. Not only should the licensing be on FRAND terms, the trait value must also conform to the ceiling price of the trait value stipulated in the Cotton Seeds Price (Control) Order, 2015. In ICT, SSOs do not stipulate a cap on FRAND royalties[6]. It is desirable that the Government has capped the maximum trait fee because even where a technology is licensed on FRAND terms, disagreements can arise on the meaning of FRAND royalties; the patent-holder (in this case, Monsanto), if left to charge any sum as trait fee, can claim that it is FRAND and therefore permissible. It is likely that disputes on the calculation of FRAND trait fee would arise in India as has been the case in SEPs in telecommunications.[7] The trend of Indian courts has been to grant interim injunctions in favour of SEP-holders to prevent the use of the patented technology until the payment of FRAND royalties.[8] If such a dispute involving trait fee were brought before Indian courts, the Indian seed companies would be compelled to pay excessive trait fee (in the absence of a cap), to Monsanto so that cotton crop for a particular season does not suffer.

Given the importance of the cotton industry in India, it is important for the Government to permit the licensing of GM technology only on FRAND terms.

[1] This is referred to as an ‘ex-ante’ method of determining FRAND terms, as compared to ‘ex-post’. See Gregory J. Sidak, ‘The Meaning of FRAND, Part I: Royalties’, Jnl of Competition Law & Economics (2013) 9 (4): 931-1055.

[2] There is no formal recognition of the Bt cotton technology as a ‘standard’ unlike SEPs where a Standard Setting Organization adopts a particular technology as a standard.

[3] See Department of Agriculture, Cooperation & Farmers v. MAHYCO Monsanto Biotech (India) Limited (MMBL) & Nuziveedu Seeds Limited (NSL) v. MMBL- Reference Case No 02/2015 & Case No 107/2015 (Competition Commission of India), 10 February 2016

[4] Ibid

[5] Monsanto, through its Indian subsidiary, was also in the business of selling Bt cotton seeds.

[6] This is done to preserve party autonomy in deciding FRAND royalties and also to ensure the SSO’s own existence (if the SSO sets down stringent rules, it might not attract membership due to the ‘binding’ nature of the rules).

[7] For instance, Ericsson v. Mercury & Micromax [CS(OS) 442/2013]

[8] Ibid. The Delhi High Court ordered Micromax to deposit interim royalties.

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