A recent judgement delivered by the Delhi High Court in the suit initiated by Monsanto against Nuziveedu is likely to have implications on the ongoing inquiry by the Competition Commission of India (CCI) into the alleged anti-competitive conduct of Monsanto and its subsidiaries in the Indian market.
Monsanto vs Nuziveedu: Background
Monsanto, a pioneer in developing and commercialising Bt cotton technology named BG I and BG II, sub-licensed these technologies to Indian seed manufacturers, including Nuziveedu in 2004. In addition to a onetime fee of Rs 50 lakh, Monsanto charged a recurring ‘trait value' as compensation. Trait value is a significant cost for the cotton seed producers. This sub-license was renewed in March 2015.
Meanwhile, between 2007-2009, states like Andhra Pradesh, Maharashtra, Gujarat and Telengana enacted or notified price-control measures, which fixed the price of cotton seeds as well as the trait value that could be charged by technology owners like Monsanto. The trait values fixed by these laws and orders were lower than the ones being charged by Monsanto.
In July 2015, Nuziveedu asked Monsanto to charge trait value at the rates determined by the price-control legislation, and reconciliation of accounts for trait value paid in excess of the value prescribed by the legislation. However, Monsanto refused to do so and initiated arbitration, and followed it with a termination notice to Nuziveedu in November for non-payment of dues. Nuziveedu and a couple of other seed producers approached the CCI alleging abuse of dominant position and anti-competitive agreement by Monsanto. Similarly, a reference was also filed by the Union Ministry of Agriculture and Farmers Welfare requesting the CCI to inquire into the conduct of Monsanto. Concluding a prime facie case, the CCI directed its investigation arm, Director General, CCI to investigate the alleged conduct of Monsanto.
On the other hand, Monsanto initiated a suit in the Delhi High Court alleging that by continuing to sell the hybrid cotton seeds based on its Bt technology and under Monsanto's trademark, Nuziveedu had violated intellectual property rights.
In the midst of these multiple legal proceedings, the central government in March 2016 exercised its powers under the Cotton Seeds Price (Control) Order, 2015 and fixed the minimum support price (MSP) and trait value of Bt cotton seed packets which containined 450 grams of seed and 120 grams refugia. The MSP for BG I version was fixed at Rs 635 per packet with zero trait value payable, while the MSP for BG II was fixed at Rs 800 per packet including Rs 49 payable towards trait value to the technology owner.
The stated objective of the Cotton Seeds Price (Control) Order, 2015 was to provide “for uniform regulation across India for the sale price of cotton seeds with the existing and future Genetic Modification (GM) technologies”.
Interestingly, during the initial stages of the proceedings, Nuziveedu had filed a counter-claim asking for the sub-license to be declared ‘valid, binding and in force'.
However, Nuziveedu withdrew this counter-claim, apparently reconciling to the termination of the sub-licence agreement.
The Delhi High Court Order
The parties made detailed submissions before the Delhi High Court with respect to the applicable intellectual property laws and their respective rights there-under. However, in its judgement, the court has emphasized on the following:
- Clause 11.03 of the sub-license agreement obliging the parties to keep the contract in accordance with the local laws at all times; and
- Section 23 of the Indian Contract Act, 1872 which forbids unlawful consideration.
Based on these, the High Court concluded that price-control legislation issued by various states and the central government amounted to local laws in terms of clause 11.03 of the sub-license agreement, and hence the trait value in the sub-licence agreement should have been accordingly modified when Nuziveedu requested for the same.
The court held that Monsanto's insistence of charging a higher trait value than what was prescribed in the price-control legislation, was in violation of the sub-license agreement and section 23 of the Contract Act.
Hence, the very termination of the sub-license agreements by Monsanto, on the ground of non-payment of dues, was illegal and the sub-license agreement continues to be valid and enforceable.
Through this judgement, the court has recognised the regulatory environment for the market for ‘provision of Bt cotton technology in India'. It has also recognised the fact that Monsanto was never really free to fix the trait value in the sub-license agreement, as it was bound by the trait value fixed by the various price-control legislations.
These two conclusions have the potential to change the dynamics of the CCI's inquiry into Monsanto's conduct.
Delhi High Court Order: Impact On CCI Investigation
Under the Competition Act, 2002, an enterprise is treated as dominant if it enjoys a ‘position of strength' which enables it to ‘affect its competitors or consumers or the relevant market in its favour'. A dominant player can act independent of the market forces and ensure that it is able to reap rich rewards at the cost of market participants. However, in a highly regulated market, applicable regulations ensure that even a large enterprise is never able to affect its competitors or consumers or the relevant market in its favour. So the CCI must take note of the High Court's conclusions regarding the regulated nature of the Bt cotton technology market and assess whether Monsanto ever enjoyed a dominant position despite the applicable regulations.
In this context, another interesting question arises. Irrespective of whether Monsanto actually enjoyed dominant position, the seed manufacturers perceived Monsanto to be enjoying a dominant position. Till 2015, they accepted the trait value, allegedly dictated by Monsanto despite the price-control legislation.
Market perception of an enterprise does play an important role while analysing the dominant position of an enterprise.
The perception is usually taken as evidence for proving that the subject enterprise did or did not enjoy dominant position. Now, the CCI must consider whether market perception is sufficient to establish the dominant position of Monsanto even though the applicable regulations negated its ‘position of strength'.
Moreover, the thrust of the proceedings before the CCI was the unfairly high trait value being imposed by Monsanto. It is generally seen that a dominant enterprise can dictate unfairly high prices to its customers and unduly enrich itself at the cost of its customers.
- Now that the High Court has recognised that the trait value had always been fixed by the various price-control legislations, the CCI must assess whether Monsanto was ever in a position to dictate the trait value to its customers. This is further complicated by the fact that till 2015, seed manufacturers like Nuziveedu accepted the trait value allegedly dictated by Monsanto.
- On the other hand, if the CCI concludes that provisions of the sub-license agreement are anti-competitive and in violation of the Competition Act, 2002, then the duration of this violation by Monsanto gets extended because of High Court's judgement. The parties had assumed that the sub-license agreement had been terminated in 2015.
However, the high court has concluded that the sub-license agreement is still valid. Hence, the anti-competitive provisions in the sub-license agreement continue to damage Nuziveedu and the final consumers. This will have implications on the damage assessment, in case Nuziveedu and/or farmers decided to initiate damage claim proceedings, subsequent to the CCI's inquiry concluding contravention by Monsanto.
To conclude, the CCI will have to factor in high court's judgement in its assessment of Monsanto's conduct. In fact, the judgement has the potential to give a new perspective to the proceedings before the CCI.
Gautam Shahi is a counsel at law firm Trilegal and specialises in competition law.
The views expressed here are those of the author's and do not necessarily represent the views of Bloomberg Quint or its editorial team.
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