Earlier this week, the Delhi High Court in the Monsanto Technology-Nuziveedu Seeds appeals issued judgment invalidating Monsanto’s Indian Patent (IN 214436) over a process for Bt trait cotton.
The Court found against IN ’436 for claiming an “essentially biological process”: a category of unpatentable subject matter under Section 3(j) of India’s Patents Act. It preserved, but did not rule on, Monsanto’s claim against Nuziveedu and other Defendants for damages stemming from the November 2015 termination of sub-licenses extended to them for use, inter alia, of material covered by IN ’436. It opted, finally, not to disturb Mr Justice Gauba’s March 2017 order to the extent that it declared illegal Monsanto’s 2015 termination of the sub-license, and bound Monsanto to fulfill its obligations under it.
The Dispute
The events leading up to the termination are worth recounting in themselves. They commenced with a July 2015 notice by Nuziveedu to Monsanto claiming that the trait value/royalty payable under the sub-licenses had been statutorily modified by a government price control order, and asking Monsanto to charge this revised value.
[The claim was not an inconsiderable one: a central government estimate quoted by the appeals court suggests that the actual trait value realized by Monsanto under private contract with seeders like Nuziveedu between 2010 and 2015 would have set up a ₹16 billion (~US$240 million) claim for domestic seeders in trait value markups alone.]
Monsanto disagreed, opting to trigger the sub-licenses’ arbitration clause before the Bombay High Court. However, no finding was returned by the Bombay court prior to Monsanto’s eventual termination.
In September 2015, Monsanto pressed ahead with the old trait value rates under the sub-licenses, asking the Defendants to pay up. On October 16, the Defendants asked instead that the trait value already paid by them in excess of the statutory modification be adjusted. On October 28, Monsanto refused, and alleged breach of the sub-licenses. On November 14, Monsanto communicated its termination of the sub-licenses. The Defendants disputed this on November 23 and 26, but Monsanto confirmed termination on November 27 and December 2.
Communications continued through December 2015. The Defendants reiterated their demand for trait value adjustment, and Monsanto denied it but indicated, without prejudice to the termination, a willingness to settle on an arrangement for the then-relevant 2016 kharif crop season.
A failure to resolve the dispute eventually saw Monsanto file suit in Delhi in February 2016. Monsanto claimed that the Defendants were in breach of the March 2015 sub-licenses between the parties by continuing to sell their products — protected under Monsanto’s patents and trademarks — after Monsanto’s termination of the sub-licenses.
A detailed 14-point consent order was entered by the Delhi High Court immediately, offering a manufacturing cut-off date of November 30, 2015 on permissible sale of products by the Defendants. (Some terms were modified upon on a review motion moved by the Defendants in May 2016.) Disputes arose afresh in July 2016, with Monsanto alleging that the Defendants were selling products beyond the time period permitted under the consent orders, and were therefore in contempt of court.
Mr Justice Gauba’s March 2017 opinion found in favour of the Defendants on the question of whether Monsanto had illegally terminated sub-licenses authorizing the Defendants to sell Bt cotton products.
Cross-appeal hearings before Mr Justice Bhat and Mr Justice Khanna through April and early May 2017 followed, prior to the appeals being taken under advisement on May 8, 2017.
Wednesday’s judgment is the result.
The March 2017 Ruling
Before laying out this decision, a summary of the ruling it sat in appeal of is warranted.
Mr Justice Gauba’s opinion had made the following points:
First, that the Defendants’ contention that their acts under the sub-licenses did not amount to actionable “use” to constitute patent infringement was “prima facie found to be unacceptable”.
Second, that the Defendants’ actions could stand up as non-infringing “permissible use” of Monsanto’s intellectual property only if Monsanto’s termination of the sub-licenses was illegal.
Third, that Monsanto’s termination of the sub-licenses was, in fact, illegal. Under this view, Monsanto was not entitled to simply reject the effect of the government price control order and plough ahead with its demand for the trait value under the mutually agreed terms of the contract. It was, instead, bound to consider the request of the Defendants for modification of the terms as to the rate of trait fee payable under the sub-licenses. Since Monsanto did not do so, their demand for payment under the contract terms was not lawful, since it was higher than the trait value permitted by the law in force. Consequently, the Defendants could not have been in default or have breached their obligations in such a situation.
Fourth, consequently, the Defendants could not be injuncted from using Monsanto’s patent or trademarks. However, given the direction the litigation had taken, it was necessary to arrange for a trait value refund/adjustment to be made to the Defendants, and for account-keeping, pending final adjudication.
Finally, in view of these findings, Mr Justice Gauba found it was not relevant to decide whether the Defendants’ use of the abbreviations ‘BG’ and ‘BG-II’ as trademarks — a truncation of Monsanto’s ‘BOLLGARD’ and ‘BOLLGARD-II’ trademarks — constituted trademark infringement.
“Incomplete and Possibly Open to Debate”
Cursorily at least, there is little that falls for determination on appeal aside from reviewing the solitary question of whether Monsanto’s November 2015 termination of the sub-licenses was illegal.
However, the theme that underscores much of this Court’s opinion as well as Mr Justice Gauba’s before it is that of an upstream struggle to grasp the science informing Nuziveedu’s challenge to IN ’436.
This Court narrows its burden significantly on this front, restricting itself to what it calls a “threshold challenge” to the validity of IN ’436 under Section 3(j). The Court says, in as many words, that it will not consider any of the other grounds raised by Nuziveedu for the revocation of IN ’436. There is, however, no trace of any censure on Nuziveedu for launching a nine-ground statutory challenge on a patent that it was glibly commercially benefiting from for a number of years — a position Mr Justice Gauba had rightly found more than faintly contradictory.
The scientific issues involved are, to be sure, are not easily understood in this case. However, prior to this week’s judgment, the judicial attitude to the science was even less easily understood. For instance, confronted with the invalidity issue, Mr Justice Gauba had said:
“The challenge before the court while attempting to address the issues raised in the context of a prayer for an ad interim injunction is the limitation it suffers in adjudging tentatively, as best as it can, by subjecting to scrutiny the pleadings of the parties in the light of the documents relied upon by both sides, the legal findings emanating from such exercise being incomplete and possibly open to debate in as much as it is without the advantage of formal proof, particularly expert opinion which, in complicated matters like that of patent, may be crucial for ascertaining the breadth of the monopoly granted by the specifications of a patent claim.”
This is incomprehensible. It is a hundred and eleven words strung together by little apart from their concession that these “complicated matters” will be “adjudged tentatively”. It leaves an unshakeable impression of judicial opinions that prioritise hedging against the comprehension gap of their authors ahead of returning substantive findings.
Encouragingly, the appeals court does not make such a concession. It does, however, come across as heavily influenced, almost to a fault, by the submissions of the litigants. Even the section of Mr Justice Bhat’s opinion marked ‘Analysis & Conclusions’ — which commences at Paragraph 59 of a 117-paragraph judgment — is criss-crossed with references to the litigants’ submissions, creating numerous instances of confusion over whether a passage is a judicial endorsement or merely a submission.
Its treatment of the science, though well-constructed, is highly transitive in the sense that it demands full comprehension of interlinked principles and facts only fleetingly explained in the narrative. It is, to be blunt, not something that ordinary lawyers are intended to understand. (To the latter observation, Paragraph 66 is an excellent example of the great strain on comprehension that this opinion occasionally demands.)
The Innovation
IN ’436 turns on a three-component chain of innovation: it comprises a nucleic acid sequence with a promoter, a gene for producing a protein called Cry2Ab 5-endotoxin, and the linking of this endotoxin protein with a transit peptide into a ‘fusion protein’.
The innovation claim is both, in the combination of these three components into a single nucleic acid sequence and in the construction of the gene producing Cry2Ab 5-endotoxin itself. The latter has two sequences of relevance: one which produces Cry2Ab 5-endotoxin in Bt bacteria, and the other a mechanical human intervention necessary for this gene to be more compatible with plants. The final nucleic acid sequence, the outcome of this process, confers the relevant insect resistance to the plant cell in which it is inserted.
The expression of this DNA sequence in a plant cell produces a ‘fusion protein’ in which the Cry2Ab 5-endotoxin is bonded with the transit peptide. This is inherently necessary from the plant setup itself since the Bt bacteria themselves do not produce such a fusion protein.
The Court’s study of the patent as far back as the Indian Patent Office’s March 2006 rejections of numerous claims in the original iteration of IN ’436 on 3(j) grounds. Monsanto’s post-prosecution sharpening of its claims is something Mr Justice Bhat finds loaded with significance. He takes it to suggest that the box the patent belongs in is neither product nor method but, more accurately, the act of identifying the genetic “event” of where and under what constraints this Cry2Ab 5-endotoxin is to be introduced into the plant cell. (This is sloppily captured in Mr Justice Bhat’s opinion as “the place in the genetic sequence of the DNA where the CryAB2 protein, in the plant cell” — a phrase that is almost certainly incomplete.)
The Section 3(j) Objection
Section 3(j) of India’s Patents Act excludes from patentability:
“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’s approach to Nuziveedu’s challenge on this front, disappointingly, is full of odd, stilted passages. A few instances are ample to illustrate this point.
First, the Court goes to great lengths to explain that the word “including” (“including seeds, varieties and species…”) in Section 3(j) is a legislative cue for a broad interpretation, and one which expands the catchment area of the principal category. (This is obvious; the discussion is unnecessary.)
Next, the Court opens a four-paragraph discussion on whether IN ’436 is bad under Section 3(j) for protecting micro-organisms. (Plainly, it is not.)
Then, another passage asks, if it was a micro-organism and not fully described or available to the public, would Monsanto would have to deposit it with an International Depository Authority as a pre-condition to filing its patent application? (This is a formal requirement drawn from Section 10(4)(ii)(D) of the Patents Act read with Article 7 of the Budapest Convention, and one which Monsanto failed to meet in this instance.) This appears to be have been lifted from Nuziveedu’s submissions, and the Court’s treatment of this objection peters out into a contextless conclusion.
‘Fundamental Alteration of the Character of a Known Process’
Of far greater consequence, however, is the Court’s six-paragraph foray into the definition of an “essentially biological process” under Article 53(b) of the European Patent Convention.
The Court concludes in Paragraph 91 that this term:
“has to be interpreted in a manner such that, human intervention, does not take it out of the exclusionary sweep of Section 3(j), unless such intervention ipso facto, plays an intrinsic role in the insertion of the DNA, i.e. that it results in fundamental alteration of the character of a known process of production of plants or seeds.”
There are two things to say at this point.
First, it has long been understood in this furrow of patent law that an “essentially biological process” does not become otherwise merely because of the presence of human intervention. However, the Court’s decision to trot out the “fundamental alteration” line (taken from November 1988’s Lubrizol/Hybrid Plants) is framed such that it appears to authorize a one-size-fits-all approach to evaluating instances of “essentially biological processes”.
This is good for certainty but there is, to be clear, compelling evidence to suggest that naturally occurring phenomena like crossing and selection are to be held to a different standard. In any event, “fundamental alteration”, by any yardstick, clutches to the extreme end of the standard, and one which favours an expansive reading of Section 3(j).
Second, the Court’s assertion that “the above [European] rulings instruct” the adoption of the “fundamental alteration” definition is pointedly incorrect. This is demonstrably not the consensus either of the cases surveyed by this Court, nor, indeed of Article 53(b) case law in Europe in general.
However, a fair review demands that this impression be pegged principally to material offered by this Court. It relies on the European Enlarged Board of Appeal’s consolidated rulings February 2010’s Broccoli/Plant Bioscience and Tomatoes/State of Israel (summarised here), which, so far as they are relevant, state:
“The exception [under] Article 53(b), EPC does not exclude a process of sexual crossing and selection which includes within it an additional step of a technical nature, which step by itself introduces a trait into the genome or modifies a trait in the genome of the plant produced, so that the introduction or modification of that trait is not the result of the mixing of the genes of the plants chosen for sexual crossing.
In the context of examining whether such a process is excluded from patentability as being “essentially biological” within the meaning of Article 53(b), it is not relevant whether a step of a technical nature is a new or known measure, whether it is trivial or a fundamental alteration of a known process, whether it does or could occur in nature or whether the essence of the invention lies in it.”
The difference this and the Nuziveedu Court’s framing could hardly be more pronounced.
This line of European cases says that it does not matter to the “essentially biological” nature of the process whether the intervening technical step is a fundamental alteration of a known process. The Nuziveedu Court appears to insist, remarkably, that only if the intervention is a fundamental alteration of a known process, is the process no longer an “essentially biological process”. It does not say — as it could easily have — that a fundamental alteration of a known process is one of several categories of human intervention that may take it out Section 3(j) range.
It says, instead, that human intervention does not affect “essentially biological process”, unless such intervention, ipso facto, is a fundamental alteration of a known process. This connotes a default, a must. A human intervention in the nature of a fundamental alteration of the character of a known process will take it out of Section 3(j) range, but nothing else will.
This is hugely significant.
Which Standard Is It?
However, in Paragraph 93, the Court summarizes its own findings to say that a human intervention that removes itself from the scope of 3(j) if the “essentially biological process” it is in service of “[amounts] to a significant alteration/introduction in the genetic composition.”
Further, even of the cases quoted by this Court, February 1995’s Plant Genetic Systems, for instance, held that, since human intervention is inevitably necessary for plant breeding processes, the patentability should not depend on the kind or extent of human intervention, as long as such intervention does not change the essence of the biological processes. This is far and away qualitatively different from a keyed human intervention which must result in the fundamental alteration of the character of the known process, which this Court endorses in Paragraph 91.
It leaves behind a question far less complicated than the science it has sprung from: what exactly is the standard for human intervention needed to take something outside the scope of “essentially biological processes” under Section 3(j)?
The Section 3(j) Finding
Either way, though, it requires no great imagination to understand the rough congruence sketched out by the Court between the patentability exclusions under Section 3(j) and Article 53(b). What is somewhat surprising, however, is the basis for this congruence.
The Court states that the relevance of European case law to Section 3(j) is underpinned by a June 2017 amendment to Rules 27 and 28 of the EPC, which now forbid patents “in respect of plants or animals exclusively obtained by means of an essentially biological process.”
This adds yet another wrinkle to the understanding of “essentially biological process”: that the definition of the term itself dictates, to a large degree, an outright conclusion on patentability.
From here, the Court’s conclusion that the propagation through hybridization of transgenic plants with the integrated Bt trait in the manner of IN ’436’s Claim 25 remains an “essentially biological process” is no great reach. There is, notably, no discussion on the mechanics of the human intervention involved, nor any explanation for how the standard for sufficient human intervention — whatever that may be — is failed by the IN ’436 process.
However, the reasoning the Court does offer is fascinating.
It says that the Bt trait itself is a meaningless innovation without being implanted and hybridized with existing varieties to produce seeds. Its utility is 100% dictated by the place in the nucleic acid sequence of the seed where it is introduced, after hybridization. However, the propagation forward, after hybridization, of this Bt trait into plants and their seeds and so on, says the Court, is an entirely natural process, over which human intervention is powerless. To enable Monsanto to claim proprietorship over the nucleic acid sequence that has already been inserted post-hybridization would defeat the Section 3(j) exclusion.
It locks Monsanto in a peculiar checkmate: the process of introducing the nucleic acid sequence in hybridization is an “essentially biological process” which neuters IN ’436 under Section 3(j), and the resultant products (seeds and plants) are excluded from proprietorship under India’s plant varieties law. (This is followed by a patient and perfectly unexceptionable seven-paragraph explanation for why the modified seeds and plants cannot be claimed by Monsanto. Having regard to Monsanto’s patent rights in IN ’436 that have subsisted for over 10 years, however, the Court leaves Monsanto free to apply as a Section 15 registrant under the Plant Varieties Act. It uncorks a rather understated position on the Section 3(j)/plant varieties crossover: that for process and products that run into 3(j) trouble, plant varieties protection is a substitute, not an add-on. The two laws operate exclusive to each other in such cases.)
The Contract Question
Monsanto’s claim for injunction on the basis of Nuziveedu’s obligations is also unmerited for another reason. Under Indian contract law, specific enforcement cannot be processed on a contract that is terminable by its construction, and injunctions, in turn, cannot be processed on breaching contracts that cannot be specifically enforced. The sub-license here, inarguably, was terminable. (Mr Justice Gauba’s opinion had, conspicuously, neglected to address the bar on specific enforcement in detail.)
The question reduces, therefore, to simply this: can a Court compel Monsanto to supply patent-protected material under a contract it unilaterally sought to terminate, at a price other than what was contractually agreed, owing to the supervening event of government price control?
The Court finds that it can. In the Court’s view, the government price control order is in the nature of an obligation under law that supervenes the contract. (This was, notably, a point Mr Justice Gauba had insisted on.)
This, says the Court, is the same thing as an implied, negative covenant between the parties not to do a certain act (the “act” here, presumably, is Monsanto charging a price above price control). The phrasing is taken from another provision under Indian contract law, the effect of which is this: even if the Court cannot enforce the positive part of the sub-license because it is confronted with specific relief difficulties, it can enforce the negative part of the same sub-license. The Court clarifies that this is a prima facie finding.
If this is a defensible reading of Section 42 of the Specific Relief Act, it is only formally so. Hiving off positive and negative portions of obligations under a private contract is valid for precisely that set of outcomes i.e. under a private contract. It is clear from Section 42 that the negative agreement in contemplated must be both, separable from and contained in, the contract itself.
In the Monsanto-Nuziveedu situation, it is nobody’s case that price control is an explicit part of the sub-license. To insist, as this Court does, that a government price control order is an implied, negatively framed part of this specific sub-license is only tenable on an extremely strained reading of Section 42.
More than that, though, what to end is this interpretation directed? Does it mean that, if Monsanto does not supply Nuziveedu per the terms of the contract but at price control, Monsanto is in breach of contract? If so, where lies Nuziveedu’s cause of action in such an eventuality? Does it rest on a contract that, by the Court’s own admission, cannot be specifically enforced?
These questions lock Monsanto in a second checkmate: it can neither force Nuziveedu to pay above the rate specified under price control (a direct violation of an obligation under law), nor withhold material in response to being paid per the price control (a direct violation of the sub-licenses).
The Injunction Question
Having found against Monsanto on Section 3(j) as well as on price control, the Court proceeds to offer a third basis to reject its claim.
Monsanto’s claim is for injunctive relief, which would ordinarily require the Court to evaluate the strength of its prima facie case, the balance of convenience and the likelihood of irreparable harm. The Court’s well-articulated specific enforcement objection to the dispute under the sub-licenses appeared to suggest that injunctive relief was moot.
However, the Court returns to that possibility presently. It reasons that issuing an injunction on Monsanto’s terms would have the effect of denying Indian farmers access to Bt trait seeds — “a public interest element that the Court cannot be blind to”. It reasons, further, that any harm caused to Monsanto from the fallout of the sub-license dispute can be compensated with money. This, again, is offered as a prima facie finding.
This is as exceptional as it is confounding. It throws into doubt the foundations of the Court’s sub-license finding. After all, if Monsanto’s injunction claim was off the table from the outset owing to the specific relief objection, how are the determinants for injunctive relief relevant at all?
Further still, even if Monsanto’s injunction claim is still open, why not reject it on the strength of public interest alone? Surely, if it is genuinely a public interest trade-off between “possibly a million or so farmers” and the compensable monetary interests of a corporation, rejecting injunctive relief to the corporation is not difficult to justify.
Critically, these considerations could easily outweigh Monsanto’s injunction claim even if IN ‘436 was valid, and had set up a prima facie case on patent infringement. It seems irregular in the extreme that a Court would expend this much effort invalidating a patent when it could achieve roughly the same effect by simply refusing to enforce the patent because the enforcement is outweighed by public interest.
The last issue before the Court — of Monsanto’s trademark infringement claim against Nuziveedu’s use of ‘BG’ and ‘BG-II’ — is left undecided. It simply quotes a section of Mr Justice Gauba’s opinion which reproduces the contentions of the litigants. No explanation is offered for this.
Preliminary or Final?
Amidst all the potential headline findings jostling for attention, it is important to focus on the relief finally issued by the Court.
First, its conclusion on Section 3(j) is that Nuziveedu’s counter-claim for revocation is allowed. This is not a prima facie finding; it grants a motion for the Defendants, with full effect, in their counter-claim for revoking IN ’436. Whatever the Court initially meant by restricting its findings to a “threshold challenge” to IN ’436, it is clear that this is not it.
Second, the Court finds that Monsanto’s patent infringement claim can continue, in order to claim damages, “in light of the sub-license termination notices issued [by Monsanto]”. However, this will evidently be on the basis of a patent judicially determined to be invalid. It will also, if pursued, seek damages for a termination that, in this Court’s own words, “cannot be countenanced”.
Finally, the Court leaves undisturbed Mr Justice Gauba’s directions to Monsanto to fulfill its obligations under the sub-licenses. There is no attempt by the Court to square this up with why the directions should be enforced at all if the intellectual property underlying the sub-licenses is non est.
It bears repetition that several of these findings were not in issue before this Court, at least not on a straightforward reading of the opinion by Mr Justice Gauba that it was sitting in appeal of. More worryingly, the invalidity finding, at a minimum, enables ex-licensees in equivalent circumstances to assert that, but for an allegedly illegal termination, they were claiming rights under and enriching themselves from a patent that, taking their best case, has been invalid all along.
A similar sense of uncertainty pervades the contract-injunction dynamic. Per this Court’s finding, the proprietor of now-invalid intellectual property cannot injunct sub-licensees from the use of that intellectual property but is nevertheless formally bound by judicial directions which, even if violated, cannot be enforced under contract, while also retaining its claim for damages, originally tagged with an injunction claim that cannot be granted, for losses caused by non-fulfillment under the same contract.
All in all, a fittingly confusing way of encapsulating a judgment that is equally so.
What Now?
Predictably, the initial response to the judgment has been on the big story of Monsanto’s patent rejection rather than the whys and wherefors of the finding itself. Meanwhile, Monsanto has confirmed that it will likely take issue with the judgment in the Supreme Court. However, given the depth of the Section 3(j) discussion, quickly and summarily setting aside the full invalidity finding will be hard work.
Equally, the Indian government’s decision last month to lower the maximum selling price of the seed by 7.5% and the permissible trait value by 20% surrenders a large part of the running initiative to Nuziveedu. Settlement has always been on the table in this dispute, and my sense is that a more common sense version of the needlessly confusing interim arrangement entered before the court of first instance here would likely be a happy medium for both sides. It would represent welcome closure for the appeals court proceedings as well.
Perhaps when this is all done and dusted, it will finally be clear how a top Indian court, with the wealth of resources at its command and having held this case in advisement for 339 days, returned a judgment that prompts so many more questions than it offers answers.