Govt caps royalty fee on new GM cotton traits at 10%

Seeking to further regulate cotton seed market, the government on Friday capped royalty for the new genetically modified (GM) traits at 10% of the maximum sale price of BT cotton seeds for the first five years -- a move that could hurt biotech major Monsanto's India business.

After the five year period, royalty would reduce by 10% of initial value every year. If the GM technology loses its efficacy, the technology provider would not be eligible for any royalty.

Issuing a notification on licensing guidelines for GM cotton seeds, the Agriculture Ministry has also capped upfront fee for the new GM trait at Rs 25 lakh to be paid in two equal annual installments.

Prescribing a new format for bilateral agreements, the notification said the existing signed pacts between licensors (technology providers) and licensees (seed firms) would become invalid and they should execute the agreement in new format in next 30 days.

This will impact Monsanto's subsidiary Mahyco Monsanto Biotech Ltd (MMBL) which has sub-licensed BT cotton seed technology since 2002 to 50 domestic seed companies.

The new licensing norms have been issued to ensure that all eligible seed companies get access to the GM technology while technology providers like Monsanto are adequately rewarded under the "fair, reasonable and non-discriminative mechanism (FRAND mechanism)".

The 'Licensing and Formats for GM Technology Agreement Guidelines, 2016' comes two months after the Centre had fixed the MSP of BT cotton seed packets at Rs 800 per packet for bollgard (BG)-II version of BT cotton hybrid, including Rs 49 for the trait value. The seed price was fixed as per the Cotton Seeds Price Control Order issued in December 2015.

According to the notification, "For a new GM trait, commercialised after this notification, the maximum trait value may be upto 10% of MSP of the GM cotton seed as fixed by the central government every year, for the initial period of five years from commercialisation. From the sixth year onwards, it shall taper down every year at 10% of the initial trait value."

Explaining the need for the guidelines, a senior Agriculture Ministry official said, "For the first time, the technology providers would be authorised to get some kind of minimum royalty/trait fee. We have kept the royalty not more than 10% in India, while the global average is 7%."

"If it is below 10%, they can negotiate directly. This gives some legal cover to charge a royalty. Right now, it was being done through one-sided contracts, essentially not backed by any law," the official added.

To encourage competitiveness in the cotton seed market in the interest of farmers, the new guidelines prescribe that licensors should consider all eligible applications seeking a license to obtain new GM technology.

Opposing the move, industry body ABLE-AG Executive Director Shivendra Bajaj said, "It is a huge blow to the innovators in the agri-biotech industry. It clearly indicates the intention of the government to disregard research and innovation and thereby not protecting intellectual property (IP) in the sector."

Such a decision will further create an environment of "uncertainty and disincentive to technology developers for bringing new technologies into India, which will ultimately harm the farmers as new technologies come slowly to them," he said, adding that it would also discourage research.

National Seed Association of India Executive Director Kalyan Goswami said, "The new notification seeks to address the issue of failure of non-performance of technology. Now one-sided licensing terms of technology provider will no longer hold ground."

This will do away the "monopolistic practice and create level playing field for all", he added.

The new guidelines also prescribe that the technology provider would not be eligible for any royalty whatsoever if a GM trait loses its efficacy as reported by states and verified by the Indian Council of Agricultural Research (ICAR).

In case the GM trait is combined with any other GM trait, the royalty for both GM traits would be subject to conditions and launching year of the combined trait would be considered for calculating the royalty amount.

Further, the licensees (seed companies) are obligated to pay the trait fee as fixed under the Cotton Seed Control Order even if they surrender or terminate agreements as long as the GM trait is effective and they continue to sell the seeds of the transgenic varieties.

The licensor (technology provider) should have the valid license to the GM technology use for developing the GM trait it is offering to license and should have the necessary regulatory approvals.

In the case of a licensee, the seed companies should have valid and subsisting approvals and necessary licence from the regulatory authorities. Besides, they should have access to a laboratory for carrying out necessary tests required for breeding and testing GM traits.

Even though biotechnology inventions are patentable, once the GM traits developed through biotechnology are transferred into a transgenic variety, they cannot be patented. The seeds carrying such traits also cannot be patented.

So, the plant varieties including transgenic varieties carrying GM traits can be protected only under the Protection of Plant Varieties and Farmer's Rights Act, 2001.

Keeping this situation in view, the government has come out with guidelines prescribing licensing agreements so that all seed companies have access to GM traits without any restraint and at the same time biotech trait development is adequately rewarded under FRAND mechanism.