The Ministry of Agriculture has recently issued a draft notification titled “Draft Licensing Guidelines and Formats for GM Technology Agreements” to effectively create a parallel system of compulsory license for genetically modified cotton technology. The intent behind the draft notification is to impose FRAND licensing obligations, i.e. obligations to grant licenses under Fair, Reasonable and Non-Discriminatory terms, on genetically modified cotton technology. While originally issued as a final and binding notification, within 2 days from its publication, it was converted into a draft that was open for comments. The draft is available from the website of the Ministry of Agriculture (http://agricoop.nic.in/) and is open for comments for 90 days.

Salient features of the Draft Licensing Guidelines and Formats for GM Technology Agreements (draft Guidelines): 

Trade Secrets and Patents:

The draft appears to suggest that it governs genetically modified (GM) technology, without ever defining this term or limiting its scope to only patents or plant variety rights. In other words, so long as a person or entity has the ownership or rights to GM technology for cotton, even if in the form of trade secrets or other forms of intellectual property, the guidelines are intended to apply to them. 

Declarations on patentability and scope of protection under Indian IP laws:

In its recitals, the draft Guidelines declare that once genetically modified (GM) traits developed through biotechnology are transferred into a variety, the transgenic variety per se cannot be patented and that said transgenic variety carrying the GM traits can be protected only under the Protection of Plant Varieties and Farmer’s Rights Act, 2001. In the Annexure, containing the terms and conditions for a license stipulated under this draft, it is also stated that while the licensee cannot further transfer the GM trait itself to any party without prior approval of the licensor, the licensee is allowed to license the transgenic variety developed by them to any other company, this language suggesting an implied sub-license to patents covering the GM trait. 

Obligation to license:

The draft also stipulates that a licensor shall not refuse to grant a license to any eligible seed company and that the licensor shall award the license within 30 days from the date of receipt of request from a prospective licensee. If the licensor fails to execute the license agreement within 30 days, the licensee is deemed to have obtained the license as per the FRAND mechanism and the terms as prescribed under the instant draft Guidelines. 

Parallel adjudicatory authority: 

The Agreement to be executed between the licensor and the licensee is to be as per the format provided in the Annexure to the draft Guidelines. If the licensor denies the request for a license from a licensee, the aggrieved licensee can appeal to the Controller of Seeds (who otherwise does not deal with intellectual property laws) and the Controller shall have the power to issue necessary directions to ensure non-discriminative licensing at fair and reasonable prices. 

Royalty caps:

The draft Guidelines fixes maximum trait value for any new GM trait commercialized after the finalization of the instant Guidelines. For the first 5 years from commercialization, the trait value cannot be more than 10% of the Maximum Sale price of the GM cotton seeds as fixed by the Central Government for every year. From the sixth year onwards, the maximum trait value will be depreciated every year at the rate of 10% of the initial trait value. The Guidelines further stipulate that any upfront fee to be paid for such licensing agreements, cannot exceed INR 25 Lakhs, payable in two equal annual instalments. This royalty payment is also subject to the caveat that if the GM trait is reported to have lost its efficacy, the licensor is not eligible for claiming any trait value.