DHC Dismisses Writ Petitions Challenging CCI’s Order Directing the DG to Investigate Monsanto for Violating Various Provisions of the Competition Act

On May 20, 2020, the Delhi High Court (‘DHC’) dismissed two writ petitions collectively filed by Monsanto Holdings Private Limited (‘MHPL’), Monsanto Company (‘MonCo’), and Mahyco Monsanto Biotech (India) Private Limited (‘MMBL’) (MHPL, MonCo, and MMBL are collectively referred to as ‘Monsanto’)[1]. The writ petitions, in substance, were targeted against CCI’s common prima facie order under Section 26(1) of the Competition Act, directing the DG to investigate the alleged anti-competitive conduct of Monsanto in multiple cases.[2]

CCI issued its prima facie order based on multiple allegations made against Monsanto of inter alia charging an unfair ‘trait value’ (royalty/licensing fee), and imposing other unfair conditions in sub-licensing its Bt. cotton seeds technology, namely Bollgard-I and Bollgard-II (collectively ‘Bt. Cotton Technology’). It was alleged that absent any substitutes of the Bt. Cotton Technology being available, Monsanto was dominant in the upstream market for licensing of Bt. Cotton Technology in India and that it abused its dominant position in terms of Section 4 of the Competition Act, in the following ways:

i.     by linking the ‘trait value’ to the maximum retail price of the cotton seeds, which was unreasonable and resulted in excessive prices that did not reflect the economic value of the said technology;

ii.   by requiring seed manufacturers (that are downstream to Monsanto) to notify it if they initiated any negotiations with its competitors (within 30 days of commencing negotiations). Since these negotiations are commercially sensitive, such disclosures would have resulted in irreparable harm to the informants. It was alleged that with this knowledge Monsanto could also take steps against informants, as it had a tendency of selectively sub-licensing its Bt. Cotton Technology;

iii.  by requiring seed manufacturers to destroy all parent lines or cotton germplasm which were modified to contain its technology once the sub-license was terminated.

iv.   by offering favourable sub-licensing agreements to its own group companies that manufacture seeds, thereby discriminating against other seed manufacturers in the downstream market; and

v.   by unfairly terminating sub-licensing agreements with other seed manufacturers, while continuing with its own seed manufacturers, thereby distorting competition in the downstream market in favour of its group companies.

Monsanto challenged CCI’s jurisdiction over the Cases, asserting that the allegations on ‘trait value’ squarely fell within the jurisdiction of the Patents Act, 1980 (‘Patents Act’) and authorities established under it, i.e., the Controller of Patents (‘CoP’). It argued that a remedy against abuse of a patent (if at all) existed under the Patents Act, and CCI had no jurisdiction over the matter.

It was also asserted that the DHC’s order in Telefonaktiebolaget L.M. Ericsson v. Competition Commission of India & Anr.[3], (‘Ericsson Case’) was no longer a good law, given the SC’s order in Competition Commission of India v. Bharti Airtel Limited And Ors. (‘Bharti Case’)[4]. To this extent, Monsanto argued that the CoP was analogous to the Telecom Regulatory Authority of India (‘TRAI’) under the TRAI Act, 1997 and based on the Bharti Case, inter alia argued the following:

i.     CoP had exclusive powers to regulate the grant of patents and exercise of rights under the Patents Act. Such as in terms of Section 84 (issuance of a compulsory licenses – the only remedy available against unjust refusal of licensing a patent); Section 140 (proscribes restrictive (anti-competitive) conditions in agreements concerning selling/leasing of patented article and licensing of the patent); and Section 66 and 85 (revocation of patents in public interest). Per Monsanto, the CoP would consider anti-competitive harm (if any, in terms of Section 140) while dealing with a claim under Section 84 and also under Section 85 as ‘public interest’ also includes promotion of healthy competition.

ii.    the fact that Section 140 of the Patents Act was retained despite the enactment of the Competition Act, suggested the legislative intent that allegations such as those raised by the informants were to be scrutinized by the CoP and not CCI;

iii.   to harmoniously reconcile the Patents Act and the Competition Act, CCI should be allowed to exercise its jurisdiction only after the CoP has exclusively assessed the allegations, in terms of the Patents Act. This would also ensure that parties do not resort to approaching CCI instead of resorting to the remedies under the Patents Act;

iv.    Section 3(5) of the Competition Act excluded all agreements restraining infringement of intellectual property rights (‘IPR’) from the purview of the Competition Act and CCI, regardless of whether they were ‘reasonable’ or not. The condition of reasonableness was only with respective clauses (if any) which were to protect the IPRs (as opposed to restraining their infringements).

Lastly, Monsanto argued that the allegations had been incorrectly stated as violations of Section 4 of the Competition Act when in fact these related to Section 3 of the Competition Act (perhaps since the IPR protection was applicable only on Section 3 violations).

The DHC while relying on the Ericsson Order reiterated that there was no repugnancy between the Patents Act and the Competition Act. Further, while in certain circumstances the two may overlap, the remedies available under each of them (grant of a compulsory license and an order under Section 27 of the Competition Act, respectively) were completely distinct and not inconsistent with each other. It further noted that various provisions of the Competition Act indicate that it was to be in addition to and not in derogation of the other statutes, including the Patents Act.

It also observed that Monsanto’s reliance on the Bharti Case was misplaced since the SC did not oust CCI’s jurisdiction with respect to issues covered under the Competition Act, even though the case concerned the telecom sector which was regulated by TRAI. As such, the Bharti Case did not overrule the Ericsson Case.

Lastly, it also rejected Monsanto’s contention that Section 3(5) of the Competition Act imposed an absolute restraint on CCI from assessing agreements entered into with a view to restraint patent infringement, regardless of them being unreasonable. It clarified that Section 3(5) of the Competition Act allowed IPR holders to ‘impose reasonable conditions’ with a view to restrain the infringement of, or protect their IPRs (as specified under the provision itself). Further, the question of whether an agreement is limited to restraining infringement of patents and includes reasonable conditions or not was within CCI’s exclusive domain to determine. As such, finding no merit in the arguments raised by Monsanto against CCI’s prima facie order, the DHC dismissed the writ petitions.

This decision was appealed by Monsanto before DHC’s division bench.[5] The division bench admitted the appeal, and pending its decision passed an order restraining CCI from issuing any final decision on the Cases.

[1] Monsanto Holdings Private Limited & Ors. v. Competition Commission of India & Ors., W.P. (C) 1776/2016 and CM Nos. 7606/2016. 12396/2016 & 16685/2016, order delivered on 20 May 2020.

[2] Case Nos. 02/2015; 107/2015; 10/2016; 03/2016; 01/2016; 37/2016; 38/2016; 39/2016; and 36/2016; and 88/2016 (collectively referred to as ‘Cases’).

[3] W.P. (C) 462/2014

[4] Civil Appeal No. 11843/2018

[5] Monsanto Holdings Private Limited & Ors. v. Competition Commission of India & Ors., LPA 150//2020, C.M. Nos 11724-11731/2020, order delivered on 3 June 2020.

Published In:Inter Alia Special Edition - Competition Law - July 2020 [ English
Date: July 18, 2020