Analysis of PepsiCo Case against farmers for growing FC5 potato variety

PepsiCo India Vs. Vs. Gujarat Potato Farmers

INTRODUCTION

On April 5, 2019, PepsiCo India filed legal cases against nine farmers in three separate courts spread across the districts of Sabarkantha, Aravalli, Deesa, and Banaskantha in the state of Gujarat in India for growing and selling the FC5 potato variety over which it claimed it had exclusive rights under section 28 of the Protection of Plant Varieties and Farmers Right Act 2001 (PPVFR).

PepsiCo India, the maker of Lays chips, claimed damages from the farmers against whom it filed the lawsuits. While four of the farmers were sued for Rs. 1 crore each, five were sued for Rs 2 crore each. The filing of the lawsuits by PepsiCo India led to protests from farmer rights activists and to adverse comments against the company on social media which called for a boycott of PepsiCo India products all over the country. More than 190 farmer rights activists petitioned the central government to make PepsiCo India withdraw the lawsuits against the farmers.

FACTS OF THE CASE

The Protection of Plant Variety and Farmers’ Rights Act, 2001 (hereinafter referred to as The Act’) provides for the establishment of an effective system for the protection of plant varieties and the rights of farmers while encouraging the development of new varieties of plants.

This was the first of its kind case under the Act, where PepsiCo instituted a suit for a permanent injunction to restrain infringement of the variety, FL 2027 (commercial name FC-5) and also seeking damages to the tune of Rs. 1.0 crores from each farmer. The company contended that the farmers had been illegally producing, selling, etc. the variety without their permission, thereby violating PepsiCo’s statutory right under Section 641 and 652 of the Act.

PepsiCo claims to have first-hand knowledge about the production of the said variety by the farmers in January 2019, following which samples were collected and sent for testing. The DNA samples matched with that of the farmers’ potato variety, confirming a possible infringement and resulting in PepsiCo being granted ex-parte ad-interim injunction vide an order dated 8th April 2019, thereby restraining the farmers from producing, selling the produce of the variety registered by PepsiCo until the next hearing, i.e. 26th April.

PepsiCo was known to have agreements with farmers in Punjab for the cultivation of the concerned variety under the buyback system, however, this was the first time that a farmer in Gujarat was found in possession of the variety allegedly registered with PepsiCo.

According to Chapter VI section 39 (1) (iv) of The Protection Of Plant Varieties And Farmers’ Rights Act, 2001 Farmers’ rights.—(1) Notwithstanding anything contained in this Act,—

which is provide that a farmer shall be deemed to be entitled to save, use, sow resow, exchange, share or sell his farm produce including seed of a variety protected under this Act in the same manner as he was entitled before the coming into force of this Act:

Provided that the farmer shall not be entitled to sell branded seed of a variety protected under this Act.

Explanation.—For clause (iv), “branded seed” means any seed put in a package or any other container and labelled in a manner indicating that such seed is of a variety protected under this Act.

Organisations said the Act was tailored to give farmers free access to seeds. Kavitha Kuruganti of Alliance for Sustainable and Holistic Agriculture, a nationwide network of more than 400 organisations, said the rights on a patented seed differ from country to country. “In the US, if someone has patented a seed, no other farmer can grow it. If PepsiCo is looking at enjoying similar rights in this country, it does not hold

PepsiCo on the other hand is relying on Section 64 of The Protection Of Plant Varieties And Farmers’ Rights Act, 2001which states that a right established under this Act is infringed when a person who is not the breeder, registered agent or licensee of a variety, sells, exports, imports or produces such variety without the permission of the breeder by such selling, exporting, importing, causes confusion in the minds of general people. It remains to be seen whether the farmers sold potato seeds (to be cultivated), or sold the unprocessed potato produce, which is the raw material which is used to make Lay’s chips. Another interesting point to note is that farmers claim protection under Section 39 (1) (iv) claiming that the seed was already available in the market much before registration by PepsiCo, raising the question as to why PepsiCo took action only in 2019 when it could have been initiated much before it.

CONCLUSION

We have a seeds act which was passed in 1996. So, in the Protection of Plant Varieties and Farmers’ Rights Act, seeds are not considered as a patent. However, it is considered as a sui generis right for the farmers. However, there are certain standards which the seed should follow for being considered in that sense. Thus, it is a moral issue, and it is a legal issue as well. In India, we do not allow these kinds of bio-materials to be patented. In the U.S. it is allowed, but in India, it is not. Thus, seeds are not exactly considered as a patent.

However, this Act is to protect the farmer’s rights. It is an international reality of trade as well. If you want people to invest in India, then there should be a strong legal regime. There should be a strong legal regime which protects intellectual property rights. The first initiative towards building a robust IPR (Intellectual Property Rights) system was with TRIPS. India is a party to the TRIPS regime; India has also ratified the same. Thus, there are certain obligations which India has to fulfill by making municipal legislations. However, when we make these legislations, we are allowed to protect our indigenous things. This leeway is used by countries differently.

However, on 10th May 2019, the company reportedly withdrew all its cases against the farmers under intense pressure from its headquarters as well as the public and political parties in India. In a statement, PepsiCo stated: ―After discussions with the Government, the Company has agreed to withdraw cases against farmers. We are relying on the said discussions to find a long term and an amicable resolution of all issues around seed protection.

­­­­­­­­­­­KEY QUESTIONS

 Question 1.   What were the key factors that led the Protection of Plant Varieties and Farmers’ Rights (PPVFR) Authority to revoke PepsiCo’s patent on the potato variety?

Answer –      On 3rd December 2021 the registration of PepsiCo on the potato variety FL-2027(FC) was revoked under Section 34. The revocation of the patent was done on several grounds, including incorrect information provided by PepsiCo India at the time of patent application and the necessary documents were not submitted at the time of registration.

Following are the key factors that led the Protection of Plant Varieties and Farmers Rights (PPVFR) Authority to revoke PepsiCo’s patent on the potato variety –

• It was noted that the certificate was based on incorrect information furnished by the applicant (Section 34(a)), was granted to a person not eligible for protection (Section 34(b)) and that the breeder did not provide the Registrar with such information, documents or material as required for registration (Section 34(c)). The authority noted that the Registrar had only cursorily glanced through the information without checking its incompleteness and incorrectness.
• This violated the public interest (Section 34(h)) because even “without being the legitimate breeder or his successor and also not being the assignee of the breeder of the potato variety FL 2027, the Registered Breeder (PepsiCo) exercised his Plant Breeder’s right to file a suit for infringement against farmers. It was noted that “the registrar being the protector of farmers’ rights, violated the rules and this has caused hardship to the farmer and others.
• No assignment deed was submitted between FLNA (Frito-Lay’s North America) and PepsiCo India and the application for patent registration was filed by PepsiCo India which was technically wrong.
• PepsiCo did not disclose the complete agreement between FLNA and Dr Hoops and the unstamped assignment deed was submitted at the time of patent registration between Dr Hoops and FLNA which is inadmissible in the court of law.
• PepsiCo India had claimed that there was an oral assignment between it and FLNA, a submission which was rejected by the authority.
• Technically the application should have been filed by Dr Hoops as a breeder.
• It was stated that fact that several farmers were put in looming possibility of paying a huge penalty for casing infringement of rights that did not even exist undoubtedly caused severe hardship upon the farmers.

“Please note that Section 39 of the Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act,2001 specifically says that a farmer is allowed to grow and sell any variety of crop or even seed as long as they don’t sell branded seed of registered varieties”

Question 2. What were the steps PepsiCo could have taken to safeguard their patent in the first place?

Answer –  India is an agriculture-based economy so the government of India is more concerned about the farmers and their rights so following are the steps PepsiCo could have taken to safeguard their patent in the first place –

• PepsiCo should have a properly written assignment between FLNA (Frito-Lay’s North America) and PepsiCo India which is required for the patent registration and the agreement should be proper stamped signed, witnessed and properly executed.
• PepsiCo should have a deep understanding of the local laws in India specially the PPVFR Act 2001, how it give more importance to farmer rights and protection and how they are interpreted differently in the different part of the world.
• PepsiCo India should have disclosed the complete assignment deed between FLNA and Dr Hoops and the deed should be stamped, signed, witnessed and properly executed as per the United States law so it is admissible in the Indian court of law.
• PepsiCo India has put in place an effective inter control mechanism to protect their plant verity from being supplied in the market by an unauthorized entity.
• PepsiCo India has spared the local trader who allegedly supplied the seeds to the local market to escape from legal battle instead, the Company had moved against the weaker section of society the local farmer growing FC-5 potato variety for their livelihood.

Question 3. What you would have done differently if you were heading PepsiCo’s legal team?

Answer – As a legal head of the PepsiCo legal team following things I would have done differently-

• First of all the proper understanding of the Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act,2001 more importantly section 39 and 42 dealing with farmer’s right how is interpreted differently in India.
• Food processing Companies like PepsiCo should take the initiative towards educating and providing training to the farmers so they can take care of their interests as well as the interest of the Company.
• Instead of suing the farmer, I try to find out midway and achieve a win and win situation, in this case, do not put a hardship on the farmers to stop this issue to become a matter of public interest.
• Instead of demanding the monetary compensation of Rs. 1.00 crore from each farmer first try to seek the clarification or justification from farmers that how did they get the seed of FC-5 potato variety and try to involve the farmer into contract farming.
• PepsiCo generating billions of dollars of revenue from the Indian market so my more focus on trying to protect the PepsiCo brand image in India. Pepsico should have avoided the litigation, in the wake of constant litigation, trust would be lost further, if the trust is lost, then in future, it would be difficult to again imagine the farmers getting into contract farming.
• India is an agriculture-based economy and has a different geopolitical scenario and our government is more concerned about farmer rights and interests, so PepsiCo’s legal keep that in mind and must act accordingly.

Question 4. What are the key lessons from the above case?

Answer – Following are the key lessons from the above case –

• Analyze the provisions of the PPVFR Act 2001 with emphasis on farmers’ rights and plant breeders’ rights.
• Farmers must be organized into some kind of farm producing group, this would enable farmers to be empowered as a group to enter into a contractual arrangement with companies on equal terms.
• There should be some kind of local-level participatory dispute settlement mechanism, in these forums representatives from farmer’s groups, government and companies would be there.
• Analyze how international laws are different from local laws.
• Understand the strategies an organization adopts when faced with competition and a decrease in sales revenues.
• Evaluate how an organization deals with a crisis in an international market.

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{The author i.e. Shahbaz Khan is a Company Secretary in Practice at Shahbaz Khan and Associates and can be reached at (M) 8982766623 and (E) [email protected]}