The International Licensing Platform Vegetable: a milestone

The International Licensing Platform Vegetable Association (ILP) was founded on 13 November 2014 with the aim of improving the worldwide access to and use of plant traits. The platform applies exclusively to vegetable varieties. On the same day, the background to the ILP, including the story behind its formation and its scope, was a central topic at the symposium called ‘Breeding and Protecting, access to plant-related patents’ (Veredelen en Beschermen, toegang tot plant gerelateerde octrooien) which was organized in Wageningen by Netherlands Enterprise Agency (RVO) and the Board for Plant Varieties.

In this article, we will first consider several general characteristics of patent rights and plant breeders’ rights, both individually and in relation to one another, which have been important factors in the decision to establish the ILP. Furthermore, we will provide an outline of the agreements reached.

Patent rights, plant breeders’ rights, biotechnology

For many years, patent rights and plant breeders’ rights existed harmoniously side by side. Before the rise of biotechnology, the protection of biological material played no significant role in patent law. Plant breeders’ rights, which were specially devised to protect plant varieties, arrived on the scene much later than patent rights [1] but did not encounter any notable competition from patent rights at that time. Slowly but surely, that situation changed in the 1960s as the first, highly promising results of biotechnology began to emerge. Biotechnology was not only exciting and the subject of high expectations,[2] but it was also of high value, which is why the ‘biotech industry’ – as this sector soon came to be known – focused on the existing protection options. These were patent rights and plant breeders’ rights (and it was also possible to protect know-how through confidentiality agreements, but we will disregard that option here).

Patent rights offered (much) more. A patent holder could forbid all professional third-party use of genetically modified plant material (see articles 53 and 53a of the Dutch Patent Act 1995 (ROW)). Methods making use of the new techniques could be protected as such.

Additionally there was (and still is) a provision which excludes patenting of plant varieties and animal breeds (in 2014: art. 53 under b EOV and art. 3 para. 1 under c ROW), but the scope of the former provision was considerably reduced in Munich [3].  The exclusion clause with respect to essentially biological processes (at present art. 53 under b EOV and art. 3 para. 1 under d ROW) was also interpreted in the biotech industry’s favor to a certain extent [4].  Furthermore, various landmark decisions supported the patentability of living material in principle [5].

Plant breeders’ rights only offered protection for propagating material which had been produced and made available ‘for commercial purposes’ (see art. 40 para. 1 (old) Seeds and Plant Material Act), and did not facilitate the protection of (essential biological) processes. However, the most important aspect was that plant breeders’ rights included (and include) a breeders’ exemption which, firstly, entitles plant breeding companies to use material from varieties protected under plant breeders’ rights for breeding purposes and, secondly, entitles them (to protect and) to commercially exploit the resulting new varieties without the holders of older plant breeders’ rights being able to object (see art. 57 para. 3 under c Seeds and Plant Material Act 2005,  art. 15 under c and d Council Regulation (EC) 2100/94 on Community plant variety rights and art. 15 para. 1 under iii UPOV 1991). Thanks to the breeders’ exemption, breeders’ rights are a form of open innovation avant la lettre: everyone must allow a variety that they have improved to be used by others to develop a newly improved variety; in turn, that newly improved variety may also be used by anyone for further breeding purposes. This form of open innovation is in the interests of agriculture and horticulture as well as of consumers, all of whom benefit from crops which have been developed to include the newest and best traits.

The EU Biotechnology Directive of 1998 [6] laid down the patentability of biotech inventions in principle (in art. 1 para. 1; see also art. 2 and 2a ROW). The directive upheld the non- patentability of plant and animal varieties (in art. 4 para. 1 under a), albeit with an important nuance, namely that an invention which concerns plants or animals is patentable if the technical feasibility of the invention is not confined to a particular plant variety or animal variety (art. 4 para. 2) [7].  According to art. 8 and 9 of the Directive, the scope of protection with respect to patented biological material is broad and includes, among other things, all biological material that has been obtained from the protected material through propagation and which has the same traits. As a result, despite being exempt from patentability, plant varieties nevertheless fall within the scope of patent protection.

Imbalance

As a result of the emergence of a growing number of ways in which to protect the results of biotechnology by patents, a certain imbalance was created between plant breeders’ rights and patents. After all, plant breeders’ rights included a breeders’ exemption whereas the patent system did not. Patenting a plant trait meant that all varieties with that trait fell within the scope of protection, which in effect negated the breeders’ exemption contained within plant breeders’ rights. As the number of patents relating to biological material continued to increase, this situation caused mounting friction (incidentally, that was not the case for patented processes but they are currently being affected by a very different problem) [8].  This issue did not receive the political intention it deserved in the ten years of discussion leading up to the directive. To cut a long story short: the Dutch government also felt compelled to tackle the relatively difficult position in which the plant breeding sector had ended up. Several interesting reports provided an overview of the situation that had arisen and made numerous recommendations for improvement [9].

On 1 July 2014, art. 53b para. 2 ROW came into force which stipulates that the exclusive right of the patent holder does not extend to activities involving biological material for the purpose of breeding, discovery or development of other plant varieties [10]. As a result, a limited breeders’ exemption has been introduced into patent law (following the example of countries such as France and Germany). We say ‘limited’ because it does not include the aforementioned second component: after the exemption has been invoked to develop a new variety (which still contains the patented element), it is not possible to commercially exploit that new variety without first gaining permission from the patent holder in the form of a license.

The discussion is not over yet

With the introduction of a limited breeders’ exemption within patent rights, the position of the ‘classic’ breeder appears to have improved somewhat. However, this does not mean that the discussion about the relationship between the two in the above mentioned sectors is over. As already outlined, breeders still require a license after making use of the facility included in art. 53b para. 2 ROW. Additionally, it is important to realize that developing a new variety is an expensive process which can take many years. Therefore, no one will embark on the development of a new variety without being certain that they will be able to recoup their investment through the sale of that variety. Hence, the licenses required for commercial exploitation will have to be obtained at the start of the development process.

After all, no breeder will be so irresponsible as to risk investing in an expensive breeding program for many years, only to later conclude that they are unable to obtain a license – or only on unreasonable terms – and as a result will not be able to exploit their variety commercially. The Dutch Minister of Agriculture is currently looking into the opportunities, both nationally and internationally, for also including an exemption in patent law which goes beyond the current, limited one [11].  It remains to be seen whether that will ever materialize. One thing is for sure: this is a long-running issue which requires patience, not least due to the fact that – as the minister has also already indicated – a (more) extensive breeders’ exemption may be in conflict with the EU Biotechnology Directive and/or the TRIPS Agreement [12].

Other possible solutions suggested in the above mentioned reports are currently being explored, such as stricter assessment of ‘biological’ patent applications both at national level and by the European Patent Office, and where possible the application of competition law (in the case of abuse of a dominant economic position).

The discussion is not limited to the political arena; the topic has also fueled heated debates in the plant breeding sector itself. Advocates of patents which restrict the use of biological material claim that these patents stimulate innovation, knowledge sharing and continual investment in research and development. Opponents counter that such patents are superfluous because there is already a specific intellectual property right for products from plant breeding, namely plant breeders’ rights. Furthermore they claim that patents hinder the work of breeding companies, either by preventing their access to biological material or by imposing such unreasonable preconditions or causing such a delay that they lose their position in the market [13].

All these discussions led to the conclusion that the two sides would not be able to reach agreement. However, they did agree on the fact that access to biological material is crucial for innovation within plant breeding. While the political discussion rages on, the vegetable sector itself has launched an important initiative aimed at better safeguarding the all-important access. If it is a success, it could well become the blueprint for other sectors in the longer term [14]. The following paragraphs will examine this in more detail.

The International Licensing Platform Vegetable

The International Licensing Platform Vegetable (ILP) is an association, whereby it is compulsory for members to grant the other members licenses for use of their patents15. However, companies are not required to be patent holders in order to become members. The only obligation for companies without patents is payment of the membership fee, which is set at such a level so as not to form a barrier to joining the association.

If a member wishes to obtain a license for a particular patent and the patent holder is a member of the ILP, the member is first expected to enter into negotiations with the patent holder. If no agreement can be reached on the licensing conditions within three months, the company applying for the license can write to the ILP secretary, who will then initiate the so- called “baseball procedure” [16]. This entails both parties submitting their proposal for a royalty percentage to the secretary. The secretary subsequently informs both parties about the proposals so that each party knows which royalty percentage the other has in mind. Based on this knowledge, both parties receive another opportunity for bilateral negotiations. If they still fail to reach agreement then a committee of experts (the “Expert Committee”) becomes involved. The Expert Committee decides according to the “baseball arbitration” model as is used in the USA. In the present case, this means that both parties’ proposals are presented to the experts who then choose between the two proposals. In other words, they may not decide to split the difference between the two percentages. Hence, both parties are forced to be reasonable from the start; after all, an unreasonable proposal will be rejected in favor of the more reasonable one.

Based on a standard licensing agreement which has been agreed upon within the ILP, the secretary then draws up the relevant licensing agreement including the royalty percentage as decided by the experts. The agreement is presented to both parties for signing.

Once the experts have determined a licensing fee for a particular patent, all other members have the right to obtain a license based on the standard licensing agreement including the royalty percentage chosen by the experts. This is in line with the most-favored-nation (MFN) clause [17] which is commonly used in licensing agreements. The clause stipulates that the royalty percentage paid by the first license holder must be reduced as soon as the patent holder grants another party a license at a lower royalty percentage.

If two ILP members sign a licensing agreement which deviates from the standard licensing agreement, the MFN percentage does not apply since then a fair comparison would no longer be possible. An ILP member that is interested in a license and a patent holder (and also ILP member) may prefer to agree on a lump sum rather than a royalty percentage. The baseball procedure can also be initiated in this case. However, the MFN percentage does not apply in the case of a lump sum; since the fixed licensing fee is paid in one go, there is no ongoing payment obligation which can be adjusted at a later date.

If a party disagrees with the experts’ decision, it can submit an appeal to the “Expert Committee”. In this case, other experts than the ones who made the original decision will decide. In view of the nature of the procedure, the ILP has decided to limit the grounds for appeal to formal ones. In other words, it is only possible to reverse the decision for a certain royalty percentage if it can be ascertained that the procedures have not been followed correctly. In the case of a reversal of the decision, the baseball procedure will be re-initiated.

Within the ILP, it has also been taken into consideration that changing circumstances can result in a changed view of the reasonableness of the royalty percentage which, based on the “MFN percentage”, applies for each licence for a particular patent. For example, in the case of a patent on a resistance to a particular disease, if the disease occurs only on a small scale then the resistance is less important and hence is of less economic value. However, if the disease should later spread at international level, the resistance will be of crucial importance and hence its value will also increase. If the patent holder believes that such a change in circumstances should result in an adjustment of the royalty percentage, it is possible to initiate a review procedure. In that procedure, the patent holder will be required to demonstrate that there has been a material change in the value of the trait which justifies a substantial increase in the royalty percentage. All members who have signed a standard licensing agreement including an MFN percentage with that patent holder are allowed to contest the patent holder’s claim. If the “Expert Committee” deems that there is sufficient evidence that a material change has occurred which justifies the proposed increase, the patent holder’s new suggestion will be accepted as the new royalty percentage. Conversely, there may be situations in which a resistance becomes ineffective and hence the economic value of the trait decreases. In that case the ILP member can ask the patent holder to reduce the MFN percentage. If the patent holder refuses, the ILP member can request the Expert Committee to lower the MFN percentage. Then, it is the ILP member’s responsibility to demonstrate that a material change has occurred which justifies a substantial reduction. The patent holder may provide counterarguments, and may choose to argue to maintain the existing MFN percentage. The patent holder may also suggest a percentage which is higher than the other ILP member’s suggestion yet lower than the current MFN percentage. If the “Expert Committee” decides to increase the MFN percentage then the new percentage will only apply to standard licensing agreements which are signed after the date of the increase. Because the review procedure is also based on the principle of baseball arbitration, this ensures that in the case of changing circumstances both parties are once again forced to be reasonable and hence that the MNF percentage also remains reasonable.

In addition to the “baseball procedure”, another rule applies in the case of patents for varieties as such. This may seem strange at first glance because plant varieties as such are explicitly excluded from patentability. However, the ILP applies worldwide, and hence also for patents in the USA for example, where plant varieties as such are patentable. Within the framework of the ILP, the term used in this context is ‘variety patents’. These patents protect a plant variety rather than a trait in a particular crop (or multiple crops). In that sense, it is comparable to a plant breeders’ right only without the breeders’ exemption. For patents of this kind, the members have agreed not to exert their rights against another member if that member uses the protected variety to develop another variety. However, the new variety must be sufficiently distinct from the protected variety; members are not expected to simply ‘copy’ the patented variety.

Future access

By establishing the ILP, the founders intend to safeguard the access to the biological material which is so crucial for innovation. The ILP does not offer the same legal protection as the law does; nevertheless, unlike national or European patent legislation, it applies globally.

Needless to say, full access is only assured when all the relevant patent holders in the world participate, but more new members are expected to join rapidly. Furthermore, vegetable breeders are not the only ones who apply for patents; discussions about the breeders’ exemption are also taking place in other agricultural and horticultural sectors. Perhaps a system such as the ILP, if necessary with crop-specific adjustments, could also offer them crucial access to biological material on reasonable terms.

Marian Suelmann and Paul van der Kooij

(G.H.M. Suelmann is a company lawyer at Rijk Zwaan Zaadteelt en Zaadhandel B.V.; P.A.C.E. van der Kooij is a senior lecturer at Leiden University).
The English text of this article is an unofficial translation of a contribution that was published in Berichten Industriële Eigendom (BIE) 2014, p. 260-263.

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Notes
[1]  The Plant Breeders’ Decree dates from 1941, and the first Seeds and Plant Material Act from 1966.
[2]  In a couple of cases, imaginations ran wild. At the UPOV Symposium on 13 October 1982, entitled Genetic engineering and plant breeding, UPOV, Geneva 1983, p. 11, a caution was issued against hallucinations about “maize that whistles and radishes that ride bicycles”.
[3]  See e.g. BoA EPO 26 July 1983, case T 49/83, OJ EPO 1984, p. 112 (Propagating material/Ciba Geigy).
[4]  See BoA EPO 10 November 1988, case T 320/87, OJ EPO 1990, p. 71 (Hybrid plants/Lubrizol). For a much more recent decision on this, see GKvB 9 December 2010, consolidated cases G 2/07, OJ EPO 2012, p. 230
(Broccoli/PLANT BIOSCIENCE) and G 1/08, OJ EPO 2012, p. 206 (Tomatoes/STATE OF ISRAEL).
[5]  See e.g. BGH 27 March 1969, GRUR 1969, p. 672 (Rote Taube); U.S. Supreme Court 16 June 1980, GRUR Int.
1980, p. 627 (Diamond/Chakrabarty).
[6]  Directive 98/44/EC of the European Parliament and the Council of 6 July 1998 on the Legal Protection of biotech­nological inventions, Pb. EG dated 30 July 1998, L 213/13.
[7]  See also Enl. BoA 20 December 1999, case G 1/98, OJ EPO 2000, p. 111 (Transgenic plant/NOVARTIS II)
[8]  See also e.g. Bostyn, Patentability of Plants: At the Crossroads between Monopolizing Nature and Protecting Technological Innovation?, The Journal of World Intellectual Property 2013, pp. 105; Van der Kooij, Bescherming van door kruising en selectie verkregen planten via het octrooirecht?, BIE 2013, pp. 218.
[9]  See in particular Louwaars c.s., Breeding business, The future of plant breeding in the light of developments in patents and plant breeder’s rights, CGN Report 14, Wageningen 2009; Trojan, Oplossingsrichtingen voor de problematiek van samenloop van octrooirecht en kwekersrecht in de plantenveredeling, The Hague 2012.
[10]  Stb. 2014, 49. Kamerstukken (Parliamentary documents) nr. 33 365 (R1987).
[11] See Kamerstukken II, meeting year 2014–2015, 27 428, no. 290.
[12]  See re. the latter also Van der Kooij, TRIPS en de kwekersvrijstelling, BIE 2012, pp. 12.
[13]  See also the recent press release on www.boek9.nl under nr. B913342.
[14]  It involves companies from the Netherlands, France, Switzerland and Japan.
[15]  The agreements apply to patents which block the use of biological material for the development of new varieties and/or the commercial exploitation of those new varieties.
[16]  The name “baseball procedure” is based on an American type of dispute settlement usually indicated as “baseball arbitration”. According to this type of dispute settlement each party proposes to the arbiters the decision it considers appropriate in the specific case. The arbiters are only allowed to choose between the proposals submitted by the parties and their decision is binding upon both parties. This type of dispute settlement is in particular known from the baseball sport where it is used to settle disputes between baseball players and their club about the players’ salaries.
[17]  The most-favored-nation clause is common in many treaties on trade issues; the clause gives other countries the same trading opportunities as the most favored nation.