Grain under license

author: Taras Stets

source: "The Ukrainian Journal of Business Law" 

10 April, 2013 Press

The growing agricultural economy brings up before Ukrainian laws new tasks since new markets require new legal tools, among other in the field of seed variety IP rights protection.

Traditional technology for farmers to save part of the crop for sowing during the next season originating from periods when variety production was not so science-intensive interferes with modern practice. International companies investing millions into genetic research and implementing new effective hybrids. Of course, they strive to protect their IP rights and ensure both profitability of their business and financing of further scientific research.

At first glance, the laws of Ukraine offer rather strict limitations for FSS producers. Article 39 of the On Protection of Rights on Plants Varieties Act of Ukraine does not only grants exclusive rights for breeder to reproduce protected seed material for reproduction purposes, offer seed material for sale, letting into market circulation or even exclusive right to store such seed material. However, while re-sowing patent-protected seed is theoretically prohibited in practice it is largely tolerated. Farm saved seed, that is seed material the  farmer saved for his own use to grow and harvest a crop, is widespread because it is easy to use, fits into traditional agricultural technology and, mostly, because patented seed is supplied at a time when cash flow for farmer is critical.

Alas, there is no any Ukraine-specific statistics available with regard to farm saved seed but we opine that it is hardly different from foreign famer practice. In Brazil, an estimated 70 % of the 22 million hectare soybean crop is planted in farmer-saved seed; in Argentina, an estimated 70 % of the 14 million hectare soybean crop comes from farmer-saved seed and purchases of “bolsa blanca” (black market) seeds; in Pakistan approximately 88 % of the total wheat area is planted in farm-saved, Canadian wheat farmers now grow wheat on 8.36 million hectares with farm-saved seed1.

Why we single out farm saved seed from the whole black seed market is because farm saved seed requires special attention from the legal point of view. Farm saved seed cannot be revealed and breeders’ IP exclusive material rights cannot be protected by usual means. Farmers do not enter the market with farm saved seed, they do not make public offers and cannot be ceased during illegal sale as they use the farm saved seed by themselves. Even when stored illegally it may be hard to prove that the seed in question is stored for reproduction purposes but not to be consumed as a final product. Purchasing small amount of patented seed allows farmers to distribute crops freely since the genetics are the same, regardless of whether the seed is certified or farm saved. That is why legalizing farm saved seed required new approaches and new legal solutions. The following issues in our opinion should be addressed in order to solve farm saved seed problem for mutual interest both farmers and plant varieties IP right owners.

Breeders require new mechanisms to reveal usage of farm saved seed by farmers

As mentioned above, farm saved seed use while being illegal from the point of view of the laws of Ukraine is rather hard to indicate and pursue by rightful patent holders, first of all in court, due to the fact that its use is not public in any means. Farm saved seed material is produced and consumed within one single farm with no participation of third parties, suppliers or purchasers whose market activity may be identified and recorded for presenting in court. Also as we mentioned above, when pressed farmers may purchase small bulk of patented seed material and when entering the market with farm saved seed based crops claim that it was grown based on patented seed. It is impossible under current conditions to establish the link between specific seed material and harvested crops. Such a situation opens vulnerability for abuse by farmers using farm saved seed.

The situation may be regulated by establishing a unified state registry of crops which would contain transparent information on all harvested crops. The setting up of such a registry would allow comparisons to be made of the information on purchased patented seed and the respective variety harvest volume, and basing it on average productivity it would reveal instantly users of farm saved seed. Plant variety patent holders would receive an effective tool for proving their exclusive IP right violation and collect damage reimbursement based on the seed material market price and estimated volume of used farm saved seed.

Obtaining a legally clear license for farm saved seed use may be burdensome

Currently, the only viable way for Ukrainian farmer to use farm saved seed legally is to execute a licensing contract with breeder or breeder agent in order to obtain a limited right for seed material produced with no purpose of further sale and storage of such material. Even when a farmer is willing to execute such a contract and declare the amount of farm saved seed, Ukrainian branches of international companies bound by internal policies are not always ready to offer flexible conditions. An alternative method for paying plant breeders for intellectual property would be gathering pace with the establishment of a dedicated collection agency, similar to collective management organization established in the music industry. Such a collection agency would accept from farmers using farm saved seed a fee (royalty) for distribution between certificate holders (seed companies) to sustain funding of research and efforts to improve genetic resources.  In its turn, the declaration of farm saved seed and payment of the royalties would free farmers from being pursued by patent holders. Of course, the idea of such collection agencies is not new and is successfully implemented in Canada, France, Brazil, etc. Usually legalizing farm saved seed through such agencies is limited, only specific varieties are covered (for example, soft wheat varieties only) and small farmers producing less than established annual threshold amount of grain are exempted from royalty payments. We have to note, however, that current Ukrainian laws do not allow the establishing of such collection agencies, mainly due to the fact that paying the royalty for farm saved seed without the execution of a license agreement executed does not free one from potential pursuit by a patent holder. Furthermore, paying a royalty would unmistakably identify you as illegal farm saved seed producer.

Long-term perspective of farm saved seed legalizing

Collecting royalties for farm saved seed may lead to a brand new approach in plant variety IP rights protection, which was only recently established in world leading agricultural countries such as the USA and Canada. This new approach is based on complete detachment of a royalty from the cost of seed material and direct invoicing to the farm business. The farmers would have to pay a royalty for all patented varieties grown regardless whether they are purchased from certified breeders or farm-saved. The new payment method may be based on a fixed sum per hectare, payable on both certified and farm-saved seed, for the life of the variety while it is being grown on the farm. Of course, implementing such a scheme in Ukraine would require major legal changes but in the end it may create more options for agricultural market participants and enforce competition between seed material producers while ensuring adequate remuneration for plant variety patent holders.

Footnotes:

1http://www.banterminator.org/The-Issues/Peasants-and-Small-Scale-Farmers/The-Potential-Economic-Impact.

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