Lays and its IPR Problems in India

Lay’s chips is a popular snack among several households in India. With a market cap value of $16.3 billion as of end of the financial year 2019-20, the special chips and the secret flavors used in making this products holds high value for the American MNC.

PepsiCo is an American MNC formed in 1965 with the merger of the Pepsi-Cola Company and Frito-Lay, Inc., with headquarters in New York, USA. PepsiCo’s snack food company, Frito Lay, is the leader in the branded potato crisp market and manufactures Lay’s Potato Chips. The process-grade varieties of potato FL 1867/FC3 and FL 2027/FC5 are IPR protected and owned by them. PepsiCo India Holdings Private Limited, a subsidiary of PepsiCo Inc. was incorporated and registered in India in 1994 under the Companies Act, 1956.

Pepsico India Holdings Ltd. currently holds the patent for the potato plant variety FL 2027 (commercially known as FC5) under the Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act. This act was passed in 2001 keeping in mind the plant breeders, researchers and farmers, providing them with Intellectual Property rights in the same. The PPV&FR act safeguarded any new or extant species of the mentioned 151 varieties of crop. Potato (Botanical name: Solanum tuberosum L.) is one of the 151 crop species that are open for registration under India’s PPV&FR Act. Till date there are only 25 varieties of potato that have been given rights under this act and been acknowledged as intellectual property.

In2016, PepsiCo India got IPRs for two of its potato varieties, FL 1867 and FL 2027 from the PPV&FR Authority in India. The term of plant variety protection is fifteen years, i.e. till 31 January 2031. It is for FL 2027/FC 5 that the company has filed suits.

On entering India in the year 1989, PIH set up a R&D farm in Sangrur, Punjab. From a laboratory the potato plantings are supplied to farmers across India and also exported to other countries. Potatoes being one of the primary needs for the company, they made sure that they had ground level relationships with farmers.

As importing potato to make chips in India or importing the finished goods to India in itself wouldn’t help them to price the product reasonably, they set up Contractual Farming.

Contract farming is where the farmer is given the seeds by the company in order to grow and Lay’s buys it at a standard rate irrespective of the market conditions since their yield variety would be different as opposed to the normal potato that is grown all across the country.

However, there have been instances where the yield has been bad due to the bad quality seeds of FC3 and FC5 type of potatoes in some cases. The company assures buyback irrespective of yield is what made the offer so attractive for farmers mainly in the region of Punjab and Gujarat.

Farmers who are in the contractual farming business do not have the autonomous right to sell their produce to anyone other than the Lay’s company except in the case where the full needs of the company are fulfilled and there is surplus of yield which they do not wish to store for various reasons. This is the only case a farmer is allowed to commercially sell FC3 or FC5 variants of potato.

PIH had initiated law suits against 11 farmers in Gujarat, claiming that they were illegally growing the patented seeds (FC5). The company also sought a compensation of 1 crore rupees per farmer.

The problem however does not always occur between the farmers and the company. There is a third key player who is the grey market dealer. Usually after the yield is harvested, the farmers legally growing the potato varieties have some leftover spud that has not been planted of is just leftover from not to the mark potatoes. These reach the grey market dealers who sell this IPR protected variety in various other names so that no one doubts getting themselves in trouble with the law. As per sections 68, 69, 70 and 71 of the PPV&FR Act, copying seeds is a crime and the dealers can be penalised.

Governments have always been representing the PPV&FR act as a tool to uphold the rights of the farmers. In the current case of how Lay’s and other companies have been going after the farmers and their rights, one can only beg to differ.

Section 39(1)(iv) of the PPV&FR Act recognises farmers’ freedoms to save, use, sow, resow, exchange, share or sell their farm produce including seed of a protected variety. S.28 of the Act grants exclusive rights to breeders who have registered their varieties. But as per the text of the law, the infringement provision in Section 64 is ‘subject to the provisions of this Act’ and therefore can be said to be subject to Section 39 as well. The three provisions have to be read in correlation to each other and harmoniously in light of how the court feels the farmers must be protected.

PIH clearly seeks to use the legal system against anyone threatening its legally granted breeder rights. Seed variety owning companies have also gone after farmers in other countries, such as in USA and Indonesia to aggressively protect their IPRs.

In present scenario, PIH has withdrawn all the cases against the farmers after facing much criticism and backlash from all the farmers, unions as well as general public. PIH held that they will not pursue judicial recourse and would like to come to an agreement where the farmers who grew the special variety of potato eventually sell it to them and become a part of their contract farming scheme. This whole incident can be termed as a victory for the farmers and the farmers are now aware that they have sufficient backing when it comes to getting justice even without the ways of the court.

Aishwarya Says:

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