Seed traceability in Russia has made the illegal reproduction of varieties visible. But the right holder will receive money only within the limits fixed in the license agreement. Which mistakes in contracts leave breeders without royalties (license payments) and how to protect a variety for the entire term of its protection — in the author's column by Boris Malakhov, managing partner of the law firm Lidings.
In 2021, the originator (right holder of the variety) of the pea variety "Velvet" sold 881 tonnes of seeds. About 19,000 tonnes were sown in the country. A gap of more than 20 times is not a statistical error. This is money that no one paid. "Velvet" is no exception here. Vague contract wording combined with a lack of control costs the right holder from 30 to 70% of potential income.
Since 1 September 2024, the circulation of seeds has been traceable in the FSIS "Seed Growing" (federal state information system). The system records the movement of a batch from the originator to a specific field, and it is virtually impossible to obtain a certificate for a batch of a protected variety without a license agreement. The change is not technical but economic — "grey" reproduction has become visible. But seeing others' volumes and getting money for them are not the same thing. Payment will be made exactly within the limits the parties set for themselves in the contract. Traceability has not eliminated contractual negligence — it has sharply raised its price.
Sell or License
The law offers two models for disposing of an exclusive right. Assignment — sale of the asset as a whole. The patent holder transfers the right in full, receives remuneration and loses control over the variety. A license leaves the right with the breeder and gives the user exactly the scope described in the contract. A license may be exclusive if the licensor (the right holder granting the license) has undertaken not to grant such rights to others, or simple (non-exclusive) if the licensor retains both its own use and the freedom to conclude similar agreements with third parties.
Silence here works against the one who counted on exclusivity. If the type of license is not indicated in the text, it is deemed to be a simple license. This is usually discovered at the moment when the same variety appears with a competitor.
No Patent Number — No Contract
The wording "wheat variety" is not the subject matter of a contract. The name of the breeding achievement and the patent number are required, and, if available, the author's certificate number. The consequence is stricter than one might think. If the object cannot be identified, the contract is deemed not concluded. No obligations arise from it at all, there is nothing to recover, and anything already paid must be returned as unjust enrichment.
Methods of use are equally treacherous. The right to "produce seeds" sounds exhaustive exactly until the licensee (the recipient of the license) starts storing, bringing to sowing conditions, offering for sale, exporting and importing. Each of these actions is regarded by law as a separate method of use. An incomplete list gives the licensee ground for expansive interpretation, and the licensor ground to regard the same actions as infringement. Therefore, the subject matter is described as it appears in the register, the list of methods is given exhaustively, and the grant of the right is registered with the State Commission for Selection Achievements. Without registration it is deemed not to have taken place."Wheat variety" is not the subject matter of a contract. No patent number — no deal. It is like buying an apartment without a cadastral number. The payment will then have to be returned.
A Right That Cannot Be Used
In a transaction between a breeding company and a breeder, two protected objects are usually involved — a breeding achievement and a production secret (know-how). The forms of disposal are the same for both — assignment or license. The objects differ, and it is their confusion that produces the most painful defects in the transaction. Crossing schemes of parental lines, protocols for maintaining genetic purity, selection methods are not disclosed in the patent, and without them a hybrid cannot be maintained through the full cycle.
You granted a license to the hybrid but forgot about the parental lines. The counterparty received a doll with nothing to bring it to life. It also happens the other way round. The know-how was transferred, but they forgot to sign the license for the variety — and that is already an infringement.
This is usually discovered when the sowing season has already begun, and it cannot serve as grounds for revising the contract. Know-how does not require state registration, so work can start faster, but protection rests on a trade secret regime. It includes local acts, a list of authorized persons, marking of media, a transfer act with the composition of information. Oral non-disclosure agreements are not recognized by a court as sufficient evidence. Sublicensing (transfer of rights under a license to third parties) requires a separate condition. It must not occur without the licensor's written consent, otherwise the right holder loses control over who actually reproduces the variety in the distribution chain.
No One Will Set the Rate for You
If a remunerated license agreement does not contain the amount of remuneration or the procedure for determining it, it is also deemed not concluded, and the rule on the price usually charged under comparable circumstances does not apply here. The court has no right to determine the rate for the parties. Missing the term and territory is not so bad, but one should know the defaults in advance. The default term is 5 years, the territory is the whole of Russia, whereas in agribusiness it is economically justified to tie these to regions of admission and light zones.
They are afraid to fix the rate, hoping for a supplementary agreement. This is fatal — the court will not set the price for you. The right holder is left without royalties, the counterparty — with the harvest. And remember taxes. Payments to an individual author are personal income tax (PIT), know-how is exempt from VAT (value added tax), a variety is not. Mix the objects in one price — you will pay extra.
A single price for "everything at once" mixes objects with different tax regimes, so the payment structure is calculated before signing. Often the rate itself has to be revised for this.
When the Patent Has Already Been Sold
Assignment of a patent closes the transaction but not the relationship. The author retains a legitimate interest in income from commercialization, while an assignment agreement as a general rule presupposes a one-time payment and does not create lasting property rights for the author.
This gap is closed by an author's remuneration agreement. It details the rate per sowing unit or tonne of seeds, the minimum guaranteed payment, the procedure and frequency of reporting, liability for late payments. In Russian practice, the document is often considered secondary, although it turns a one-time transaction into a stream of income — and keeps the author in the project, which increases the value of the asset for both parties.
A Report Without an Audit Is Just a Letter
An agreed rate remains a declaration until the contract has a mechanism for verifying it. The licensee reports what it considers appropriate to show, and the licensor is deprived of the ability to confirm or refute these figures. A workable structure includes the right to request primary accounting documents, not just summary reports; a fixed form and frequency of reporting with a template in the annex; verification with the involvement of an independent auditor, whose cost is borne by the licensee if the discrepancy exceeds an agreed threshold; a minimum guaranteed payment that removes the very subject of a dispute over understatement, and the obligation to reconcile reporting with the data of the FSIS "Seed Growing".
Penalty Instead of Compensation
Here breeding achievements are protected demonstrably worse than other objects. Holders of rights to trademarks, works and inventions can recover compensation without proving the amount of losses. The right holder of a variety is not given such an opportunity by law. Only losses remain, with proof of amount, causation and lost profit.
For infringement of rights to a variety, compensation cannot be recovered — only losses, which are almost impossible to prove in court. The only insurance is contractual. This is a penalty for violation of methods of use, a fine for inaccurate reporting, increased royalties for unaccounted volumes.
Domestic practice confirms this conclusion. In the dispute between the Scientific Research Institute of Agriculture of the South-East and the company "Agrariy", the outcome was determined precisely by the degree of certainty of the conditions on methods of use, the amount of payments and the penalty for delay.
One Patent Does Not Hold the Defence
Even an impeccable contract protects only what is protected by law, so several levels of protection are built around the variety. A patent for a breeding achievement is the core; patents for technologies create a barrier where it is harder to repeat the process than the variety itself; know-how protects what cannot be disclosed and operates as long as the secret is kept; a trademark works even after patent protection expires.
Practice shows the price of each layer. The dispute between Corteva and Inari demonstrated the vulnerability of protecting a variety alone against the introduction of minor changes. The Bayer and Corteva litigation over cross-licensing of soybean technologies showed how complex schemes without built-in auditing grow into years-long disputes over figures. And the case involving the company "APROSID RU" reminded that rights to a variety and rights to the trademark under which it comes to market are different rights.
The origin of the variety also requires its own hygiene. The employer has 4 months from the day of notification of a variety created by an employee to file an application, transfer the right to file it, or classify the result, otherwise the right to the patent returns to the employee. The material with which the breeder initially came may turn out to be a service result from a previous place of work, so the history of creation is checked before the transaction and supported by representations about the circumstances.
A Contract 30 Years Long
Breeding is an activity with a long horizon, and it is reasonable to design the contract on the same horizon as the variety itself. Mistakes in a contract are most costly when the dispute reaches court and devalues both the breeder's years of work and the company's investment. A well-developed contract works for the entire term of protection — 30 years, and for certain crops — 35 years. A contract signed as a formality works until the first season in which noticeable money appears on the variety.