Diminishing enjoyment as the test for plant variety right infringement?

Kat friend Doug Calhoun brings us a report of a recent judgment from New Zealand involving a plant variety right.

Plant variety rights cases are as rare as hens’ teeth. In the 45 years that the New Zealand PVR Act has been in place, there have only been two infringement cases – the second one, Zespri Group Limited v. Haoyu and others, Civ-2017-436-00094 [2020] NZHC 109, issued this month. The result was an overwhelming victory for the plaintiff.

New Zealand kiwifruit is exported solely by Zespri Group Limited, which has a statutory monopsony to purchase all kiwifruit from licensed growers and maintain markets around the world both through sales of its variety from New Zealand and from licensing its varieties to growers in other countries in the counter seasons. New Zealand can lay claim to having domesticated kiwifruit from the Chinese gooseberry.

The original green kiwifruit, the Hayward variety, here, still makes up the majority of kiwifruit grown in New Zealand and elsewhere. Perhaps fittingly, the largest grower country of kiwifruit is now China.

Shortly after introducing a new gold kiwifruit variety (Hort 16A), a bacterial infection (psa) devastated the entire New Zealand gold kiwifruit crop in the early 2000's. Fortunately, Zespri had a new gold variety that was resistant to psa in the breeding pipeline and it was thus able to convert its growers to this new variety without much disruption to the industry.

Unfortunately for Zespri, one of its licensed growers went rogue. He smuggled cuttings of the new gold variety from his own orchard to growers in China. He also granted a (false) exclusive licence to one of those growers to propagate it throughout China. Inevitably, Zespri got wind of this and gathered evidence that resulted in the high court case.

The defendant ran the defence that exporting reproductive material of a New Zealand PVR protected variety is not an infringement under the New Zealand 1987 PVR Act. Rather, any damage to Zespri was as a result of propagation of the variety in China. The Act does not codify what constitutes infringement, only what are the exclusive rights of a grantee.

However in a 2005 case (Winchester v Cropmark CA226/04, being- the only other PVR case in New Zealand), the court of appeal held that a defendant’s conduct had diminished the PVR owner’s enjoyment of its exclusive right. In the Winchester case, the defendant had procured the unauthorised growing of a protected barley variety so that the defendant could purchase the resultant barley crop for sale to a malting company in China.

In the present case, the judge applied the Winchester principle in finding that the defendant’s conduct had diminished Zespri’s enjoyment of its exclusive rights in the gold kiwifruit varieties. She accepted evidence from Zespri’s witnesses that the defendant’s conduct harmed Zespri’s plans for building a sustainable production base for production in China and diminished its brand because inferior fruit marketed as G3 (Zespri) product tarnished G3’s high quality reputation and might affect future price expectations.

The defence also argued that no losses flowed from the defendant’s actions in New Zealand. Rather they were a result of infringement in China. The judge dismissed this argument for the same reasons that she had held that the conduct of the defendant was an infringement.

The judge also found the defendant to be in breach of his orchard licence agreement. She focused on a clause requiring licensees to report any infringements that they became aware of and assist Zespri in dealing with them. Clearly, the defendant had not turned himself in.

Quantifying the damages was a bit trickier. The judgement began by finding that the court should apply section 17(4)(a) of the Act and take into account any loss “likely to be suffered” by the PVR owner. The judge also found that the infringement was flagrant, raising the potential damages.

The judge then observed that it was not possible to quantify the damage to Zespri on a traditional basis, so she applied the “user principle” that was used in the Eight Mile Style copyright case. The calculation was made by multiplying the area of infringing orchards identified in China by the 2016 market value per hectare in New Zealand for G3 licences. This was reduced by 50% because only a portion of orchards in China were planted with G3 kiwifruit.

The judge noted that Zespri might be expected to also take action in China. (Since the largest infringing orchard is in Wuhan, the home of the Covid 19 virus, this is unlikely to happen any time soon.)

The decision leaves this reader with a sense of unease. The judge seemed determined to apply a diminishing of enjoyment of an exclusive right principle in finding infringement, even though she had also found that the defendant had made an offer of sale of G3 vines from New Zealand, being an express breach of a PVR grantee’s right. Further, although she noted that the licence agreement prohibited the defendant from selling, disposing of, exporting or otherwise providing G3 plant material to anyone other than Zespri, she focused on the failure to report his own infringement. It looks like the right result, but for many wrong reasons.

New Zealand is committed to having a new Plant Variety Rights Act in place by the end of 2021. Under the new law, exporting of kiwifruit vines would be an express act of infringement. Whether that spells an end to the (open ended) diminishing of enjoyment principle remains to be seen.

Picture on right by J.smith and is licensed under the Creative Commonss Atribution-Share alike 3.0 Unported license.

Picture on left by BowhaZ and is licensed under the Free Art License.