[Guest Post] Italian Supreme Court finds plant breeder's contractual terms were contrary to public interest

The IPKat is pleased to host a guest contribution from Katfriend Roberto Manno (WebLegal.it), who examines a recent Italian judgment on the scope of plant variety rights under EU law. A small table grape producer, Mrs. Miglionico, succeeded before the Supreme Court with the assistance of Roberto and cooperation of Francesco Saverio Costantino. 

Here's what Roberto writes:

How far can plant variety rights reach?
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In its judgment of 9 April 2024, the Suprema Corte di Cassazione (Italian Supreme Court) found that contractual clauses restricting a producer's freedom to sell the fruits of the harvest at a distributor of her choice were null and void for being contrary to public interest. 

The case revolved around a contract signed by Mrs. Miglionico, a small table grape producer from Apulia – the south-Italian region where table grape varieties have been cultivated for thousands of years (suffice it to say that old Greeks named “Italia” the territory also known as Enotria, literally the “land of the wine”). The contract with the well-known breeding company, Sun World International LLC, and owner of the Community plant variety rights for the seedless red table grape variety named ‘SugraNineteen’ (PVR No. 32280, sold under the SCARLOTTA trademark), allowed Mrs. Miglionico to produce the variety on her plot of land. However, the contract (headed “lease agreement with the grape producer”) reserved the ownership of the plants to Sun World and stipulated that the fruit produced by the leased plants be marketed within a distribution network appointed by Sun World. 

Mrs. Miglionico propagated 3,100 vines in 2015 in order to commercialize the fruit in accordance with the contract. However, as a result of the unfortunate climate occurred at the time of the first harvest in 2016, and having unsuccessfully tried to sell the fruit within the authorized distribution network, Mrs. Miglionico allegedly sold the fruit outside the network. Sun World immediately terminated the contract and initiated legal proceedings.

Arbitration Decision

Pursuant to the arbitration clause, Sun World brought a case before the Milan Arbitration Court (CAM) to declare Mrs. Miglionico’s fault and seeking payment of €100,000 in damages and an additional order to uproot the plantation of the 3,100 vines from the grower’s land. Although the contract goods (either the plants and the fruits) were all issued from a PVR variety, Sun World’s contract relied not on a PVR license but on the leasing of productive thing, this being the discipline applicable to the plantation of 3,100 trees, with the result that the whole plantation formed the object of Sun World’s property, irrespective these plants were obtained from the use of varietal constituents for which Mrs. Miglionico paid (even if belatedly) the relevant price. Sales of the harvested material also had to occur according to terms and conditions that were mostly based on a trademark license. With final award on 2019, CAM found Mrs. Miglionico responsible for breach of contract and ordered that all the vines be removed from her land. 

A CJEU Judgment and an Appeal

Shortly after the CAM decision, the CJEU handed down its judgment in the ‘Nadorcott’ case (Case C‑176/18), which confirmed that PVR protection must not go beyond what is necessary to encourage plant breeding. According to a combined reading of the 17th and 18th recitals of the Regulation Community plant variety rights (the "Basic Regulation"), the CJEU held that agricultural production constitutes a public interest that justifies restricting the exercise of plant variety rights. [Merpel: for more detail, the Nadorcott case was previously discussed on the IPKat here]

An appeal was lodged before the Court of Appeal of Milan, where it was finally possible to submit the jus interveniens constituted by the horizontal principles laid down by the CJEU in Nadorcott, arguing that the arbitration awards had to be dismissed as a consequence of the exhaustion of Sun World’s PVR rights after the payment made by Mrs. Miglionico of the “equitable remuneration”, with the effect (inter alia) that the plantation could not be subject to Sun World’s property rights. Ultimately, the Milan Court of Appeal dismissed all of the four pleas in law (Judgment No. 2704/2022), stating that any of them was able to fulfil the strict legal conditions to review an arbitration award in the merit, this being true also in respect of the complained breach of “public interest”, which the appellant failed to explain on the substance. 

The Judgment of the Italian Supreme Court

Upon further appeal, the Supreme Court referred the case to public discussion in a public hearing, in reason of the relevance and novelty of the matter, which involved delicate aspects of competition law, safeguarding of agriculture production, and public interest (Art. 13.8 Basic Regulation). The Public Prosecutor asked the Supreme Court to uphold the appeal and to find that the earlier Judgment of the Milan Court of Appeal was flawed by serious errors in law when it did not recognized the breach of public interest articulated in the course of the appeal by Mrs. Miglionico with a particular reference to the CJEU's judgment in Nadorcott.  

With final judgment No. 9429 delivered on 9 April 2024, the Supreme Court upheld the second plea in law (breach of public interest), and found that the public interest exception was admissible and well founded, so that the earlier Court made a serious error in law when it failed to rule out an intolerable  arbitration award. According to the Court:

It would have been enough for the Court to have read points no. 33 and 34 of the Nadorcott ruling, expressly referred to by today's appellant, to dispel any doubt on the relevance of the censures from the perspective of the art. 829, co. 3rd, c.p.c.

The Supreme Court held that the clauses in questions were incompatible with the general principles of EU law, especially those reserving to Sun World the ownership of the leased plants (clause 3.4) as well as the right to dictate to whom the “fruit of reserved ownership” could be sold (clause 4.2). The Supreme Court therefore set aside the earlier Judgment and reallocated the case back to the Milan Court of Appeal (in a different composition) for the new assessment of the case on the merits, also formulating the following principle of law: 

In the matter of European Community Plant Variety Rights, a contractual clause granting the owner of intellectual property rights to patented cultivars also the power to identify the persons solely entitled to distribute fruits obtained by a previously authorized producer using varietal constituents of the protected variety, where such fruits are unusable as propagating material, is null and void. This is contrary to public interest due to infringement of Article 13(2) and (3) of Council Regulation (EC) No. 2100/94, as interpreted by the Court of Justice.

Comments

The judgment has been welcomed as paving the way for a more sustainable approach to the legal management of plant varieties, without disputing the right to receive “equitable” remuneration. While illegal propagation of plant varieties is and will certainly continue to constitute an infringement of IP rights, the recent judgment helps to clarify that growers and nurseries having paid the equitable remuneration cannot be asked to destroy their plants (although this decision came too late for Mrs. Miglionico’s grapevines).

It is this Katfriend's opinion that there are many lessons to infer from the Miglionico case. The judgment was in no way an attack against breeder’s rights or the fundamental “exclusive” nature of IP rights. Quite to the contrary, it affirms that PVR is a sui generis form of IP, which responds to the policy goal of introducing a limited reward to breeders to favour the making available of improved varieties to grower and farmers. This reward is subject to the principle of exhaustion and the fundamental freedom of movements of goods, i.e. the second fundamental freedom of EU Treaty, which cannot be derogated. Indeed, it was to compensate for this limited scope of exclusivity that the life span of PVRs are longer than patents (e.g. up to 30 years for vines).