Regional Seminar on Enforcement of Plant Variety Rights

Regional Seminar on Enforcement of Plant Variety Rights

Warsaw, Poland, on 11 and 12 May 2006

PVR infringement court cases in Germany in the ornamental sector

Presentation

Thomas Leidereiter LL.M. (Cardiff)

Rechtsanwaltsgesellschaft mbH

Hamburg, Germany

www.luther-lawfirm.com

Mr President, Ladies and Gentlemen,

First of all allow me to thank Mr Bart Kiewiet, President of the CPVO, for inviting me to give a presentation regarding “PVR infringement court cases in Germany in the ornamental sector” in the Germany.

In Session I of this Regional Seminar on Enforcement of Plant Variety Rights we already had the opportunity to learn about the legal aspects of the enforcement of Plant Variety Rights (“PVR”). Mr. Kiewiet, provided us with an overview of the relevant provisions to be found in Council Regulation (EC) no 2100/94. Mr. Ekvad elucidated the Directive on Enforcement and Customs Regulation.

Accordingly, I shall abstain from citing all the respective clauses in the laws all over again and focus on the title of my presentation which starts with “PVR infringement court cases”. In order to do so, I provided you with a brief summary of three different cases our firm recently was or is involved in. Please note that some of the cases are still pending. Therefore, I have left out any indication on the species involved and, if necessary, changed some of the facts.

Introduction

If there can be a resume of the cases we will be looking at within the next twenty minutes, it seems to be a little discouraging. The first conclusion that might be drawn from our examples might appropriately be described with the words of Mr. Pete Seeger in his famous song “Where have all the flowers gone?”. A question that in many infringement cases troubles the breeder who faces an unauthorized propagation of his protected plant material. The question might also be rephrased to read: “Where have all the flowers come from?” to describe another puzzling situation for breeders.

Another line of the song most of you will have heard at one stage in time also fits to describe often encountered problems in PVR infringement cases. It reads “When will they ever learn?”. Even cases that seem to be straight forward at first glance will show that there still is some homework to do for breeders that fear an illegal propagation of their plants.

After all the message to the breeders of ornamentals that these recent cases sent is “Take good care of your rights”. Let me show you what is meant by this cryptic introduction by taking a closer look at the cases at hand. They will teach us that it often is not a question of the law but a question of mere facts that make an infringement case difficult.

Case 1

Basic Case

a) Factual background

Those of you who had the time to already go through the hand-outs shall already be aware of the facts of the case. Let me still summarize them briefly:

We have number of five different breeders holding a total of 27 CPVR or national PVR rights in varieties of a single species. All the breeders have licensed the propagation and sale of their varieties to two different companies. The licensees have sold and delivered approximately 45,000 cuttings of the protected varieties to a nursery in Germany under an ordinary contract of sale. Of course, there have been numerous, smaller, deliveries of each variety. All delivery slips stated the names of the protected varieties delivered, an indication of the existing protection and the amount of royalties due.

During an inspection of the greenhouses of said nursery, a total of 100,000 plants of the species had been discovered. Even for an expert, however, it was at this point in time hardly possible to determine the precise number of plants of each variety. From the number of plants found and the fact that only protected varieties had been delivered it appeared to nevertheless be clear that protected varieties had been multiplied.

As a first step the breeders themselves approached the nursery and suggested an amicable solution in the matter that included the payment of the royalties due for the plants produced without permission as well as an compensation for the damages caused. The breeders also requested that a cease and desist declaration was signed by the nursery providing for a contractual penalty in case of future infringements.

As the nursery rejected the proposed agreement, a warning letter was sent out by our firm. Still the breeders were aiming to reach an out-of-court settlement. However, again, the nursery was unwilling to settle the matter in such way.

Accordingly, a preliminary injunction was obtained against the nursery, prohibiting the propagation, marketing and sale of the protected varieties. Only upon the service of the preliminary injunction in the very “high season” which was granted ex parte, i.e. without the nursery being heard by the court beforehand, the nursery gave in and entered into a final settlement. This settlement included the acceptance of the preliminary injunction, a cease and desist declaration, payment of royalties, payment of damages in an amount equivalent to the amount of royalties, the bearing of the court fees and compensation of the lawyers’ fees.

b) Legal Background

(1) Infringement

Pursuant to art. 13 para. 1 of the Community Regulation (EC) No. 2100/94 on Community Plant Variety Rights (“Council Regulation”) only the holder of a CPVR is entitled to conduct certain acts in respect of variety constituents or harvested material of the protected variety. Pursuant to article 13 para. 2 lit. a) Council Regulation any production or reproduction (multiplication) requires the consent of the holder of the protected variety.

However, the CPVR is subject to the so called exhaustion of art. 16 Council Regulation. Accordingly, all actions described in article 13 Council Regulation cannot be prohibited if they regard material of the protected variety which has been disposed of to others by the holder of variety or with his consent. Accordingly, the growers are free to root and sell the cuttings which they have legitimately bought from the licensees. Nevertheless, a further propagation of the respective CPVR remains illegal unless such propagation was intended at the time the plant material was disposed of.

(2) Questions of Proof

Coming now to the question raised in that famous song “Where have all the flowers gone?”. However, to be honest, in our first case it should rather read: “Where have all the flowers come from?”.

In any event, the infringement of a protected variety needs to be proven by the titleholder. In the basic case, it was obvious that protected varieties had been propagated without the permission of the PVR holder. Still, it could not yet be determined, whether in fact all 27 varieties in question had been multiplied and, accordingly, whether all of the breeders involved were actually affected by the acts of infringement.

Nevertheless the court granting the preliminary injunction accepted that there was so-called prima facie evidence of an infringement of all varieties involved. This not only seems to be reasonable as it is quite likely that the grower simply took one cutting of each plant he had been delivered with. It is also a position taken by the court that seems to meet the considerable difficulties any breeder faces when proving an infringement of his varieties. Although the court did not comment on this aspect expressly, it would simply be too high of an hurdle if the breeder would be expected to prove in detail which number of cuttings has been taken from every individual variety. It seems that the court accepted that there should be a shift in the burden of proof in the present case. Should the grower object the alleged infringement, the burden to show that he has not infringed either of the varieties should be placed on him as he has first-hand knowledge on the multiplication he made. It would then up to him to proof the exhaustion of the breeders’ rights.

A further positive aspect of the case for me seems to be the fact that a preliminary injunction was granted on the basis of an affidavit rendered by the person controlling the nursery and counting the plants of the species in question. The injunction also prohibited the sale of the plants in the middle of the high season. This procedural remedy appears to be the only adequate measure to grant effective protection of the breeders’ rights. Once the plants had been sold and disposed of into the market, they would have been lost as evidence. On the other hand, the legitimate interests of the nursery still were rightfully protected. If for whatever reason the allegation of illegal propagation could have been proven to be incorrect, they would have had the chance to object to the injunction and to obtain an oral hearing and a judgment within only a few weeks. The reaction of the nursery, however, seems to show that it was really a case of illegal propagation. It was expressly admitted in the settlement agreement.

(3) Damages

Pursuant to article 94 Council Regulation the owner of a CPVR in case of an infringement of article 13 Council Regulation can claim for cessation of the infringing act as well as for a payment of an adequate compensation. In case of the grower acting purposely or negligently, he is also obliged to compensate the owner of the CPVR for all losses incurred. Those damages pursuant to the provisions of the Council Regulation rank between the amount of single royalties and a potential higher profit made by the grower.

The payment of double royalties under German Law only is recognized through the German Supreme Court in the case of copyright infringements pursuit by the Licence Collection Institute (“GEMA”). The BGH in numerous decisions has clarified that this legal principle cannot be transferred to any other kind of intellectual property right (BGHZ 77, 16, 26 f = NJW 1980, 2522).

Accordingly, there is no legally justified claim to request any grower to pay double royalty.

Now you might ask, why finally an agreement was achieved with the nursery that in its consequence provided for the payment of “double royalties” if you only look at the figures. The reason can be found in the different options granted to the breeder by the jurisdiction to calculate his loss. Only one of the options is to ask for the payment of the ordinary royalties. Instead the breeder may request to receive the profit the grower made on the sale of the infringing plants. In order to compute this profit, the grower also is obliged to render all information necessary to enable the breeder to calculate his loss. This information includes very sensitive data not all of the growers might be willing to render, e.g. the names and addresses of his customers, the turnover achieved with the illegal plants, the costs incurred in producing the sold product etc..

It becomes obvious that this method of calculating damages involves a very deep intrusion into the company books of the grower. Accordingly, it is well justified for the breeder to offer an amicable solution whereby both parties agree on a lump sum payment for damages. It seems to be accepted in the industry that, in case of illegal propagation, a payment of an amount equal to double the ordinary royalties often constitute an adequate compensation for the costs of controls etc.. After all, the parties in such stage are free to agree on an adequate compensation.

c) Practical Consequences

Even from a clear cut case like the present, lessons might be learned for the breeders. The fact that all varieties that had been delivered were in fact protected by PVR made it possible to argue that an infringement took place proving it with prima facie evidence. We will learn from the alternative cases, what problems might arise in a case where the situation is different.

Also the case shows that it is extremely important to mark all plant material in invoices, delivery slips etc. appropriately, i.e. to show that the varieties delivered are protected by PVR and to render the respective denominations to enable the customer to verify the protection. It will help us as lawyers to clearly show and prove that any propagation was negligently, at the least.

Case 1 - Alternative 1

In the alternative to our basic case I made one minor, but important change to our basic case. Three of the 27 varieties are not yet granted PVR protection but only are applied for protection as yet.

a) Legal Background

Pursuant to article 95 of the Council Regulation, the holder may require reasonable compensation from any person who has, in the time between publication of the application for a Community plant variety right and grant thereof, effected an act that he would be prohibited from performing subsequent thereto.

Two crucial questions can be derived from this rule in the Regulation. The first being, what is a “reasonable compensation” to be paid? The second question is, when is that compensation due? Let me start with answering the second question.

From the wording of the law it seems clear that the claim for compensation can only become due with the PVR being granted It appears to be a common practice, however, to ask for such compensation already after the PVR application has been published. I have not yet found any court decisions dealing with a grower complaining about this commonly accepted practice. From my point of view, there are a number of arguments to support the view that the collection of royalties should be allowed already upon the publication of the PVR application.

For me the main reason to accept such practice can be derived from the ratio of article 95 of the Council Regulation. It shall encourage the applicant of a new variety to introduce a newly bred variety as early as possible into the market and, thereby, not only let his customers participate from the breeding progress but also to enable other breeders to make use of that new variety for (legitimate) further breeding activities. Bearing in mind the potential duration of the application process, otherwise the introduction of the variety might be delayed for a long time. To achieve such encouraging effect, it is on the other hand necessary to not pose the financial risk of the early introduction of the variety on the breeder only. Doing this would mean that the breeder would not be enabled to participate in the commercial success of the new variety for the duration of the application procedure. On the other hand, third parties would be allowed to make use of the varieties without yet any royalties being due. It is hardly feasible that breeders are prepared to take such risks, unless they are allowed to profit on their variety from the moment of its introduction on. In addition, the breeder might face numerous practical difficulties, would he be allowed to collect royalties for the past only after the PVR has been granted. The plants already sold and propagated by growers are long “gone” and the breeder would entirely be dependent on the information rendered by the growers.