European Plant Variety Rights Not Exhausted in Licensee’s Sale of Protected Plants if Sale Violated License Terms Directly Related to Essential Characteristics of Plant Variety Rights

On October 20, 29011, the European Court of Justice (“ECJ”) held that the holder of European Community plant variety rights may bring an infringement action against a respondent party selling protected material of the variety without its permission, where the respondent obtained the variety from a former licensee of the variety in violation of license terms directly implicating the essential characteristics of the intellectual property right. Greenstar-Kanzi Europe NV v. Hustin, Case 140/10 (ECJ Oct. 20, 2011). The case illustrates limitations of the principle of exhaustion in the context of plant variety rights.

The European Community Plant Variety Rights Regime

Council Regulation (EC) No 2100/94 of 27 July 1994 on Community plant variety rights, as amended by Council Regulation (EC) No 873/2004 of 29 April 2004, allows a person who has bred or discovered and developed a new plant variety to obtain intellectual property rights in the variety that are valid throughout the Community. Among other things, the regulation provides that one must have the authorization of the holder of the Community plant variety rights before doing any of the following with regard to variety constituents, or harvested material of the protected variety: “(a) production or reproduction (multiplication); (b) conditioning for the purpose of propagation; (c) offering for sale; (d) selling or other marketing; (e) exporting from the Community; (f) importing to the Community; (g) stocking for any of the purposes mentioned in (a) to (f).” These provisions apply to harvested material only if it was obtained through the unauthorized use of variety constituents of the protected variety.

Exhaustion of Plant Variety Rights

Article 16 of Regulation No 2100/94 contains a rule of exhaustion for Community plant variety rights. It provides that the Community plant variety right does not extend to acts with regard to material of the protected variety which has been “disposed of” to others by the holder or with his consent, in any part of the European Union, unless those acts involve either further propagation of the variety, except where such propagation was intended when the material was disposed of, or an export of variety constituents into a third country which does not protect varieties of the plant genus or species to which the variety belongs, except where the exported material is for final consumption purposes

Alleged Breach of License Agreement by Former Variety Licensee

In 2003, a company known as Better3fruit was the owner of Community plant variety rights in the apple variety known as “Nicoter.” Better3fruit issued a license to Nicolaï NV (“Nicolaï”), granting Nicolaï the exclusive right to grow and market apple trees of the Nicoter variety. The license agreement required Nicolaï not to “dispose of or sell any product covered by the license unless the other party signs in advance the grower’s license referred to in Annex 6 (where the other party is a grower) or the marketing license referred to in Annex 7 (where the other party is a trader)’. On December 24, 2004, Nicolaï sold 7,000 apple trees of the Nicoter variety to Mr Hustin. Hustin did not agree to comply with any particular conditions with regard to the growing of the apples or the sale of the harvest.

Belgian Litigation Concerning Alleged Variety Infringement

Nicolaï’s license terminated on January 20, 2005, and at some disputed time, the claimant, Greenstar-Kanzi Europe NV (“GKE”), acquired the exclusive right to exploit the Nicoter plant variety rights. GKE learned that Hustin was selling Nicoter apples to respondent Jo Goossens, and both Hustin and Goossens were commercially selling Nicoter apples. GKE sued Hustin and Goossens in a Belgian court, and the Belgian court referred to the ECJ the question whether the plant variety rights were exhausted because the respondents acquired material of the protected variety from a licensee of the variety, albeit in violation of the license terms.

General Principles of Exhaustion

The ECJ observed that it had not previously addressed the exhaustion issue in the context of plant variety rights. The court looked for guidance to its exhaustion jurisprudence in the the field of trademark rights. The court explained that under European trademark law,

[W]here a licensee puts goods bearing the mark on the market he must, as a rule, be considered to be doing so with the consent of the proprietor of the trade mark. However, according to that same case‑law, the license agreement does not constitute the absolute and unconditional consent of the proprietor to the licensee putting the goods bearing the trade mark on the market. As regards in particular the plant variety right, Article 27(2) of Regulation No 2100/94 expressly provides for the possibility, for the holder, to invoke the rights conferred on him by the plant variety right against a person enjoying the right of exploitation where that person contravenes any of the clauses of the licensing contract.

Nevertheless, the preamble of Regulation No 2100/94 provides that the protection enjoyed by the holder of Community plant variety rights is not to be “excessive.” Based upon this language, the ECJ opined that it is —

… clear that an infringement of any clause of the licensing contract does not always result in vitiation of the holder’s consent. In particular, that consent cannot be considered to be vitiated where the person enjoying the right of exploitation contravenes a provision of the licensing contract which does not affect the consent to the placing of the goods on the market and which therefore has no effect on the exhaustion of the holder’s right.

Breach of License Can Vitiate Consent and Preclude Exhaustion of Rights

Because the parties did not submit to the ECJ the provisions contained in Annexes 6 and 7 to the licensing contract between Better3fruit and Nicolaï, the court was unable to determine whether the failure of Nicolaï to require Hustin to agree to the substance of those annexes sufficed to vitiate the licensor’s consent to Nicolaï’s sales to Hustin. Accordingly, the ECJ wrote that the Belgian court should review those restrictions and determine whether the sales to Hustin violated a license restriction directly related to the “essential features of the Community plant variety right”:

If the referring court were to establish that the protected material was disposed of by the person enjoying the right of exploitation in breach of a condition or limitation in the licensing contract relating directly to the essential features of the Community plant variety right, it would have to be concluded that that disposal of the material, by the person enjoying the right of exploitation to a third party, was effected without the holder’s consent, so that the latter’s right is not exhausted. However, infringement of contractual provisions of any other nature in the licensing contract does not prevent exhaustion of the holder’s right.

The ECJ also observed that in order for a respondent who infringed a Community plant variety right to be held liable for compensation pursuant to Article 94(2) of Regulation 2100/94, the respondent must “have acted intentionally or negligently.” However, the court added that it is of “no significance for the assessment of the infringement that the third party which effected the acts on the material sold or disposed of was aware or was deemed to be aware of the conditions or limitations imposed in the licensing contract.”

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