Summary
Zespri hold exclusive rights to sell reproductive material of specified varieties of golden kiwifruit and propagate them for commercial production. Mr Gao and his wife Ms Xue and their company Smiling Face Ltd grew G3 kiwifruit in NZ under a licence from Zespri. The High Court found they breached Zespri’s statutory rights when they supplied the varieties to third parties in China. They appealed the decision to the High Court.
Background
The Plant Variety Rights Act 1987 grants plant variety rights (PVR) holders exclusive proprietary rights to sell reproductive material of the variety and may give others a licence to grow or sell propagating material as well. PVRs are specific to the country granting the right but rights holders can hold rights in a number of jurisdictions. Zespri held PVRs to the Psa3-resistent G3 and G9 kiwifruit varieties in New Zealand and China.
Mr Gao and Ms Xue were granted licences to grow G3 and sell the fruit produced in 2013 and 2014. In 2016, Zespri found proof that Mr Gao, Ms Xue and Smiling Face, breached these rights in a number of respects. This included taking budwood of both varieties to China, purporting to give a Mr Shu full intellectual property rights to both varieties for the whole of China in a 'False Licence Agreement', entering into an agreement to sell budwood to a Mr Li, and investing in a joint venture for the development of an orchard/demonstration park with a Mr Yu and supplying it with G3.
The Case
Rulings on evidence
The Court upheld all the trial judge’s rulings on evidence except one.
The judge was correct to find hearsay statements made by Mr Shu and relied on by Zespri were admissible. Mr Shu could not be compelled to give evidence unwillingly from outside of New Zealand and so was technically ‘unavailable’. The circumstances in which the statements were made suggested they were reliable and they were corroborated by other evidence.
There was no evidence of material process or analytical error that would justify reversal of the judge’s credibility findings. In fact, the Court viewed the judge’s finding that Mr Gao lacked credibility to be "amply justified". The Judge's findings on credibility of Ms Xue (which were far more positive) were not undermined by a mistaken reference to Ms Xu, a witness who gave evidence in another criminal case the Judge heard six months before this case.
It was also open to the trial judge to infer from the evidence that G3 and G9 would not have reached Mr Shu in China but for Mr Gao's actions in NZ.
However, the trial judge did not have enough evidence to support a finding that the total G3 orchard area in China added to 174.2ha. Instead, the Court of Appeal found evidence of orchards covering a total of 141.3ha.
Territorial application of the PVR Act
PVRs are territorial. The New Zealand PVR only applies to rights in New Zealand. The Court of Appeal confirmed the trial judge’s ruling that Mr Gao can be liable for actions in New Zealand that diminished the value of Zespri’s rights in New Zealand, even if those acts were only part of a chain of conduct that extended to China. The Judge did not (and could not) rule on the liability for acts in China.
Mr Gao’s actions in New Zealand included offering to sell G3 and G9 budwood, and preparing them for export and shipping to China. These actions affected Zespri’s rights in New Zealand.
However, the Court of Appeal found the trial judge was wrong to include the False Licence Agreement in the list of infringements. The False Licence Agreement purported to give Mr Shu an exclusive intellectual property right to G3 in all of China and was designed to deceive Mr Shu’s Chinese investors. The Court of Appeal found this did not constitute a breach of Zespri’s rights in New Zealand, which could not be affected by purported agreements for use rights in China. The agreement was also backdated and signed after budwood had been supplied to Mr Shu in August 2012 and so was not operative.
Assessment of damages
The Court agreed with the trial judge’s method for calculating damages. Zespri was entitled to be compensated for its loss of control over and the unauthorised use of its exclusive rights. Compensatory damages were properly calculated using the user principle, which is the normal method when the plaintiff's losses or defendant's profit cannot be quantified.
Exclusion of the False Licence Agreement did not alter damages, which were based on the sale of budwood, not on the purported agreement to grant exploitation rights.
The trial judge was correct to assess damages according to orchard acreage in China and to rely on the 2016 competitive tender value for G3 as a proxy for a hypothetically-negotiated sale of the infringing budwood.
The Court of Appeal also agreed with the Judge's decision to apply a 50% discount in light of the fact that the acreages were not fully planted in G3 and G9 and also because of the expectation that Zespri could take action to enforce its rights in China.
Because the overall orchard area was reduced from 174.2ha to 141.3ha, the amount of damages was reduced, but the same calculation method applied.
Result
The appeal was allowed to extent damages were reassessed but otherwise dismissed. The court substituted awards of damages of NZD $14,894,100 against Mr Gao and NZD $14,894,100 against Smiling Face, for awards of NZD $12,081,150 against each party.
Because the appeal largely failed, the Court decided not to make an order for costs. The Supreme Court has since refused Mr Gao leave to appeal the decision ([2022] NZSC 13).
The Plant Variety Rights Bill was introduced in May 2020 and received royal assent on 18 November 2022, becoming the Plant Variety Rights Act 2022.
For further information on this case or a similar matter, please contact Director Brigitte Morten
