On February 25 2010 the Supreme Court made the first-ever reference for a preliminary ruling to the Court of Justice of the European Union on the exhaustion of Community plant variety rights under EU Regulation 2100/94.(1)
Material from protected plant varieties is seldom commercialized by the holder of the variety and still less so by the breeder. Rather, the commercialisation of material from protected plant varieties is often left to licensees which, in turn, may be allowed to grant sub-licences. Under the system of Community plant variety rights, licences need not be registered in order to be effective against third parties. As a result, third parties are not always aware of contractual restrictions that the rights holder has imposed on its licensee. The Supreme Court is seeking to establish (i) how far third parties are bound by such restrictions, and (ii) whether the rights holder is bound by a licensee's actions, even if these actions contradict the provisions of the licence agreement.
Facts
A Belgian breeder of apple trees granted an exclusive licence to Licensee A to commercialize trees of the Nicoter variety. The licence agreement stipulated that the licensed product (ie, the protected apple trees) could be sold only if the buyer first signed a sub-licence agreement for permission to grow or market the protected trees.Licensee A disregarded this clause and sold trees to a sub-licensee without the latter having signed the sub-licence. The licence agreement between the breeder and Licensee A was subsequently terminated and the breeder concluded a new exclusive licence agreement with Licensee B.
Licensee B was a 'person enjoying exploitation rights' pursuant to Article 104 of Regulation 2100/94 and sued the sub-licensee for infringement of the Community plant variety rights in the Nicoter variety. According to Licensee B, the sub-licensee could not have purchased the apple trees from Licensee A legitimately, since the latter had violated the terms of its licence agreement. The sub-licensee argued that Licensee B's rights were exhausted because Licensee A had distributed Nicoter material within the European Union. Moreover, the sub-licensee argued that when it bought the trees from Licensee A, it was unaware of the latter's contractual obligations.
Issues
At first sight, the position appears straightforward. As a rule, only the holder of rights in a protected variety is authorized to:
- produce or reproduce material from the variety;
- condition it for the purpose of propagation;
- offer it for sale, sell it or otherwise put it on the market;
- export or import it; or
- stock it for any of these purposes.(2)
The only exception applies where the holder has authorized (ie, licensed) a third party to perform any of these acts.(3) However, even if a licence has been granted, the holder may make its authorization subject to conditions and limitations, such as the requirement that Nicoter material be sold subject to the buyer signing a licence agreement.(4) If the licensee contravenes a condition or limitation attached to its exploitation right, it not only violates the licence agreement, but also infringes the licensed plant variety right which the holder may then enforce against the licensee.(5)
The fact that a contravention of the conditions or limitations in a licence agreement amounts to an infringement of the licensed plant variety right has consequences for the exhaustion of the right in question. With some exceptions, such a right will be exhausted only if material of the protected variety (or an essentially derived variety) or any material derived therefrom has been distributed to others by the rights holder - or with its consent - within the European Union. If a licensee sells apple trees to a third party on terms that contradict the terms and conditions of its agreement with the rights holder, the trees have not been distributed to others in the European Union with the rights holder's consent. The regulation therefore seems to suggest that the holder's rights are not exhausted in such circumstances, allowing the rights holder to take legal action against the licensee and any party that subsequently purchases the trees or sells their harvest to third parties. The regulation does not require that the licence agreement be registered in the Community Plant Variety Register or that the terms of the agreement be notified to third parties. This suggests that the mere fact that third parties are unaware of such terms is no defence against an infringement claim.
However, the Court of Justice of the European Union has dealt with a similar case in the context of trademark law. Its decision suggests that the apparently straightforward reasoning may be less clear than it appears. In Peak Holding(6) the ECJ held that an explicit prohibition against reselling in the European Union, when incorporated into a contract of sale between a trademark proprietor and a reseller, does not mean that the relevant product is not placed on the market in the European Union, and thus does not preclude the exhaustion of the proprietor's exclusive rights in the event of resale in the European Union in breach of such prohibition.
Referral
The Supreme Court has sought clarification on how this case law should be balanced with the provisions of the regulation, particularly in view of the first recital of the preamble to the regulation, which indicates that "plant varieties pose specific problems as regards the industrial property regime which may be applicable". The questions referred to the Court of Justice of the European Union are as follows:
"Should Article 94 of [the regulation], read in conjunction with Articles 11(1), 13(1) to 13(3), 16, 27 and 104 of the [regulation], be interpreted in such a way that the holder or the person enjoying the right of exploitation may bring an action for infringement against anyone who effects acts in respect of material which was sold or disposed of to him by a licensee of the right of exploitation if the limitations in the licensing contract between the licensee and the holder of the Community plant variety right that were stipulated to apply in the event of the sale of that material were not respected?
If so, is it of significance for the assessment of the infringement that the person effecting the aforementioned act is aware or is deemed to be aware of the limitations thus imposed in the said licensing contract?"
The court's answer is eagerly awaited.
