Zespri Prevails Despite Minor Technical Setbacks to Infringement Findings

In Haoyu Gao v Zespri Group Ltd 2021 NZCA 442 the Court of Appeal overall upheld the infringement findings in the trial Judge’s decision, but found that Gao’s assumed authority to licence a Chinese grower did not infringe Zespri’s New Zealand plant variety rights (PVRs).

During the 2000’s Zespri had a commercially successful variety of golden kiwifruit, but by the end of that decade that variety proved to be susceptible to the Psa3 bacteria and resulted in vines for that variety being removed. As a result of research by Zespri to find a Psa3 tolerant variety of golden kiwifruit, Zespri developed what are known as the G3 and G9 varieties, with the G3 variety in particular proving to be commercially successful, and has since been granted PVRs for those varieties in New Zealand, China and other jurisdictions.

Prior to establishing their own orchard in 2013 the appellants ran a kiwifruit contracting business. For their own orchard they obtained licences from Zespri to grow the G3 variety and to sell the produce.

However, by early 2016 Zespri became aware that the G3 and G9 varieties were being grown in China and investigations led Zespri to claim that Gao, his wife Xue and their company Smiling Face Ltd infringed their New Zealand PVRs. Zespri did not allege that the appellants had infringed their Chinese PVRs. The trial Judge held Gao and Smiling Face (a) supplied G3 and G9 to a Mr Shu (and purported to license him to exploit those varieties throughout the whole of China), (b) entered into a joint venture to exploit and sell G3 and G9 in China with a Mr Yu (including planting a 6 ha “demonstration park” containing G3 plantings supplied by Gao), and (c) offered to sell G3 to a Mr Li, while also finding that (d) Mr Gao and Ms Xue breached the terms of their G3 Licence Agreements with Zespri. The trial Judge determined the evidence established that the varieties were grown in China on several sites totalling 174.2 hectares and assessed damages on a notional licence fee basis.

The appellant’s most substantive point on appeal was that the trial Judge had erred in applying the PVR Act extraterritorially. The trial Judge held that the offers to sell and the execution of the purported licence agreement along with the preparations for the export of the G3 and G9 budwood all occurred in New Zealand. The trial Judge found that Gao’s conduct within New Zealand diminished the value of Zespri’s exclusive rights within New Zealand.

On appeal it was common ground between the parties that Zespri’s exclusive rights under its New Zealand PVRs does not include the exclusive right to export those varieties as the right to export is not part of a grantee’s exclusive rights. This stems from New Zealand only being a member of UPOV 78 rather than UPOV 91, the latter of which gives grantees a broader range of rights. As recently discussed New Zealand has introduced a Bill that is intended to replace the current PVR Act and which will implement UPOV91 to the fullest extent possible while giving meaningful effect to the Treaty of Waitangi.

The Court of Appeal noted that the presumptive position at common law is that a statute has territorial-only effect unless extraterritorial reach is provided for expressly or by necessary implication. The Court of Appeal held that the text and context of the PVR Act points to it having a territorial-only reach. Consequently the Court of Appeal held that the trial Judge erred in holding that the execution of the purported licence agreement infringed Zespri’s New Zealand PVRs, as that agreement only purported to authorise propagation of the varieties in China. The Court of Appeal did not rule out a New Zealand Court having jurisdiction if Zespri had alleged infringement of its Chinese PVRs, but in the absence of such an allegation it could not do so.

Nonetheless, the Court of Appeal upheld the trial Judge’s findings of infringement on account of offering to sell and making preparations for export of the budwood. However, the Court of Appeal found that the trial Judge had fallen into error when determining the total area for which stock had been supplied and so assessed damages on a notional licence fee basis for 141.3 hectares.

Author: Quinn Miller

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