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Tianjin Tianlong Seed Technology Co., Ltd. V. Jiangsu Xunong Seed Technology Co., Ltd. (2011) SZMZZ No. 0194\0055, Jiangsu Higher People’s Court

Cause of action: Dispute over new plant variety rights

Collegial panel members: Song Jian | Gu Tao | Yuan Tao

Keywords: civil, cross-licensing, infringement of new plant variety rights

Relevant legal provisions: Contract Law of the People’s Republic of China, article 5 Regulations of the People’s Republic of China on the Protection of New Varieties of Plants, articles 2, 6 and 39/

Basic facts: Each of Tianjin Tianlong Seed Technology Co., Ltd. (hereinafter “Tianlong”) and Jiangsu Xunong Seed Technology Co., Ltd. (hereinafter “Xunong”) filed a lawsuit against the other alleging infringement upon rights to an NPV.

The 9A/418 rice variety, a three-line japonica hybrid rice variety, jointly cultivated by the Northern Japonica Hybrid Rice Engineering Technology Center (also known as the Liaoning Rice Research Institute; hereinafter “LRRI”) and the Xuzhou Institute of Agricultural Sciences (hereinafter “XIAS”), achieved national crop variety validation on November 10, 2000. The 9A/418 rice variety is generated from female plant 9201A and male plant C418. On December 30, 2003, the LRRI applied to the Ministry of Agriculture for NPV rights with respect to the C418 rice variety, obtained approval on May 1, 2007, and granted to Tianlong the exclusive license to exercise NPV rights with regard to C418. On September 25, 2003, XIAS applied to the Ministry of Agriculture for protection of NPV rights with regard to the Xu 9201A rice variety that it had bred, for which it obtained approval on January 1, 2007. On January 3, 2008, XIAS licensed to Xunong the exclusive right to exercise the NPV rights with respect to Xu 9201A. Upon investigation, it was found that Xunong and Tianlong used the same combinations to produce 9A/418 – namely, C418 as the male plant and Xu 9201A as the female plant.

On November 14, 2010, upon request by Tianlong, the court of first instance, the Intermediate People’s Court of Nanjing Municipality, commissioned Hefei Test Center, under the auspices of the Ministry of Agriculture, to conduct DNA identification to establish whether there was parenthood between the allegedly infringing variety provided by Tianlong and the protected variety C418. The following findings were obtained from the test:

Having applied the 48 rice SSR markers in the national standard GB/T20396-2006, a marker analysis was made of the DNAs of 9A/418 and C418. The results showed that in all markers tested, 9A/418 fully inherited the DNA band pattern of C418 and it may be concluded that there exists parenthood between 9A/418 and C418.

On August 5, 2010, upon request by Xunong, the court of first instance authorized the Hefei Test Center, under the auspices of the Ministry of Agriculture, to identify whether there was parenthood between the allegedly infringing variety provided by Xunong and the varieties C418 and Xu 9201A. The following findings were obtained from the test: Having applied the 48 rice SSR markers in the national standard GB/T20396-2006, a marker analysis was made of the DNAs of the alleged infringing variety and C418 and Xu 9201A. The results showed that in all markers tested, the alleged infringing variety fully inherited the DNA band pattern of C418 and Xu 9201A. It may be concluded that there is parenthood between the alleged infringing variety and C418 and Xu 9201A.

In the written application for NPV protection for C418 that Tianlong submitted, the description indicated that C418, a japonica-type restorer line with a shape close to indica and a specific affinity, was cultivated by using the “indica–japonica bridge” restorer production technique first invented by North China Japonica Hybrid Rice Center and by using intermediate materials between indica and japonica varieties to construct favorable genetic groups from indica and japonica varieties. C418 has a higher specific affinity, which is a property possessed by restorer lines cultivated by the “indica–japonica bridge” method, as manifested in the first hybrid offspring’s better coordination of the ecological and genetic differences between the genomes of indica and japonica varieties, thus providing a better solution to the weaknesses generally manifested by indica and japonica hybrids, such as low seed-setting rate, poor grain plumpness, temperature sensitivity and premature aging. C418 combines the excellent traits of indica and japonica varieties, and the hybrid combinations that it produces generally show a higher seed-setting rate and some degree of cold tolerance.

In their letter to Tianjin Seed Management Station, Xunong and XIAS claimed that Xu 9201A, a middleseason japonica sterile line that they had independently bred, passed the national validation for crop varieties in 1996. Prior to the validation, it had been named “9201A”, abbreviated as “9A”; after the validation, it was renamed “Xu 9201A”. Using Xu 9201A as the female parent, Xunong and XIAS had successively bred various three-line japonica hybrid rice combinations, including 9 A/138, 9A/418 and 9A/24. In the application for national validation of the crop variety filed in 2000, the variety origins were indicated still as “9201A×C418”, which were the same for the combination of the two genetic groups in 1995. In the plant variety protection application for Xu 9201A filed with the Ministry of Agriculture in July 2003, it was indicated in the description that Xu 9201A had been combined with other genetic groups to breed various hybrid combinations, including 9A/138, 9A/418, 9A/24, 9A/686 and 9A/88. Xu 9201A and 9201A are the same middle-season japonica sterile line. Tianlong’s infringing use of 9201A was an infringing use of Xu 9201A.

Held: With respect to the case of Tianlong v. Xunong, the Intermediate People’s Court of Nanjing Municipality delivered its judgment ((2009) NMSCZ No. 63) on August 31, 2011, in which it:

(a) ordered Xunong to immediately cease selling the seeds of the japonica hybrid rice 9A/418 and prohibited it from repeatedly using the seeds of the NPV C418 for production of the seeds of the japonica hybrid rice 9A/418 without authorization from the right holder;

(b) ordered Xunong to pay, within 15 days of the effective date of the judgment, RMB500,000 to Tianlong as compensation for its economic loss; and/// (b) rejected Tianlong’s other claims./// Xunong was to bear the legal fees of RMB15,294 for the first-instance proceedings./// With respect to the case of Xunong v. Tianlong, the Intermediate People’s Court of Nanjing Municipality delivered its judgment ((2010) NZMCZ No. 069) on September 8, 2011, in which it:

(a) ordered Tianlong to immediately cease infringing Xunong’s exclusive right to NPV Xu 9201A from the effective date of the judgment;/// (b) ordered Tianlong to pay, within 10 days of the effective date of the judgment, RMB2 million to Xunong as compensation for its economic loss; and/// (b) rejected Xunong’s other claims./// Unconvinced by the respective firstinstance judgments, both Xunong and Tianlong appealed. On December 29, 2013, the Higher People’s Court of Jiangsu Province combined the two cases and delivered its joined judgments, in which it:/// (a) overturned the first-instance judgments delivered by the Intermediate People’s Court of Nanjing Municipality, Jiangsu Province;/// (b) ordered Tianlong to pay, within 15 days of the effective date of the judgment, RMB500,000 to Xunong as compensation; and/// (b) rejected both parties’ other claims./// Reasoning: In its effective judgment, the court held that the right to an NPV, as a type of important intellectual property right, should be respected and protected. Article 6 of the Regulations on the Protection of New Varieties of Plants clearly provides that:/// The entity which or the person who has accomplished the breeding has an exclusive right in their protected variety. No other entity or person shall, without the consent of the holder of the variety rights, produce or sell for commercial purposes the propagating material of the said protected variety, or use for commercial purposes the propagating material of the protected variety in a repeated manner in the production of the propagating material of another variety./// However, it is necessary to point out that this provision did not apply to the situation in this case./// First, the cooperative cultivation of 9A/418, combining rice groups free of charge, traces its origin back to the large-scale cooperation in hybrid rice research that took place in the 1990s in China. Variety 9A/418 has excellent traits and has been widely planted in Jiangsu, Anhui, Henan and other regions. It has been generally welcomed by many farmers and has become the leading variety of middle-season japonica hybrid rice. The infringement of rights alleged by both parties in itself shows that variety 9A/418, compared with other varieties, has higher economic value and better market prospects, and hence involves enormous economic interests on the part of the collaborating parties (that is, LRRI and XIAS), as well as both parties to this case. At second instance in this case, the court carried out significant mediation work in the hope that the parties to the case could engage in cross-licensing to allow the continued production of the excellent variety 9A/418. The parties agreed to cross-license the variety rights involved in the case, but the mediation was not successful, for the sole reason that the first-instance court had ordered Tianlong to pay Xunong compensation in the amount of RMB2 million and Xunong to pay Tianlong in the amount of RMB500,000, but the parties could not reach a settlement on the RMB1.5 million net balance of compensation. Because Tianlong and Xunong could not reach a settlement, production of the variety 9A418 could not continue. This could not be considered to affect only the interests of the two parties in this case; in fact, this outcome impaired the implementation of the National Food Security Strategy and was detrimental to the public interest. In addition, this outcome was not consistent with the fundamental purposes of the collaborative breeding initially carried out by LRRI and XIAS nor did it comply with the fundamental requirements for promoting the commercialization and application of NPVs. On its face, the parties to this case took action to protect their own intellectual property rights, but the actual results were a barrier to the use of intellectual property rights and to the commercialization and application of scientific and technological outcomes. Considering that the public interest was involved in the two cases, including national food production security, and that the promotion of the excellent variety 9A/418 was affected, the court held that the parties should both be subject to some constraints when exercising their exclusive licensing rights to the NPV involved in the case. In the production of the rice variety 9A/418, each party should permit the other to use the propagation material of its own parent variety. This result was clearly beneficial to the common interests of LRRI and XIAS (the two collaborating parties) and to the parties to this case. This result would also take care of many farmers’ interests. It was therefore inappropriate for the first-instance court to order the parties of the two cases to respectively cease infringing each other’s rights and to pay each other compensation for economic losses. That court’s mistakes were to be corrected./// Secondly, 9A/418 is a three-line hybrid combination that combines the excellent traits of the two parents and has notable heterosis. The role of the female parent sterile line is important and the selective breeding of the male parent C418 also successfully solved significant problems related to three-line japonica hybrid rice. In the 9A/418 combined groups, the male parent has the same status and function as the female parent. The court issued a decision that XIAS and LRRI, the two parties that collaborated in the development of the rice variety 9A/418, as well as Xunong and Tianlong, the parties to this case, all had the rights to use the propagation material of the parent variety for which protection had been granted and that they should mutually exempt each other from the relevant licensing fees. However, the rights and exemption applied only to the production and sale of the rice variety 9A/418, and could not be used for other commercial purposes. Xunong expended significant business efforts and carried out research to overcome key technological barriers to planting variety 9A/418, whereas Tianlong entered into production of the variety 9A/418 only after it had been widely recognized by the market; the latter’s market costs for promoting the variety were therefore significantly reduced. For the sake of fairness and equity, the court also ordered Tianlong to pay Xunong RMB500,000 as economic compensation./// Finally, given that each party produced 9A/418 on its own, it was found that there existed some market competition and conflict of interest between them, and the court cautioned them that they were to abide by the relevant provisions of the Law of the People’s Republic of China against Unfair Competition, to operate their businesses honestly, to compete in an orderly manner and to ensure the quality of their products. In particular, the two parties were to clearly indicate their respective business logos to prevent new controversies and disputes from arising, and both parties were to jointly preserve the good reputation of variety 9A/418.