UK: Plant Breeders’ Rights – First UK Compulsory Licence Challenge

Key words: Compulsory licence application – protected variety of potato "Lady Rosetta" – first application to be considered under The Plant Varieties Act 1997.

Facts: On October 31, 2001, the Controller of Plant Variety Rights refused the first compulsory licence applicationⁱ lodged under The Plant Varieties Act 1997 (the "Act")ⁱⁱ.

The challenge was to a variety of potato "Lady Rosetta", popularly used in crisp manufacture. Dutch seed breeder, C. Meijer BV ("Meijer") owns the UK plant breeders’ rights in "Lady Rosetta", with MBM Produce Limited acting as its exclusive agent in the UK. Sacker Potatoes Limited ("Sacker") applied (unsuccessfully) for compulsory exploitation rights in the protected variety, arguing that Meijer’s refusal to issue a licence was unreasonable and that the rights’ holder was failing to satisfy demand in the UK market. The applicant’s action was supported by Higgins Agriculture Limited.

Section 17 of the Act sets out the criteria for a compulsory licence application. The Controller may only grant an application on the basis that the rights’ holder has unreasonably refused (or put forward unreasonable terms) under section 17(1) to grant a licence if she is satisfied under section 17(2) that:

(a) it is necessary to secure that the variety is: available to the public at reasonable prices; widely distributed; or maintained in quality;

(b) the applicant is financially and otherwise in a position to exploit the variety in a competent and businesslike manner; and

(c) the applicant intends to so exploit those rights.

The Controller must also have regard to the fact that the rights’ holder is entitled to secure reasonable remuneration from exploiting its intellectual property rights (in practice, to ensure adequate funding for on-going or new breeding programs or to finance the development, trialling and marketing of existing or new plant varieties).

Held: After protracted proceedings of over a year, the matter came for final consideration by the Controller, Mrs Heather Hamilton of DEFRA’s Plant Varieties and Seeds Division. After acknowledging the evidence cited on both sides, the Controller found that insufficient evidence had been adduced by the applicant to demonstrate that the rights’ holder had unreasonably refused to grant a licence to the applicant. The Controller had regard to the general conduct of the parties (especially the applicant’s previous import of seed without the rights’ holder’s permission) and concluded that none of the public interest criteria under section 17(2) had been met.

The Controller made a number of useful observations in applying section 17 of the Act:

There is nothing in the Act that requires the rights’ holder to issue licences to all who apply. The Controller could only override the free exercise of the authority of the rights’ holder in circumstances of "public interest" (to be consistent with the UPOV Conventionⁱⁱⁱ). The Controller recognised that it was legitimate for a breeder to limit the licences granted for a protected plant variety to one or more selected growers or merchants. The Controller could only grant a compulsory licence in circumstances where the conditions (laid down by the legislature in section 17) were satisfied (and not upon the basis of any wider arguments raised under UK or EC competition law).

In reaching a decision under section 17(1)(a) on whether a licence had been unreasonably refused, the Controller should have regard not only to the conduct of both parties, but also to the public interest criteria at section 17(2)(a). At least one criterion must be satisfied before a compulsory licence may be granted (i.e. it is necessary to grant the compulsory licence to secure that the variety is: available to the public at reasonable prices; widely distributed; or maintained in quality.) The Controller also noted that to grant a compulsory licence the applicant must have also satisfied sections 17(2)(b) and (c) (i.e. that the applicant is financially and otherwise in a position to exploit the variety in a competent and businesslike manner and so intends to exploit those rights).

In the same way as was held in the earlier Cama Wheat ^ivunder the old Plant Varieties and Seeds Act 1964, the Controller has confirmed that the burden of proof under the 1997 Act rests with the applicant to satisfy the Controller that the relevant conditions for the grant of a compulsory licence are met.

The Controller noted that the obstructive approach adopted by the applicant in this case did little to facilitate an atmosphere of reasonable negotiation (i.e. imposing an arbitrary deadline for the grant of a licence under threat of a compulsory licence challenge to the rights’ holder, if the demand was not met).

The previous import by the applicant of nearly 100 tonnes of seed without the rights’ holder’s permission was material to the reasonableness of the rights’ holder’s refusal to grant a licence. To claim as the applicant did (unsuccessfully) that such a large quantity of seed was for experimental use (and, therefore, outside the scope of plant breeders’ rights under section 8 of the Act) was questionable and the fate of any resultant harvested material was relevant to whether it was genuine experimental use or not.

In defining the meaning of "public" for the purposes of ensuring that the variety is available to the public at reasonable prices, the Controller rejected a submission that for a specialist variety used to manufacture crisps (and not for domestic use) that the relevant public was only the crisp manufacturer, noting that the experience of all growers or users of the variety was relevant. In assessing whether a variety was "available" to the marketplace, the Controller did not find it relevant that there were substitute varieties available for use in crisp manufacture in the same supply periods as "Lady Rosetta".

The Controller noted a difference between a company which is unable to access the variety other than from one supplier in the UK (the rights’ holder’s agent) and the public interest criteria of a variety not being available or widely distributed. The vague and anecdotal evidence of a German seed supplier that the variety was not freely available in the UK was given limited weight, as it was unsupported by hard evidence.

The finding of the Controller was that the rights’ holder in this case was justified in not meeting speculative demands for large quantities of seed at short notice. In reaching that decision, the rights’ holder was entitled to consider what would be the impact on its carefully managed long-term production forecasts of diverting existing allocations of seed away from loyal existing customers to a new (and untested) customer, with the risk that such customer might not in fact take up the whole of the large allocation which it had demanded. In the circumstances, an offer by the rights’ holder to supply the demand in part was sufficient to counter the suggestion that the rights’ holder was not meeting demand.

The Controller accepted the rights’ holder’s evidence that it was legitimate for a breeder to decide upon where seed multiplication should take place in the UK, where there were genuine and legitimate concerns that further production in that area could increase the risk of diseased stock (in this instance, blackleg in Scotland).

The Controller found that the applicant had presented no substantive evidence of current problems with maintaining the variety in quality. It was not appropriate for the Controller to comment upon the adequacy of phytosanitary controls imposed by the Plant Health Directive in any individual Member State where the controls applied equally to all Member States. The Controller expressly rejected the applicant’s submission that the breeder’s policy of multiplying seed in The Netherlands carried a long term health risk and quality concerns.

The outcome of the first compulsory licence application is of interest to breeders and growers alike. Implicitly, it appears to demonstrate that the Controller takes the view that the grant of UK plant breeders’ rights confers the rights’ holder with a wide discretion to commercialise that variety as he sees fit in order to fund the essential on-going or new breeding programs for developing, trialling and selecting new varieties. The Golden Promise Spring Barley^vcase (decided under the 1964 Act) endorsed the established principle that successful varieties pay for unsuccessful ones (i.e. "winners pay for losers"). Without such a principle, the rationale of the legislation to support the plant breeding industry would be removed. It would seem that the Controller will only exercise her discretion within the tightly-drawn parameters of section 17 where there is a genuine concern that action is required out of public interest (within the prescribed grounds).

It remains difficult to predict whether this same reasoning would be followed by the Community Plant Variety Office in deciding an equivalent application under Article 29 (yet to be invoked) of Regulation (EC) No. 2100/94, in respect of a variety the subject of the grant of Community (EC) plant variety rights.

The applicant had 28 days (until 30 November 2001) to lodge an appeal from the Controller to the Plant Variety Rights Tribunal (a body which has only sat once in its entire history (since 1964)). In the event, Sacker Potatoes Ltd lodged a notice of appeal to the Controller's decision, but later notified the Tribunal that it had no wish to maintain the appeal. The original decision of the Controller, therefore, stands in favour of the rights' holder.

Herbert Smith was instructed on behalf of the rights’ holder and its exclusive agent: it has also acted (successfully) in 9 previous compulsory licence applications under the 1964 Act.