The Supreme Court made a final ruling in a dispute over the infringement of plant variety. Regarding the infringing party producing and selling propagating materials of the authorized variety without the right holder’s authorization and using “white bags”, the Supreme Court established the compensation basis by applying a multiple of the license fee and imposed treble punitive damages. In addition, the shareholder whose personal finance was commingled with the finance of the infringing party was ruled to bear joint liability. Subsequently, the infringing party proactively paid the compensation as per the effective ruling, and this case was properly resolved.
Anhui A Company was granted exclusive rights to implement the disputed plant variety in Anhui Province on May 24, 2019, and was entitled to protect the right in its own name. Anhui A Company entrusted B Company in Lixin County to produce seeds from September 20, 2019, to June 30, 2020, and subsequently committed B Company to sell propagating materials of the authorized variety. During the cooperation, Anhui A Company charged B Company at a rate of CNY0.20/kg as a licensing fee for utilizing the variety, with B Company using package bags supplied by Anhui A Company at a price of CNY1/bag. In September 2021, Anhui A Company uncovered unauthorized sales of propagating materials of the disputed variety using “white bags” by B Company in Anhui Province and collected relevant evidence. In addition, a natural person X, a 50% shareholder in B Company, funneled revenues into his personal bank account. Meanwhile, X, representing B Company, signed contracts with Anhui A Company and performed business multiple times, during which he used his personal bank account, which is also used for his daily finances, to receive B Company’s revenue. Anhui A Company filed a lawsuit to the first-instance court against the infringement of the plant variety, requesting to order B Company and X to stop the infringement and to bear the joint liability of punitive compensation.
The first-instance court determined that B Company constituted the infringement and that X was performing his duty, so the court ordered B Company to stop the infringement and to compensate Anhui A Company for economic loss and reasonable expenses. Anhui A Company and B Company both were dissatisfied and filed appeals.
In the second instance, the Supreme Court determined that, despite being aware of Anhui A Company’s exclusive rights to use the disputed variety in Anhui Province, B Company proceeded to produce and sell propagating materials of the variety using “white bags” without Anhui A Company’s authorization. The court also deemed that B Company’s sale of the authorized variety with package bags without any signs and labels constituted a serious infringement circumstance warranting punitive compensation. The basis of punitive compensation can be calculated with reference to a reasonable multiple of the license fee. The second-instance judgment specified that, in the licensed use of the variety, the licensor customarily supplies package bags bearing the variety name, and since the variety name involved in the seeds labels on package bags is closely linked to the variety license, charging for package bags that indicate the variety name is also an important means to achieve the economic benefits of the variety rights. In determining the license fee of the variety, right holders can include charges for the package bags alongside the agreed license fee to form the overall license fee. In this case, the parties mutually agreed upon the license fees based on seed weight, which can reflect the economic benefits of the variety in a relatively objective manner, and can be considered in determining the compensation in this case. Based on the inspected infringement scale, B Company should have paid CNY40000 to Anhui A Company for using the variety and CNY13000 for the package bags, totaling CNY53000. Given the unauthorized nature of the production and sale in question, which is different from the license agreed via negotiation under normal market setting, the license fee shall be raised slightly. The second-instance court determined twice the license fee, amounting to CNY106000, as the compensation basis. In addition, considering the severe circumstance where B Company used “white bags” to sell the infringing seeds and B Company’s dishonesty with state the scale of its alleged infringement during the legal proceedings, the court imposed treble damages as a punitive compensation. Consequently, the second-instance court ordered B Company to compensate Anhui A Company economic loss of CNY424000 and reasonable expenses of CNY10000.
X, who holds 50% share in B Company and is the brother of fellow shareholder Y, exercises full control alongside Y over B Company. In the long-term cooperation between B Company and Anhui A Company, X used his personal bank account multiple times to conducted transactions with Anhui A Company and also used this account for his daily use, intermingling personal finance with B Company’s finance. In addition, X did not provide any evidence to prove that B Company recorded the payments made to X in its financial records or other facts that exclude the financial commingling. After comprehensively considering said factors, the commingling of finances between X and B Company occurred, leading to an abuse of the independent status of B Company, which could severely damage the creditor’s interests. Therefore, X shall bear joint responsibility.
In this case, a reasonable multiple of the license fee served as the basis of punitive damages, which is a refined implementation of a punitive compensation measure in the variety protection and a full performance of the deterrence of this measure in the variety protection. Meanwhile, the second-instance court ordering the shareholders whose personal finance was commingled with the company’s finance to bear the joint responsibility is favorable for encouraging market entities to conduct their operations in compliance with the law.
(2022) Zui Gao Fa Zhi Min Zhong No. 1742
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