Legitimate source defense in seed copyright infringement disputes

“Seeds are the chips of agriculture.” With the continued emphasis placed on this issue by the state, the protection of plant variety rights has been continuously strengthened. Disputes involving infringement of plant variety rights related to crop seeds are also showing a year-on-year increasing trend. In these disputes, the defendant, especially those who only engaged in sales or offers to sell, often argues that the accused product has a legitimate source and should not bear liability for damages. However, in practice, the success rate of the legitimate source defense is not high; the legitimate source defense that the parties believe to be valid often fails to meet the standard recognized by the court. This article analyzes the legitimate source defense from both theoretical and practical perspectives, providing a reference for parties in seed infringement disputes.

Overview of Legitimate Source Defense

The “legitimate source defense” is a common statutory defense in intellectual property disputes. It refers to the fact that if a certain standard of proof is met regarding the defendant’s use or sale, demonstrating that their actions were in good faith and that the accused product has a legitimate source, they can be exempted from certain civil liability. The establishment of a legitimate source defense requires at least two basic conditions: subjective good faith and objective legitimacy of the source. Subjective good faith primarily refers to the user or seller’s lack of knowledge and reasonable obligation to know that the product they are using or selling is infringing. This requires the user or seller to have exercised reasonable care and be unable to discover that the accused product is infringing; for example, the user or seller must have paid a reasonable price. The legality of the objective source usually requires proof that the accused product was obtained through legitimate and formal channels and commercial activities.

The defense of legal source has two important implications. Firstly, it protects bona fide businesses from harm due to unforeseen risks. The market environment is complex and volatile, and bona fide businesses may find it difficult to fully detect whether the products involved infringe on intellectual property rights. Therefore, in normal commercial transactions and circulation, a system of the defense of legal source is needed to reduce the burden of liability on bona fide users or sellers. Secondly, it helps to combat intellectual property infringement at its source. The defense of legal source encourages rights holders to actively trace the original manufacturer of infringing products and also encourages bona fide businesses to actively provide evidence of the source of infringing products, making it difficult for the original manufacturer to evade responsibility through multiple layers of sales channels.

Compared to other types of intellectual property rights, the legitimate source defense system in the field of plant variety infringement disputes was established relatively late. my country’s Patent Law and Trademark Law have long made explicit provisions for the legitimate source defense. However, the Seed Law currently does not address the legitimate source defense. In July 2021, the Supreme People’s Court issued a judicial interpretation, “Several Provisions of the Supreme People’s Court on the Specific Application of Law in the Trial of Disputes over Infringement of Plant Variety Rights (II),” Article 13 of which stipulates the legitimate source defense.

Circumstances under which the legitimate source defense is valid

Article 13 of the “Several Provisions of the Supreme People’s Court on the Specific Application of Law in the Trial of Disputes over Infringement of Plant Variety Rights (II)” stipulates that if a seller sells propagation material of the allegedly infringing variety without knowing or should have known that it was sold without the permission of the variety right holder, and provides evidence proving its legitimate source, the people’s court may not order the seller to bear liability for damages, but shall order the seller to cease sales and bear the reasonable expenses incurred by the right holder in stopping the infringement. Therefore, a party asserting a legitimate source defense needs to prove that, subjectively, they “did not know and should not have known,” and objectively, the purchase channel was legal, the price was reasonable, there was an actual specific supplier, and the sales behavior complied with relevant production and operation licensing regulations. If a legitimate source is established, the seller is not required to compensate for losses, but must cease infringement and bear reasonable costs of protecting their rights.

In the “Danyu 405” case, the plaintiff, Liaoning Seed Industry Company, held the variety rights. It purchased “Chengyu 34” hybrid corn seeds from Haiyang Seed Industry Company. Testing proved that these were not actually “Chengyu 34” hybrid corn seeds, but rather “Danyu 405” hybrid corn seeds. Liaoning Seed Industry Company discovered that the infringing seeds were bred and sold by Chengde Seed Industry Company, and subsequently sued both Chengde Seed Industry Company and Haiyang Seed Industry Company in court. Haiyang Seed Company argued for a legitimate source defense and provided evidence such as a Power of Attorney, a Crop Seed Production and Operation License, and a Crop Seed Production and Operation Filing Form (Type: Operating Unpackaged Seeds) to prove that Haiyang Seed Company was authorized to sell “Chengyu 34” hybrid corn seeds and did not know that they were actually “Danyu 405” hybrid corn seeds. The court of first instance held that, combined with the sales invoice issued by Chengde Seed Company on December 28, 2019, it was sufficient to determine that Haiyang Seed Company had fulfilled its reasonable review obligations and could meet the conditions of “not knowing and should not have known”, “legally obtained”, and “explaining the supplier of the goods”. Therefore, Haiyang Seed Company’s legitimate source defense was legally established. In the second instance, the Supreme People’s Court upheld the first instance judgment [1].

Circumstances under which a legitimate source defense is not established

The above analysis has basically clarified the conditions for the establishment of a legitimate source defense in plant variety infringement disputes. However, in practice, most judgments that argue for a legitimate source defense result in the legitimate source defense being not established. For most defenses, the circumstances under which they are established are similar, while the reasons for their non-establishment are different. In some cases, the defense of legitimate source is invalid because the actor failed to exercise reasonable due diligence. For example, in the “Audrey” case, a seedling company in Beijing argued that a farm in Linzi District, without its authorization, bred and sold seedlings of the “Audrey” chili pepper variety, infringing on its plant variety rights and should bear liability for infringement. The court of first instance held that the Linzi District farm, as a family farm and an individual business engaged in agricultural planting, was entrusted by Mr. Zhang to breed “Audrey” chili pepper seedlings, and the seeds provided by Mr. Zhang were commercial seeds. The Linzi District farm was unaware that the received seeds infringed on the “Audrey” plant variety rights. The Linzi District farm also engaged in sales in this case, but did not actually fulfill the purchase contract. Therefore, the court of first instance held that the Linzi District farm’s defense of legitimate source was valid. However, the court of second instance held that the Linzi District farm, as a professional seedling farm engaged in planting for a long time, should have exercised reasonable due diligence regarding the source of the seeds used to cultivate the seedlings. For seeds without proper packaging, it is even more important to examine whether they are seeds authorized for sale by the variety rights holder. The plaintiff admitted that the seeds given to him by Zhang were packaged in self-sealing bags without any markings, and that he had not verified the source of the seeds. Knowing that the source of the seeds was unknown, he still cultivated them, and his subjective state could hardly be described as “not knowing and should not have known.” Therefore, in the second instance, the Supreme People’s Court determined that his defense of legitimate source was invalid [2].

In some cases, the defense of legitimate source is invalid because there is insufficient evidence to objectively prove the legitimacy of the source. For example, in the “Su Cui No. 1” case, the licensee of the exclusive variety rights, Beijing Seed Industry Co., Ltd., sued a planting and breeding professional cooperative in Dengzhou City for infringing its variety rights. The planting and breeding professional cooperative in Dengzhou City claimed that the infringing seedling branches came from a seedling company in Nanyang and had a legitimate source. However, the court of first instance held that it had not provided evidence such as payment vouchers, contracts, delivery notes, or receipts to prove its defense of legitimate source. The number of pear trees allegedly sold by a certain seedling company in Nanyang was significantly different from the number shown in the notarized video (pear trees can be grafted). Therefore, the court of first instance ruled that the defense of legitimate source was invalid, and the Supreme People’s Court upheld the first-instance judgment in the second instance [3].

In some cases, the sales behavior did not comply with the relevant production and operation licensing system. Seeds are related to national food security and are therefore licensed commodities. Without a business license, the sales behavior itself is illegal, and the defense of legitimate source cannot be established. For example, in the “Jingnuo 6” case, one of the alleged infringers, a certain seed shop, raised the defense of legitimate source, claiming that the allegedly infringing seeds were purchased from a third party. However, the seed shop did not have a seed production and operation license, and its sales behavior did not comply with the relevant production and operation licensing system. Furthermore, it did not provide corresponding purchase orders, sales orders, or other process documents, and could not explain the purchased goods, purchase price, or purchase quantity, thus failing to prove that the purchase channel was legal and the price was reasonable. Therefore, the court of first instance ruled that the defense of legitimate source was invalid, and the Supreme People’s Court upheld the first-instance judgment in the second instance [4]. Summary

Following the issuance of the judicial interpretation in 2021, my country has clearly established a legitimate source defense system in plant variety infringement disputes. However, due to the special nature of the industry, legitimate source defenses often fail due to insufficient evidence. This article analyzes the conditions and typical situations for the establishment of legitimate source defenses from both theoretical and practical perspectives. However, in specific cases, the facts and evidence vary greatly, and it is not possible to mechanically analyze specific cases based on the literal interpretation of legal provisions. Instead, a comprehensive strategy should be formulated based on the specific circumstances of each case.

References:

[1] Supreme People’s Court, Civil Judgment No. 1692 of 2022.

[2] Supreme People’s Court, Civil Judgment No. 798 of 2023.

[3] Supreme People’s Court, Civil Judgment No. 99 of 2023.

[4] Supreme People’s Court, Civil Judgment No. 1790 of 2023.