Breeders and royalties: what does the law say?

This is a courtesy translation made by WebLegal law firm of the article by uvadatavola.com, available in the original Italian version on this page.

More than four months after the historic Supreme Court ruling that recognised the right to free distribution of seedless grapes even if they are patented, we return to the point with Mr. Roberto Manno, lawyer and founder of WebLegal Supreme Court ruling No. 9429/2024, now known as the ‘Miglionico’ ruling, recognised the right of producers to freely market grapes obtained from legitimately propagated plants for which the relevant royalties have been paid.

However, as reported, the decision has raised numerous questions and opened up debate, not only in Italy. There are fears that it could somehow penalise the current market equilibrium, to the detriment of local farmers themselves, leading breeders to prefer other markets than the Italian one where it is no longer possible to obtain proper remuneration for the considerable investment in research and development of new varieties. In the midst of the 2024 table grape season, it is therefore important to take stock of the situation based on the different positions that have emerged. Some of these issues were anticipated in our pages by lawyer Roberto Manno, owner of the WebLegal law firm, in interviews in 2019 and 2021, well before the decision of the Court of Justice of the European Union (CJEU) in the notorious ‘Nadorcott’ case, which then provided important interpretative guidelines on the limits to plant variety rights, to which the Supreme Court – and, before it, and the first-ever, the Court of Bari in a similar case – referred. We therefore decided to contact him again to gather his point of view. 

Mr. Manno, the Supreme Court’s ruling seems to echo the arguments of the Court of Justice of the European Union (CJEU) in the ‘Nadorcott’ case, which you have always insisted on.

 Thank you very much for contacting me. I would like to thank once again my friend and colleague, Mr. Francesco Saverio Costantino, who masterfully pleaded the case before the Court of Cassation and with whom I collaborated on the substantive issues. As you have rightly pointed out, regardless of the possible different interpretations, the ‘Miglionico’ ruling is historic because it is the first time that the Court of Cassation has addressed the issue of the validity of contractual clauses that exceed the legal limits of breeders’ rights. Before, it was practically impossible to ‘climb this mountain’; afterwards, the opposite seemed impossible, because the CJEU came up with a real ‘test’ capable of resolving many interpretative doubts. And so, thanks to the perseverance of Mrs. Angela Miglionico and her husband Gianni Stea, the Supreme Court immediately grasped the importance of the case, which goes far beyond the relationship between Sun World International and the two spouses: in fact, it is a matter of respecting the limits imposed by the discipline provided for by the UPOV Convention and ratified in Europe by a Community Regulation applicable to all plant varieties of any botanical species, the interpretation of which is reserved to the CJEU. Based on the CJEU judgment, the judges of the Supreme Court found an irreconcilable incompatibility between the contractual clauses allegedly violated by Miglionico (who had to eradicate an entire plantation for this) and the international and Community (hence national) legal regulations.

Henceforth, all contractual relations between plant breeders and agricultural producers and the related domestic disputes must conform to the principle of law affirmed by the Supreme Court. The Court of Cassation has ruled that a ‘contractual clause that also gives the owner of intellectual property rights on patented cultivars the power to identify the parties who alone will be entitled to distribute the fruit obtained by the producer previously authorised to use the varietal constituents of the protected variety from which those fruits were produced, where the latter are unusable as propagating material´, is null and void for being contrary to public order’. What will be the impact of this principle on varietal selection groups? 

 Reactions to the ruling have been many and varied: however, it is necessary to put the issue in its proper context, which – I repeat – goes far beyond the Apulia region and the seedless grape varieties. If the Supreme Court found a violation of public order in the contracts, it would be more appropriate to reflect on how it could have come to this: pointing the finger at those who brought this contradiction to light does not bode well. The Supreme Court’s ruling examined a contract, and not the ‘varietal clubs’ per se: clauses reserving to the owner of a plant variety ‘a right of ownership over plants and fruit produced by the other party as a result of the authorised use of the varietal constituents’ conflict with the ‘principles pertaining to the development of agricultural activity and free competition’. This should be the starting point, which is, however, far from clear: there are many who criticise both the ‘Miglionico´ ruling and the CJEU’s ‘Nadorcott’ decision itself. This is the opposite approach to that of the UPOV (International Union for the Protection of New Varieties of Plants) itself, which since 2022 has been deeply reflecting on precisely the same issues dealt with by the CJEU: at the last meeting of the Working Group on Harvested Material and Unauthorized Use of Propagating Material, it was decided to appoint a panel of experts to be entrusted with a study on these issues, and I am sure that the Miglionico ruling will help. Having said this necessary premise, I believe that the ruling has an impact not on the if, but on the how of the ‘Clubs’, and here many components come into play. The contractual autonomy enjoyed by the owner of a new plant variety moves within very narrow limits, which the CJEU qualified as ‘indispensable’ to ensure adequate development of the agricultural sector for the benefit of society at large. Unlike patents, the exclusive rights enjoyed by the owner of a variety have a limited scope, namely the use of the varietal constituents for the production or reproduction of a whole plant: both the latter and the fruits may be subject to the proprietor’s dispositive power to the extent that they are obtained from the unauthorised use of the constituents. In return, and precisely to allow the holder to recoup his investments, a longer term than the patent term is foreseen, ranging from 25 to 30 years from the granting of the variety (which in turn can take place years after the filing of the application).

 Thus, the one who produces the plant (or plantation) and subsequently the fruit (or jam) will not be the owner of the variety, but the farmer, i.e. the one who will have chosen which variety to use from those available, paying the appropriate premium or royalty. Contracts that qualify a plantation (even if obtained by the authorised use of varietal constituents) as a proprietary property leased, to be ‘returned’ in the event of expiry or breach of contract, are beyond the bounds of international discipline. If this is what is meant by ‘Club’, then we can only regret why this page (somewhere between Kafka and Silone) was not concluded much earlier. On the contrary, both as an expert on the subject and as an Apulian, I would like this pronouncement to stimulate a peaceful and constructive dialogue also on the contractual schemes of ‘Clubs’, with a view to better balancing the interests and rights of all the operators in the supply chain, including distributors, marketers and the POs themselves, who are often at the centre of strong tensions.

Shifting the question to the level of the trademark, does the discourse remain the same?

Again, I do not believe that the issue can be resolved in a few words. Each contract, like each club or trademark or variety itself, tells its own story: to give general answers would be unserious. In recent times there has been a growing need to find a balance between plant variety rights and other intellectual property rights, pointing out that this need was already foreseen in Regulation (EC) No 2100/94 on Community plant variety rights, which is still in force. However, it should be made clear that there are considerable differences between patents, trademarks, plant varieties, and variety denominations: they are horses of different colours. Often, when speaking of plant varieties, the term ‘patent’ is used quite inappropriately. In addition, the increasing use of trademark rights rather than plant variety rights raises several concerns because trademarks and plant varieties have different objects and different objectives. The fact that there are different IP protection systems, fulfilling different objectives and covering different subjects of protection raises the question of the coexistence of these rights, which is a far cry from convergence. From this point of view, I think that the Miglionico judgment set very strict ‘stakes’ and I am not so sure that the ´varietal mark´ allows them to be overcome.

The Miglionico ruling revealed serious illegitimacy in the construction of the relationship between breeder and farmer, and thus of the fundamental principles of plant varieties: in a recent case, the Court of Genoa rejected the thesis according to which selling fruit without using the trademark is tantamount to counterfeiting (so-called, ´de-branding´), pointing out in fact that this hypothesis only occurs in the case of the sale of original product from which the trademark legitimately affixed by the producer has actually been removed. This thesis is also supported by the most recent ruling of the Court of Bari in the dispute concerning the nullity of the Sugraone variety: since the grapes marketed cannot be distinguished by the trademark, the removal of the trademark cannot be hypothesised. According to the judges, having ascertained the nullity of the patent, a null patent cannot be expected to be associated with a given trademark. I do not agree with those who believe that the judgments of the CJEU or the Court of Cassation are wrong: on the contrary, I think that many basic contradictions are finally coming to the surface, which is why I am watching the activities of the UPOV and Community agencies such as the CPVO and EUIPO with great attention. This is a very stimulating front for those who love this subject and where the interpretative activity of the judges of the Court of Bari stands out.

Why, according to some, does this ruling risk going against the interests and rights of the producers themselves? 

 I am not able to provide an answer that goes beyond purely legal issues: from this perspective, I think the ruling has certainly recognised and protected the rights of producers to the free marketing of their products. It is certainly not the first time that the CJEU has pronounced itself to safeguard the free market, and I believe that the jurisprudential orientation of recent years opens up new opportunities to the advantage (not to the disadvantage) of producers, distributors, but also of the breeders themselves. I disagree with those who believe that the CJEU and the Supreme Court have both got it wrong. A farmer who, after paying royalties for planting and cultivating scions, must watch his entire plantation being eradicated, raises a very real and unfair issue. Common sense would dictate that, precisely because of the relevance and sensitivity of the issue, this ruling should act as a stimulus to review ‘the rules of the game’, exactly as is already happening today at UPOV. Fomenting a polarisation between ‘good guys and bad guys’ does not go in this direction. As already stated in the previous interview in 2019, producers are the first business partners of breeders, because it is based on their purchasing decisions that breeders will be able to obtain what the law calls ‘fair remuneration’. I am convinced that new and multiple paths will open up.in the near future. And it is precisely to this strand that my Team and I are fully committed, strengthened by the experience gained on the international IP stage, which has taken its first steps precisely in agriculture. After all, if agriculture is the cradle of intellectual property, Apulia is the cradle of agriculture.