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Caitlin Hadlee
July 7, 2020

Zespri Group v Gao

In Zespri Group Limited v Gao [2020] NZHC 109, the New Zealand High Court granted injunctive relief and applied the “user principle”, a common method for assessing damages for breach of intellectual property rights where there is no “standard licence fee” available for that damages calculation, for infringements of the (infrequently litigated) Plant Variety Rights (“PVR”) Act 1987.  

If you have developed a new, distinct, homogeneous, and stable plant variety and you have gained registration, the PVR Act grants you the exclusive right to commercialise (produce, sell, propagate and licence) your new variety.  

Zespri held PVR Act registrations for two new PSA-resistant varieties of gold kiwifruit (“G3”and “G9”).  Mr Gao and his associates had an orchard in New Zealand and a licence with Zespri.  In breach of that licence (and Zespri’s rights under the PVR Act) they exported G3 and G9 budwood to, and purported to licence their cultivation in, China.  At least 174 hectares of infringing G3 and G9 kiwifruit orchards were established in China via Mr Gao.  

Mr Gao raised extraterritoriality concerns: Zespri was also taking PVR action against him in China.  Justice Katz was not troubled by the cross-border argument, finding that any conduct within New Zealand that diminished Zespri’s enjoyment of its exclusive rights was actionable, even if merely part of a chain of conduct that culminated in further infringing conduct elsewhere.  Kiwifruit is a hugely valuable export for New Zealand, including to China.  Mr Gao’s actions within New Zealand (offering to sell and purporting to licence, producing, preparing and then actually exporting budwood) had resulted in the valuable G3 and G9 varieties being released into China for commercialisation beyond Zespri’s control, thereby diminishing the value of Zespri’s exclusive rights and potentially damaging its brand (by sub-standard fruit).  

Zespri was entitled to damages flowing from the exploitation in China that had been enabled by Mr Gao’s domestic infringements. Justice Katz assessed user principle damages, being the notional licence fee that a hypothetical willing but not anxious buyer and seller would have paid to licence the rights infringed.  The notional licence fee of $14.8m was calculated based on the size of the resulting Chinese orchards ($171k per hectare) with a 50% discount to account for non-infringing varieties and similar actions to be taken by Zespri in China. Damages of $10m for breach of contract were also awarded.