*AI-generated translation, for reference only.

Keywords: civil; plant variety rights ownership and infringement; counterfeit labeling infringement; pre-litigation agreement; amount of damages

Case Facts

 [REDACTED] Seedling Beijing Company (hereinafter "[REDACTED] Seedling Company") alleged as follows: It is the holder of the plant variety rights for the "Audrey" pepper plant variety. Prior to filing the present lawsuit, [REDACTED] Seedling Company entered into an Agreement with Chifeng [REDACTED] Agricultural Technology Co., Ltd. (hereinafter "Chifeng [REDACTED] Company"), which provided that "Chifeng [REDACTED] Company undertakes that, commencing January 1, 2021, it will no longer use, produce, or sell 'Audrey' variety seeds and seedlings ... If Chifeng [REDACTED] Company breaches the undertakings and obligations under this Agreement, it shall pay [REDACTED] Seedling Company liquidated damages of RMB 2,000,000." Subsequently, Chifeng [REDACTED] Company and Panshan County [REDACTED] Agricultural Materials Store (hereinafter "Panshan [REDACTED] Store"), without authorization, produced, sold, and offered for sale "Audrey" pepper seedlings under the counterfeit label "Green Pepper 3756." [REDACTED] Seedling Company accordingly requested that the court order Chifeng [REDACTED] Company and Panshan [REDACTED] Store to cease the infringement and to jointly and severally compensate [REDACTED] Seedling Company for economic losses and reasonable expenses totaling RMB 2,200,000.

Chifeng [REDACTED] Company defended as follows: Prior to the execution of the Agreement, Chifeng [REDACTED] Company had sold the accused infringing seedlings obtained from distributors of [REDACTED] Seedling Company, but had not sold any such seedlings after January 1, 2021. Panshan [REDACTED] Store's sales of the accused infringing seedlings were not attributable to Chifeng [REDACTED] Company.

Panshan [REDACTED] Store defended as follows: It had not sold any of the accused infringing seeds prior to the execution of the Agreement; it had no relationship with Chifeng [REDACTED] Company; and it was unaware that "Green Pepper 3756" was the authorized variety "Audrey."

The court found through trial as follows: [REDACTED] Seedling Company is the holder of the plant variety rights for the "Audrey" pepper plant variety. In March 2020, [REDACTED] Seedling Company purchased, through notarized evidence collection, 2 packages of "Green Pepper 3756" seeds bearing the packaging label "Chifeng [REDACTED] Agricultural Technology Company." Identification testing for identity with the "Audrey" variety concluded the two were similar. On June 28, 2020, Chifeng [REDACTED] Company, [REDACTED] Seedling Company, and Shouguang [REDACTED] Seed Co., Ltd. entered into an Agreement stipulating: "Chifeng [REDACTED] Company undertakes that, commencing January 1, 2021, it will no longer use, produce, or sell 'Audrey' variety seeds and seedlings ... If Chifeng [REDACTED] Company breaches the undertakings and obligations under this Agreement, it shall pay [REDACTED] Seedling Company liquidated damages of RMB 2,000,000." On April 23, 2021, [REDACTED] Seedling Company obtained notarized preservation evidence of its ordering of "Green Pepper 3756" from Panshan [REDACTED] Store, as well as several promotional articles published by Chifeng [REDACTED] Company between 2019 and 2020 on its WeChat public account under the name "He[REDACTED] Seed & Seedling Company," on its official website, and on the Sohu website.

On November 22, 2021, the Hohhot Intermediate People's Court of Inner Mongolia Autonomous Region rendered Civil Judgment (2021) Nei 01 Min Chu No. 421: (1) ordering Chifeng [REDACTED] Company and Panshan [REDACTED] Store to immediately cease infringing the "Audrey" plant variety rights using the name "Green Pepper 3756"; (2) ordering Chifeng [REDACTED] Company and Panshan [REDACTED] Store to jointly compensate [REDACTED] Seedling Company for losses and reasonable expenses of RMB 200,000 within 15 days from the date on which the judgment becomes legally effective; and (3) dismissing [REDACTED] Seedling Company's other claims. [REDACTED] Seedling Company appealed on the grounds that the court of first instance had failed to make findings regarding Chifeng [REDACTED] Company's infringing acts in 2018 and 2019, and that the amount of compensation had not followed the RMB 2,000,000 stipulated under the parties' Agreement. On September 22, 2023, the Supreme People's Court rendered Civil Judgment (2023) SPC IP Civ Final No. 12: (1) affirming item 1 of Civil Judgment (2021) Nei 01 Min Chu No. 421 of the Hohhot Intermediate People's Court; (2) revoking items 2 and 3 of Civil Judgment (2021) Nei 01 Min Chu No. 421; (3) ordering Chifeng [REDACTED] Company to compensate [REDACTED] Seedling Company for losses of RMB 2,000,000 and reasonable expenses of RMB 10,000 within 15 days from the date on which this judgment becomes legally effective, with Panshan [REDACTED] Store bearing joint and several liability for RMB 200,000 of the said losses and reasonable expenses; and (4) dismissing [REDACTED] Seedling Company's other claims.

Judge's Opinion

The court's effective ruling held as follows: Under the Agreement between [REDACTED] Seedling Company and Chifeng [REDACTED] Company, if Chifeng [REDACTED] Company were to commit further infringing acts in the future, it would be required to pay the corresponding compensation for both the infringing acts that had already taken place and any new infringing acts occurring after the execution of the Agreement. Following the execution of the Agreement, Chifeng [REDACTED] Company not only failed to cease the infringing acts already committed but also engaged in new infringing acts, demonstrating clear willful infringement.

As to whether the amount of compensation stipulated in the Agreement should be adopted: First, from a jurisprudential perspective, the law does not prohibit the infringed party and the infringer from reaching a prior agreement on the form of tort liability, the amount of infringement damages, or the like. The legal nature of such an agreement may be characterized as a simplified method for calculating and determining, in advance, the losses suffered by the rights holder or the profits gained by the infringer in the event of future infringement. Its primary purpose is to avoid difficulties of proof and the challenges in specifically ascertaining actual losses. Such an agreement falls within the domain of party autonomy, does not contravene any mandatory provisions of laws or administrative regulations, and may serve as an important reference for determining the amount of compensation.

Second, from the perspective of substantive fairness, the facts established at trial showed that Chifeng [REDACTED] Company had published an article on its WeChat public account stating that it had sold at least three million plants of the authorized variety during the period from 2018 to 2019. Taking the price of the authorized variety sold by Panshan [REDACTED] Store externally in April 2021 at RMB 0.85 per plant as a reference, it could be inferred that Chifeng [REDACTED] Company's profits from infringement exceeded the RMB 2,000,000 stipulated in the Agreement. Therefore, [REDACTED] Seedling Company's claim for compensation for economic losses of RMB 2,000,000 in accordance with the Agreement should be supported.

Furthermore, Chifeng [REDACTED] Company had publicly represented Wang [REDACTED]wei as its authorized distributor, and the WeChat display name of Wang [REDACTED]wei, the operator of Panshan [REDACTED] Store, also bore the mark "He[REDACTED] Seedling," incorporating Chifeng [REDACTED] Company's enterprise name abbreviation. Panshan [REDACTED] Store, knowing that "Green Pepper 3756" was the authorized variety "Audrey," sold the accused infringing seedlings in April 2021 at a unit price of RMB 0.85 per plant, for a total price of RMB 1,713. Taking all the above factors into consideration, the court determined at its discretion that Panshan [REDACTED] Store should bear joint and several liability within the scope of RMB 200,000 in economic losses and reasonable expenses.

Judgment Digest

An agreement between a variety rights holder and an infringer on the form of tort liability or the amount of damages relating to the production and sale of infringing products is, in nature, a simplified method for calculating and determining, in advance, the losses suffered by the rights holder or the profits gained by the infringer in the event of future infringement, and falls within the domain of party autonomy. Where such an agreement does not contravene any mandatory provisions of laws or administrative regulations, it may serve as an important reference for determining the amount of compensation.

Related Index

*Articles 28 and 72* of the *Seed Law of the People's Republic of China* (The provisions applicable to this case are those of the *Seed Law of the People's Republic of China* as effective January 1, 2016)

*Article 17* of the *Provisions of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Cases Involving Disputes over Infringement of Plant Variety Rights (II)* (Fa Shi [2021] No. 14)

*Article 5* of the *Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Cases Involving Infringement of Intellectual Property Rights* (Fa Shi [2021] No. 4)

First Instance: Hohhot Intermediate People's Court of Inner Mongolia Autonomous Region, Civil Judgment (2021) Nei 01 Min Chu No. 421 (November 22, 2021)

Second Instance: Supreme People's Court, Civil Judgment (2023) SPC IP Civ Final No. 12 (September 22, 2023)