PVR Exhaustion: Triggers and Limitations
By Ernst-Jan Louwers, Louwers IP|Technology Advocaten
For propagation purposes, the breeder - the owner or licensee of PVRs - must make plant material available to nurseries, either directly or through his licensees. Propagated plants must then be made available to the growers for production purposes. This may lead to exhaustion of the PVRs on those plants.
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Article 16 of the 1991 Act of the UPOV Convention contains a provision on exhaustion . This article provides that PVRs are exhausted when the material or the derived material has been “sold or otherwise marketed” to others either by the holder or with his consent. This rule has been implemented in national laws of the UPOV member states.
For the European Union, the 1991 Act of UPOV is implemented in Council Regulation (EC) No 2100/94 (CPVR) . Article 16 of the CPVR states that PVRs are exhausted when the material or the derived material has been “disposed of” to others by the holder or with his consent in any part of the EU. However, exhaustion does not apply to and, thus, the holder can still prevent the following acts:
further propagation of the variety in question, except where such propagation was intended when the material was disposed of; or
an export of variety constituents into a third country which does not protect varieties of the plant genus or species to which the variety belongs, except where the exported material is for final consumption purposes.
If exhausted, PVRs cannot be enforced in relation to any further sale or other distribution of the material or derived material concerned, i.e. the actual plants concerned or its constituents. But the holder of PVRs can, in principle, continue to oppose further acts of propagation even with the material, the right on which has been exhausted .
Exhaustion: only in case of sale?
Given the wording of UPOV (“sold or otherwise marketed”), CPVR (“disposed of”) and also, for instance, Dutch national legislation  (“bringing into circulation”), it is not absolutely clear, whether only an act of sale can lead to exhaustion.
In this regard, patent rights are most comparable to PVRs. Under the Dutch Patent Act, for instance, the phrase “placed on the market” is interpreted as “obtaining” or “holding” a patent protected product. For a patent to be exhausted, a sale is not required. Every case of releasing or making available of the patent protected product can potentially qualify as “placing on the market”. The EU case law on patent rights also provides that a sale is not the only basis for exhaustion .
An EU trade mark provides protection in all EU member states. Under Article 15 of the European Union Trade Mark Regulation, exhaustion takes place if the goods “have been put on the market” by the proprietor or with his consent . The European Union Trade Mark Directive also uses the wording “put on the market” . The logic behind the exhaustion of a trade mark right is that the act that leads to exhaustion allows the trade mark holder to generate economic value from their trade mark. This is also nuanced in the EU case law and, as a consequence, sale is not regarded as the only condition for exhaustion of trade marks .
Therefore, it seems likely that PVR exhaustion in the EU is not only limited to cases of sale but may also include other means of disposing of the plant material or derived materials.
Court cases on PVRs and exhaustion
Only limited ECJ and Dutch case law is available on the subject of PVR exhaustion. The cases mostly address the effect a breach of contract by a licensee may have on exhaustion.
In the Kanzi case, the landmark case on PVR exhaustion and breach of contract, the EU Court of Justice (EUCJ) expressly referred to the Copad case on trade mark exhaustion . In the Copad case, the EUCJ held that the fact that the goods were put on the market by a licensee does not necessarily exhaust the trade mark holder's rights. If the goods were sold in breach of the terms of the license agreement, the goods were not sold with the consent of the right holder and, hence, the rights were not exhausted.
In the Kanzi case, the EUCJ ruled that:
“the holder or the person enjoying the right of exploitation may bring an action for infringement against a third party which has obtained material through another person enjoying the right of exploitation who has contravened the conditions or limitations set out in the licensing contract that that other person concluded at an earlier stage with the holder to the extent that the conditions or limitations in question relate directly to the essential features of the Community plant variety right concerned” .
In other words, if a licensee of PVRs – such as a nursery or a grower – makes material available in violation of the contractual obligations relating to the ‘essential features of the plant variety right concerned’, the PVRs will not be exhausted. Accordingly, the PVRs can still be enforced also against third parties who have obtained the material from the licensee of the holder of the PVRs in violation of the license contract, even if the third party has acted in good faith.
In 2015, the Dutch court of The Hague ruled in a comparable dispute between a holder of PVRs and a licensee. In that case, a condition in the license agreement relating to the right to propagate was not fulfilled. This circumstance was successfully invoked by the holder of the PVRs against the licensee and stood in the way of exhaustion of the PVRs .
Extent of exhaustion
We have established that in the European Union, PVR exhaustion takes place when (derived) plant material is disposed of to third parties by the title holder or with his consent. The geographical area of exhaustion is limited to the European Economic Area (EEA).
However, in the USA, we are dealing with international exhaustion of IP rights. For instance, foreign sales of patented products also exhaust the US patent rights if the patent owner made or authorized the sale outside the US. For patents, this was established in the Lexmark case.
Additionally, in the US, PVRs will always be exhausted in the event of sale. The US Supreme Court also held that “a patentee’s decision to sell a product exhausts all of its patent rights in that product, regardless of any restrictions the patentee purports to impose“. Thus, analogously applying the Lexmark case to PVRs, when a holder of PVRs sells a PVR-protected plant, the holder of the PVR cannot sue for infringement to try and enforce post-sale restrictions. To avoid exhaustion, the court left the possibility open to restrict a licensee’s authority to use and sell plants under PVR. It also follows from the court’s reasoning that if a holder of PVRs negotiates a contract restricting the purchaser’s right to use or resell the plant, he may be able to enforce that restriction as a matter of contract law. At the same time, reportedly a breach of contractual obligations relating to the IP rights may also prevent the exhaustion in the US, even under the Lexmark doctrine.
Under the laws on Plant Breeders’ Rights, the act of sale of (derived) plant material may arguably not be the sole basis for IP right exhaustion. Again arguably, this implies that PVR exhaustion could also occur if plants are made available to a grower other than by sale. For instance, this might include renting, hire-purchase or leasing of plants. On the other hand, it still remains unclear what exactly constitutes a transaction that leads to exhaustion. In my opinion, at least a transaction with a commercial or trade purpose needs to take place to qualify as such.
Carefully and properly formulated contractual arrangements by means of a nursery/grower agreement might prevent exhaustion of PVRs in the EU and possibly also in the US. To this end, strict conditions and limitations ‘relating directly to the essential features of the PVR concerned’ can be included in the agreements to minimize the risk or avoid the exhaustion.
A prohibition to sell the plants or make the plants available to third parties and imposing certain restrictions (in line with the Kanzi case), such as the obligation of nurseries to only provide plants to growers that have entered into a proper grower agreement with the PVRs holder may also be a solution to avoid the exhaustion of rights.
About the author:
Mr. Ernst-Jan Louwers, Attorney-at-law at Louwers IP|Technology Advocaten, Eindhoven/The Hague
Ernst-Jan Louwers (1959) is one of the founders at Louwers IP|Technology Advocaten, with the seats in Eindhoven and The Hague. With a track record of 30 years as a lawyer, Ernst-Jan has vast experience as a specialized and pragmatic IP, technology and contract lawyer and litigator. His practice covers all legal aspects connected to plant breeding, distribution and commercialisation, including drafting of a broad range of licensing contracts, advice, compliance, and litigation. Ernst-Jan regularly lectures and writes publications in his areas of expertise, including emerging technologies and exploitation of IP. He is a member of CIOPORA and several other associations on IP law. Ernst-Jan has lectured in the framework of the CIOPORA Academy, the CIOPORA's education program on IP for plants.
Sources & footnotes:
 International Convention For The Protection Of New Varieties Of Plants
 Council Regulation (EC) No 2100/94 of 27 July 1994 on Community Plant Variety Rights
 GHK, Evaluation of the Community Plant Variety Right Acquis - Final Report, April 2011, p. 8 and note by Philippe de Jong on EU Court of Justice, C‑140/10 20 October 2011 (Kanzi).
 Article 60 Zaaizaad- en Plantgoedwet 2005
 Article 53(5) Rijksoctrooiwet 1995.
 For example: Opinion of Advocate General N. Jäässkinen of 23 October 2014 on EU Court of Justice, C-539/13 (Merck v. Sigma); Court The Hague, 14 November 2007, ECLI:NL:RBSGR:2007:BB7866, par. 4.15.
 For the territory of the Benelux, article 2.23 Benelux Convention on Intellectual Property also mentions “put on the market”.
 Article 15 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks.
 Opinion of Advocate General Mengozzi of 12 September 2017, par. 30 and 89 on EU Court of Justice, C‑291/16 (Schweppes) and – for example – EU Court of Justice, C‑127/09 3 June 2010, par. 31 and 47 (Coty v. Simex).
 EU Court of Justice, C-59/08 23 April 2009 (Copad v. Dior).
 EU Court of Justice, C‑140/10, 20 October 2011, par. 44 (Kanzi). See also EU Court of Justice, C-59/08 23 April 2009 (Copad v. Dior).
 Court of Appeal The Hague, 15 September 2015, ECLI:NL:GHDHA:2015:3834, par. 4.5 (Scholtenzathe v. Averis).
 Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. (2017). The Supreme Court referred to its copyright exhaustion decision in Kirtsaeng v. John Wiley & Sons, 568 U.S. (2013), in which foreign sales of copyrighted material exhausted US copyright protection as well.