The Fruit Growers News - November 2002


Look at all the records of apple trees sold by nurseries in the United States and compare that to the amount of fruit sold. Fruit sold of some apple varieties is six times the amount that could possibly be sold from legal trees, according to Pat Ballew of Yakima, Wash. Ballew estimates that 30% of commercial apple trees grown nationwide violate trademarks or patents and are illegal. Ballew, an attorney with Stratton & Ballew in Yakima and Seattle, Wash. now heads investigations for the newly formed Nursery Licensing Association (NLA). The purpose of the association is to protect patents and trademarks and stop apple trees from being propagated illegally. In the United States it is illegal to asexually propagate patented varieties, or to sell or import the trees or fruit. Ballew said NLA represents 90% of the market share for nurseries, approximately 25 nurseries nationwide. The nursery industry has long recognized the problem of illegal trees but have not been able to enforce trademarks and patents because they were wary of sharing sales information. NLA serves as a third party, neutral enforcer. “What they’re doing is turning over enforcement of plant patents and trademarks to NLA,” Ballew said. The problem has accelerated with more high-density plantings. More apples were being produced in a time of declining nursery sales, according to Ballew. As prices for apples have dropped, some growers have turned to illegal trees that can be planted for $2-$3 per tree compared to $6-$8 a tree for licensed, commercial trees. “We know that it’s out there. We don’t know the size and scope of the situation,” said Ken Adams, president of Willow Drive Nursery in Ephrata, Wash., about the illegal trees. Adams, who sells trees nationwide, said the industry is going into a new phase of growing globally. He said with a new stronger patent law in effect since 1998 it should be easier to protect intellectual property rights of apples and other crops. Adams views the formation of NLP and CCA as positive steps. “It will level the playing field and bring on more respect for patent rights. It will help us manage our production better,” said Adams. Adams said he anticipates an increase in the number of participants in growing clubs who band together for the right to propagate specific varieties. NLA has the sales information from all of the member nurseries and knows the names, addresses, orchard name and a lot of times the planting location of trees, Ballew said. Through satellite imagery, aerial photography, GPS technology and public records, typically through individual counties on the Internet, NLA can do an investigative analysis of an individual orchard. NLA has a hotline that has already been used by offending growers who want to make it right and informants frustrated by growers not buying licensed trees from nurseries. The first lawsuit has been filed against the Zirkle Fruit Company of Selah, Wash., the first company of three now facing litigation. The suit, filed in the U.S. District Court in August, alleges that the fruit company has illegally propagated Scarlet Spur Red Delicious, Super Chief Red Delicious, Crimson Gala and Pink Lady trees. Ballew said NLA will also go after banks and credit companies who loan money to growers with illegal trees. Added to the Zirkle suit is the Northwest Farm Credit Services, ACA and also the Northwest Farm Credit Service Association, FLCA, which are the banks that handle part of Zirkle’s loans. Ballew said there will be 10-15 more lawsuits filed by the end of 2002. He said ongoing investigations are also taking place in California, Michigan and New York. Ballew emphasized that banks that loan to growers with illegal trees are generating interest from those illegal trees, and that the loan collateral is impaired because of the infringement. In their lawsuits, NLA also plans to add real estate brokers who advertise patented varieties such as Honeycrisp, Brookfield Gala, Pacific Gala, and others, when selling land with illegal trees. A second suit for patent and trademark infringement filed by NLA involves the Texas Municipal Plans Consortium (a pension fund that invests in orchard properties), Farmland Management Services (a farm management company that farms orchards for pension funds and other major investors), MONY Life Insurance Company (a life insurance company that forecloses on some orchard properties), and the family who owned the foreclosed orchard. The NLA became a limited liability corporation (LLC) in early 2002 and will help nurseries and variety patent owners recover revenue they have lost. NLA will serve as a collection agency for nurseries and breeders and follow up on suspect patent and trademark infringements and will be financed by a percentage of the recovered damages. According to NLA’s infringement policy several examples of infringement include: 1) Grower buys patented or trademark trees from an unlicensed nursery; 2) Grower buys patented trees from a licensed nursery and then, without permission, topworks over, or grafts additional trees using scion wood from the original legal trees; 3) A person or company that sells, mortgages, obtains crop insurance, or solicits an investment interest in an orchard planted with infringing trees. Standardized schedule for the resolution of all trademark and plant patent infringement claims: 1) $3 per tree if the infringement is voluntarily acknowledged (known as confession rate) to the NLA. 2) $4 per tree if the NLA notifies a party of infringement prior to voluntary acknowledgment by that party. 3) $6.50 per tree, plus NLA’s attorney’s fees and costs when NLA files suit in federal court. 4) There are several options once suit is filed. For those trees identified in the complaint, the NLA offer of $6.50 (plus fees and costs) per tree remains open only until the Federal Civil Rule 26(f), which governs all proceedings in civil cases. 5) If a filed suit is not resolved prior to the Rule 26(f) conference, the NLA will seek full measure of damages and injunctive relief. Another association, the Crop Certification Association (CCA), led by John Reeves, was created as a result of the formation of NLA. Reeves is also CEO of Yakima Chief, a hop cooperative. CCA operates much like a title insurance company. The products offered by the CCA include a Total Infringement Risk Report (TIR Report), which provides a client with sufficient information to evaluate its total risk position. CCA can also offer the Real Estate Broker Report, which is an agreement to pay per plant/vine/tree infringement cost at a reduced voluntary ‘surrender rate.’ Organization officials believe that by providing assurance of intellectual property status, the CCA helps a farmer maintain the value of his land. This should enable this same farmer to sell his acreage without encountering concerns about the legal status of his plant material. Ballew believes it’s all about supply and demand. “Counterfeits can destabilize an entire industry,” he said. This year, with an anticipated apple crop loss of 30%, is a truer picture of supply and demand, according to Ballew. He said he gets some calls from growers who tell him, “I’m so glad you’re doing this,” said Ballew. He said when counterfeit trees become massive, supply exceeds demand and prices drop. Most definitely there should be fewer apple trees planted, which will translate into fewer growers and an overall stronger apple industry. “Right now the principle problem is with ourselves,” said Ballew, who was born, raised and lives in Yakima and considers himself a friend to farmers. “We’ve got to get strong right now to fight the principle problem, which is China,” Ballew said. If it’s just price, China will win out every time, he said. Although apples is NLA’s first focus, the association will also cover all pome fruit, stone fruit, berries and other crops and will extend its reach worldwide.