Delano Farms Co. v. the Cal. Table Grape Comm'n
| Decision Date | 14 December 2011 |
| Docket Number | No. 2010–1546.,2010–1546. |
| Citation | 99 U.S.P.Q.2d 1827,2011 Trade Cases P 77578,655 F.3d 1337 |
| Parties | DELANO FARMS COMPANY, Four Star Fruit, Inc., and Gerawan Farming, Inc., Plaintiffs–Appellants,v.The CALIFORNIA TABLE GRAPE COMMISSION, Defendant–Appellee,andUnited States, Department of Agriculture, and Thomas J. Vilsack, Secretary of Agriculture, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Federal Circuit |
OPINION TEXT STARTS HERE
Lawrence M. Hadley, Hennigan Dorman, LLP, of Los Angeles, CA, argued for the plaintiffs-appellants. With him on the brief was Omer Salik.Randolph D. Moss, Wilmer Cutler Pickering Hale and Dorr, LLP, of Washington, DC, argued for the defendant-appellee The California Table Grape Commission. With him on the brief were Brian M. Boynton, Steven P. Lehotsky and Thomas G. Saunders.Susan L.C. Mitchell, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for the defendants-appellees United States Department of Agriculture and Thomas J Vilsack, Secretary of Agriculture. Of counsel on the brief were Tony West, Assistant Attorney General, and John J. Fargo, Director.Before BRYSON, SCHALL, and PROST, Circuit Judges.BRYSON, Circuit Judge.
The United States Department of Agriculture (“USDA”) is the owner by assignment of three patents issued under the Plant Patent Act for grapevines that produce table grapes. The three patented varieties are known as Sweet Scarlet (U.S. Patent No. PP15,891), Scarlet Royal (U.S. Patent No. PP16, 229), and Autumn King (U.S. Patent No. PP16,284).
The USDA licensed its rights in the three patents to the California Table Grape Commission, an agency of the State of California. The Commission's mission is to promote that state's table-grape industry. The Commission is funded by a tax levied on each box of table grapes produced in California.
The relationship between the Commission and the USDA is complex. Although the USDA owns the three patents at issue in this case, the Commission paid much of the cost of developing the patented varieties. The licenses for the three patents give the Commission the right to sublicense the patents and entitle the Commission to retain 60 percent of all royalties from its sublicensing efforts, with the remaining 40 percent to go to the USDA. Exercising its sublicensing power, the Commission authorized three nurseries to serve as exclusive distributors of the patented varieties. Grape growers who purchase the patented plants from those nurseries each sign a “Domestic Grower License Agreement.” That agreement requires the growers to pay a royalty and forbids them from propagating the plants. The agreement also permits the Commission to order the destruction of the purchased plants if the Commission believes the growers to be violating the agreement.
The plaintiffs (collectively referred to as “Delano”) are all California grape growers who purchased grapevines covered by the patents, signed the Domestic Grower License Agreement, and paid the licensing fee. They brought this action in the United States District Court for the Eastern District of California challenging the validity and enforceability of the three patents, as well as the conduct of the Commission and the USDA in licensing and enforcing the patents.
Delano sought a declaratory judgment that all three patents are invalid because of prior use and that the Sweet Scarlet patent is unenforceable because of inequitable conduct during prosecution. As outlined in Delano's complaint, the USDA began development of the patented varieties in the early 1990s. Dr. David Ramming, a USDA employee and one of the co-inventors of each of the three varieties, allegedly displayed the fruit of the patented varieties at public meetings that were held before the critical dates for each patent. According to the complaint, Dr. Ramming had distributed the Sweet Scarlet vines to approximately nine growers for “trials” before the critical date, and at least three of those growers sold the fruit of those vines. Delano also alleged that a California grape grower had obtained the other varieties and had reproduced those varieties in advance of the critical date.
As to its inequitable conduct claim, Delano alleged that in May 2004 the Commission sent a letter to all table-grape growers and shippers in California. The letter informed growers who were in possession of the Sweet Scarlet variety that they could keep their vines and avoid a lawsuit if they admitted to the fact of possession, paid the Commission $2 per vine reproduced, paid the Commission $2 per box of Sweet Scarlet grapes previously shipped, and agreed not to take further steps to propagate the plants. According to Delano's complaint, 17 growers responded to the Commission, each acknowledging possession and propagation of the patented variety more than one year before the patent application was filed. That information was not disclosed to the Patent and Trademark Office (“PTO”).
In addition to those claims brought against the USDA and the Commission jointly, Delano brought claims against the USDA alone, alleging that it had acted unlawfully in obtaining the patents and entering into the licensing arrangement with the Commission (“the administrative claims”). Against only the Commission, Delano brought an antitrust claim and a related state law unfair competition claim, both stemming from the Commission's efforts to license the Sweet Scarlet patent.
The USDA and the Commission moved to dismiss Delano's declaratory judgment claims. They argued that the action could not proceed because the USDA, as the patentee, is an indispensable party but could not be joined because it is immune from suit due to sovereign immunity. The district court agreed. The court first held that the license between the Commission and the USDA did not transfer to the Commission all substantial rights in the patents and that because the USDA retained substantial rights in the patents, it had to be joined in order for the action to proceed.
After concluding that the USDA was a necessary party to the patent law claims, the district court turned to the question whether Delano could sue the USDA on those claims or whether those claims against the USDA were barred by sovereign immunity. The district court rejected Delano's argument that the Administrative Procedure Act (“APA”) waived sovereign immunity for the declaratory judgment claims and thus ruled that sovereign immunity barred the joinder of USDA as a party defendant. The court then addressed whether those claims could go forward without the USDA as a party. After conducting an analysis under Rule 19(b) of the Federal Rules of Civil Procedure, the court concluded that because the USDA was an indispensable party that could not be joined, the action should be dismissed.
The court also granted the USDA's motion to dismiss Delano's administrative claims. The court held that the Patent Act provides a comprehensive and exclusive scheme to test the validity of patents and that Delano could not properly use administrative law remedies as an alternative means to challenge the patents. As to Delano's administrative claims relating to the USDA's licensing scheme, the court concluded that Delano failed to raise its concerns before the USDA when the agency published the details of the licenses in the Federal Register. Accordingly, the court determined that Delano had not exhausted its administrative remedies. Delano has not appealed the court's ruling on the administrative claims.
Finally, the court granted the Commission's motion to dismiss Delano's antitrust claim and the related state law unfair competition claim. The court found that Delano had failed to plead a plausible market for the Sweet Scarlet grapes and dismissed the antitrust claim on that ground. As for the state law unfair competition claim, the court held that the state law claim required a showing that the Commission had violated some other law. Because the alleged predicate offense was the asserted antitrust violation, which the court had dismissed, the court dismissed the state law claim as well.
Delano first contends that the USDA transferred all substantial rights in the three patents to the Commission and that the USDA was therefore not a necessary party to the declaratory judgment claims brought under the Patent Act. It is well established that a patentee is a necessary party to an action on the patent, whether it be a coercive action or a declaratory judgment suit. If the patentee has transferred all substantial rights in the patent to an exclusive licensee, however, the licensee is treated as the assignee. In that event, the assignor, which is no longer regarded as the owner of the patent, need not be joined in any action brought on the patent. A123 Sys., Inc. v. Hydro–Quebec, 626 F.3d 1213, 1217–18 (Fed.Cir.2010); Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093–94 (Fed.Cir.1998).
In determining whether a licensee has obtained all substantial rights in the patent, an important consideration is whether the license grants to the licensee the right to enforce the patent and divests the licensor of that same right. E.g., Alfred E. Mann Found. for Scientific Research v. Cochlear Corp., 604 F.3d 1354, 1361 (Fed.Cir.2010) (); Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed.Cir.1991). When a licensing agreement restrains or controls the licensee's sublicensing power, the licensor is generally regarded as having retained substantial control over patent enforcement, and the agreement is not treated as having given the licensee all substantial rights in the patent. Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1344–45 (Fed.Cir.2001); Vaupel, 944 F.2d at 875–76.
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