Delano Farms Co. v. California Table Grape Com'n
| Decision Date | 20 February 2009 |
| Docket Number | No. 1:07-cv-1610 OWW SMS.,1:07-cv-1610 OWW SMS. |
| Citation | 623 F.Supp.2d 1144 |
| Parties | DELANO FARMS COMPANY, Four Star Fruit, Inc., and Gerawan Farming, Inc., Plaintiffs, v. The CALIFORNIA TABLE GRAPE COMMISSION, Defendant. |
| Court | U.S. District Court — Eastern District of California |
Brian C. Leighton, Law Offices of Brian C. Leighton, Clovis, CA, Lawrence Milton Hadley, Omer Salik, Hennigan Bennett & Dorman, Los Angeles, CA, Ralph B. Wegis, The Law Offices of Ralph B. Wegis, P.C., Bakersfield, CA, for Plaintiffs.
Brian Matthew Boynton, Randolph D. Moss, PHV, Leon B. Greenfield, PHV, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for Defendant.
Defendant, The California Table Grape Commission ("Commission"), moves to dismiss Plaintiffs' Delano Farms Company ("Delano"), Four Star Fruit, Inc. ("Four Star"), and Gerawan Farming, Inc. ("Gerawan"), entire complaint pursuant to Federal Rule of Civil Procedure 19(a), claiming the United States is a necessary party, and moves to dismiss pursuant to Federal Rule of Civil Procedure 19(b), claiming the government is an indispensable party and immune from this suit. Defendant additionally moves to dismiss Plaintiffs' remaining claims for (1) Inequitable Conduct, (2) Sherman and Clayton Anti-Trust violations, (3) Patent Misuse, (4) Unfair Competition, (5) Unjust Enrichment and (6) Constructive Trust. Defendant moves to strike certain portions of Plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(f). (Doc. 20, Motion to Dismiss, Filed December 14, 2007). Plaintiffs oppose the motion. (Doc. 24, Opposition, filed January 9, 2008.) Defendant filed a notice of supplemental authority on June 17, 2008, (Doc. 39). This matter was heard on May 19, 2008.
Plaintiffs filed their complaint on November 5, 2007. (Doc. 1, Complaint). The Commission filed its Motion to Dismiss on December 14, 2007, (Doc. 20), which Plaintiffs opposed on January 9, 2008. (Doc. 24, Opposition). On January 21, 2008, Defendant filed a reply to Plaintiffs' Opposition. (Doc. 26, Reply).
Plaintiff Delano is a corporation duly organized and existing under the laws of the State of Washington, with its principal place of business at Hoquiam, Washington. Plaintiff Four Star is a corporation duly organized and existing under the laws of the State of California, with its principal place of business at Delano, California. Plaintiff Gerawan is a corporation duly organized and existing under the laws of the State of California, with its principal place of business at Sanger, California. Plaintiffs are engaged in the business, inter alia, of growing, harvesting and selling table grapes.
Defendant is a corporation of the State of California, established by the 1967 Ketchum Act. Cal. Food & Agric. Code §§ 65550-65551. Defendant's principal place of business is at Fresno, California. The stated purpose of the Commission is to expand and maintain the market for California table grapes for the benefit of the State of California as well as the State's over five hundred California table grape growers. The Commission is funded primarily by assessments levied on each shipment of California table grapes and paid by the State's table grape shippers. No general revenues of the State fund the Commission. (Doc. 1, Complaint, ¶¶ 4-9).
California table grape growers and shippers have funded a research program under the U.S. Department of Agriculture ("USDA") to develop new table grape varieties. Growers and shippers fund the USDA research program through the Commission by an assessment on each box of table grapes shipped in California. Prior to 2002, the USDA provided the new varieties under development to area growers for evaluation of growing potential and commercial marketability. Once new varieties appeared commercially viable, the USDA "released" the variety, and distributed plant material of the variety to area growers free-of-charge. The USDA did not charge California growers for the new varieties since California growers and shippers already paid for a large portion of the development. (Complaint, ¶ 10). Accordingly, when a variety under development appeared commercially successful, it was not uncommon for many growers to have reproduced and commercially sold the variety prior to an official "release" by the USDA. (Complaint, ¶ 43).
In the late 1990s, the Commission developed a scheme by which it and a few select nurseries could profit from the new varieties that the USDA distributed for free. At the urging of the Commission, the USDA agreed to begin patenting new table grape varieties. California shippers already funded much of the development, but the USDA agreed to give the Commission an exclusive license to all new patented varieties, and to allow the Commission to charge royalties when growers wished to obtain the new varieties. The USDA also agreed to give the Commission exclusive enforcement powers over its new patent rights. (Complaint, ¶ 21).
Under the Commission's "patent and licensing" scheme, the Commission hand-selected three nurseries to exclusively sell all new patented table grape varieties ("Licensed Nurseries"). Unlike the prior free distribution, the nurseries would be allowed to sell new varieties to growers. (Complaint, ¶ 13). The Licensed Nurseries are responsible for paying the royalty, but the Licensed Nurseries are allowed to pass the royalty amount on to the purchasing growers, which they do and have done. The Commission pays a portion of the royalty to the USDA. (Complaint, ¶ 28).
When a grower seeks to obtain a new variety from a nursery, it is required to enter a "Domestic Grower License Agreement" or "License Agreement" with the Commission. Under the terms of the License Agreement, the grower cannot propagate the variety beyond the plant purchased. If the Commission believes the grower has violated the License Agreement, it can void the License Agreement and order that all purchased plants be destroyed. (Complaint, ¶ 13).
The first three varieties that the Commission identified to the USDA for patenting had been under development for years. At least one of the varieties had been distributed to growers for wide-scale commercial evaluation and sale. (Complaint, ¶ 14). Recognizing that at least one of the new varieties identified for patenting (and perhaps all three) had been previously in public use and/or sold commercially, the Commission created a so-called "amnesty program" designed to hide the fact that valid patents could not be obtained, and to extort funds from growers already in possession of the varieties. Under the amnesty program, the Commission widely disseminated notices to growers and shippers stating that they were in violation of the law if they possessed the varieties intended for patenting. The notices also offered confidential "settlements" to any growers who, within a narrow window, agreed to license the varieties, pay a "penalty" to the Commission, and accept the Commission's license restrictions on further propagation. (Complaint, ¶ 15).
In May 2004, the commission sent a notice to all California table grape growers and shippers stating that the USDA had applied for a patent on the Sweet Scarlet variety. Although no enforceable patent had yet issued, the Commission offered "amnesty" for any grower who had previously reproduced Sweet Scarlet. Under its so-called "amnesty" program, a grower with Sweet Scarlet could keep the vines reproduced, so long as the grower (i) admitted to possession prior to July 2004, (ii) paid $2 per vine reproduced, (iii) paid $2 per box of Sweet Scarlet grapes previously shipped, and (iv) agreed to no further propagation of the Sweet Scarlet variety from the plants possessed. (Complaint, ¶ 60).
In July 2004, the Commission sent another notice to all California table grape growers and shippers extending the "amnesty" time period for one month, and extending the "amnesty" to include Autumn King and Scarlet Royal varieties. (Complaint ¶ 61). In both notices, the Commission threatened to sue growers who did not come forward, and to seek money damages and injunctions. Yet, at the time of the second notice, the USDA patent application on Sweet Scarlet not only remained un-issued, but had been rejected by the USPTO. Moreover, the USDA had not even applied for a patent on either Autumn King or Scarlet Royal. The USDA had no patent rights, and the Commission lacked any enforcement rights. (Complaint, ¶ 62). On information and belief, at the time the Commission sent the "amnesty" notices in May and June, 2004, the USDA, and Dr. Ramming knew of the public use and sale with respect to the Sweet Scarlet that occurred prior to February 20, 2002—more than one year prior to the filing of the '512 Application on the Sweet Scarlet variety. (Complaint, ¶ 63). On information and belief, the Commission, the USDA, and Dr. Ramming learned (prior to the July 25, 2005, issue date for Sweet Scarlet) that at least some of the 17 growers who agreed to the Commission's "amnesty" program for that variety had possessed and reproduced Sweet Scarlet prior to February 2002. On information and belief, the Commission, the USDA, and Dr. Ramming knew that such information was material to the patentability of the Sweet Scarlet variety. (Complaint, ¶ 64). Seventeen growers confirmed possession of the varieties and agreed to pay the penalties demanded by the Commission, confirming its expectation that varieties identified for patenting were in public use. (Complaint, ¶ 17).
The USDA and inventor of the new varieties breached their duty of candor to the...
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