Delta and Pine Land Co. v. Sinkers Corp.

• Decision Date: 14 May 1999
• Docket Number: No. 98-1296,98-1296
• Citation: 177 F.3d 1343
• Parties: DELTA AND PINE LAND COMPANY and Mississippi Agricultural and Forestry Experiment Station, Plaintiffs-Appellants, v. The SINKERS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

177 F.3d 1343

50 U.S.P.Q.2d 1749

DELTA AND PINE LAND COMPANY and Mississippi Agricultural and Forestry Experiment Station, Plaintiffs-Appellants, v. The SINKERS CORPORATION, Defendant-Appellee.

No. 98-1296.

United States Court of Appeals Federal Circuit.

May 14, 1999.

Shawn N. Sullivan, Lake Tindall, LLP, of Jackson, Mississippi, argued for plaintiffs-appellants.

Mark J. Pelts, Pelts, McMullan & Edgington, of Kennett, Missouri, argued for defendant-appellee.

Before MICHEL, CLEVENGER, and RADER, Circuit Judges.

Opinion for the court filed by Circuit Judge MICHEL. Dissenting opinion filed by Circuit Judge CLEVENGER.

MICHEL, Circuit Judge.

Plaintiffs-Appellants Delta and Pine Land Company ("DPL") and Mississippi Agriculture and Forestry Experiment Station (a unit of the Mississippi State University) ("Mississippi") (collectively, "Delta") appeal from the judgment of the United States District Court for the Eastern District of Missouri dismissing all of Delta's claims against The Sinkers Corporation ("Sinkers"). See Delta and Pine Land Co. v. The Sinkers Corp., No. 93CV77-DJS (E.D.Mo. Mar. 5, 1998). Delta is the owner of numerous Certificates of Plant Variety Protection ("PVP Certificates") issued by the Plant Variety Protection Office of the United States Department of Agriculture, including PVP Certificates for many varieties of cotton ¹, several of which are at issue here. Delta brought the instant action in the district court, claiming infringement of Delta's intellectual property rights under the Plant Variety Protection Act ("PVPA"), 7 U.S.C. §§ 2321-2581 (1994). Specifically, Delta presented three claims that Sinkers infringed their rights by: (1) transferring possession of protected seed without Delta's authority; (2) failing to mark bags of protected seed with a notice that they contained protected seed; and (3) funneling large quantities of protected seed through its facilities with knowing indifference to the lack of authority from Delta and the absence of an exemption, thereby actively inducing infringing acts by others. Following a bench trial, the district court found no infringement and dismissed all three of Delta's claims on March 5, 1998. The appeal was submitted for our decision following oral argument on February 2, 1999. We affirm the district court's dismissal of Delta's active inducement claim; we vacate the district court's dismissal of Delta's unauthorized transfer of possession and failure of notice claims as based on the application of incorrect legal tests concerning implied exemptions under the PVPA; and we remand Delta's transfer of possession and notice claims to the district court for superseding fact-finding under the correct construction of the disputed terms of the relevant subsections of the statute as set forth herein, or such further proceedings as it deems necessary, consistent with our opinion.

BACKGROUND

DPL is a developer and breeder of cotton planting seed. It holds numerous PVP Certificates protecting its novel seed varieties. DPL sells these protected cottonseed varieties through approved distributors. The authorized distributors sell seed to growers who plant the seed, harvest the cotton, and then dispose of all excess protected cottonseed.

Mississippi is engaged in developing, breeding and processing cotton planting seed for the production of commercial crops. Mississippi owns a PVP Certificate for a cotton variety known as DES-119, and has granted DPL an exclusive license for the sale and distribution of this seed. Pursuant to this agreement, DPL distributes DES-119 cottonseed to farmers through its approved distributors.

Sinkers is headquartered in Kennett, Missouri. Its principal business activity consists of delinting and conditioning cottonseed for use as planting seed. Cotton growers bring undelinted cottonseed to Sinkers, Sinkers delints the cottonseed per their request, and then turns the cottonseed over to whomever the grower specifies. The delinting process is an essential step in preparing cottonseed for planting. Virtually all cotton farmers in the United States utilize delinted cottonseed in planting their crops.

To process cottonseed, such as a farmer might purchase from Delta, the seed is first taken to a gin where most of the fiber or lint is separated from the seed. The seed can then be taken to a delinter, such as Sinkers. The delinting process removes the remaining lint. Undelinted, but ginned, cottonseed arrives at Sinkers's Kennett facility in a truck. In some cases, individual farmers bring cottonseed to the facility in pickup trucks. In other cases, however, large quantities of cottonseed, from many different distributors, farmers and farming cooperatives, arrive in tractor-trailer rigs. Upon its arrival at Sinkers's facility, undelinted cottonseed is placed in a "run bin". The seed is then fed into an auger, where it is wetted with a sulfuric acid solution. From there, the seed passes through a centrifuge where the solution is spun off. The seed emerges in a damp-dry condition and is passed through two dryers and two buffers. In the drying and buffing process, all remaining lint is separated from the seed. After culls, sticks and debris are removed from the bulk seed, the seed is treated with chemicals (if the client so requests--this is the "conditioning" stage of the process, the seed having by now been delinted), and then placed in fifty-pound bags. ² After the seed has been bagged, it is loaded onto trucks and transported to its next destination, which may or may not be the place from which the seed was sent, depending on the instructions given to the delinter.

Delta develops new varieties of seed by pollinating one unique variety with another. A new variety sought to be reproduced for sale by DPL is turned over to DPL's foundation seed department, which increases the volume through repeated replanting while protecting the genetic purity of the variety, to reach saleable quantities of seed. Thereafter, to increase the amount of seed they have to sell, DPL hires farmers as contract growers who will return to DPL the progeny of their crop. These seed varieties are protected by the PVPA, which "protects owners of novel seed varieties against unauthorized sales of their seed for replanting purposes." Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 181, 115 S.Ct. 788, 130 L.Ed.2d 682 (1995).

In 1992, Delta obtained information which led them to believe that cottonseed of their PVPA-protected varieties was being delinted at Sinkers's delinting facility in Kennett, Missouri, and was being sold in violation of Delta's rights under the PVPA. In essence, Delta believed that suspected sales by Sinkers, which were certainly unauthorized by Delta, did not fall within any of the statutory exemptions to the PVPA. After further investigation, Delta filed their complaint on April 29, 1993, alleging violations of the PVPA, 7 U.S.C. §§ 2321-2581, and requesting money damages and injunctive relief. Specifically, Delta alleged that by transferring possession of the protected seed with neither authority from Delta nor an exemption under the PVPA, Sinkers violated 7 U.S.C. § 2541(1). Delta further alleged that Sinkers infringed Delta's rights under 7 U.S.C. § 2541(6) by failing to mark the bags of delinted seeds that it shipped to farmers with a notice that the seed being sold or transferred was a protected variety. Finally, Delta asserted that massive quantities of Delta's protected varieties were funneled through Sinkers with its actual knowledge, or at least with knowing or reckless indifference on Sinkers's part regarding the absence of authorization or exemption, thereby actively inducing others to infringe Delta's PVPA rights in contravention of 7 U.S.C. § 2541(8). The district court found, at the conclusion of a bench trial, that Delta had failed to prove by a preponderance of the evidence that Sinkers committed any violations of Delta's PVPA rights. In essence, the court found that as a passive conduit of seed which it transferred according to the instructions of its customer, Sinkers had no liability under the PVPA, as construed by the district court. All injunctive relief and damages were, therefore, denied.

This timely appeal followed. We have exclusive subject matter jurisdiction under 28 U.S.C. §§ 1292(a)(1), (c)(1) (1994).

DISCUSSION

The relevant subsections of the PVPA provide as follows:

[I]t shall be an infringement of the rights of the owner of a novel variety to perform without authority, any of the following acts in the United States, or in commerce which can be regulated by Congress or affecting such commerce, prior to expiration of the right to plant variety protection but after either the issue of the certificate or the distribution of a novel plant variety with the notice under section 2567 of this title:

(1) sell the novel variety, or offer it or expose it for sale, deliver it, ship it, consign it, exchange it, or solicit an offer to buy it, or any other transfer of title or possession of it; ...

(6) dispense the novel variety to another, in a form which can be propagated, without notice as to being a protected variety under which it was received; or ...

(8) instigate or actively induce performance of any of the foregoing acts.

7 U.S.C. § 2541 (emphasis added). As can be seen from the above language, the PVPA gives the holder of a PVP Certificate rather broad exclusive rights. However, at the time this case was brought in the district court, there was one express, broad exemption to these exclusive rights. ³ The PVPA allowed a farmer to save seed and to use such "saved seed" to produce crops on his own farm, and furthermore allowed certain "farmer-to-farmer" sales of excess saved seed. This exemption was contained in 7 U.S.C. § 2543, which provided as follows:

Except to the extent that such action may constitute an infringement under [§§ 2541(3) and (4) ], it shall not infringe any right hereunder for a person to save...