Judge Oliver W. Wanger of the Eastern District of California granted plaintiff grape growers leave to amend their antitrust and declaratory relief claims against the California Table Grape Commission (CTGC) based on an allegedly anticompetitive and fraudulent "patent and licensing" scheme by the CTGC and US Department of Agriculture (USDA) in connection with three new varieties of table grapes. Delano Farms Co. v. Cal. Table Grape Commission, No. 1:07-cv-1610 OWW SMS (E.D. Cal. filed Feb. 18, 2009).

Plaintiff grape growers brought an action seeking to invalidate the USDA’s patents on the new grape varieties and alleged that the CTGC monopolized the markets for these grapes in violation of Sherman Act § 2 by enforcing the USDA’s allegedly fraudulently obtained patents. According to plaintiffs, the patents were unenforceable and invalid because the USDA failed to inform the US Patent and Trademark Office (USPTO) that the three varieties of grapes at issue had been in the public domain before the USDA applied for the patents. Id. at 7. The USDA obtained the patents and granted the CTGC an exclusive license allowing it to charge royalties on sales of the grapes. Id. at 4. The CTGC picked three nurseries to sell the grapes, and these nurseries passed on the royalties to growers. Id. Plaintiffs alleged that the CTGC monopolized the grape markets in violation of Sherman Act § 2 by using this fraud on the patent office to reduce competition through its "patent and licensing" scheme, and also through its "amnesty" program, which sought royalty payments from grape growers for grapes they had already sold. Id. at 50-53. Plaintiffs also alleged state law claims for unfair competition, unjust enrichment and constructive trust, and brought a motion to strike portions of plaintiffs’ prayer for relief. Id. at 1-2.

Judge Wanger granted plaintiffs leave to amend their Walker Process antitrust claims. Id. at 62, 74. Judge Wanger agreed with the CTGC that the plaintiffs had not sufficiently alleged that the CTGC had market power in a relevant product market. Id. at 57-62. Plaintiffs alleged, for the first time in their opposition to CTGC’s motion to dismiss, that each variety of grapes constituted a separate worldwide market. Id. at 61. Judge Wanger found it "dubious" that a market could consist of only one type of grape, and held that the relevant product market must include all reasonably interchangeable substitutes. Id.

Judge Wanger disagreed with the CTGC’s argument that plaintiffs, indirect purchasers, lacked antitrust standing under Illinois Brick. Id. at 53-55. According to Judge Wanger, Illinois Brick did not bar plaintiffs’ antitrust claims, because those claims were not "solely premised on inflated prices by indirect purchasers. Rather, plaintiffs’ antitrust claim is more broadly based on the enforcement of a patent, knowingly procured through fraud, by an exclusive licensee." Id. at 54. However, Judge Wanger found that plaintiffs’ claim for damages lacked specificity, and held that plaintiffs "must add . . . necessary facts" to specify the basis for their alleged "lost revenues and profits." Id. at 55.

Judge Wanger also disagreed with the CTGC’s argument that the CTGC does not participate in the same market as the plaintiff growers because CTGC does not sell any grapes itself. Id. at 55-57. Judge Wanger found that CTGC "sets the prices" and "is the primary party enforcing the licenses" and held that the CTGC "remains the primary actor dictating terms of marketing and use for the varieties in-suit." Id. at 57.

With respect to plaintiffs’ requests for declaratory relief that the patents at issue were unenforceable or invalid, Judge Wanger dismissed the claims with leave to amend. Id. at 18-47. Judge Wanger held that the United States, as owner of the patents, was a necessary and indispensable party under Fed. R. Civ. P. 19(b) that could not be joined under the doctrine of sovereign immunity. Id. Based on plaintiffs’ argument that Administrative Procedure Act § 702 provided a limited waiver of sovereign immunity for any person seeking injunctive or declaratory relief against government agencies and officials, Judge Wanger granted plaintiffs leave to amend the complaint to "adequately state a § 702 APA claim against the United States" and "consent to transfer of the case to the Federal Court of Claims." Id. at 41, 47.

Judge Wanger rejected CTGC’s argument that plaintiffs’ declaratory relief claim failed as a matter of law because plaintiffs had not adequately alleged that the CTGC engaged in inequitable conduct. Id. at 48-50. Judge Wanger held that plaintiffs had sufficiently alleged an "intent to deceive" on the part of the CTGC and included the requisite specificity required for allegations of fraud under Fed. R. Civ. P. 9(b). Id.

Judge Wanger granted CTGC’s motion to dismiss plaintiffs’ claim for declaratory relief based on patent misuse without leave to amend, holding that (1) the CTGC’s conduct prior to issuance of the patents could not constitute patent misuse (since there was no patent to misuse), and (2) restrictions imposed on growers through CTGC’s licensing scheme did not constitute patent misuse as a matter of law because "it is not misuse of a plant patent to prevent the plant’s disclosure to prevent its reproduction." Id. at 66-67.

Finally, Judge Wanger denied CTGC’s motion to dismiss plaintiffs’ unfair competition, unjust enrichment and constructive trust claims, which were derivative of the alleged underlying patent fraud and antitrust violations. Id. at 67-71. Judge Wanger also denied CTGC’s motion to strike portions of the plaintiffs’ prayer for relief, and deferred those issues until after liability could be determined. Id. at 72-74.

Authored By:

Leo Caseria

(213) 617-4206