WOLFSON, District Judge:
This matter arises out of a now-terminated, exclusive license agreement through which Plaintiff Jersey Asparagus Farms, Inc. ("JAFI") was authorized by Defendant Rutgers University ("Rutgers") to sell the latter's patented varieties of asparagus. Presently before the Court is Plaintiff's motion to amend the Amended Complaint and to file its Proposed Second Amended Complaint ("SAC"). Also before the Court is Defendant's motion to dismiss the Amended Complaint for lack of statutory standing pursuant to Federal Rule of Civil Procedure 12(b)(1) or, in the alternative, for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
At oral argument, the parties agreed with the Court that, in the interest of judicial economy, the Court should focus its inquiry on the SAC in ruling on both parties' motions. For the reasons that follow, the Court grants Defendant's motion to dismiss with prejudice with respect to Plaintiff's federal and state RICO claims. Plaintiff's antitrust and Declaratory Judgment Act, 28 U.S.C. § 2201, et seq. ("DJA"), claims are dismissed without prejudice. The Court denies Plaintiff's motion to amend and file its Second Amended Complaint, yet grants Plaintiff leave to file a Third Amended Complaint in the manner described herein.
On both motions to dismiss for statutory standing (Rule 12(b)(1)) and motions to
While JAFI served as Rutgers' exclusive distributor for over twenty years, their relationship soured once JAFI allegedly discovered that some of the patents underlying the parties' license agreement had expired or were otherwise invalid. Generally, Plaintiff brings antitrust monopolization, RICO, and DJA claims against Rutgers for its actions in allegedly fraudulently obtaining the patents and entering into the exclusive license agreement premised on those patents, as well as for seeking return of plants provided to JAFI and the payment of royalties under the license agreement. As explained in more detail below, Plaintiff's Second Amended Complaint alleges that the exclusive license agreement authorized Plaintiff to cross-breed Rutgers patented asparagus parent plants, harvest all-male hybrid seed from those plants, and sell that seed to farmers with a license restriction prohibiting both Plaintiff and the purchasing farmers from asexually reproducing new hybrid plants by dividing the crowns of the plants grown from the purchased seed.
As background for the ensuing discussion, I include a brief primer on asparagus reproduction. Asparagus may be reproduced sexually or asexually. Sexual reproduction is typically referred to as natural "propagation," and describes the process by which two parent plants are bred to produce seed. The seed produced is hybrid if the parent plants were from two different varieties.
Additionally, the crown (i.e., the root system of a one-year old asparagus plant) of an asparagus plant may be divided in such a manner as to produce new plants. This is referred to as asexual reproduction or crown division. The process of crown division effectively clones the plant, keeping intact its hybrid or non-hybrid nature.
According to the Proposed Second Amended Complaint, Rutgers began developing an all-male, hybrid asparagus seed in the late 1970's. PSAC, ¶ 20. Rutgers ultimately obtained patents for ten varieties of such all-male, hybrid asparagus ("Rutgers' varieties"). Id. These varieties are Greenwich, Jersey Giant, Jersey Knight, Jersey General, Jersey Titan, Jersey Gem, Jersey Jewel, NJ854, NJ953, and NJ977. Id. at 22. Rutgers, further, produced three additional varieties for which it has not obtained patents—Jersey King, Jersey Prince, and Jersey Supreme. Id. at ¶ 23. Plaintiff alleges that, despite not having obtained patents for these latter three varieties, Rutgers attempts to control the use and sale of these varieties through the patents for the varieties' parent plants. Moreover, Rutgers obtained patents over several parent plants from which the hybrid varieties were cross-bred. See id. at ¶¶ 22-24. In Plaintiff's view, Rutgers fraudulently obtained almost all of its patents by asserting on its patent applications that each asparagus variety had not been described in a publication, and/or been in public use, or on sale, or both, in the United States for more than one year prior to the date upon which the respective applications were filed.
Id. at ¶ 7.
Plaintiff alleges that Rutgers used its fraudulently obtained patents to "dominate and control the nationwide market for asparagus crowns and seed that produce `all-male plants' and to expand its domination over the entire market for asparagus crowns and seeds in the colder, wet climate market." Id. at ¶ 45. Specifically, Plaintiff alleges, Rutgers engages in anticompetitive activities by establishing an exclusive licensing program that, in conjunction with Rutgers' patents, prevents JAFI and other competitors from "selling asparagus crowns and seeds that produce `all-male' plants ...." Id. at ¶ 46. By virtue of this licensing program, farmers may purchase Rutgers' patented varieties only through selected licensees. The farmers are, further, prevented from asexually reproducing new plants through crown-division. Id.
Plaintiff categorizes Rutgers' anticompetitive conduct or scheme into what it contends are four distinct steps:
Id. at ¶ 47.
For the unpatented hybrid varieties, JAFI alleges that Rutgers utilized similar tactics by claiming that it owned and controlled all right, title and interest in the varieties' parent plants. See id. at ¶ 55. Furthermore, through the exclusive licencing practice, JAFI alleges that Rutgers created, and maintains, a monopoly with respect to the sale of these varieties. In addition, JAFI alleges that Rutgers continued to behave as if had active patents on the parent plants even after those patents expired. Id.
Thus, other than by purchasing seeds, the only means by which a new crop may be had from the Rutgers' varieties is if a farmer practices crown division. Id. at ¶¶ 58-65. Through crown-division, 2 to 5 new plants may yield from the original crown. However, because Rutgers prohibits farmers from practicing crown-division, farmers who wish to use Rutgers' varieties must repurchase those varieties every year. The prohibition against crown-division, in Plaintiff's view, decreases competition by increasing farmers' costs. Id. at ¶ 65 ("As a result of [Rutgers'] unfair competitive advantage, Rutgers is able to artificially increase the cost of crowns.").
In terms of antitrust injury, JAFI alleges that it has sustained injury to itself and, further, that others sustained injury as a result of Rutgers' anticompetitive conduct as well. With regard to those injuries it sustained, JAFI alleges the following types of injuries:
Id. at ¶ 126.
In JAFI's view, but for the fraudulently-obtained patents, Rutgers could not have legally retained control over the market beyond the first generation of planted hybrid seed
Id. at ¶ 84. Moreover, JAFI alleges that "[h]ad Rutgers not prevented JAFI from doing so, JAFI could have, and would have, asexually reproduced the male hybrid asparagus plants and thus competed directly with Rutgers (and without the need to pay Rutgers any royalties or licensing fees)." Id. at ¶ 83. JAFI alleges that it cannot currently sell plants in its possession to end-using farmers for crown division because such farmers are fearful that Rutgers will sue them under the fraudulently obtained and expired patents. Id. at ¶ ¶ 90-91.
With regard to injuries sustained by others, JAFI alleges that: (1) farmers paid higher prices for asparagus seed and crown and that they were forced to repurchase seed each year because they were not permitted to practice crown-division; (2) the public paid higher prices for asparagus; and (3) companies that sell seed and crowns incurred higher costs to produce the crowns by being forced to purchase seeds solely through Rutgers' exclusive licensee, here, JAFI.
The licensing agreement required that JAFI pay an up-front licensing fee of $250,000, and agree to pay Rutgers royalty fees ranging from 25% to 50% of JAFI's gross sales of the Rutgers' varieties hybrid seeds. Id. at ¶ 67. The licensing agreement permitted JAFI to sexually reproduce the Rutgers' varieties through male and female parent plants in order to make the hybrid seeds to be sold.
As with the restrictions placed on end-using farmers, the license agreement prohibited JAFI from asexually reproducing through cross-division of the crowns. Id. at ¶ 68. It is important to note that the license agreement specifically references the Rutgers plant variety patents. For example, the Jersey Giant hybrid asparagus agreement states that Rutgers "owns and controls all right, title and interest in and to [sic] two asexually reproduced asparagus parent plants registered under the designations Donna and Scott Howard," Buckingham Decl., Exh. B ("License Agmt.") at 1, and that these licensed plants are the Donna and Scott Howard "claimed by United States Plant Patents PP 5,652 and PP 5,549, respectively ...." Id. at Art. I, b.
By transferring the parent plants to JAFI, the agreement also provides that a bailment is created. Id. at Art. Ie. In the words of the agreement,
Id. This bailment clause does not reference the hybrid seed propagated from the parent plants; rather, it references only the parent plants themselves. The agreement, further, provides that, upon cancellation by either party, all plants and hybrid seed must be returned to Rutgers, transferred to another exclusive licensee, or destroyed. Id. at Art. IX.
After JAFI and Rutgers maintained their license relationship for some time, JAFI became aware that some of the Rutgers patents and the parties' license agreements had expired. Id. at ¶ 92. Once JAFI became aware of the expirations, JAFI ceased paying Rutgers royalties on the sale of the Rutgers' varieties seeds. Id. at ¶ 93. Rutgers then demanded that JAFI either destroy or return all the Rutgers' varieties plants "as though the patents were still in effect." Id. In addition, Plaintiff alleges, Rutgers demanded royalty payments for the Jersey Supreme variety even though Rutgers did not procure a patent for that variety and there was no formal license agreement relating to that variety. Id. at 95.
Plaintiff, generally, alleges that Rutgers, the former-employee inventors of Rutgers' patents, and owners of farms that grew Rutgers' plants on Rutgers' behalf, comprised a "patent enterprise." See id. at ¶¶ 130-153. JAFI alleges that the enterprise obtained the patents though the mails and/or wire, and that the predicate RICO acts are the same patent-application misrepresentations alleged in connection with Plaintiff's antitrust claim. Id. at ¶¶ 154-165. With respect to the injuries suffered, Plaintiff alleges that it paid royalties "that it would not have had to pay but for the patents," that the amount of royalties was too high, and that Rutgers' assertions that JAFI may no longer sell the plants has "created doubt as to the right of JAFI to sell asexually reproduced plants or seed from such plants." Id. at ¶ 187.
With respect to the New Jersey RICO claim only, Plaintiff further alleges that Defendant "used the fraudulently obtained patents in bad faith by attempting to extend the patent monopolies (exclusive control over asexual reproduction) into the production of seed and crowns produced from seed," Id. at ¶ 175, and that Rutgers intentionally staggered its patent applications for the various varieties so that it would always have active patents, id. at ¶ 178, as well as other patent-misuse transgressions.
In connection with its DJA claim, Plaintiff alleges that Rutgers has attempted to
Based on these alleged facts, JAFI filed its initial complaint on June 3, 2010. The Amended Complaint was filed a month later, in July of 2010. Thereafter, Defendant Rutgers filed its motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). While the motion to dismiss was pending, JAFI filed a motion to amend the Amended Complaint, attaching a copy of a proposed Second Amended Complaint.
Defendant has moved to dismiss the complaint for lack of statutory standing and for failure to state a claim. According to the Third Circuit, "[a] dismissal for lack of statutory standing is effectively the same as a dismissal for failure to state a claim." Baldwin, 636 F.3d at 73. Likewise, with respect to Plaintiff's motion to amend, leave to amend should be denied where "the proposed claim would be subject to dismissal under Rule 12(b)(6)." Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 256 n. 14 (3d Cir.2010). Thus, the following discussion of the Rule 12(b)(6) standard is equally applicable to both Defendant's and Plaintiff's motions.
The Federal Rules of Civil Procedure provide that a complaint "shall contain (1) a short and plain statement of the grounds upon which the court's jurisdiction depends... (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief the pleader seeks." Fed.R.Civ.P. 8(a). The purpose of a complaint is "to inform the opposing party and the court of the nature of the claims and defenses being asserted by the pleader and, in the case of an affirmative pleading, the relief being demanded." 5 Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 1182 (3d ed. 2004).
Phillips, 515 F.3d at 234 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
In affirming that the Twombly standard applies to all motions to dismiss, the Supreme Court recently further clarified the 12(b) (6) standard. "First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, 556 U.S. 662, ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). "Second, only a complaint that states a plausible claim for relief survives a motion to dismiss." Iqbal, 129 S.Ct. at 1950. Accordingly, "a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Id. In short, "a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to `show' such an entitlement with its facts." Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir.2009).
The Third Circuit recently reiterated that "judging the sufficiency of a pleading is a context-dependent exercise" and "[s]ome claims require more factual explication than others to state a plausible claim for relief." West Penn Allegheny Health System, Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir.2010). This means that, "[f]or example, it generally takes fewer factual allegations to state a claim for simple battery than to state a claim for antitrust conspiracy." Id. That said, the Rule 8 pleading standard is to be applied "with the same level of rigor in all civil actions." Id. (quoting Iqbal, 129 S.Ct. at 1953).
Defendant moves to dismiss Plaintiff's claims for lack of statutory standing and, alternatively, on substantive grounds. I address each claim in turn, turning first to the antitrust claim.
Under section 2 of the Sherman Act, persons "who ... monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of ... trade or commerce," may be subjected to civil liability
While the SAC does not refer to Plaintiff's antitrust claim as such, it is essentially a "Walker-Process" claim.
Walker Process, specifically, alleged that Food Machinery misrepresented to the PTO that it was unaware of its invention being in public use in the Unites States for more than a year prior to filing for a patent.
"Walker Process fraud is a variant of common law fraud, and ... the elements of common law fraud include: (1) a representation of a material fact, (2) the falsity of that representation, and (3) the intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to be the equivalent of intent
Defendant challenges Plaintiff's fraud on the PTO allegations, arguing that they fail to satisfy Federal Rule of Civil Procedure 9(b)'s heightened pleading standard. To sufficiently allege that an inventor committed fraud before the PTO, a plaintiff must assert that the inventor possessed fraudulent intent and that the inventor's misrepresentations or omissions were material. Defendant's challenge to Plaintiff's allegations here centers on a failure to properly plead intent.
As noted, Plaintiff's key allegation is that there were several prior uses of the patented asparagus varieties that were not disclosed to the PTO. For example, the SAC states that the Jersey Giant variety was planted by Oklahoma State University and Michigan State University more than two years prior to Defendant's filing of the Jersey Giant patent application in 1983, and was sold to Walker Brothers Farm in April 1981. SAC at ¶ 30. Another example is the Jersey Knight variety, about which the SAC alleges that "J. Howard Ellison, the principal patent applicant ... distributed between 150,000 and 200,000 Jersey Knight seeds to more than 60 different recipients, most of which were United States farmers, commercial organizations, county agents, or research organizations. Such distribution constitutes `public use ....'" Id. at ¶ 31. In addition, the SAC generally avers that the varieties were described in publications more than one year prior to each patent application. Id. at ¶ 27.
The SAC alleges that the inventors identified in the patent applications signed declarations stating, inter alia, that
Id. at ¶ 7. Further, Plaintiff asserts, "the party seeking the patent has an affirmative duty to disclose all information that is material to the Patent Office's decision to grant or deny the patent." Id. at ¶ 8. Thus, by signing the aforesaid declarations without disclosing each pre-application planting, sale, or inclusion in a publication, the SAC alleges that Defendant filed a false declaration and failed to disclose all material information to the patent office.
In Defendant's view, these assertions fail to allege scienter, i.e., that Rutgers was aware of the false statements or that it intentionally submitted the statements with the intent to deceive the PTO. Defendant relies, principally, on Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed.Cir.2009), an inequitable conduct case, in support of this argument. Moreover, Defendant argues, by looking at the face of the patents themselves, one can discern that the alleged undisclosed prior uses were, in fact, disclosed to the PTO. Indeed, as noted supra, the Court may consider the patents in ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6)because the patents are documents integral to the SAC.
Defendant is correct in that the patents indicate that some of the prior uses were disclosed to the PTO. For example, the Jersey Giant patent explains that "actual results of growing our new variety in substantially different geographical locations, and in soil virgin to asparagus as well, follows hereafter and indicates the superiority we have developed in `Jersey Giant.'" Buckingham Decl., Ex. 2, Col. 2, Table 4. Thereafter, the patent references "Bixby, Oklahoma" in a table along with results from growing the variety in 1979 and 1980—more than two years prior to the 1983 patent application. In addition, Michigan is referenced in another table and yields from 1981 and 1982 are disclosed. Id. at Col. 2, Table 5. However, there is no reference in the patent of a sale to Walker Brothers Farm in 1981. Similarly, while the Jersey Knight patent indicates that variety had been subjected to "a very extensive research program which has been carried on for years ..." Id., Ex. 3, Col. 1, 6-7, there is no specific reference to the alleged distribution of "150,000 and 200,000 Jersey Knight seeds to more than 60 different recipients...." Therefore, it appears that only some of the alleged undisclosed prior uses are refuted by the patent applications themselves. For those allegations not clearly refuted by the face of the applications, the Court must accept the allegations as true on a motion to dismiss and may not resolve factual disputes.
In connection with those prior uses not refuted by the patents themselves, Defendant argues that Plaintiff's allegations do not foreclose the possibility that the undisclosed uses constitute experimental uses, which need not be disclosed to the PTO. Indeed, a sale that is experimental would not constitute a "prior sale." Del. Valley, 597 F.3d at 1379. Defendant's argument fails, however, because the Court may not determine on a motion to dismiss whether an undisclosed use is an experimental one; the Court must accept the Plaintiff's allegations of prior use as true. And, the determination whether the experimental use exception applies involves factual proofs typically resolved on summary judgment. See Minton v. National Ass'n. of Securities Dealers, Inc., 336 F.3d 1373 (Fed.Cir.2003).
Exergen holds that allegations of fraud on the PTO must include facts that "give rise to a reasonable inference of scienter, including both (1) knowledge of the withheld material information or of the falsity of the material misrepresentation, and (2) specific intent to deceive the PTO." 575 F.3d at 1330. In this regard, the allegations must plausibly suggest a "deliberate decision to withhold a known material reference or to make a knowingly false misrepresentation—a necessary predicate for inferring deceptive intent." Id. at 1331 (internal quotation marks omitted) (quoting Molins PLC v. Textron, Inc., 48 F.3d 1172 (Fed.Cir.1995)). Further underscoring the high pleading standard to which allegations regarding fraud on the PTO must ascribe, the Exergen Court pronounced that "[t]o allow plaintiffs and their attorneys to subject companies to wasteful litigation based on the detection of a few negligently made errors ... would be contrary to the goals of Rule 9(b), which include the deterrence of frivolous litigation based on accusations that could hurt the reputations of those being attacked." Id.
It is important to note, at the outset, that Exergen does not address the pleading standard applicable on a motion to dismiss under Rule 12(b)(6).
In my view, the Federal Circuit decision in Hydril, which addressed the sufficiency of Walker Process allegations on a motion to dismiss at the early stages of litigation, is more instructive here. That case involved allegations that a defendant monopolized drill pipe product markets by enforcing a fraudulently-obtained patent. Hydril, 474 F.3d at 1345. The patent holder-defendant, Grant Prideco LP ("Grant") procured a patent for a combination of drill pipe "with specified diameters and connections that fit such pipe." Id. at 1346. The plaintiff, Hydril Company LP and Hydril U.K. Ltd. (collectively, "Hydril"), manufactured threaded connections for drill pipe and sold those connection through licensees. In addition, Hydril sometimes sold finished drill pipe that included its threaded connections and pipe manufactured by another company.
One of Hydril's licensees received a threatening letter from Grant, in which Grant asserted that the licensee's sales of a particular threaded connection violated Grant's patent. Hydril brought suit against Grant alleging that it had previously entered into a shared licensing agreement with Grant through which both parties granted licenses to each other for the use of certain connections. Hydril alleged in its complaint that Grant violated the terms of the parties' licensing agreement and, relevant here, engaged in monopolization in violation of § 2 of the Sherman Act.
Analyzing Hydril's antitrust claim under the Walker Process line of authority, the Federal Circuit held that Hydril sufficiently alleged fraud. In reaching that conclusion, the court found it sufficient that Hydril alleged that Grant had fraudulently obtained its patent by "fail[ing] to disclose to the USPTO material prior art of which [it] was aware" (which the complaint described) and that "[t]he [p]atent as issued would not have been granted to Grant ... had Grant ... not omitted from its disclosures such known information on the prior art." Id. at 1350. In its view, these allegations assert that "Grant ... obtained its patent by knowingly and deliberately concealing from the Patent Office prior art that it knew would have resulted in a denial of its application," and such allegations "go far beyond a simple failure to disclose to the Patent Office prior art that the examiner would have deemed material." Id.
Notably absent from Plaintiff's allegations here is the assertion that any of the inventors of the Rutgers patents knew that the prior uses not included in the patent applications constituted material prior uses that should have been disclosed to the PTO.
An example of allegations determined to have sufficiently alleged scienter in a manner consistent with Hydril can be found in Ritz Camera & Image, LLC v. SanDisk Corp., 772 F.Supp.2d 1100, 1105-07 (N.D.Cal.2011). In that case, the Northern District of California found sufficient, allegations that the law firm responsible for prosecuting the disputed patents began keeping records of prior invalidating art several months before the patents were reexamined, yet failed to disclose its record-keeping to the PTO. Furthermore, the challenger asserted, that if the PTO had been aware of the prior art, it would not have survived reexamination nor would it have issued in the first instance. Id. at 1105-06. Similarly, the court in Correct Craft IP Holdings, LLC v. Malibu Boats, LLC, No. 09-cv-813, 2010 WL 598693, *7 (M.D.Fla.2010), held, allegations that two inventors "knowingly submitted false declarations of joint inventorship in order to resolve an inventorship dispute and permit the ... patent to claim priority to the [a previously-issued] design patent [along with] clear, independent evidence of both [inventors'] intent to deceive in the form of deposition and court testimony," sufficiently alleged scienter under Rule 9(b).
The SAC's allegations here read, instead, as if they assert a claim of negligent misrepresentation. Areeda and Hovenkamp explain in their noteworthy antitrust treatise how an inventor could negligently make a false misrepresentation, which falsity would have barred issuance of the patent:
ANTITRUST LAW at § 701h1.
Negligent misrepresentations, however, are not actionable under Walker Process. As stated by the Federal Circuit in Eli Lilly and Co. v. Zenith Goldline Pharmaceuticals, Inc., 471 F.3d 1369 (Fed.Cir. 2006),
Id. at 1382 (internal citations and quotation marks omitted) (emphasis added).
Furthermore, where the alleged misrepresentation is one of omission, e.g.,
The Federal Circuit's recent en banc decision in Therasense v. Becton, Dickinson and Co., 649 F.3d 1276, 2011 WL 2028255 (Fed.Cir., May 25, 2011), provides additional support for my ruling.
In Therasense, the owner of a patent for diabetic blood glucose test strips failed to disclose prior art that it had previously disclosed before the European Patent Office (the European counterpart to the U.S. PTO) in connection with a similar patent application before that office. Id. at 1285-86, at *4. In clarifying the standard applicable to claims of inequitable conduct, the court took pains to express how the doctrine has been "overplayed, is appearing in nearly every patent suit, and is cluttering up the patent system." Id. at 1289, at *8 (quoting Kimberly-Clark Corp. v. Johnson & Johnson, 745 F.2d 1437, 1454 (Fed.Cir. 1984)). The court reiterated that
Id. (citations omitted). Hence, the court commented, "[w]hile honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many
Having expressed its displeasure with how the inequitable conduct doctrine has been overused, the court, thereafter, reaffirmed that "[b]ecause direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence" on a motion for summary judgment or after a trial. Id. at 1290-91, at *10. However, the evidence must strongly suggest that the "single most reasonable inference able to be drawn [is a] finding of deceitful intent in the light of all the circumstances." Id. (internal citations omitted). Thus, "[w]henever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference." Id. Moreover, "[t]he absence of a good faith explanation for withholding a material reference does not, by itself, prove intent to deceive." Id.
Further, while the Therasense opinion impacts the analysis of Plaintiff's Walker Process claim, it does not necessarily close the coffin on Plaintiff's claim. As noted, Therasense does not address the initial pleading stage nor does it suggest that a challenger could never plead a claim of inequitable conduct.
In sum, based on my reading of the Federal Circuit's decision in Hydril, and considering the recent narrowing of the inequitable conduct doctrine by Therasense, I conclude that the SAC fails to sufficiently allege scienter. Since Plaintiff has requested leave to further amend, the Court grants that request. I note, in this regard, that although my ruling focuses primarily on scienter, in granting Plaintiff the opportunity to amend one last time, Plaintiff must carefully craft its allegations to satisfy the Federal Circuit's dictates regarding both scienter and materiality.
In light of the foregoing analysis, the Court need not reach Defendant's other arguments for dismissal under Third Circuit law, such as challenges to the Plaintiff's definition of the relevant market.
Indeed, the Court queries whether Plaintiff will be able to surmount the substantial challenges to bringing the type of antitrust claim Plaintiff seeks to bring here. One such challenge is that of defining the relevant market. In the SAC, Plaintiff does not plead cross-elasticity of demand—a critical allegation needed to define the relevant market for antitrust purposes. A plaintiff must allege cross-elasticity of consumer demand because "the outer boundaries of a relevant market are determined by reasonable interchangeability of use." Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 438 (3d Cir.1997). That is, "products in a relevant market [are] characterized by a cross-elasticity of demand, in other words, the rise in the price of a good within a relevant product market would tend to create a greater demand for other like goods in that market." U.S. Horticultural Supply v. Scotts Co., 367 Fed.Appx. 305, 309 (3d Cir.2010) (discussing Queen City Pizza, 124 F.3d at 438 n. 6).
The SAC alleges only that there is a stark price differential between the Rutgers varieties and non-Rutgers' varieties. Third Circuit case law holds, however, that a plaintiff must allege "selling price, uses, and physical characteristics." Scotts, 367 Fed.Appx. at 310 (citing Am. Bearing Co., Inc. v. Litton Indus., Inc., 729 F.2d 943, 949 (3d Cir.1984)). Plaintiff argues that price allegations are sufficient, citing to AD/SAT, Div. of Skylight, Inc. v. Associated Press, 181 F.3d 216 (2d Cir. 1999), but even that case acknowledges that "significant price differences do not always indicate distinct markets." Id. at 228. Admittedly, it is difficult to follow SAC's alternative relevant market theories: one being a nationwide market limited to Rutgers' patented varieties and the other including non-Rutgers varieties but limited regionally to "wet climates." See SAC, ¶¶ 100-20. Here, under either definition of the relevant market, the SAC fails to adequately plead cross-elasticity of demand.
Antitrust standing poses another formidable hurdle for Plaintiff.
The Third Circuit recently summarized the doctrine of antitrust injury, flowing from the Supreme Court's decision in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), as follows:
West Penn Allegheny Health System, Inc. v. UPMC, 627 F.3d 85, 101 (3d Cir.2010). The goal of the antitrust-injury requirement is "that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust laws in the first place, and it prevents losses that stem from competition from supporting suits by private plaintiffs for ... damages." Id. (quoting Atl. Richfield, 495 U.S. at 342, 110 S.Ct. 1884). Hence "the class of plaintiffs capable of satisfying the antitrust-injury requirement is limited to consumers and competitors in the restrained market." Id. at 102.
The remaining elements of the antitrust standing inquiry find their genesis in the Supreme Court's decision in Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). Under Associated General, courts are directed to consider:
2660 Woodley Road, 369 F.3d at 740-41. See also McCullough v. Zimmer, Inc., 382 Fed.Appx. 225, 228 n. 2 (3d Cir.2010).
Here, JAFI alleges that Rutgers engaged in anti-competitive conduct by utilizing its exclusive licensing program. These allegations are reminiscent of those in McCullough, where the Third Circuit held that a commission-based sales representative, who was neither a competitor nor a consumer, failed to allege antitrust injury. 382 Fed.Appx. at 227. According to that court, "mere intermediaries in the supply chain ... suffer[ ] no cognizable antitrust injury as a result of [a manufacturer's] alleged anticompetitive conduct." Id. The same appears to hold true for JAFI, who merely served as an intermediary to bring Rutgers' plant varieties to the end-using farmers.
There are a few cases that have found antitrust injury sufficiently alleged by a distributor against a manufacturer. In U.S. Horticultural Supply, Inc. v. Scotts Co., No.A03-773, 2004 WL 1529185
For the foregoing reasons, Defendant's motion to dismiss is granted with respect to the antitrust claim. Plaintiff, however, is granted one last opportunity to amend its complaint to comply with the dictates of this opinion. While the Court has pointed out some of the perceived deficiencies with Plaintiff's antitrust claim, the aforesaid discussion is not exhaustive. It is Plaintiff's obligation to ensure that its newly amended complaint fully satisfies Federal Circuit and Third Circuit law.
Plaintiff brings both state and federal RICO claims, with the federal claim being asserted under 18 U.S.C. § 1962(c).
Annulli v. Panikkar, 200 F.3d 189, 198 (3d Cir.1999) overruled on other grounds by Rotella v. Wood, 528 U.S. 549, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000); Andela v. American Ass'n For Cancer Research, 389 Fed.Appx. 137, 142 n. 6 (3d Cir.2010) (citing Annulli). As an initial matter, Plaintiff conceded at oral argument that this claim, as plead in the SAC, is defective because, as held by the Federal Circuit, "inequitable conduct before the PTO cannot qualify as an act of mail fraud or wire fraud for purposes of the predicate act requirement." University of West Virginia Board of Trustees v. VanVoorhies, 278 F.3d 1288, 1303 (Fed.Cir.2002) (quoting Semiconductor Energy Laboratory Co. v. Samsung Electronics Co., 204 F.3d 1368, 1380 (Fed.Cir.2000)). Accordingly, the SAC fails to properly allege that Defendant utilized the mails in connection with the alleged scheme to defraud the patent office.
Defendant correctly argues that Plaintiff has not alleged (and can not sufficiently allege) RICO standing because Plaintiff does not assert the type of financial loss redressable by RICO. "Apart from the Article III constitutional and prudential standing requirements ..., plaintiffs seeking recovery under RICO must satisfy additional standing criterion set forth in section 1964(c) of the statute." Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir.2000). According to 18 U.S.C. § 1964(c), a RICO plaintiff must show: "(1) that the plaintiff suffered an injury to business or property; and (2) that the plaintiff's injury was proximately caused by the defendant's violation of 18 U.S.C. § 1962." Id. at 483.
Defendant argues, first, that the Plaintiff fails to allege standing because its injuries are to an intangible property interest, and such injuries are insufficient to allege an injury-in-fact. Defendant cites to Maio in support of its argument. Maio held that the reduction in value of an intangible property interest created by contract, without more, does not constitute RICO injury. 221 F.3d at 490. See also Anderson v. Ayling, 396 F.3d 265, 271 (3d Cir.2005). To show RICO harm when contractual rights are at stake, a plaintiff must allege that the defendant failed to perform under the parties' agreement such as by providing an inferior product or service. Id.
While JAFI alleges that Rutgers misrepresented that it had valid patents to support the large fees and royalties it charged, JAFI does not allege that Rutgers provided inferior parent plants or support services in connection with the exclusive licensing arrangement. As stated by the Third Circuit, "[c]ase law does indicate that a plaintiff who is fraudulently induced to enter into a transaction does not suffer injury within the meaning of § 1964(c) until the defendant fails to perform—that is, until it becomes clear that the plaintiff will not get the benefit of the bargain." Id. (citation omitted). Here, JAFI received the benefit of its bargain though, allegedly, at an inflated price. This is not the sort of harm RICO redresses. Accordingly, Defendant's motion to dismiss is granted with respect to Plaintiff's federal RICO claim.
Because the same analysis applies to Plaintiff's state RICO claim, that claim is also dismissed. See State v. Ball, 268 N.J.Super. 72, 98, 632 A.2d 1222 (App.Div. 1993), aff'd, 141 N.J. 142, 661 A.2d 251 (1995). (stating that New Jersey's RICO statute "borrows its structure, purpose and remedies from Federal RICO" and heeds federal case law in construing its
In the Declaratory Judgment Act claim, Plaintiff seeks a ruling on the validity of Defendant's asparagus variety patents. While Plaintiff contends that its factual allegations present a justiciable controversy, Defendant argues that there is no actual case or controversy presented. Citing to MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007), and Federal Circuit decisions interpreting that decision, Defendant argues, specifically, that a justiciable controversy exists only "where the patentee takes a position ... that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do." Def. Open. Br. at 27.
The Declaratory Judgment Act provides:
28 U.S.C. § 2201. The Act itself does not provide an independent basis for jurisdiction, but "as long as the suit meets the case or controversy requirement of Article III, a district court may have jurisdiction over a declaratory judgment action."
MedImmune "reaffirmed that the proper test for subject matter jurisdiction in declaratory judgment actions is `whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Prasco, 537 F.3d at 1335. There is no bright-line rule for determining whether jurisdiction exists. Rather, courts must engage in an analysis "calibrated to the particular facts of each case." Id. at 1336 (citation omitted).
Although there is no bright-line jurisdictional test, Federal Circuit decisions interpreting MedImmune have held that "the existence of a patent is not sufficient to
Here, Plaintiff conceded at oral argument that the SAC does not sufficiently allege that Rutgers attempted to enforce its patents against JAFI. To the extent the SAC makes such an allegation, it does so only conclusorily. Moreover, while the SAC alleges that Rutgers "has no right to prevent JAFI from asexually reproducing a plant that is the subject of an invalid plant patent," id. at ¶ 193, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 129 S.Ct. at 1949. Plaintiff asserted at oral argument that, if granted leave to amend, it would add a more specific allegation that Rutgers attempted to enforce its patents as late as August 2010. However, JAFI did not provide any further detail as to the exact date of the alleged attempt to enforce, nor detail as to the substance of the proposed amended allegations.
There remain substantial questions whether JAFI can sufficiently plead a viable DJA claim. To the extent that JAFI bases its assertion-of-patent-rights allegation on Rutgers' attempt to retrieve the parent plants, the license agreement language suggests that Rutgers could seek recovery of those plants through the bailment relationship. Bailment (or consignment) relationships have long been used in agricultural contracts to define growing and selling relationships. See Neil D. Hamilton, Why Own the Farm If You Can Own the Farmer (and the Crop?): Contract Production and Intellectual Property Protection of Grain Crops, 73 Neb. L.Rev. 48, 70 (1994); cf. Wilson v. Burch Farms, Inc., 176 N.C. App. 629, 627 S.E.2d 249 (2006) (provision of sweet potatoes to another party for sale to third parties constituted a bailment/consignment).
In light of the Court's rulings, the Court denies Plaintiff's motion to amend and file its proposed SAC and dismisses the claims in the Amended Complaint. However, the Court grants Plaintiff leave to file a Third Amended Complaint within twenty (20) days regarding the antitrust and DJA claims, and that is otherwise consistent with this Opinion.
For the foregoing reasons, the Court grants Defendant's motion to dismiss with respect to the federal and state RICO claims with prejudice. With respect to the antitrust and DJA claims, those claims are dismissed without prejudice. Plaintiff's motion to amend to file its proposed Second Amended Complaint is denied; however, Plaintiff is granted leave to file a Third Amended Complaint within 20 days of the date of the Order accompanying this Opinion. An appropriate Order will follow.
Nobelpharma AB v. Implant Innov., Inc., 141 F.3d 1059 (Fed.Cir.1998); In re Netflix Antitrust Litig., 506 F.Supp.2d 308, 314 (N.D.Cal. 2007).
Id. at 1376 (internal citations omitted).
382 Fed.Appx. at 231 n. 7 (internal citations omitted).
Moreover, New Jersey law also treats consignments as a type of bailment (bailment for sale). However, New Jersey law suggests that such agreements may fall within, and should be interpreted under, the UCC. See Charles Bloom & Co. v. Echo Jewelers, 279 N.J.Super. 372, 382, 652 A.2d 1238 (App.Div.1995) (stating in case involving consignment of diamonds for sale to third parties after being placed into setting that "[w]hile consignment of the diamonds to Echo Jewelers might previously have been considered a bailment, and indeed is a type of bailment, the rights of contracting parties have since been refined and explained in the Uniform Commercial Code, N.J.S.A. 12A:1-101 et seq.") (internal citations omitted).
