Jersey Asparagus Farms Inc. v. Rutgers University, Civil No. 10-2849; U.S. District Court (DNJ); opinion by Wolfson, U.S.D.J.; filed May 31, 2011. DDS No. 59-7-2421 [50 pp.]

Plaintiff Jersey Asparagus Farms Inc. (JAFI) served as defendant Rutgers University’s exclusive distributor of its patented varieties of asparagus for more than 20 years. However, after allegedly discovering that some of the patents underlying the parties’ license agreement had expired or were otherwise invalid, JAFI filed this action alleging antitrust monopolization, RICO, and Declaratory Judgment Act claims against Rutgers. It alleges that Rutgers fraudulently obtained most of its patents and entered into the exclusive license agreement premised on those patents.

Plaintiff alleges that in obtaining the patents, Rutgers fraudulently asserted that it did not know and did not believe that the inventions had 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 on which the respective applications were filed. Also, JAFI 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.” Plaintiff alleges Rutgers engages in anticompetitive activities by establishing an exclusive licensing program that, in conjunction with its patents, prevents JAFI and other competitors from selling asparagus crowns and seeds that produce “all-male” plants.

JAFI alleges injury as a result of Rutgers’ anticompetitive conduct in the form of paying licensing and royalty fees that it would not otherwise have paid; incurring higher expenses; and lost sales.

Plaintiff seeks to file a second amended complaint. Defendant has filed a motion to dismiss the amended complaint for lack of statutory standing and, alternatively, on substantive grounds.

Held: Defendant’s motion to dismiss with prejudice is granted with respect to plaintiff’s federal and state RICO claims for lack of standing. Plaintiff’s antitrust claims are dismissed without prejudice for, inter alia, failure to allege scienter. The DJA claims are dismissed without prejudice for failure to allege that defendant enforced or threatened to enforce its patent rights. Plaintiff’s motion to file its SAC is denied, but plaintiff is granted leave to file a third amended complaint to cure the deficiencies noted herein.

Under § 2 of the Sherman Act, persons who monopolize or attempt to monopolize any part of trade or commerce may be subjected to civil liability for their actions. Plaintiffs’ monopolization claim hinges on its allegation that defendant committed a fraud on the Patent and Trademark Office by failing to disclose certain prior uses in its patent applications.

The court says plaintiff’s antitrust claim is essentially a Walker Process claim. Walker Process Equipment Inc. v. Food Machinery and Chemical Corp. , 382 U.S. 172 (1965), addressed monopoly allegations linked to allegedly fraudulently procured patents. It held that enforcement of a patent obtained by fraud constitutes an unlawful exclusionary act under § 2 of the Sherman Act.

Defendant challenges plaintiff’s fraud allegations, arguing that they fail to satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading standard because they 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.

The court finds that Hydril Co., L.P. v. Grant Prideco, L.P. , 474 F.3d 1344 (Fed. Cir. 2007), which addressed the sufficiency of Walker Process allegations on a motion to dismiss at the early stages of litigation, is applicable here. It held that Hydril had sufficiently alleged fraud by alleging that Grant had knowingly and deliberately concealed from the PTO prior art that it knew would have resulted in a denial of its application.

The court says plaintiff’s allegations here do not assert that Rutgers knew that the prior uses not included in the patent applications constituted material prior uses that should have been disclosed to the PTO. The SAC allegations read instead as if they assert a claim of negligence misrepresentation. Such misrepresentations are not actionable under Walker Process .

The court concludes that absent an allegation that defendant intentionally omitted reference to prior uses/sales in order to defraud the PTO, plaintiff’s claim fails to allege the requisite scienter.

The court notes that there appear to be additional deficiencies with the SAC. It questions if plaintiff will be able to meet the challenge of defining the relevant market. It also notes that the SAC does not plead cross-elasticity of demand — a critical allegation needed to define the relevant market for antitrust purposes. Antitrust standing poses another formidable hurdle since the class of plaintiffs capable of satisfying the antitrust-injury requirement is limited to consumers and competitors in the restrained market. The Third Circuit has held that mere intermediaries in the supply chain, such as JAFI, suffer no cognizable antitrust injury as a result of a manufacturer’s alleged anticompetitive conduct. To withstand a subsequent motion to dismiss, plaintiff would have to allege facts from which the court could conclude that its harms were an integral aspect of Rutgers’ conduct.

As to plaintiff’s state and federal RICO claims, plaintiff conceded that the claim, as pleaded in the SAC, is defective because inequitable conduct before the PTO cannot qualify as an act of mail fraud or wire fraud for purposes of the predicate-act requirement. Its request to amend these claims is denied because it cannot sufficiently allege RICO standing since it does not assert the type of financial loss redressable by RICO, rendering amendment futile.

Specifically, JAFI does not allege that Rutgers provided inferior parent plants or support services in connection with the licensing arrangement. JAFI received the benefit of its bargain though, allegedly, at an inflated price. This is not the sort of harm RICO redresses.

Defendant’s motion to dismiss the RICO claims is granted.

In it claim under the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq., plaintiff seeks a ruling on the validity of defendant’s patents. However, federal courts have held that the existence of a patent is not sufficient to establish declaratory judgment jurisdiction. Where, however, the patent holder has asserted its rights against the potential competitor, imminent harm has been alleged and a definite and concrete dispute exists.

Plaintiff concedes that the SAC does not sufficiently allege that Rutgers attempted to enforce its patents against JAFI and there is substantial question as to whether JAFI can sufficiently plead a viable DJA claim. For it to properly state a DJA claim, an amended complaint must allege more than that Rutgers attempted to retrieve its plants; it must allege that Rutgers otherwise enforced or threatened to enforce its patent rights against JAFI. Plaintiff is granted leave to amend if it can do so consistent with this dictate.

— By Judith Nallin