Delano Farms Company et al v. The California Table Grape Commission, No. 1:2007cv01610 - Document 121 (E.D. Cal. 2010)
Court Description: MEMORANDUM DECISION granting motions to dismiss 99 101 and finding as moot Motion for Certificate of Appealability 93 96 , signed by Judge Oliver W. Wanger on 7/26/10. (Coffman, Lisa)
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Delano Farms Company et al v. The California Table Grape Commission Doc. 121 1 2 3 4 UNITED STATES DISTRICT CO URT 5 FOR THE EASTER N DISTRICT OF C ALIFORNIA 6 7 8 9 DELANO F ARMS C OMPANY , FOU R STAR FRU IT, IN C., an d GERAWAN FARMIN G, INC ., 10 13 14 15 16 MEMORAND UM DEC ISION AND ORDER GR ANTING FEDERAL DEFENDANTS AND CALIFORNIA TABLE GR APE CO MMISSION S MOTIONS TO DIS MISS THE SECOND A MENDED COMPLAINT (DOCS. 9 9 & 10 1); AND DENYING AS MOO T PLAINTIFFS MOTION F OR CER TIFICATION OF INTERLOC UTORY APPEAL (DOC. 93). Plai ntiff s, 11 12 1:07-CV- 1610 OWW SMS v. THE CALI FORNIA TABLE GRAP E COMMISSI ON, UN ITED S TATES OF AMERICA, UNITE D STATES DEPARTME NT OF AGRICU LTURE , TOM VILS ACK, S ECRETA RY OF THE UNIT ED STA TES DE PARTM ENT OF AGRIC ULGURE (IN H IS OFFICIAL CAPAC ITY), 17 Def endan ts. 18 19 I. INTRODUCTION 20 21 The Unit ed Sta tes, et al., ( Federal Defend ants ) and 22 the Cali fornia Table Grap e Commission ( Commissio n ), 23 separate ly mov e to d ismis s Plaintiffs , Delano Fa rms C ompany 24 ( Delano ), Fo ur Sta r Fru it, Inc. ( Four Star ), and G erawan 25 Farming, Inc. ( Gera wan ) , entire Second Amended Compl aint 26 ( SAC ) pursua nt to Feder al R ules of Civil Procedure 27 12(b)(6) . 28 1 Dockets.Justia.com 1 Federal Defend ants a rgue: 2 (1) Plai ntiffs have waived their Administrative 3 Procedur e Act ( APA ) claims concerning the grant of 4 exclusiv e licenses b y failing to exhaust those 5 claims a t the admini strative level; a nd 6 (2) to t he extent th at Plaintiffs directly challe nge 7 8 the enfo rceability o f the patents held by Federal 9 Defendan ts, any such challenge should be rejected . 10 11 Doc. 100 . The Comm ission s mot ion a rgues: 12 (1) the APA challeng e fails for lack of exhaustion; 13 (2) the unfair compe tition claim, Cal. Bus. & Pro f. 14 Code § 1 7200 et seq. , against the Commission must be 15 dismisse d because it is: 16 17 (a) pree mpted by fed eral law; 18 (b) the Commission i s not a proper defendant 19 under § 17200; and 20 (c) the cause of action fails to state a claim; 21 and 22 (3) the unjust enric hment and constructive trust 23 claims a lso fail to state valid claims. 24 25 26 27 28 Doc. 102 . Plaintif fs opp ose bo th mo tions. replied. Docs . 111 & 113 . Doc. 109. Defen dants The matter came on fo r hea ring 2 1 June 29, 2010. 2 3 A. USDA Res earch Progra m. Californ ia tab le gra pe gr owers and shippers have funde d 4 5 a USDA r esearc h prog ram t o develop new table grap e var ieties 6 through assess ment i mpose d by the Commission on e ach b ox of 7 table gr apes s hipped in C alifornia. 8 the USDA provi ded th e new varieties under develop ment to area 9 10 11 12 SAC ¶18. Prior t o 2002, growers for ev aluati on of growing potential and c ommer cial marketab ility. Id. Once new varieties app eared comme rcially viable, the US DA re lease d the variety, and dist ribut ed 13 plant ma terial of th e var iety to area growers fre e of charge. 14 Id. 15 growers for th e new varie ties because California growe rs and 16 shippers alrea dy pai d for a large portion of the devel opment. 17 Id. It is all eged t hat USDA did not charge California 18 19 20 B. Patentin g of G rape Varieties. In the l ate 19 90s, a t the urging of the Commissio n, th e 21 USDA agr eed to begin pate nting new table grape va rieti es. 22 SAC ¶19. 23 to the U SDA fo r pate nting , Sweet Scarlet, Autumn King, and 24 25 26 27 28 The first three varieties the Commissio n ref erred Scarlet Royal, had b een u nder development for yea rs. It is alleged that a t leas t one of the varieties, Sweet Scar let, had been distr ibuted to g rowers for wide-scale commerc ial evaluati on and sale. SAC ¶¶ 22-23. 3 Patent applicatio ns for 1 Sweet Sc arlet, Autum n Kin g, a nd Scarlet Royal, were fi led 2 with the Unite d Stat es Pa tent and Trademark Offic e ( U SPTO ) 3 on Febru ary 20 , 2003 (App lication No. 371,512), S eptem ber 28, 4 5 6 7 2004 (Ap plicat ion No . 953 ,387), and September 28, 2004 , (Applica tion N o. 953 ,124) , respective ly. P atents were issued on July 26, 20 05 (Pa tent No. PP15,891 ( 891 Paten t )), 8 February 21, 2 006 (P atent No. PP16,284 ( 284 Pate nt )) , and 9 January 31, 20 06 (Pa tent No. PP16,229 ( 229 Paten t )). 10 SAC ¶¶ 2 5-33. 11 12 13 14 15 See The USDA agree d to g ive t he Commission an e xclusi ve license to all newly Pate nted Varieties, and to a llow the Commissi on to charge roya lties when growers wishe d to obtain the new variet ies. SAC a t ¶41. The USDA a lso agreed to give 16 the Comm ission exclu sive enforcement powers over its n ew 17 patent r ights. SAC ¶19. 18 The Comm ission then selec ted three nurseries to 19 exclusiv ely se ll all new patented table grape var ietie s 20 ( Licens ed Nur series ). 21 22 23 24 SAC ¶20. Unlike the pri or fr ee distribu tion, the nu rseri es were authorized to se ll ne w varietie s to g rowers . Id. In accordance with the agr eement between the Co mmissi on an d the USDA, the Commissi on ch arges 25 nurserie s who distri bute Patented Varieties a $50 00.00 26 particip ation fee pe r pat ented variety and an add ition al 27 $1.00 pe r prod uction unit royalty. 28 4 SAC ¶46. The Lice nsed 1 Nurserie s are respon sible for paying the royalty, but the 2 Licensed Nurse ries m ay an d do pass th e royalty cost on to the 3 purchasi ng gro wers. 4 5 6 7 SAC ¶¶ 20, 76. When a g rower seeks to ob tain a new variety from a nursery, it is requi red t o en ter into a Domestic Grow er License Agreem ent ( Lice nse Agreement ) with the Comm ission. 8 Under th e term s of t he Li cense Agreement, the gro wer c annot 9 propagat e the variet y bey ond the plant purchased. 10 If the C ommiss ion be lieve s the grower has violated the 11 License Agreem ent, i t can void the License Agreem ent a nd 12 13 14 15 order th at all purch ased plants be destroyed. SAC ¶21. Id. Recogniz ing th at at least one of the new varietie s identifi ed for paten ting (and perhaps all three) had b een 16 previous ly in public use and/ or sold commercially, the 17 Commissi on cre ated a so-calle d amnesty program, alle gedly 18 designed to hi de the fact that valid patents coul d not be 19 obtained , and to ex tort funds from growers alre ady i n 20 possessi on of the va rieti es. 21 22 23 24 SAC ¶23. Under the amnesty program, the C ommiss ion w idely disseminated notic es to growers and sh ippers stat ing that they were in vi olati on of the law if the y poss essed the varieties intended for 25 patentin g. 26 settlem ents to any grow ers who, within a narrow time 27 window, agreed to li cense the varieties, pay a p enalt y to 28 Th e noti ces a lso offered confidential 5 1 the Comm ission , and accep t the Commission s licen se 2 restrict ions o n furt her p ropagation. 3 4 5 6 7 Id. Under it s so-c alled amne sty program, a grower with Sweet Sc arlet could keep the vines reproduced, so long as the grower: (i) ad mitted to p ossession prior to July 2004, (ii) paid $2 per vi ne rep roduc ed, (iii) paid $2 per bo x of Sweet 8 Scarlet grapes previ ously shipped, and (iv) agree d to no 9 further propag ation of th e Sweet Scarlet variety from the 10 plants p ossess ed. 11 sent ano ther n otice to al l California table grape grow ers and 12 13 14 15 S AC ¶ 55. In July 2004, the C ommis sion shippers exten ding t he a mnesty time period for one m onth, and exte nding the a mnest y to include Autumn Kin g and Scarlet Royal varieties. SAC ¶56. In both notice s, the Comm ission threatened to sue 16 17 growers who di d not come forward, and to seek mon ey da mages 18 and inju nction s. 19 second n otice, the U SDA p atent application on Swe et Sc arle t 20 had not been i ssued and had b een rejected by the USPTO . 21 22 23 24 25 26 27 28 Pl aintiffs claim that at the time of the Moreover , the USDA h ad no t even applied for a pat ent o n either A utumn King o r Sca rlet Royal. The USDA ha d no patent rights, and th e Comm issio n lacked any enforcement righ ts in either g rape v ariety . C. SA C ¶57. Plaintif fs Li cense Agree ments Plaintif fs are in po ssess ion of the Autumn King, Sweet 6 1 Scarlet and Sc arlet Royal varieties, which they p urcha sed 2 through Licens ed Nur serie s. 3 royaltie s impo sed by the Commission o n each purchased plant. 4 5 6 7 Id. SAC ¶60. Plaintiffs paid the Pla intiff s have ente red into a License Agree ment with the Comm ission for e ach o f the Patented Varieties . 60-63. SA C ¶¶ In con sideration for this limited, nonexclusiv e 8 license, Plain tiffs have paid a license fee to a Licen sed 9 Nursery. 10 have a l imited , none xclus ive license to grow the Paten ted 11 Varietie s and sell t he fr uit produced. 12 13 14 15 16 17 18 19 20 21 Id. Under the term s of this agre ement, Plai ntif fs Id. Plai ntiff s cannot p ropaga te the grap evines or distribute the vine s to third pa rties. Id. Further, Plaintiffs ar e obligated to destroy all Pa tented Vari eties plant material up on terminat ion of the a greem ent. D. Id. Original Compl aint a nd Fe bruary 20, 2009 Decision . Plaintif fs or iginal comp laint named only the Com missi on as a def endant , alle ging (at claims 1-3) th e patents for all three va rietie s shou ld be declared invalid, Doc. 1 at ¶¶ 66- 22 86; (at claim 4) the pate nt for the Sweet Scarlet vari ety 23 should b e decl ared u nenfo rceable because neither the 24 Commissi on nor USDA discl osed to the USPTO that the th ree 25 varietie s had been i n pub lic use prior to Februar y 200 2, id. 26 27 28 at ¶¶ 87 -85; ( at cla im 5) the Commission violated the Sherman and Clay ton Ac ts by illeg ally monopolizing the ma rket for 7 1 table gr apes, id. at ¶¶ 9 6-103; (at claim 6 ) the Commi ssion 2 misused the pa tents in v iolation of antitrust la ws an d in a 3 manner t hat at tempts to e xtend [the] patents beyo nd th eir 4 5 6 7 lawful s cope, id. at ¶¶ 1 04-109; (at claim 7) unfair competit ion, i d. at ¶¶ 11 0-114; (at claim 8 ) unju st enrichme nt, id . at ¶ ¶ 115 -117 ; and (a t clai m 9) constr uctive 8 trust, i d. at ¶¶ 118 -121. 9 arguing the Un ited S tates is a necessary and indi spens able 10 party th at is immune from suit and that all of th e cla ims in 11 the case were withou t leg al foundation. 12 13 14 15 Th e Commission m oved to dis miss, As to th e issu e of j oinder, the February 20, 2009 Decision empha sized that because Plaintiffs subs tanti ve causes o f acti on sou ght t o invalidate patents own ed by the 16 United S tates, the U nited States is a necessary p arty under 17 Federal Rule o f Civi l Pro cedure Rule 19(a). 18 34. 19 suit is neces sary under Rule 19(a), the inquiry is w hether 20 that par ty, th e Unit ed St ates, can be joined in t he ac tion. 21 22 23 24 Onc e it h as bee n det ermined that an absent p arty to the Dawavend ewa v. Salt River Project Agr. Imp. and P ower Dist ., 276 F.3d 1150, 1159 (9th Cir. 2002). Absent a w aiver , sovereig n immu nity s hield s the Federal government and its 25 agencies from suit. 26 (1994). 27 expresse d. 28 Doc. 42 a t 22- F.D .I.C . v. Meyer, 510 U.S. 471, 475 A wai ver of sove reign immunity must be u nequi vocally De partme nt of Arm y v. Blue Fox, Inc., 525 U.S. 8 1 255, 261 (1999 ). 2 sovereig n immu nity h ad no t been waived: 3 Th e Feb ruary 20, 2009 Decision decid ed 6 A declar atory judgme nt seeking invalidity of a U. S.owned pa tent squarel y implicates sovereign immuni ty. Further, property owners are generally necessary parties to actions t hat could affect their proper ty interest s adversely. The United States, as owner of the Pate nted Varieti es, is no exception.... 7 *** 8 22 Under th e only paten t-rel ated waiver of sov ereign immunity , 28 U .S.C. § 149 8 pe rmits private parties to bring patent infr ingement suits in United Stat es Federal Claims Court to seek money damages only. 28 U.S.C. § 1498. In waivi ng its own immunity from patent i nfringement actions in 28 U.S.C. § 1498(a) (1994) e d. and Supp. III), the United States did not cons ent to trebl e damages nor injunctive reli ef, and perm itted reason able attorney s fees in a nar row class of specified i nstances. Florida Prep aid Postseco ndary Educ. Expense Bd. v. College Sav. Bank, 52 7 U.S. 627, 648, n.11 (1999). This suit must be brought in F ederal Claims Court against t he United S tates and by its plain terms 28 U.S.C. § 1498 does no t cove r dec lara tory judgments seeki ng to inval idate a pate nt. Further, the federal statute covering dec laratory relief a ctions , the Declarat ory Judgment Act, 28 U.S.C. §2201, standi ng alone, d oes not waiv e sovereign immunity. Wyoming v. Unite d States, 279 F.3 d 12 14, 1225 (10th Cir. 2002) (t he declarato ry judgment statute, 28 U.S.C . §2201, i tself does n ot confer jurisdiction on a federal court where none otherwise exists). It is well set tled, howeve r, that said Act [Declaratory Act] doe s not of its elf create jurisdiction; it merely a dds an addit ional remedy where the distri ct court al ready has ju risdiction to entertain the suit. Wells v. Uni ted States, 280 F .2d 275, 277 (9th Cir . 1960). 23 *** 4 5 9 10 11 12 13 14 15 16 17 18 19 20 21 24 25 The Unit ed States ca nnot be joined absent a clear waiver o f sovereign immunity. Plaintiffs have no t shown su ch a waiver exists. The United States cannot b e joined. 26 27 28 Doc. 42 at 35- 38. Plaintif fs arg ued th at AP A section 702, 5 U.S.C. § 702 , 9 1 constitu tes a suffic ient waiver of sovereign immu nity. 2 discussi ng the APA s waiv er of sovereign immunity and 3 relevant Ninth Circu it au thority, the February 20 , 200 9 4 5 6 7 8 9 10 11 After decision concl uded: Plaintif fs have cite d no case where the APA § 702 was invo ked as an as serted waiver of sovereign immunity for purpose s of bringing a patent invalidi ty case agai nst the United States. Howev er, if Plain tiff can ame nd the Complaint to adequately state a § 702 APA cl aim a gainst the United States, it may. Doc. 42 at 41. Because the Un ited S tates was a necessary party t hat 12 could no t be j oined, the February 20, 2009 Decisi on 13 consider ed whe ther t he Un ited States was indispe nsabl e. 14 See Fed. R. Ci v. P. 19(b) . 15 equity and go od con scien ce, the court should no t all ow the 16 17 18 19 A party is ind ispensable if i n action t o proc eed in its absence. 1161, qu oting Fed. R . Civ . P. 19(b). Dawaven dewa, 276 F .3d at Rule 19(b) sets out four fac tors t o dete rmine whether a case must be dismi ssed: 20 (1) 21 (2) whether relief can b e shaped to lessen prejudic e; 22 23 (3) whether an adequate remedy, even if not complete , can be awa rded without the absent party ; and 24 (4) 25 26 27 28 prejudic e to any par ty or to the absent party; whether there exists an alternative forum. Kescoli v. Bab bitt, 101 F.3d 1304, 1310-11 (9th Cir. 1996). However, where the a bsent party cannot be joined in li ght of sovereig n immu nity, ther e may be very little nee d for 10 1 balancin g ... becaus e imm unity itself may be viewed as the 2 compelli ng fac tor. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. at 1 311. These fa ctors were a pplie d as follows: The firs t factor wei ghs in favor of dismissa l....Plainti ffs seek to invalidate and declare unenforceabl e patents owned by the United States. The validit y of the USDA s patent has be en challeng ed. If inva lidated ... the Patents, woul d be destr oyed, Patent ed Varieties would be freely marketed , and the US DA would lose royalties. The patents would be dec lared invalid under claims on e through three of the Complaint and un enforc eable under cl aim four for inequitable conduct and clai m six for patent misus e. *** The seco nd factor, w hether prejudice can be lesse ned by shapi ng the relie f provided, also weighs in fa vor of dismi ssal. No de claratory, injunctive or compensa tory r elief would be granted under the Complain t if the pat ent s validity were not challeng ed. Any me asures to lessen these prejudic es would nec essarily dilute the efficacy of the judg ment sought. Messerschmitt-Boelkow-Blohm GmgH v. Hughes Aircr aft, 483 F. Supp. 49, 5 3 (S.D.N.Y . 1979). Al though the Complaint is broug ht against the Commissi on alone, granting declarator y relief r equires find ing that the Commission had n o authorit y to enforce an invalid patent, that the patent i s invalid an d unenforceable, a patent which is owned by the USDA , a branch of the United Stat es. Here, an y judgment c annot be tailored to eliminat e the prej udice to the United States. A finding fo r Plaintif fs would dec lare invalid patents owned by the Unit ed States, a brogating the United States interest in the pate nts, not only depriving the United S tates of roy alties under the patents, but ending t he United St ates ability to license the patents. *** The thir d factor, ad equacy of remedy, also favors dismissa l. [A]deq uacy refers not to satisfaction of [Plai ntiffs ] cla ims, but to the public stake in settling disputes by wholes, whenever possible. Republic of Philippi nes, 128 S.Ct. at 2183, citing Providen t Tradesmens Bank & Trust Co. v. Patterso n, 390 U.S. 102, 111 (1 968). As in Republic o f Phillipp ines, [g]oi ng fo rwar d with the act ion in 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the abse nce of the United States, would not further this public interest because they could n ot be bound by a judgme nt to which they were not parties. Id. The Court held the University had not waiv ed its Eleve nth Amendment immunity. The four th factor is whether there is an availabl e alternat ive forum. First is the Court of Federal Claims, expressly au thorized by statute. Plainti ffs have an opportunity to raise the defense of paten t invalidi ty and unenf orceability in an action brou ght against them for pat ent infringement brought by t he United S tates or the Commission. See 35 U.S.C. § 282. [Fo otnote ] However, t o require Plaintiffs t o violate the license and wait to see whether the patent o wner sues fo r infringement creates an unfavora ble situatio n as damages could be exacerba ted. Where no alternative forum exists, the dist rict court s hould be extra cautious bef ore dismissi ng an action . Kesco li v. Babbitt, 101 F.3d 1304, 13 11 (9th Cir. 1996). But just as the cour ts have hel d in actions involving tribal immunity an d state im munity, sovereign immunity of the United States c an justify d ismissal for inability to joi n an indis pensable par ty, despite the fact that no alternat ive forum is avai labl e. If the necessary party is immune from suit, there may be very litt le need for balancing R ule 19(b) factors because immunity itself may be viewed as the compelling factor. Id. at 131 1 (in tern al citations and quotatio ns omitted). The latest Supreme Court case, Republic of Philippi nes v. Pimentel, 128 S. Ct. 2180 (2008), to address R ule 19, held as to immunity barring an action fr om proceeding without the sovereig n party: The anal ysis of the joinder issue in those cases wa s somewhat p erfunctory, but t he holdings were clear: A case may not proceed when a r equired-entity so vere ign is n ot amenable to suit. T hese cases instruct us that where so vereign immu nity is asserted, and the claims o f the sovere ign are not frivolous, dismissa l of the action m ust be ordered whe re there is a potential for injury to the interest s of the abs ent sovereign. 128 S.Ct. at 2190-91. In this context, dismissal is appropri ate even if Plaintiffs have no alternat ive forum fo r their claim. See Dawavend ewa, 2 76 F.3 d at 1162 . Because the proceedi ngs in this case threaten bot h the prop erty and sov ereign immunity of the United States, the United S tates failure to waive its immunity from suit s trongly supports dismissing t his 12 1 litigati on in its ab sence. 2 Doc. 42 at 42- 47. 3 invalidi ty, in equita ble c onduct, and patent misus e wer e 4 dismisse d on t he gro und t hat the United States is a ne cessary 5 6 7 8 A ll of the claims relati ng to paten t and indi spensa ble pa rty. The Comm ission s sep arate motion to dismiss the a ntitrust cl aim wa s gran ted w ith leave to amend because 9 Plaintif fs did not a dequa tely allege each of the Paten ted 10 Varietie s cons titute s its own relevant market. 11 The misu se cla im was like wise dismissed. 12 misuse c laim r ested in pa rt on allegations that t he 13 14 15 16 Id. Id. at 62. Pl ainti ffs Commissi on ill egally mono polized interstate and f oreig n commerce in ba d fait h by enforcing alleged patent righ ts, as the excl usive licens ee of the patents, and collec ting royalty 17 fees on the Pa tented Vari eties under its amnesty pro gram. 18 The amne sty pr ogram was r ejected as a basis for a misu se 19 claim: 20 21 22 23 24 25 26 27 28 As to th e first theo ry, there is no viable claim for the amn esty program as the Commission could not have mis used patents that did not exist and at mo st were inv entions in t he pre-issuance stage. Licen se agreemen ts entered i nto after a patent applicatio n has been filed but b efore the patent issues are n ot necessar ily unenforc eable. Aronson v. Quick Point Pencil C o., 44 0 U.S. 257, 264-65 (197 9). The key inquiry is whether, by imposing conditions that derive t heir force f rom the patent, the patentee has impermis sibly broade ned the scope of the patent grant wi th anticompe titive effect. C.R. Bard, Inc. v. M3 Sy s., Inc., 157 F.3 d 13 40, 1372 (Fed. Cir. 1998). Pre-is suance , the re i s no patent ri ght to impermis sibly broade n. T he doctrine of pat ent misuse c ould not be brought into play in Aronson, 13 1 which co ncerned a li cense agreement entered into before i ssuance of t he patent, but after patent applicat ion submitte d. 440 U.S. at 264-65; see also Technolo gy Lic ensing Corp . v. Gennum Corp., No. 0104204, 2 007 WL 13195 28, at *23 (N.D. Cal. May 4, 2007) ( As to Gennum s argument that TLC s interact ions with Ro ss Video constituted misuse o f the 250 patent, it is a peculiar notion that a party co uld misuse a patent that is not in existenc e. While it has been called patent misus e where a patentee see ks to collect royalties after the expi ration of th e patent term, it appears tha t in such cases the pa tentee and licensor have typicall y entered in to the royalty agreemen t at a time whe n the patent is in force. Again, to the extent a party deman ds royalties or demands that another cease using a product where no patent has yet issu ed, the othe r party is not put to the typ e of choic e that paten t misuse doctrine normally guards a gainst. The other party is free to ignor e the dema nds. ) 2 3 4 5 6 7 8 9 10 11 12 Doc. 42 at 65- 66. 13 14 15 16 17 18 The Comm ission s motion t o dismiss th e unfa ir competit ion cl aim wa s den ied to the extent that t he allegati ons ex tended beyo nd the dismissed anti-trust allegati ons. Id. at 67-71. Because the unfair compet ition claim su rvived , the claim s for unjust enrichment and 19 construc tive t rust, which are purely derivative o f oth er 20 claims i n the case, survi ved as well. 21 22 23 E. Id. at 71. First Am ended Compla int a nd October 27, 2009 Deci sion. On March 19, 2 009, P laint iffs filed a first amend ed 24 complain t ( FA C ). 25 APA, 5 U .S.C. § 702, alle ges Federal Defendants a cted 26 arbitrar ily, c aprici ously , and otherwise not in a ccord ance 27 with app licabl e laws and regulations by agreeing to en gage in 28 The f irst cause of action, invoking the 14 1 a patent ing pr ogram with the Commission and engag ing i n 2 activiti es to pursue that program. 3 second, third, and f ourth causes of action, broug ht ag ainst 4 5 6 7 FAC ¶¶ 74-80. The all defe ndants , soug ht a declaration that the pat ents are invalid. FAC ¶¶ 103 -138. Th e fifth cause of action a gainst all defe ndants , soug ht a declaration that the 891 Pate nt is 8 unenforc eable due to Defe ndants inequitable cond uct. 9 139-152. 10 violated the S herman and Clayton Acts by monopoli zing the 11 national marke t for grape vine plant material. 12 13 14 15 165. FAC ¶¶ The sixth cause of action a lleged the Commis sion FA C ¶¶ 153- Th e seve nth ca use o f action sought to have the exclusiv e lice nse ag reeme nts between the United S tates and the Comm ission inval idate d under the patent laws of th e 16 United S tates and th e APA . 17 claim so ught t o have the exclusive licenses decla red v oid 18 under st ate la w. 19 the Comm ission only, was for unfair competition i n vio lation 20 of Calif ornia Busine ss an d Professions Code § 172 00 an d 21 22 23 24 25 FAC ¶¶ 166-176 . FA C ¶¶ 177-185. Californ ia com mon la w. The eighth Th e nint h claim, against F AC ¶¶ 186-190. Finally, the tenth and elev enth c laims were against the Commission a lone for unjust e nrichm ent, F AC ¶¶ 191-93, and constructive tru st, FAC ¶¶ 194-9 7. De fendan ts mo ved to dismiss. 26 An Octob er 27, 2009 Decis ion rejected Plaintiffs 27 argument that MedImm une, Inc. v. Genentech, Inc., 549 U.S. 28 15 1 118 (200 7), st ands f or th e proposition that the U nited 2 States immuni ty doe s not bar declaratory relief claim s 3 against it for paten t inv alid ity. 4 5 6 7 Doc. 84 at 20- 28. The October 27, 20 09 Dec ision next examined whether t he AP A s waiver o f sove reign immun ity had been satisfied. APA § 70 2 s waiver o f sove reign immun ity does not apply where a 8 particul ar sta tute precl udes judicial revi ew. 9 701(a)(1 ) 1 ; Heckler v . Chaney, 470 U.S . 821, 828 (9th Cir 10 1985). 11 direct c hallen ges to the patents: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 § The Pa tent A ct precludes judi cial r eview of an y The Pate nt Act reve als Congress s intent to preclude judicial re view of USPTO examination decision s at the behest of third parties protesting the issu e or reissue of a patent. Hitachi Metal s, Ltd. v. Quigg, 776 F . Sup p. 3 , 7 (D.D.C. 1991). The district court in Hitachi succinctly summarized t he operatio n of the Pat ent Act and its judicial revi ew provisio ns: The Pate nt Statute i s addressed to patent owners a nd patent ap plicants. The patent examinat ion process is an ex parte pr oceeding, not an a dversarial o ne, and the Patent Statute s judicial r eview provisions contain no gaps req uiring the C ourt to exercise its power. [FN8] [FN8] Co ngress has e xplicitly designated other PT O proceeding s as inter partes, includin g patent int erferences, 35 U.S.C. § 135(a), and trademar k oppositions and cancella tions, 15 U. S.C. §§ 1063, 1064, 1067. In contrast, t he provisions gov erning the pate nt applicati on and examination process prescribe an ex parte proceeding. 1 Re la te dl y, 5 U .S .C . § 7 02 (2 ) pr ov i des t ha t no th in g in t he AP A co nf er s au th or it y to gr an t re li ef if an y ot he r st at ut e tha t gr an ts con se nt t o su it e xp re ssl y or i mp li e dly f or bi ds t he r el ie f w hi ch i s sou gh t. 16 1 35 U.S.C . §§ 131, 13 2, 133, 134, 141, and 145. See also Williams Mfg. Co. v. United Shoe Mac hinery Corp., 121 F.2d 273, 2 77 (6th Cir .1941) ( [T ]he granting of a patent i s not, excep t when an interference is decla red, the res ult of an adversary proceedi ng. ); Godtf redse n v. Banner, 503 F. Supp. 642, 646 (D .D.C. 1980) ( It may well be desirable as a matter of policy to permit a n individual to protest the grant of a pat ent other th an by an infringement action, ... that is a decision for the Congress . ). 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 The Pate nt Statute e xplicitly authorizes patent owners t o apply for reissue of a patent, 35 U.S.C. § 251, and co nfers on those applicants the righ t to seek adminis trative and judici al review o f PTO examin ation decisions. See 35 U.S.C. § 131 (admini strative appeal of examiner s decision to the Board of Patent Appeals and Interfer ences); 35 U.S.C. § 134 (direct appeal of Bo ard decisions to the Federal Circuit); 35 U.S.C. § 145 (ju dicial review b y civil acti on in this court); 35 U.S.C. § 251 (the pr ovisions governing original patent a pplicants al so govern reissue applican ts). In cont rast, Tit le 35 contains no provisio n expressly authorizing administrative or judic ial re view o f a P TO decision at the behest o f a third-party p rotestor. 17 Hitachi, 776 F . Supp . at *8. 18 *** 19 Any APA claims in th e FAC bas ed upon the in validity of the p atents must be dismissed because the APA does not waive sover eign immunity where a particular statute, in this cas e the Patent Act, precludes judicial review. Def endants motion to dismiss al l patent-r elated claim s (e. g., those that challenge the vali dity of the patent and/or the methods by which th e patent was obtained) is GRANTED WITHOUT LEAVE TO AMEND. 20 21 22 23 24 25 26 27 28 Doc. 84 at 28- 34. The Octo ber 27 , 2009 Deci sion next found that the Bayh Dole Act does not co mplet ely commit licencing act ion t o 17 1 agency d iscret ion, f indin g that certain directive s in that 2 Act are enforc eable: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 The FAC specifically invokes § 209(a)(4), a lleging that US DA s action in granting the Commission an exclusiv e license to [the Patented Varieties violates the APA] be cause... the exclusive licens e is in vi olation of . .. [35 U.S.C.] § 209(a)(4), i n that the exclusive l icense substantially lessens competit ion in the d istribution, production, and reproduc tion of the Patented Varieties and either creates or maintains a violation of the Federal Antitrus t laws as al leged in the Sixth and Ninth Claims f or Relief. FAC ¶90. Section 209(a)(4) s requirem ent th at an exclu sive or partially exclusive license must not te nd to substantially lessen competit ion or creat e or maintain a violation of the Federal antitrust la ws, is a clear and specific directiv e that may be enforced by way of the APA s judicial revie w prov ision s. In addit ion, a lthoug h no such violation is alleged in the F AC, at oral argument Plaintiffs invoked § 209(a)(1 ), arguing t hat granting the license was not a reaso nable and ne cessary incentive to either call fo rth th e inve stment capital an d expe nditures needed t o bring the invention to practical applicat ion ; or ot herwise promote the invention s utilizat ion by the p ublic. This too is a clear and spec ific directi ve that may be enforced by a court. Doc. 84 at 40- 41. The rema ining APA challenges were dismissed with leave 22 to amend based on a findi ng that Plaintiffs lacke d pru dential 23 standing under the B ayh-Dole Act. 24 25 26 27 28 Doc. 84 at 45 -48. Alternat ively, the A PA cl aim was dismissed with l eave to amend fo r fail ure to exha ust administ rative remedies. Plaintif f was instru cted to specifically allege an exc usefrom-exh austio n theo ry in any amended compl aint. 18 Doc. 84 at 1 2 3 4 5 6 7 59. The Seco nd, Th ird, a nd Fo urth Claims For Relief requesti ng dec larati ons t hat the three patents ar e unl awful and inva lid un der th e Dec laratory Judgment Act an d the APA, the Fift h Clai m for Relie f requesting a declarati on th at the 891 pat ent is unenf orcea ble because Defend ants failed to 8 fully di sclose to th e USP TO that the Sweet Scarle t var iety 9 was in t he pub lic do main prior to the filin g of t he pa tent 10 applicat ion, a nd the Seve nth Claim for Reli ef seeking a 11 declarat ion th at the Comm ission s exclusive licen se 12 13 14 15 agreemen ts for the P atent ed Varieties are void an d unl awful under fe deral law on the ground that the patents are invalid and/or w ere ob tained thro ugh inequitable conduct were 16 dismisse d beca use th e Uni ted States is an indispe nsabl e party 17 to these claim s that cann ot be joined. 18 Id. The Sixt h Clai m for Relie f, alleging that the Com mission 19 violated feder al ant itrus t la ws by enforci ng patent r ights 20 ... and collec ting r oyalt ies ... while knowing th at th e 21 22 23 24 patent o n Swee t Scar let c ould not be enforced due to p rior public u se and inequ itabl e conduct, was dismisse d bec ause Plaintif fs fai led to alle ge facts sufficient to a llege a 25 Walker Proces s vio lation, namely that gro wers -- the 26 consumer s of g rapevi nes -- do not regard other varieti es (or 27 other cr ops) a s reas onabl e economic substitutes f or th e 28 19 1 Patented Varie ties. Id. at 60-62. 2 The Eigh th Cla im for Reli ef against the Commission 3 seeking a decl aratio n tha t the exclusive license agree ments 4 5 6 7 for the Patent ed Var ietie s are void and unlawful under state law on t he gro unds that t he p atents are inv alid and/or wer e obtained throu gh ine quita ble conduct was dismisse d bec ause 8 state la w cann ot be used to challenge a contract enter ed into 9 pursuant to fe deral law w here the government is a part y. 10 at 62-63 . 11 12 13 14 15 16 17 18 19 20 21 Id. Finally, the C ommiss ion s motion to dismiss the Californ ia Unf air Competition Claim was denied, a s was their motion t o dism iss th e der ivat ive unjust enr ichment and construc tive t rust c laims . Id. at 63 -65. II. STANDARD OF DE CISION A motion to di smiss broug ht under Federal Rule of Civi l Procedur e 12(b )(6) tests the legal suffici ency of a claim. Navarro v. Blo ck, 25 0 F.3 d 729, 732 (9th Ci r. 200 1). To survive a moti on to dismi ss, a complaint must co ntain 22 sufficie nt fac tual m atter , accepted as true, to state a 23 claim to relie f that is p lausible on its face. 24 Iqbal, 1 29 S. Ct. 19 37, 1949 (May 18, 2009) (quoting Bell 25 Atl. Cor p v. T wombly , 550 U.S . 544, 570 (20 07)). 26 27 28 Ashc roft v. A claim has facial p lausibility when the plaintif f pleads f actual conte nt that allows the court to d raw the reas onable infer ence that the defendant is liable f or the misco nduct alleged. The plausibili ty 20 1 standard is no t akin to a pr obability requiremen t, but it a sks for more than a sheer possibility tha t defendan t has acted unlawfully. Where a complaint pleads f acts that ar e merely consistent with a defendan t s liabilit y, it stops short of the lin e between possibility and plausibility of entitlement to relie f. 2 3 4 5 6 7 8 Id. (cit ing Tw ombly, 550 U.S. 556-57) . Dis missal also can be based on the l ack of a co gnizable legal theory. Balis treri v. Pacif ica Po lice D ep t, 901 F.2d 696, 699 (9th Cir. 1990). In decid ing wh ether to gr ant a motion to dismiss, the 9 10 court a ccept[ s] all fact ual allegations of the c ompla int as 11 true and draw[ s] all reas onable inferences in th e lig ht most 12 13 14 15 favorabl e to t he non movin g party. F.3d 987 , 991 (9th C ir. 1 999). Two Rivers v. Lewis , 174 A cou rt is not, however, require d to a ccept as tr ue allegations that are merel y 16 concluso ry, un warran ted d eductions of fact, or un reaso nable 17 inferenc es. 18 Jose, 42 0 F.3d 1022, 1035 (9t h Cir. 2005) ( quotin g Spr ewel l 19 v. Golde n Stat e Warr iors, 266 F.3d 979, 988 (9th Cir. 2001)). Manufa cture d Ho me Cmtys. Inc. v. City of San 20 III. ANALYSIS 21 22 A. Exhausti on of Admini strat ive Remedies. 23 Federal Defend ants a nd th e Commission move to dis miss 24 the APA claim for fa ilure to exhaust administrati ve re medies. 25 In accor dance with 3 5 U.S .C. § 209(e), the USDA issued a 26 notice i n the Federa l Reg ister on April 29, 2003, expl aining 27 28 the agen cy s i ntent to gr ant an exclusive license to t he 21 1 Commissi on for the S weet Scarlet variety. 2 (April 2 9, 200 3). 3 notices in the Feder al Re gister of its intent to grant 4 5 6 7 68 Fed. Reg . 22671 O n Dec ember 23, 2004, th e USDA issued two exclusiv e lice nses f or th e Scarlet Royal and Autu mn Ki ng varietie s to t he Com missi on. 2004). 69 Fed. Reg. 76902 (Dec. 23, All th ree no tices informed the public tha t the 8 proposed licen ses wo uld b e granted within ninety days unless 9 the USDA recei ved w ritte n evidence and argument which 10 establis hes th at the gran t of the license would n ot be 11 consiste nt wi th the Bayh -Dol e Act and applicable 12 13 14 15 regulati ons. Plaint iffs failed to present any ev idenc e or argument durin g the presc ribed comment period. The Octo ber 27 , 2009 Deci sion discussed the relev ant 16 legal st andard s and dismi ssed the APA claim for f ailur e to 17 exhaust, but g ranted Plai ntiffs leave to amend to alle ge an 18 excuse-f rom-ex hausti on theory in any amende d complaint : 19 20 21 22 23 24 25 26 27 28 Defendan ts argue tha t the APA allegations should be dismisse d because Pl aintiffs failed to raise the m before t he agency du ring administrative proceedin gs. Exhausti on may be im posed either by statute or th e courts: Of param ount importa nce to any exhaustion inquiry is congressi onal intent. McCarthy v. Madigan, 503 U .S. 14 0, 14 4 (1992) (citing Patsy v. Board of Regents of Florida, 457 U .S. 49 6 (1982) ( internal quo tation marks omitted)), superced ed by statut e as stated in Booth v. Churner, 532 U .S. 73 1, 73 2 (2001).[] Wher e Congress specificall y mandates, exhaustion is required . Id. (citing Coit Independence J oint Venture v. FSLIC, 489 U.S . 56 1, 579 ( 1989); 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Patsy, 4 57 U.S. at 5 02 n. 4). But where Congress has not cle arly requ ired exhaustio n, sound ju dicial discr etion governs. McCart hy, 503 U.S. at 144 (cit ing McGee v. United Sta tes, 402 U.S. 479, 483 n. 6 (1971)). To discern the intent o f Congress, [w]e look first to the plain la nguage of th e statute, construing the provisio ns of the en tire law, including its object a nd policy. Uni ted States v. $493,850 .00 in U.S. Currency, 518 F.3d 1159 , 1167 (9t h Cir. 2008) (quoting Carson Harbor Vill., L td. v. Unoca l Corp., 270 F.3d 863, 877 (9th Cir . 2001)). Cassirer v. Kingdom of Spain, 580 F.3d 1048, 1059-60 (9th Cir . 2009). Here, al though the B ayh-Dole Act does not explicitly impose a n exhaustion requ irement, it does p rovide for a no tice and com ment period: Public n otice.--No exclus ive or parti ally exclusiv e license ma y be gran ted under sect ion 207(a)(2 ) unless pub lic notice of the intention to grant an exclusiv e or partially exclusive license on a federal ly owned invention has been provided in an appro priate manner at least 15 days bef ore the lice nse is granted, and the Federal agency has c onsidered all comments received before the end of the comment period in respo nse to that public notice. This subsecti on shall not apply to the licensing of inventio ns made unde r a cooperative research and deve lopment agre ement entered into unde r section 12 of the St evenson-Wydler Technolo gy Innovati on Act of 19 80 (15 U.S.C. 3710a). 21 35 U.S.C . § 209(e). 22 The Elev enth Circuit has read an exhaustion requirem ent into thi s notice and comment period. Southern Research In st. v. Griffin Corp., 9 38 F.2d 1249, 12 52-53 (11th Cir. 1991). In Souther n Research, a company challenged the government s grant of an exclusiv e patent license to another entity. The Elevent h Circuit affirmed dismissal of the acti on, holding that by failing to raise objections dur ing th e pre scri bed comment period, the company had waived i ts right to challenge the licensin g decision. Id. at 1252-53. The c ourt 23 24 25 26 27 28 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 explaine d that becau se [t]he licensing scheme un der 35 U.S.C . §§ 207 and 209 and the applicable regulati ons provided an avenue of administrative appeal o f which [the plaintiff] failed to avail itself, judicial re view of t he licensing decision was prec luded. Id. at 12 53. Plaintiff off ers no persuasi ve argument why the reasoning of So uthern Research should not apply her e to impose an exhausti on requireme nt on plaintiffs challenging licensin g decisions under the Bayh-Dole Act. Here, in accordance with 35 U.S.C. § 209(e), the USDA iss ued a notice in the Federal Register on April 29 , 2003, expl aining the agency s intent to grant an exclusive l icense to the Commission for the Sweet Sc arlet variet y. 68 Fed. Reg. 22671 (April 29, 2003 ). On Decem ber 23, 2004, the USDA issued two noti ces in the F ederal Register of its intent to grant ex clusive lice nses for the Scarlet Royal and Autumn K ing varietie s to the Commission. 69 Fed. Reg. 769 02 (Dec. 23, 2004). All three notices informed the public that the proposed licenses wo uld be grant ed within ni nety days unless the USDA received written ev idence and argument which establis hes that the grant of the license would not be consi stent with the Bayh-Dole Act and a pplicable regulati ons. Plaint iffs failed to present any evidence or argument during the prescribed commen t period. The Nint h Circuit recogni zes a number of ex ceptio ns to judic ially impose d exhaustion requirements. F or example, a court ma y decide an issue not raised in an agenc y action if the agency lacked either the power or the jurisdi ction to decide it. Reid v. Engen, 7 65 F.2d 1457, 1461 (9th Cir. 1985) (internal citation s and quotat ions omitted). Another exceptio n permits a court to decide issues over which an agency has power and jurisdiction when exceptio nal circumst ances warrant such review, notwiths tanding the petitioner s failure to prese nt them to the agency. Id. at 1461-62. Plaintif fs argue for the application of one or mo re of these exceptions, asserting that they could no t have bee n aware of c ertain facts necessary to obj ect to the U SDA s Federa l Register notices. Specific ally, Plaint iffs argue: 24 1 2 3 4 5 6 7 8 9 10 11 At the t ime of the n otice and comment periods, Plaintif fs could not have known that (1) the USDA obt ained a pate nt on Sweet Scarlet through inequita ble conduct; (2) the Patented Varieties had alre ady been in public use and on sale more than a y ear prior to the fili ng of the pate nt applicat ions; (3) th e USDA and the Commission would se ek to enforc e, license, and collect royaltie s on invalid and unenforceable patents, and (4) the USDA wou ld allow the Commission to limit di stribution t o a small number of nurseries, inc luding nurs erie s with family ties to Commi ssion board members. Indeed, nothing in the noti ces regardin g the USDA s intent to exclusiv ely license the Patented Varieties to the Comm ission provi ded the details regarding the plan ned royalty program. 12 Doc. 70 at 19- 20. 13 The firs t three purp ortedly unknown facts all concern the validity of the patents. Although th ese arguably implicate t he exception for matters outs ide of the a gency s powe r or jurisdiction, these pate ntrelated arguments ca nnot be adjudicated here because of sover eign immunit y. The fourth purportedly unknown fact -- that the USDA would allow the Commissi on to limit distribution to a small numbe r of nurse ries, includ ing nurseries with family tie s to Commi ssion board members -- is arguably releva nt to a cla im that the Commission failed to comply w ith 35 U.S.C . § 209(a), but it is not clear why this fact alo ne, in light of all other known facts, wo uld have cau sed Plaintif fs to comment on the licensin g proceedi ng. Plainti ffs have not demo nstrat ed that exhausti on should be excused in this case. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Defendan ts motion t o dismiss for failure to exha ust is GRANT ED WITH LEAV E TO AMEND. Plaintiffs shall be afforded the opportu nity to amend on this issue a nd shall al lege their e xcuse-fro m-exhaustion t heory in any amen ded complain t. Doc. 84 at 54- 59 (fo otnot e om itted). The Octo ber 27 , 2009 Deci sion found that plaintif fs 25 1 offered no pe rsuasi ve ar gument why the reasonin g of 2 Southern Resea rch In stitu te v. Griffin Corp., 938 F.2d 1249 3 (11th Ci r. 199 1), which imposed an exhaustion req uirement on 4 5 6 7 challeng es to licens ing d ecisions under the Bayh- Dole act, should n ot app ly her e. P laintiffs attempt to re- argue this point, c iting a numb er of cases for the propositi on th at 8 exhausti on is discr etion ary. 9 Marathon Oil C o v. U nited States, 807 F.2d 759, 7 67 (9 th Cir. 10 1986), w hich r e-affi rmed the general rule t hat a court will 11 not cons ider i ssues not p resented before an admin istra tive 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 For e xample, Plaintiff s cite proceedi ng at the ap propr iate time. Marat hon de scribed several except ions t o thi s rule: We have recognized, however, a number of exceptio ns to the g eneral rule. We may decide an issu e not raised i n an agency action if the agency lacked either t he power or the jurisdiction to decide it. Reid, 76 5 F.2d at 14 61; see R eese Sales Co. v. Hardin, 458 F.2d 183 , 187 (9th Cir.1972). This type of issue typically i mplicates the constitutionali ty of a sta tute or regu lation where the agency does not have pow er to correc t a claimed grievance. Reid, 765 F.2d at 1461; see, e.g., Bagues-Valle s v. I NS, 779 F.2d 483 , 484 (9th C ir. 1985).... Another exception pe rmits us to decide issues ov er which an agency has power and jurisdiction when excepti onal circums tances warrant such review, notwiths tanding the petitioner s failure to present them to the agency. Reid , 765 F.2d at 1461; see Page v. Donovan, 727 F.2d 866 , 868 (9th Cir.1984); Getty Oi l Co. v. And rus, 607 F.2d 253 , 255-56 (9th Cir.1979 ). We have p reviously distinguished betwe en administ rative exhau stion requirement s that are based on a statutory directive and those that are judicial ly imposed. Reid, 765 F.2d at 1462; Montgome ry v. Rumsfe ld, 5 72 F .2d 250, 252-53 (9th 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Cir.1978 )[]. Statuto ry exhaustion requirements implicat e concerns o f separation of powers and, therefor e, the failu re to comply with the requirem ents deprive s us of jurisdiction. Reid, 765 F.2d at 1462; Montgo mery, 572 F.2d at 252-53. We are unaware of any statu tory exhaustion requirements that app ly here. Thu s, we may review Marathon s contenti on tha t the Servi ce waived authorit y to administ er one of th e leases if exceptional circumst ances exist. In deter mining wheth er exceptional circumstances exist, w e balance t he agency s interests in applying its experti se, correcting its own errors , making a proper reco rd, enjoying appropriate independ ence of deci sion and maintaining an administ rative proce ss free from deliberate flouting , and the in terests of private parties in finding adequate red ress for their grievances. Litton I ndustries, I nc. v. FTC, 676 F .2d 364, 369-70 (9th Cir . 1982), quo ting Montgomery, 572 F.2d at 253. Id. at 7 68. Invoking the e xcepti onal circumstances balancing test, Plaintif fs arg ue tha t Def endants have completely fail ed to explain how th e lack of o bjection in any way prejudices the USDA in this l itigat ion. Doc. 109 at 7. This i gnore s the purpose of exh austio n, wh ich is to afford the age ncy a n 21 opportun ity to addre ss th e issues raised in comme nts. 22 Plaintif fs had raise d the ir objections, the Commi ssion could 23 have eva luated the l icensing program in view of Plaintiffs 24 concerns . 25 26 27 28 If In Marath on, t he N inth Circuit r easoned tha t Marathon had p resent ed n o reasons why it did not rais e the question s it h ad con cerni ng the alleged waiver du ring the agency p roceed ings, and that this f ailure to raise t he 27 1 issue pr eclude d the Servi ce from interpreting its own 2 regulati on, pa rticul arly with respect to the time lines s, 3 form, an d othe r requ ireme nts of the Secretary s f indin g. 4 5 6 7 8 9 Id. Lik ewise, here, the USDA has an interest in apply ing its expertis e to t he eff icacy of the patents and lice nsing program, and i n havi ng an opportunity to independ ently correct its ow n erro rs, i f any are found to exist . Plaintif fs mai ntain that dismissing the APA claim will 10 deprive Plaint iffs o f any review of t he USD A s actions in 11 this cas e. 12 13 14 15 Do c. 109 at 7 . This is not true. As prev ious decision s in t his ca se ha ve discussed in great de tail, Plaintif fs hav e an o pport unity to raise the defen se of patent invalidi ty and unenf orcea bility in an action brou ght a gainst 16 them for paten t infr ingem ent brought by the Unite d Sta tes or 17 the Comm ission . 18 would ha ve to violat e the license and wait to see whet her the 19 patent o wner s ues fo r inf ringement creates, there by ri sking 20 higher d amages , they are not totally withou t lega l rec ourse. 21 22 23 24 25 See 35 U .S.C. § 282. Eve n though Plaintiffs The Unit ed Sta tes sovere ign immunity precl udes any ot her form of action again st th e patents directly. Pla intif fs have failed t o cite any a nalog ous cases in which exce ption al circumst ances have been found. 2 26 2 27 28 Pl ai nt if fs c it e Si ms v. A pf el , 53 0 U. S. 1 03 , 11 2 (2 00 0) , f or t he pro po si ti on t ha t ju di cia ll y- im po se d ex ha us ti on i s ap pr op ria te o nl y in lim it ed c ir cu ms ta nc es in vo lv in g ad v ers ar ia l pr oc ee di ng s. B ut , Si ms con ce rn s is su e ex ha us tio n, an a na l ogy t o th e ru le t ha t app el la te c ou r ts 28 1 1. 2 Exceptio nal ci rcumst ances war ranting excuse from the Futility . 3 exhausti on req uireme nt ma y be present where obje ctive and 4 undisput ed evi dence of ad ministrative bias would rende r 5 6 7 8 pursuit of an admini strat ive remedy futile. And erson v. Babbitt, 230 F .3d 11 58, 1 164 (9th Cir. 2000) (int ernal citation s and quotat ion o mitted). Plaintiffs att empt to 9 invoke t his ex ceptio n, ar guing that the USDA had 10 predete rmined that it wo uld grant the Commission an 11 exclusiv e lice nse to the patented varieties regar dless of the 12 objectio ns rec eived. 13 14 15 16 17 18 19 20 21 22 23 24 Do c. 109 at 17. Plaintiff s ar gument continue s: The Comm ission admit s that prior to the comment period f or the paten ted varieties, the USDA had already decided to g ive the Commission an exclusi ve license to Sweet Sca rlet and other pa tented varietie s to be chos en by the Commission. This is demonstr ated by the Memorandum of Understanding between the USDA and the Commission and the priva te meetings between the Commission and USDA that too k place be fore the com ment period for S weet S carlet, during w hich the Com mission and the USDA decided several issues relat ing to the patent licensing program. Moreover , Plaintiffs allege that Commission effectiv ely controll ed the patenting licensing program with the USD A. Specifically, the Commission selected which plant varieties would be patented and licensed to the Comm ission, and the USDA 25 26 27 28 wil l no t co ns id er a rg ume nt s no t ra i sed b ef or e tr ia l co ur ts, wh ic h is who ll y se pa ra te f ro m the g en er al r e qui re me nt o f ex ha us ti on of adm in is tr at iv e re me di es. Wh il e it may o nl y be a pp ro pr ia te to i mp os e iss ue e xh au st io n wh er e t he p ar ti es cou ld f ul ly d ev el op t he is su es i n a n adv er sa ri al p ro ce ed in g, th er e is n o su ch r es tr ic ti on o n the m or e ge ne r al req ui re me nt o f ex ha us tio n of a dm in i str at iv e re me di es . 29 1 consiste ntly acquies ced to the Commission s decision s. (SAC at ¶ ¶51-53.) Further, the USDA received a significa nt portion of its research funding for grape va rieti es f rom the Commission. Under th ese circumst ances, the USDA had a clear b ias towards granting the Commission an exclusive lice nse to the p atented vari eties and had predetermined t hat the Comm ission would receive the exclusive licens es. No objection by Plai ntiffs would have changed that result. Tellingly, D efendants do not even allege that any objections would have altered the USDA s decision-makin g proc ess o r that the absence of objectio ns in anyway prejudices the USDA in this litigati on. 2 3 4 5 6 7 8 9 10 11 Doc. 109 at 17 -18. This is not o bjecti ve an d undisputed evidence of bias . 12 The Memo randum of Un derst andi ng upon which Plaintiffs rely 13 states o nly th at the USDA wou ld [r]eview . .. any license 14 applicat ion ob tained from The Commission. 15 Ex. 14 a t 2. 16 17 18 19 20 21 22 23 24 25 See Doc. 111-1, See U nited Sta tes v. Litton Industries, Inc., 462 F.2d 14, 1 8 (9th Cir. 197 2) (administrative review not futile b ecause plain tiff s allegations of bias ar e pur ely speculat ive). Plaintif fs hav e not alleg ed facts that suggest th at exhausti on sho uld be excu sed on the basis o f futility. 2. Lack of Standing. Plaintif fs nex t argu e tha t exhaustion should be e xcuse d because they l acked stand ing at the time of the c ommen t 26 period. Plain tiffs maintain at the time of each of the 27 comment period s for the p atented vari eties, no patent had 28 issued a nd no patent appl ication had been publish ed, and 30 1 that as a resu lt, P laint iffs could not have been inju red by 2 the USDA s gra nting the C ommission a patent licen se. 3 109 at 9 . 4 5 6 7 Doc. Pla intiff s poi nt out that the regulations implemen ting t he Bay h-Dol e Ac t provide for administrat ive appeal f rom li censin g dec isions if the party appe aling can demonst rate t o the satis faction of the Federal a gency that 8 such per son ma y be d amage d by the agency action. 9 § 404.11 (a)(3) . 10 restrict ions o n the oppor tunity for administrativ e app eal did 11 not limi t Plai ntiffs abi lity to file comments du ring the 12 13 14 37 C.F.R. But , the Com mission correctly rejoins that notice a nd com ment p eriod . See 35 U.S.C. § 209(e ); 37 C.F.R. § 404.7. 15 3. 16 Plaintif fs als o argu e that exhaustion should be excused 17 because they l acked actua l or constructive knowle dge o f any 18 19 20 21 22 23 24 25 26 27 28 Knowledg e. violatio ns of the Ba yh-Dole Act durin g the comment per iod, at least fo r Swee t Scar let. The SAC con tains the followi ng relevant alleg ations : 78. On April 29, 2003, t he USDA published notice in the Fede ral Register of its intent to grant an exclusiv e license to the Commission for the Sweet Scarlet patent. The Federal Register notice did n ot state th e terms of t he license, and provided no informat ion on wheth er gr owers would be aut horized to repro duce or dist ribute the Sweet Scarlet variety, whether gro wers would incur any costs to obtain t he Sweet Sca rlet variety, or whether grow ers would in cur any roya lty expenses for the Sweet Scarlet variety. Indeed, the Federal Regist er not ice containe d no informa tion whatsoever regarding the 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 exclusiv e licensing terms and conditions that the Commissi on had secre tly negotiated with the USDA. In or about 2003, the U SDA entered into an exclusive license with the Commissi on for the Sweet S carlet patent. On December 23, 2004, the USDA published notice i n the Federa l Register of its intent to grant an exclusive l icense to the Commission for the Autumn K ing and Scar let Royal patents. The Federa l Register notice did not state the terms of the license, and provide d no information on whether growers would be aut horized to reproduce or distribu te the Autum n King and Scarlet Royal varietie s, whether g rowers would incur any costs to obtain t he Autumn Ki ng and Scarlet Royal varieties, or wheth er growers w ould incur any royalty expens es for the Autumn King and Scarlet Royal varieties. Indeed, the Federal Register notice contained no informat ion whatsoev er regarding the exclusive licensin g terms and conditions that the Commissio n had secr etly n egotia ted w ith the USDA. In o r about June, 20 05, the USDA entered into an exclusive license with the Com mission for the Autumn King a nd Scarlet Royal patent s. 79. At the t ime of these notices, Plaintiffs did not know and could n ot have known tha t the USDA authoriz ed and that the Commission intended to charge p atent licens ing royalties for the distribu tion of the Patented Varieties from the s ame grower w ho already p aid for a significant portion of their de velopment co sts. Plaintiffs also did not know and could not h ave known that the Commission intended to only all ow three nurseries to distrib ute plant ma terial for t he Patented Varieties. Plaintif fs also did not know and could not have known th at the Commi ssion intended include restrict ions on the distribut ion and propag ation of plant ma terial by gr owers who obtained the Patent ed Varietie s. At the ti me of the notices, Plaintiffs had ever y reason to believe that the distribution of the Pate nted Varieti es would continue to be free of charge a nd restrictions to local growers (includi ng Plaintif fs), as had been the case for over a deca de with pri or USDA-developed gra pevine v arieties. Indeed, at the time of the notices, Plaintiffs expected that the Pa tent Licensing program would be used for its original int ended purpose to protect Plaintif fs and other growers from foreign 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 competit ion. Plainti ffs did not know, and the USD A did not advice [sic] in the Federal Register notices, the USDA ha d agreed to allow the Commiss ion to use t he Patent Li censing program and a w ay to extract an additiona l tax from growers, and to effectiv ely usurp co mplete control over the reproduc tion and dis tribution of new grapevine varietie s. 80. As such, Plaintiffs lacked information necessar y and suffic ient to raise any objections to the noti ced licenses , including objections to the licenses under the t erms of the Bayh-Dole Act raised in this SAC. Specifi ally [sic], at the time of th e notices, Plaintiffs did not have sufficient informat ion to deter mine or believe that the exclusive license be tween the USDA and the Commissi on for the P atented Varieties violated an y provisio ns of the Ba yh-Dole Act. Beca use Pl aintiffs lacked t he informati on needed to raise objections to the excl usive licens e granted to the Commission f or the Pate nted Varieti es at the time of the Federal Register Notices, an d because the Federal Registe r notices lacked any i nformation from which Plainti ffs could ha ve concluded that the exclusive licenses violated provisions of the Bayh-Dole Act, a ny exhausti on of Plaintiffs rights resulting from a purporte d failure to raise those objections at th at time of the Federal Register notices should be excused. Essentia lly, P lainti ffs a llege that their exhaust ion s hould be excus ed bec ause, altho ugh the Notices did anno unce the 21 USDA s i ntenti on to grant exclusive licenses to t he 22 Commissi on, th ey did not contain the specific ter ms of those 23 exclusiv e lice nses a nd sp ecifically did not expla in th at the 24 Commissi on in tended to c harg e patent licen sing royalt ies for 25 26 27 28 the dist ributi on of the P aten ted Varieties from the sa me grower w ho alr eady p aid f or a significant portion of t heir developm ent co sts. Rath er, Plaintiffs allege th at th ey had 33 1 every re ason t o beli eve t hat the distribution of the P atented 2 Varietie s woul d cont inue to be free of charge and 3 restrict ions t o loca l gro wers (including Plaintif fs), as had 4 5 6 7 8 been the case for ov er a decade with prior USDA-develo ped grapevin e vari eties. SA C ¶79. This conflicts w ith t he record. Plaintif fs are presu med a s a matter of law to hav e bee n 9 aware of the c ontent of t he relevant Federal Regi ster 10 Notices. 11 Notice w as app roxima tely one page in length and p rovid ed: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 See 44 U.S .C. § 150 7. The entire Sweet Scar let ACTION: Notice of av ailability and intent. SUMMARY: Notice is h ereby given that the table grape variety designated Sweet Scarlet is available f or licensin g and that t he U.S. Department of Agricult ure, Agricul tural Research Service, inten ds to grant to the Cali fornia Table Grape Commission of Fresno, California, an exclusive license to this variety. DATES: C omments must be received within ninety (9 0) calendar days of the date of publication of this notice i n the Federa l Register. ADDRESSE S: Send comm ents to: USDA, ARS, Office of Technolo gy Transfer, 5601 Sunnyside Avenue, Room 41174, Beltsville, Ma ryland 20705-5131. FOR FURT HER INFORMAT ION CONTACT: June Blalock of the Office o f Technology Transfer at the Beltsville address given above; telephone: 301-504-598 9. SUPPLEME NTARY INFORM ATION: The Federal Government s patent r ights to thi s inventi on are assigned to the United S tates of Ame rica, as represented by the Secretar y of Agricul ture. It is in the public interest to so licen se this invention as the Californ ia Table Gra pe Commission of Fresno, 34 1 Californ ia, has subm itted a complete and sufficient applicat ion for a li cense. The prospective exclus ive license will be roya lty-beari ng and will co mply w ith the term s and condit ions of 35 U.S.C. 209 and 37 CFR 404.7. T he prospecti ve exclusive license may be granted unless, with in ninety (90) days from the date of this publish ed Notice, the Agricultural Research Service rec eives written evidence and argument which estab lishes that the grant of the license would not be consistent with the requirem ents of 35 U .S.C. 209 and 37 CFR 404.7. 2 3 4 5 6 7 8 Michael D. Ruff, 9 Assistan t Administra tor. 10 68 Fed. Reg. 2 2,671- 01. 11 Scarlet Royale were subst antially the same. 12 13 14 15 76,902. The Notices for Au tumn K ing a nd 69 F ed. R eg. These notic es we re short, concise, and c learl y stated t hat it was t he US DA s intent to grant the Comm ission an exclu sive royalt y bea ring license. This alo ne wa s 16 enough t o put Plaint iffs on notice that they no l onger had 17 every re ason t o beli eve t hat the distribution of the P atented 18 Varietie s woul d cont inue to be free of charge and 19 restrict ions t o loca l gro wers (including Pl aintiffs), as had 20 been the case for ov er a decade with prior USDA-develo ped 21 22 23 24 grapevin e vari eties. It was incumbent upon Plai ntiff s to request inform ation from the Commission about the term s of the prop osed l icense s. T hey have proved themselves ca pable 25 of objec ting t o ever y rev enue-produci ng activity of th e 26 Commissi on for more than a decade. 27 28 These sa me Pla intiff s dem onstrated their awarenes s of 35 1 the rele vant f acts b y fil ing a lawsuit on Februar y 10, 2005, 2 more tha n five weeks befo re the deadl ine for submissio n of 3 comments regar ding t he ex clusive licenses for Aut umn K ing and 4 5 6 7 Scarlet Royale , cont ainin g factual allegations de scrib ing the royalty progra m in d etail . Compl. ) . 3 Doc. 102, Ex. 11 ( 20 05 For examp le, that complain t alleges th at 8 nurseri es who wish to be sublicensees [must] pay and annual 9 $5000.00 part icipat ion f ee per variety and a on e dol lar 10 per pro ductio n unit roya lty to the Commission. 11 ¶14. 12 13 14 15 Id. at It was a lso al leged that the nurseries wil l cha rge ... growers their regula r nur sery fees plus at least the $ 1.00 fee per vine t hat sa id nu rseries must pay to the Commi ssion. Id. at ¶ 16. A t least wit h re spect to Autumn King and Scarlet 16 Royale, this l awsuit affi rmatively demonstrates P laint iffs 17 actual k nowled ge of the n ature and terms of the royalt y 18 program prior to the clos e of the comment periods for those 19 varietal s. 20 21 22 23 24 The laws uit po st-dated th e close of the com ment period for Swee t Scar let. With respect to Sweet Scarlet , Plaintif fs cl aim th at, a lthough they may have im puted knowledg e that the l icens e would be royalty bear ing from 25 the Fede ral Re gister Noti ce prior to the close of the comment 26 period f or Swe et Sca rlett , they were ignorant of the n ature 27 3 28 Th is C om pl ai nt i s a mat te r of p ub l ic re co rd , ju di ci al ly no ti ce ab le for i ts e xi st en ce a nd co nt en t un de r Fe de ra l Ru le o f Ev id enc e 20 1. 36 1 of the l icensi ng pro gram and therefore did not kn ow th at the 2 licensin g prog ram mi ght harm their interests. 3 4 5 6 7 In respo nse, t he Com missi on points out that detai led informat ion ab out th e lic ensing program was provi ded a t open meetings of th e Comm issio n before expiration of a ny of the comment deadli nes. See Doc. 102, Ex. 5 (Co mmission Ex ecutive 8 Committe e Meet ing, A pril 1, 2003) (explaining tha t sta te- 9 certifie d nurs eries would distribute the stock, t hose 10 nurserie s woul d be r equir ed to pay a $5,000 per v ariet y fee 11 and a $1 per p roduct ion u nit royalty, and grower s wou ld be 12 13 14 15 required to si gn an agreement acknowledging that they are not allowed to sel f-prop agate, self-graft , sell , trade, or give plant ma terial away. ) T he meetings and agenda w ere p osted 16 on the C ommiss ion s web s ite. 17 on May 7 , 2004 , the Commi ssio n sent a lette r to all 18 Californ ia gro wers a nd sh ippers about its patenti ng an d 19 licensin g prog ram, e xplai ning that there would be a pl ant 20 royalty to be paid u pon p urchase. 21 22 23 24 Id., Ex. 5 & 6. In add ition, See Doc. 102, Ex. 7. Plaintif fs rej oin th at th e law does not impute kn owled ge to Plain tiffs of the Comm issions meetings and th at th e evidence offer ed by Defen dants cannot be consider ed on a 25 motion t o dism iss. 26 Terhune, 315 F .3d 11 08, 1 119-20 (9th Cir. 2 003), the Ninth 27 Circuit held t hat in ruli ng o n a dismissal motion base d on 28 This is, again, incorrect. 37 I n Wyatt v. 1 failure to exh aust n onjud icial remedies, the dist rict court 2 may loo k beyo nd the plea dings and decide dispute d iss ues of 3 fact. 4 5 6 7 Plaint iffs s ugges t that the Supreme Court s 20 07 decision in Jo nes v. Bock , 549 U.S. 199 (20 07), decided January 22, 20 07, un dermi nes the reasoning of Wya tt. Jones held tha t, und er the Pris on Litigation Reform Act of 1 995, 8 failure to exh aust i s an affirmative defense whic h def endant 9 has the burden of pl eadin g and proving. 10 on Jones , an u npubli shed decision by Magistrate Judge Brennan 11 of this Distri ct, no t bin ding authority on a dist rict court, 12 13 14 15 Id. at 212. Relying conclude d that , wher e a m otion to dismiss for fai lure to exhaust requir es con sider ation of affidavits and exhib its, it should b e deci ded on summ ary judgment. See Bryant v. 16 Sacramen to Cou nty Ja il, 2 008 U.S. Dist. LEX IS 10273, 6 -7 17 (E.D. Ca l. Feb . 12, 2008) . 18 decision s post -datin g Jon es have reaffirmed Wyatt s holding 19 that a c ourt m ay loo k bey ond the pleadings to decide a motion 20 to dismi ss for failu re to exhaust non-judic ial remedies. 21 22 23 24 However, numerous Nin th Ci rcuit See, e.g ., O G uinn v . Lov elock Correctional Cente r, 50 2 F. 3d 1056, 10 59 (9t h Cir. 2007 ) (decided in September 2007, more than eig ht mon ths af ter J ones)(applying the appro ach 25 articula ted in Wyatt to a case brought under the PLRA) ; 26 Battle v . Holl y, 201 0 WL 7376 56, *1 (9th Cir. 2010)(sa me); 27 Smith v. Herna ndez, 333 Fed. Appx. 309 (9th Cir. 2009)(sam e 28 38 1 as to cl aim br ought under 42 U.S.C. § 1983). 2 authorit ative effect . 3 4 5 6 7 Jon es has no It is un necess ary to look to this extra record ev idenc e because the Fe deral Regis ter Notice was sufficien t. Ignoranc e of t he spe cific facts giving rise to in jury does not excu se exh austio n, if Plaintiffs were on noti ce of the 8 general terms of the of t he licenses and the pote ntial for 9 harm. 10 WL 50889 2 (N.D . Cal. Sept . 1, 1994). 11 rule pro mulgat ed by the N ational Park Service ban ning the use 12 13 14 15 S ee Bic ycle Trails Council of Marin v. Bab bitt, 1994 That case c oncer ned a of bicyc les on all o ff-road areas wit hin Na tional Parks. Plaintif fs cla imed t hat t hey did not object to th e rul e during t he adm inistr ative process because they d id no t 16 realize how de trimen tal i t would be to their inte rests until 17 a [subse quent] trail plan was promulgated. 18 argument was r ejected bec ause the rule cle arly banned 19 bicycle access to al l off -roa d areas as the baseline 20 conditio n. 21 22 23 24 Id. at *4. This Pl aintif fs f ailure to realize that t he ru le as applied might harm t heir interests does not excus e the ir failure to par ticipa te. Id. As in Bi cycle Trails , the Federal Register notice stat ed 25 there wo uld be royal ties to be paid as the basel ine 26 conditio n. 27 exempted and c ould n ot de fer further inquiry base d upo n that 28 P lainti ffs h ad no basis to assume th ey wo uld be 39 1 assumpti on. 2 this cas e was slight ly le ss obvious, it was suffi cient notice 3 that roy alties had t o be paid, absent some except ion t o the 4 5 6 7 A lthoug h the imp act of the Federal Regist er in baseline rule. Plaintif fs cit e Niagra Mohawk Corp. v. Fede ral En ergy Regulato ry Com missio n, 45 2 F.3d 822, 827 (D .C. Cir. 2006), 8 for the propos ition that a party need not seek ad minis trative 9 review o f an a gency actio n unless and until they are o n 10 notice t hat th e acti on wi ll damage their interest s. 11 12 13 14 15 Niagra M ohawk does n ot st and for the proposition that administ rative exhau stion is only required after a par ty feels t he pin ch of a re gulation. In Niagra Mohawk, FERC issued a serie s of o rders concerning the electric powe r 16 market i n New York. 17 principl es tha t laid the groundwork for cer tain p racti ces in 18 the regi on, in cludin g an industry practice called net ting. 19 Id. at 8 24-25. 20 practic al imp act o f the 1996 order, and did not chal lenge 21 22 23 24 A 19 96 order enunciated cert ain Niagra Mohawk was not dissatisfie d with the it, eith er adm inistr ative ly or in court. See id. at 8 27. Subseque ntly, FERC e ntere d certain other orders, expan ding the 1996 frame work. FERC argued that Niagra Moha wk sh ould 25 not be p ermitt ed to chall enge the subsequent orde rs on the 26 ground t hat re gulati on of netting was beyond FE RC s 27 statutor y auth ority. 28 Id. Th e D.C. Circuit held that Niagra 40 1 Mohawk d id not forf eit[] their right to challeng e the 2 principl e of n etting by n ot petitioning for revie w ear lier. 3 Id. 4 5 6 7 8 9 A p arty need not se ek r eview if it is satis fied with the prac tical impact of t he order an d fail ure to do so does not fore close its ab ility to challenge the princi ple a s beyond t he age ncy's statu tory authority when the agenc y later utilizes [the princi ple] to cause substantial inj ury. The pres ent ci rcumst ances are not analogous. Id. At best, 10 Niagra M ohawk stands for the proposition that fai lure to seek 11 administ rative revie w of a previous administrativ e act ion 12 13 14 15 does not bar a party from seeking review of a sub seque nt administ rative actio n tha t builds upon the initia l administ rative actio n. H ere, Plaintiffs seek to chall enge in 16 court th e only parti cular adm inistrative ac tion that t hey 17 failed t o chal lenge at th e administrative level. 18 Mohawk i s simp ly ina pplicable to the present circumstances. 19 20 21 22 23 24 Niag ra In the f inal a nalysis, the Federal Register Notic e was sufficie nt to put Pl ainti ff on actual and inquiry noti ce of the gene ral th rust o f the regulation and the pote ntial for harm. P lainti ffs f ailur e to raise any of their conce rns with the agenc y, whe n it would have enabled the a gency to 25 remedy P lainti ffs c oncer ns, precludes judicial r eview . 26 Plaintif fs hav e had sever al opportunities to stat e a v alid 27 claim ag ainst Defend ants and have not stated an a ltern ative 28 41 1 excuse-f rom-ex hausti on th eory . 2 dismiss the AP A clai m is GRANTED WITHOUT LE AVE TO AMEND. State Defen dants moti on t o 3 4 B. 5 6 7 8 9 Plaintif fs Co ncede that their APA Claims Do Not Seek to Challeng e the Patent s. USDA arg ues th at to the e xtent the APA claims act ually challeng e the govern ment s right to enforce its p atent rights, such c hallen ges should be dis missed because Plaintif fs hav e fail ed to identify a valid waiver of t he 10 United S tates sover eign immunity as to such clai ms. 11 100 at 1 0. 12 challeng e the USDA s righ t to obtain and enforce paten ts; 13 they cha llenge only the l egality of the Commissio n s 14 15 16 17 18 19 20 21 22 23 Doc. In respo nse, Plaintiffs concede that they do not licensin g sche me. D oc. 1 09 at 19. Any suc h clai m is DISMISSE D WITH OUT LE AVE T O AMEND. C. Unfair C ompeti tion C laim. The Cali fornia Unfai r Com petition Law ( UCL ), Ca l. Bu s. & Prof. Code § § 1720 0 et seq. , prohibits an y person from engaging in u nlawfu l, un fair or fraudulent busin ess a ct[s] or pract ice[s] . Id . §§ 17201, 17203. Pla intiff s UC L claim was prev iously dismi ssed, with the exception of t heir double 24 payment theor y, whi ch al leges that the Commission eng aged in 25 unfair c ompeti tion b y usi ng assessments collected from 26 Californ ia gro wers t o hel p fund the USDA s breedi ng pr ogram 27 and then indir ectly charg ed growers a licensing f ee to use 28 42 1 the pate nted v arieti es th at the USDA develops. 2 84, at 6 3-65. 3 central focus of the Comm ission s prior motions, the 4 5 6 7 See Doc. No. Recog nizin g that the UCL cla im was not the Commissi on s m otion was d enied as to the UCL clai m wi thout prejudic e. I d. at 65. The Comm ission now m oves to dismiss the UCL for a thir d 8 time, ar guing (1) th e cla im is preempted by feder al la w; (2) 9 the Comm ission is no t a p roper defendant under § 17200 ; and 10 (3) Plai ntiffs fail to st ate a claim under the st atute . 11 12 13 14 1. Preempti on. a. Preempti on by the Pa tent Act. The Comm ission maint ains that federal paten t law 15 preempts this UCL cl aim. 16 rejected in Ca liforn ia Ta ble Grape Com n v. RB Sandrin i, 17 Inc., 20 07 WL 184763 1, 26 -27 18 Commissi on was the p laint iff: 19 20 21 22 23 24 25 26 27 28 The same argument was r aised and (E.D. Cal. 2007), in whi ch the Federal patent law m ay preempt state law if it stands as an obstac le to the accomplishment and executio n of the ful l purposes and objectives of Congress . Ke wanee Oil C o. v . Bicron Corp., 416 U.S. 470 , 479 (1974) . When state law touches up on the area of federal statutes enacted pursuant to constitu tional autho rity, it is familiar doctrine that the federal pol icy may not be set at naught, or its bene fits denied by the state law. Id. at 47980. Patent l aw will not preempt state law claims if s uch claims include addi tional elements not found in the federal patent law c ause of action and if they ar e not an i mpermissible attempt to offer patent-like protecti on to subjec t matter addressed by federal law. R odime PLC v. Seag ate Tech., Inc., 174 F.3d 1294, 13 06 (Fed. Cir . 1999). 43 1 *** 2 Unfair c ompetition requires a plaintiff to prove the defendan t engaged i n an unfair business practice , that is, a business practice that is immoral, unethica l, oppressiv e, unscrupulous, or substant ially injuri ous. Id. (citin g People v. Casa Bla nca Convalescent Homes, Inc., 159 C al. Ap p. 3d 509, 206 (Cal. Ct . App. 1984)). Unfair competit ion prevents unethical and oppressive business practices. Rod ime, 174 F.3d at 1306. 3 4 5 6 7 In Rodim e, the Feder al Ci rcuit addressed whether, under Ca lifornia law , tortious interference with prospect ive economic relations and unfair competit ion were pre empted by federal patent law. The cour t held that these state law causes of action d o not consti tute an impermissible attempt to offer pa tent-like pr otect ion to subject matter addressed by f ederal law. Id. The court held because these state law causes of action protect interest s different from federal patent law, fede ral law does not preempt [the plaintiff s] state law claims. Id. 8 9 10 11 12 13 14 The Comm ission s sta te law claims are not foreclosed as a mat ter of law b ecause they have different elements and do not constitute an impermissible attempt to offer pat ent-like protection. Sandrini s motion f or summary j udgment as to the Commission s state la w claims is DENIED. 15 16 17 18 19 At issue in Sa ndrini were the Commission s claims that Sandrini was l iable for unfair competition unde r the UCL 20 because he un lawful ly an d unfairly used misappro priat ed USDA 21 property for h is own gain at the expense of other grow ers, 22 and ... unlawf ully a nd un fairly concealed his actions. 23 at *25. 24 25 26 27 28 Id. The C ommiss ion a lso alleged that Sandrin i intentio nally interf ered with the Commission s prospective economic advan tage a nd wa s unjustly enriched by v irtue of Sandrini 's all eged p osses sion of Autumn King plan t mat erial without a lice nse fr om the Commission. 44 Id. at *2 6. 1 The Comm ission sugge sts t hat Sandrini is 2 distingu ishabl e, bec ause that case concerned whet her t he 3 state co uld go furth er in protecting patent right s, wh ile, 4 5 6 7 here, th e issu e is w hethe r the UCL claim undermin es th e purposes of th e Pate nt Ac t. The Commission cites Biotechn ology Indust ry Or ganization v. District o f Col umbia, 8 496 F. 3 d 1362 , 1371 -75 ( Fed. Cir. 2007) ( BIO ), which 9 concerne d legi slatio n pas sed by the D.C. City Cou ncil which 10 prohibit ed any paten ted drug from bei ng sol d in the Di strict 11 at an e xcessi ve pri ce. 12 13 14 15 Id. Plaintiffs alleged that the legislat ion wa s pree mpted by federal Patent law b ecaus e it stood as an ob stacle to t he accomplishment and ex ecuti on of the fede ral pa tent s cheme . The Federal Cir cuit reviewed the 16 purposes of th e fede ral p atent laws vis-à -vis pri ce co ntrols: 17 We have noted that the essential criteria for determin ing whether a state law is preempted are the obj ectives of t he federal patent laws. Hunter Douglas, Inc. v. Har monic Des ign, Inc., 153 F.3d 1318, 13 33 (1998). T he fundamental goal of the patent l aw is spelle d out in the Constitution: T o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Invento rs the excl usive Right to their respective Wri tings and Discover ies. U.S. C onst. art. I, § 8, cl. 8. Inventor s are impell ed to invest in creative effo rt by the e xpectation t hat, through procurement of a patent, they will ob tain a federally protected exclusi ve right to exclude others from making, using, o r selling em bodiments of their invention. Patentee s value the right to exclude in part beca use the abil ity to forec lose competitors from making, using, a nd selling t he invention may allow them a n opportun ity to obtai n above-market profits during the pate nt s term. 18 19 20 21 22 23 24 25 26 27 28 45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This cou rt has repea tedly recognized as important the pecu niary reward s stemming from the patent right: We have long acknowl edged the importance of the patent s ystem in enc ouraging innovation. Indeed, the encoura gement of investm ent-ba sed risk is the fundamen tal purpose of the patent grant, a nd is based directly on the right to exclude. ... Import antly, the patent system provides incentive t o the innovative drug companie s to continu e costly development efforts. Sanofi-S ynthel abo v. Apot ex, Inc., 470 F.3d 1368, 1383 (Fe d.Cir.2006) (quoting Patlex C orp. v . Mossingh off, 758 F.2d 594, 599 (Fed.Cir.1985)). [T]he Pa tent Act cre ates an incentive for innovati on. The econ omic rewards during the period o f exclusivit y are the carrot. The patent o wner expends resources in expectation of recei ving this re ward. Upon grant of the patent, the only lim itation on the size of the carrot s hould be the dictates of the marketpl ace. King Ins truments Cor p. v. Perego, 65 F.3d 9 41, 950 (Fed.Cir .1995). ....Cong ress, too, h as acknowledged the central r ole of enhan ced profits in the statutory incentive scheme i t has develo ped. In the legislative histo ry of the D rug Price Co mpetition and Patent Term Restorat ion Act of 1 984 (popularly known as the Hatch-W axman Act ), the House Committee on Energ y and Comm erce observe d: Patents are designed to promote innovation by providin g the right to exclude others from making, using, or se lling an invention. They enable i nnovators to obtain greater profits than cou ld hav e been obta ined if direct competit ion existed. These profits act as incentiv es for innov ative activities. H.R.Rep. No. 98-857, at 1 7 (1 984), U. S.Code Cong. & 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Admin.Ne ws 1984, pp. 2647, 2650; see also i d. at 15, U.S.Code Cong. & Adm in.News 1984, pp. 2647, 2648 ( The pu rpose of Tit le II of the bill is to creat e a new ince ntive for in creased expenditures for research and develop ment. ). Of cours e, the paten t laws are not intended merel y to shift wealth from the public to inventors. The ir purpose is to promo te th e Pr ogress of ... useful Arts, U .S. Const. a rt. I, § 8, cl. 8, ultimately providin g the public with the benefit of lower pr ice through unfettered c ompetition. That goal is undersco red by the C onstitutional command that periods of exclusivi ty be for limited Times. Id. Once the patent expi res and the inventor's exclus ive rights t erminate, ot hers may enter the market wit h products based on th e teachings of the patent, wh ich must en able any per son skilled in the art ... to make and use the [in venti on]. 35 U.S.C. § 112 ¶ 1. If the m arket functi ons properly, this new particip ation will b ring down the formerly elevat ed price of the patente d product to competitive leve ls. These tw o objectives-to reward innova tors w ith higher p rofits and t o keep prices reasonabl e for consumer s-are in dia lecti c tension. The Sup reme Court ha s noted that [t]he tension between the desire t o freely exp loit the full potential of ou r inventiv e resources and the need to create an incentiv e to deploy those resources is constant. Bonito B oats, Inc. v . Thunder Craft Boats, Inc., 489 U.S. 141 , 152 (1989) ; see als o Hunter Dougl as, 153 F.3d at 1333 ( [T]he objectives of the federal patent l aws .... are in some tension with one another, and Congres s struck a balance between them. ). Congr ess, a s the promulgator of patent policy, is charged w ith balancing these disparate goals. T he present p atent system reflects the res ult of Congr ess's delibe rations. Congress has decided that pat entees' pres ent amount of exclusionary power, t he present l ength of patent terms, and the present conditions f or patentability represent th e best bal ance between exclusion and free use. Id. at 1 372-73 . The Fede ral Circuit then e xamined whe ther the Dist rict s legis latio n was in conflict with a nd pr eempted by feder al pat ent law. 47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 It is un questioned t hat the District has general police p ower within its borders and that [w]hate ver rights a re secured t o inventors must be enjoyed i n subordin ation to thi s general authority of the St ate over all property wi thin its limits, Webbe r v. Virginia, 103 U.S. 3 44, 348 (1880). But general state po wer must yie ld to specific Congressional enactmen t: any stat e law, however clearly within a State's acknowledged power, which interferes with or is contr ary to feder al law, must yield. Felder v. Casey, 4 87 U.S. 131, 138 (1988) (quoting Free v. Bland, 3 69 U.S. 663, 666 (1962)). Furthermo re, th is Act is i n no way gen eral, affecting only patented products . The Act's operation stands largely-indeed, exclusiv ely-wi thin t he sc ope of the patent laws, and its effe ct is to shi ft the benefits of a patented inventio n from inven tors to consumers. By penal izing high p rices-and thus limiting the full exercise of the excl usionary power that derives f rom a patent-the D istric t has chosen to re-balance the statutor y framework of rewards and incentives insofar as it relate s to inventive new drugs. In the District 's judgment, patents enable pharmaceutica l companie s to wield t oo much exclusionary power, charging prices that are excessive for patented drugs. T he Act is a clear attempt to restrain tho se excessiv e prices, in effect diminishing the rewar d to paten tees in orde r to provide greater benefit to District drug consum ers. This may be a worthy undertak ing on the p art of the District governmen t, but it i s contrary to the goals established by Congress in the pate nt laws. The fact that the Ac t is targe ted at the p atent right is apparent on it s face. It applies onl y to patented drugs. D.C. Cod e § 28-4553. The District has thus seen fit to change federal patent polic y wit hin its borders. The underlyi ng determina tion about the proper balance between innovators' profit and consumer access to medicati on, though, is exclusively one for Congre ss to make. As the Supr eme Court has noted, [w]here it is clear how t he pat ent l aws strike that ba lance in a partic ular circums tance, that is not a judgment the Stat es may secon d-gue ss. Bonito Boats, 489 U.S. at 152; see also Web ber, 103 U.S. at 347 (n oting that sal e of patente d articles cannot be forbidd en by the S tate, nor ca n the sal e of the artic le or machine produced be restricted except as the 48 1 producti on and sale of other articles, for the manufact ure of which no invention or discovery is patented or claimed, may be forbidden or restrict ed ). 2 3 The Act stands as an obstacle to the federa l patent law's ba lance of obj ectives as established by Congress . Accordingl y, we conclude that it is preempte d by federal patent law. 4 5 6 7 8 Id. at 1 373-74 . Here, Pl aintif fs UC L cla im alleges: The Comm ission has u nlawfully and unfairly exploited the 284 , 891 and 229 patents in a manner that violates antitrust l aws and in a manner that attempts to extend t hese patents beyond their law ful scope. S uch acts con stitute unfair trade practice s and unfa ir competiti on under California Business and Professi ons Code §17 200, et seq., and under the common l aw of the St ate of California, entitling Plaintif fs to relief . 9 10 11 12 13 14 15 16 SAC ¶85. Plaintif fs al legati on th at the Commission violat ed th e 17 UCL beca use it was u tiliz ing the patents in a manner t hat 18 violates antit rust l aws b y al leged exploita tion o f pat ent law 19 rights t o mono polize and profit was dismissed by the O ctober 20 27, 2009 Decis ion, P laint iffs underlying antitru st cl aims 21 22 23 24 were rej ected, as wa s the UCL claim, with the exc eptio n of any UCL claim based on a double payment t heory (i.e. , that the Comm ission colle cted patent royalties from gr owers who 25 already paid f or the rese arch and development of the P atented 26 Varietie s thro ugh as sessm ent fees). 27 such UCL alleg ation based on a doubl e paym ent theory 28 49 Doc. 84 at 6 3-65. Any 1 implicat es the scope of t he license agreement, no t the scope 2 of the p atents . 3 Act, gov erns p atent licen sing. 4 5 6 7 The Bayh Dole Act, rather than t he Pa tent Whether any such claim is preempte d by t he Bay h Dol e Act is addressed below . To the e xtent Plaint iffs allege that the Commission is unfairly using a pat ented product this too arguab ly 8 implicat es the natur e and scope of their exclusiv e lic ense. 9 Alternat ively, if Pl ainti ffs are alleging that th e 10 Commissi on s a ctions are exceeding the scope of the pa tent, 11 this imp licate s the natur e and scope of the paten t its elf. 12 13 14 15 This is unlike Sandr ini, where the al legati on was that Sandrini was u nfairl y mis using a patented product . An y state law chal lenge that i mplic ates the scope of the pa tent is 16 preempte d by f ederal pate nt l aw, which gove rns th e sco pe o f 17 patents. 18 specific ation to inc lude a written description o f the 19 inventio n, and of th e man ner and process of makin g and using 20 it, in s uch fu ll, cl ear, concise, and exact terms as t o 21 22 23 24 See 35 U.S .C. § 112 (defining the content of a enable a ny per son sk illed in the art to which it perta ins, or with whi ch it is mos t nea rly connected, to make a nd us e the same, an d shal l set forth the best mode contempla ted b y the 25 inventor of ca rrying out his invention. ); Reiffi n v. 26 Microsof t Corp ., 214 F.3d 134 2, 1345 (Fed C ir. 27 2000)(ex plaini ng tha t the purpose of § 112 28 50 is to ensure 1 that the scope of th e rig ht to exclude, as set fo rth i n the 2 claims, does n ot ove rreac h the scope of the inven tor's 3 contribu tion t o the field of art as described in the p atent 4 5 6 7 specific ation. ). Where it is clear how t he patent l aws strike t hat ba lance in a particular circumstance, that is not a judgme nt the State s may second-guess. Bonito Boats , 489 8 U.S. at 152. 9 action h inges on a f indin g that implicates federa l pat ent law 10 (such as the s cope o f a p atent), the state law mu st yi eld. 11 See Univ . of C olo. F ound. Inc. v. Am. Cyanamid Co ., 19 6 F. 3d 12 13 14 15 16 17 18 19 20 21 In par ticul ar, where a state law ca use o f 1366, 13 73-74 (Fed. Cir. 1999)(patent law preempt s state law causes o f acti on tha t hi nge on finding of inven torsh ip under th e Pate nt Act ). T hat the Patent Act permi ts in ventors to reali ze suc h prof its i n the marketplace is not ille gal. b. Preempti on by the Ba yh-Dole Act. The Comm ission also agues that Plaintiffs doublepayment theory confl icts with the purposes and pr ovisi ons of the Bayh -Dole Act. Congr ess enacted the Bayh-Dol e Act to 22 facilita te the paten ting and licensing of inventi ons p roduced 23 by the f ederal gover nment or with federal support . 24 authoriz es eac h fede ral a gency to apply for, obt ain, and 25 maintain paten ts or other forms of protection ... on 26 27 28 Th e Act inventio ns in which the F ederal Government owns a righ t, title, o r inte rest. 35 U.S.C. § 207(a)(1). 51 It also 1 authoriz es age ncies to g rant nonexclusive, exclusive, or 2 partiall y excl usive licen ses under federally owne d 3 inventio ns, ro yalty- free or for royalties o r othe r 4 5 6 7 8 consider ation, and o n suc h terms and conditions . .. as determin ed app ropria te in the public interest. Id. § 207(a)(2 ) (emp hasis added ). The Bayh -Dole act em bodie s Congress intent to cr eate a 9 system i n whic h fede ral a gencies could patent the ir 10 inventio ns, gr ant ex clusi ve licenses, administer their rights 11 through third partie s, an d charge royalties. 12 13 14 15 16 17 18 19 20 The Comm ission correctl y poin ts out that: Governme nt patents a re funded in whole or in part by tax reve nue and can be supported by entities work ing in partn ership with the government. Yet, the BayhDole Act permits the government to collect royalt ies from all licensees, including taxpayers and any others w ho support t he development of an inventio n. The same is true whe n businesses and nonprofit organiza tions obtain patents based on federally funded r esearch. Doc. 102 at 18 . A plaint iff ca nnot u se st ate law to interfere[] with 21 the met hods b y which the federal statute was des igned to 22 reach [i ts] go al. 23 Cir. 200 3) (qu oting Int l Paper Co. v. Ouel lette, 479 U.S. 24 481, 494 (1987 )). 25 method by wh ich ex clusi ve licenses are is sued, speci fically 26 27 28 Ting v. AT&T, 319 F.3d 1126, 1137 (9th H ere, the Bayh-Dol e Act sets forth a precludi ng the issua nce o f exclusive licenses unl ess t he issuing Federa l agen cy ha s determined that: 52 1 2 3 4 5 6 7 8 9 10 11 (A) The public will be served by the granting of the license, in view of the applicant s intentions, plans an d ability to bring th e invention to the point of practical a pplication or otherwise promo te the inve ntion s util ization by the public. (B) Excl usive, co-exclusi ve or partially ex clusiv e licensin g is a reaso nable and necessary incentive to call for th the inves tment capital and expen ditures needed t o bring the invention to practical applicat ion or other wise promote the invention s utilizat ion by the p ublic; and (C) The proposed sco pe of exclusivity is not grea ter than rea sonably nece ssary to provide the incentiv e for brin ging the invention to practical applicati on, as propo sed by the a pplicant, or otherwise to promote the inventio n s utilization by the public ; 12 37 U.S.C . § 40 4.7. 13 reasona blenes s of the l icense terms, an exercis e of 14 discreti on tha t woul d be substantially impeded if Plai ntiffs 15 could ch alleng e the licen se terms as unfair und er th e UCL. 16 17 18 19 20 21 22 23 24 25 26 27 28 This requires USDA to assess the Plaintif fs UC L clai m is preempted by the Bayh-Dole Act. Even if the Ba yh-Dole Act did not preempt t he UCL claim as a mat ter of law, the F eder al Government is a party to the exclusiv e lice nse be ing c hallenged by the UCL cla im. As the October 27, 20 09 Dec ision concluded: It is un necessary to engage in a preemption analy sis because, state law c annot be used to challenge a contract entered into pur suant to federal l aw whe re the gove rnment is a party. See O Nei ll v. United States, 50 F.3d 677, 682 (9th Cir. 1995) ( Federal law gove rns the inte rpretation of contracts enter ed into pur suant to fed eral law where the government is a party. ). Plaintif fs arg ue that they do no seek a sw eeping prohibit ion on the C ommis sion s and the USDA s ri ght t o 53 1 license patent ed inv entio ns and charge royalties for t hose 2 patents when d oing s o com plies with the law and i s fai r. 3 Doc. 109 at 21 . 4 Rat her, they maintain that their UCL claims are base d on the spe cific facts and licensing sch eme alleged, namely the charging of royalties where t he exclusiv e license to the Commission was invalid a nd unlawful for failing to meet the requirements of the Bayh-Dol e Act, particularly where the licen sees paid for the development of the patented varieties. An adjudica tion of that particular scheme s fairness would in no way inte rfere or impair the Commissio n s or the U SDA s genera l patent rights. Nor would adjudica tion of Plai ntiffs c laims undermine the Commissi on s or the USDA s patent rights. To the contrary , an adjudic ation of Plaintiffs claim wou ld seek, in part, to ad judicate whether the Commissi on s and the USDA s actions are consisten t with the controlling patent law of the Bayh -Dole Act. 5 6 7 8 9 10 11 12 13 Id. 14 fairness would certa inly interfere with the metho ds by which 15 the Bayh -Dole Act wa s des igned to reach its goals . 16 17 18 19 Thi s is u npersuasive . A n adjudication of th e lic enses Th is is not done on a case-b y-cas e ba sis where the United Stat es objectiv es are capab le of being thwarted by State law. To the e xtent the UC L cla im directly challenges t he 20 fairness of th e lice nses issued under the Bayh-Dole Act, it 21 is preem pted b y the Bayh- Dole Act. 22 At oral argume nt, Pl ainti ffs attempte d to r edefine their 23 claim on ce aga in, as serti ng that they are not cha lleng ing the 24 licenses thems elves as u nfair under the UCL. 25 26 27 28 R ather , they claim th e lice nsing was u nfairly administered by the Commissi on, be cause, for example, it went about limit ing the licenses to th ree nu rseri es, one with famil y ties to t he 54 1 Commissi on. 2 Plaintif fs co unsel summa rized his UCL claim as f ollow s: 3 6/28/1 0, Ro ugh Tr. at 30:17-19. MR. HADL EY: It is th at the commission has taken t he licenses , the exclus ive licenses that it was granted, which we do not contest were improperly granted, and it has applied them in a discrimi natory, unfa ir, and capricious manner in several regards amon g which is limiting the sublicenses in an anti- compe titive way to thre e nurserie s, one of wh ich is owned by t he son of a commissi on member. 4 5 6 7 8 9 Id. at 3 3:17-2 3. 10 invoke t he ant i-trus t laws. 11 dismisse d with preju dice. 12 13 14 15 16 17 Th is ap pear s, again, to be an attemp t to Any such claim has been See Doc. 84 at 6 3-65. The only claim fo r whic h Plai ntiff s were granted leave to amend aft er the Octo ber 27 , 2010 Deci sion, Doc. 84, was their dou ble payment theor y. Pl ainti ffs cannot have endless bites at the apple. In the f inal a nalysi s, Pl aintiffs UCL claim based upon a 18 double paymen t the ory a rising from implementati on of the 19 license is pre empted by t he Bayh-Dole Act. 20 21 2. Is the C ommission a Proper Defendant? 22 Alternat ively, the Commission next ar gues t hat it is n ot 23 a proper defen dant u nder the UCL, which applies o nly t o 24 person[ s] th at en gage in unfair competition. 25 Prof. Co de § 1 7203. 26 27 28 Cal. Bus. & The statute defines person to m ean natural perso ns, co rpora tions, firms, partnershi ps, j oint stock co mpanie s, ass ociat ions and other organizat ions of 55 1 persons. 2 entities are not in clude d in this definiti on of person. 3 Janis v. Calif ornia State Lottery Comm n, 6 8 Cal. App. 4th 4 5 6 7 Id. § 172 01. It i s well established that p ublic 824, 831 (1998 ); see also PETA, Inc. v. Cal ifornia Milk Prods. A dvisor y Bd., 125 Cal. App. 4th 871, 877-879 (2 005) ; Californ ia Med . Ass n, In c. v. Regents of Univ. of Cal ., 79 8 Cal. App . 4th 542, 5 51 (2 000); Trinkle v. C alifor nia S tate 9 Lottery, 71 Ca l. App . 4th 1198, 1203-1204 (1999); Comm unit y 10 Mem l Ho sp. v. Count y of Ventura, 50 Cal. A pp. 4th 199 , 208- 11 210 (199 6). 12 13 14 15 The Comm ission argue s tha t it qualifies as a public entity f or pur poses of § 17200. The Legislature creat ed the Commissi on in the e xerci se of the police power to pe rform 16 function s aff ected with the public interest tha t adv ance 17 the decl ared policy of the State and enhance th e we lfare, 18 public e conomy and h ealth of its people. 19 Code § 6 5500. 20 and may remove every memb er of the Commission. See id. § 21 22 23 24 65550. Cal. Food & Agric. The S ecret ary of Food and Agricult ure a ppoints Anyone aggri eved by an action of the Comm issio n may appeal t o the Secret ary t o re verse the Comm ission s de cision. Id. § 65 650.5. In addit ion, like other entities in t he 25 state go vernme nt, th e Com mission is subject to tr anspa rency, 26 auditing , and ethics regu lations that aim to prom ote p ublic 27 accounta bility . 28 De lano Farms Co. v. Calif ornia Table Grape 56 1 Comm n, 586 F. 3d 121 9, 1221 (9th Cir. 2009) (holding the 2 Commissi on to be the gove rnment for purposes of t he Fi rst 3 Amendmen t). 4 5 6 7 The Comm ission maint ains that the fact that the Legislat ure de clared the Commission to be a corp orate body and to posses s all the p owers of a corporation, Cal. Food & 8 Agric. C ode § 65551, does not make it a proper de fenda nt 9 under th e UCL. 10 public c orpora tions are not among the corp oratio ns i ncluded 11 in § 172 01 s d efinit ion o f person. 12 13 14 15 16 17 Cali forni a courts have long recog nized that For example , The Regents of the Unive rsity of California operates as a corpora tion, Cal. Const . art. IX, § 9(a), but c annot be sued und er the UCL, Calif ornia Med. Ass n, 79 Cal. App . 4th at 551. The Comm ission argue s tha t the Legisl ature s intent to 18 exclude public corpo ratio ns from the UCL s defini tion of 19 person is ev ident when the UCL is compared to t he Un fair 20 Practice s Act, Cal. Bus. & Prof. Code §§ 17000 et seq. , which 21 22 23 24 defines perso n to inclu de any company, corpora tion or municipa l or o ther p ublic corporation. (emphasi s adde d). Id. § 17021 H ad th e Legislature wished to inclu de a 25 public e ntity such a s the Commission within the m eanin g of 26 person under § 172 01, t he Commission argues it woul d have 27 done so by usi ng lan guage sim ilar to that i n section 1 7021. 28 57 1 PETA, 12 5 Cal. App. 4th a t 87 9 (advis ory board created 2 pursuant to ma rketin g ord er immune from claim und er § 17200). 3 4 5 6 7 In respo nse, P lainti ffs f irst complain that the Commissi on fai led to rais e this argument in the first two rounds o f moti ons to dism iss, but cite no authori ty th at it is impro per fo r the Commi ssion to raise the issue now, in 8 response to th e SAC. 9 Plaintif fs cho se to amend their complaint, subjec ting it to 10 scrutiny on an y and every applicable legal ground under Rule 11 12. 12 13 14 15 The re is no such procedural rule , as Plaintif fs nex t argu e tha t the Commission s argum ent should f ail be cause the C ommission took the exac t opp osite position befor e this Cour t in arguing that it was a p erson 16 under § 17200 for pu rposes of asserti ng an unfair comp etition 17 claim. 18 made tha t the Commis sion constituted a person t hat c ould 19 bring su it und er § 1 7200: 20 21 22 23 24 25 26 27 28 Doc. 109 at 21. It is true that a prior ruli ng was Sandrini contends th e Commission is not a person with sta nding to sue unde r § 17200. The Com missio n, on the o ther hand, a grees that it is a government al entity, but that fac t is not determinative of whether it may bring suit under §17200. In suppor t of its a rgument, the Commission contends § 17204 authoriz es corporati ons to bring suit under § 17200, and the Ketchum Act, in turn, provides the Commissi on shall ha ve and possess all of the pow ers of a cor poration. The Ketchum Act specifically provides [t]he Cali fornia Table Grape Commission shall be and is here by declared a cor porate body. Cal. Foo d & Agric. C ode § 65551...The Ketchum Act further provides the Commission shall have the power to sue and be sued, to contract and be contract ed with, and to have and possess all of t he 58 1 powers o f a corporat ion. Id....The Ketchum Act specific ally declare s the Commission a corporate body, w hich posses ses all of the powers of a corporat ion. As § 1 7204 specifically provides a person may sue und er § 17200, and § 17201 defin es person as includin g corporations, the Commissio n has stan ding to sue under § 17200 as a corp oratio n. 2 3 4 5 Sandrini , 2007 , WL 1 847631, at *26 (emphasis added). 6 essence, Sandr ini he ld th at the Commission, although it is a 7 governme ntal e ntity, poss esses all the powers of a 8 9 10 11 In corporat ion an d coul d bri ng suit under § 17200. The Comm ission now a rgues that it cannot be sued under § 17200 be cause public enti ties are not persons und er § 17200. 12 The Comm ission wants to h ave it both ways. 13 for thei r posi tion i nsofa r as the Regents of the Unive rsity 14 of Calif ornia are conside red a corporation with the po wer to 15 sue and be sue d, see Cal. Const. art. IX, § 9(f), yet the are 16 17 18 19 not a pr oper § 17200 defe ndant. There is s upport See Califo rnia Med. A ss n, Inc. v. Regent s of U niv. of Cal., 79 Cal. A pp. 4th 542 , 551 (2000). Calif ornia seems to have made the unique choi ce to 20 exempt i ts pub lic en titie s from UCL liability. H oweve r, it 21 is not n ecessa ry for a fe deral court to further e xtend this 22 unique a spect of sta te la w to the Commission, as this case 23 can be d ecided on ot her g rounds. 24 25 3. Failure to State a C laim. 26 The Comm ission also argue s that the UCL claim fai ls to 27 state a claim. A b usine ss practice is unfair wi thin the 28 meaning of the UCL i f it violates established pub lic p olicy 59 1 or if it is im moral, unet hical, oppressive or uns crupulous 2 and caus es inj ury to cons umers which outweighs it s ben efits. 3 McKell v . Wash ington Mut. , Inc., 142 Cal. A pp. 4th 145 7, 1473 4 5 6 7 8 9 10 11 12 13 14 15 (2006). The C ommiss ion m aintains that Imposing a use r fee on th ose who benefit most dir ectly from usi ng the gover nment s property is non e of t hese things. It is what happe ns every time someone pa ys a toll to cross a publ ic br idge or pays a fee to ca mp in a national park. That pers on may well have helped pay f or the cons tructi on of the b ridge or the upkeep of t he park, bu t the user f ee re coup s some of the cost borne by the publ ic at large and f rees up public resources for other pr ioriti es. Doc. 102 at 22 . Sandrini held that t he Commission has authority to engage in its paten ting and licensing program a nd to generat e reve nues t hrough the collection o f pate nt 16 royaltie s. 17 not disp ositiv e, as Plain tiffs claim is more nua nced, 18 alleging that it is unfai r to double-charge Plaintiffs by 19 requirin g them to pa y for research costs and then again for 20 the fru it of that resea rch. 21 22 23 24 S andrin i, 20 07 W L 1847631, at *9. But, t his is Section 17200 allo ws fo r judicial revie w of a bro ad and sweeping range of b usiness activiti es. Ca l. Bus . & P rof. Code § 17200; McKel l v. Washingt on Mut ual, I nc., 142 Cal. App. 4th 1457, 1471 (2006); 25 Cal-Tech Commc n, In c. v. Los Angeles Cellular Tel. Co., 20 26 Cal. 4th 163, 180 (1 999). 27 even if not s pecifi cally proscribed by some othe r law so 28 The unfair criteria may b e met 60 1 long as it of fends an es tablished public policy or... is 2 immoral, uneth ical, oppre ssive, unscrupulous or substa ntially 3 injuriou s to c onsume rs. 4 5 6 7 Kor ea Supply Co. v. Lockheed Martin Corp., 2 9 Cal. 4th 1 134, 1143 (2003); Heigh ly v. J.C. Penny Life Ins . Co., 257 F . Sup p. 2 d 1241, 1259 ( C.D. Cal. 2 003) . While th e Comm ission may dispute that the double- payme nt 8 scheme i s unf air a s a f actual matter, that is n ot a 9 determin ation that c an be made on a motion to dis miss. 10 Gilligan v. Ja mco De velop ment Corp., 108 F.3d 246, 249 (9th 11 Cir. 199 7); Tw oRiver s, 17 4 F. 3d at 991. 12 13 4. Failure to Exhaust S tate Admi nistrative Remedies. 14 Finally, the C ommiss ion a rgues that California s Ketchum 15 Act requ ires P lainti ffs t o exhaust state administ rativ e 16 remedies befor e comm encin g state-law claims against th e 17 Commissi on. 18 19 20 21 T he Ket chum Act provides that a pers on aggriev ed by any ac tion of the Commission must file a grievanc e with the C ommis sion before bringing sui t. Food & A gric. Code § § 656 50.5 & 65651. See Cal. Any adver se de cision 22 may then be ap pealed to t he Secretary of the Cali forni a 23 Departme nt of Food a nd Ag riculture ( CDFA ). 24 65650.5. 25 of the p roceed ings b efore the commission and ma y rev erse 26 27 28 See id. § On a ppeal, the Secretary shall review the r ecord the acti on of the co mmiss ion if he finds that it is not substant ially sustai ned b y the record, was an abu se of 61 1 discreti on, or illeg al, or was arbitrary or wit hout 2 evidenti ary su pport. 3 subject to ju dicial revi ew upon petition of the commi ssion 4 5 6 7 Id . The Secretary s decis ion is then or any p arty a ggriev ed by the decision. Id. Pl ainti ffs are well awa re of this p rovis ion: In 2005, the Superior Court of Californ ia, Fr esno C ounty , relied upon it to dism iss t heir 8 earlier lawsui t chal lengi ng the Commission s pate nting and 9 licensin g prog ram. 10 Defendan t, Del ano Farms Co. v. California Table Grape Comm n, 11 No. 05CE CG0207 3 (Cal . Sup er. Ct. Nov. 4, 2005), D oc. 1 02, Ex. 12 13. 13 At oral argume nt, Pl ainti ffs asserted that they i n fac t 14 15 See Order Sustain ing De murrer of did exha ust th eir st ate a dministrative remedies a fter the 16 Fresno C ounty dismis sal b y filing a grievance wit h the 17 Commissi on and then takin g an appeal to the CDFA. 18 Rough Tr . 32:2 -12; 3 8:7-14. 19 amended compla int an d the argument was not raised in 20 Plaintif fs op positi on. 21 22 23 24 25 6/2 8/10 This is not alleged in th e In the absence of any ot her b asis for dism issal, such an as sertion might warr ant gr antin g Plaintif fs lea ve to amend . However, because Plai ntiff s UCL claims a re pre empted by f ederal law, amendment wo uld b e futile. 4 26 4 27 28 Pl ai nt if fs a ls o ar gu e t ha t st at e a dmi ni st ra ti ve e xh au st ion u nd er t he Ket ch um A ct w as n ot r equ ir ed b ec au s e t he K et ch um A ct d oe s n ot p ro vi de for the s am e fo rm s of r el ief s ou gh t in thi s ca se , ci ti ng f or th e fi rs t ti m e in or al a rg um en t An da l v . Ci ty o f S toc kt on , 13 7 Ca l. A pp . 4 th 8 6, 9 3- 9 4 62 1 2 3 4 5 6 7 D. Unjust E nrichm ent an d Con structive Trust Claims. Plaintiffs unjust enrichment and constructive trust claims are dependent upon Plaintiffs substantive ... antitrust claims and unfair competition claims. Doc. 84 at 65 (quoting Doc. 42 at 71); see also McBride v. Boughton , 123 Cal. App. 4th 379, 387 (2004); PCO Inc. v. Christensen, 8 Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP , 150 Cal. 9 App. 4th 384, 398 (2007). 10 case survive, the Commission s motion to dismiss the unjust 11 Because no other claims in this enrichment and constructive trust claims is GRANTED. 12 13 14 IV. CONCLUSION For the reason s set forth above, Federal Defendants an d 15 the Comm ission s mot ions to dismiss all cla ims of the 16 complain t are GRANTE D WIT HOUT LEAVE TO AMEN D. 17 18 19 20 21 22 23 24 25 Plainti ffs motion f or lea ve to file an interlocutory appeal, Doc. 93, is DENIED A S MOOT . Def endan ts shall submit a form o f ord er consiste nt wit h this memo randum decision within f ive ( 5) days of elect ronic servic e. SO ORDER ED DATED: July 2 6, 201 0 /s/ Oliver W. Wanger Oliver W. Wa nger United States Distri ct Ju dge 26 27 28 (20 06 ). It i s no t ne ces sa ry t o re s olv e th is u nt im el y ar gum en t, a s th i s cla im c an b e di sp os ed of o n ot he r g rou nd s. 63
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