IP Law Daily, PATENT—E.D. Wash.: Genuine issues remained about on-sale bar in cherry tree patent dispute, (Jan 4, 2022)

By Robert B. Barnett Jr., J.D.

Both the patent holder’s motion to dismiss the restraint of trade counterclaim and the counterclaimant’s motion for summary judgment for invalidity of the patent were denied.

In a dispute involving a Staccato cherry tree patent allegedly held by a Canadian governmental authority, a motion for summary judgment filed by the those accused of infringing the patent, based on the theory that the patent was invalid due to the on-sale bar, was denied because genuine issues of fact remained about whether the alleged tree sales that occurred more than one year prior to the patent application were really just contracts for nursing services, a Washington federal district court has ruled. In addition, the court denied motions filed by the patent holder and a third-party counter-defendant to dismiss the alleged infringers’ restraint of trade counterclaim because the counterclaim—including defining the market, setting forth the anti-competitive conduct and injury, and establishing sufficient market or monopoly power—was adequately pleaded under Section 2 of the Sherman Act (Her Majesty the Queen in Right of Canada as Represented by the Minister of Agriculture and Agri-Food v. Van Well Nursery, Inc., January 3, 2022, Bastian, S.).

Background. Staccato is a Canadian-bred sweet cherry tree, invented by Dr. David Lane at the Pacific Agri-Food Research Center in 1982. Her Majesty the Queen in Right of Canada as represented by the Minister of Agriculture and Agri-Food (AAFC), a Canadian governmental authority, filed for a U.S. patent in 2002. Summerland Varieties Corporation (SVC) managed AAFC’s intellectual properties. The patent was issued in 2009.

In 2020, AAFC sued Monson Fruit Company, Inc., Van Well Nursery, Inc., Gordon Goodwin, and Sally Goodwin, alleging eight causes of action, including (1) plant patent infringement, (2) unfair competition and false designation of origin in violation of the Lanham Act, and (3) false advertising under the Lanham Act. The three defendants (Monson, Van Well, and the Goodwins) filed counterclaims against both AAFC and SVC, including a counterclaim for unlawful restraint of trade in violation the Sherman Act, which asserted that AAFC and SVC lied to the Patent Office to obtain the patent. Monson, Van Well, and the Goodwins then filed a motion for partial summary judgment of the infringement claim, based on invalidity, while AAFC and SVC filed a motion to dismiss the restraint of trade counterclaim.

Summary judgment. The alleged patent infringers sought summary judgment on the theory of the on-sale bar provision under 35 U.S.C. §102(b) (in the version of the Patent Act in effect in 2012), which provided that a patent was not to be issued if the invention was on sale for more than one year prior to the date of the patent application.

In support of their theory, the alleged infringers offered evidence of contracts with nurseries that AAFC had entered into more than one year before it applied for the patent. AAFC contended, on the other hand, that the contracts were not sales of the cherry trees themselves but rather contracts for nursery services involving the care of the cherry trees. In any event, the court concluded, genuine issues of fact remained about the nature of the nursery contracts, thus precluding summary judgment. As a result, the alleged infringers were unable to demonstrate by clear and convincing evidence that definite Staccato sales occurred more than one year before the patent application. That decision would be left for the jury.

Motion to dismiss. The restraint of trade counterclaim was based on allegations that AAFC and SVC made fraudulent misrepresentations to the Patent Office in order to obtain the patent. The patent holder sought dismissal of the Sherman Act counterclaim on the ground that all of the elements of the claim were not adequately pleaded and that the complaint failed to satisfy the fraud pleading specificities of Fed. R. of Civ. Proc. 9(b).

The alleged infringers notified the court that they were proceeding under the fraud pleading requirements outlined in Walker Process Equipment, Inc. v. Food Machinery Chemical Corp., 382 U.S. 172 (1965). Walker Process requires evidence (1) that the patent was obtained by knowing and willful fraud and (2) that all elements of a Sherman Act §2 claim are present. The counterclaimants argued that they had satisfied the first requirement by naming the specific individuals who made the allegedly fraudulent statements or who omitted material information, and that intent could be inferred from the direct and circumstantial evidence they offered in the counterclaim. The court agreed that they had, and it also ruled that the counterclaimants had satisfied Rule 9(b)’s pleading requirements by adequately setting forth the who, what, when, where, and how of their fraud allegations.

It then turned to the specific elements of the Sherman Act claim. By asserting that the relevant market was the market for sweet cherries maturing at least seven days after the Sweetheart variety in the U.S., the counterclaim adequately established a valid market or submarket definition. The counterclaim established that such cherries had distinct prices and peculiar characteristics, which constituted a sufficient submarket within the broader cherry market.

The counterclaim also sufficiently pleaded anti-competitive conduct by alleging that enforcement of the allegedly fraudulent patent was for the purpose of deterring competitors from entering into the market. Such conduct, the counterclaim asserted, was predatory and unlawful, and the court agreed that the counterclaim had sufficiently pleaded anti-competitive conduct.

As for market or monopoly power, the complaint asserted that AAFC and SVC controlled not only Staccato cherries but also Glory cherries. Although the counterclaim never asserted a specific percentage of market power, its assertion that AAFC and SVC had market power over two of the three varieties of sweet cherries in the submarket was deemed sufficient to establish that AAFC and SVC had sufficient market power to restrain trade.

As a result, the court concluded that the counterclaimants pleaded a plausible claim under §2 of the Sherman Act for restraint of trade, and it denied the motions to dismiss.

The case is No. 2:20-CV-00181-SAB.

Attorneys: Gaspare J. Bono (Dentons US LLP) for Her Majesty the Queen in Right of Canada. Quentin Batjer (Davis Arneil Law Firm LLP) for Van Well Nursery Inc.

Companies: Van Well Nursery Inc.

Cases: Patent WashingtonNews GCNNews