Delano Farms Co. v. California Table Grape Commission ( 2015 )

United States Court of Appeals
for the Federal Circuit
______________________
DELANO FARMS COMPANY, AND
FOUR STAR FRUIT, INC.,
Plaintiffs-Appellants,
AND
GERAWAN FARMING, INC.,
Plaintiff,
v.
THE CALIFORNIA TABLE GRAPE COMMISSION,
UNITED STATES,
DEPARTMENT OF AGRICULTURE, AND
THOMAS J. VILSACK, Secretary of Agriculture,
Defendants-Appellees.
______________________
2014-1030
______________________
Appeal from the United States District Court for the
Eastern District of California in No. 1:07-cv-01610-SEH-
JLT, Judge Sam E. Haddon.
______________________
Decided: January 9, 2015
______________________
LAWRENCE M. HADLEY, McKool Smith Hennigan, P.C.,
of Los Angeles, California, argued for plaintiffs-
2 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
appellants. Of counsel was Brian C. Leighton, Law Office
of Brian C. Leighton, of Clovis, California.
JOHN J. FARGO, Director, Intellectual Property Staff,
Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued
for defendants-appellees United States, Department of
Agriculture, and Thomas J. Vilsack. With him on the
brief was STUART F. DELERY, Assistant Attorney General.
THOMAS G. SAUNDERS, Wilmer Cutler Pickering Hale
and Dorr LLP, of Washington, DC, argued for defendant-
appellee the California Table Grape Commission. With
him on the brief were SETH P. WAXMAN, BRIAN M.
BOYNTON, and FRANCESCO VALENTINI.
______________________
Before PROST, Chief Judge, BRYSON and HUGHES, Circuit
Judges.
BRYSON, Circuit Judge.
This appeal involves a challenge to the validity of two
plant patents for varieties of table grapes developed by
the U.S. Department of Agriculture (“USDA”) and li-
censed to the California Table Grape Commission. The
plaintiffs filed suit against the USDA and the California
Table Grape Commission, seeking to invalidate the pa-
tents on the ground that the two grape varieties were in
public use more than one year before the applications for
both plant patents were filed, and that the patents are
therefore invalid under the public use bar of 35 U.S.C.
§ 102(b) (2006).
The United States District Court for the Eastern Dis-
trict of California initially ruled that sovereign immunity
barred this action against the USDA, and that the case
could not go forward without the USDA as a party. On
appeal, we reversed the district court’s ruling as to the
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 3
sovereign immunity issue, holding that the Administra-
tive Procedure Act waives sovereign immunity for purpos-
es of an action such as this one. Delano Farms Co. v. Cal.
Table Grape Comm’n, 655 F.3d 1337 (Fed. Cir. 2011).
On remand, the district court granted partial sum-
mary judgment for the defendants on matters that are not
at issue on appeal. The court held a bench trial on the
remaining question whether the actions of two individuals
who obtained samples of the two patented plant varieties
in an unauthorized manner and planted them in their
own fields constituted an invalidating public use of the
plant varieties. The district court found that the actions
of those individuals did not constitute a public use of the
two plant varieties and therefore rejected the plaintiffs’
challenge to the patents. We affirm.
I
The patented table grape varieties at issue in this
case are known as Scarlet Royal (U.S. Patent No.
PP16,229), and Autumn King (U.S. Patent No. PP16,284).
The USDA, as owner of the patents, has exclusively
licensed the patents to the California Table Grape Com-
mission, an agency of the State of California. The Com-
mission sublicenses the patents to grape growers in
California and collects royalties that are shared by the
Commission and the USDA. The licensing agreements
with the growers require the growers to pay a royalty on
the grapes produced by plants of the patented varieties,
and they prohibit the growers from propagating the
plants.
The three plaintiffs are all California grape growers
who purchased grapevines covered by the patents, signed
license agreements with the California Table Grape
Commission, and paid the Commission’s licensing fee.
They brought this action challenging the validity and
enforceability of the plant patents, as well as the conduct
4 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
of the Commission and the USDA in licensing and enforc-
ing the patents.
Following the bench trial, the district court made de-
tailed findings of fact. The court’s findings, and the
evidence at trial that supported those findings, are sum-
marized below.
The applications that resulted in the plant patents
covering Scarlet Royal and Autumn King were filed on
September 28, 2004. The “critical date” for the public use
bar of 35 U.S.C. § 102(b) (2006), i.e., the beginning date of
the one-year period before which a public use would
invalidate the patents, is therefore September 28, 2003.
Both varieties were made commercially available on July
13, 2005.
Jim Ludy, a California grape grower, cultivated table
grapes at J&J Ludy Farms, in Delano, California, with
his brother, Jack Ludy, from 1976 to 2003. Larry Ludy,
Jim Ludy’s first cousin, also cultivated table grapes at
various properties in the area.
On August 22, 2001, the USDA held an experimental
variety open house at the California State University,
Fresno. At the open house, USDA representatives dis-
played several unreleased table grape varieties, including
Scarlet Royal and Autumn King. Only the mature fruit
from the varieties was on display, not other plant materi-
al such as the vines or wood. Visiting growers were not
permitted to take any plant material relating to the
unreleased varieties or even view the plants in the field.
Both Jim Ludy and Larry Ludy attended the August
open house. While they were there, the Ludy cousins
spoke with Rodney Klassen, who was employed by the
USDA at the facility where the Scarlet Royal and Autumn
King varieties were being developed. Jim Ludy asked Mr.
Klassen if Mr. Klassen could give him some of the plant
material for the Scarlet Royal and Autumn King varieties.
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 5
Mr. Klassen had previously given Jim Ludy plant materi-
al for other unreleased table grape varieties. Mr. Klassen
was not authorized to provide Jim Ludy with any unre-
leased plant material.
Despite his lack of authority, Mr. Klassen informed
Jim Ludy that he would “take care” of him. Subsequent-
ly, in early 2002, Mr. Klassen met with Jim Ludy and
gave him plant material for multiple, unreleased varie-
ties, including Scarlet Royal and Autumn King. Mr.
Klassen instructed Jim Ludy not to let the material “get
away from [him]” and not to “put them in a box,” which
Jim Ludy understood to mean that he should not sell the
resulting grapes until the varieties were commercially
released. Jim Ludy understood that he was to keep the
plant material secret. He did not want other growers to
obtain the same unreleased plant material he had, and he
knew that Mr. Klassen would be in “big trouble” if his
actions were discovered. Jim Ludy subsequently testified
falsely under oath to protect Mr. Klassen’s identity as the
person from whom he had obtained the plant material for
the unreleased varieties.
After receiving the plant material from Mr. Klassen,
Jim Ludy grafted fewer than 50 vines of each of the
Scarlet Royal and Autumn King varieties in early 2002.
Jim Ludy also provided “a few buds” of Scarlet Royal and
Autumn King to his cousin, Larry Ludy. Larry Ludy
knew that the material had originally come from a USDA
facility and had not yet been released. He admitted that
Jim Ludy told him that they should “keep it to ourselves.”
Jim Ludy testified that it was understood between the
two of them that their possession of the Scarlet Royal and
Autumn King varieties “was supposed to be a secret” and
that Larry Ludy would keep his possession of the plant
material confidential.
Larry Ludy subsequently grew eight plants of Scarlet
Royal and 25 plants of Autumn King. In 2003, Larry
6 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
Ludy grew additional plants by grafting wood from the
original group of plants, producing a total of 108 vines of
Scarlet Royal and 650 vines of Autumn King.
Most of the plantings by both Ludys prior to the pa-
tents’ critical date bore no usable fruit, and the Ludys
sold no grapes from those plantings prior to the critical
date. Neither of the Ludys provided plant material to any
other persons until after the critical date. Although the
various plantings were visible from publicly accessible
roads, none of the vines were marked or labeled in any
way, and the evidence showed that the particular variety
of the grapes could not be readily ascertained from simply
viewing the vines.
The only other person who was informed of the Ludys’
possession of the unreleased plant material was Richard
Sandrini, who had long served as a table grape marketer
for Jim and Larry Ludy.
Larry Ludy showed Mr. Sandrini vines of the unre-
leased varieties at least twice prior to the patents’ critical
date. After the critical date, Mr. Sandrini sold Larry
Ludy’s 2004 harvest of Autumn King (the first sale of
either unreleased variety), but he labeled the grapes as
“Thompson Seedless” to avoid detection. Additionally,
after the patents’ critical date Larry Ludy provided Mr.
Sandrini with wood from which Mr. Sandrini could graft
Autumn King on his own property. Larry Ludy testified
that he knew it was a “huge competitive advantage” to
have grapes that sold at a significant premium before
other growers. Mr. Sandrini likewise recognized the
competitive advantage inherent in possessing the unre-
leased plants and intended to grow his own Autumn King
grapes.
Based on the findings summarized above, the district
court held that the plaintiffs failed to meet their burden of
showing, by clear and convincing evidence, that the
Ludys’ use of the unreleased varieties constituted a public
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 7
use that invalidated the patents under 35 U.S.C. § 102(b)
(2006). The plaintiffs appeal.
II
A
An applicant may not be granted a patent for an in-
vention that was “in public use . . . in this country, more
than one year prior to the date of the application for
patent in the United States.” 35 U.S.C. § 102(b) (2006).
Following a bench trial, as in this case, “the district
court’s conclusion on public use under § 102(b) is subject
to review as a question of law while the facts underlying
the conclusion on public use are subject to the clearly
erroneous standard of review.” Moleculon Research Corp.
v. CBS, Inc., 793 F.2d 1261, 1266 (Fed. Cir. 1986). “The
proper test for the public use prong of the section 102(b)
statutory bar is whether the purported use was accessible
to the public or was commercially exploited.” Invitrogen
Corp. v. Biocrest Mfg., L.P., 424 F.3d 1374, 1380 (Fed. Cir.
2005).
Our case law defines the contours of what it means to
be “accessible to the public.” The principal policy underly-
ing the statutory bar is to prevent “the removal, from the
public domain, of inventions that the public reasonably
has come to believe are freely available.” Tone Bros. v.
Sysco Corp., 28 F.3d 1192, 1198 (Fed. Cir. 1994). The
question in a case such as this one is thus whether the
actions taken by the inventor (or, as in this case, a third
party) create a reasonable belief as to the invention’s
public availability.
Factors that we have previously identified as being
helpful in analyzing that question include “the nature of
the activity that occurred in public; the public access to
and knowledge of the public use; [and] whether there was
any confidentiality obligation imposed on persons who
observed the use.” Bernhardt, L.L.C. v. Collezione Europa
8 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
USA, Inc., 386 F.3d 1371, 1379 (Fed. Cir. 2004), quoting
Allied Colloids Inc. v. Am. Cyanamid Co., 64 F.3d 1570,
1574 (Fed. Cir. 1995). The last factor captures “the com-
monsense notion that whether an invention is ‘accessible
to the public’ . . . depends, at least in part, on the degree
of confidentiality surrounding its use: ‘[A]n agreement of
confidentiality, or circumstances creating a similar expec-
tation of secrecy, may negate a public use where there is
not commercial exploitation.’” Dey, L.P. v. Sunovion
Pharm., Inc., 715 F.3d 1351, 1355 (Fed. Cir. 2013), quot-
ing Invitrogen, 424 F.3d at 1382.
The analysis is similar when the allegedly public use
is performed by an unaffiliated third party rather than
the inventor. “Third party prior use accessible to the
public is a section 102(b) bar.” Eolas Techs. Inc. v. Mi-
crosoft Corp., 399 F.3d 1325, 1334 (Fed. Cir. 2005). In
order to be invalidating, such use must still be publicly
accessible; “secret or confidential third-party uses do not
invalidate later-filed patents.” Dey, 715 F.3d at 1355.
The adequacy of any confidentiality guarantees are meas-
ured in relation “to the party in control of the allegedly
invalidating prior use.” Id. at 1358. The actions of an
unaffiliated third party acting in secret are evaluated as if
he stood in the place of the inventor.
With these principles in mind, we turn to their appli-
cation to the facts found by the district court.
B
The appellants argue that the cultivation of the unre-
leased varieties by Jim Ludy and Larry Ludy constituted
public use. They point to previous opinions of this court
in which the court has held third-party uses of an inven-
tion to be invalidating when, for example, “the third party
‘made no attempt to maintain confidentiality or to delib-
erately evade disclosure’; made no ‘discernible effort to
maintain the [invention] as confidential’; or ‘made no
efforts to conceal the device or keep anything about it
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 9
secret.’” Dey, 715 F.3d at 1355 (citations omitted). As
evidence of the Ludys’ lack of effort to maintain secrecy
regarding their possession of the Scarlet Royal and Au-
tumn King plant varieties, the appellants point to Jim
Ludy’s provision of plants to Larry Ludy, Larry Ludy’s
sharing of information with Mr. Sandrini, and the lack of
concealment of the vines at either of the Ludys’ farms.
The appellants first argue that Jim Ludy’s provision
of plant material to his cousin Larry Ludy resulted in
public use. This argument relies primarily on the Su-
preme Court’s nineteenth century decision in Egbert v.
Lippmann, 104 U.S. 333 (1881). In that case, the Court
ruled that the inventor of a type of corset steel who gave
two of the corset steels to a friend for use 11 years before
applying for a patent on the device had put the invention
into public use, resulting in the invalidation of the patent.
The Court held in that case that “[i]f an inventor, having
made his device, gives or sells it to another, to be used by
the donee or vendee, without limitation or restriction, or
injunction of secrecy, and it is so used, such use is public,
even though the use and knowledge of the use may be
confined to one person.” Id. at 336.
Although the inventor of the plant varieties in this
case did not give or sell the invention to anyone, Jim Ludy
obtained control over the unreleased varieties. The
appellants argue that for purposes of the public use
doctrine, Jim Ludy therefore stands in place of the inven-
tor. They contend that if Jim Ludy gave Larry Ludy the
unreleased plant material “without limitation or re-
striction, or injunction of secrecy,” Larry Ludy’s subse-
quent cultivation of the plants would be an invalidating
public use of the inventions.
The problem with the appellants’ argument is that it
is squarely contrary to the district court’s findings of fact.
Larry Ludy was present during and participated in Jim
Ludy’s conversation with Mr. Klassen and knew that Mr.
10 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
Klassen did not have the authority to provide the Ludys
with unreleased varieties. When Jim Ludy gave Larry
Ludy the plants, Jim Ludy explicitly told his cousin to
“keep [knowledge of the plants] to ourselves” and expected
the fact of their possession of the plants to remain private.
After the critical date, Larry Ludy allowed Mr. Sandrini
to sell the fruit of the unreleased vines under a different
name to avoid detection. Moreover, during a deposition in
this case, Larry Ludy refused to identify Mr. Klassen as
the source of the Ludys’ unreleased plants; he acknowl-
edged at that time that the information “should be confi-
dential and not out in the public domain.” The findings of
the district court clearly establish, therefore, that both
Ludys knew that they were not authorized to have the
plants and that they needed to conceal their possession of
the plants.
To the extent that the appellants’ argument as to Lar-
ry Ludy is based on the lack of an explicit confidentiality
agreement between the cousins, “[w]e have never required
a formal confidentiality agreement to show non-public
use.” Dey, 715 F.3d at 1357; see also Moleculon, 793 F.2d
at 1266 (“[T]he presence or absence of [an express confi-
dentiality] agreement is not determinative of the public
use issue.”). Instead, we evaluate whether there were
“circumstances creating a similar expectation of secrecy.”
Invitrogen, 424 F.3d at 1382.
The Supreme Court’s decision in Egbert turned on the
inventor’s lack of any effort to maintain control over the
use of his invention. The facts of this case, by contrast,
show that Jim Ludy sought to maintain control of the
plants he obtained from Mr. Klassen. Although Jim Ludy
shared the plants with his cousin, the evidence showed
that Larry Ludy was aware of the need to keep the plants
secret, and at Jim Ludy’s urging, Larry Ludy continued to
treat his possession of the unreleased varieties as confi-
dential and non-public. This case is therefore wholly
different from the Supreme Court’s decision in Egbert v.
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 11
Lippmann, where the inventor himself gave the invention
to a third party with no understanding or expectation that
the third party would maintain secrecy as to the inven-
tion.
The appellants’ second argument is that the Ludy
cousins’ disclosure of the unreleased plants to Mr. San-
drini constituted public use. Unlike the Ludys, however,
Mr. Sandrini could not practice the inventions because he
did not possess plant material until after the critical date.
Instead, the appellants argue that the disclosure of the
plants’ existence to Mr. Sandrini demonstrates the lack of
confidentiality with which the Ludys treated the unre-
leased varieties.
The circumstances under which the disclosure to Mr.
Sandrini occurred weigh against the application of the
public use bar. In similar cases, we have held that the
nature of the disclosure did not give rise to a “public use.”
For example, in American Seating Co. v. USSC Group,
Inc., 514 F.3d 1262 (Fed. Cir. 2008), we affirmed the
district court’s decision that demonstration of a prototype
to “friends and colleagues” was not invalidating because
the evidence supported the existence of “a general under-
standing of confidentiality.” Id. at 1267-68. Similarly, in
Bernhardt, L.L.C. v. Collezione Europa USA, Inc., we
vacated a district court decision finding an invalidating
public use where “access was tightly controlled,” “there
was an industry-wide understanding [of confidentiality],”
“a breach of confidence could have serious consequences
for an attendee,” and “there was no effective means for
the attendees to divulge the designs they viewed.” 386
F.3d at 1380-81.
In this case, the district court found that Mr. Sandrini
was a friend, business partner, and mentor of the Ludys.
The court also found that “[e]ach [of the Ludys and Mr.
Sandrini] had incentives to keep the Ludys’ possession
secret, creating an environment of confidentiality, [and]
12 DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM.
[e]ach maintained tight control over who knew about the
Scarlet Royal and Autumn King vines and their use.” We
have no reason to overturn these findings. Based on the
district court’s findings and our case law, the Ludys’
disclosure to Mr. Sandrini that they were in possession of
the unreleased plants does not qualify as an invalidating
public use of the patented plant varieties.
Finally, the appellants argue that the lack of secrecy
with which the Ludys cultivated the unreleased varieties
mandates a finding of public use. The appellants are
correct that the district court found that both Ludys
grafted the plants and grew them in locations that were
visible from public roads. However, the appellants ignore
the district court’s finding that grape varieties cannot be
reliably identified simply by viewing the growing vines
alone. The plantings of the unreleased varieties were
extremely limited in comparison to the total cultivation of
the Ludys’ farms. The unreleased varieties were not
labeled in any way, and the appellants introduced no
evidence that any person other than the Ludys and Mr.
Sandrini had ever recognized the unreleased varieties. As
this court explained in the Dey case, 715 F.3d at 1359, “a
reasonable jury could conclude that if members of the
public are not informed of, and cannot readily discern, the
claimed features of the invention in the allegedly invali-
dating prior art, the public has not been put in possession
of those features.” In this case, the district court, sitting
as the trier of fact, came to exactly that conclusion, and
the evidence supports the court’s conclusion.
C
As an alternative ground of decision, the district court
found that the plaintiffs failed to satisfy their burden of
proof on public use because they failed to corroborate the
testimony of the Ludys and Mr. Sandrini. Because we
uphold the district court’s determination that the plain-
tiffs failed to demonstrate a public use even after admit-
DELANO FARMS COMPANY v. CALIFORNIA TABLE GRAPE COMM. 13
ting the testimony of the Ludys and Mr. Sandrini, it is
unnecessary for us to address whether that evidence was
inadmissible for want of corroboration.
In addition, because the evidence at trial was suffi-
cient to support the district court’s finding that the pa-
tented plant varieties were not in public use prior to the
critical date, we need not address the question whether
use of invention by one who has misappropriated that
invention (or obtained it through other improper means)
can ever qualify as an invalidating public use. The dis-
trict court properly ruled that the Ludys’ use of the plant
varieties at issue in this case was not public, even apart
from the fact that the Ludys obtained the plant material
in an unauthorized manner.
Accordingly, we affirm the district court’s decision re-
jecting the appellants’ challenge to the validity of the
Scarlet Royal and Autumn King patents.
AFFIRMED