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Jersey Asparagus Farms, Inc v. Rutgers University

May 31, 2011


The opinion of the court was delivered by: Wolfson, United States District Judge:



This matter arises out of a now-terminated, exclusive license agreement through which Plaintiff Jersey Asparagus Farms, Inc. ("JAFI") was authorized by Defendant Rutgers University ("Rutgers") to sell the latter's patented varieties of asparagus. Presently before the Court is Plaintiff's motion to amend the Amended Complaint and to file its Proposed Second Amended Complaint ("SAC"). Also before the Court is Defendant's motion to dismiss the Amended Complaint for lack of statutory standing pursuant to Federal Rule of Civil Procedure 12(b)(1) or, in the alternative, for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

At oral argument, the parties agreed with the Court that, in the interest of judicial economy, the Court should focus its inquiry on the SAC in ruling on both parties' motions. For the reasons that follow, the Court grants Defendant's motion to dismiss with prejudice with respect to Plaintiff's federal and state RICO claims. Plaintiff's antitrust and Declaratory Judgment Act, 28 U.S.C. § 2201, et seq. ("DJA"), claims are dismissed without prejudice. The Court denies Plaintiff's motion to amend and file its Second Amended Complaint, yet grants Plaintiff leave to file a Third Amended Complaint in the manner described herein.


On both motions to dismiss for statutory standing (Rule 12(b)(1)) and motions to dismiss for failure to state a claim (Rule 12(b)(6)), I must accept as true the plaintiff's material allegations and construe them in the light most favorable to the plaintiff. Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 73-4 (3d Cir. 2011) (citing Alston v. Countrywide Fin. Corp., 585 F.3d 753, 758 (3d Cir. 2009)). Thus, the following facts are taken from Plaintiff's SAC.

A. Facts

While JAFI served as Rutgers' exclusive distributor for over twenty years, their relationship soured once JAFI allegedly discovered that some of the patents underlying the parties' license agreement had expired or were otherwise invalid. Generally, Plaintiff brings antitrust monopolization, RICO, and DJA claims against Rutgers for its actions in allegedly fraudulently obtaining the patents and entering into the exclusive license agreement premised on those patents, as well as for seeking return of plants provided to JAFI and the payment of royalties under the license agreement. As explained in more detail below, Plaintiff's Second Amended Complaint alleges that the exclusive license agreement authorized Plaintiff to cross-breed Rutgers patented asparagus parent plants, harvest all-male hybrid seed from those plants, and sell that seed to farmers with a license restriction prohibiting both Plaintiff and the purchasing farmers from asexually reproducing new hybrid plants by dividing the crowns of the plants grown from the purchased seed.

1. Asparagus Reproduction

As background for the ensuing discussion, I include a brief primer on asparagus reproduction. Asparagus may be reproduced sexually or asexually. Sexual reproduction is typically referred to as natural "propagation," and describes the process by which two parent plants are bred to produce seed. The seed produced is hybrid if the parent plants were from two different varieties.

Additionally, the crown (i.e., the root system of a one-year old asparagus plant) of an asparagus plant may be divided in such a manner as to produce new plants. This is referred to as asexual reproduction or crown division. The process of crown division effectively clones the plant, keeping intact its hybrid or non-hybrid nature.

2. Fraud on the PTO Allegations

According to the Proposed Second Amended Complaint, Rutgers began developing an all-male, hybrid asparagus seed in the late 1970's. PSAC, ¶ 20. Rutgers ultimately obtained patents for ten varieties of such all-male, hybrid asparagus ("Rutgers' varieties"). Id. These varieties are Greenwich, Jersey Giant, Jersey Knight, Jersey General, Jersey Titan, Jersey Gem, Jersey Jewel, NJ854, NJ953, and NJ977. Id. at 22. Rutgers, further, produced three additional varieties for which it has not obtained patents-Jersey King, Jersey Prince, and Jersey Supreme. Id. at ¶ 23. Plaintiff alleges that, despite not having obtained patents for these latter three varieties, Rutgers attempts to control the use and sale of these varieties through the patents for the varieties' parent plants. Moreover, Rutgers obtained patents over several parent plants from which the hybrid varieties were cross-bred. See id. at ¶¶ 22 -24. In Plaintiff's view, Rutgers fraudulently obtained almost all of its patents by asserting on its patent applications that each asparagus variety had not been described in a publication, and/or been in public use, or on sale, or both, in the United States for more than one year prior to the date upon which the respective applications were filed.*fn1 Id. at ¶¶ 9, 27.

Plaintiff specifically alleges that in each of the patent applications, the inventors (who worked for Rutgers) filed declarations stating . . . that we do not know and do not believe that this invention or discovery thereof was ever known or used before our invention or discovery thereof, or has been . . . described in any printed publication in the country before our invention or discovery thereof, or more than one year prior to this application, or in public use or on sale in the United States for more than one year prior to this application.

Id. at ¶ 7.*fn2 By way of example, Plaintiff describes the patent application for the Greenwich variety, which application was filed in 1983. Plaintiff alleges that this variety was in public use as early as 1978 at Oklahoma State University and Michigan State University, id. at ¶ 29, and that a Michigan-based research farm sold harvested Greenwich spears more than one year prior to the filing of the Greenwich patent application. Plaintiff alleges that similar examples of prior publication, use, or sale (collectively, "prior use") occurred in connection with the Jersey Giant, Jersey Knight, Jersey Titan, Jersey Gem, Jersey Jewel, Jersey Deluxe and NJ977, NJ44P, and NJ22-34 (the male parent plants for the Jersey Deluxe variety) applications. Id. at ¶¶ 30-42. Plaintiff alleges that the inventor misrepresentations are material because, without the declaration that no publication, use, or sale had occurred more than one year prior to the filing of the applications, no patent would have been issued and "the public would be free to use [Rutgers'] invention[s]." Id. at ¶ 28.

3. Antitrust Allegations

Plaintiff alleges that Rutgers used its fraudulently obtained patents to "dominate and control the nationwide market for asparagus crowns and seed that produce 'all-male plants' and to expand its domination over the entire market for asparagus crowns and seeds in the colder, wet climate market." Id. at ¶ 45. Specifically, Plaintiff alleges, Rutgers engages in anti-competitive activities by establishing an exclusive licensing program that, in conjunction with Rutgers' patents, prevents JAFI and other competitors from "selling asparagus crowns and seeds that produce 'all-male' plants ...." Id. at ¶ 46. By virtue of this licensing program, farmers may purchase Rutgers' patented varieties only through selected licensees. The farmers are, further, prevented from asexually reproducing new plants through crown-division. Id.

Plaintiff categorizes Rutgers' anticompetitive conduct or scheme into what it contends are four distinct steps:

(1) Rutgers uses fraudulently obtained patents to limit asexual reproduction of its patented all-male hybrid varieties.

(2) Rutgers exclusively licenses the right to grow the seed and sell the seed to a distributor.

(3) As a result of the licensing program, the only source of the seed is the through the distributor.

(4) "Because Rutgers controls asexual reproduction of the fraudulently patented plant, it's [sic] exclusive licensing of seed production also effectively controls the market for asparagus crowns: the only way that either a distributor or a farmer can acquire asparagus crowns in the fraudulently patented plant is to either buy seed and grow the crowns or buy the crowns from an intermediary who has grown the crowns - from seed acquired from the exclusive distributor. Thus, it is impossible (without the threat of patent infringement claims) for anyone to grow the fraudulently patented asparagus variety unless the plants ultimately passed through the exclusive seed distributor."

Id. at ¶ 47.

For the unpatented hybrid varieties, JAFI alleges that Rutgers utilized similar tactics by claiming that it owned and controlled all right, title and interest in the varieties' parent plants. See id. at ¶ 55. Furthermore, through the exclusive licencing practice, JAFI alleges that Rutgers created, and maintains, a monopoly with respect to the sale of these varieties. In addition, JAFI alleges that Rutgers continued to behave as if had active patents on the parent plants even after those patents expired. Id.

Thus, other than by purchasing seeds, the only means by which a new crop may be had from the Rutgers' varieties is if a farmer practices crown division. Id. at ¶¶ 58-65. Through crown-division, 2 to 5 new plants may yield from the original crown. However, because Rutgers prohibits farmers from practicing crown-division, farmers who wish to use Rutgers' varieties must repurchase those varieties every year. The prohibition against crown-division, in Plaintiff's view, decreases competition by increasing farmers' costs. Id. at ¶ 65 ("As a result of [Rutgers'] unfair competitive advantage, Rutgers is able to artificially increase the cost of crowns.").*fn3

In terms of antitrust injury, JAFI alleges that it has sustained injury to itself and, further, that others sustained injury as a result of Rutgers' anticompetitive conduct as well. With regard to those injuries it sustained, JAFI alleges the following types of injuries:

a. paying licensing and royalty fees that it would not otherwise have paid;

b. incurring higher expenses (and thus making less profit) because it was not permitted to asexually reproduce and sell "all-male" hybrid plants and was instead only allowed to sell seed or crowns grown from seed;

c. lost sales because the costs illegally imposed by Rutgers resulted in higher pricing of the seed and crowns sold by JAFI and the resulting economic factors caused potential purchasers to not buy the seed or crowns.

Id. at ¶ 126.

In JAFI's view, but for the fraudulently-obtained patents, Rutgers could not have legally retained control over the market beyond the first generation of planted hybrid seed because JAFI, farmers and/or distributors could then bypass Rutgers and asexually reproduce the plants. This in turn would have forced market prices for seed down, as Rutgers would have had to reduce the royalty it charged for seed sales in order to allow the price of seed to compete with the price of asexually reproduced crowns.

Id. at ¶ 84. Moreover, JAFI alleges that "[h]ad Rutgers not prevented JAFI from doing so, JAFI could have, and would have, asexually reproduced the male hybrid asparagus plants and thus competed directly with Rutgers (and without the need to pay Rutgers any royalties or licensing fees)." Id. at ¶ 83. JAFI alleges that it cannot currently sell plants in its possession to end-using farmers for crown division because such farmers are fearful that Rutgers will sue them under the fraudulently obtained and expired patents. Id. at ¶¶ 90-91.

With regard to injuries sustained by others, JAFI alleges that: (1) farmers paid higher prices for asparagus seed and crown and that they were forced to re-purchase seed each year because they were not permitted to practice crown-division; (2) the public paid higher prices for asparagus; and (3) companies that sell seed and crowns incurred higher costs to produce the crowns by being forced to purchase seeds solely through Rutgers' exclusive licensee, here, JAFI.

4. The License Agreement

The licensing agreement required that JAFI pay an up-front licensing fee of $250,000, and agree to pay Rutgers royalty fees ranging from 25% to 50% of JAFI's gross sales of the Rutgers' varieties hybrid seeds. Id. at ¶ 67. The licensing agreement permitted JAFI to sexually reproduce the Rutgers' varieties through male and female parent plants in order to make the hybrid seeds to be sold.*fn4 Id.

As with the restrictions placed on end-using farmers, the license agreement prohibited JAFI from asexually reproducing through cross-division of the crowns. Id. at ¶ 68. It is important to note that the license agreement specifically references the Rutgers plant variety patents. For example, the Jersey Giant hybrid asparagus agreement states that Rutgers "owns and controls all right, title and interest in and to [sic] two asexually reproduced asparagus parent plants registered under the designations Donna and Scott Howard," Buckingham Decl., Exh. B ("License Agmt.") at 1, and that these licensed plants are the Donna and Scott Howard "claimed by United States Plant Patents PP 5,652 and PP 5,549, respectively ...." Id. at Art. I, b.*fn5 Moreover, the agreement states that "[t]he term Jersey Giant as used in this Agreement shall mean the F-1 hybrid seed produced by crossing the Licensed Plant Materials, Donna and Scott Howard, as identified in U.S. Plant Patent PP 5,551." Id. at Art. I, d. The license agreement grants JAFI "an exclusive license to use said parent plants in combination to produce Jersey Giant hybrid seed, and an exclusive license to use and sell said seed." Id. at Art., Ia. It imposes upon JAFI an obligation to "print in all catalogues, price lists and other advertising" a notice stating "This variety is protected by U.S. Plant Patent No. PP 5,551, and is produced and sold by Jersey Asparagus Farms under license. Asexual reproduction is prohibited by law," and requires that JAFI imprint a similar marking on all packages of seed sold. Id at Art. XVII, a-b. In terms of expiration date, the agreement provides that it "shall continue in full force and effect . . . to the end of the last expiring patents identified by this Agreement ...." Id. at Art.


By transferring the parent plants to JAFI, the agreement also provides that a bailment is created. Id. at Art. Ie. In the words of the agreement, [t]he transfer of [the plants and their asexually reproduced progeny and derivatives] to Jersey Asparagus Farms, Inc. by Rutgers . . . is to be considered a bailment for purposes of this Agreement and not as a conditional or unconditional sale, and any and all such materials in [JAFI's] possession at any time shall be considered to be possessed by [JAFI] by way of a bailment.

Id. This bailment clause does not reference the hybrid seed propagated from the parent plants; rather, it references only the parent plants themselves. The agreement, further, provides that, upon cancellation by either party, all plants and hybrid seed must be returned to Rutgers, transferred to another exclusive licensee, or destroyed. Id. at Art. IX.

5. Post-patent Expiration Royalty Payments

After JAFI and Rutgers maintained their license relationship for some time, JAFI became aware that some of the Rutgers patents and the parties' license agreements had expired. Id. at ¶ 92. Once JAFI became aware of the expirations, JAFI ceased paying Rutgers royalties on the sale of the Rutgers' varieties seeds. Id. at ¶ 93. Rutgers then demanded that JAFI either destroy or return all the Rutgers' varieties plants "as though the patents were still in effect." Id. In addition, Plaintiff alleges, Rutgers demanded royalty payments for the Jersey Supreme ...

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