Addressing whether the United States Department of Agriculture (USDA) was a necessary party to a declaratory judgment action involving its patents and whether the Administrative Procedure Act (APA) waived sovereign immunity, the U.S. Court of Appeals for the Federal Circuit held that the USDA was a necessary party and that it could not shield itself from liability because the APA waives sovereign immunity for declaratory judgment actions.  Delano Farms Co. v. The California Table Grape Comm’n and US Dep’t of Agriculture (USDA), Case No. 2010-1546 (Fed. Cir. Aug. 24, 2011) (Bryson  J.).

The cased involved three patents owned by the USDA that were issued under the Plant Variety Protection Act.  The patents were directed to grapevines that produce table grapes.  The USDA licensed its rights to the patents to the California Table Grape Commission (the Commission).  Under the license, the Commission can sublicense the patents under certain conditions.

The plaintiffs, California grape growers who purchased grapevines from the Commission under a sublicense agreement, sought a declaratory judgment that the patents were invalid and unenforceable.  The district court dismissed the declaratory judgment action, finding that because the USDA had not transferred all its rights in the patents to the Commission it was a necessary party to the suit.  The district court further held that the USDA could not be joined because the claims were barred by sovereign immunity.

On appeal, the Federal Circuit first reviewed whether the USDA had retained rights in the patent and was a necessary party.  The Federal Circuit stated that a patentee is a necessary party to a declaratory judgment suit unless it has transferred all substantial rights in the patent to an exclusive licensee.  Reviewing the license agreement, the Court found that the license did not give the Commission the right to enforce the patents against suspected infringers, that the USDA retained a royalty-free right to practice the invention and that the USDA had the right to review any sublicense agreements.  Thus, the Federal Circuit agreed with the district court that the USDA had not transferred all substantial rights in the patents to the Commission and that the USDA was a necessary party.

The Federal Circuit then reviewed whether the APA waived sovereign immunity.  The plaintiffs argued that section 10(a) of the APA, 5 U.S.C. §702 waived sovereign immunity for a declaratory judgment action.  The Commission responded that waiver under section 702 was limited to causes of action created by the APA.  The Federal Circuit rejected the Commission’s argument and explained that the legislative history showed the waiver was broader and extended to actions seeking relief other than money damages.  The Federal Circuit stated that, while “the immunity waiver cannot serve as a ‘backdoor’ to use the APA to obtain what would amount to concurrent district court jurisdiction over a monetary claim that could be brought in the Court of Federal claims,” sovereign immunity did not apply to actions in which monetary damages were not being sought.  The Federal Circuit reasoned that because the plaintiffs were seeking a declaration of patent invalidity and unenforceability, not monetary damages, sovereign immunity was waived by §702.  The Federal Circuit found that the USDA could be joined to the suit and remanded the case to the district court.