The National Licensing Association has not been actively enforcing patents in the United States while awaiting the outcome of its last remaining lawsuit.
MONY Life Insurance Company of New York, which the NLA unsuccessfully sued for patent and trademark infringement, has been seeking to recover the money it spent on attorney’s fees to defend itself against the NLA’s claims.
The judge has already ruled that MONY did not infringe either patents or trademarks when the company foreclosed on a Washington State orchard in 2001 and offered the orchard for sale. The NLA alleged that Scarlet Spur Red Delicious and Smoothee Golden Delicious trees in the orchard had been illegally propagated. It is an infringement of patent laws to use, offer for sale, or sell trees that have been illegally propagated.
The case was considered a test of lender liability, and initially created concern among lenders about their potential liability when making loans to orchardists.
The NLA (originally the Nursery Licensing Association) was formed in 2002 by Pat Ballew of Yakima and Rex Stratton of Seattle, who are partners in the law firm Stratton Ballew. Their goal was to help nurseries and variety patent owners recover revenue they had lost because of pirated trees. Most of the nurseries in the United States assigned their patent enforcement rights over to the NLA in return for a percentage of recovered revenue.
The NLA’s "infringement policy" offered growers the option of voluntarily licensing their illegal trees for a "confession rate" of $3 a tree. The rate increased to $4 a tree if the NLA had to notify growers that it suspected they had infringing trees. If the case went to court, the NLA sought treble damages, destruction of the trees, and attorney’s fees.
Ballew at the time estimated that 30 percent of all the trees planted in Washington State had been illegally propagated. Though concerned, nurseries had sometimes been reluctant to take legal action themselves against growers. Ballew said the NLA provided nurseries with a means of deterring illegal propagation without being directly involved in legal actions.
The NLA reported over the next couple of years that several companies agreed to license illegal trees with the NLA, but numerous cases went to court, and several defendants agreed to settle. The NLA filed about 18 lawsuits in the U.S. District Court of Washington between 2002 and 2004. Those named in the suits included prominent fruit growers, packers, marketers, and real estate and finance companies, including Zirkle Fruit Company and Washington Apple Commission President Dave Carlson.
Also named in a suit filed against MONY in 2002 were the Texas Municipal Plans Consortium of Delaware; Farmland Management Services of California, which managed the orchard that MONY repossessed; the former orchard owner A/B Hops; and the Brulotte family.
Texas Municipal and Farmland Management Services settled the suit by agreeing to pay $35,000 each, but MONY chose not to settle, and filed counterclaims against the NLA.
No legal standing
In 2004, Judge Suko dismissed all the pending lawsuits filed by the NLA on the grounds that the NLA did not have the legal standing to sue anyone for patent or trademark infringement. He ruled that enforcement rights could not be transferred to another person independently of other substantial plant patent and trademark rights. The judge did not award attorney’s fees because the cases were dismissed, and there had been no ruling on the merits of the NLA’s claims.
The NLA then refiled some of the dismissed suits as test cases, naming the nurseries as plaintiffs. The MONY case was refiled with Van Well Nursery and Hilltop Nursery as plaintiffs.
In the MONY case, the nurseries’ argument was that finance agreements give the lenders virtual ownership of the property, unless the debt is repaid. Therefore, MONY should be liable for the use of the illegal trees and infringement of the patent. But Judge Suko did not agree. He noted that lenders offered "deep-pocket appeal" to the patent holder and holding a lending institution liable for infringement under such circumstances could create uncertainty in the agricultural lending industry and perhaps threaten its existence. The judge noted that the Scarlet Spur patent had expired before MONY took possession of the property and also ruled that Scarlet Spur and Smoothee had become generic variety names over the years and therefore could not operate as trademarks. He ordered that the Scarlet Spur trademark be cancelled.
"It’s a significant case," commented Paul Swanson, a Seattle attorney who is representing MONY. "They were trying to suggest it was a significant test case, and they lost."
Both of the nurseries involved—Van Well Nursery and Hilltop Nursery—settled the counterclaims by paying $75,000 each.
MONY asked for attorney’s fees to be awarded against the NLA under the exceptional case statutes of patent and trademark law. "That’s to recover money that was expended for having to be the unwilling defendant in a test case," Swanson said.
Three years ago, MONY reported having spent $100,000 on legal fees. Swanson said the total is much greater now, but declined to give a figure.
Attorney’s fees can be awarded in exceptional cases to prevailing parties. Last month, Judge Suko ruled that MONY did prevail against the nurseries, who were named as plaintiffs, but not against the NLA because it was not a named party in the suit, even though it was "pulling the strings" and "working behind the scenes."
Judge Suko, in his opinion, wrote that MONY will be a prevailing party vis-à-vis the NLA only if MONY prevails in its third-party claims against the NLA, which are still pending. MONY has argued that NLA’s conduct in suing a financial institution was an improper use of U.S. patents and trademarks and constituted unfair business practices.
The judge denied MONY’s request for summary judgment on that issue and has scheduled a conference by phone with the attorneys for April 15 to discuss whether the case will go to trial and, if so, set a date. Swanson was out of the country and unavailable for comment at Good Fruit Grower press time.
Stratton said the NLA offered to walk away from its claims against MONY a couple of years ago, but MONY has continued to push the case with the goal of receiving attorney’s fees.
Stratton said he does not believe the MONY case totally resolved the issue of lender liability, partly because there were some unique circumstances. For example, the Scarlet Spur patent had expired before MONY foreclosed on the property.
"Some of the issues, we’re not going to push," he said. "The original concept was to test whether or not a bank, by taking a mortgage on a property with infringing trees, was an infringer, and the judge said, "No. I’m not going to go that far."
However, the NLA will not back away from some of the issues it thinks the judge was wrong on, Stratton said. It would still consider a bank to be an infringer if it forecloses on property that has infringing trees, has ownership, and subsequently sells that property, he said.