Feds Come Marching In, Sriracha Farming & More | Cape Law Firm

Feds Come Marching In, Sriracha Farming & More | Cape Law Firm

Government’s I.P. March-In Rights Affirmed

A federal law known as the Bayh-Dole Act has allowed inventors, particularly universities and small businesses, to retain ownership or exclusive licenses to inventions developed with federal funding. However, the law provides the government with certain rights to such inventions, such as a non-exclusive, paid-up license to practice the invention or the right to “march-in” and license patents for the invention to third parties. This is to ensure that the public receives the benefit of taxpayer-funded innovations. Historically, the Government has not exercised these rights, however, the Government has begun examining whether to take a more active role in licensing federally supported innovations.

The Federal Circuit Court of Appeals recently upheld the U.S. Government’s rights in patented inventions that were developed with federal funding. The case involved a patent issued to the University of South Florida (USF) covering transgenic mice for Alzheimer’s disease research. USF sued the U.S. Government for patent infringement because the Jackson Laboratory was producing and using the mice covered by the patent with the Government’s authorization and consent. The Government’s defense to infringement was that it had a license to practice the patent under the Bayh-Dole Act, a federal law that gives the Government certain rights over federally-sponsored inventions, including “a nonexclusive, nontransferable, irrevocable, paid-up license.”

The Federal Circuit found that important development work on the invention was funded by a grant from the National Institutes of Health, therefore the Government had a license under Bayh-Dole to practice the patent. Much of the dispute focused on the timing of certain work on the invention and whether that work was performed at the time that grant funds were provided.

Many agricultural inventions, including plant varieties, are developed at Universities with government funding. Thus, private collaborators should be aware of the government’s potential I.P. rights when working with federally funded university programs and investigators.


Sriracha Farming – A Farming Success, at Least for a While

If you haven’t heard of Sriracha (the Huy Fong version called Sriracha Hot Chili Sauce) something is wrong because the stuff is everywhere and it’s one of those remarkable American success stories. David Tran, a Vietnamese refugee, developed his Sriracha hot sauce in Los Angeles in the 1980s and began selling it to local Chinese and Vietnamese restaurants. Over time the sauce gained a cult following and became a runaway success. In 2020, sales of Huy Fong’s sauce were estimated at $131 million.

Maybe less known is that Sriracha is also a farming story. As demand for Tran’s sauce grew, so did his need for fresh red jalapenos, the sauce’s core ingredient. Craig Underwood was a fourth-generation farmer in Ventura County, California, and he learned from a local seed supplier of Tran’s need for a pepper supplier. As the story goes, Underwood wrote to Tran, asking “Would you like to grow some peppers?” At the time, Underwood’s 400-acre farm produced vegetables such as carrots and salad greens, and Tran contracted 50 acres of peppers. Within a few years, Underwood became Tran’s exclusive pepper supplier and expanded his acreage to around 3,000 acres, becoming one of the nation’s largest pepper growers. Over 30 years Tran and Underwood worked together in harmony, each making millions of dollars with millions of peppers – all based on a handshake. If only the story ended there.
In late 2016, a meeting to discuss how much Tran would pay in advance for the 2017 pepper crop grew contentious, tempers flared, and the relationship came to an end. Underwood was stuck with thousands of acres which no longer had a buyer for the crops it would grow, and Tran was left without a steady, reliable pepper supplier. Lawsuits followed – Underwood was awarded $23 million in damages, while Tran was awarded $1.5 million for overpayment of a previous crop. In the aftermath, a Sriracha shortage ensued, causing prices for the sauce to skyrocket. Both Tran and Underwood are still in business today but refuse to work with one another.

While there’s no guarantee that a written contract would have kept the match-made-in-heaven relationship together, in all likelihood they would still be growing their pepper sauce empire. A well-written contract could have provided a mechanism for resolving disagreements and even prevented disputes in the first place. The lesson is an old one, but a good one – don’t leave the details to chance – put it in writing.
An interesting thread to this story is the proliferation of competitor sriracha hot sauces, especially after the breakup of Tran and Underwood. Sriracha cannot be trademarked because it is essentially the name of a geographical location – Si Racha, Thailand. And now the U.S. Patent and Trademark Office considers sriracha to be a generic term for a product type.

For the really curious, there is a short documentary on Huy Fong’s Siracha hot sauce, called Sriracha.

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