United States Court of Appeals for the Federal Circuit
06-1032
INTEL CORPORATION and DELL, INC.,
Plaintiffs-Appellees,
v.
COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION,
Defendant-Appellant.
_________________________
06-1040
MICROSOFT CORPORATION, HEWLETT-PACKARD COMPANY,
and NETGEAR, INC.,
Plaintiffs-Appellees,
v.
COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION,
Defendant-Appellant.
Jeffrey G. Randall, Skadden, Arps, Slate, Meagher & Flom LLP, of Palo Alto,
California, argued for plaintiffs-appellees in appeal 06-1032. Of counsel on the brief for Intel
Corporation was Allan M. Soobert, of Washington, DC. Of counsel on the brief for Dell, Inc.
was Stephen E. Taylor, Taylor & Company Law Offices, Inc., of San Francisco, California.
Barry K. Shelton, Fish & Richardson, P.C., of Austin, Texas, argued for plaintiffs-
appellees in appeal 06-1040. Of counsel on the brief for Microsoft Corporation were John E.
Gartman and Joseph P. Reid, of San Diego, California. Of counsel on the brief for Hewlett-
Packard Company was Gregory G. Lavorgna, Drinker Biddle & Reath LLP, of Philadelphia,
Pennsylvania. Of counsel on the brief for Netgear, Inc. were James A. DiBoise, Jennifer A.
Ochs, and Christopher R. Parry, Wilson Sonsini Goodrich & Rosati, of Palo Alto, California.
Of counsel for Netgear, Inc. was Ryan R. Smith.
2
James M. Wagstaffe, Kerr & Wagstaffe, LLP, of San Francisco, California, argued for
defendant-appellant in appeals 06-1032 and 06-1040. Of counsel on the brief were Daniel J.
Furniss and Gary H. Ritchey, Townsend and Townsend and Crew LLP, of Palo Alto,
California; and Nancy L. Tompkins, of San Francisco, California.
Appealed from: United States District Court for the Northern District of California
Judge Martin J. Jenkins
United States Court of Appeals for the Federal Circuit
06-1032
INTEL CORPORATION and DELL INC.,
Plaintiffs-Appellees,
v.
COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION,
Defendant-Appellant.
__________________________
06-1040
MICROSOFT CORPORATION, HEWLETT-PACKARD COMPANY,
and NETGEAR, INC.,
Plaintiffs-Appellees,
v.
COMMONWEALTH SCIENTIFIC AND INDUSTRIAL RESEARCH ORGANISATION,
Defendant-Appellant.
__________________________
DECIDED: July 14, 2006
__________________________
Before MICHEL, Chief Judge, PLAGER, Senior Circuit Judge, and BRYSON, Circuit
Judge.
MICHEL, Chief Judge.
In these interlocutory appeals, Commonwealth Scientific and Industrial Research
Organisation ("CSIRO") appeals from orders of the United States District Court for the
Northern District of California in related cases, denying its motions to dismiss both suits
for lack of subject-matter jurisdiction. Intel Corp. v. Commonwealth Sci. and Indus.
Research Org., No. C-05-1886, slip op. (N.D. Cal. Sept. 13, 2005) ("Intel"); Microsoft
Corp. v. Commonwealth Sci. and Indus. Research Org., No. C-05-1894, 2005 WL
2233861 (N.D. Cal. Sept. 13, 2005) ("Microsoft"). Since we agree that CSIRO is not
entitled to claim immunity under the Foreign Sovereign Immunities Act ("FSIA"), 28
U.S.C. §§ 1602-1611, because the "commercial activity" exception applies, we affirm
the district court's orders in this respect. The appeal is otherwise dismissed insofar as it
raises issues not appropriate for interlocutory review.
I. BACKGROUND
Defendant-appellant CSIRO, Australia's national science agency, is the assignee
of United States Patent No. 5,487,069, directed to wireless local area networks. CSIRO
asserts that the patent covers the Institute of Electrical and Electronics Engineers
("IEEE") standards 802.11a and 802.11g, i.e., the preferred specifications for high
speed data transfer.1 Following CSIRO's attempts to license the '069 patent to various
American companies, these declaratory-judgment actions were filed by Intel Corp.
("Intel"), Dell Inc. ("Dell"), Microsoft Corp. ("Microsoft"), Hewlett-Packard Co. ("HP") and
Netgear, Inc. ("Netgear").
1
CSIRO's letters initiating licensing negotiations explain that, pursuant to
IEEE's request, it had agreed to grant licenses to the '069 patent on a reasonable,
nondiscriminatory basis.
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A. Intel and Dell
In January 2004, CSIRO initiated licensing negotiations with Dell. Dell
manufactures and sells products that incorporate wireless networking components
purchased from various suppliers, including Intel. Although Dell repeatedly suggested
that CSIRO contact its suppliers instead, CSIRO never contacted Intel directly. In June
2004, counsel for CSIRO sent Dell proposed licensing terms, emphasizing that its offer
was "available for only a limited time." Under its proposed arrangement, a licensee was
rewarded with a 50% discount in the base royalty rate if a license was taken within 90
days; after that, the discount was gradually reduced to 37.5% (<120 days), 25% (<150
days), 12.5% (<180 days) and 0% (>180 days). CSIRO later explained that after 187
days, the offer would close and it would then consider litigation "to block firms that do
not take voluntary licenses."2 Around this time, Dell requested that Intel indemnify it
against CSIRO's claims of patent infringement and Intel agreed to do so. (Intel has also
agreed to indemnify HP.)
On September 28, 2004, CSIRO formally offered Dell a license, noting that "this
offer is only open for acceptance for a period of 187 days, after which time the licenses
under this Voluntary Licensing Program will not be available." It included another copy
of the proposed licensing terms and a draft license agreement. On December 20, 2004,
CSIRO agreed to a 30-day extension of all the dates in its offer letter. The voluntary
license offer thus expired on May 8, 2005.
2
Indeed, on February 2, 2005, CSIRO initiated a patent infringement suit
against Buffalo Technology (USA), Inc. and Buffalo, Inc. (collectively "Buffalo"), in the
United States District Court for the Eastern District of Texas. After the instant suits were
filed, both sets of plaintiffs asked the Judicial Panel on Multidistrict Litigation to transfer
and consolidate their cases with the action against Buffalo, but their motions were
denied on October 18, 2005.
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On May 9, 2005, Intel and Dell filed a complaint in the United States District
Court for the Northern District of California, seeking a declaratory judgment of
non-infringement and invalidity with respect to the '069 patent. The case was assigned
to Judge Martin J. Jenkins. On May 31, 2005, CSIRO moved to dismiss the complaint
on the grounds of insufficiency of process and defective service pursuant to FRCP
12(b)(4) and 12(b)(5), but the motion was denied. Intel Corp. v. Commonwealth Sci.
and Indus. Research Org., No. C-05-1886, 2005 WL1656903 (N.D. Cal. July 8, 2005).
On August 1, 2005, CSIRO moved to dismiss for lack of subject-matter
jurisdiction. On September 13, 2005, this motion was denied as well. The district court
first evaluated whether there was an actual case or controversy as required by the
Declaratory Judgment Act ("DJA"), 28 U.S.C. §§ 2201-2202. Despite CSIRO's
insistence that licensing negotiations were still ongoing, it found that the license offer
had expired and that it was objectively reasonable for Dell to be apprehensive that
litigation would be the next step, especially since CSIRO had already filed one patent
infringement lawsuit. Because the parties agreed that Dell produced an allegedly
infringing device, the court concluded that there was sufficient case or controversy for
purposes of establishing subject-matter jurisdiction under the DJA. As to Intel, it also
had a reasonable apprehension of being subjected to a lawsuit for patent infringement
due to its indemnification agreement with Dell. Intel, slip op. at 9-12.
The district court then went on to consider whether CSIRO was immune from suit
under the FSIA or whether the commercial activity exception set forth in 28 U.S.C.
§ 1605(a)(2) applied. With respect to Dell, it observed that "[t]he parties appear to
agree that CSIRO's interaction with Dell constituted commercial activity under the
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FSIA."3 Id. at 13. As to Intel, it noted that "[t]he parties have not cited, and the Court
has not found, a case directly on point." Id. The court denied the motion to dismiss,
reasoning that "CSIRO indirectly engaged in commercial activity with Intel" because its
licensing negotiations with Dell "necessarily implicated Intel." Id.
CSIRO filed a timely notice of appeal. Intel responded by filing a motion for an
order certifying the appeal as waived or otherwise frivolous, which was denied. The
district court again emphasized that it was unaware of any cases "expressly holding that
initiation and involvement in licensing negotiations over a U.S. patent constitutes
commercial activity sufficient to vitiate sovereign immunity under the FSIA," although it
was "difficult to conceive of how CSIRO's conduct could be characterized as anything
other than commercial." Intel Corp. v. Commonwealth Sci. and Indus. Research Org.,
No. C-05-1886, slip op. at 5 (N.D. Cal. Nov. 11, 2005). Yet, while the court was not
persuaded by CSIRO's argument, it declined to find the appeal frivolous.
B. Microsoft, HP and Netgear
On April 11, 2003, CSIRO initiated licensing negotiations with HP. During a
meeting on January 13, 2004, CSIRO explained its two-phase licensing program,
wherein it would first make a formal licensing offer with royalty discounts that decreased
over time, then pursue litigation against parties that failed to take a voluntary license.
On May 10, 2004, counsel for CSIRO allegedly threatened HP's in-house counsel with a
lawsuit if HP did not take a license. On June 21, 2004, CSIRO extended its formal offer,
enclosing its proposed terms and a draft agreement. On October 13, 2004, CSIRO
3
In its motion to dismiss, CSIRO only argued that it was immune to a suit
filed by Intel, while recognizing that "[i]n contrast, as CSIRO and Dell have engaged in
license negotiations, the [commercial activity] exception arguably applies." See Intel,
slip op. at 12, n.4.
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offered HP a temporary covenant not to sue (while it asserted the '069 patent against
others) for $2.5 million, but HP did not accept. On December 20, 2004, as the 187-day
offer period was nearing an end, CSIRO wrote HP, reiterating that it "may decide to take
further action against companies which have not availed themselves of the opportunity
to have a voluntary license." Although it was "not threatening to bring any action
against HP at this time," CSIRO stressed that once the offer expired, a voluntary license
"may not necessarily be available thereafter at any price." A few days later, the offer
expired.
On April 14, 2003, CSIRO initiated licensing negotiations with Netgear. CSIRO
extended its formal licensing offer on August 10, 2004, enclosing its proposed licensing
terms and a draft agreement. In the months that followed, Netgear made a few
counterproposals, but the parties did not reach an agreement. The voluntary license
period ended in February 2005.
On September 29, 2003, CSIRO also contacted Microsoft regarding a potential
license for the '069 patent. A formal offer, including a copy of proposed licensing terms
and a draft license agreement, was extended on September 20, 2004. The offer
expired in March 2005.
Microsoft, HP and Netgear4 filed a complaint in the United States District Court
for the Northern District of California on May 9, 2005, (the same day Intel and Dell filed
their complaint), seeking a declaratory judgment of non-infringement, patent invalidity,
patent misuse, equitable estoppel and laches. On May 31, 2005, CSIRO moved to
dismiss the complaint on the grounds of insufficiency of process and defective service
4
Although Apple Computer, Inc. was originally a party as well, it voluntarily
dismissed its claims without prejudice on June 6, 2005.
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pursuant to FRCP 12(b)(4) and 12(b)(5). On June 24, 2005, this case was related to
the Intel case and reassigned to Judge Jenkins. On July 1, 2005, the parties resolved
the pending motion via stipulation.
On August 8, 2005, CSIRO filed a motion to dismiss for lack of subject-matter
jurisdiction, but it was denied on September 13, 2005, for essentially the same reasons
described above. With respect to the question of foreign sovereign immunity, the
district court found that CSIRO's attempts to secure patent licenses in order to generate
royalty income was "not an activity peculiar to a sovereign state, but [wa]s, instead, a
commercial activity that a private entity would engage in." Microsoft, at *7. CSIRO filed
a timely notice of appeal. Plaintiffs responded by filing a motion for an order certifying
the appeal as waived or otherwise frivolous, which was denied on November 11, 2005.
We have jurisdiction over these interlocutory appeals pursuant to 28 U.S.C.
§ 1292(c)(1).
II. DISCUSSION
Pursuant to the FSIA, "a foreign state is presumptively immune from the
jurisdiction of United States courts; unless a specified exception applies, a federal court
lacks subject-matter jurisdiction over a claim against a foreign state." Saudi Arabia v.
Nelson, 507 U.S. 349, 355 (1993). Determining whether subject-matter jurisdiction
exists therefore "entails an application of the substantive terms of the [FSIA] to
determine whether one of the specified exceptions to immunity applies." Verlinden B.V.
v. Central Bank of Nig., 461 U.S. 480, 498 (1983). On procedural issues, we apply the
standard of review of the regional circuit "unless the issue pertains to or is unique to
patent law." Sulzer Textil A.G. v. Picanol N. V., 358 F.3d 1356, 1363 (Fed. Cir. 2004)
06-1032 7
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(internal citation omitted). The Ninth Circuit considers "the existence of sovereign
immunity and subject matter jurisdiction under the [FSIA]" questions of law that are
reviewed de novo. Park v. Shin, 313 F.3d 1138, 1141 (9th Cir. 2002). Even if these
appeals raised issues unique to patent law, this court also reviews questions of
statutory interpretation without deference. Union Carbide Chems. & Plastics Tech.
Corp. v. Shell Oil Co., 425 F.3d 1366, 1373 (Fed. Cir. 2005).
Under the "collateral order" doctrine, the denial of a claim of immunity is typically
appealable immediately. Mitchell v. Forsyth, 472 U.S. 511, 525 (1985). In contrast, the
denial of a motion to dismiss for lack of subject-matter jurisdiction on other grounds is
generally not subject to interlocutory review. Catlin v. United States, 324 U.S. 229, 236
(1945) ("[D]enial of a motion to dismiss, even when the motion is based upon
jurisdictional grounds, is not immediately reviewable."). This court, however, has the
power to exercise pendent appellate jurisdiction over other issues, particularly where
they are "inextricably intertwined with" or "necessary to ensure meaningful review of" a
properly appealed collateral order. Swint v. Chambers County Comm'n, 514 U.S. 35,
51 (1995).
These appeals revolve around the interpretation of 28 U.S.C. § 1605(a)(2), which
provides:
[a] foreign state shall not be immune from the jurisdiction of courts of the
United States or of the States in any case . . . in which the action is based
upon a commercial activity carried on in the United States by the foreign
state; or upon an act performed in the United States in connection with a
commercial activity of the foreign state elsewhere; or upon an act outside
the territory of the United States in connection with a commercial activity
of the foreign state elsewhere and that act causes a direct effect in the
United States.
This is an issue of first impression for this court.
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CSIRO argues that patent licensing negotiations that do not result in a
fully-executed, binding contract do not qualify as "commercial activity." It concedes that
if its negotiations with potential licensees had been successful, (i.e., if the proffered
license agreement had been signed), it would not be entitled to claim immunity under
the FSIA because the commercial activity exception would apply. In the alternative,
CSIRO argues that the declaratory-judgment suits are not "based upon" the alleged
commercial activity. We reject both arguments.
"Commercial activity" is statutorily defined to mean "either a regular course of
commercial conduct or a particular commercial transaction or act." 28 U.S.C. § 1603(d).
The FSIA further indicates that "[t]he commercial character of an activity shall be
determined by reference to the nature of the course of conduct or particular transaction
or act, rather than by reference to its purpose." Id. Yet, as noted by the Supreme
Court, this is not particularly instructive.
This definition, however, leaves the critical term "commercial" largely
undefined: The first sentence merely establishes that the commercial
nature of an activity does not depend upon whether it is a single act or a
regular course of conduct; and the second sentence merely specifies what
element of the conduct determines commerciality (i.e., nature rather than
purpose), but still without saying what "commercial" means.
Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 612 (1992).
The legislative history indicates that the FSIA was meant to "codify the so called
'restrictive' principle of sovereign immunity, . . . [wherein] the immunity of a foreign state
is 'restricted' to suits involving a foreign state's public acts (jure imperii) and does not
extend to suits based on its commercial or private acts (jure gestionis)." H.R. Rep.
No. 94-1487, at 7 (1976), as reprinted in 1976 U.S.C.C.A.N. 6604, 6605. Consequently,
"commercial activity" was broadly defined.
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Certainly, if an activity is customarily carried on for profit, its commercial
nature could readily be assumed. At the other end of the spectrum, a
single contract, if of the same character as a contract which might be
made by a private person, could constitute a "particular transaction or act."
Id. at 16 & 6615. But, Congress did not set forth an exhaustive list of activities which
might constitute "commercial activity." Indeed, the drafters expressly contemplated that
"[t]he courts would have a great deal of latitude in determining what is a 'commercial
activity' for purposes of this bill." Id.
Considering the meaning of "commercial activity" in the context of the restrictive
theory of sovereign immunity and the public/private dichotomy it creates, the Supreme
Court has held that the exception to immunity set forth in § 1605(a)(2) applies where the
foreign state "'do[es] not exercise powers peculiar to sovereigns;' rather, it 'exercise[s]
only those powers that can also be exercised by private citizens.'" Weltover, 504 U.S.
at 614 (internal citation omitted). CSIRO's acts of (1) obtaining a United States patent
and then (2) enforcing its patent so it could reap the profits thereof—whether by
threatening litigation or by proffering licenses to putative infringers—certainly fall within
the latter category. Indeed, we have expressly recognized, in another context, that "a
patentee's attempt to conduct license negotiations is a commercial activity." Phillips
Plastics Corp. v. Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1054 (Fed Cir. 1995).
Nor are we persuaded that a contract must be fully consummated in order to
qualify as commercial activity. Section 1603(d) refers to "a particular commercial
transaction or act," which suggests that this definition necessarily includes more than
just completed transactions. While CSIRO argues that the legislative history sets the
lower boundary of the spectrum at a single contract, we interpret that sentence as
merely providing one example of "a particular commercial transaction or act."
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As to the question of whether the instant lawsuits are "based on" CSIRO's
commercial activities, neither the FSIA nor its legislative history explicitly define this
phrase. The Supreme Court has held that, in the context of § 1605(a)(2), "based on"
means that the commercial activity by the foreign state forms "those elements of a claim
that, if proven, would entitle a plaintiff to relief under his theory of the case." Saudi
Arabia, 507 U.S. at 357. Although the Court recognized that it is not "necessarily
require[d] that each and every element of a claim be commercial activity by a foreign
state," id. at 358 n.4, this interpretation "calls for something more than a mere
connection with, or relation to" the commercial acts. Id. at 358 (finding that the plaintiff's
employment contract, while commercial in nature, did not form the basis for his personal
injury claims resulting from unlawful detention and torture by the Saudi government
because it was too far removed from the tortious acts).
Here, we are persuaded that these declaratory-judgment actions are "based on"
CSIRO's commercial acts of obtaining and asserting a United States patent. In order to
prevail, the plaintiffs-appellees must prove that CSIRO attempted to enforce its patent
against them. Moreover, to the extent that CSIRO made certain representations as to
the scope and validity of the '069 patent when it proffered licenses to them, these are
central to their claims of non-infringement, invalidity and patent misuse.
* * *
CSIRO further argues that the district court erred in finding that the plaintiffs had
a reasonable apprehension of imminent suit such that there was an actual controversy
within the meaning of the DJA. Because the orders denying CSIRO's motions to
dismiss are otherwise not properly reviewable on interlocutory appeal and do not raise
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questions that are inextricably intertwined with our interpretation of the FSIA, we decline
to reach this issue. Regardless, the exercise of pendent jurisdiction is discretionary
and, in our judgment, it should not be exercised here, even if the issues were
inextricably intertwined.
III. CONCLUSION
For the aforementioned reasons, we affirm the district court's conclusion that
CSIRO is not entitled to claim immunity under the FSIA. Because we decline to
exercise pendent appellate jurisdiction over the question of subject-matter jurisdiction
under the DJA, that portion of CSIRO's appeal is dismissed.
AFFIRMED-IN-PART and DISMISSED-IN-PART.
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