United States Court of Appeals
for the Federal Circuit
__________________________
POWERTECH TECHNOLOGY INC.,
Plaintiff-Appellant,
v.
TESSERA, INC.,
Defendant-Appellee.
__________________________
2010-1489
__________________________
Appeal from the United States District Court for the
Northern District of California in case no. 10-CV-0945,
Judge Claudia Wilken.
___________________________
Decided: September 30, 2011
___________________________
MATTHEW B. LOWRIE, Foley & Lardner, LLP, of Bos-
ton, Massachusetts, argued for plaintiff-appellant. With
him on the brief were KENNETH K. KROSIN and GEORGE C.
BECK, of Washington, DC; GEORGE C. BEST and GINA A.
BIBBY, of Palo Alto, California; and MICHAEL R. HOUSTON,
of Chicago, Illinois.
JOSEPH M. LIPNER, Irell & Manella, LLP, of Los Ange-
les, California, argued for the defendant-appellee. With
him on the brief were MORGAN CHU, JONATHAN H.
POWERTECH v. TESSERA 2
STEINBERG, KENNETH J. WEATHERWAX, and NATHAN
LOWENSTEIN.
__________________________
Before DYK, MOORE, and O’MALLEY, Circuit Judges.
DYK, Circuit Judge.
Powertech Technology Inc. (“PTI”) filed a declaratory
action seeking declarations of non-infringement and
invalidity of Tessera, Inc.’s (“Tessera”) United States
Patent No. 5,663,106 (“’106 patent”). The United States
District Court for the Northern District of California
dismissed the action for lack of subject matter jurisdic-
tion, finding no Article III case or controversy between the
parties. Powertech Tech. Inc. v. Tessera, Inc., No. 10-
00945, 2010 WL 2194829 (N.D. Cal. June 1, 2010). Be-
cause we conclude a controversy did exist, we reverse and
remand for further proceedings on the merits.
BACKGROUND
I
A semiconductor chip (“chip”) is a miniaturized elec-
tronic circuit that can be incorporated into larger elec-
tronic devices like cell phones and personal computers. A
semiconductor package (“package”) protects a delicate
chip from mechanical and thermal damage by encapsulat-
ing it in molded plastic, generally referred to as an “en-
capsulant.” The encapsulation process, however, can
sometimes contaminate the delicate terminals on the
exterior of the chip, preventing the terminals from con-
necting the package to other electronic components.
Tessera’s ’106 patent is a process patent that is di-
rected to methods for preventing the contamination of
exposed chip terminals during encapsulation. As illus-
trated below, the claimed process requires a protective
3 POWERTECH v. TESSERA
barrier (30) which protects terminals (26) of the chip (12)
from coming in contact with the encapsulant (40) when it
is injected into the encapsulation area through a fill hole
(36).
PTI is a Taiwanese sub-contracting company that
packages chips for various customers in the semiconduc-
tor industry. PTI’s customers send bare chips to PTI, and
PTI encapsulates them in protective materials before
returning the packaged chips to the customers. Notably,
as the packager of the chips, PTI appears to be the only
party in the supply chain to allegedly practice the method
claims of the ’106 patent (i.e., the encapsulation of the
chip in protective materials). PTI’s customers then incor-
porate the pre-packaged chips into downstream electronic
products for marketing, selling, and importing worldwide,
including in the United States. As discussed below,
Tessera has alleged that PTI’s encapsulation process is
covered by the claims of the ’106 patent.
Since the late 1990s, Tessera has licensed its technol-
ogy to more than sixty semiconductor companies through
agreements called Tessera Compliant Chip Licenses
(“TCC Licenses”). Tessera and PTI entered into such an
POWERTECH v. TESSERA 4
agreement on October 20, 2003, under which PTI agreed
to pay running royalties in return for a license under the
’106 patent (and other patents) to assemble, use, or sell
certain “TCC Licensed Products.” PTI claims it has
complied with all of its obligations under the license
agreement, including the obligation to pay royalties on a
post-sale quarterly basis.
II
The current declaratory action stems partly from
Tessera’s allegations in two earlier suits—one before the
United States International Trade Commission (“ITC
proceedings or action”) and one in the United States
District Court for the Eastern District of Texas (“Texas
action”). In the ITC action, Tessera sought relief under
Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337,
alleging infringement of the ’106 patent and three other
patents by eighteen defendants through the importation
and sale of certain semiconductor chips. See In the Matter
of Certain Semiconductor Chips with Minimized Chip
Package Size and Products Containing Same (III), No.
337-TA-630 (Int’l Trade Comm’n Feb. 24, 2010) (“Final
Determination”); In the Matter of Certain Semiconductor
Chips with Minimized Chip Package Size and Products
Containing Same (III), No. 337-TA-630 (Int’l Trade
Comm’n Aug. 28, 2009) (“Initial Determination”). In the
Texas action, filed on the same day as the ITC action,
Tessera asserted infringement of the same patents, accus-
ing the same defendants and products. Tessera’s Com-
plaint for Patent Infringement and Jury Demand,
Tessera, Inc. v. A-DATA Tech. Co., No. 2:07-CV-534 (E.D.
Tex. Dec. 7, 2007), ECF No. 1. As Tessera has conceded,
the Texas action “is no different than the [ITC action] for
present purposes.” J.A. 432. The Texas action has been
stayed pending the final outcome of the ITC proceedings.
See 28 U.S.C. § 1659.
5 POWERTECH v. TESSERA
The accused products in the ITC and Texas actions
were semiconductor chips that come in two formats: a
first group consisting of so-called “wBGA” chips and a
second group consisting of so-called “μBGA” chips. 1 PTI
is licensed by Tessera to manufacture both wBGA and
μBGA chips. Though PTI was not a named party in
either the ITC or Texas action, it maintains that some of
the accused companies were customers who directly or
indirectly purchased their wBGA and μBGA chips from
PTI. For example, PTI asserts that three of the accused
companies—Elpida Memory, Inc. (“Elpida”), Powerchip
Semiconductor Corp., and ProMOS Technologies Inc.—
used (and continue to use) PTI to package their chips, and
that most of the other accused companies indirectly
purchased PTI-packaged chips from these three compa-
nies or similar companies. In addition, PTI asserts that
Kingston Technology Co. directly purchased packaged
chips from PTI to incorporate into downstream electronic
products.
In the Initial Determination of the ITC proceedings,
the Administrative Law Judge (“ALJ”) ruled that the ’106
patent was not invalid and not infringed by the accused
wBGA and μBGA products. The ALJ also determined
that Tessera’s patent rights were exhausted with respect
to all accused products sold by Tessera’s licensees, includ-
ing PTI. 2 In its Final Determination, the ITC affirmed
1 Our recent decision in Tessera, Inc. v. Int’l Trade
Comm’n, 646 F.3d 1357, 1361–62 (Fed. Cir. 2011), pro-
vides a helpful summary of the technology underlying
these chips.
2 In Quanta Computer, Inc. v. LG Electronics., Inc.,
553 U.S. 617, 625 (2008), the Supreme Court explained
that “[t]he longstanding doctrine of patent exhaustion
provides that the initial authorized sale of a patented
item terminates all patent rights to that item.” See also
POWERTECH v. TESSERA 6
the ALJ’s determination that the wBGA products did not
infringe, but it held that the μBGA products did infringe.
The ITC did not, however, issue an exclusion order under
Section 337 with respect to the μBGA products because it
determined that Elpida was the only importer of μBGA
chips and that all of Elpida’s μBGA chips were purchased
from licensed vendors, including PTI.
The ITC action culminated in our recent decision in
Tessera, Inc. v. International Trade Commission, 646 F.3d
1357, 1361 (Fed. Cir. 2011), where we affirmed the ITC’s
finding that there was no Section 337 violation. We held,
inter alia, that (1) the ’106 patent was not invalid as
anticipated by three prior art references: U.S. Patent Nos.
5,136,336 (“Worp”); 5,218,759 (“Juskey”); and 4,868,349
(“Chia”); (2) the accused wBGA products did not infringe
the ’106 patent; and (3) though Elpida did not dispute
that the μBGA chips infringed the ’106 patent, we held
that Elpida was nonetheless protected by a valid patent
exhaustion defense, having purchased all of its products
from licensed subcontractors, including PTI. Id. at 1366–
67. We ultimately remanded the case back to the ITC,
but the matters on remand are not pertinent to our cur-
rent analysis. Id. at 1371.
III
While the ITC action was underway, PTI made roy-
alty payments to Tessera for the wBGA products sold
during the fourth quarter of 2009. These payments,
however, were made “under protest” because PTI believed
that the wBGA products did not infringe the ’106 patent
35 U.S.C. § 273(b)(2). In the ITC action, Elpida asserted
that it was authorized to sell the accused chips because it
had obtained 100% of its products from seven licensed
subcontractors, including PTI, all of which were author-
ized to sell the accused wBGA and μBGA chips.
7 POWERTECH v. TESSERA
and that the ’106 patent was invalid, and royalties were
therefore not owed. Soon after, on March 5, 2010, PTI
filed this declaratory action.
PTI’s complaint in this action asserted two separate
claims for relief. First, PTI sought a declaration that the
“wBGA products [did] not infringe the ’106 [p]atent.”
Complaint for Declaratory Judgment at 4, Powertech
Tech. Inc. v. Tessera, Inc., No. 3:10-CV-00945 (N.D. Cal.
Mar. 5, 2010), ECF No. 1. However, a similar declaration
of non-infringement was not sought for PTI’s μBGA
products. Second, PTI sought a declaration that the ’106
patent was invalid. Id. at 5. This claim for relief was not
based on the same invalidity defense asserted by the
defendants in the ITC action, in which the Worp, Juskey,
and Chia references were used as anticipatory prior art.
Instead, PTI alleged that the ’106 patent was invalid
based on other prior art raised in a pending reexamina-
tion of the ’106 patent before the United States Patent
and Trademark Office (“PTO”). There, the PTO examiner
rejected original claims 1–4, 9, 10, 33 and 34 and newly
submitted claims 48 and 50–52 as anticipated by Euro-
pean Patent Application No. 0,399,300 (“Tanaka”), a prior
art reference that was not at issue in the ITC and Texas
actions. The examiner also rejected original claim 35 and
newly submitted claims 53–55 as obvious in light of
Tanaka in view of various other pieces of prior art and
rejected claims 56–59 as anticipated under § 102(e) by
U.S. Patent No. 5,450,283 to Lin. 3 Tessera’s appeal
before the Board of Patent Appeals and Interferences
(“Board”) is still pending as of the date of this decision.
3 Thus, original claims 1–4, 9, 10, and 33–35 and
newly submitted claims 48 and 50–59 were rejected.
Original claims 5–8, 11–32, and 36–47 were not subject to
reexamination, and new claims 49 and 60–62 were held
patentable.
POWERTECH v. TESSERA 8
In response to PTI’s complaint in the current declara-
tory action, Tessera filed a motion to dismiss for lack of
subject matter jurisdiction. According to Tessera, the ITC
and Texas actions against PTI’s customers could not
create a controversy because, so long as PTI remained a
licensee in good standing, PTI’s customers would also
enjoy protection against any infringement suit. Tessera
contended that there was no controversy as to the royalty
payments “so long as PTI [paid] the agreed upon royalties
on the products defined as royalty bearing under the
Agreement.” J.A. 62. Tessera also argued that there was
no controversy because, even if the ’106 patent were found
invalid or non-infringed, such an adjudication would not
relieve PTI of its royalty obligations under the license
agreement. This was so because PTI’s royalty obligations
did not turn on the validity or coverage of the ’106 patent,
but on an objective definition of the term “TCC Licensed
Product” that would also cover the accused wBGA and
μBGA chips.
On June 1, 2010, the district court granted Tessera’s
motion to dismiss for lack of subject matter jurisdiction.
The district court held that PTI’s products could not have
been at issue in the ITC action because “PTI’s products
[were all] manufactured pursuant to a license with
Tessera, which has explicitly excluded licensed products
from its enforcement actions.” J.A. 6. Additionally, the
court concluded there was no actual controversy arising
from the license agreement because the license agreement
itself required PTI to pay royalties whether or not its
products were covered by the ’106 patent. Thus, any
declaration of non-infringement or invalidity sought by
PTI would not “redress any imminent injury [or] materi-
ally alter the status quo.” J.A. 9. Finally, the court sua
sponte held that, even if there were an actual controversy,
the court would have declined to hear the case because
9 POWERTECH v. TESSERA
judicial efficiency favored hearing the declaratory action
along with the pending Texas action. PTI timely ap-
pealed when its motion for reconsideration was denied,
and we have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
DISCUSSION
I
We review the district court’s dismissal for lack of
subject matter jurisdiction de novo. Air Measure Techs.
Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 504 F.3d
1262, 1267 (Fed. Cir. 2007). The burden is on the party
claiming declaratory judgment jurisdiction to establish
that such jurisdiction existed at the time the claim for
declaratory relief was filed. King Pharm., Inc. v. Eon
Labs, Inc., 616 F.3d 1267, 1282 (Fed. Cir. 2010); Benitec
Austl., Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed.
Cir. 2007).
In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
132 n.11 (2007), the Supreme Court rejected our prior,
more stringent standard for declaratory judgment stand-
ing insofar as it required a “reasonable apprehension of
imminent suit.” See also, SanDisk Corp. v. STMicroelec-
tronics, Inc., 480 F.3d 1372, 1378–79 (Fed. Cir. 2007).
Under the Court’s new standard, an Article III case or
controversy exists when “the facts alleged, under all the
circumstances, show that there is a substantial contro-
versy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance
of a declaratory judgment.” MedImmune, 549 U.S. at 127
(internal quotation marks and citation omitted). The
dispute must be “definite and concrete, touching the legal
relations of parties having adverse legal interests,” such
that the dispute is “real and substantial” and “admi[ts] of
specific relief through a decree of a conclusive character,
POWERTECH v. TESSERA 10
as distinguished from an opinion advising what the law
would be upon a hypothetical state of facts.” Id. (internal
quotation marks and citation omitted).
In Arris Group Inc. v. British Telecommunications
PLC, 639 F.3d 1368, 1374 (Fed. Cir. 2011), we recognized
the requirement in MedImmune that there be an “adverse
legal interest” for there to be declaratory judgment juris-
diction. This “adverse legal interest” required a “dispute
as to a legal right—for example, an underlying legal cause
of action that the declaratory defendant could have
brought or threatened to bring.” Id. “In the absence of
such a legal controversy . . . , a mere adverse economic
interest is insufficient to create declaratory judgment
jurisdiction.” Id. at 1374–75. We went on to conclude
that a legal controversy did exist in Arris because the
licensee—supplier of the product-at-issue—could incur
potential legal liability for contributory infringement
based on the patentee’s infringement contentions against
the licensee’s customer:
Where a patent holder accuses customers of direct
infringement based on the sale or use of a sup-
plier’s equipment, the supplier has standing to
commence a declaratory judgment action
if . . . there is a controversy between the patentee
and the supplier as to the supplier’s liability for
induced or contributory infringement based on the
alleged acts of direct infringement by its custom-
ers.
Id. at 1375.
A
On appeal, PTI alleges that two controversies exist in
creating declaratory judgment jurisdiction. First, it
alleges that Tessera’s allegations against its customers in
11 POWERTECH v. TESSERA
the ITC and Texas actions create a controversy as to
whether its wBGA and μBGA chips infringe the ’106
patent, either because the chips are not within the scope
of the claims (the wBGA chips) or because the ’106 patent
is invalid (the wBGA and μBGA chips). PTI argues that
Tessera’s pending claims of infringement in the ITC and
Texas proceedings create a sufficient controversy because
they directly implicate PTI’s products and customers.
Tessera maintains there is no controversy because all of
PTI’s products were “properly licensed” and categorically
excluded from the enforcement of the ’106 patent in the
ITC and Texas actions. In particular, Tessera pointed to
the following disclaimer in its ITC complaint, which
stated that: “To the extent that any Accused Product is
found to be properly licensed . . . under Tessera’s patents,
Tessera does not intend to bring—nor should Tessera be
construed to have brought—any such Accused Product(s)
within the scope of the present Investigation.” Complaint
Under Section 337 of the Tariff Act of 1930, as Amended,
¶9, In re Certain Semiconductor Chips With Minimized
Package Size and Products Containing Same (III), Inv.
No. 337-TA-630 (Dec. 7, 2007) (emphasis added).
Tessera’s position in the current action, however, is
inconsistent with its arguments in the ITC action. There,
Tessera maintained that products were only licensed and
not-infringed if royalty payments were current. Because
some licensees, including PTI, had allegedly underpaid
their royalties or had paid them late, Tessera asserted
that those sales were “unlicensed” and did not trigger
exhaustion of its patent rights. These allegations created
a controversy as to whether certain sales of PTI’s products
were unlicensed and infringing.
While we conclude that Tessera’s allegations against
PTI’s customers with respect to infringement in the ITC
and Texas actions created declaratory judgment jurisdic-
POWERTECH v. TESSERA 12
tion, 4 it is clear that resolution of that controversy is
governed by our decision in Tessera. There, we ruled that
“Tessera’s patent rights [were] exhausted as to all prod-
ucts accused of infringing the ’106 patent purchased from
Tessera’s licensees.” Tessera, 646 F.3d at 1370–71.
Relying on the Supreme Court’s decision in Quanta Com-
puter, Inc. v. LG Electronics, Inc, 553 U.S. 617, 635
(2008), we held that patent exhaustion was, in fact,
triggered “by an [initial] sale authorized by the patent
holder.” Id. at 1369. Because each of Tessera’s TCC
license agreements contained an unconditional grant of a
license “to sell . . . and/or offer for sale” the accused prod-
ucts, we held that Tessera’s licensees were authorized to
sell the accused products when the TCC Licenses were
initially granted. Id. at 1370. We therefore rejected
Tessera’s theory that previously-licensed products would
become unlicensed when a licensee’s royalty payments
lapsed:
That some licensees subsequently renege or fall
behind on their royalty payments does not convert
a once authorized sale into a non-authorized sale.
. . . That absurd result would cast a cloud of un-
certainty over every sale, and every product in the
possession of a customer of the licensee, and
4 The district court appeared to suggest that
Tessera never accused PTI’s customers and products in
the ITC and Texas actions. However, we have no doubt
that PTI’s customers and products were specifically
targeted in those actions. For example, witnesses for
Elpida testified that the accused products in the ITC and
Texas actions were licensed from several licensees, includ-
ing PTI. Indeed, Tessera’s infringement expert in the ITC
action focused part of his analysis on an Elpida wBGA
chip that was clearly packaged by PTI and identified with
a PTI model number.
13 POWERTECH v. TESSERA
would be wholly inconsistent with the fundamen-
tal purpose of patent exhaustion—to prohibit post-
sale restrictions on the use of a patented article.
Id. at 1370. Although the resolution of the ITC action will
not have preclusive effect on either the district court in
Texas or the district court in this case, 5 both courts are
nonetheless bound by stare decisis to abide by any legal
precedents established by our court in Tessera. See Tex.
Instruments Inc. v. Cypress Semiconductor Corp., 90 F.3d
1558, 1568–70 (Fed. Cir. 1996) (the denial of preclusive
effect to ITC determinations does not allow district courts
or subsequent panels of this court to “ignore holdings of
this court that bear on cases before them”). In Tessera,
we held that sales authorized under a license do not
become unauthorized or infringing sales because a licen-
see subsequently delays royalty payments due under that
license. 646 F.3d at 1370.
Because neither party disputes that PTI’s wBGA and
μBGA products are covered by the license agreement, to
the extent Tessera’s claims against PTI’s customers arise
from the same set of facts addressed in Tessera, the result
we reached there would control equally here. Accordingly,
we vacate the dismissal on jurisdictional grounds and
remand with instructions to apply our decision in Tessera.
5 See, e.g., Tex. Instruments Inc. v. Int'l Trade
Comm'n, 851 F.2d 342, 344 (Fed. Cir. 1988) (stating that
ITC determinations regarding patent issues should be
given no collateral estoppel effect); Tandon Corp. v. Int'l
Trade Comm'n, 831 F.2d 1017, 1019 (Fed. Cir. 1987)
(“[O]ur appellate treatment of decisions of the Commis-
sion does not estop fresh consideration by other tribu-
nals.”); Corning Glass Works v. Int'l Trade Comm'n, 799
F.2d 1559, 1570 n.12 (Fed. Cir. 1986) (stating that the
legislative history of the Trade Reform Act of 1974 sup-
ports the position that ITC decisions have no preclusive
effect in district courts).
POWERTECH v. TESSERA 14
B
Second, PTI contends that a controversy exists as to
PTI’s continued obligation to pay royalties for the sales of
its wBGA and μBGA chips under the license agreement
with Tessera. In particular, PTI argues that the terms of
the license agreement do not require it to pay royalties for
the wBGA chips if those chips do not infringe or for the
wBGA and μBGA chips if the patent is invalid. Tessera
argues that royalty payments are due even if the products
do not infringe the ’106 patent and regardless of the
patent’s validity. Despite the existence of this dispute,
Tessera appears to maintain that there can be no Article
III controversy as long as PTI complies with all the terms
of the license agreement, including the payment of royal-
ties. In essence, Tessera’s argument is that PTI must
breach its license before it can challenge the validity of
the underlying patent. This contention, however, is
contrary to the Supreme Court’s decision in MedImmune,
in which the Court held that a licensee did not need to
repudiate a license agreement by refusing to pay royalties
in order to have standing to declare a patent invalid,
unenforceable, or not infringed. 549 U.S. at 137; see also
Altvater v. Freeman, 319 U.S. 359, 362 (1943). Like the
petitioner in MedImmune, PTI is seeking to define its
rights and obligations under its contract with Tessera. It
need not repudiate its license agreement to do so. There
is also no provision in the license agreement in which PTI
has agreed not to argue non-infringement or invalidity.
See MedImmune, 549 U.S. at 135.
Although the license agreement covers multiple pat-
ents, the key question appears to concern the ’106 patent.
In both the ITC and Texas actions, Tessera alleged that
the wBGA products were covered by the unexpired ’106
patent and two other patents that have now expired, U.S.
15 POWERTECH v. TESSERA
Patent Nos. 5,679,977 and 6,133,627. 6 Tessera made no
claim that it could continue to collect royalty payments
with respect to those expired patents. Tessera’s claim to
royalties on PTI’s products thus appears to be tied di-
rectly to the ’106 patent.
The parties devote considerable attention to the ques-
tion of whether the terms of the license agreement require
royalty payments to be tied to patent coverage or patent
validity. They dispute whether the district court was
correct as to the interpretation of that contract language.
PTI also maintains that a condition of patent coverage
and validity should be implied by legal necessity under
California law. See Cal. Civ. Code § 1655–56 (stating
that, under California contract law, any conditions that
make a contract reasonable, conform it to industry usage,
or are necessary to carry it into effect, are deemed implied
unless the contract manifests a contrary intention);
Stockton Dry Goods Co. v. Girsh, 227 P.2d 1, 3–4 (Cal.
1951) (holding that an implied term exists when legal
necessity justifies the implication). Relying on the Su-
preme Court’s decision in Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U.S. 100 (1969), PTI argues that legal
necessity compels an interpretation that royalty pay-
ments be tied to patent coverage or patent validity. PTI
points out that conditioning the grant of a license on the
payment of royalties on products which use the teaching
of expired patents is patent misuse. See Brulotte v. Thys
Co., 379 U.S. 29, 30 (1964); Beckman Instruments, Inc. v.
Technical Dev. Corp., 433 F.2d 55, 61 (7th Cir. 1970).
Just as it would be patent misuse to require the payments
of royalties on an expired patent, Brulotte, 379 U.S. at 30,
PTI argues that it would be patent misuse to require
6 Tessera also alleged infringement of U.S. Patent
No. 6,458,681, but withdrew these allegations in the ITC
action.
POWERTECH v. TESSERA 16
payment of royalties for products that did not infringe or
where the patents were invalid. Because a contract must
be interpreted in a way that would make it lawful, see
Cal. Civ. Code § 1643, PTI urges that there be an implied
requirement for royalty-bearing products to fall within
the scope of a valid patent.
On the other hand, Tessera argues that the Supreme
Court in Zenith Radio rejected PTI’s theory and held that
a total sales royalty (i.e., a royalty based on a licensee’s
total sales of a product) “is not patent misuse, ‘even if, as
things work out, only some or none of the merchandise
employs the patented idea or process, or even if it was
foreseeable that some undetermined portion would not
contain the invention.’” Appellee’s Br. at 48 (quoting
Zenith Radio, 395 U.S. at 138).
We need not decide whether PTI or Tessera is correct
as to this issue. The merits of this dispute are not before
us. No motion to dismiss for failure to state a claim or
motion for summary judgment has been filed, and no
discovery into the proper interpretation of the license
agreement has been conducted. 7 The Supreme Court in
7 In light of the fact that no discovery has been con-
ducted, the district court’s contract interpretation was
clearly premature. Under California law, courts can
consider evidence apart from the contract to explain the
meaning of terms that are otherwise unambiguous. Foad
Consulting Grp., Inc. v. Azzalino, 270 F.3d 821, 826 (9th
Cir. 2001) (applying California law); Pac. Gas & Elec. Co.
v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641,
644 (Cal. 1968) (“The test of admissibility of extrinsic
evidence to explain the meaning of a written instrument
is not whether it appears to the court to be plain and
unambiguous on its face, but whether the offered evidence
is relevant to prove a meaning to which the language of
the instrument is reasonably susceptible.”). Thus, al-
though the license agreement may appear unambiguous
17 POWERTECH v. TESSERA
MedImmune made clear that, in almost identical circum-
stances, the issue of contract interpretation is a merits
issue, not appropriate to decision on a motion to dismiss
under Rule 12(b)(1). 549 U.S. at 135–36 (“[E]ven if re-
spondents were correct that the licensing agreement . . .
precludes this suit, the consequence would be that re-
spondents win this case on the merits—not that the very
genuine contract dispute disappears, so that Article III
jurisdiction is somehow defeated.”). Here, we simply hold
that the dispute between PTI and Tessera—as to whether
the license agreement requires royalty payments to be
tied to valid patent coverage—is sufficient to support
declaratory judgment jurisdiction. We leave the merits-
based arguments to the district court to consider on
remand.
II
Finally, we address the propriety of the district court’s
alternative ground for dismissal. The district court sua
sponte held that, even if PTI had established an actual
controversy, the court would nonetheless dismiss the case
because “the interests of judicial efficiency would favor
hearing PTI’s declaratory judgment action along with [the
pending Texas action].” Powertech, slip op. at 9. On
appeal, PTI argues that the district court abused its
discretion by ignoring the forum selection clause in the
license agreement. This clause stated that “if either party
files a claim in a state or federal court, such claim shall be
filed in the state or federal courts in California.” J.A. 110.
In M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10
(1972), the Supreme Court held that a forum-selection
clause is “prima facie valid and should be enforced unless
enforcement is shown by the resisting party to be ‘unrea-
on its face, further discovery could shed light on the
proper interpretation of its terms.
POWERTECH v. TESSERA 18
sonable’ under the circumstances.” 8 Moreover, Ninth
Circuit law requires that, in considering the dismissal of a
case, forum selection clauses should be enforced unless
there is a strong public policy against doing so. Jones v.
GNC Franchising, Inc., 211 F.3d 495, 497–98 (9th Cir.
2000) (citing M/S Bremen, 407 U.S. at 1); Docksider, Ltd.
v. Sea Tech., Ltd., 875 F.2d 762, 763-64 (9th Cir. 1989).
In Docksider, the Ninth Circuit held that “[w]here venue
is specified with mandatory language, the clause will be
enforced.” 875 F.2d at 764. The forum selection clause
there used mandatory “shall” language to designate
Virginia as the proper forum, stating that “[v]enue . . .
shall be deemed to be in . . . Virginia.” Id. at 763 (empha-
sis added). Here, the forum selection clause in PTI’s
license agreement employs similar “shall” language to
mandate jurisdiction in California. It is clear that the
district court erred in failing to enforce the forum selec-
tion clause.
Other special circumstances also suggest that the fo-
rum selection clause should be enforced. Here, the choice-
of-law provision in the license agreement manifests the
parties’ intent that the license agreement be “governed,
interpreted and construed in accordance with the laws of
the State of California.” J.A. 110. Furthermore, the
district court in California is already entertaining multi-
ple declaratory actions related to the ’106 patent, includ-
ing Siliconware Precision Industries Co. v. Tessera, Inc.,
No. 4:08-cv-03667 (N.D. Cal.); ChipMOS Technologies,
8 Under the Supreme Court’s decision in Stewart
Org. v. Ricoh Corp., 487 U.S. 22, 32 (1988), holding that a
forum selection clause was not always dispositive, differ-
ent considerations governed a motion to transfer under §
1404(a) in diversity jurisdiction cases. Such a motion is
not involved here, but, as we discuss below, judicial
efficacy under the standards of §1404(a) also favor Cali-
fornia as the proper forum.
19 POWERTECH v. TESSERA
Inc. v. Tessera, Inc., No. 4:08-cv-03827 (N.D. Cal.); and
Advanced Semiconductor Engineering Inc. v. Tessera Inc.,
No. 4:08-CV-03726 (N.D. Cal.). 9 Nothing suggests that a
Texas court would confer any additional conveniences
with respect to the availability of evidence or potential
witnesses, nor has Tessera provided adequate cause to
override PTI’s choice of forum. We therefore hold that it
was an abuse of discretion for the district court to refuse
jurisdiction over this action.
III
For the foregoing reasons, the district court’s dis-
missal of the declaratory judgment action is reversed. We
remand for proceedings consistent with this opinion.
REVERSED and REMANDED
9 These cases have been consolidated and are cur-
rently stayed pending resolution of the ITC action.