Intel Corp. v. Comm. Scientific & Indus. Research., 06-1032.

• Citation: 455 F.3d 1364
• Decision Date: 14 July 2006
• Docket Number: No. 06-1040.,No. 06-1032.,06-1032.,06-1040.
• Parties: INTEL CORPORATION AND DELL INC., Plaintiffs-Appellees, v. COMMONWEALTH SCIENTIFIC and Industrial Research Organisation, Defendant-Appellant. Microsoft Corporation, Hewlett-Packard Company, and Netgear, Inc., Plaintiffs-Appellees, v. Commonwealth Scientific and Industrial Research Organisation, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

455 F.3d 1364

INTEL CORPORATION AND DELL INC., Plaintiffs-Appellees, v. COMMONWEALTH SCIENTIFIC and Industrial Research Organisation, Defendant-Appellant.

Microsoft Corporation, Hewlett-Packard Company, and Netgear, Inc., Plaintiffs-Appellees, v. Commonwealth Scientific and Industrial Research Organisation, Defendant-Appellant.

No. 06-1032.

No. 06-1040.

United States Court of Appeals, Federal Circuit.

July 14, 2006.

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.

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.

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").

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% (, 25% (, 12.5% ( 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.

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 WL 1656903 (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 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 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...