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Australian Government Agency Not Entitled to Sovereign Immunity in Attempting to License Its U.S. Patent

06-1032
July 14, 2006

Decision icon Decision

Last Month at the Federal Circuit - August 2006

Judges: Michel (author), Plager, Bryson

[Appealed from: N.D. Cal., Judge Jenkins]

In Intel Corp. v. Commonwealth Scientific & Industrial Research Organisation, Nos. 06-1032, -1040 (Fed. Cir. July 14, 2006), the Federal Circuit affirmed the district court’s denial of motions to dismiss for lack of subject matter jurisdiction, finding that an Australian government agency’s negotiations with U.S. companies to license its patent constituted “commercial activity” that was not entitled to sovereign immunity from the jurisdiction of U.S. courts.

The defendant, Commonwealth Scientific and Industrial Research Organisation (“CSIRO”), is Australia’s national science agency and the assignee of U.S. Patent No. 5,487,069 (“the ’069 patent”) directed toward wireless local area networks. Following CSIRO’s attempts to license the ’069 patent to various American companies, two DJ actions were filed by Intel Corporation (“Intel”), Dell Inc. (“Dell”), Microsoft Corporation (“Microsoft”), Hewlett-Packard Company (“HP”), and Netgear, Inc. (“Netgear”). In both actions, the district court denied CSIRO’s motions to dismiss for lack of subject matter jurisdiction under the DJ Act, finding that the plaintiffs had a reasonable apprehension of being sued for patent infringement. The district court also denied CSIRO’s motions to dismiss on the basis that it was immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602. CSIRO filed interlocutory appeals.

On appeal, the Federal Circuit began by explaining that, under the FSIA, a foreign state is immune from the jurisdiction of U.S courts unless a specified exception applies. One such exception is that a foreign state is not immune when the action is “based upon a commercial activity” carried on in the United States by the foreign state. CSIRO argued that patent licensing negotiations that do not result in a fully executed, binding contract do not qualify as “commercial activity.” In the alternative, CSIRO argued that DJ suits are not “based upon” the alleged commercial activity. The Federal Circuit rejected both arguments.

The Federal Circuit noted that the Supreme Court has held that the commercial activity exception 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.’” Slip op. at 10(quoting Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 614 (1992)). The Federal Circuit found that obtaining and enforcing a U.S. patent for profit clearly fell within the latter category. Moreover, the Federal Circuit further found that a contract does not need to be fully consummated in order to qualify as commercial activity. The Court noted that the statute refers to “a particular commercial transaction or act,” which suggests that the definition includes more than completed transactions.

In addition, the Federal Circuit held that the lawsuits were “based upon” CSIRO’s commercial activity, as required by the FSIA. The Supreme Court had previously indicated that, in the context of the FSIA statute, “based upon” means that the commercial activity by the foreign state forms part of those elements that, if proven, would entitle the plaintiff to relief. The Federal Circuit was persuaded these DJ actions were “based upon” CSIRO’s commercial acts of obtaining and asserting a U.S. patent. The Court noted that to prevail in DJ suits, the plaintiffs must prove that the defendant attempted to assert a patent against them, and therefore, the suits were “based upon” CSIRO’s commercial activity. Moreover, CSIRO’s representations as to the scope and validity of the ’069 patent were central to the defendants’ claims of noninfringement, invalidity, and patent misuse.

Finally, the Court declined to review whether the plaintiffs had a reasonable apprehension of imminent suit because the orders denying CSIRO’s motions to dismiss were not properly reviewable on interlocutory appeal and did not raise issues that were inextricably intertwined with the interpretation of the FSIA.