Federal Circuit examines ‘commercial activity’ exception to foreign sovereign immunityJuly 20, 2006

On July 14, 2006, the Federal Circuit affirmed a decision of the District Court for the Northern District of California that refused to dismiss a declaratory judgment suit for non-infringement and invalidity of a patent for lack of subject matter jurisdiction. Intel Corporation and Dell Inc., along with Microsoft, HP and Netgear, filed suit against Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia’s national science agency, asking the court to declare a CSIRO patent invalid and not infringed for high speed wireless data networks. CSIRO asserted its patents covered standards used on many wireless networking devices. The company also had previously tried to license the technology to these companies, explaining that if a voluntary license was not accepted within a certain time period, it would pursue litigation against any firms incorporating wireless network components. When Intel and Dell filed suit after the time period had passed, CSIRO moved to dismiss based on a provision in the Foreign Sovereign Immunity Act (FSIA) that gives foreign states immunity from suite in U.S. federal courts unless certain exceptions apply. The district court denied CSIRO’s motion to dismiss, and CSIRO appealed to the Federal Circuit. Because applicability of CSIRO is not unique to patent law, the Federal Circuit applied the standard of review of the regional circuit to determine whether any exceptions applied to CSIRO. Under FSIA, a foreign state is not immune from the jurisdiction of United States courts in any case where the action is based upon a commercial activity carried on in the United States by the foreign state. CSIRO argued that its license negotiations were not a ‘commercial activity,’ and therefore this exception to immunity did not apply. The Federal Circuit explained that the commercial activity exception was intended to restrict sovereign immunity to only cases involving public affairs. As CSIRO’s licensing offers were like any private patentee’s attempts to license a patent, it considered CSIRO’s licensing attempts commercial activity. Moreover, because ‘commercial activity’ is defined in the statute as either a regular course of commercial conduct or a particular commercial transaction or act, the court found that the offer of a license by CSIRO was enough to meet the exception even though no licenses were ever secured. CSIRO also argued that the declaratory judgment suit brought by Intel and Dell was not ‘based upon’ the commercial activity it engaged in the United States. The Supreme Court has stated that ‘based upon’ means that the activity must form elements of the claim which would entitle a plaintiff to relief under his theory of the case; something more than just a mere connection is required. The Federal Circuit held that the representations made CSIRO while offering a license to Intel and Dell would be central to the claims of non-infringement and invalidity, and thus its commercial activities formed a foundation for the declaratory judgment determination. This case shows that foreign countries that engage in business in the U.S. are not immune from suit for actions taken in a commercial context. To read the complete decision, log onto http://fedcir.gov/opinions/06-1032.pdf.