Issue 06/36 | July 20, 2006
Patent Licensing is Commercial Activity Exception to Foreign Sovereign Immunities Act

In Intel v. Commonwealth Scientific and Industrial Research Organisation and Microsoft v. Commonwealth Scientific and Industrial Research Organisation, Slip. Op. 06-1032 and -1040 (July 14, 2006), the Federal Circuit held that the Australian national space agency was not entitled to claim immunity under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602-1611, because the "commercial activity" exception applied to its patent licensing activities in the U.S.

CSIRO is the assignee of United States Patent No. 5,487,069 for "Wireless LAN," below right. 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. Following CSIRO's attempts to license the '069 patent to various American companies, declaratory-judgment actions were filed by Intel Corp. ("Intel"), Dell Inc. ("Dell"), Microsoft Corp. ("Microsoft"), Hewlett-Packard Co. ("HP") and Netgear, Inc. ("Netgear"). In CISRO's motion to dismiss, the district court considered 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.

Under 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." In partiocular, 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.

According to the opinion by Chief Judge Michel,

"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."

. . . [T]he Supreme Court has held that the exception to immunity set forth in § 1605(a)(2) applies where 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 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 threatening litigation or by proffering licenses to putative infringers—certainly fall within the latter category. Indeed, we have expressly recognized, in another context, that 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."

Nor are we persuaded that a contract must be fully consummated in order to qualify as commercial activity. . . .

For more information on this topic, please contact William F. Heinze (bill.heinze@tkhr.com) at Thomas, Kayden, Horstemeyer & Risley LLP in Atlanta, Georgia USA.

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