Opinion ID: 211157
Heading Depth: 2
Heading Rank: 1

Heading: Intel and Dell

Text: 3 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% (<120 days), 25% (<150 days), 12.5% (<180 days) 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. 4 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). 5 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. 6 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. 7 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.