CSIRO first approached Dell, which was using Intel-supplied technology. HP, Microsoft, and Netgear were also approached, and threatened, or felt threatened, with enforcement action.

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").

CSIRO tried to have the Dell-Intel case dismissed, as well as the subsequent case by Microsoft-HP-Netgear, to no avail. One of its arguments was "lack of subject-matter jurisdiction," but the court reasonable found that "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.

More interestingly, CSIRO had invoked the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602-1611. Alas for CSIRO, there is a "commercial activity" exemption. And if trying to squeeze money for a patent license isn't a "commercial activity," what is?!

From the Dell-Intel case -

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." 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.

The same district court result in the Microsoft-HP-Netgear case -

With respect to the question of foreign sovereign immunity, the district court found that CSIRO's attempts to secure patent licenses in order to generate royalty income was "not an activity peculiar to a sovereign state, but [wa]s, instead, a commercial activity that a private entity would engage in."

But, as it turns out, what constitutes "commercial activity" has some legal murk around it. The CAFC on FSIA -

Pursuant to 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." Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Determining whether subject-matter jurisdiction exists therefore "entails an application of the substantive terms of the [FSIA] to determine whether one of the specified exceptions to immunity applies." Verlinden B.V. v. Central Bank of Nig., 461 U.S. 480, 498 (1983).

CSIRO argues that patent licensing negotiations that do not result in a fully-executed, binding contract do not qualify as "commercial activity." It concedes that if its negotiations with potential licensees had been successful, (i.e., if the proffered license agreement had been signed), it would not be entitled to claim immunity under the FSIA because the commercial activity exception would apply. In the alternative, CSIRO argues that the declaratory-judgment suits are not "based upon" the alleged commercial activity. We reject both arguments.

"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." Id. Yet, as noted by the Supreme Court, this is not particularly instructive.

This definition, however, leaves the critical term "commercial" largely undefined: The first sentence merely establishes that the commercial nature of an activity does not depend upon whether it is a single act or a regular course of conduct; and the second sentence merely specifies what element of the conduct determines commerciality (i.e., nature rather than purpose), but still without saying what "commercial" means.

Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 612 (1992).

The legislative history indicates that the FSIA was meant to "codify the so called 'restrictive' principle of sovereign immunity, . . . [wherein] the immunity of a foreign state is 'restricted' to suits involving a foreign state's public acts (jure imperii) and does not extend to suits based on its commercial or private acts (jure gestionis)." H.R. Rep. No. 94-1487, at 7 (1976), as reprinted in 1976 U.S.C.C.A.N. 6604, 6605. Consequently, "commercial activity" was broadly defined.

Certainly, if an activity is customarily carried on for profit, its commercial nature could readily be assumed. At the other end of the spectrum, a single contract, if of the same character as a contract which might be made by a private person, could constitute a "particular transaction or act."

Id. at 16 & 6615. But, Congress did not set forth an exhaustive list of activities which might constitute "commercial activity." Indeed, the drafters expressly contemplated that "[t]he courts would have a great deal of latitude in determining what is a 'commercial activity' for purposes of this bill." Id.

Considering the meaning of "commercial activity" in the context of the restrictive theory of sovereign immunity and the public/private dichotomy it creates, the Supreme Court has held that the exception to immunity set forth in § 1605(a)(2) 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.'" Weltover, 504 U.S. 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 by threatening litigation or by proffering licenses to putative infringers—certainly fall within the latter category. Indeed, we have expressly recognized, in another context, that "a 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."

As to the question of whether the instant lawsuits are "based on" CSIRO's commercial activities, neither the FSIA nor its legislative history explicitly define this phrase. The Supreme Court has held that, in the context of § 1605(a)(2), "based on" means that the commercial activity by the foreign state forms "those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case." Saudi Arabia, 507 U.S. at 357. Although the Court recognized that it is not "necessarily require[d] that each and every element of a claim be commercial activity by a foreign state," id. at 358 n.4, this interpretation "calls for something more than a mere connection with, or relation to" the commercial acts. Id. at 358 (finding that the plaintiff's employment contract, while commercial in nature, did not form the basis for his personal injury claims resulting from unlawful detention and torture by the Saudi government because it was too far removed from the tortious acts).

Here, we are persuaded that these declaratory-judgment actions are "based on" CSIRO's commercial acts of obtaining and asserting a United States patent.

As a result, the declaratory judgment cases continue in district courts.