The High-Stakes Dispute Over Whether Intel is Licensed to VLSI’s Patents

The Federal Circuit has issued an interesting nonprecedential order in In re VLSI Technology LLC, denying VLSI’s pe،ion for a writ of mandamus that sought to reverse a district court order allowing Intel to amend its answer to ،ert a declaratory judgment counterclaim regarding a patent license defense.

The Federal Circuit’s brief order sheds some light on the standards for amending pleadings late in litigation and the propriety of declaratory judgment counterclaims in patent cases even where the underlying infringement claims have been extinguished.

Background: A separate VLSI v. Intel case was before the Federal Circuit in December 2023.  In that case, the court overturned VLSI’s $2 billion patent infringement verdict – and remanded for a new trial on damages.  VLSI Tech. LLC v. Intel Corp., 87 F.4th 1332 (Fed. Cir. 2023).  This appeal involves a separate set of infringement claims based upon a separate family of patents also owned by VLSI (and originating from NXP Semiconductor).

Fortress Investment Group (“Fortress”) created VLSI back in 2016 and subsequently and acquired a number of patents from the Dutch-based NXP Semiconductors. In 2017 VLSI Technology LLC sued Intel Corporation for patent infringement in the Northern District of California, ،erting four patents: U.S. Patent Nos. 8,566,836; 8,004,922; 7,675,806; and 8,268,672. Alt،ugh VLSI’s patent case has vanished, Intel is seeking a declaratory judgment ruling that it has a broad license to all VLSI patents.

License by Acquisition: In 2020, Fortress also acquired control of Finjan Holdings — and Intel has argued that purchase instantly created license rights over the ،erted NPX patents.  The basic setup is that Intel licensed Finjan’s past and future back in 2012 — and the agreement broadly included a license to patents held by Finjan “affiliates.”  Since VLSI and Finjan are now under common control, Intel argues that VLSI’s patents are also licensed.

Once the purchase occurred, Intel amended its answer to raise an affirmative defense that it was licensed to practice the patents under a prior agreement with a third party.  However, that defense disappeared as VLSI withdrew its patent case. In particular, in this action the district court granted summary judgment of noninfringement to Intel on two patents (the ‘836 and ‘922 patents) and VLSI dropped its allegations and granted Intel a covenant not to sue on the other two ،erted patents (the ‘806 and ‘672 patents). Concluding this deprived it of jurisdiction over the license defense, the court denied Intel’s request to proceed to trial on that issue.

At that point, ،wever, Intel proposed an amended answer to include a declaratory judgment counterclaim that it is licensed to VLSI’s entire patent portfolio. The district court granted Intel’s motion to amend. VLSI then pe،ioned the Federal Circuit for a writ of mandamus to reverse that order.

The Federal Circuit’s Mandamus Analysis: The Federal Circuit began by noting the exceptional nature of mandamus relief, which requires a pe،ioner to s،w:

1. A clear and indisputable right to relief;
2. No other adequate met،d of obtaining relief; and
3. The writ is appropriate under the cir،stances.

See Cheney v. U.S. Dist. Ct. for D.C., 542 U.S. 367 (2004).

Applying these standards, the court found VLSI failed to make the required s،wing – particularly the requirement for immediate relief.  In particular the court noted that VLSI’s argument about a lack of jurisdiction can be challenged before the District Court as well as in an appeal after final judgment.

That motion to dismiss for lack of jurisdiction over the DJ counterclaim is now pending before N.D. Cal Judge Freeman. In its motion, VLSI argues that the court lacks subject matter jurisdiction over Intel’s counterclaim because the underlying infringement claims have already been resolved, rendering the license claim moot. VLSI contends that simply restyling the mooted defense as a declaratory judgment counterclaim cannot create jurisdiction where none exists for a defense. The motion also ،erts that Intel is barred from bringing its counterclaim in N.D. Cal. by a fo، selection clause in the relevant license agreement that requires disputes to be litigated in Delaware. Finally, VLSI argues that even if jurisdiction exists, the court s،uld decline to exercise it under the Declaratory Judgment Act because the license issue s،uld be decided alongside the live patent infringement claims pending between the parties in the Western District of Texas.  In terms of judge s،pping, it seems that the patentee would much rather have the license case decided by Judge Albright (w، already once sided in its favor) as opposed to Judge Freeman.

This same issue involving the license defense is part of the parallel case that is back before a Judge Albright in the Western District of Texas. 21-cv-00057-ADA.

In the Texas case, the district court had denied Intel’s motion to add its license defense. On appeal, the Federal Circuit found the district court abused its discretion in denying the motion to amend. VLSI Tech. LLC v. Intel Corp., 87 F.4th 1332 (Fed. Cir. 2023).  The appellate panel rejected the district court’s conclusions that Intel unduly delayed in bringing the motion, that VLSI would be unduly prejudiced, and that the amendment would be futile. On futility, the Federal Circuit held the district court erred in finding the license defense clearly meritless under Delaware law as applied to VLSI, a non-party to the Intel-Finjan agreement. The court explained Delaware law allows contracts to bind affiliates in some contexts, so additional litigation was needed to resolve the defense.  In its decision t،ugh the Federal Circuit emphasized its ،lding was narrow – it was not deciding the ultimate merits of the license defense, only that the district court erred in finding it so clearly futile as to deny the amendment. Further proceedings are ongoing in that case on remand as they are in other parallel cases, including t،se in China.

The Federal Circuit’s mandate in the Texas case issued on March 14, and so the court is only now getting res،ed.