no. 11-11315 in the united states court of …ipls/mootcourt/2012 fiddle.pdf · fiddle’s actions...
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No. 11-11315
_______________________________________________________________
IN THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
_______________________________________________________________
WART-HOG WANDS, INC.,
Defendant-Appellant
v.
T. FIDDLE, INC.,
Plaintiff-Appellee,
_______________________________________________________________
Appeal from the United States District Court
For The District of Little Whinging
_______________________________________________________________
BRIEF OF PLAINTIFF-APPELLEE,
T. FIDDLE, INC.
RACHEL L. SCHWEERS
NICHOLAS A. RESTAURI
Counsel for the Plaintiff-Appellee
SCHWEERS & RESTAURI, P.C.
123 Platform 9-3/4
King’s Cross Station
London, Illinois 90001
i
CERTIFICATE OF INTEREST
Counsel for appellee certifies the following:
1. We represent T. Fiddle, Inc.
2. T. Fiddle, Inc. is the real party in interest.
3. T. Fiddle, Inc is an incorporated company.
4. The names of all law firms and the partners or associates that appeared for T. Fiddle, Inc. in the
District Court or are expected to appear in this Court
are: Rachel L. Schweers and Nicholas Restauri.
February 3, 2012 By:____________________
Rachel L. Schweers
Attorney
ii
TABLE OF CONTENTS
TABLE OF AUTHORITIES......................................... iv
STATEMENT OF RELATED CASES.................................... 1
JURISDICTIONAL STATEMENT...................................... 1
STATEMENT OF THE ISSUES....................................... 1
STATEMENT OF THE CASE......................................... 1
STATEMENT OF FACTS............................................ 3
SUMMARY OF THE ARGUMENT....................................... 6
STANDARDS OF REVIEW........................................... 7
ARGUMENT...................................................... 8
I. A Substantial Controversy Exists Between Fiddle and Wands,
Establishing Declaratory Jurisdiction. ...................... 8
A. Wands’ objective actions have created a real controversy
with respect to Fiddle’s potential infringement of the ‘543
patent. .................................................. 10
B. Wands “implied assertion” of enforcing its patent against
Fiddle creates a justiciable controversy. ................ 15
C. The dispute between the parties is “real and immediate”
and the parties’ adverse legal positions are not based on a
hypothetical set of facts. ............................... 19
II. Fiddle Has Not Induced Infringement of the ‘543 Patent
Under 35 U.S.C. § 271(b). .................................. 21
A. Fiddle did not have actual knowledge of the '543 patent.
...................................................... 23
B. Fiddle was not willfully blind to the existence of the
‘543 patent. ............................................. 24
1. Fiddle did not have the “subjective belief” that the
‘543 patent existed, let alone that it was likely
infringed by the use of Fiddle’s products............... 26
iii
2. Fiddle’s actions were not deliberate attempts to avoid
learning about the existence of the ‘543 patent or
attempts to avoid learning that the use of the Magician’s
Assistant might infringe the ‘543 patent................ 27
CONCLUSION................................................... 30
iv
TABLE OF AUTHORITIES
CASES
ABB Inc. v. Cooper Indus., LLC,
635 F.3d 1345 (Fed. Cir. 2011) ..........................15, 17
Cat Tech LLC v. Tube Master, Inc.,
528 F.3d 871 (Fed. Cir. 2008) ............................8, 20
Celetex Corp. v. Catrett,
477 U.S. 317 (1986) .........................................27
Crown Operations Int’l v. Solutia Inc.,
289 F.3d 1367 (Fed. Cir. 2002) ...............................8
Global-Tech Appliances, Inc. v. SEB S.A.,
___ U.S. ___, 131 S. Ct. 2060 (2011) ....................Passim
Hewlett-Packard Co. v. Acceleron LLC,
587 F.3d 1358 (Fed. Cir. 2009) ..........................Passim
Maryland Cas. Co. v. Pac. Coal & Oil Co.,
312 U.S. 270 (1941) ..........................................8
MedImmune, Inc. v. Genentech, Inc.,
549 U.S. 118 (2007) .....................................Passim
Micron Tech., Inc. v. Mosaid Techs., Inc.,
518 F.3d 897 (Fed. Cir. 2008) ................................9
Micron Technologies, Inc. v. Mosaid Technologies, Inc.,
518 F.3d at 899-901 (Fed. Cir. 2008) .....................12-13
Panavise Products, Inc. v. National Products, Inc.,
306 Fed. Appx. 570, 573 (Fed. Circ. 2009) ................17-19
Prasco, LLC v. Medicis Pharm. Corp.,
537 F.3d 1329 (Fed. Cir. 2008) ....................7, 9, 13, 20
SanDisk Corp. v. STMicroelectronics., Inc.,
480 F.3d 1372 (Fed. Cir. 2007) ..........................10, 12
Versata Software Inc. v. SAP America, Inc.,
No. 2:07–CV–153 CE, 2011 WL 4017952 (E.D. Tex. Sept. 9,
2011) ...................................................24, 29
v
Water, Inc. v. Ecolochem, Inc.,
846 F.2d 731 (Fed. Cir. 1988) ...............................20
STATUTES
28 U.S.C. § 1295(a)(1)..........................................1
28 U.S.C. §§ 1331, 1338(a), and 2201(a).........................1
28 U.S.C. § 2201................................................2
35 U.S.C. § 271(b)..........................................21-22
1
STATEMENT OF RELATED CASES
No appeal from this case is or has previously been taken
before this Court or any other appellate court. To the best of
counsel’s knowledge, no other pending cases will directly
affect this Court’s decision in this case.
JURISDICTIONAL STATEMENT
This Court has jurisdiction under 28 U.S.C. § 1295(a)(1)
because the appeal is from the final judgment of a district
court in a declaratory judgment action with regard to a patent
infringement suit. The District Court had subject-matter
jurisdiction under 28 U.S.C. §§ 1331, 1338(a), and 2201(a).
STATEMENT OF THE ISSUES
1. Whether there is a justiciable controversy when a
company halts production of a device and delays its release in
the face of a patentee’s litigious conduct against multiple
competitors selling similar devices.
2. Whether a company induces infringement when it
improves a competitor’s unmarked device, has no actual or
constructive knowledge of the competitor’s patent, and
immediately seeks a determination of their rights upon learning
of the patent.
STATEMENT OF THE CASE
Plaintiff-appellee, T. Fiddle, Inc. (“Fiddle”) filed suit
against Defendant-appellant, Wart-Hog Wands, Inc. (“Wands”)
2
seeking a declaratory judgment of non-infringement against U.S.
Patent No. 9,876,543 (“the ‘543 patent”) owned by Wands. R. at
¶ 27. Subsequently, Wands filed a motion to dismiss for lack
of jurisdiction under 28 U.S.C. § 2201 and a motion for limited
discovery. R. at ¶ 1. The District Court denied Wands’
motion to dismiss finding that Wands’ aggressive litigation
actions enforcing the ‘543 patent against products similar to
Fiddle’s created a substantial controversy between the parties
under a totality of the circumstances test. R. at ¶ 40. The
District Court also found that Fiddle suffered an injury
because of having to delay the release of its second generation
product. Id. As such, the District Court granted Wands’
motion for limited discovery. R. at ¶ 1.
Wands filed a cross-complaint alleging Fiddle induced
infringement of claim 1 of the ‘543 patent via consumer
purchase and use of the Magician’s Assistant wand which Fiddle
manufactured and sold. Id. At the close of discovery, Fiddle
filed a motion for summary judgment of no liability for induced
infringement. Id. The District Court granted Fiddle’s motion
for summary judgment finding Fiddle’s actions did not meet the
willful blindness standard. R. at ¶ 41. Even considering the
facts in favor of Wands, the District Court found the evidence
insufficient to show Fiddle actually intended for the ‘543
patent to be infringed by Fiddle’s users as they were unaware
3
of the existence of ‘543 patent and did nothing to deliberately
avoid learning of the ‘543 patent. Id.
Fiddle did not challenge the validity of the ‘543 patent.
Id. Wands timely filed a notice of appeal to this Court. Id.
STATEMENT OF FACTS
Fiddle is the manufacturer and seller of magical devices,
including the “Magician’s Assistant” automatic wand. R. at ¶
18. During a meeting with Herman Ranger (“Mr. Ranger”), a
magic company colleague, Fiddle’s CEO, Mr. Mortimer Volda (“Mr.
Volda”), learned that Mr. Ranger received a letter from Wands
asserting Mr. Ranger’s product infringed the ‘543 patent. R.
at ¶¶ 18, 27. Mr. Volda, conscious of the multiple
similarities between the Magician’s Assistant and Mr. Ranger’s
wand, filed this lawsuit on June 22, 2011, requesting a
declaration that its Magician’s Assistant wand does not induce
infringement of the ‘543 patent. R. at ¶¶ 27, 33.
The ‘543 patent was acquired on July 20, 2008 by Wands,
manufacturer of the Shrink-O-Matic device, after it
successfully outbid competitors at a patent auction. R. at ¶¶
1, 5-7. Wands, which controls 80% of the wand market share,
purchased the ‘543 patent in order to “strengthen its patent
portfolio.” R. at ¶ 7. The patent, directed to a method for
shrinking a person, was originally promoted to all wand
manufacturers in a brochure in early 2007, which included a
4
chart mapping the patent’s claims to current devices on the
market. R. at ¶¶ 5-7. Mr. Volda vaguely recalled receiving
the brochure; however, he immediately disposed of the brochure
as he had yet to develop a competing wand at the time, and
therefore, had no any interest in acquiring patents. R. at ¶¶
18-19, 23. Moreover, Mr. Volda’s copy of the brochure, which
he received two years before he developed the Magician’s
Assistant, did not reference the patent by number as the front
(and only) page containing full patent identification
information was missing. Id.
After acquiring the ‘543 patent, Wands repeatedly asserted
in trade publications its intentions to “vigorously” enforce
its patent rights against “any party we identify as infringing
our patents.” R. at ¶¶ 7, 8. None of these articles referred
to the ‘543 patent by number. R. at ¶ 7. Between 2008 and
2009, Wands proceeded to file three lawsuits against wand
manufacturers, obtaining a favorable jury verdict with damages
in the first lawsuit in 2011 and settlements in the latter two.
R. at ¶¶ 10, 11. Wands CEO, A. L. Umble Door, admitted he
“sued every one of his potential competitors and continuously
monitored the market.” R. at ¶ 28. Wands continues to assert
the ‘543 patent against manufacturers of products similar to
Fiddle’s Magician’s Assistant. See R. at ¶ 27.
In early 2009, Mr. Volda developed his Magician’s
5
Assistant wand, based in part, on a version “B” Shrink-O-Matic
he purchased which bore no U.S. patent markings. R. at ¶¶ 18,
19. Mr. Volda specifically selected the version “B” Shrink-O-
Matic due to the fact that it received good reviews. R. at ¶¶
16, 18. The Magician’s Assistant Fiddle developed was similar
to the version “B” Shrink-O-Matic. R. at ¶¶ 32-33, 36.
However, Fiddle’s Magician’s Assistant included additional
features for pre-recorded incantation spells and remote control
operation that were present in other wands on the market,
including the one sold by Wands’ chief competitor, Sticks. See
R. at ¶¶ 10, 34, 37.
After development of the Magician’s Assistant, Mr. Volda
diligently sought a freedom-to-operate opinion from outside
counsel, informing her that he looked at products available on
the market. R. at ¶ 22. After conducting a patent search,
opinion counsel issued an opinion that the Magician’s Assistant
did not infringe any of the patents from the search. R. at ¶
22. The search did not identify the ‘543 patent. Id.
Fiddle’s Magician’s Assistant stands above all others when
operated by directions contained in its Almighty Manual and has
multiple uses other than shrinking humans, such as an alarm for
voicing wake-up spells. R. at ¶¶ 30, 35. Fiddle sells the
Magician’s Assistant on its website and has promoted its
product, presenting it at a booth at the annual Magical
6
Advances conference, also attended by Wands, with a wizard room
where visitors can sample the Magician’s Assistant. R. at ¶
30. Fiddle’s Magician’s Assistant has been well received, and
even Wands’ expert testified that many wizards rely on its
“remarkable degree of consistency.” See R. at ¶ 36.
In May 2010, Fiddle’s engineers began to develop an
updated wand, Magician’s Assistant II. R. at ¶ 25. However,
after becoming aware of the ‘543 patent from an article
showcasing Wands’ litigation campaign, Mr. Volda felt that due
to the “specter of litigation,” it was “impossible” for Fiddle
to continue development and delayed the scheduled release of
the new, improved product. R. at ¶ 26.
SUMMARY OF THE ARGUMENT
Fiddle and Wands are engaged in a substantial controversy
that warrants an issuance of declaratory judgment. The record
establishes the reality and immediacy of this controversy due
to the fact that (1) Wands’ persistent litigious conduct
against products similar to Fiddle’s Magician’s Assistant
creates a “real and substantial” threat of litigation against
Fiddle, (2) Wands’ objective actions are an implicit assertion
of the ‘543 patent against Fiddle, as no specific threat aimed
at plaintiff or pre-filing communications between the parties
is required to find actual controversy, and (3) Fiddle’s
presence in the marketplace with an allegedly infringing
7
product makes its adverse legal position tangible, not
hypothetical or abstract.
Fiddle is not liable for induced infringement of the ‘543
patent as it had no actual knowledge of the ‘543 patent and was
not willfully blind to its existence. Wands presented no
evidence to establish Fiddle’s actual knowledge of the ‘543
patent, let alone any actual intent on Fiddle’s part to
infringe the ‘543 patent. Further, Wands has presented no
evidence to support the assertion that Fiddle had a “subjective
belief” that the ‘543 patent existed when (1) the version of
the product Fiddle purchased based on its good reviews was not
marked with patent information and (2) the freedom-to-operate
opinion from Fiddle’s outside counsel did not identify the ‘543
patent. In addition, Fiddle did not act deliberately to avoid
learning of the ‘543 patent’s existence by (1) actively seeking
a freedom-to-operate opinion while informing opinion counsel
that it considered products on the market and (2) immediately
seeking legal resolution for the Magician’s Assistant upon
learning of the ‘543 patent.
STANDARDS OF REVIEW
A grant or denial of a motion to dismiss for lack of
subject matter jurisdiction is a question of law reviewed de
novo. Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1335
(Fed. Cir. 2008). Underlying factual findings are reviewed for
8
clear error. Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d
1358, 1361 (Fed. Cir. 2009).
Orders granting or denying summary judgment are reviewed
de novo and should be affirmed when “there is no genuine issue
as to any material fact and [] the moving party is entitled to
a judgment as a matter of law.” Crown Operations Int’l v.
Solutia Inc., 289 F.3d 1367, 1375 (Fed. Cir. 2002).
ARGUMENT
I. A Substantial Controversy Exists Between Fiddle and Wands,
Establishing Declaratory Jurisdiction.
Fiddle has standing to bring this suit as a justiciable
controversy exists between Fiddle and Wands. Under the Supreme
Court’s standard set forth in MedImmune, an Article III case or
controversy exists when “the facts alleged, under all the
circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory
judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
127 (2007) (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co.,
312 U.S. 270, 273 (1941)). Fiddle’s potentially infringing
activity and Wands’ prior conduct has created an actual
controversy between the parties, and Fiddle is within its
rights to seek a declaration that its activities are not
infringing. See Cat Tech LLC v. Tube Master, Inc., 528 F.3d
9
871, 878-79 (Fed. Cir. 2008) (explaining that after passage of
the Declaratory Judgment Act, competitors “were no longer
restricted to [the hard] choice between incurrence of a growing
potential liability for potential infringement and abandonment
of their enterprises; they could clear the air by suing for a
[declaratory] judgment”).
In MedImmune, the Supreme Court rejected this Court’s
exclusive use of the “reasonable apprehension” of suit test as
the sole test for declaratory jurisdiction and redirected the
analysis to a “totality of the circumstances” approach. See
549 U.S. at 132; see also Prasco, 537 F.3d at 1336 n.4, 1339
(explaining that “reasonable apprehension” of suit and
“meaningful preparation to conduct potentially infringing
activity” remain important to the totally of the circumstances
test.). Indeed, “the now more lenient legal standard . . .
enhances the availability of declaratory judgment jurisdiction
in patent cases.” Micron Tech., Inc. v. Mosaid Techs., Inc.,
518 F.3d 897, 902 (Fed. Cir. 2008); see also Hewlett-Packard,
587 F.3d at 1361) (“Intentionally or not, MedImmune may have
lowered the bar for determining declaratory judgment
jurisdiction in all patent cases.”).
Wands’ aggressive litigation tactics against sellers of
products similar to Fiddle’s Magician’s Assistant, its public
threat to vigorously enforce its patent against any party it
10
finds to be infringing, and Fiddle’s resulting delay in product
release have created a substantial controversy between the
parties. R. at ¶ 41. Effectively, Wands’ conduct has put
Fiddle in “the position of either pursuing arguably illegal
behavior or abandoning that which he claims a right to do.”
SanDisk Corp. v. STMicroelectronics., Inc., 480 F.3d 1372, 1381
(Fed. Cir. 2007); see also MedImmune, 549 U.S. at 129 (noting
that Article III jurisdiction “d[oes] not require, as a
prerequisite to testing the validity of the law in a suit for
injunction, that the plaintiff bet the farm, so to speak, by
taking the violative action.”).
As required under MedImmune, the dispute between Fiddle
and Wands is “definite and concrete, touching the legal
relations of parties having adverse legal interests,” such that
this Court may admit “specific relief through a decree of a
conclusive character, as distinguished from an opinion advising
what the law would be upon a hypothetical state of facts.” See
549 U.S. at 127 (quotation omitted). Accordingly, this Court
should affirm the District Court’s findings and hold that
Wands’ motion to dismiss was correctly denied.
A. Wands’ objective actions have created a real
controversy with respect to Fiddle’s potential
infringement of the ‘543 patent.
Wands’ aggressive litigation strategies against products
similar to Fiddle’s Magician’s Assistant create a “real and
11
substantial” threat of litigation against Fiddle. See R. at ¶
40. As correctly recognized by the District Court, the
similarity between the Magician’s Assistant and the Shrink-o-
Matic devices, as well as similarities to prior devices against
which the ‘543 patent has been enforced, created a substantial
likelihood that Fiddle would be faced with litigation regarding
its ongoing activities. See R. at ¶¶ 32-34. Since the
acquisition of the ‘543 patent, Wands has repeatedly gone out
of its way to publically assert its position that it will
“vigorously enforce” its patent rights against “any party
[Wands] identifie[s] as infringing.” See R. at ¶¶ 7, 8. In
2008, Wands began filing law suits against other manufacturers
and sellers of similar magic wands in the industry. R. at ¶¶
9, 27. Wands outspoken public behavior and active and
aggressive enforcement of its patent against other similarly
situated sellers created a substantial likelihood that Fiddle
will be targeted by Wands with a lawsuit if it continues to
produce and sell its Magician’s Assistant.
Wands’ CEO, Umble Door, testified that he was unaware of
Fiddle’s patent and that he didn’t “think” it would have been
worth his time to pursue Fiddle’s product due to its low sales.
R. at ¶ 28. However, Wands subjective claims regarding its
intent to sue for infringement are immaterial to the Article
III jurisdiction analysis. See Hewlett-Packard, 587 F.3d at
12
1363 (finding whether patentee subjectively believed
declaratory plaintiff was infringing irrelevant to
determination of a justiciable controversy). Rather, the
proper focus is the patentee’s objective “preparedness and
willingness to enforce its patents rights” despite possible
claims to the contrary. See SanDisk, 480 F.3d at 1376, 1382-83
(holding that the patentee’s statement that it “has absolutely
no plan whatsoever to sue [the declaratory plaintiff]” fails to
“eliminate the justiciable controversy created by [the
patentee’s] actions”). Here, despite Umble Door’s claim that
suing Fiddle would not have been “worth [his] time,” the fact
remains Wands’ repeated assertions of the ‘543 patent clearly
indicate its adverse legal position to Fiddle, and it these
“objective words and actions of the patentee that are
controlling.” See Hewlett-Packard, 587 F.3d at 1363; R. at ¶
28.
Identical analysis was employed in Micron, in which this
Court found an actual controversy under the MedImmune standard
between a patentee who had previously sued other major
manufacturers of similar technology and a declaratory plaintiff
who had reason to believe it was next. 518 F.3d at 899-901.
In Micron, the patentee sent letters to the four major
manufacturers of random access memory chips suggesting that
they license the patentee’s technology. Id. at 899. After
13
failing to receive a favorable reply from any party, the
patentee brought suit against one of the manufacturers. Id.
Similar to the instant case, upon termination of the first
lawsuit, the Micron patentee soon settled with two of the other
manufacturers. Id. Suspecting it was next on the list,
plaintiff filed for declaratory relief nearly four years after
receiving the license inquiry. Id. This Court held an actual
controversy existed and found that there was ample evidence on
record supporting jurisdiction; namely, the original letters,
the prior litigious conduct, and the patentee’s public
statements indicating their intent to pursue aggressive
litigation. Id. at 901.
Micron is instructive in the instant action because both
patentees’ litigious conduct and public statements regarding
the enforcement of its patent, bolstered the likelihood that
the declaratory plaintiffs would be sued next. See id. at 899.
The patentees outward, objective actions created a reasonable
apprehension of a law suit and led to the creation of a “real
and substantial” controversy between the parties, regardless of
the content of the original licensing letters sent four years
prior. Id. at 901; see also Hewlett-Packard, 587 F.3d at 1363
(noting that “conduct that can be reasonably inferred as
demonstrating intent to enforce a patent can create declaratory
judgment jurisdiction.”); Prasco, 537 F.3d at 1336 (reaffirming
14
that post-MedImmune, the “reasonable apprehension” of suit test
continues to be “one of multiple ways that a declaratory
judgment plaintiff can satisfy the more general
all-the-circumstances test.”).
In addition, Umble Door’s public statements explicitly
show that Wands acquired the ‘543 patent for the sole purpose
of strengthening its patent portfolio and planned to
“vigorously enforce” its patent rights “against any party”
identified by Wands as infringing. R. at ¶¶ 7, 8 (emphasis
added). Wands has also carried through on its statements by
enforcing the ‘543 patent against manufacturers of similar
products. R. at ¶¶ 8, 9. In addition, Wands continues to
threaten and assert infringement of the ‘543 patent against
other magic wand sellers, as shown by Wands’ letter to Mr.
Ranger. R. at ¶ 27.
When Wands’ statements are viewed in conjunction with its
prior and current assertion of the ‘543 patent, Fiddle’s
apprehension of litigation is not only “reasonable” under any
standard, but is “definite and concrete,” touching the actual
legal relations between the parties. See MedImmune, 549 U.S.
at 127. In these circumstances, declaratory judgment is not
only appropriate, but also necessary, to clear the shroud of
uncertainty and settle the adverse legal positions of the
parties. See id. Accordingly, this Court should affirm the
15
District Court’s finding of declaratory jurisdiction.
B. Wands “implied assertion” of enforcing its patent
against Fiddle creates a justiciable controversy.
Wands’ vigorous enforcement of the ‘543 patent against
wand manufacturers similar to Fiddle creates an “implied
assertion” of patent enforcement warranting declaratory
adjudication, as no specific threat against Fiddle is required
for this Court to find an actual controversy. See Hewlett-
Packard, 587 F.3d at 1364; see also ABB Inc. v. Cooper Indus.,
LLC, 635 F.3d 1345, 1348 (Fed. Cir. 2011). Umble Door’s
testimony that he had yet to evaluate the Magician’s Assistant
or to determine whether Wands would ultimately sue Fiddle for
infringement is immaterial to the Article III analysis. See R.
at ¶ 28.
This Court has held that a specific threat to enforce a
patent against a declaratory plaintiff is not required in order
to confer Article III jurisdiction upon a court. See ABB Inc.,
635 F.3d at 1348. Rather, a patentee’s actions must be viewed
objectively, focusing on whether they create an “implied
assertion” of its rights. See Hewlett-Packard, 587 F.3d at
1364. In Hewlett-Packard, this Court found that the conduct of
a patentee, who had not investigated the declaratory
plaintiff’s product or determined whether that product
infringed, created an “implied assertion” of enforcement
16
against declaratory plaintiff. See id. at 1363. There, the
patentee wrote to the declaratory plaintiff stating that it
wished to discuss the patented technologies at issue. Id. at
1360. In its letters, the patentee repeatedly stated that the
communications would not be used in any future litigation and
that it did not believe that it currently had “any basis for
filing a declaratory judgment action.” Id. Nevertheless, the
plaintiff filed for declaratory relief later that month. Id.
at 1361. At trial, the patentee repeatedly argued that
declaratory jurisdiction was inappropriate because the patentee
had yet to determine if it even had a basis for asserting the
patent. Id. at 1363. This Court declined to find these facts
persuasive, and instead held that the patentee’s correspondence
with the declaratory plaintiff created an “implied assertion of
its rights under the [] patent.” Id. at 1364 (emphasis added).
Like Hewlett-Packard, Wands’ alleged unawareness of
Fiddle’s product is irrelevant as a patentee is not required to
have evaluated an allegedly infringing device in order for an
actual controversy to exist. See id. at 1363 (finding whether
patentee conducted an adequate investigation of plaintiff’s
potentially infringing product irrelevant to determination of a
justiciable controversy). Furthermore, that the patentee in
Hewlett-Packard contacted the declaratory plaintiff in a
neutral manner is instructive as it reaffirms that jurisdiction
17
post-MedImmune remains focused the totality of conduct inasmuch
as an objective view of that conduct creates a substantial
controversy between the parties. See also ABB Inc., 635 F.3d
at 1348 (finding patentee’s argument that a justiciable
controversy requires actual threatened litigation impermissible
under the MedImmune standard). In the instant action, Wands
has not only litigated its patent against similarly situated
companies but has publicly stated its intent to vigorously
enforce its rights and continues to actively pursue potential
infringers in the marketplace. R. at ¶¶ 7, 8. Thus, Wands has
gone beyond the limited at-arm’s-length neutral contact present
in Hewlett-Packard and created a real and concrete apprehension
of an assertion of adverse legal interests against Fiddle.
Additionally, in Panavise Products, Inc. v. National
Products, Inc., this Court recognized that lack of direct pre-
complaint communication between the patentee and declaratory
plaintiff is not sufficient by itself to defeat subject matter
jurisdiction. 306 Fed. Appx. 570, 573 (Fed. Cir. 2009). The
Panavise plaintiff based its argument for declaratory
jurisdiction on the fact that distribution of its potentially
infringing device had begun, the patentee had seen this device
at a trade show, and the patentee had a history of litigious
conduct. Id. at 571. This Court declined to find jurisdiction
based primarily on the fact that there was no “immediate”
18
threat or injury since declaratory plaintiff had already
brought its product to market. Id. at 572-73. This Court
noted that declaratory plaintiff did not allege that
“[patentee] actually restrained its right to freely market its
products before or at the time of the complaint,” and therefore
concluded that any future injury was hypothetical. Id. at 573.
Nevertheless, this Court stated:
“We do not, of course, mean that the lack of
direct pre-direct pre-complaint communication .
. . by itself is sufficient to defeat subject
matter jurisdiction. . . . On the contrary, we
recognize that ‘[p]rior litigious conduct is one
circumstance to be considered in assessing
whether the totality of the circumstances
creates an actual controversy.’”
Id. (internal citations and quotations omitted). When read in
conjunction, the Hewlett-Packard and Panavise opinions
reinforce that specific threats or pre-complaint communication
are not prerequisites to finding declaratory jurisdiction.
Additionally, Panavise lacked critical facts present in
the instant action. The Panavise Court’s opinion was heavily
influenced by the fact that the declaratory plaintiff rested on
the allegations contained in its complaint and failed to adduce
additional evidence that the patentee “actually restrained its
rights to freely market its product” at the time the complaint
was filed. See Panavise, 306 Fed. Appx. at 572-73.
Specifically, the fact that the Panavise plaintiff had since
19
entered the market with its product showed that it had suffered
no injury and faced no real or immediate threat. Id. at 573.
However, unlike the plaintiff in Panavise, Fiddle has not yet
entered the market with its second-generation product and has
halted any further development for fear of litigation. See R.
at ¶ 26 (Mr. Volda’s testimony that the immediate threat of
litigation compelled Fiddle to delay bringing the Magician’s
Assistant II to market). Thus, the looming threat of future
injury has in fact paralyzed Fiddle and caused Fiddle’s present
injury. Given the substantial degree of similarity between
Fiddle’s products and the products against which Wands has
previously asserted the ‘543 patent, Fiddle should not be
forced to “bet the farm, so to speak, by taking the violative
action” of bringing the Magician’s Assistant II to market. See
MedImmune, 549 U.S. at 129, 134 (explaining the rule that a
plaintiff must risk damages and loss of its business “before
seeking a declaration of its actively contested legal rights
finds no support in Article III”).
C. The dispute between the parties is “real and
immediate” and the parties’ adverse legal positions
are not based on a hypothetical set of facts.
Fiddle’s active sale of an allegedly infringing product
renders this dispute “real and immediate” and worthy of this
Court rendering conclusive relief. Fiddle has already been
selling the Magician’s Assistant for over two years and has
20
undertaken significant development of a second-generation wand
product, the Magician’s Assistant II. See R. at ¶¶ 25, 30.
Fiddle’s actions weigh heavily in favor of declaratory
jurisdiction because “whether there has been potentially
infringing activity or meaningful preparation to conduct
potentially infringing activity, ‘remains an important element
in the totality of circumstances which must be considered in
determining whether a declaratory judgment is appropriate.’”
See Prasco, 537 F.3d at 1336 n.4 (quoting Cat Tech LLC v.
TubeMaster, Inc., 528 F.3d 871, 880 (Fed. Cir. 2008)) (emphasis
added).
Moreover, the fact that the specter of litigation has
forced Fiddle to halt its progress in developing the Magician’s
Assistant II is a tribute to the sufficiency and reality of the
threat posed by Wands’ actions. When a manufacturer is faced
with justifiable unpredictability, it cannot be forced to
choose between remaining paralyzed and immobile or opting to
engage in possible unlawful activity by selling a potentially
infringing activity. See Water, Inc. v. Ecolochem, Inc., 846
F.2d 731, 734-35 (Fed. Cir. 1988) (noting the purpose of the
Declaratory Judgment Act was to allow a potential infringer to
“clear the air by suing for a judgment that would settle the
conflict of interests.”). Rather, where there are “real and
substantial” doubts as to potential infringement based on
21
“definite and concrete” actions of the parties, a manufacturer
must be allowed to seek declaratory relief. See MedImmune, 549
U.S. at 127.
When viewed in their totality, the objective circumstances
of the instant action have created a “definite and concrete”
legal dispute between the parties. Accordingly, this Court
should uphold the District Court’s finding that declaratory
jurisdiction was proper and affirm the denial of Wands’ motion
to dismiss.
II. Fiddle Has Not Induced Infringement of the ‘543 Patent
Under 35 U.S.C. § 271(b).
The facts of this case are insufficient to establish that
Fiddle actually intended users of its Magician’s Assistant
product to infringe the ‘543 patent or that Fiddle was
willfully blind to the patent. Mr. Volda purchased an unmarked
version of the Shrink-O-Matic based on its popularity and he
received a favorable freedom-to-operate opinion from counsel
after disclosing that he developed his design from products in
the market. R. at ¶¶ 16, 19, 22. Upon learning that Wands was
enforcing its patent against products similar to the Magician’s
Assistant, Fiddle immediately filed this lawsuit for
declaratory judgment to resolve any potential issues with the
sale of the Magician’s Assistant and to reinvigorate his
development and release of the updated Magician’s Assistant II.
22
See R. at ¶ 27.
Under Section 271(b) of the Patent Act, an individual must
“actively induce[] infringement of a patent” in order to be
liable as an infringer. 35 U.S.C. § 271(b) (2006). The
Supreme Court has recently held that the “actively induces”
language of Section 271(b) implies that “at least some intent
is required.” Global-Tech Appliances, Inc. v. SEB S.A., ___
U.S. ___, 131 S. Ct. 2060, 2065 (2011). Fiddle’s products have
multiple uses other than shrinking humans, which casts doubt on
Fiddle’s affirmative intent for the Magician’s Assistant to
infringe the ‘543 patent. See R. at ¶ 37 (Wands’ expert
conceding that the additional functionalities of the Magician’s
Assistant provide an “entirely separate reason for purchasing”
the device).
Furthermore, “the inducement must involve the taking of
affirmative steps to bring about the desired result” and
necessarily requires “knowledge of the existence of the patent
that is infringed.” Global-Tech, 131 S. Ct. at 2065, 2068. In
Global-Tech, the Supreme Court rejected this Court’s
“deliberate indifference” to a “known risk” test for induced
infringement and redirected the analysis to require a plaintiff
to show the potential infringer had actual knowledge or acted
with “willful blindness.” Id. at 2068-71. In the instant
case, Wands has failed to prove that Fiddle had either (A)
23
actual knowledge of the ‘543 patent, or (B) was willfully blind
to the patent’s existence.
A. Fiddle did not have actual knowledge of the '543
patent.
No facts have been presented in this case to establish
that Fiddle had actual knowledge of the ‘543 patent or that it
actually intended users of its Magician’s Assistant product to
infringe the ‘543 patent. Mr. Volda first became aware of the
‘543 patent when he saw an article about Wands’ litigation
campaign in a trade publication. R. at ¶ 26. After Fiddle
learned of Wands’ active assertions of infringement of the ‘543
patent against similar product manufacturers, it quickly sought
legal resolution. R. at ¶ 27. The only evidence alleged to
establish Fiddle’s prior knowledge of the patent is a vague
promotional brochure indiscriminately sent to all magic wand
companies, which Fiddle received many years prior to developing
its product. R. at ¶¶ 6, 23. That brochure listed some patent
claims with features of magic wands currently on the market
mapped to the corresponding claim elements. Id. However, the
first page of the brochure sent to Fiddle was destroyed and the
remaining pages contained no information identifying the patent
by title, inventor, or number. Id. This Court is hard-pressed
to find that Fiddle intended its customers to infringe the ‘543
patent when there is no other evidence of Fiddle’s awareness of
24
the patent. Accordingly, the evidence is simply insufficient
to establish Fiddle’s actual knowledge of the ‘543 patent.
B. Fiddle was not willfully blind to the existence of
the ‘543 patent.
The facts of this case also fail to meet the “willful
blindness” standard for knowledge articulated in Global-Tech.
In Global-Tech, the Supreme Court held that a potential
inducing infringer acts with “willful blindness” only if he (1)
“subjectively believe[s] that there is a high probability that
a fact exists,” and (2) “take[s] deliberate actions to avoid
learning of the fact.” 131 S. Ct. at 2070, n.9. This is
contrasted from a potential infringer who acts recklessly by
mere knowledge of a “substantial and unjustified risk of []
wrongdoing,” or negligently when the potential infringer
“should have known of a similar risk, but in fact, did not.”
Id. at 2071. Rather, the willfully blind party “is one who
takes deliberate actions to avoid confirming a high probability
of wrongdoing and who can almost be said to have actually known
the critical facts.” Id. at 2071-72 (emphasis added). Here,
Wands has failed to meet the stringent standard set forth in
Global-Tech. See Versata Software Inc. v. SAP America, Inc.,
No. 2:07–CV–153 CE, 2011 WL 4017952, at *4 (E.D. Tex. Sept. 9,
2011) (“[G]lobal-Tech establishes a stringent requirement for
knowledge of the patent.”).
25
In Global-Tech, the potential infringer copied all but the
cosmetic features of the patentee’s overseas cool-touch fryer
after conducting market research to determine it enjoyed market
success as an innovative product. 131 S. Ct. at 2071. The
potential infringer was familiar with the U.S. patent system,
the CEO being named as inventor on many U.S. patents. Id. at
2071. The potential infringer obtained a right-to-use opinion
but failed to disclose any information to counsel that the
patentee’s product was copied from another product on the
market. Id. at 2064. The Supreme Court affirmed this Court’s
finding of induced infringement, holding that the evidence was
“more than sufficient” to support a finding of knowledge under
the doctrine of willful blindness. Id. at 2064, 2072. The
Court reasoned that (1) the copying of an overseas product when
domestic products were readily available and which the
potential infringer knew would not bear U.S. patent markings,
and (2) the decision to not inform opinion counsel about the
copied product, showed a subjective belief that a patent
existed and deliberate actions to avoid learning of the patent.
Id. at 2071. The facts of the present case are simply not on
all fours with Global-Tech.
26
1. Fiddle did not have the “subjective belief” that
the ‘543 patent existed, let alone that it was
likely infringed by the use of Fiddle’s
products.
Unlike the potential infringer in Global-Tech, Fiddle did
not engage in any actions demonstrating a subjective belief of
the existence of the ‘543 patent. The facts before this Court
establish that Fiddle developed the Magician’s Assistant using
a version “B” Shrink-O-Matic, which bore no U.S. patent
markings. R. at ¶¶ 18, 19. Version “B” was available in the
U.S. and selected by Fiddle specifically due to the fact it had
received good reviews. R. at ¶¶ 18, 19. In addition, Fiddle
exercised diligence in obtaining a freedom-to-operate opinion
of counsel before selling the Magician’s Assistant, and unlike
the potential infringer in Global-Tech, Fiddle informed opinion
counsel that prior to development he looked at products on the
market. R. at ¶ 22. Lastly, although Fiddle obtained a
promotional brochure advertising sale of the ‘543 patent in
early 2007, the sole page bearing the actual patent number was
missing upon receipt and the brochure was received at a time
significantly prior to Fiddle’s product development and release
of the Magician’s Assistant. R. at ¶¶ 6, 23, 24. Furthermore,
Fiddle was unaware of the ‘543 patent until 2011 when he saw an
article referring to Wands litigation in a trade publication.
R. at ¶¶ 11, 26.
27
Accordingly, any assertions that Fiddle “subjectively
believed” the ‘543 patent existed are based on mere allegations
that lack any probative evidence and do not present a genuine
issue of material fact. See Celetex Corp. v. Catrett, 477 U.S.
317, 327 (1986) (explaining that “a motion for summary judgment
is properly supported by documentary and testimonial evidence,
however, the nonmoving party may not rest upon mere allegations
or denials of his pleadings, but rather, must present
significant probative evidence to establish a genuine issue of
material fact.”).
2. Fiddle’s actions were not deliberate attempts to
avoid learning about the existence of the ‘543
patent or attempts to avoid learning that the
use of the Magician’s Assistant might infringe
the ‘543 patent.
Fiddle’s actions are insufficient to support a finding of
the existence of deliberate attempts to avoid learning of the
‘543 patent. The promotional brochure sent by the inventor of
the ‘543 patent to Fiddle was not relevant to Fiddle’s business
plan as it did not refer to any Fiddle products, did not
contain the first page which identified the patent by number,
and was sent more than two years prior to Fiddle’s interest in
developing the Magician’s Assistant. R. at ¶¶ 6, 7, 11.
Furthermore, Fiddle immediately discarded the brochure as he
had yet to even develop a competing product at this time and
therefore had little interest in acquiring a patent. R. at ¶¶
28
18-19, 23. Failure to maintain and recall an unsolicited
promotional brochure which contained generic patent claims that
did not relate to any products of the receiving party at the
time of receipt does not indicate purposeful actions by Fiddle
as required under Global-Tech. See 131 S. Ct. at 2071, n.9
(explaining that willful blindness “impute[s] the element of
knowledge . . . if the evidence indicates that [potential
infringer] purposely closed his eyes to avoid knowing what was
taking place around him.”).
It is also important to note that unlike the inducing
infringer in Global-Tech, Mr. Volda did not possess the same
level of patent knowledge. Namely, Mr. Volda had no interest,
or means, to acquire any patents at the time he received the
brochure and, therefore, did not seek out additional
information with respect to the patent promoted. R. at ¶ 23.
More than two years after receiving the brochure, when Mr.
Volda was in a position to request a freedom-to-operate
opinion, he actively notified his attorney that he looked at
products available on the market prior to developing the
Magician’s Assistant. R. at ¶ 22. Wands Shrink-O-Matic
enjoyed 80% market-share among magic wand devices. R. at ¶ 15.
Therefore, under the more “stringent requirement for knowledge
of a patent,” Mr. Volda’s communication to his opinion counsel
did not amount to the same offense as that of the inducing
29
infringer of Global-Tech who shared absolutely no information
with its counsel regarding its direct copying of the most
innovative product on the market. See Versata Software, 2011
WL 4017952, at *4 (referring to Global-Tech’s “stringent
requirement” for knowledge of the patent).
Finally, Fiddle’s promptness in filing this declaratory
judgment action upon learning of the existence of Wands ‘543
patent and learning the fact that Wands was enforcing the
patent against similar products demonstrates a focused,
affirmative resolve to put to rest any legal issues that may be
confronted by sale of the Magician’s Assistant or by launch of
the improved Magician’s Assistant II. R. at ¶ 27. In
launching the Magician’s Assistant, Fiddle was not trying to
“escap[e] conviction merely by deliberately closing his eyes to
the obvious risk that he is engaging in unlawful conduct.” See
Global-Tech, 131 S. Ct. at 2071, n.9. Rather, inapposite, once
Fiddle became aware of any risks, he utilized the legal tools
available to him for resolution of his product’s legal place in
the market.
Accordingly, there is no probative evidence that Fiddle
acted deliberately to avoid learning of the ‘543 patent’s
existence of the ‘543 patent and to find such this Court would
have to rely on mere denials of the fact that Fiddle brought
this action for legal resolution upon learning of the ‘543
30
patent. Therefore, faced with no genuine issue of material
fact, the District Court’s finding of summary judgment was
appropriate.
CONCLUSION
For the foregoing reasons, Plaintiff-appellee respectfully
requests this Court affirm the District Court’s denial of
Defendant’s motion to dismiss based on lack of jurisdiction.
In addition, Plaintiff-appellee respectfully requests this
Court affirm the District Court’s grant of Plaintiff’s motion
for summary judgment finding no liability for induced
infringement under 271(b).
Respectfully submitted,
February 3, 2012 __________________________
RACHEL L. SCHWEERS
NICHOLAS A. RESTAURI
SCHWEERS & RESTAURI, P.C.
123 Platform 9-3/4
King’s Cross Station
London, Illinois 90001
Counsel for the Plaintiff-Appellee
31
CERTIFICATE OF SERVICE
I hereby certify that on February 3, 2012, I caused a copy of
the foregoing BRIEF OF PLAINTIFF-APPELLEE T. FIDDLE, INC. to be
served upon the below listed counsel of record via electronic
mail:
Bruce Wilson, [email protected]
Samuel Oddi, [email protected]
Douglas Gordon, [email protected]
J. Masur, [email protected]
Greg Jolley, [email protected]
Dr. Martha Siegel, [email protected]
Sam S. Han, Ph.D., J.D., [email protected]
Barbara B. Bressler, [email protected]
Mary B. Trevor, [email protected]
Andrew Crouse, [email protected]
J. Schaub, [email protected]
John R. Schaibley, [email protected]
Mark Janis, [email protected]
Ardath A. Hamann, [email protected]
Mickie A. Piatt, [email protected]
Themistocles Frangos, [email protected]
Ann Meckstroth, [email protected]
Ryann Beck & Ramon Klitzke, [email protected]
Richard Grauer, [email protected]
Jeffrey Carter-Johnson, [email protected]
Barry Berenberg, [email protected]
Andy Pieper & Brock Specht, [email protected]
David Deal, [email protected]
James Baker, [email protected]
I hereby certify that on February 3, 2012, I caused thirteen
copies of the foregoing BRIEF OF PLAINTIFF-APPELLEE T. FIDDLE,
INC. to be served upon the regional direct by hand delivery to:
Dr. Kevin E. Noonan
McDonnell, Boehnen, Hulbert & Berghoff
300 South Wacker Drive, 32nd Floor
Chicago, IL 60605
February 3, 2012 ____________________________
Nicholas A. Restauri
Rachel L. Schweers