No IN THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT WART-HOG WANDS, INC., T. FIDDLE, INC.,

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 DEFENDANT-APPELLANT WART-HOG WANDS, INC. NICHOLAS A. RESTAURI RACHEL L. SCHWEERS Counsel for the Defendant-Appellant SCHWEERS & RESTAURI, P.C. 123 Platform 9-3/4 King s Cross Station London, Illinois 90001

CERTIFICATE OF INTEREST Counsel for appellant certifies the following: 1. We represent Wart-Hog Wands, Inc. 2. Wart-Hog Wands, Inc. is the real party in interest. 3. Wart-Hog Wands, Inc. is an incorporated company. 4. The names of all law firms and the partners or associates that appeared for Wart-Hog Wands, Inc. in the trial court or are expected to appear in this Court are: Nicholas A. Restauri and Rachel L. Schweers. February 3, 2012 By: Nicholas A. Restauri Attorney i

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 THE FACTS... 2 SUMMARY OF THE ARGUMENT... 6 STANDARDS OF REVIEW... 7 ARGUMENT... 8 I. There is No Case of Actual Controversy Because Wands Had No Knowledge of Fiddle s Product and Made No Affirmative Acts Toward Fiddle.... 8 A. Fiddle failed to prove that Wands was aware of Fiddle s product such that a real and immediate threat of future harm was even conceivable.... 10 B. Evidence of Wands prior litigious conduct, in the absence of any affirmative acts toward Fiddle, is inadequate to establish declaratory jurisdiction.... 13 C. Fiddle s fear of litigation, in the absence of any affirmative acts by Wands, is inadequate to establish an actual controversy.... 16 II. Fiddle actively induced infringement of the 543 patent because it had actual knowledge of the 543 patent, or at the very least, was willfully blind to the patent s existence.. 18 A. Fiddle had actual knowledge of the 543 patent and intended to induce its customers to infringe the patent.. 21 B. Fiddle s actions demonstrated its willful blindness to the existence of the 543 patent.... 23 ii

1. Fiddle had the subjective belief that there was a high probability that the patent existed... 23 2. Fiddle took deliberate action to avoid confirming the existence of the 543 patent... 27 CONCLUSION... 30 iii

TABLE OF AUTHORITIES CASES Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937)...9 Amhil Enters. v. Wawa, Inc., 81 F.3d 1554 (Fed. Cir. 1996)...8 Ass n for Molecular Pathology v. U.S. Patent & Trademark Office, 653 F.3d 1329 (Fed. Cir. 2011)...10, 15 Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153 (Fed. Cir. 1996), overruled in part on other grounds...15 DSU Medical Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006) (en banc)...21 Global-Tech Appliances, Inc. v. SEB S.A., U.S., 131 S. Ct. 2060 (2011)...Passim Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377 (Fed. Cir. 2010)...13-15 MedImmune v. Genentech, Inc., 549 U.S. 118 (2007)...9, 18 MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369 (Fed. Cir. 2005)...19 Panavise Products, Inc. v. Nat l Products, Inc., 306 Fed. Appx. 570 (Fed. Cir. 2009)...11-12, 14 Prasco, LLC, v. Medicis Pharmaceutical Corp., 537 F.3d 1329 (Fed. Cir. 2008)...7, 16-18 Rembrandt Data Technologies, LP v. AOL, LLC, 641 F.3d 1331 (Fed. Cir. 2011)...7 Ricoh Co., Ltd. v. Quanta Computer Inc., 550 F.3d 1325 (Fed. Cir. 2008)...19 SanDisk Corp. v. STMicroelectronics., Inc., 480 F.3d 1372 (Fed. Cir. 2007)...15 iv

Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330 (Fed. Cir. 2007)...9 STATUTES 28 U.S.C. 1295(a)(1)...1 28 U.S.C. 1338(a) and 2201(a)...1 28 U.S.C. 2201...2 28 U.S.C. 2201(a) (2006)...9 35 U.S.C. 271(b) (2006)...18 RULES Fed. R. Civ. P. 56(c)...8 v

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 Wands contests the District Court s subject matter jurisdiction. Plaintiff invoked district-court jurisdiction under 28 U.S.C. 1338(a) and 2201(a). This Court has appellate jurisdiction under 28 U.S.C. 1295(a)(1) because the appeal is from a final judgment and Wands timely appealed. STATEMENT OF THE ISSUES 1. Whether there is a case of actual controversy when a patentee is dragged into litigation by a competitor when the patentee has no knowledge of the competitor s product and makes no affirmative act toward the competitor. 2. Whether a company has actual knowledge of a patent s existence or is willfully blind to the patent when the company consciously copies the patentee s device after receiving a brochure promoting the patent and the company discloses neither the copied device nor the brochure to its opinion counsel. STATEMENT OF THE CASE Plaintiff-appellee, T. Fiddle, Inc. ( Fiddle ) filed suit against Defendant-appellant, Wart-Hog Wands, Inc. ( Wands ) and 1

sought a declaratory judgment of non-infringement against U.S. Patent No. 9,876,543 ( the 543 patent ). Subsequently, Wands filed a motion to dismiss for lack of jurisdiction under 28 U.S.C. 2201 and a motion for limited discovery. The District Court denied Wands motion to dismiss, but granted the motion for limited discovery. Accordingly, 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. At the close of discovery, Fiddle filed a motion for summary judgment of no liability for induced infringement. The District Court granted Fiddle s motion for summary judgment. Fiddle did not challenge the validity of the 543 patent. Wands timely filed a notice of appeal to this Court. STATEMENT OF THE FACTS Wands is a successful company, owned and operated by its CEO, A.L. Umble Door, which sells the Shrink-O-Matic magic wand. R. at 1. In 2007, Mr. Wea Sell, the inventor of U.S. the 543 patent, sought to auction the 543 patent to the highest bidder. R. at 5. The 543 patent is directed to a method for shrinking people using short-form shrinking spells. R. at 2, 3. In order to promote the auction, Mr. Sell s patent broker sent a promotional brochure advertising the sale 2

of the 543 patent. R. at 6. The brochure was specifically designed to help advertise and promote the 543 patent with the intent of generating interest for an auction. Id. Accordingly, the brochure described current wands on the market and included a claim chart mapping the 543 patent claims to features of those products. Id. A copy of this brochure was sent to every company in the wand business, including Fiddle. Id. Fiddle s CEO, Mr. Volda, admitted to receiving a copy of the brochure, but claims that the first page, which identified the patent by number, was damaged by the post office. R. at 6, 23. However, being designed to generate interest in the 543 patent, the remainder of the brochure contained information specific to the 543 patent, including the claim chart mapping the patent to same device that Fiddle copied. Id. In July, 2008, after receiving the promotional brochure, Umble Door purchased the 543 patent and assigned it to Wands. R. at 6, 7. Umble Door s purchase of the 543 patent was publicized in press releases in various trade publications. Id. Following the purchase, Wands updated the most recent version of the Shrink-O-Matic with the marking stating that Use of this device is protected by U.S. Patent No. 9,876,543. R. at 16. Over the course of the next year, Wands initiated three lawsuits against individual magic wand competitors, 3

seeking damages for infringement of the 543 patent. R. at 8. The lawsuits concluded by February of 2011 and Wands has not filed suit against any competitor since. R. at 10, 11. Following the conclusion of the last lawsuit, Umble Door was quoted in the Wizarding World publication, stating he was tired of dealing with the litigation process. R. at 11. In March of 2009, Mr. Volda purchased an unmarked version B of the Shrink-O-Matic although he admitted that he noticed a marked version D of the device also available for sale at that time. R. at 18. Mr. Volda used the purchased Shrink-O- Matic as the basis for developing the Magician s Assistant magic wand, which could also be used with short form shrinking spells to shrink humans. R. at 19, 35. Fiddle copied all of the functional features of the Shrink-O-Matic during development of the Magician s Assistant, as corroborated by Fiddle s own expert. See R. at 19, 32, 33, 36. After developing the Magician s Assistant, Mr. Volda hired outside counsel to issue a freedom-to-operate opinion. R. at 22. However, Mr. Volda failed to disclose to his opinion counsel that he copied Wands Shrink-O-Matic. Id. Moreover, Mr. Volda failed to disclose any information regarding the brochure promoting the 543 patent that he received in 2007. R. at 24. Lacking knowledge of these critical facts, Fiddle s opinion counsel failed to discover the 543 patent and issued 4

an opinion of non-infringement favorable to Fiddle. R. at 22. The version of the Shrink-O-Matic that Mr. Volda purchased was also sold with a quick-start manual. R. at 21. Mr. Volda admitted to knowing that Wands quick-start manual indicated that technical specifications for the Shrink-O-Matic were available on Wands website. Id. Wands website prominently displayed information about the 543 patent and several articles about its purchase on the same webpage as the technical specifications. R. at 29. However, Mr. Volda failed to investigate Wands website. R. at 21. For over two years, Fiddle has been on the market selling the Magician s Assistant. See R. at 22, 25. Fiddle also currently sells the Magician s Assistant along with the Almighty Manual, which Fiddle stipulated contains instructions for using the device in accordance with each step of claim 1of the 543 patent. R. at 30, 31, 38. Moreover, Fiddle presented the Magician s Assistant to customers at the 2010 Magical Advances conference, also attended by Wands. R. at 30. At this trade show, Fiddle set up a practice room prominently displaying how to use the wand in accordance with the Almighty Manual and allowed visitors to try the Magician s Assistant. Id. Fiddle has stipulated that at least one 5

customer has used the Magician s Assistant device and performed each step of claim 1of the 543 patent. R. at 38. On June 22, 2011, Fiddle filed this declaratory judgment action against Wands. R. at 27. Prior to that time, Wands had no knowledge of Fiddle s Magician s Assistant or Fiddle s website selling it. R. at 25, 28. Umble Door admitted to actively monitoring the market, but was unaware of Fiddle s product as it was only sold through Fiddle s website and fewer than 100 units were ever sold. R. at 25, 28, 29. Upon learning of the Magician s Assistant, Umble Door testified that Fiddle s low sales would not have made pursuing an infringement action worth his time. R. at 28. Prior to this lawsuit, Wands never contacted or affirmatively acted toward Fiddle or its products. See id. SUMMARY OF THE ARGUMENT Declaratory judgment jurisdiction does not exist in this case because there is no case of actual controversy between the parties as required by Article III of the Constitution. First, Fiddle failed to prove that Wands was aware of Fiddle s products, let alone that Wands was likely to sue Fiddle for infringement. Second, the evidence of Wands prior litigation against distinct third-parties is insufficient to establish jurisdiction absent some affirmative act toward Fiddle. Third, Fiddle s asserted fear of litigation is also 6

insufficient to establish jurisdiction in the absence of an affirmative act toward Fiddle. Fiddle has induced infringement of the 543 patent as Fiddle had actual knowledge and, at the very least, constructive knowledge of the 543 patent. Mr. Volda testified to receiving a copy of the promotional brochure for the 543 patent. Regardless of whether the first page of the brochure was in fact destroyed, the brochure s claim chart clearly indicated that a patent exists and that it covers the same device that Fiddle copied. At the very least, Fiddle s receipt of the brochure provided Mr. Volda with a subjective belief of a high probability that a patent existed. Additionally, Mr. Volda took deliberate action to avoid confirming this belief when he opted not to investigate Wands website and failed to disclose both the brochure and the copied Wand s device to opinion counsel. This evidence demonstrates Fiddle s willful blindness to the 543 patent. STANDARDS OF REVIEW Jurisdictional issues are reviewed de novo. Prasco, LLC, v. Medicis Pharmaceutical Corp., 537 F.3d 1329, 1335 (Fed. Cir. 2008). Orders granting or denying summary judgment motion are also reviewed de novo, Rembrandt Data Technologies, LP v. AOL, LLC, 641 F.3d 1331 (Fed. Cir. 2011) (citations omitted), and should be affirmed only when there is no genuine issue as to 7

any material fact and [] the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c). A district court should approach a motion for summary judgment on the factual issue of infringement with great care. Amhil Enters. v. Wawa, Inc., 81 F.3d 1554, 1558 (Fed. Cir. 1996) (citation omitted). ARGUMENT I. There is No Case of Actual Controversy Because Wands Had No Knowledge of Fiddle s Product and Made No Affirmative Acts Toward Fiddle. Fiddle claimed, and the District Court agreed, that despite the fact that Wands had no knowledge of Fiddle s allegedly infringing product and made no affirmative acts toward Fiddle regarding the 543 patent, there existed a justiciable controversy between Fiddle and Wands that warranted a definitive judgment of resolution. R. at 41. The District Court s findings are clearly erroneous. Wands has made no affirmative acts toward Fiddle; it has sent no letters notifying Fiddle of the existence of its patent; it never called or contacted Fiddle to inform it of the 543 patent or the fact that Fiddle s Magician s Assistant may infringe the 543 patent. In fact, prior to this litigation, Wands was not even aware of Fiddle s Magician s Assistant. R. at 28. A suit filed under the Declaratory Judgment Act must be a case of actual controversy to be justiciable under Article III 8

of the Constitution. See 28 U.S.C. 2201(a) (2006). The Declaratory Judgment Act confers subject matter jurisdiction on the court only 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 v. Genentech, Inc., 549 U.S. 118, 127, (2007). Specifically, the plaintiff must show that the dispute is definite and concrete, touching the legal relations of parties having adverse legal interests ; and that it be real and substantial and admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be on a hypothetical set of facts. MedImmune, 549 U.S. at 127(quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)). The constitutional elements of an actual controversy include standing, ripeness, and an injury-in-fact, with the latter being the most determinative. Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330, 1339 (Fed. Cir. 2007). In order to establish an injury in fact fairly traceable to the patentee, a declaratory judgment plaintiff must allege both (1) an affirmative act by the patentee related to the enforcement of his patent rights, and (2) meaningful preparation to conduct potentially infringing 9

activity. Ass n for Molecular Pathology v. U.S. Patent & Trademark Office, 653 F.3d 1329, 1343 (Fed. Cir. 2011) (internal citations omitted). Fiddle s pursuit of declaratory judgment is inappropriate as there is no actual controversy, as required under Article III of the U.S. Constitution. Specifically, Fiddle failed to meet its burden in establishing a justiciable controversy because: (A) Fiddle does not face a real and immediate threat of future harm; (B) Wands prior conduct with third parties has no bearing on any alleged relationship between the Wands and Fiddle; and (C) Fiddle has been selling its product on the market for over two years and yet Wands never indicated any interest in pursuing a claim against Fiddle. A. Fiddle failed to prove that Wands was aware of Fiddle s product such that a real and immediate threat of future harm was even conceivable. The parties have never had any contact regarding the 543 patent prior to this law suit. Wands CEO testified that he was unaware of Fiddle s Magician s Assistant prior to this litigation. R. at 28. Fiddle has not presented any direct evidence showing Wands awareness of the Magician s Assistant. Instead, despite the fact that Fiddle has been selling its product on the market for over two years and Wands has never pursued them, Fiddle argues that Wands prior litigation with completely unrelated third-parties has somehow created a real 10

and immediate threat that Wands will sue Fiddle. See R. at 18. Fiddle has failed to provide any factual proof it faced a real and immediate threat from Wands, and at most, has only shown a potential, hypothetical, threat of future injury. This is inadequate to meet the threshold burden of establishing declaratory jurisdiction. See Panavise Products, Inc. v. Nat l Products, Inc., 306 Fed. Appx. 570, 573 (Fed. Cir. 2009) (finding that assumptions regarding a threat of future injury without factual proof do not establish declaratory jurisdiction). In Panavise, this Court found a patentee s routine enforcement of its patent insufficient to establish jurisdiction when the only evidence of patentee s awareness of the competitor s product was both parties attendance at a trade show. 306 Fed. Appx. at 572-74. The Panavise patentee initiated lawsuits against at least six competitors within a two year span. Id. at 571. The declaratory plaintiff had a first generation device already on the market and was preparing to release a potentially infringing updated device. Id. The declaratory plaintiff alleged the patentee likely observed its potentially infringing product at a trade show since it is typically important to visit the booths of known and recognized competitors. Id. at 573. This Court affirmed dismissal of that action finding the patentee s six prior 11

lawsuits insufficient to create an actual controversy between the parties because any threat of future injury was mere speculation and not immediate. Id. at 573-74. Similar to the competitor in Panavise, Wands participated in the Magical Advances conference at which Fiddle presented the Magician s Assistant at a booth for observation and sampling. R. at 30. Like Panavise, there is no evidence that Wands actually viewed the Magician s Assistant at this conference, and any claim as to Wands awareness of Fiddle, or its products, would be mere speculation. See 306 Fed. Appx. at 573. Moreover, Wands neither attempted to contact Fiddle nor made any affirmative acts acknowledging Fiddle s existence. See id. at 572, 574 (recognizing that a lack of direct precomplaint communication is a factor to be considered in the totality of the circumstances). Therefore, there is no substantive evidence that Wands was aware of Fiddle s product. In addition, like the declaratory plaintiff in Panavise, the fact that Fiddle s potentially infringing first-generation product was already on the market diminishes any alleged threat of future harm. See id. at 573 (acknowledging that patentee s failure to take action against products that the competitor was already selling casts doubt on the patentee s future plans to assert its patent). 12

B. Evidence of Wands prior litigious conduct, in the absence of any affirmative acts toward Fiddle, is inadequate to establish declaratory jurisdiction. Fiddle asserts a subjective fear of litigation stemming from three unrelated lawsuits Wands filed over two and a half years prior to this action as a basis for declaratory jurisdiction. R. at 9. However, Wands has neither contacted Fiddle nor has it evaluated Fiddle s products. A patentee, like Wands, who initiates no communication with or action toward a competitor but exercises a general propensity to enforce its patent rights against others, is not properly dragged into court by a potential infringer. See Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377, 1379 (Fed. Cir. 2010). In Innovative, a competing surgical company claimed that patentee s prior patent enforcement history against third parties and its phone calls with the declaratory plaintiff created an actual controversy between the parties. Id. at 1379. Even though the Innovative patentee had never seen or examined the declaratory plaintiff s products, the patentee stated in the telephone calls that it would act aggressively in response to any infringing product that the declaratory plaintiff launched. Id. at 1379-80. This Court affirmed the district court judgment dismissing the declaratory action. Id. at 1385. Specifically, this Court found that prior litigation, 13

while a factor to be considered in the totality of the circumstances, does not meet the minimum standard for an actual controversy under MedImmune absent an affirmative act directed toward the competitor. Id. at 1382. In this case, Fiddle bases its declaratory jurisdiction on nearly identical facts to those found insufficient in Innovative. Similar to the patentee in Innovative, Wands filed three lawsuits against third-party competitors regarding the 543 patent before being drawn into litigation by Fiddle. R. at 10, 11. In addition, like the patentee in Innovative, Wands was completely unaware of the existence of Fiddle s Magician s Assistant and had not seen or tested Fiddle s product. R. at 28. Just as this Court found in Innovative, these circumstances demonstrate nothing more than Wands history of litigation against others and a general propensity to enforce its legal rights, which [does] not establish an actual controversy between [the parties] over a device that [the patentee] had not seen and evaluated. See Innovative, 599 F.3d at 1382; see also Panavise, 306 Fed. Appx. at 573 (finding that a patent-holder s filing of six infringement lawsuits inadequate to provide a basis for declaratory jurisdiction). Thus, Wands has done nothing more than exercise its lawful commercial prerogatives by enforcing its patent against distinct third-parties, which is 14

insufficient to create declaratory jurisdiction. See Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153 (Fed. Cir. 1996), overruled in part on other grounds, NobelPharma AB v. Implant Innovations, Inc., 141 F.3d 1059 (Fed. Cir. 1998). Moreover, even though Wands CEO, Umble Door, was quoted in various trade publications as stating that he would vigorously enforce his patent rights, these statements were made to the general public, not specifically to Fiddle. R. at 7, 11. These statements were not in any way directed toward Fiddle and are even less compelling then the telephone calls in Innovative, which this Court found to be informal conversations that did not constitute a threat against an unseen, unevaluated device. See Innovative, 599 F.3d at 1381. Therefore, Wands has in no way made affirmative acts toward Fiddle and its general statements to the public are insufficient to create an actual controversy between the parties. See SanDisk Corp. v. STMicroelectronics., Inc., 480 F.3d 1372, 1380-81 (Fed. Cir. 2007) (finding that to establish an injury in fact traceable to the patentee, a declaratory judgment plaintiff must allege an affirmative act by the patentee related to the enforcement of its patent rights); Ass n for Molecular Pathology, 653 F.3d at 1348 (reversing the district court s finding of standing for those specific plaintiffs toward which the patentee had not directed any affirmative act). 15

C. Fiddle s fear of litigation, in the absence of any affirmative acts by Wands, is inadequate to establish an actual controversy. Fiddle has been selling the Magician s Assistant on the market for two years. See R. at 18. Despite this fact, Wands has never demonstrated any interest in pursuing claims against Fiddle. Fiddle s alleged fear of litigation is completely unfounded and any delay in product release is inadequate to demonstrate an injury caused by Wands as it is the result of Fiddle s personal choice. A potential infringer s subjective fear of future harm alone is insufficient to establish an injury or a threat of injury for purposes of declaratory jurisdiction. Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1338-39 (Fed. Cir. 2008). In Prasco, a generic manufacturer filed suit against a patentee with no knowledge of the generic product, requesting declaratory judgment that the generic product did not infringe any of the patents covering the product. Id. at 1334. The generic company based its alleged declaratory jurisdiction on the fact that the patentee (1) marked its products as covered by the patent numbers, and (2) engaged in prior litigation with the generic company regarding a different product and patent. Id. The generic company also asserted an injury based on paralyzing uncertainty from fear of litigation. Id. at 1338. This Court affirmed the lower court s dismissal for lack of 16

jurisdiction because the facts showed that there was little, if any, evidence that [patentee] will ever enforce its patents. Id. at 1340. This Court also declined to find an injury or harm to the generic company as it had launched its [] product, notwithstanding this lawsuit. Id. at 1338. Wands case is on all fours to the governing authority of Prasco, in which a competitor s subjective beliefs, in the absence of affirmative acts by the patentee were inadequate to establish declaratory jurisdiction. Like the competitor in Prasco, Fiddle asserted that the specter of litigation made it impossible for Fiddle to develop its second generation product and would likely delay its release. R. at 26. However, in Prasco, this Court recognized that a fear of future harm that is only subjective is not an injury or threat of injury caused by the [patentee] that can be the basis of [declaratory jurisdiction]. 537 F.3d at 1338. Here, Fiddle has been selling its first generation Magician s Assistant, a potentially infringing device, for two years and Wands has not attempted to assert its patent against Fiddle. Like Prasco, the lack of any evidence that [Wands] believe[s] or plan[s] to assert that the plaintiff s product infringes [its] patents creates a high barrier to proving that [Fiddle] faces an imminent risk of injury. See id. at 1340. Additionally, Fiddle s assertion of a likely delay for 17

an undeveloped product amounts to nothing more than an assertion of hypothetical facts and reaching this issue on the merits would be akin to this Court improperly issuing an advisory opinion. See MedImmune, 549 U.S. at 127; see also Prasco, 537 F.3d at 1341-42 (recognizing plaintiff s desire to have a definitive answer on whether its products infringe but declining to reach the decision on the merits because it would merely be providing an advisory opinion ). In the end, the mere fact that Wands owns a potentially adverse patent is simply not itself sufficient to establish Article III jurisdiction because absent an affirmative act by the patentee, Fiddle is legally free to market its product. See Prasco, 537 F.3d at 1338 (quotation omitted). Accordingly, this Court should reverse the District Court s denial of Defendant s motion to dismiss based on lack of jurisdiction. II. Fiddle actively induced infringement of the 543 patent because it had actual knowledge of the 543 patent, or at the very least, was willfully blind to the patent s existence. Any person who actively induces infringement of a patent may be held liable as an infringer. 35 U.S.C. 271(b) (2006). Fiddle actively induced its customers to infringe the 543 patent through its sale of the Magician s Assistant. Moreover, Fiddle s Almighty Manual provided instruction on how to engage in admittedly infringing use, which show[s] an affirmative 18

intent that the product be used to infringe. Ricoh Co., Ltd. v. Quanta Computer Inc., 550 F.3d 1325, 1343 (Fed. Cir. 2008) (quoting MGM Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 936 (2005)); see also Global-Tech Appliances, Inc. v. SEB S.A., U.S., 131 S. Ct. 2060, 2068 (2011) (explaining the actively induces language of 271(b) implies the requirement of at least some intent ). In order to prevail on a claim of inducement, the patentee must show, first that there has been direct infringement. See MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1378 (Fed. Cir. 2005) (citation omitted). As a threshold matter, it is undisputed that at least one of Fiddle s customers has performed each step of claim 1 of the 543 patent by using the Magician s Assistant in accordance with its manual. R. at 38. This results in Fiddle s customers directly infringing the 543 patent. Once direct infringement is shown, the patentee must show that the alleged infringer had knowledge that the induced acts constitute patent infringement, which necessarily includes knowledge of the existence of the patent that is infringed. Global-Tech, 131 S. Ct. at 2068. Therefore, the only question this Court need address is whether Fiddle had actual or constructive knowledge of the 543 patent such that they induced infringement. 19

The record establishes that Fiddle received actual knowledge of the 543 patent when it reviewed Mr. Dee s promotional brochure. The fact that the brochure mapped the 543 patent s claims directly to the Shrink-O-Matic, which Mr. Volda later copied, shows that Fiddle had actual knowledge that a patent covered the same device it duplicated. At a minimum, additional facts demonstrate Fiddle s willful blindness to the existence of the 543 patent. Despite Mr. Volda s claim that the first page of the brochure was destroyed, the only reasonable inference that could be drawn from the brochure is that a patent existed directed to the use of magic wands to shrink humans using short form spells and likely covered the Shrink-O-Matic that he copied. See R. at 3, 6. This necessarily shows that Mr. Volda had a subjective belief that there was high probability that a patent existed covering the Magician s Assistant. Moreover, Mr. Volda s took deliberate action to avoid confirming this fact by failing to investigate the patent or disclose the brochure to his counsel. Accordingly, this Court should vacate the District Court s holding and deny Fiddle s summary judgment motion because (1) Fiddle had actual knowledge of the 543 patent and intended to induce its customers to infringe the patent, or,(2) at the very least, Fiddle willfully blinded itself to the existence of the patent and the likelihood of infringement. 20

A. Fiddle had actual knowledge of the 543 patent and intended to induce its customers to infringe the patent. This Court has recognized that [t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent. DSU Medical Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc); see also Global-Tech, 131 S. Ct. at 2068 (holding that induced infringement requires knowledge of the existence of the patent that is infringed. ). Here, the record shows that Fiddle had actual knowledge of the 543 patent. In 2008, the 543 patent inventor, through his broker Mr. Dee, sent wand manufacturers in the industry a promotional brochure advertising sale of the 543 patent. R. at 6. The promotional brochure was replete with information detailing the specifications of the 543 patent and mapping the patent s claims to numerous devices on the market. Id. A copy of the promotional brochure was sent to Fiddle, and Mr. Volda, Fiddle s CEO, admits that he received it. R. at 23. The brochure was specifically designed to help advertise and promote the 543 patent as covering the magic wands listed, including the Shrink-O-Matic, with the intent of generating interest for an auction. This brochure provided Fiddle with actual knowledge of the 543 patent. 21

Despite Fiddle s actual knowledge of the 543 patent, Mr. Volda opted to purchase an unmarked version of the Shrink-O- Matic, the same wand detailed in the brochure, approximately two years later. R. at 18. Mr. Volda s purchase is not so attenuated from the date that he received the brochure as to support his claim, or the District Court s conclusion, that he had no actual knowledge or reason to suspect that a patent covered the device. See R. at 42. Moreover, Wands and Fiddle are direct competitors, both manufacturing similar wands in the same industry. Given that Wands has 80% of the market share, Fiddle s claim of ignorance of the patent becomes even less plausible. Wands dominant control over a substantial majority of the wand market, places a competitor in a position to be particularly wary of Wands patents. Despite these undisputed facts, the District Court inexplicably concluded that Fiddle lacked actual knowledge of the patent, and had no reason to know of the likelihood of infringement. R. at 41. The District Court s conclusion is simply not supported by the facts in the record. To the contrary, as explained above, the record supports Fiddle s actual knowledge of the patent. Accordingly, this Court should vacate the District Court s grant of summary judgment and find Fiddle had actual knowledge of the 543 patent. 22

B. Fiddle s actions demonstrated its willful blindness to the existence of the 543 patent. Even though the record supports that Fiddle had actual knowledge of the 543 patent, the Supreme Court s recent decision in Global-Tech held that actual knowledge is not always required and knowledge may be established through proof of defendant s willful blindness. 131 S. Ct. at 2068-70. Assuming, arguendo, that Fiddle lacked actual knowledge of the patent, the record additionally supports a finding that Fiddle willfully blinded itself to the 543 patent. The doctrine of willful blindness has two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact. Id. at 2071. In the instant action, there are more than sufficient facts demonstrating Fiddle s constructive knowledge under the doctrine of willful blindness. 1. Fiddle had the subjective belief that there was a high probability that the patent existed. The facts of this case establish that Fiddle had the subjective belief that there was a high probability that a patent covered the device it copied. Fiddle s receipt of a promotional brochure detailing the 543 patent and mapping the patent s claims to devices on the market, including the Shrink- O-Matic, suggests Fiddle was aware of the 543 patent. R. at 23

23. Mr. Volda attempts to downplay the significance of the promotional brochure by claiming that the first page of the brochure, which was the only page directly referencing the patent number, was destroyed by the post office. Id. While this would be a remarkably convenient occurrence, the fact remains that the additional pages of the brochure described a patent and specifically showed how the Shrink-O-Matic was covered by the patent s claims. R. at 6. Even if Fiddle did not see the first page of the brochure, the only reasonable inference that a recipient could draw from viewing the brochure is that a patent existed potentially covering the devices detailed, including the one copied by Fiddle. Regardless of whether Fiddle directly learned of the specific patent number, Fiddle was nonetheless placed on notice of a high probability that a patent existed covering the Shrink-O-Matic device. Despite this fact, Fiddle opted to purchase and copy an unmarked version of the Shrink-O-Matic after actively considering another version, which happened to bear the 543 patent number. R. at 18. The instant facts are remarkably similar to those of Global-Tech, recently decided by the Supreme Court. In Global- Tech, the potential infringer sought to duplicate a successful and innovative version of a deep-fryer that had been on the market for nearly five years. 131 S. Ct. at 2064. In order to 24

do this, the potential infringer purchased and copied all but the cosmetic features of an unmarked, overseas model of the patentee s product, aware that such products are not typically marked with U.S. patent numbers. Id. at 2064, 2071. The potential infringer then obtained a right-to-use opinion from counsel, but failed to alert counsel to the fact that the potential infringer s product was copied from another product on the market. Id. at 2064. The Supreme Court ultimately found that these facts were more than sufficient for a jury to find that the [potential infringer] subjectively believed there was a high probability that [patentee s] fryer was patented. Id. at 2072. Accordingly, the Court affirmed the Federal Circuit s finding of induced infringement. Id. Similar to the facts of Global-Tech, Mr. Volda purchased an unmarked version of a commercially successful product that he wished to copy, after conscious consideration of the marked versions. R. at 18. Mr. Volda also failed to disclose that he copied the Shrink-O-Matic product to his counsel when obtaining a freedom-to-operate opinion. R. at 24. Noting that the potential infringer in Global-Tech was also an inventor himself, the Supreme Court stated that they could not fathom what motive the potential infringer had for not disclosing what product it had copied to its counsel other than to manufacture a claim of plausible deniability in the event 25

that his company was later accused of patent infringement. See 131 S. Ct. at 2071. Here, the record similarly casts doubt and suspicion on Fiddle s motive for failing to disclose that he copied the Shrink-O-Matic. Like the potential infringer in Global-Tech, Mr. Volda himself is the inventor of the potentially infringing product. Notwithstanding the receipt of the promotional brochure, as an inventor, Mr. Volda would presumably have the proper acumen to suspect the existence of a patent covering a product that maintains an 80% share of the sales in the relevant market. See R. at 23; see also Global- Tech, 131 S.Ct. at 2071 (finding the potential infringers decision to copy all but the cosmetic features of the patentee s device as evidence of its belief that the patentee s device embodied advanced technology that would be valuable in the U.S. market). In addition, the fact that Mr. Volda did not disclose the promotional brochure to opinion counsel is further support for his subjective belief. The District Court improperly focused on the two years between when Mr. Volda received the brochure and when the Magician s Assistant appeared on the market, as justifying Mr. Volda s supposed memory loss. See R. at 41. However, in Global-Tech, the Supreme Court found this same stretch of time un-noteworthy where there was similarly two years between when the product was copied and when the 26

infringer started selling his products in the United States. See Global-Tech, 131 S. Ct. at 2064. The facts of this case make it extremely unlikely that Mr. Volda would become oblivious to the probability that the 543 patent existed a mere two years after receiving a brochure directly mapping the patent s claims to the same product he copied. It is also apparent from the record that numerous trade publications ran stories about Wands acquisition of the 543 patent. See R. at 7. One would expect a proficient businessman such as Mr. Volda to follow the publications concerning competitor s products in the relevant market for which he is developing products. Accordingly, like the situation in Global-Tech, it is unfathomable that Mr. Volda would not have had a subjective belief of a high probability that a patent existed covering the product that he copied. 2. Fiddle took deliberate action to avoid confirming the existence of the 543 patent. In addition to Fiddle s subjective belief that a patent protected Wands Shrink-O-Matic, the facts also establish Fiddle s deliberate actions to avoid confirming the patent s existence. See Global-Tech, 131 S. Ct. at 2069-70 (noting that the willful blindness doctrine holds parties responsible for deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the 27

circumstances. ). Despite the abundant factual circumstances suggesting Mr. Volda s awareness of the 543 patent, Fiddle declined to take any basic investigatory steps before bringing its product to market. Mr. Volda admitted to having knowledge that the quickstart manual typically sold with Shrink-O-Matic devices indicates that detailed technical specifications are available on Wands website. R. at 21. Nevertheless, neither Mr. Volda nor any of his staff investigated the technical specifications on the Wands website. Id. The Wands website prominently posted information about the 543 patent, including articles and press releases, on the same page as the technical specifications. See R. at 29. Based on these facts, the Court is hard-pressed to find that Fiddle, being a mere few clicks away from a host of information regarding the 543 patent, was not acting in a deliberate manner to avoid learning of its existence. Such inaction is prototypical of the deliberate conduct that the willful blindness doctrine condemns. See, e.g., Global Tech, 131 S. Ct. at 2071 n.9 ( Ignorance is deliberate if the defendant was presented with facts that put her on notice that criminal activity was particularly likely and yet she intentionally failed to investigate those facts ) (citing United States v. Florez, 368 F.3d 1042, 1044 (8th Cir. 2004). 28

The Supreme Court in Global-Tech strongly condemned the fact that the potential infringer opted to copy an unmarked version of the patented product and failed to inform its counsel which product it had copied. 131 S. Ct. at 2071. Similarly, the fact that Mr. Volda failed to disclose that he copied the unmarked Shrink-O-Matic when obtaining a freedom-tooperate opinion is equally as unexplainable, as well as suggestive of his attempt to manufacture a claim of plausible deniability. In addition, nor does Volda s testimony on this subject provide any reason to doubt that inference. See id. However, the facts of the instant action go above and beyond those in Global-Tech. Not only did Fiddle copy an unmarked version of the Shrink-O-Matic, but it also received the promotional brochure describing a patent covering the same product that it ultimately copied. Any failure by Fiddle to discover the 543 patent was simply the result of Fiddle deliberately shielding itself from confirming the patent s existence prior to developing the Magician s Assistant. Accordingly, this Court should reverse the District Court s grant of summary judgment and find that Fiddle willfully blinded itself to the existence of the 543 patent. At the very least, Fiddle s receipt of the promotional brochure, its failure to inform opinion counsel of the brochure or the product copied, and its failure to engage in seemingly standard 29

business practices of monitoring competitor s products creates a material issue of fact as to willful blindness and renders summary judgment inappropriate. CONCLUSION For the foregoing reasons, Defendant-Appellant respectfully requests this Court reverse the district court s denial of Defendant s motion to dismiss based on lack of jurisdiction. In addition, Defendant-Appellant respectfully requests this Court vacate the District Court s grant of Plaintiff s motion for summary judgment of non-infringement under 271(b). Respectfully submitted, February 3, 2012 NICHOLAS A. RESTAURI RACHEL L. SCHWEERS SCHWEERS & RESTAURI, P.C. 123 Platform 9-3/4 King s Cross Station London, Illinois 90001 Counsel for Defendant-Appellant 30

CERTIFICATE OF SERVICE I hereby certify that on February 3, 2012, I caused a copy of the foregoing BRIEF OF DEFENDANT-APPELLANT WART-HOG WANDS, INC. to be served upon the below listed counsel of record via electronic mail: Bruce Wilson, brucewilsonesq@aol.com Samuel Oddi, asoddi@uakron.edu Douglas Gordon, DGORDON@ULMER.com J. Masur, jmasur@uchicago.edu Greg Jolley, RPE8859854@aol.com Dr. Martha Siegel, deanofstudents@concord.kaplan.edu Sam S. Han, Ph.D., J.D., Prof.sam.han@gmail.com Barbara B. Bressler, bbressle@depaul.edu Mary B. Trevor, mtrevor@hamline.edu Andrew Crouse, acrouse01@hamline.edu J. Schaub, jschaub02@hamline.edu Nicholas-stephens@uiowa.edu Jane-chang@uiowa.edu John R. Schaibley, jrschaib@iupui.edu Mark Janis, nacjones@indiana.edu Ardath A. Hamann, 6mchugh@jmls.edu Mickie A. Piatt, mvpiatt@kentlaw.edu Themistocles Frangos, Themis.frangos@gmail.com Ann Meckstroth, ameckstroth@gmail.com Ryann Beck & Ramon Klitzke, mugilesrich@gmail.com Richard Grauer, mstamour@umich.edu Jeffrey Carter-Johnson, jeffcarterjohnson@gmail.com Barry Berenberg, barry@barrylawnm.com Andy Pieper & Brock Specht, hrbishop@stthomas.edu David Deal, gprinslow@wustl.edu James Baker, jbaker@mmm.com I hereby certify that on February 3, 2012, I caused thirteen copies of the foregoing BRIEF OF DEFENDANT-APPELLANT WART-HOG WANDS, 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 31