2012 Giles Sutherland Rich Memorial Moot Court Competition. This case involves a decision from the United States District Court for the District of

Transcription

1 2012 Giles Sutherland Rich Memorial Moot Court Competition This case involves a decision from the United States District Court for the District of Little Whinging, within the jurisdiction of the Court of Appeals for the Fifteenth Circuit. Plaintiff, T. Fiddle, Inc. ( Fiddle ) filed suit against Wart-Hog Wands, Inc. ( Wands ), seeking a declaratory judgment of non-infringement of U.S. Patent No. 9,876,543 (the 543 patent ). Wands filed a motion to dismiss for lack of jurisdiction under 35 U.S.C and a motion for limited discovery in relation to the declaratory judgment issue. The District Court denied Wands motion to dismiss, but granted the motion for limited discovery. Based on the limited discovery, Wands filed a cross-complaint alleging that Fiddle induced infringement of claim 1 of the 543 patent by consumers who bought and used the Magic Assistant wand manufactured and sold by Fiddle. Wands also filed a motion to expand the discovery boundaries in view of its induced infringement claim, which was granted by the District Court. Wands attorneys deposed Fiddle s CEO, Mortimer Morty Volda, and Fiddle s expert, Mr. Maniford Alfoy. Fiddle s attorneys deposed Wands CEO, Umble Door, and Wands expert, Mr. Herman Grich. Upon conclusion of the discovery period, Fiddle filed a motion for summary judgment on the induced infringement issue, arguing that it is not liable for induced infringement of the 543 patent. The District Court granted Fiddle s motion, holding that, as a matter of law, Fiddle did not induce infringement of the Wands 543 patent. Fiddle did not challenge the validity of the 543 patent. Wands timely filed a Notice of Appeal in the United States Court of Appeals for the Federal Circuit appealing the District Court s denial of the motion to dismiss and grant of the summary judgment motion in favor of Fiddle. The Appeal was docketed as Appeal No. 11-

2 All of the facts recited herein are supported by substantial evidence of record. Any facts not recited are without support in the record. Findings of Fact Background 1. A.L. Boss Umble Door is an acclaimed inventor of numerous magical devices, compounds, and methods. His inventions include flying brooms, potions, methods of making potions, magic wands, methods of casting spells, etc. Umble Door is also a successful entrepreneur, most recently striking it rich from sales of his Shrink-O-Matic wand, sold through his company, Wands. 2. Wands owns the 543 patent, which is entitled Methods for Shrinking Humans via Radiation and describes and claims methods for shrinking a person using nuclear magnetic radiation. The background section of the 543 patent discloses prior art methods that relied on complicated incantations and complex, lengthy patterns of various radiation frequencies, making these prior art methods unsuitable in situations requiring the urgent shrinking of one s foe. 3. Claim 1 of the 543 patent recites: A method for shrinking a person, the method comprising: activating an auto-wand in response to identification of a preset voice command made by a voice recognition unit of the auto-wand; orienting the auto-wand toward the person using an automatic orientation system of the auto-wand; reciting a short-form shrinking spell using a voice synthesizer unit of the auto-wand; and emitting, towards the person, a portion of nuclear magnetic radiation generated by a generating unit of the auto-wand to shrink the person, wherein the portion and a frequency of the emitted radiation are defined by the recited shrinking spell.

3 4. The Detailed Description of the 543 patent discloses that various short-form shrinking spells can be used to alter the portion and/or frequency of the emitted radiation. In particular, the 543 patent explains that vibrations caused by the voice synthesizer affect the frequency of the emitted radiation. Thus, by changing a particular short-form shrinking spell, the frequency of the emitted nuclear magnetic radiation could be changed, thereby adjusting the desired level for shrinking a person or for a particular person to be shrunk. The Detailed Description further discloses that different short-form frequency spells could be associated with different portions of the radiation to be emitted. 5. Mr. Wea Sell, the inventor of the 543 patent, first attempted to run a business of selling devices that implemented the claimed method of the 543 patent. However, he encountered constant quality control issues and was unable to find commercial success in this endeavor. Accordingly, in early 2007, Mr. Sell hired Alastoor Mo Dee, a patent broker, to auction the 543 patent to the highest bidder. 6. In an attempt to convey the value of the 543 patent to potential purchasers, Mr. Dee publicized the patent auction by sending promotional brochures to every company in the magic wand business, including Fiddle. The brochure included a claim chart showing features of several devices already being sold in the magic wand market and mapped those features to the corresponding elements in the claims of the 543 patent. The devices described in the auction literature included the Shrink-O-Matic wand, sold by Wands. Only the first page identified the full patent information, including the patent number.

4 7. Seeking to protect his company from any claims of infringement that might relate to the Shrink-O-Matic, Umble Door successfully out-bid several other bidders, purchased the 543 patent, and assigned the 543 patent to Wands. The next day, July 21, 2008, Umble Door sent a press release to all of the major trade publications saying he had recently strengthened the patent portfolio of his company Wart-Hog Wands and would vigorously enforce his patent rights. Many of the trade publications ran stories about Wands purchase of the patent covering methods for shrinking humans using radiation. Several of these stories were produced during discovery, though none of the produced stories referred to the 543 patent by its number. 8. In its 2008 annual SEC filings, Wands stated: We intend to recoup our investment in intellectual property through vigorous enforcement of our rights against any party we identify as infringing our patents, trademarks, or copyrights. 9. From 2008 to 2009, Wands filed separate suits against three competitors, seeking damages for induced infringement of the 543 patent and injunctions against any current and future use of the method claimed by the 543 patent and manufacture of the wands that implement the methods of the 543 patent. 10. The first of the Wands lawsuits went to trial on February 6, 2011, and resulted in a verdict for Wands. The jury found Snate s Silly Sticks ( Sticks ), Umble Door s chief competitor, liable for induced infringement and awarded damages of $50, Following the jury verdict, Wands two remaining pending lawsuits were settled. A trade publication, the Wizarding World, published a story about Wands campaign and the results of the trial. The story quoted Umble Door as saying I m tired of dealing with

5 lawyers and spending all this money to get these paltry settlements and damage awards. The article did not list settlement amounts associated with Umble Door s second and third lawsuits. 12. Wands annual revenues from sales of auto-wand devices have been less than $5,000,000 per year since Wands reported profits of $300,000 in The WAIPLA reports that patent litigation costs, including attorneys fees, exceed $2,000, for cases going to trial. 14. Umble Door s Shrink-O-Matic wand is a device made up of a robotic arm and hand mechanism capable of directing a magic wand. It includes a generator for generating and emitting nuclear magnetic radiation that causes humans to shrink. The generator may vary the portion of the radiation being generated in accordance with a loaded spell. The Shrink-O-Matic also includes a voice recognizer capable of identifying pre-set commands and a voice synthesizer capable of reciting pre-programmed magic spells, which change the frequency of the generated radiation. 15. The Shrink-O-Matic is sold by Wands without pre-loaded magic spells. Users of the Shrink-O-Matic must load audio files of magic spells to the Shrink-O-Matic in order to use the Shrink-O-Matic to shrink humans. The Shrink-O-Matic is the leading automatic wand device, used by the world s pre-eminent wizards. The Shrink-O-Matic enjoys an 80% market-share among automatic magic wand devices. 16. Three versions of the Shrink-O-Matic, A, B, and C, were available before July 21, These versions did not include any patent markings. Another version of the Shrink-O-

6 Matic, version D, became first available in December, It had an imprint on the bottom of the device stating: Use of this device is protected by U.S. Patent No. 9,876, Versions A and B of the Shrink-O-Matic contained a CD player and allowed the user of the device to insert a CD with a recorded magic incantation. Versions C and D of the Shrink-O-Matic replaced the CD player with a built-in MP3 player, configured to read files from a USB memory stick. Version D also included a remote control. 18. Fiddle manufactures and sells a variety of magical devices, including the Magician s Assistant automatic wand. At his deposition, Mr. Volda, CEO of Fiddle, testified that he purchased a version B of the Shrink-O-Matic wand in March 2009 from M.C. Gonagle s Magic McPorium ( McPorium ). Mr. Volda acknowledged that the McPorium sold a variety of new and used Shrink-O-Matics, that he noticed the version D of the Shrink-O-Matics and that it cost the same as the version B device he purchased. Mr. Volda further testified that he did not consider buying the D version at the time because he wanted to buy version B given its good reviews. 19. Mr. Volda further testified that he used the Shrink-O-Matic that he bought at McPorium as the basis for developing a new product called the Magician s Assistant to be sold by Fiddle. The Magician s Assistant includes an MP3 player and uses a USB slot to receive USB memory devices with pre-recorded magical incantations. The Magician s Assistant also includes a remote control. 20. Mr. Volda also testified during his deposition as follows:

7 Q: The Magician s Assistant has a robotic arm the same size as the Shrink-O-Matic, correct? Volda: I m not sure what you mean. Q: The upper arm of the Magician s Assistant is the same length as the upper arm of the Shrink-O-Matic, correct? Volda: Yes. Q: And the lower arm of the Magician s Assistant is the same length as the lower arm of the Shrink-O-Matic, correct? Volda: Yes. Q: Both the Magician s Assistant and the Shrink-O-Matic are black with red polka dots, correct? Volda: I d say the polka dots on the Magician s Assistant are more crimson than red. Q: Okay, but crimson is basically red, isn t it? Volda: Maybe to you. Q: And in any case, the Magician s Assistant is predominantly black, just like the Shrink-O-Matic, correct? Volda: The Magician s Assistant is mostly black. 21. In response to a question as to whether Mr. Volda, at any point, accessed Wands website, Mr. Volda testified that neither he, nor any of Fiddle s staff had reviewed the Wands website. Mr. Volda acknowledged that he was aware that a quick-start manual, which is typically enclosed with the Shrink-O-Matic wand when it is sold, indicates that detailed technical specifications are available on the Wart-Hog Wands website. 22. After developing the Magician s Assistant, Mr. Volda requested an outside counsel, Sabrina Spells, to conduct a freedom-to-operate opinion with respect to the Magician s Assistant. In his request, Mr, Volda mentioned to Ms. Spells that he looked at the products available on the market at the time he developed the Magician s Assistant. Mr. Volda, in his request, did not identify to Ms. Spells any of the specific products he looked at, nor did he tell her that he had purchased the B version of the Shrink-O-Magic wand. Ms. Spells conducted a patent search, but failed to discover the 543 patent. Ms. Spells subsequently issued an opinion stating that the Magician s Assistant did not infringe any of the patents that she had discovered and reviewed during the search.

8 23. At his deposition, Mort Volda testified that he vaguely remembers receiving a copy of the auction brochures in conjunction with a patent sale sent by Mr. Dee. Mr. Volda further testified that the post office had accidentally destroyed the first page of the brochure, and that no other pages contained an actual patent number. Mr. Volda also testified that since he had no interest in acquiring any patents or means to do so, he did not seek out additional information with respect to the patent promoted by Mr. Dee, and consequently disposed of the brochure. 24. In response to the question as to why Mr. Volda has not disclosed Mr. Dee s promotional brochure to Ms. Spells at the time he requested the freedom-to-operate opinion, Mr. Volda responded that it never crossed his mind that such promotional literature would be relevant to the requested opinion and that he no longer possessed the brochure at the time he requested the opinion. 25. Mr. Volda also testified that Fiddle recently began development of the Magician s Assistant II, an updated version of the original Magician s Assistant. He noted that his engineers had been working on the new model since May The original Magician s Assistant sold fewer than 100 units and was only available through Fiddle s website. 26. Regarding the 543 patent, Mr. Volda testified that he first became aware of the patent after seeing the article about Umble Door s litigation campaign in the Wizarding World. Mr. Volda testified that the specter of litigation was making it impossible for Fiddle to continue development of the Magician s Assistant II, and would likely delay the release of the new product.

9 27. Mr. Volda further testified that he recently met with a colleague at another magic wand company, Herman Ranger. During the course of the meeting, Herman described his shock at receiving a letter from Umble Door accusing Herman s company of patent infringement due to a new line of magic wands. Mr. Volda observed that there were multiple similarities between Herman s product and the Magician s Assistant. On June 22, 2011, Fiddle filed a lawsuit requesting a declaratory judgment against Wands. 28. Umble Door testified that he had never seen Fiddle s website, and that he was unaware of the Magician s Assistant prior to this lawsuit. When asked if he would have sued Fiddle if he had known about the Magician s Assistant, Umble Door said, I don t think they would have been worth my time, since they never sold that many devices. Pressed further, Umble Door admitted that he had sued every one of his potential competitors and continuously monitored the market for potential competitors. 29. Umble Door also testified that information about the 543 patent, including its number and several articles and press releases about its purchase, was prominently posted on Wands website on the same page as the technical specifications for the Shrink-O-Matic. 30. Fiddle sells the Magician s Assistant together with the Almighty Manual, which includes directions for using the Magician s Assistant to stand above all others. Also, in 2010, Fiddle presented the Magician s Assistant at the annual conference of Magical Advances. Fidde s presentation booth included a wizard room in which visitors could try the Magician s Assistant. The wizard room prominently displayed directions from the Almighty Manual. Wands is a regular participant of the annual conference of Magical

10 Advances and always has a presentation booth. Wands participated at the conference the year that Fiddle presented its Magician s Assistant. 31. The directions included in the Almighty Manual of the Magician s Assistant are as follows: Set-up directions: Step 1: Push the red (record) button on the Magician s Assistant. Step 2: Say a command that you wish to be used for activating the Magician s Assistant. Step 3: Push the green (save) button to save the command after you finish speaking. Congratulations, you are now ready to use the Magician s Assistant. * * Please note that the Magician s Assistant will not activate unless you voice the exact command that you have saved. Use directions: Step 1: Voice the command set during the set-up of the Magician s Assistant to activate the Magician s Assistant. Step 2: Load a desired prerecorded shrinking spell for recitation by the Magician s Assistant. Step 3: Point the Magician s Assistant toward the target using the automatic orientation system embedded in the Magician s Assistant. Step 4: Push the blue (play) button on the Magician s Assistant. You should hear the Magician s Assistant recite the spell and send waves towards your target. Your target should shrink as desired. If not, try again and/or load another spell. 32. The parties each presented an independent expert who opined on the physical characteristics of the Magician s Assistant and provided additional knowledge based on their years of experience in the auto-wand industry. Each expert was also deposed. Fiddle s expert, Mr. Alfoy, who has numerous years of experience in the auto-wand industry, testified that he saw notable design differences, which indicated that the Magician s Assistant was not a direct copy of the Shrink-O-Matic. He identified the smoothed edges on the Magician s Assistant as incorporating an entirely different design

11 aesthetic. He also noted the prominent presence of the Fiddle company s lightning bolt trademark. 33. Regarding similarities between the devices, Mr. Alfoy observed that those similarities are functionally necessary components of any auto-wand device. As an example, he pointed out that the articulated robot arm on both devices is the best way of orienting the functional wand at the end of the devices and is customarily used for such a purpose. 34. Mr. Alfoy further testified that the Magician s Assistant is not the only auto-wand with certain features of the version D of the Shrink-O-Matic wand. Specifically, he identified Stick as having the USB stick architecture with a remote control. 35. Mr. Alfoy also testified that the Magician s assistant could be used in numerous other ways, rather than just shrinking humans. As an example, Mr. Alfoy described that Magician s Assistant has the ability to wake one from sleep at the beginning of the day by voicing out musical wake-up spells. Mr. Alfoy noted the usefulness of these spells in getting wizards out of bed and off to a productive day. 36. Wands expert, Mr. Herman Grich testified at his deposition that the Magician s Assistant incorporated all but the smooth edged design features of the Shrink-O-Matic. Mr. Grich also testified that the Magician s Assistant has the same features as the D version of the Shrink-O-Matic and must be used in accordance with the directions included in the Almighty Manual to shrink a person. In particular, Mr. Grich noted that, in his experience, most wizards rely upon the Magician s Assistant for shrinking spells because shrinking spells require a remarkable degree of consistency in vibrations caused by the spells to assure the proper frequency of the emitted nuclear magnetic radiation. The use

12 of pre-recorded incantations facilitates consistency and predictability of the radiation frequency, and thus makes the device particularly useful for the purposes of shrinking humans. 37. Mr. Grinch agreed with Mr. Alfoy that the Magician s Assistant, much like the Shrink-O- Matic wand, could be loaded with spells other than the short-form shrinking spells described in the 543 patent. He also conceded that this functionality might be an entirely separate reason for purchasing either device. 38. The parties stipulated that Fiddle does not directly infringe the 543 patent and that Fiddle does not contribute to infringement. The parties further stipulated that using the Magician s Assistant in accordance with the directions from the Almighty Manual results in performance of each step of claim 1 of the 543 patent and that at least one purchaser of the Magician s Assistant had performed each step of claim 1. Conclusions of Law: 39. Regarding the declaratory judgment jurisdiction issue, Wands argued that because it had never heard of the allegedly infringing Magician s Assistant, there could be no case or controversy. In response, Fiddle argued that it had a strong apprehension of suit and that such apprehension should weigh heavily in its favor under the Supreme Court s decision in MedImmune v. Genentech, 127 S.Ct. 764 (2007). 40. Analyzing the MedImmune decision, the District Court s opinion observed that declaratory judgment cases must meet the case-or-controversy requirement under Article III and that the question to be decided was whether the facts alleged, under all the

13 circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment. MedImmune, 127 S.Ct. at 771. Applying MedImmune, the Court found that Wands aggressive litigation actions created a real controversy between the parties and that Fiddle had valid reasons to expect that it was the next party to be sued by Wands. In particular, the Court accepted Mr. Volda s testimony regarding his fear of litigation, based on the overall similarity between the Magician s Assistant and the products that Wands had pursued in previous lawsuits. The District Court also found that Fiddle had suffered injury because of delays in the release of the Magician s Assistant II. The Court dismissed Wands argument that it needed at least some knowledge of the allegedly infringing product. The District Court noted that both Wands and Fiddle were part of the same Magical Advances Exhibition and that Wands was actively policing potential infringers, and thus should have been aware of the Magician s Assistant. 41. Further, applying the Supreme Court s recent guidance in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. (2011), the District Court held that Fiddle was not liable for induced infringement under 35 U.S.C. 271 (b), because, even considering the facts in favor of the non-moving party, Wands, Fiddle s actions did not meet the willful blindness standard announced in SEB. To prove inducement, the District Court reasoned that Wands must prove that Fiddle intended for the 543 patent to be infringed or at least subjectively believed there was a high probability that use of Fiddle's Magician's Assistant in the manner taught infringed the 543 patent and that Fiddle took deliberate actions to avoid learning these facts. The Court found that, even if all the evidence is interpreted in Wands s favor, it is insufficient to show that Fiddle actually intended for

14 the 543 patent to be infringed by the users of Fiddle s Magician s Assistant. Moreover, Noting that the B version of the Shrink-O-Matic bought by Mr. Volda had no patent markings, that Mr. Volda informed Ms. Spells that he considered products on the market before designing the Magician s Assistant when it requested the freedom-to-operate opinion, and the significant time between distribution of the auction brochure by Mr. Dee and appearance of the Magician s Assistant on the market, the Court concluded that neither Mr. Volda, nor his company Fiddle had the subjective belief that the 543 patent existed, let alone that it was likely infringed by the use of Fiddle s products, when Fiddle launched it s product line. The Court further reasoned that in view of Mr. Volda informing Ms. Spells that products on the market were considered when the Magician s Assistant was designed, that Mr. Volda did not possess Mr. Dee s promotional brochure at the time he requested the freedom-to-operate opinion, and that Mr. Volda filed a declaratory judgment action against Wands based on the 543 patent shortly after finding out about Wands litigation tactics, Fiddle s actions cannot be interpreted as deliberate attempts to avoid learning about the 543 patent or that the use of Magician s Assistant might infringe the 543 patent.