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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

KICKSTARTER, INC., Plaintiff, v. FAN FUNDED, LLC and ARTISTSHARE, INC. Defendants. Civil Action No.: 11-cv-6909 (PAC)

MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS KICKSTARTER, INC.’S DECLARATORY JUDGMENT COMPLAINT

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I. II.

TABLE OF CONTENTS INTRODUCTION AND SUMMARY ....................................................................1 STATEMENT OF FACTS ......................................................................................2 A. B. C. D. ArtistShare’s Pursuit of Kickstarter. ............................................................2 Camelio Provides Kickstarter With Three Options. ....................................3 ArtistShare Assigns the Patent to Fan Funded to Monetize the Patent............................................................................................................5 Camelio Gives Kickstarter a Hard Deadline. ...............................................5

III.

ARGUMENT ...........................................................................................................6 A. B. Legal Standard for Declaratory Judgment Jurisdiction. ..............................6 A Real Controversy Exists Between the Parties. .........................................7 1. Defendants’ Conduct Demonstrates an Intent to Enforce the ‘887 Patent Against Kickstarter. ......................................................7 (i) Camelio Accused Kickstarter of Infringing the Patent And Created A Reasonable Apprehension of Suit. ......................................................................................9 Camelio’s Licensing Demands Establish Jurisdiction. ........................................................................10 Kickstarter’s Rejection of the Licensing Demand Created Real And Immediate Adversity Between The Parties. ........................................................................10 Camelio’s Refusal to Covenant Not To Sue Provides Further Evidence of the Substantial Controversy Between the Parties .......................................12

(ii) (iii)

(iv)

2. 3. C. D. IV.

Camelio’s Claim That He Never Threatened Infringement Litigation is False and Not Sufficient to Warrant Dismissal. ........12 Kickstarter’s Complaint Was Filed to Resolve This Controversy – Not As A Negotiation Tactic..................................13

Kickstarter Will Be Harmed if it Does Not Remove the Threat of Infringement. ..............................................................................................15 This Court Should Decide This Controversy Now. ...................................16

CONCLUSION ......................................................................................................17 i

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TABLE OF AUTHORITIES Cases ABB, Inc. et al, v. Cooper Industries, LLC, 635 F.3d 1345 (Fed. Cir. 2011)......................................................................................... 13 Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) .......................................................................................................... 11 Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731 (Fed. Cir. 1988)....................................................................................... 7, 10 BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975 (Fed. Cir. 1993) .......................................................................................... 7, 12 Capo, Inc. v. Dioptics Med. Prods., Inc., 387 F.3d 1352 (Fed. Cir. 2004)......................................................................................... 16 Cardinal Chem. Co. v. Morton Int’l, 508 U.S. 83 (1993) .............................................................................................................. 9 Cat Tech LLC v. TubeMaster, Inc., 528 F.3d 871 (Fed. Cir. 2008)............................................................................................. 6 EMC Corp. v. Normand Corp., 89 F.3d 807 (Fed. Cir. 1996)............................................................................................. 14 Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953 (Fed Cir 1997)............................................................................................. 16 Hewlett-Packard Co., v. Acceleron LLC, 587 F.3d 1358 (Fed. Cir. 2009)..................................................................................... 9, 13 MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) ............................................................................................ 6, 9, 11, 15 Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897 (Fed. Cir. 2008)........................................................................................... 16 Minn. Mining & Mfg. Co. v. Norton Co., 929 F.2d 670 (Fed. Cir. 1991)........................................................................................... 16 Neil Bros. Ltd. v. World Wide Lines, Inc., 396 F. Supp. 2d 340 (E.D.N.Y. 2005) ................................................................................ 7 ii

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Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329 (Fed. Cir. 2008)............................................................................... 9, 10, 11 Robinson v. Gov’t of Malay., 269 F.3d 131 (2d Cir. 2001).......................................................................................... 7, 12 SanDisk Corp. v. STMicroelectronics Inc., 480 F.3d 1372 (Fed. Cir. 2007).................................................................................. passim Sony Electronics, Inc., v. Guardian Media Techs., Ltd., 497 F.3d 1271 (Fed. Cir. 2007)............................................................................. 11, 14, 15 Statutes 28 U.S.C. § 2201(a) ............................................................................................................ 6 Rules Fed. R. Civ. P. 12(b)(1)............................................................................................... 12, 17

iii

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Plaintiff Kickstarter, Inc. (“Kickstarter”), respectfully submits this memorandum of law opposing defendants Fan Funded, LLC’s (“Fan Funded”) and ArtistShare, Inc.’s (“ArtistShare”) (collectively “defendants”) motion to dismiss Kickstarter’s declaratory judgment complaint. There is unquestionably a substantial controversy between the parties as to whether the patent at issue is valid or infringed. Adjudication now is proper. I. INTRODUCTION AND SUMMARY After spending eight years wrestling with the U.S. Patent & Trademark Office to obtain a patent, Brian Camelio immediately turned his sights on Kickstarter as an infringement target. Camelio told Kickstarter that it infringed the patent and unless a license was taken (at a royalty costing potentially tens of millions of dollars) by October 1, 2011, there would be litigation. Kickstarter unequivocally told the defendants that there was no infringement and that the patent was invalid. Kickstarter filed this suit on the eve of defendants’ deadline. It is undeniable that there is a real and justiciable controversy between the parties. Defendants’ motion is based on two factually incorrect and legally irrelevant beliefs. First, defendants claim that they never explicitly alleged infringement or threatened litigation. Not only is this false – Kickstarter was directly accused of infringement and given litigation as an option to resolve this dispute – but it is also irrelevant. The law is well settled that a declaratory defendant cannot avoid jurisdiction simply by avoiding the magic words “infringe” or “lawsuit.” Second, defendants contend that the parties were engaged in a friendly business discussion and that Kickstarter filed suit to gain some tactical business advantage. Defendants’ claim that the parties were engaged in “amicable” business negotiations is belied by the objective facts. 1

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Kickstarter has its own proprietary software and does not need or want to do business with defendants. Kickstarter engaged defendants solely in an effort to remove this infringement threat. That effort failed. This case was then filed to remove the cloud of patent infringement uncertainty that defendants created. By this motion, defendants seek to continue their harassment of Kickstarter in hopes of obtaining licensing royalties. Defendants have refused to provide Kickstarter with a covenant not to sue. And, if the Court dismisses this case, it is a virtual certainty that the defendants will sue Kickstarter at a time and place of their choosing. II. STATEMENT OF FACTS Kickstarter is a platform for raising money for creative projects, often referred to as “crowdfunding.” February 17, 2012 declaration of Jared Cohen at ¶2 (“Cohen Decl.”). The company has experienced significant growth since its launch in 2009. Id. at ¶3. Kickstarter has thousands of live projects combining to raise millions of dollars at any moment in time. Id. Kickstarter and the projects on its website have been the feature of extensive media coverage, including by NBC, WSJ, NY Times, Wired, The Economist, and Time Magazine. Id. Defendant ArtistShare is also a crowdfunding platform. Defendant Fan Funded is an entity formed to license the patent at issue. See February 3, 2012 declaration of Brian Camelio at ¶5 (“Camelio Decl.”). A. ArtistShare’s Pursuit of Kickstarter.

Brian Camelio (“Camelio”), the owner of ArtistShare and Fan Funded, filed a patent application on March 31, 2003 seeking to obtain exclusive rights to a crowdfunding platform for artists. February 17, 2012 declaration of Michael J. Allan at ¶2 (“Allan Decl.”). Eight years later, the application issued as U.S. Patent No. 7,885,887 (“the ‘887 patent”), entitled “Methods and apparatuses for financing and marketing a 2

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creative work.” Camelio assigned his rights in the patent to ArtistShare who, in turn, assigned some or all of its rights to Fan Funded. (Allan Decl. at ¶3). Camelio controls both entities and acts on their behalf. ArtistShare’s first letter to Kickstarter came just before the ‘887 patent issued. In that letter, sent to Kickstarter through Kickstarter’s registered corporate agent, ArtistShare offered to discuss licensing terms for the soon-to-issue patent. Shortly after the ‘887 patent issued, Camelio sent two letters to Kickstarter’s co-founders, again via Kickstarter’s registered corporate agent, and enclosed a copy of the patent. (Cohen Decl. at ¶6). The first letter indicated that Camelio would contact Kickstarter “immediately” to discuss licensing terms. (Cohen Decl. at ¶6). Having received no response, Camelio’s second letter was more direct. He insisted that Kickstarter contact him in order to “initiate amicable discussions.” (Cohen Decl. at ¶6). Camelio then went to Kickstarter’s corporate headquarters unannounced and demanded to speak with Mr. Yancey Strickler, one of Kickstarter’s co-founders. (Cohen Decl. at ¶10). Mr. Strickler was not available and no meeting took place. Id. B. Camelio Provides Kickstarter With Three Options.

Although Kickstarter had no interest in the ‘887 patent or a business relationship with ArtistShare, it engaged Camelio in an effort to defuse what was clearly a patent infringement dispute. (Cohen Decl. at ¶11). Kickstarter’s General Counsel, Jared Cohen, had a series of meetings with Camelio, the first taking place on June 9, 2011. Id. at ¶13. During the meeting, Camelio told Cohen that:  he had contacted other competing crowdfunding companies, including Rockethub, concerning the ‘887 patent; Id.  he appreciates the arts, but “needs to get paid;” Id. 3

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 his co-workers want him to “hit [competitors] over the head” with the patent to generate a revenue stream; Id.  his new “business method” patent was “vague;” Id., and  it would be easier to deal with him than others who might get involved down the road. Id. While Camelio also discussed in very general terms the concept of a business proposal that would include a patent license, Cohen advised Camelio that it would be difficult to discuss a business deal – even if Kickstarter were interested in one – with a lingering patent threat. (Cohen Decl. at ¶14). The fact is that Kickstarter was not interested in business arrangement with ArtistShare other than removing the patent threat. Id. at ¶11. Kickstarter has its own engineers and proprietary software and had no need or interest in ArtistShare’s software. Id. at ¶¶4, 11. Thus, the ‘887 patent was the primary focus of all communications between the parties. Id. at ¶5. Camelio told Cohen that he would confer with his lawyer and come up with a proposal. (Cohen Decl. at ¶14). Although Camelio was careful not to accuse Kickstarter of infringing the ‘887 patent during the initial meeting, the objective and obvious import of the meeting was that Camelio wanted money from Kickstarter through a patent license. Id. at ¶15. The next meeting between Messrs. Camelio and Cohen took place on August 5. (Cohen Decl. at ¶16). There, Camelio advised Cohen that he had consulted with his lawyer, believed that Kickstarter was infringing the ‘887 patent and that he must enforce his patent. Id. Camelio provided Kickstarter three options. Id. First, Kickstarter could reach a business deal with ArtistShare that would include a license to the ‘887 patent. Id.

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Second, Kickstarter could simply license the ‘887 patent for a royalty payment of 10 percent of Kickstarter’s revenues. Id. Third, the parties could litigate the dispute. Id. C. ArtistShare Assigns the Patent to Fan Funded to Monetize the Patent.

Three days after Camelio provided the above three options to Kickstarter, Camelio formed defendant Fan Funded – a Delaware limited liability company. (Allan Decl. at ¶4). Shortly thereafter, ArtistShare transferred the ‘887 patent to Fan Funded. Id. at ¶3. The Fan Funded website, www.fanfunded.com, is not interactive and consists of a single webpage that references the ‘887 patent. Id. at ¶5. According to Camelio, Fan Funded will actively seek to license the ‘887 patent (i.e., at this point, Fan Funded is a “non-practicing entity” or “patent troll”). D. Camelio Gives Kickstarter a Hard Deadline.

On September 12, Camelio telephoned Cohen to discuss the status of the licensing offer. (Cohen Decl. at ¶19). Cohen rejected Camelio’s August 5 demand and informed him that Kickstarter was not interested in a business deal. Id. Camelio was told that Kickstarter does not agree that there is infringement, or that the ‘887 patent is valid, and that Kickstarter is prepared to litigate if necessary. Id. Camelio remarked that his royalty demand of 10 percent of revenues was fair. Id. Camelio also said that Fan Funded now owns the ‘887 patent, but that he was the decision maker on this issue. Id. The next and final call between Messrs. Cohen and Camelio took place on September 23, 2011. (Cohen Decl. at ¶20). During that call, Kickstarter offered to buy the ‘887 patent for $72,000 in order to permanently remove the threat of litigation. Id. That offer was rejected. Camelio told Cohen that if a resolution was not reached by October 1, some other action would be executed. Id.

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Kickstarter filed this declaratory judgment action on September 30, 2011. Defendants have refused to provide Kickstarter with a covenant not to sue for infringement of the ‘887 patent. Id. at ¶22. III. ARGUMENT A. Legal Standard for Declaratory Judgment Jurisdiction.

The Declaratory Judgment Act (“Act”) allows a court to “declare the rights and other legal relations of any interested party seeking such a declaration.” 28 U.S.C. § 2201(a). The current test for declaratory judgment jurisdiction is a flexible “totality of circumstances” analysis. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). A justiciable dispute must be “definite and concrete, touching the legal relations of parties having adverse legal interests,” “real and substantial,” and “admi[t] of specific relief through a decree of conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” Id. at 132, 127. There is no bright-line rule for when an action satisfies the case or controversy requirement. Instead, the standard is whether “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.” Id. at 127. Following MedImmune, the Federal Circuit has held that to establish an injury in fact 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, SanDisk Corp. v. STMicroelectronics Inc., 480 F.3d 1372, 1380-81 (Fed. Cir. 2007), and (2) meaningful preparation to conduct potentially infringing activity. Cat Tech LLC v. TubeMaster, Inc., 528 F.3d 871, 880 (Fed. Cir. 2008). 6

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When considering whether declaratory judgment exists, “it is the objective words and actions of the patentee that are controlling.” BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 979 (Fed. Cir. 1993). “Thus, conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction.” Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988). The Court may consider affidavits and other materials beyond the pleadings. Neil Bros. Ltd. v. World Wide Lines, Inc., 396 F. Supp. 2d 340, 344 (E.D.N.Y. 2005) (rejecting declaratory defendant’s motion to dismiss in patent context). However, “the Court must accept as true all material factual allegations in the complaint….” Robinson v. Gov’t of Malay., 269 F.3d 131, 141 (2d Cir. 2001). B. A Real Controversy Exists Between the Parties.

The defendants’ actions, including their letters, licensing demands, threats of litigation, and more, show a clear intent to enforce the ‘887 patent against Kickstarter. Even if Camelio carefully avoided using the words “infringe” and “lawsuit” – which he did not – the law is settled that the defendants cannot escape declaratory judgment jurisdiction by careful wordsmithing. Moreover, the defendants’ subjective and distorted view of the events is irrelevant. There is an objectively clear and substantial controversy between parties having adverse legal interests that are not hypothetical, but rather real and immediate. 1. Defendants’ Conduct Demonstrates an Intent to Enforce the ‘887 Patent Against Kickstarter.

As summarized below, Camelio’s actions provide overwhelming objective evidence of an intent to enforce the ‘887 patent against Kickstarter.

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 Camelio sends three letters concerning the ‘887 patent to Kickstarter’s registered agent for service of process – which itself sets a litigious tone.1 (Cohen Decl. at ¶¶6-8).  Camelio’s March 23, 2011, letter (notably absent from defendants’ motion) demands that Kickstarter make contact about the ‘887 patent to “initiate amicable discussions.” Id. at ¶8. (emphasis added).  Camelio appears at Kickstarter’s office unannounced demanding to see Kickstarter’s co-founder. Id. at ¶10.  Camelio tells Cohen that he “need[ed] to get paid.” Id. at ¶13.  Camelio confesses to Cohen that his co-workers want him to aggressively enforce his rights under the ‘887 patent. Id.  Camelio informs Cohen that he should resolve the dispute now. Id.  Camelio unequivocally tells Cohen that both he and his attorney believe that Kickstarter is infringing the ‘887 patent. Id. at ¶16.  Camelio issues an ultimatum – o a business deal with a patent license component; o a license with a royalty payment of 10 percent of Kickstarter’s revenues; o litigation. Id.

Camelio’s explanation for sending these three letters to Kickstarter’s registered agent lacks credibility. He claims that he “did not know to whom to send the letter.” (Camelio Decl. at ¶9). However, Camelio clearly knew the whereabouts of Kickstarter’s office as he visited the office unannounced. Id. His decision to address these letters to the registered agent was calculated and designed to send a litigious message.

1

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 Camelio creates Fan Funded (an entity formed to license the patent) three days after presenting the ultimatum above. (Allan Decl. at ¶4).  Camelio sets an October 1, 2011 deadline after which some other action would be taken. (Cohen Decl. at ¶20).  Defendants continue to refuse to sign a covenant not to sue. Id. at ¶22.  Camelio is actively prosecuting a second patent application based upon the ‘887 patent and on January 27, 2012, he filed amendments that target crowd funding platforms such as Kickstarter. (Allan Decl. at ¶6). Considering all of the circumstances, the defendants’ conduct shows a clear and immediate intention to enforce the ‘887 patent against Kickstarter. (i) Camelio Accused Kickstarter of Infringing the Patent And Created A Reasonable Apprehension of Suit.

Camelio accused Kickstarter of infringement and threatened litigation if a license was not taken. (Cohen Decl. at ¶16). This fact alone creates jurisdiction. If “a party has actually been charged with infringement of the patent, there is, necessarily, a case or controversy adequate to support [declaratory judgment] jurisdiction.” Hewlett-Packard Co., v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009), quoting Cardinal Chem. Co. v. Morton Int’l, 508 U.S. 83, 96 (1993). The totality of defendants’ actions, including the numerous letters directed to Kickstarter’s registered agent, the ultimatum of license or litigation and the hard deadline to reach a resolution created a reasonable apprehension that Kickstarter would be sued. See Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1339 (Fed. Cir. 2008) (reasonable apprehension can establish jurisdiction even post-MedImmune). Based on Camelio’s infringement charge and litigation threat alone, Kickstarter has established subject matter jurisdiction. 9

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(ii)

Camelio’s Licensing Demands Establish Jurisdiction.

In addition to direct threats, the Federal Circuit also considers whether a licensing demand has been made in determining whether declaratory judgment jurisdiction exists. For example, the court in SanDisk, reversed a district court dismissal where the patentee had demanded license and royalty payments even though it promised not to sue. 480 F.3d at 1381. The court in Arrowhead similarly held that subject matter jurisdiction can be found where the patentee demands the right to royalty payments. 846 F.2d at 737. Here, defendants demanded a significant running royalty payment. (Cohen Decl. at ¶16). Specifically, defendants demanded that Kickstarter pay 10 percent of its revenues as a royalty to license the ‘887 patent. Id. This amounts to tens of millions of dollars per year for the life of the patent. Id. Kickstarter neither wanted nor needed the patent. All of Kickstarter’s communications with defendants were made in an effort to remove the infringement threat. Id. at ¶18. (iii) Kickstarter’s Rejection of the Licensing Demand Created Real And Immediate Adversity Between The Parties.

Defendants’ demand for a license and Kickstarter’s refusal to provide one also proves subject matter jurisdiction. The Federal Circuit in Prasco (cited by defendants) held, “[g]enerally, the Supreme Court has affirmed declaratory judgment jurisdiction when ‘the parties had taken adverse positions with regard to their obligations, each side

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presenting a concrete claim of a specific right’ prior to the suit.” 573 F.3d at 13392 (citations omitted); see also Sony Electronics, Inc. v. Guardian Media Techs., Ltd., 497 F.3d 1271, 1286 (Fed. Cir. 2007), [b]ecause Guardian asserts that it is owed royalties based on specific past and ongoing activities by Sony, and because Sony contends that it has a right to engage in those activities without a license, there is an actual controversy between the parties within the meaning of the Declaratory Judgment Act. See also SanDisk, 480 F.3d at 1381 (“where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise.”). It is undisputed that defendants demanded that Kickstarter license the ‘887 patent and pay a royalty of 10 percent of its revenues for the life of the patent – potentially tens of millions of dollars. (Cohen Decl. at ¶16). It is also undisputed that Kickstarter told the defendants that it did not want a license, it did not infringe the ‘887 patent and that it believed the ‘887 patent was invalid. (Cohen Decl. at ¶19). On these facts, subject matter jurisdiction exists under black letter Supreme Court and Federal Circuit law. MedImmune, 549 U.S. at 128; Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-241 (1937); SanDisk; 480 F.3d at 139; Prasco, 537 F.3d at 1339.

2

Defendants cite Prasco in support of their motion as a Federal Circuit decision upholding a subject matter dismissal. (Br. at ¶11). While the legal standard set forth in Prasco applies, the case is factually inapposite. The declaratory plaintiff sought a declaration that its drug product did not infringe certain patents where the patentee made no accusations of infringement, made no demand for licensing fees and took no steps to create a controversy.

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(iv)

Camelio’s Refusal to Covenant Not To Sue Provides Further Evidence of the Substantial Controversy Between the Parties

Defendants steadfastly refuse to provide Kickstarter a covenant not to sue on the ‘887 patent. (Cohen Decl. at ¶22). At Camelio’s request, Kickstarter provided the defendants with a draft covenant not to sue in October 2011. Id. The defendants never responded to the draft agreement and instead opted to file this motion. While not dispositive, a patentee’s “refusal to give assurances that it will not enforce its patent is relevant to the determination” of whether there exists a substantial controversy between the parties. BP Chems, 4 F.3d at 980. Defendants’ refusal to provide any such assurances casts serious doubt on their representations to this Court that the parties were engaged in friendly business discussions. Such a refusal provides further evidence of the controversy that exists. 2. Camelio’s Claim That He Never Threatened Infringement Litigation is False and Not Sufficient to Warrant Dismissal.

Camelio’s refutations do not defeat subject matter jurisdiction here. As set forth in the Complaint, and in more detail in Cohen’s declaration, Camelio informed Kickstarter that he had spoken with his attorney, believed that Kickstarter infringed the ‘887 patent, and that litigation was the final option if the parties could not agree on a licensing arrangement. (Cohen Decl. at ¶16). The law is clear that the allegations in the Complaint that Camelio did accuse Kickstarter of infringement and did threaten litigation must be taken as true in a Rule 12(b)(1) context. Robinson, 269 F.3d at 141 (“the Court must accept as true all material factual allegations in the complaint ….”). Even if this Court were to reject the allegations in the Complaint and Cohen’s sworn testimony, the law is settled that a patentee cannot avoid being brought into a

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declaratory judgment suit by sidestepping the words “infringe” or “litigation.” The Federal Circuit held, A specific threat of infringement litigation by the patentee is not required to establish jurisdiction, and a declaratory judgment action cannot be defeated simply by the stratagem of correspondence that avoids the magic words such as “litigation” or “infringement.” ABB, Inc. et al, v. Cooper Industries, LLC, 635 F.3d 1345, 1348 (Fed. Cir. 2011) (reversing district court’s decision to dismiss declaratory judgment complaint on 12(b)(1) grounds) (quoting Acceleron 587 F.3d 1358 (reversing dismissal finding that carefully worded letters to the declaratory plaintiff would not avoid subject matter jurisdiction)). In fact, the Federal Circuit has found jurisdiction even where the patentee explicitly expressed an intention not to sue. See SanDisk, 480 F.3d at 1382-83 (finding that patentee’s promise not to sue was “the kind[] of extra-judicial patent enforcement with scare-the-customer-and-run tactics that the [Act] was intended to obviate.”). Thus, the defendants’ primary argument supporting dismissal fails as a matter of law. 3. Kickstarter’s Complaint Was Filed to Resolve This Controversy – Not As A Negotiation Tactic.

Defendants argue that dismissal is warranted because they believe Kickstarter filed its complaint as a “negotiation tactic” to secure more favorable terms in ongoing business negotiations. (Br. at ¶¶3, 14). This argument is not only belied by the facts, but it has been squarely rejected by the Federal Circuit and has no impact on whether subject matter jurisdiction exists in a declaratory judgment case. The same argument was advanced by the patentee in Acceleron in a failed attempt to defeat subject matter jurisdiction. The declaratory defendant in Acceleron argued, like 13

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defendants here, that its communications with the declaratory plaintiff simply concerned a business deal. 587 F.3d at 1363. The court noted that, “[patentee] argues that a patent owner may contact another party to suggest incorporating the patented technology into the other party’s product ….” Id. . While the Federal Circuit agreed that such a possibility might exist, it found the declaratory defendant’s assertion to be “disingenuous.” Id. In reversing the district court’s Rule 12(b)(1) dismissal, the Court looked at all the circumstances including the short deadline patentee gave for a response and the assertion that the patent was “relevant’ to the declaratory plaintiff’s business. Id. The Federal Circuit reached a similar conclusion in Sony. In reversing a district court dismissal, the Sony Court held, “even if the parties’ interactions in this case could be characterized as ‘negotiations,’ Sony was within its right to terminate them when it determined that further negotiations would have been unproductive.” 497 F.3d at 1286. Thus, “[a]lthough [defendant] may have wanted to negotiate with [a declaratory plaintiff], [the declaratory plaintiff] was not required to negotiate with [defendant].” Id. Here, Kickstarter was never interested in licensing the ‘887 patent or otherwise doing business with defendants. (Cohen Decl. at ¶19). By the time this complaint was filed, Kickstarter had done all it could to remove the infringement threat. Defendants continued insistence on a license, threat of litigation and imposition of a hard deadline left Kickstarter no choice but to seek a declaration of its rights. Defendants rely upon EMC Corp. v. Normand Corp., 89 F.3d 807 (Fed. Cir. 1996), to support their flawed argument. In EMC, unlike here, the declaratory plaintiff admitted that the suit was filed “merely as a defensive step” and informed patentee that they desired to continue their licensing negotiations. Id. at 815. Thus, the court held that

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it was not inappropriate for the district court to view the filing as a tactical measure. Id. No such facts are present here. Kickstarter flatly rejected defendants’ license and royalty demand and filed this suit on the eve of defendants’ deadline. Kickstarter told defendants that it does not infringe the patent, or think the patent is valid. (Cohen Decl. at ¶19). There have been no communications between the parties since the filing of this complaint other than with respect to the covenant not to sue that Camelio asked for, but will not sign. This case was filed to resolve this dispute – not as a negotiation tactic. C. Kickstarter Will Be Harmed if it Does Not Remove the Threat of Infringement.

Applying Medlmmune, the Federal Circuit articulated the central question when considering subject matter jurisdiction in a patent case. It held, “jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do.” Sony, 497 F.3d at 1284 (quoting SanDisk, 480 F. 3d at 1381). Kickstarter is a young and growing company. (Cohen Decl. at ¶23). It is actively adding new employees, forming partnerships and looking to expand its footprint in the crowdfunding space. Camelio’s repeated use of the ‘887 patent to make demands and threats place Kickstarter in the perilous position of continuing its successful business model and risk potential increased damages, or changing its business. And, the risk of a patent infringement lawsuit, particularly one that goes to the heart of its business, will impact its ability to conduct its business and form partnerships. When such a scenario exists, as it does here, declaratory judgment jurisdiction is always proper. 15

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D.

This Court Should Decide This Controversy Now.

A district court faced with a challenge to declaratory judgment jurisdiction should also consider whether hearing the case would “serve the objectives for which the Declaratory Judgment Act was created.” Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 902 (Fed. Cir. 2008) (quoting Capo, Inc. v. Dioptics Med. Prods., Inc., 387 F.3d 1352, 1355 (Fed. Cir. 2004)). Indeed, “when these objectives are served, dismissal is rarely proper.” Micron, 518 F.3d at 902 (emphasis added). The Federal Circuit has articulated the purpose of the Declaratory Judgment Act in the patent context as follows: [A] patent owner … attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity…. Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to an in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests. Micron, 518 F.3d at 902 (citations omitted). See also Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953, 956 (Fed Cir 1997) (“In promulgating the Declaratory Judgment Act, Congress intended to prevent avoidable damages from being incurred by a person uncertain of his rights and threatened with damage by delayed adjudication.”); Minn. Mining & Mfg. Co. v. Norton Co., 929 F.2d 670, 673 (Fed. Cir. 1991) (“purpose of the Declaratory Judgment Act … in patent cases is to provide the allegedly infringing party relief from uncertainty and delay regarding its legal rights.”). Moreover, “the

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Case 1:11-cv-06909-PAC Document 24

Filed 02/17/12 Page 21 of 21

exercise of discretion must be supported by a sound basis for refusing to adjudicate an actual controversy.” SanDisk, 480 F.3d at 1383. As explained above, Kickstarter and defendants have adverse legal interests and defendants’ actions have put Kickstarter in “the position of either pursuing arguably illegal behavior or abandoning that which [the declaratory plaintiff] claims a right to do.” SanDisk, 480 F.3d at 1381. Defendants have failed to articulate a reason, and indeed there is none, as to why this this case should not be decided now. Accordingly, this Court should exercise its right to hear this dispute. Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1) must be denied. IV. CONCLUSION Kickstarter has been living under a threat of patent infringement allegations for a full year. Defendants have made clear that they believe Kickstarter must license the ‘887 patent. Kickstarter has made clear it does not have to license the ‘887 patent. The controversy is substantial, real and ripe for adjudication. The motion to dismiss should be denied. Respectfully submitted, By: __/s/ Michael J. Allan________ Michael J. Allan Evan Glassman STEPTOE & JOHNSON LLP 1114 Avenue of the Americas New York, N.Y. 10036 (212) 506-3900 William G. Pecau John C. Caracappa Timothy C. Bickham STEPTOE & JOHNSON LLP 1330 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 429-3000 17

Dated: February 17, 2012

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