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I n T h e

United States Court Of AppealsFor The Federal Circuit

REHCO LLC, Appellant,

v.

SPIN MASTER, LTD., Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS

CASE NO. 1:13-cv-02245

___________

CORRECTED NON-CONFIDENTIAL BRIEF OF APPELLEE

____________

Megan J. Redmond Eric A. Buresch Carrie A. Bader ERISE IP, P.A. 7015 College Blvd. Suite 700 Overland Park, KS 66211 (913) 777-5600

Counsel for Appellee

Case: 17-2589 Document: 9 Page: 1 Filed: 10/10/2017

i

FORM 9. Certificate of Interest Form9 Rev. 10/17

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

REHCO, LLC v. SPIN MASTER, LTD

Case No. 17-2589

CERTIFICATE OF INTEREST

Counsel £01' the: D (petitioner) D (appellant) D (respondent) eil (appellee) D (amicus) D (name of party)

certifies the following (use "None" if applicable; use extra sheets if necessary):

2. Name of Real Party in interest 3. Parent corporations and 1. Full Name of Party (Please only include any real party publicly held companies

Represented by me in interest NOT identified in that own 10% or more of Question 3) represented by me is: stock in the party

Spin Master1 Ltd Spin Master, Ltd Spin Master, Corp.

4. The names of all law firms and the partners or associates that appeared for the party or amicus now represented by me in the trial court or agency or are expected to appear in this court (and who have not or will not enter an appearance in this case) are:

Erise IP P.A. - Carrie A. Bader

Fitch, Even, Tabin & Flannery- Christine Abuel Pompa, Joseph Frank Marinelli, Nicholas Todd Peters

10/10/2017

Case: 17-2589 Document: 9 Page: 2 Filed: 10/10/2017

ii

FORM 9, Cortific1tte of Interest FormO

~------------------------------------'R"'e,._,v". 10/17

6. 'l'he t.itle and number of any case known to counsel to be pending in this or any other conl't or agency that will directly affect or be directly affected by this court's decision in .the pending appeal. See Feel. Cir. R. 47. 4(a)(5) and ,J7.5(b). (The parties shoukl attach continuation pages as necessary).

NIA

ls/Megan J. Redmond Dale Signature of counsel

Please Note: All questions must be answered Megan J. Redmond Printed name of counsel

cc: docketing@eriseip.com

iii

TABLE OF CONTENTS Page:

CERTIFICATE OF INTEREST ................................................................................ i TABLE OF CONTENTS ......................................................................................... iii TABLE OF AUTHORITIES ..................................................................................... v STATEMENT OF RELATED CASES ..................................................................... 1 STATEMENT OF THE ISSUES............................................................................... 1 STATEMENT OF THE CASE .................................................................................. 1

I. The Parties ............................................................................................. 1 II. The Helicopter Agreement .................................................................... 2 III. The ‘866 Patent ..................................................................................... 3 IV. Spin Master’s Accused Products ........................................................... 5

SUMMARY OF THE ARGUMENT ........................................................................ 8 ARGUMENT ...........................................................................................................10

I. The District Court Properly Granted Summary Judgment on

Rehco’s Breach of Contract Claim......................................................10 A. The District Court Correctly Ruled Rehco’s Havoc Heli

Claim Was Released. ................................................................11 B. The District Court Applied The Correct Legal Standard..........17

II. The District Court Correctly Entered Summary Judgment of

Non-Infringement. ...............................................................................18 A. The District Court Properly Granted Summary Judgment of

Non-Infringement Based on the Control System Limitation. ....20

iv

1. The District Court Correctly Held That Spin Master’s Accused Products Did Not Literally Infringe the Control System Limitation of Claim 1. ...........................20

2. The District Court Properly Rejected Rehco’s

Doctrine of Equivalents “Analysis” On The Control System Limitation. ..........................................................30

B. The District Court Properly Granted Summary Judgment of

Non-Infringement Based on the Single Signal Requirement. ....32 1. The District Court Properly Construed Claim 1 To

Require A Single Bounced Signal. ..................................32 2. The District Court Properly Entered Summary

Judgment In View of Spin Master’s Uncontroverted Use of An Array of Multiple Signals To Make Proportional and Incremental Power Adjustments. .........37

C. The District Court Properly Applied Summary Judgment

Standards To Analyze the Record Before It. .............................40 1. The District Court Applied The Correct Legal

Standards. ........................................................................40 2. The District Court Properly Weighed The Evidence

and Issues Presented. .......................................................43 CONCLUSION ........................................................................................................46

CERTIFICATE OF FILING AND SERVICE

CERTIFICATE OF COMPLIANCE

CONFIDENTIAL MATERIALS STATEMENT

The material redacted on pages 6, 18, 25-29, and 37-38 is confidential information concerning the technical operation of the Accused Products.

v

TABLE OF AUTHORITIES

Page(s):

Cases:

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).......................................................................................42 Abtox Inc. v. Exitron Corp.,

122 F.3d 1019 (Fed. Cir. 1997) ............................................................. 35, 36 Advanced Steel Recovery, LLC v. X-Body Equip., Inc.,

808 F.3d 1313 (Fed. Cir. 2015) ....................................................................42 AIA Eng’g, Ltd. v. Magotteaux Intern. S.A.,

657 F.3d 1264 (Fed. Cir. 2011) ....................................................................34 Air Safety, Inc. v. Teachers Realty Corp.,

185 Ill.2d 457, 706 N.E.2d 882 (Ill. 1999) ............................................ 13, 17 Applied Medical Resources Corp. v. Tyco Healthcare Group LP,

534 Fed. Appx. 972 (Fed. Cir. 2013) ...........................................................22 Augustine Med., Inc. v. Progressive Dynamics, Inc.,

194 F.3d 1367 (Fed. Cir. 1999) ............................................................. 14, 15 Avia Group Intern., Inc. v. L.A. Gear California, Inc.,

853 F.2d 1557 (Fed. Cir. 1988) ....................................................................41 Baldwin Graphic Sys., Inc. v. Siebert, Inc.,

512 F.3d 1338 (Fed. Cir. 2008) ....................................................................32 Blackboard, Inc. v. Desire2Learn, Inc.,

574 F.3d 1371 (Fed. Cir. 2009) .................................................................. 4-5 Celotex Corp. v. Catrett, 477 U.S. 317 (1986).......................................................................................42 Chicago Mercantile Exch., Inc. v. Tech. Research Grp., Inc.,

782 F. Supp. 2d 667 (N.D. Ill. 2011) ............................................................36

vi

CTL ex rel. Trebatoski v. Ashland School District, 743 F.3d 524 (7th Cir. 2014) ................................................................. 17, 42

Delta Consulting Group, Inc. v. R. Randle Constr., Inc.,

554 F.3d 1133 (7th Cir. 2009) ......................................................................16 Dynacore Holdings Corp. v. U.S. Philips Corp.,

363 F.3d 1263 (Fed. Cir. 2004) ............................................................. 19, 31 Free Motion Fitness, Inc. v. Cybex Intern., Inc.,

423 F.3d 1343 (Fed. Cir. 2005) ............................................................. 32, 36 Gardner v. Ford Motor Co.,

Case No. C85-711WD, 1990 WL 272011 (W.D. Wash. 1990) ...................22 Garrison v. Combined Fitness Centre, Ltd.,

201 Ill. App. 3d 581, 559 N.E.2d 187 (1990) ...............................................13 Gen. Elec. Co. v. Intern’l Trade Com’n,

685 F.3d 1034 (Fed. Cir. 2012) .............................................................. 30-31 General Mills, Inc. v. Hunt-Wesson, Inc.,

103 F.3d 978 (Fed. Cir. 1997) ......................................................................22 Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp.,

370 F.3d 1131 (Fed. Cir. 2004) ....................................................................30 Hongbo Han v. United Continental Holdings, Inc.,

762 F.3d 598 (7th Cir. 2014) ........................................................................13 Intellectual Sci. & Tech., Inc. v. Sony Elec., Inc.,

589 F.3d 1179 (Fed. Cir. 2009) ............................................................. 28, 30 MiTile, Ltd. v. Hasbro, Inc.,

984 F. Supp. 2d 525 (E.D. Va. 2013) ...........................................................31 Optium Corp. v. Emcore Corp.,

603 F.3d 1313 (Fed. Cir. 2010) ....................................................................41

vii

PC Connector Sols., LLC v. SmartDisk Corp., 406 F.3d 1359 (Fed. Cir. 2005) ....................................................................42

Ryder v. Bank of Hickory Hills,

585 N.E.2d. 46 (Ill.1991) ..............................................................................16 Scott v. Harris,

550 U.S. 372, 127 S. Ct. 1769 (2007) ..........................................................41 Spurling v. C&M Fine Pack, Inc.,

739 F.3d 1055 (7th Cir. 2014) ............................................................... 17, 42 TechSearch, LLC v. Intel Corp.,

286 F.3d 1360 (Fed. Cir. 2002) ............................................................. 30, 40 Thatcher v. Kohl’s Department Stores, Inc.,

397 F.3d 1370 (Fed. Cir. 2005) ....................................................................13 TiVo, Inc. v. EchoStar Communication Corp.,

516 F.3d 1290 (Fed. Cir. 2008) ....................................................................36 Wavetronix, LLC v. EIS Electronic Integrated Sys,

573 F.3d 1343 (Fed. Cir. 2009) ....................................................................22 Rules: Fed. R. App. P. 47.5 ................................................................................................... 1

1

STATEMENT OF RELATED CASES

Pursuant to Federal Circuit Rule 47.5, counsel for Appellee states:

(a) No other appeal in or from the same proceeding was previously before

this or any other appellate court.

(b) No other case known to counsel is pending in this or any other court

or agency that will directly affect or be directly affected by this court’s decision in

the pending appeal.

STATEMENT OF THE ISSUES

1. Whether the District Court’s determination that Rehco released the

Havoc Helicopter in the Settlement and Release Agreement should be affirmed.

2. Whether the District Court’s grant of summary judgment of non-

infringement of the ‘866 patent should be affirmed.

STATEMENT OF THE CASE

I. The Parties

Appellant Rehco is the assignee of U.S. Patent No. 7,100,866 (“the ‘866

patent”) and the licensor in the Radio-Controlled Helicopter Agreement (the

“Helicopter Agreement”). Appx1499. Spin Master is a children’s entertainment

company that sells an array of toys including radio controlled and IR flying toys.

Appx0198. Rehco accused Spin Master of infringing the ‘866 patent, along with

U.S. Patent Nos. 6,659,395 and 6,612,893, which were both dismissed from the

2

litigation prior to claim construction. Appx0104-0114; Appx0310-0313. Rehco

also accused Spin Master of breaching the Helicopter Agreement and the Radio-

Controlled Airplane Development Agreement. Appx0104-0114. Spin Master

moved for summary judgment on the ‘866 patent claims as well as the breach of

contract claims, and the District Court granted summary judgment on Rehco’s

contract and patent claims.1 Appx0021-0071.

II. The Helicopter Agreement

The parties executed the Helicopter Agreement in 2001. On September 12,

2008, Rehco served a notice terminating the Agreement for “low volume sales”

under Paragraph 9.d. Appx1340 (citing Paragraph 9.d. of Helicopter Agreement, at

Appx1323). In 2008, Rehco hired a royalty auditor to conduct an audit of Spin

Master’s royalty payments to Rehco under the parties’ toy licensing agreements,

including the Helicopter Agreement. Appx1391-1395. The draft audit report

included claims for royalties on sales of the Havoc Heli. Appx1395-1410;

Appx1432 (81:1-6). It is undisputed that Rehco elected to remove its claims for

royalties on the Havoc Heli prior to serving the final audit report on Spin Master.

Appx1428-1440 (67:1-68:17, 91:3-92:2, 113:1-13). After a response and reply

1 The district court granted summary judgment of non-infringement on the ‘866 patent and dismissed Rehco’s breach of the Helicopter Agreement claims. The district court also partially dismissed Rehco’s breach of the Airplane Agreement claims and the parties settled the remaining airplane claims prior to Entry of Judgment.

3

period for the audit, the parties executed a Settlement and Release Agreement on

October 8, 2010, “to settle any disputes relating to the Audit”, “which arose,

existed, or could have been asserted prior to the Effective Date.” Appx1495. Rehco

agreed to the following Release provision:

Rehco Release. Subject to the representations and warranties below, Rehco hereby releases and forever discharges Spin Master, its subsidiaries and any officers or directors of and from any and all claims, counterclaims, demands, damages, debts, liabilities, accounts, actions and causes of action, known or unknown, liquidated or contingent, which are related to the Audit and Additional Selling Periods, and any claims for royalties thereunder (other than the Spin Master obligations under this Agreement) which arose, existed, or could have been asserted prior to the Effective Date.

Appx1496.

III. The ‘866 Patent

The ‘866 patent is directed to a particular control system for hovering toys,

which toggles back and forth between two states. Appx1577-1578 (¶108),

Appx1587-1588 (¶122). During prosecution to obtain the ‘866 patent, Rehco

amended its claims to this specific control system with a two-state function.

Appx0427-0428; Appx0435-0443. This control system, which is found in the final

limitation of claim 1, is referred to as a binary control system because of its two

states: signal received = set to predefined speed to gain altitude; or signal not

received = set to predefined speed to lose altitude. Appx1577-1578 (¶108),

Appx1587-1588 (¶122).

4

Claim 1 is central to the parties’ dispute:

1. A vehicle having a means for propelling in a vertical direction, further comprising;

a transmitter positioned on the bottom of said vehicle for transmitting a signal from the vehicle downwardly away from said vehicle;

a receiver position on the bottom of said vehicle for receiving said signal as it is bounced off of a surface, defined as a bounced signal; and

a control system that automatically sets a speed of the propelling means in response to the receiver, said control system having a first means to set the speed of the propelling means to a first speed when the receiver receives the bounced signal and the control system having a second means to set the speed of the propelling means to a second speed when the receiver does not receive the bounced signal, the first speed being predefined as a speed that causes the vehicle to gain altitude and the second speed being predefined as a speed that causes the vehicle to lose altitude.

Appx1513.

The parties agreed on the construction of the preamble and first two

limitations of claim 1, but the parties disputed the construction of the means plus

function terms in the third “control system” limitation. Appx0579-0580.

Ultimately, the District Court adopted Rehco’s proposed construction 2 for the

2 The District Court adopted Rehco’s proposed construction for the structure of the means plus function terms in claim 1 as follows: “Function: to set the speed of the propelling means to a [first/second] speed when the receiver [receives/does not receive] the bounced signal. Structure: Circuit Board 136 programmed to set the speed of the propelling means to a [first/second] speed when the receiver [receives/does not receive] the bounced signal.” While the District Court did not issue a finding on invalidity of the ‘866 patent in its summary judgment ruling, Spin Master maintains its argument that the District Court’s claim construction renders claim 1 indefinite under Blackboard, Inc. v. Desire2Learn, Inc., 574 F.3d

5

control system limitation of claim 1. Appx0644-0668. Additionally, the District

Court agreed that claim 1 uses the term “signal” in the singular form. Appx1513.

The District Court further agreed that the specification of the ‘866 patent only

refers to the term “signal” in the singular and not in the plural form. Appx1510-

1513; see also Appx1128-1142 (underlining each time “signal” is used in the

specification). The ‘866 patent does not describe how the claimed invention would

work using multiple signals. Id.

IV. Spin Master’s Accused Products

Rehco alleged that Spin Master’s Flutterbye Fairy, Atmosphere, Vectron

Wave, and Vectron Wave Battle (i.e., “the accused products”) infringe the ‘866

patent. Appellant Br., at 11. Spin Master’s expert, Dr. Janét, provided technical

analysis and opinions for the accused products based on source code and technical

information. Appx1515-1668. Rehco did not take Dr. Janét’s deposition, did not

provide any rebuttal report, did not seek to strike Dr. Janét’s opinions, and did not

present any evidence or factual basis contradicting how Spin Master’s accused

products operate. As such, Rehco has not rebutted any of the following facts

describing the operation of the accused products.

1371, 1384 (Fed. Cir. 2009) and cases following that holding. Specifically, Rehco’s proposed construction, adopted by the district court, fails to identify sufficient structure (i.e. an algorithm) where it merely identifies a generic processor programmed to perform the identified function.

6

First, each accused product’s control system proportionally adjusts its motor

power and does not set any predefined speeds that cause the toy to either gain or

lose altitude. Appx1547-1649 (¶¶59-60, 75, 80-81, 98-100, 104-06, 108, 110, 123-

35, 172-183, 221-228). For example, if an accused product detects (using multiple

signals) that it is below a desired height, it may increase power applied to the

motor by +2%. Id. (¶¶110, 130-32, 178-80, 225). And that +2% adjustment is

proportional to the current battery power, and is not predefined to make the toy

gain altitude. Id. The power adjustment may or may not result in the toy gaining

altitude, and it may take another +2% increase or a +8% increase before the toy

begins to rise. Id. Put simply, Spin Master’s accused products do not use a binary

control system employing predefined speeds that cause predefined results.

Appx1547-1649 (¶¶59-60, 75, 80-81, 98-100, 104-106, 110, 123-135, 172-183,

221-228).

Second, in Spin Master’s accused products, all adjustments to power are

based on a percentage of the available battery voltage. Id. The battery drains as a

user plays with a toy, and the amount of available power decreases. Appx1579-

1649 (¶¶110, 134-35, 182-83, 227-28).

. Id. Any given

percentage voltage adjustment will result in a different motor adjustment because,

as the battery drains, the same 2% adjustment will deliver a different amount of

[CONFIDENTIAL MATERIAL OMITTED]

7

additional power. Id. Because of this, the accused products do not set predefined

speeds that cause the vehicle to gain or lose altitude. Id.

In contrast, Rehco’s expert, Dr. Spenko, did not analyze the whole of Spin

Master’s source code for the accused products, even though Dr. Spenko admitted

that source code review would be needed to verify the operation of the accused

products. Appx1908-1910 (109:16-110:13; 114:18-115:16; 117:9-20). Instead, Dr.

Spenko relied on a “big body of evidence” to form his opinions, but, upon further

reflection, he admitted the “big body of evidence” only amounted to a product flow

chart. Id. Specifically, Dr. Spenko stated:

Q: And so my question is you don’t believe that you need to look at the source code to confirm that what is set forth in Deposition Exhibit 13 [Flutterbye Fairy Flow Chart] was actually implemented in the – in the source code of the accused products?

A: Oh, okay. I mean, you know, technically, yeah, you’re going to have to see, you know, sort of like – you know, it depends. What are you going to do? You gong to go down to like the assembly code?

You know, I base my opinion on a pretty – on a pretty big body of evidence here that I think suggests what’s happening. Would it have been nice to be able to understand all the source code? Yeah, that would have been nice. Doesn’t – it’s not going to change my opinion.

I mean, they – they laid it out pretty specifically on what’s – what’s happening here. That being said, ultimately do you have to identify what’s going on in the code to really – to really understand what’s – to really – not to understand, but to verify this? Sure, I suppose so. I suppose you could – you’d have to – you know, you’d want to look at the code here.

. . . .

8

Q: Okay. What is – what is the big body of evidence? A: Here. This – what I was referring to was the big body, big

being relative, is bigger than just the – the flow – the flow chart itself. So in addition to the flow chart we’ve got these description of how to measure distance from the ground by the IR signal.

We’ve got how the different levels change and we’ve got this figure six here, the hovering process. So big was relative to the – to the flow chart itself.

Appx1909-1910 (114:18-115:16; 117:9-20).

Given Rehco’s factual record, it does not, and cannot, dispute that the

accused products use a proportional control system with multiple signals.

Appx1537-1588 (¶¶42, 46-49, 52-53, 58-60, 76-78, 96-99, 102-106, 108, 110,

123). Rehco does not refute that Spin Master’s control system makes constant

proportional adjustments to its operation parameters to maintain the toy at a

specific height. Appx1547-1649 (¶¶59-60, 75, 80-81, 98-100, 104-06, 108, 110,

123-35, 172-183, 221-228).

SUMMARY OF THE ARGUMENT

The District Court’s grant of summary judgment on Rehco’s breach of

contract claim regarding the Havoc Heli was correct, where no facts were disputed

and it was purely a question of law—contract interpretation. It is undisputed that

Rehco audited the Helicopter Agreement and initially included the Havoc Heli in

early drafts of the Audit report. Ultimately, Rehco elected to remove its claims for

royalties on the Havoc Heli, and then granted Spin Master a broad release of its

claims “related to” the audit and on “any claims for royalties . . . which arose,

9

existed, or could have been asserted prior to the Effective Date.” For these reasons,

this Court should affirm the District Court’s grant of summary judgment to Spin

Master.

Regarding the patent side of the case, the District Court granted summary

judgment of non-infringement for three reasons, none of which Rehco can

overcome through its meritless arguments on appeal. First, claim 1 of the ‘866

patent unquestionably requires a two-state (i.e. binary) control system, and Spin

Master came forward with unrebutted evidence that its auto hover products do not

use a binary control system but, instead, use a proportional control system. Thus,

Spin Master’s products do not meet the control system limitation of claim 1.

Further, Spin Master’s proportional control system never sets a first predefined

speed of the propelling means (i.e. rotors) that causes the vehicle to gain altitude or

a second predefined speed that causes the vehicle to lose altitude. The District

Court cited to the evidence provided by Rehco in opposition to summary judgment,

but correctly found that Rehco failed to meet its burden to come forward with any

evidence sufficient to find a dispute of material fact. Summary judgment was,

therefore, proper.

Second, the District Court correctly rejected Rehco’s doctrine of equivalents

theory, where Rehco utterly failed to do anything more than insert the words

“function-way-result” into its literal infringement theory. Rehco’s theory was

10

wholly insufficient under the law, and the District Court’s judgment should be

affirmed. Third, the District Court correctly found that claim 1 of the ‘866 patent

requires a single signal based on the plain language of the claim and the

specification, as well as the operation of the claimed invention. And the parties do

not dispute that Spin Master’s products use multiple signals. Thus, this issue was

proper for summary judgment, and the District Court’s judgment should be

affirmed.

ARGUMENT

I. The District Court Properly Granted Summary Judgment on Rehco’sBreach of Contract Claim.

There is no merit to Rehco’s contention that the District Court improperly

granted summary judgment on Rehco’s breach of contract claim. No facts are in

dispute regarding this claim. Both parties agree that the parties entered into a

Settlement Agreement and Release following an audit between the parties, and that

agreement contained a broad release. It is also undisputed that Rehco knew about

the Havoc Heli during the audit process, but elected not to pursue those royalties.

Thus, the District Court solely answered a legal question to determine, consistent

with Seventh Circuit precedent, whether the plain and unambiguous language of

the release precluded any claim for royalties for the Havoc Heli. Because Rehco’s

claim for royalties on the Havoc Heli was a claim that Rehco indisputably knew

about and could have asserted prior to the Effective Date of the Settlement

11

Agreement, the District Court correctly determined that Rehco’s release barred

Rehco’s claim for royalties on the Havoc Heli. The Court should affirm summary

judgment on the breach of contract claim.

A. The District Court Correctly Ruled Rehco’s Havoc Heli ClaimWas Released.

The key facts underlying Rehco’s breach of contract claim are not in dispute.

Specifically, the parties engaged in a royalty audit from 2008-2010, which resulted

in a settlement agreement between the parties. Appx2319 (¶34). And the parties

also agree that Spin Master began selling the Havoc Heli two years before the audit

was initiated. Appx0050; Appx2318 (¶31). Also agreed is that, as part of the audit

process, the royalty auditor included a claim for royalties on the Havoc Heli in his

initial draft report. Appx2319 (¶35). The parties agree that Rehco dropped its

claims for royalties on the Havoc from the final audit report, and the parties

entered a Settlement & Release Agreement. Appx2320-2321 (¶¶36-40).

Rehco’s Release states:

Subject to the representations and warranties below, Rehco hereby releases and forever discharges Spin Master . . . from any and all claims, counterclaims, demands, damages, debts, liabilities, accounts, actions and causes of action, known or unknown, liquidated or contingent, which are related to the Audit and Additional Selling Periods, and any claims for royalties thereunder (other than the Spin Master obligations under this Agreement) which arose, existed, or could have been asserted prior to the Effective Date. (emphasis added.) Appx2321 (¶¶40-41); Appx1496.

12

The meaning of the release language is not ambiguous. The Release provision

includes two broad releases. First, in italics, Rehco released any and all claims, etc.

“related to the Audit and Additional Selling Periods.” Second, in bold, the parties

released “any claims for royalties thereunder . . . which arose, existed, or could

have been asserted prior to the Effective Date.” In other words, the parties released

any claims from the audit itself, as well as any claims for royalties for any

agreement audited during the royalty audit. Under the plain language of these

broad releases, Rehco’s claim for royalties on the Havoc Heli is barred, as

recognized by the District Court. Appx0049.

Rehco’s argument on appeal overcomplicates the Release provision. Rehco

contends the Release is limited to only those product SKU’s that were listed in the

audit. Appellant Br. at 17-18. Rehco’s argument is wrong for two principle

reasons. First, Rehco ignores that the Release is part of a Settlement Agreement,

which is not the audit itself. The parties negotiated a Settlement Agreement in

connection with the results of the audit, with Rehco fully aware of the Havoc Heli.

And that Settlement Agreement included a release of all royalty claims that “could

have been asserted” under the audit, which would include the Havoc Heli. Second,

Rehco’s argument limiting the Release to only those SKU’s listed in the audit

would negate the plain language of the Release. If the Release only applied to

royalty claims for SKU’s listed in the audit, there would be no meaning given to

13

the broad release language “which arose, existed, or could have been asserted prior

to the Effective Date.” Limiting the Release to royalty demands that were asserted

in the audit would render meaningless the Release of royalty claims that “could

have been asserted” in the audit.

Not only is Rehco’s interpretation inconsistent with the plain language and

common sense, it is also inconsistent with controlling law applying broad release

language, such as that included in the Settlement and Release Agreement. As this

Court knows, interpretation of a settlement agreement is not an issue unique to

patent law; thus, the Federal Circuit applies the law of the appropriate regional

circuit—here, the Seventh. Thatcher v. Kohl’s Dept. Stores, Inc., 397 F.3d 1370,

1373 (Fed. Cir. 2005). Under Seventh Circuit authority, contracts are interpreted as

a matter of law; as such, these claims are suitable for resolution on a motion for

summary judgment. Air Safety, Inc. v. Teachers Realty Corp., 185 Ill.2d 457, 706

N.E.2d 882, 882 (Ill. 1999). And “’Illinois will not “interfere with the rights of two

parties to contract with one another if they freely and knowingly enter into the

agreement.”’” Hongbo Han v. United Continental Holdings, Inc., 762 F.3d 598,

602 (7th Cir. 2014) (quoting Garrison v. Combined Fitness Centre, Ltd., 201 Ill.

App. 3d 581, 559 N.E.2d 187, 190 (1990)).

The District Court correctly disregarded Rehco’s convoluted attempt to

narrow the Release. This is because the plain language of the Release discharges

14

Spin Master from liability for any claims Rehco may have had, which could have

been asserted, and which were “related to” the audit, as of the Effective Date of

October 8, 2010. Appx1496. To the extent Rehco had any claims for royalty

payments on Spin Master’s Havoc Heli, those claims were released under the

parties’ settlement agreement.

This case is closely analogous to Augustine Med., Inc. v. Progressive

Dynamics, Inc., 194 F.3d 1367, 1371-72 (Fed. Cir. 1999), where this Court held

that broad release language released claims that “could have been asserted”, such

as the release granted by Rehco, and precluded future claims related to products

sold prior to the effective date. Specifically, the plaintiff in that case agreed to:

release and forever discharge [defendant] from any and all manner of action or actions . . that [plaintiff] and/or its owners . . . have, have had, or may have against [defendant] upon or by reason of or relating to any acts, omissions or statements made by [defendant] on or before the date of this Settlement Agreement, including, but not limited to, any and all claims that were or could have been asserted by [plaintiff] in the [present lawsuit] . . . . (Emphasis in original) Augustine Medical, 194 F.3d at 1369.

This Court found that the language “may have” was future-oriented, and “implied a

future possibility” of the plaintiff having a claim. Id., at 1371. Further, the plain

language of the release discharged plaintiff’s ability to sue the defendant for claims

“related to” any actions taken by the defendant on or before the date of the

Settlement Agreement. Id. The Court noted that general language such as “release

and forever discharge,” “any and all manner of action or actions,” “relating to any

15

acts, omissions or statements made by [defendant],” and “including, but not limited

to any and all claims that were or could have been asserted by [plaintiff] in the

[present lawsuit]”, had consistently been held by other courts to constitute waiver

of all claims and causes of action arising as of the date of settlement. Id., at 1372.

Likewise, here, Rehco also agreed to a broad, general release of “any claims for

royalties” that “could have been asserted prior to the Effective Date.” Appx1496.

Moreover, Rehco’s tortured reading of the Release attempts to read out the

language “related to” and “could have been asserted prior to the Effective Date.”

Rehco’s sole basis for seeking royalties on the Havoc Heli is based on a breach of

contract claim on the Helicopter Agreement. Appx2313-2315 (¶¶19-22, 29). This

agreement was explicitly part of the audit. Appx2319 (¶34); Appx1460. Further,

there is no dispute that Rehco knew Spin Master was selling the Havoc Heli, as

Rehco admits it initially included claims for royalties on that product in earlier

drafts of the audit report. Appx2319-2320 (¶¶35-36). Thus, there can be no

argument that Rehco “could have” asserted its Havoc Heli royalty demands prior

to the Effective Date and, as such, they are released. To the extent Rehco intended

to preserve its claim for royalties on the Havoc Heli in the face of this broad

release language, it was Rehco’s responsibility to unambiguously delineate that

intent in the Settlement and Release Agreement. Augustine Med., Inc., 194 F.3d at

1373 (Fed. Cir. 1999) (holding that where plaintiff had clear knowledge at the time

16

of the Settlement Agreement that defendant was producing and marketing

complained-of products at the time of settlement, it was plaintiff’s responsibility to

make manifest its intent to leave the issue of possible future claims open for future

resolution). Rehco did not do so.

Additionally, and as a separate basis for affirmance, based on Rehco’s

consideration and election not to pursue royalties on the Havoc Heli during the

audit, Rehco’s current claims for royalties on the Havoc Heli are waived where

Rehco intentionally relinquished any claims to those royalties. Ryder v. Bank of

Hickory Hills, 585 N.E.2d. 46, 49 (Ill.1991); Delta Consulting Group, Inc. v. R.

Randle Constr., Inc., 554 F.3d 1133, 1140 (7th Cir. 2009). Waiver may arise where

a party “has pursued such a course of conduct as to sufficiently evidence an

intention to waive a right or where his conduct is inconsistent with any other

intention than to waive it.” Id. And Rehco’s actions in collecting Havoc Heli sales

information during the audit, preparing draft audit reports including Havoc Heli

royalties, and then removing those royalties claims from the final audit report

demonstrates an intentional relinquishment of Rehco’s claims for royalties on the

Havoc Heli. Appx2319-2320 (¶¶35-37). While the District Court did not rule either

way on Spin Master’s waiver argument, Rehco’s waiver of its breach claims

relating to the Havoc Heli provides additional support for the District Court’s

judgment.

17

B. The District Court Applied The Correct Legal Standard.

While Rehco claims that the District Court applied the wrong legal standard

regarding Rehco’s breach of contract claim (Appellant Br. at 1), Rehco fails to

state how the District Court applied the wrong standard. Rather, Rehco merely

complains of the outcome, not the standard applied. Regardless, the District Court

applied the correct standard, stating that summary judgment was appropriate where

the movant shows there is no genuine dispute of material fact. Appx0035 (citing

Spurling v. C&M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014)). It further

stated that the Court must construe all facts and reasonable inferences in the light

most favorable to Rehco. Id. (citing CTL ex rel. Trebatoski v. Ashland School Dist.,

743 F.3d 524, 528 (7th Cir. 2014)).

And the District Court also correctly stated that its “primary objective in

construing a contract is to give effect to the intent of the parties.” Appx0036

(citation omitted). Further, whether a contract is “ambiguous” is a question of law

for the Court, and a contract is not ambiguous merely because the parties disagree

on its meaning. Id. (citation omitted). Rehco did not raise any disputed genuine

issue of material fact. Instead, Rehco raised, as it does on appeal, a question of

law—interpretation of the Release provision in the contract. Air Safety, Inc., 706

N.E.2d at 882 (interpretation of a contract is a matter of law for the Court and

appropriate for summary judgment). Thus, the District Court correctly applied the

18

legal standard for interpretation of a contract on summary judgment. And summary

judgment on the breach of contract claim should be affirmed.

II. The District Court Correctly Entered Summary Judgment of Non-Infringement.

The District Court’s entry of summary judgment of non-infringement on the

‘866 patent was grounded on three distinct issues. First, the District Court found

there was no material dispute of fact that the accused products did not use a two-

state control system, as claimed in the ‘866 patent. Claim 1 requires the claimed

vehicle to toggle between a predefined speed causing the vehicle to gain altitude

when a bounced signal is detected and a predefined speed causing the vehicle to lose

altitude when the bounced signal is not detected. The accused products, in contrast,

utilize a proportional control system to make incremental adjustments to the power

applied to the toy’s motor to maintain the vehicle at a specific height. The control

system of the Flutterbye Fairy3 accused product, for example, attempts to maintain

the toy at a height of . Appx1542-1544 (¶¶52-54). And the control

systems of the accused products do not set the speed of the propelling means in

response to receipt or non-receipt of any bounced signal to either a “first speed being

predefined as a speed that causes the vehicle to gain altitude [or a] second speed

being predefined as a speed that causes the vehicle to lose altitude” as required by

3 The parties do not dispute that the Flutterbye Fairy and Atmosphere products utilize the same control system.

[CONFIDENTIAL MATERIAL OMITTED]

19

claim 1 of the ‘866 patent. Appx1513. Rehco did not dispute any material fact

pertinent to this finding, making summary judgment on literal infringement proper.

Second, Rehco also raises a doctrine of equivalents argument with respect to

the “control system” limitation. And the District Court properly rejected Rehco’s

superficial approach to doctrine of equivalents analysis. Rehco’s approach was

nothing more than to add the words “function-way-result” to its literal infringement

contentions. Rehco’s expert similarly provided no analysis or opinions on this issue,

but, again, merely added the words “function-way-result” to his pre-existing

infringement opinions. Rehco disregards this Court’s precedent holding that

conclusory expert opinions are not sufficient to create a material issue of disputed

fact. Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1277-78 (Fed.

Cir. 2004). Rehco has no non-conclusory evidence to support its doctrine of

equivalents theory of infringement, and summary judgment should be affirmed.

Third, the District Court properly construed the asserted claims to require a

system that uses a signal bounced off a surface, the receipt or non-receipt of which

causes the claimed control system to set the propelling means to a predefined speed

that causes the vehicle to gain altitude or lose altitude. The claims are clear on their

face that “a signal,” in context, is not “one or more signals.” And the specification

only discloses a control system using a single signal. The’866 patent claims do not

fall within the case law presumption that “a” means “one or more,” and the District

20

Court properly considered the presumption in reaching that conclusion. With the

correct claim construction in place, it was an undisputed fact that Spin Master’s

accused products relied in all circumstances on multiple signals to determine

whether to proportionally increase or decrease the percentage of motor power, which

is not within the scope of claim 1. Summary judgment on this issue was entirely

appropriate.

Finally, Rehco raises an assortment of non-descript arguments suggesting the

District Court did not apply the correct standards and did not appropriately consider

its “voluminous evidence.” As to the standards, Rehco selects one sentence out of

the context in which it appears in the Court’s opinion, context which fully confirms

that the District Court understood and applied the correct summary judgment

burdens. As to the “voluminous evidence”, the District Court considered Rehco’s

evidence, which only amounts to only a handful of documents, and properly found

no dispute of material fact sufficient for Rehco to survive summary judgment.

A. The District Court Properly Granted Summary Judgment of Non-Infringement Based on the Control System Limitation.

1. The District Court Correctly Held That Spin Master’s AccusedProducts Did Not Literally Infringe the Control SystemLimitation of Claim 1.

The control system limitation of claim 1 requires:

a control system that automatically sets a speed of the propelling means in response to the receiver, said control system having a first means to set the speed of the propelling means to a first speed when

the receiver receives the bounced signal and the control system having a second means to set the speed of the propelling means to a second speed when the receiver does not receive the bounced signal, the first speed being predefined as a speed that causes the vehicle to gain altitude and the second speed being predefined as a speed that causes the vehicle to lose altitude.

Appx0161 (emphasis added). Claim 1 unquestionably describes a two-state (or

binary) control system: 1) if a bounced signal is received, the speed of the

propelling means is automatically set to a predefined speed that causes the vehicle

to gain altitude or 2) if a bounced signal is not received, the speed of the propelling

means is automatically set to predefined speed that causes vehicle to lose altitude.

Rehco's expert confirmed these claim requirements, stating:

21. In my opinion, clainl 1 already recites the basic algorithm necessary to perform the

recited fur'lctions. Claim I states, .. first means to set lhe speed of the propelJing means to a first

speed when the receiver receives tbe bounced signal." In my opinion. this St:atcs an algorithn:l in

prose form. Stated another way, it fonns a two-step algorithm:

Step 1: ls bounced signal received?

Step 2: lf YES set speed to first speed (i.e., a speed mat causes the vehicle co gain

altitude).

Claim I also states, .. second means to set the speed of the propelling means to a second speed

when the receivc1· receives the bounced signal." ln my opinion, this also Mates an algo.-itluJ1 in

prose form. Stated another way, it forms another two-step algorithrn:

Step I: Is bounced signal received?

Step 2: If NO set speed to second speed (i.e., a :;peed that causes the vehicle to

lose altitude).

See also '866 patent, col. 3, 1. 65 to col. 4, I. 19.

Appx0516. There is no dispute that claim 1 requires a two-state (or binary) control

system, which toggles between two predefined prope11er speeds that either cause

21

22

the vehicle to gain altitude or lose altitude based on whether a signal is received by

the receiver or not. Appx1155 (¶43) (citing Appx1577-1588 (¶¶108, 122);

Appx1513 (‘866 patent, claim 1)).

As recognized by the District Court4, the accused products do not perform

this two-step function. Instead, the accused products use a proportional control

system that measures and adjusts the power to the motor to then adjust the altitude

of the accused products to the desired height, and do not set a first or second

predefined speed. Appx1157 (citing Appx1547-1649 (¶¶59-60, 75-80-81, 98-100,

104-106, 110, 123-135, 172-183, 221-228)). The District Court rightly made this

determination because Rehco failed to refute the facts relied on by Spin Master for

non-infringement. General Mills, Inc. v. Hunt-Wesson, Inc., 103 F.3d 978, 980

(Fed. Cir. 1997) (affirming summary judgment of non-infringement where no

dispute as to facts that might affect the decision of the fact finder, where

characteristics of the accused product were not in dispute); see also Gardner v.

Ford Motor Co., Case No. C85-711WD, 1990 WL 272011, at *11 (W.D. Wash.

1990) (granting summary judgment where different types of control circuit

4 Even if this Court finds the reasoning of the District Court flawed, it may affirm summary judgment upon de novo review of the evidence. Wavetronix, LLC v. EIS Electronic Integrated Sys, 573 F.3d 1343, 1345 n.1 (Fed. Cir. 2009) (“This court sits to review judgments, not opinions. The party that prevailed below may defend a judgment on any ground which the law and the record permit that would not expand the relief it has been granted.”); Applied Medical Resources Corp. v. Tyco Healthcare Group LP, 534 Fed. Appx. 972, 976-77 (Fed. Cir. 2013).

23

required by asserted claim and it was uncontroverted that accused products utilized

a different control circuit that did not operate according to the two output state

electrical circuit required by the claims).

Importantly, Rehco never controverted that Spin Master’s products use

proportional control systems, and not binary systems. Appx2326, ¶54 (Response).

Rehco also failed to cite any evidence refuting that proportional control systems

operate completely differently than binary systems (e.g. ‘866 patent’s two-state

system). Appx2326, ¶53 (Response). Rehco failed to refute that motor power

adjustments (e.g. +2%) are not predefined to make the vehicle gain altitude, but

instead, could result in the toy continuing to lose altitude. Appx2328-2339, ¶¶59-

60 (Response). Rehco did not refute that the same is true for a -2% adjustment for

a toy that is gaining altitude above its desired altitude level. Id. Such an adjustment

is not a predefined speed that results in the vehicle losing altitude. Instead, these

adjustments are merely made to maintain the height of the toy.

And Rehco’s expert, Dr. Spenko provided no opinion or rebuttal of these

facts. Instead, Dr. Spenko did nothing more than adopt Rehco’s infringement

contentions. Dr. Spenko merely adopted Rehco’s contention, for example, that

when signals were received by the accused product, the circuit board in the product

“will increase the motor voltage by a predefined amount, which in turn increases

the speed of the single rotor assembly to a predefined speed (i.e., first speed),”

24

which results in causing the accused products to gain altitude. Appx1157 (¶57)

(citing Appx1967-1983 (¶¶54, 78, 102, and n.5)). Likewise, he opined that, when

the accused products do not receive any signals, the circuit board “will then

decrease the power to the motor by a predefined amount, which in turn decreases

the speed of the single rotor assembly to a predefined speed (i.e., second speed),

which results in causing the accused products to lose altitude.” Id. (¶58). However,

neither Rehco nor Dr. Spenko came forward with any facts to support these

contentions. And here, Rehco complains that the District Court ignored its

“voluminous” evidence, but tellingly, it does not point this Court to any factual

support in the record that the accused products meet the above claim limitations. If

there was factual support, surely Rehco would have cited it to both this Court and

the District Court.

Rehco’s omission regarding specific evidence of infringement is likely

because its expert, Dr. Spenko, in some instances, relies on occasions of playing

with the accused products as evidence for how the claimed control system

operates, instead of relying on technical information, such as source code.

Appx1906 (104:6-14). Here, claim 1 dictates how the computerized control system

operates, not merely the result of the toy moving up and down. Namely, claim 1

requires if bounced signal is received, the speed of the propelling means is

automatically set to a predefined speed that causes the vehicle to gain altitude and

25

if a bounced signal is not received, the speed of the propelling means is

automatically set to predefined speed that causes vehicle to lose altitude. And Dr.

Spenko’s opinions solely based on game play lack the necessary factual basis to

defeat summary judgment on this control system limitation.

Dr. Spenko claims to have relied on a “big body of evidence” supporting his

opinions, but when asked what that “big body of evidence” included, he admitted it

was merely a flow chart document. Appx1910 (117:9-20). And when Dr. Spenko

was further questioned about whether some of the flow charts for the accused

products provided a factual basis for his infringement theories, as noted below, Dr.

Spenko shifted and relied only on the accused products moving up and down as

“evidence” of the operation of the control systems. 5 Appx1906 (104:6-14);

Appx1912 (125:2-15).

For example, the control system of the Flutterbye Fairy accused product

maintains a height of off a surface by proportionally adjusting power to

maintain that height. Appx1542-1544 (¶¶52-54). Thus, the Flutterbye Fairy does

not satisfy the predefined first speed or predefined second speed limitations. And

Dr. Spenko confirms that the Flutterbye Fairy does not satisfy the predefined

5 Notably, Rehco complains about the District Court only considering its evidence regarding the Vectron Wave and not the other accused products, such as the Flutterbye Fairy and Vectron Wave Battle. But all of this evidence was before the District Court, in addition to the Vectron Wave. Moreover, Rehco failed to provide this Court any citation to evidence that the District Court failed to consider.

[CONFIDENTIAL MATERIAL OMITTED]

26

second speed limitation. Specifically, Dr. Spenko opined that signal is the

“signal” that, when not received, sets a second speed to lose altitude. Appx1968

(¶56); Appx1905 (99:11-100:15). Yet, Dr. Spenko also admits that the control

system does not change the power to the motor when signal is not received.

Appx1905 (100:7-18). And if motor power is not changed, there can be no

argument that the control system sets a second speed to lose altitude. Dr. Spenko’s

testimony acknowledges this fact, but he then shifts and generally relies on the fact

that the toy generally goes up and down so at some point in time somehow the

control system sets a second speed to lose altitude. Specifically, Dr. Spenko

testified:

Q: Okay. And how do you know that speed causes the Flutterbye Fairy to lose altitude?

A: Well, that’s – that’s a good question. I don’t know if – I don’t know exactly if – if ten per se is – it’s hard to say, you know. And – and I think the – what the – I think the – what I – I think the issue here is that the – I’m trying to think of the example here that I’m using between ten and eleven.

The things that I’m thinking about here are the – are the dynamics of the system. And I would – my – my – the best way I could say this is that the dynamics of the system, if we were to go from ten to eleven – well, it depends here. I’m just thinking.

Yeah, I – you know, I’m not – I can’t – let’s say – I’m just using this idea here between eleven and ten as an example, and I think that the idea that knowing ten is the – is the – you know, is that level or that second speed, is that where that second speed is set which causes the Flutterbye Fairy to lose altitude, yeah, I don’t know.

But it – you know, what – the point I was trying to make when I was writing this is that it’s trying to use this as an example. At some point, if it’s not ten, if it’s not eleven, at some point this is going to – the Flutterbye Fairy under the accused products is going to reach a

[CONFIDENTIAL MATERIAL OMITTED]

27

point, reach – there’s going to be a signal that when that signal, whether it’s ten or eleven or six or five, when it receives that signal, that signal is going to cause it to lose altitude.

So yeah, I don’t know if it’s at ten. I don’t know if it’s at eleven. But at one point one of those signals is going to – is going to cause it to lose altitude.

Q: Okay. And what’s your basis for – for saying that? A: What’s my base – well, a couple things. Basis is the –

actually playing with the toys. So I know when playing with this toys at some point it starts to – it’s going – at some – some level it’s going to start losing altitude. It’s going to hit some – some level, and at that point the motor speed goes down and loses altitude.

Appx1906 (102:19-104:14) (emphasis added).

In another example, Dr. Spenko plainly admits that the Vectron Wave Battle

accused product flow chart does not show a “signal” that, when not received, sets a

second speed to lose altitude. Appx1911-1912 (122:2-125:1). In fact, the accused

product flow chart shows that the control system is receiving a signal. Id.

Like the Flutterbye Fairy, his factual support for contending the Vectron Wave

Battle infringes is merely the fact that the toy generally goes up and down, so,

somehow, the claim limitation must be satisfied. Appx1912 (125:2-15).

Specifically, Dr. Spenko testified that “. . . at some point . . . that signal is going to

be not – not returned.” He further stated that “. . . at the extreme, if this is too high

off of the . . . surface, that’s going to be – nothing’s going to be returned. So in that

situation I would say no signal’s returned, this guy is going – this guy is going to

start falling down.” Id.

[CONFIDENTIAL MATERIAL OMITTED]

28

This plainly shows that Rehco provided no factual foundation for his

infringement opinions in any detail for the District Court to find any material fact

in dispute. Intellectual Sci. & Tech., Inc. v. Sony Elec., Inc., 589 F.3d 1179, 1183

(Fed. Cir. 2009) (“To satisfy the summary judgment standard, a patentee’s expert

must set forth the factual foundation for his infringement opinion in sufficient

detail for the court to be certain that features of the accused product would support

a finding of infringement . . . .”). Contrary to Rehco’s suggestion that the District

Court made a credibility determination, the District Court looked at Dr. Spenko’s

opinions and determined they utterly lacked sufficient facts to raise a dispute of

material fact from which a jury could conclude that the accused products met the

control system limitation.

Furthermore, Rehco admits that the batteries of the accused products drain as

users play with them. Appx2329, ¶60 (Response). All incremental power

adjustments in the accused products are

, which further demonstrates that the adjustments are not predefined to

set a speed that causes a certain result (i.e., gaining or losing altitude). Rehco did not

controvert this fact. Appx2328-2329, ¶¶59-60 (Response). For this reason, also, the

accused products do not set a speed that is predefined to cause the vehicle to rise or

fall. Rather, they make small incremental adjustments to the motor power depending

on how many signals are received to maintain a certain height above a surface. No

[CONFIDENTIAL MATERIAL OMITTED]

29

adjustment is predefined to cause the vehicle to gain or lose altitude. And Rehco has

not controverted or challenged any of these facts.

It is curious that Rehco’s Brief relies heavily on the operational flow chart

for the Vectron Wave, found at Appx2611. Appellant Br. at 47-49. Rehco directly

equates the levels with a speed “that is predefined to cause the vehicle to

gain altitude” and the levels with a speed “that is predefined to cause

the vehicle to lose altitude.” Id. at 47. Rehco is merely stating conclusions

without factual support, and the very operational flow chart on which Rehco relies

demonstrates why its theory is wrong. Assume, for example, that a vehicle is

detected to be at altitude Level and is descending. When it reaches Level ,

power is increased to the motor by a certain percentage. Appx2610-2611. This

adjustment may arrest the descent or it may not—it is not a predetermined

outcome. That is precisely why there is a range of levels and a continuum of

incremental power adjustments. Thus, the Spin Master control system is not a

system that toggles between two predefined speeds that cause the vehicle to

increase or decrease altitude. The effects of any given incremental adjustment in

the Spin Master system are not known and are not predefined.

Rehco offered no evidence from which a jury could reasonably conclude that

the accused products met the control system limitation. Rehco cannot, as a matter

of law, avoid summary judgment in the absence of such evidence. And Rehco’s

[CONFIDENTIAL MATERIAL OMITTED]

30

expert’s unsupported statements are not enough. TechSearch, LLC v. Intel Corp.,

286 F.3d 1360, 1371-72 (Fed. Cir. 2002) (affirming summary judgment of non-

infringement where expert’s analysis ignored language from claim and only

presented conclusory opinion of infringement); Intellectual Sci. & Tech., Inc., 589

F.3d at 1183. The District Court’s finding of summary judgment of no literal

infringement was appropriate and supported.

2. The District Court Properly Rejected Rehco’s Doctrine ofEquivalents “Analysis” On The Control System Limitation.

Rehco did not perform a doctrine of equivalents analysis in anything more

than name. The District Court properly noted that Rehco did not present any

meaningful analysis on the “control system” limitation, and that Rehco could not

rely on overall similarities between the claimed invention and the accused products

to satisfy a doctrine of equivalents analysis. Appx0068. The District Court’s

holding in this regard was far from legal error as Rehco contends. Under either test

for equivalents, the analysis must be done on a limitation-by-limitation basis.

Under the insubstantial difference test, “[a]n element in the accused device is

equivalent to a claim limitation if the only differences between the two are

insubstantial.” Honeywell Int’l, Inc. v. Hamilton Sundstrand Corp., 370 F.3d 1131,

1139 (Fed. Cir. 2004). Alternatively, under the function-way-result test, an element

in the accused device is equivalent to a claim limitation if it performs substantially

the same way to obtain substantially the same result. Gen. Elec. Co. v. Intern’l

31

Trade Com’n, 685 F.3d 1034, 1042 (Fed. Cir. 2012); MiTile, Ltd. v. Hasbro, Inc.,

984 F.Supp.2d 525, 533 (E.D. Va. 2013).

While Rehco touts its “specific particularized testimony and linking

arguments,” Appellant Br. at 54, it consistently failed to cite any actual analysis

performed by its expert. On appeal, as in its opposition to summary judgment,

Rehco contended that Dr. Spenko “goes through an analysis under the function-

way-result test to support his opinion.” Appx2665-2666. But in Spin Master’s

motion for summary judgment, it provided a chart visibly demonstrating that Dr.

Spenko’s literal and doctrine of equivalents theories were substantively identical.

The only difference between the two was that Dr. Spenko added “function-way-

result” language to his doctrine of equivalents charts. Appx1121-1126. Rehco did

not refute that this was Dr. Spenko’s only analysis or point to any other analysis

performed by Dr. Spenko. Appx2665-2666. As such, Dr. Spenko’s analysis was

conclusory, and did not create a material issue of disputed fact. Dynacore Holdings

Corp., 363 F.3d at 1277-78. Setting aside Dr. Spenko’s conclusory opinions, the

District Court properly found that Rehco had no evidence to support its doctrine of

equivalents theory of infringement and that merely arguing vague similarities

between the claims and the accused products is not good enough. Appx0068. The

District Court’s finding was as detailed as Rehco’s nascent evidence required it to

be, and summary judgment was appropriate.

32

B. The District Court Properly Granted Summary Judgment of Non-Infringement Based on the Single Signal Requirement.

On this issue, the District Court properly construed claim 1 of the ‘866

patent to require the use of a single bounced signal, the receipt or non-receipt of

which determines whether the control system sets the propeller speed to a

predefined speed that causes the vehicle to gain altitude or lose altitude. After

construction, the District Court properly entered summary judgment because there

was no dispute that the Spin Master’s accused products do not make any decisions

or take any actions based on a single bounced signal. Rather, an array of multiple

signals is analyzed to first determine the altitude of the vehicle, and the altitude is

then used to determine whether a motor power adjustment is needed.

1. The District Court Properly Construed Claim 1 To Require ASingle Bounced Signal.

Rehco is correct that the words “a” or “an” in an open-ended patent claim

are presumed to carry the meaning “one or more.” Free Motion Fitness, Inc. v.

Cybex Intern., Inc., 423 F.3d 1343, 1350 (Fed. Cir. 2005). However, the

presumption falls where “the language of the claims themselves, the specification,

or the prosecution history necessitate a departure from the rule.” Baldwin Graphic

Sys., Inc. v. Siebert, Inc., 512 F.3d 1338, 1342 (Fed. Cir. 2008). Here, the claims

necessitate the requirement of a single bounced signal, and the specification

confirms what is otherwise clear on the face of the claims.

33

Rehco substitutes “one or more signals” into the claims as a substitute for

“a signal” or “the bounced signal” and simply claims that the substitution

“makes perfect sense.” Appellant Br. at 10, 22-23. But claim 1 does not make

sense at all with that substitution, which was the primary basis for the District

Court’s claim construction. Claim 1 of the ‘866 patent is directed towards a

control system for a flying vehicle and includes “a transmitter positioned on the

bottom of said vehicle for transmitting a signal from the vehicle” and “a

receiver positioned on the bottom of said vehicle for receiving said signal as it

is bounced off of a surface, defined as a bounced signal.” Appx1513 (emphasis

added). Inserting Rehco’s substitution of “one or more signals” for “said

signal” in this limitation of claim 1 introduces a question as to the meaning of

“it.” Importantly, the claim does not use “they,” which would have allowed for a

plural interpretation.

More importantly, the “control system” limitation of claim 1 necessitates a

singular interpretation. In this final limitation, “the bounced signal” is the central

pivot to what the District Court referred to as the toggling nature of the control

system. If the bounced signal is received, the control system sets the speed to a

predetermined speed that causes the vehicle to gain altitude. If the bounced signal

is not received, the control system sets the speed to a predetermined speed that

causes the vehicle to lose altitude. This is a binary system, i.e., there are two

34

options. The bounced signal is either received or it is not, and depending on that

outcome, one of two speeds is set.

When “one or more bounced signals” is inserted into claim 1, as Rehco

proffers, the claim become ambiguous in scope and inoperable. AIA Eng’g, Ltd. v.

Magotteaux Intern. S.A., 657 F.3d 1264, 1276 (Fed. Cir. 2011) (recognizing the

principle that “a construction that renders the claimed invention inoperable

should be viewed with extreme skepticism” and finding that, when the

specification reveals a special meaning for a term rendering the invention

operable, that special meaning governs). For example, assuming the control

system in claim 1 covers two signals, in the scenario where one signal is received

and the other signal is not received, then the control system would be inoperable.

When making the binary choice required by claim 1 in this scenario, the control

system would be unable to determine if the signal was received or not received

because it received a signal and did not receive the second signal. When multiple

signals are rewritten into claim 1, the binary decision (or toggling) that is in the

final limitation of claim 1 becomes unworkable. Only a singular bounced signal

that is either received or not received permits the binary determination that is

required by the claim. This singular interpretation, as recognized by the District

Court, is necessitated by claim 1.

35

The District Court further noted that the ‘866 specification is consistent

with the singular interpretation necessitated by the requirements of claim 1. The

specification assumes the use of a single signal, and, like claim 1 itself, does not

contemplate how to perform the claimed invention if multiple signals were used

by with the control system. The drafter provided no plural disclosure of “signals”

because the drafter was describing a binary system where the entire decision

process hinges off whether a signal was received or not received. Figures 3a, 3b,

and 3c of the ‘866 patent each display the receiver receiving only one signal,

signal bs. Appx1502-1504. Every reference to “signal” throughout the entire

written description is preceded by an “a” or “the”: “the vehicle transmits a

signal”; “receiving the signal as it is bounced off a surface”; “does not receive the

bounced signal” (emphasis added). Attached to Spin Master’s Summary

Judgment briefing was Appendix B, which was the ‘866 patent with all references

to “signal” underlined. Appx1128-1143. In every instance, the word signal is

preceded with a singular article. Not once is the plural form used or even

suggested in the specification, including the figures.

This case is similar with the situation in Abtox Inc., where nothing in the

written description of the ‘866 patent suggests the receiver processes multiple

signals. In Abtox Inc., both the figures and the written description contained no

suggestion of multiple gas-confining chambers. 122 F.3d at 1204. Likewise, the

36

‘866 patent specification does not describe the use of multiple signals. The binary

structure of claim 1 necessitates a single signal, and the complete lack of

disclosure in the patent of multiple signals further confirms that claim 1 requires

a singular signal.

Based on these facts6, the cases relied upon by Rehco are distinguished. In

Chicago Mercantile, the court held that the term in question was not limited to its

singular form because “CME has failed to point to any portion of the claim

language, specification, or prosecution history.” Chicago Mercantile Exch., Inc. v.

Tech. Research Grp., Inc., 782 F. Supp. 2d 667, 673 (N.D. Ill. 2011). Here, the

claim language and specification plainly require “a bounced signal” in its singular

form. Rehco’s reliance on Free Motion Fitness Inc. is equally inapposite as the

phrase “a cable” existed in the singular and plural form in the specification of the

construed patent. Free Motion Fitness, Inc. v. Cybex Intern., Inc., 423 F.3d 1343,

1350 (Fed. Cir. 2005). In contrast, not once does the ‘866 patent use “signal” in a

plural form in either the claims or specification. The District Court properly

construed claim 1 to require a single bounced signal the receipt or non-receipt of

which forms the basis for the toggling decision described in the claim.

6 These facts also defeat Rehco’s efforts to distinguish the Tivo and Abtox Inc cases. TiVo, Inc. v. EchoStar Commc’n Corp., 516 F.3d 1290, 1303 (Fed. Cir. 2008); Abtox Inc. v. Exitron Corp., 122 F.3d 1019, 1024 (Fed. Cir. 1997).

37

2. The District Court Properly Entered Summary Judgment InView of Spin Master’s Uncontroverted Use of An Array ofMultiple Signals To Make Proportional and Incremental PowerAdjustments.

Rehco attempts to establish that Spin Master’s accused products utilize the

receipt or non-receipt of a single signal to determine altitude and, in turn, make

power adjustments. Appellant Br. at 40-43. However, Rehco is no more successful

now at creating a factual dispute on this point than it was before the District Court.

Rehco focuses on the signal diagrams at Appx2605-2606 as well as the deposition

testimony of Mr. Wong, both of which establish Spin Master’s use of multiple

signals. Starting with the signal diagrams, Appx2605 shows an array of

signals that are used to recognize altitude. Appx2606 gives three examples:

1) when signals are all received, altitude is “Level ”; 2) when signals are

received, altitude is “Level ”; 3) when no signals are received, altitude is “Level

.” From these examples, Rehco claims that signal is a single signal, the receipt

or non-receipt of which determines the altitude level. This assertion is

demonstrably wrong from the face of the very document on which Rehco relies.

Signal is just one signal in the array, and it certainly does not control on its own.

For example, if signal is not received, the altitude could be anywhere from Level

through Level depending on which of signals through are or are not

received. In the other direction, if signal is received, the altitude could be

anywhere from Level to Level , depending on the status of signals and .

[CONFIDENTIAL MATERIAL OMITTED]

38

The signals all work in conjunction with each other to allow for an altitude

determination, and no one signal by itself allows for any determination.7

The testimony from Mr. Wong cited on pages 40-41 of Rehco’s brief states

exactly the same thing. Mr. Wong was asked “when signal in this example is not

detected, it recognizes that it’s at altitude Level , do you agree with me?” Mr.

Wong clarified, “Signal is not detected and Signal to are detected, then the

altitude is at Level .” Appx2523 (43:2-44:4) (emphasis added). As discussed with

respect to Appx2606, if signal is not detected, then you also need to know which

of signals through are detected to know the altitude. Thus, Mr. Wong

specified the signal interrelationship that is otherwise apparent from the

documentary examples, and further specified that signal by itself does not

provide sufficient information for the altitude determination.

Rehco next attacks the District Court’s citation to the testimony of Rehco’s

expert, Dr. Spenko. Appellant Br. at 39. The District Court is wholly entitled to

look at the fact that Rehco’s expert twice testified unequivocally that the receipt of

signal alone does not tell you the altitude of the vehicle. Appx1913 (130:8-10

(“[C]an you tell from signal alone what the altitude level is? No, you can’t.”);

(131:1-5 “Can you look at signal alone to determine the altitude level? No. You

7 As discussed in detail above, the same is true for the Flutterbye Fairy, Atmosphere, and Vectron Wave Battle products because there is no evidence showing a signal that, when not received, sets a second speed to lose altitude.

[CONFIDENTIAL MATERIAL OMITTED]

39

need to look at – at other – the other signal, the signals before and after it.”). Then,

after taking a break in the deposition, Dr. Spenko tried to walk back his

unequivocal and obviously correct testimony with some explanation that defies the

ability to even begin to articulate. Id. at 131:9 – 132:5. The District Court is under

no obligation to credit conclusory gibberish as creating a fact issue in the face of

multiple independent pieces of clear evidence to the contrary.

Rehco finally chides the District Court for focusing on evidence related to

the Vectron Wave. Appellant Br. at 40, 45. Rehco wholly ignores that the reason

the District Court focused its discussion on evidence relating to the Vectron Wave

is that, with respect to this issue, Rehco only provided evidence regarding the

Vectron Wave in its Statement of Additional Material Facts. Appx2342 (¶¶30-31).

In reviewing the evidence Rehco presented, the District Court correctly concluded

that there was no evidence that the receipt or non-receipt of a single signal resulted

in the setting of a first or second predefined propeller speed. Appx0064-0065.

Rather, the District Court noted that the documentary evidence, as well as the

testimony of Mr. Wong and Rehco’s expert, Dr. Spenko, all consistently showed

that the receipt of a single signal, alone, was not sufficient information to

determine altitude. Thus, the District Court considered the limited evidence Rehco

provided in opposition to summary judgment and properly determined that Rehco

failed to raise a disputed issue of material fact. Summary judgment was proper on

40

this issue as well. TechSearch, LLC, 286 F.3d at 1369 (“Summary judgment of

noninfringement . . . is also appropriate where the patent owner’s proof is deficient

in meeting an essential part of the legal standard of infringement, because such

failure will render all other facts immaterial.”).

C. The District Court Properly Applied Summary JudgmentStandards To Analyze the Record Before It.

Rehco’s suggestion that the District Court’s analysis was improper or

somehow weighted the outcome is misplaced in view of the summary judgment

record and arguments that Rehco presented to the District Court. While Rehco

trumpets its “voluminous evidence,” the District Court fully considered the limited

evidence cited by Rehco. It is neither the District Court’s or Spin Master’s job to

go on a truffle hunt for evidence and arguments that Rehco did not address. The

District Court properly applied the summary judgment legal standards, and it

properly analyzed the record Rehco presented in opposition to summary judgment.

1. The District Court Applied The Correct Legal Standards.

Rehco complains that the District Court applied the wrong standard by

stating: “Rehco has the burden of proving that Spin Master’s products meet every

element of an asserted claim.” Appellant Br. at 29 (citing Appx0054). The District

Court was simply noting that Rehco has the ultimate burden at trial on issues of

infringement, which is a predicate consideration in applying the proper summary

judgment analysis. Specifically, a party moving for summary judgment who does

41

not bear the ultimate burden of proof on the issue at trial—here, non-

infringement—may satisfy its initial summary judgment burden by showing the

absence of evidence sufficient to prove an element of the non-movant’s claim.

Optium Corp. v. Emcore Corp., 603 F.3d 1313, 1319-20 (Fed. Cir. 2010) (“When a

party has failed to introduce evidence sufficient to establish the existence of an

essential element of that party’s case in accordance with the applicable standard of

proof, summary judgment is properly granted against that party.”). “The moving

party need not produce evidence showing the absence of a genuine issue of

material fact; rather, the burden on the moving party may be discharged by

showing—that is, pointing out to the district court—that there is an absence of

evidence to support the nonmoving party’s case.” Avia Group Intern., Inc. v. L.A.

Gear California, Inc., 853 F.2d 1557, 1560 (Fed. Cir. 1988).

The burden then shifts to the non-movant to come forward with evidence

sufficient to show material facts in dispute. Scott v. Harris, 550 U.S. 372, 380, 127

S. Ct. 1769, 1776 (2007). “When opposing parties tell two different stories, one of

which is blatantly contradicted by the record, so that no reasonable jury could

believe it, a court should not adopt that version of the facts for purposes of ruling

on a motion for summary judgment.” Id.

After recognizing the proper shifting that results from Rehco bearing the

ultimate burden of proof at trial, the District Court then applied the proper standard

42

on summary judgment, stating: “[s]ummary judgment is appropriate if the movant

shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” Appx0035 (citing Spurling v. C&M Fine

Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014)). The court, likewise, applied the

correct standard, citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) and

Celotex Corp. v. Catrett, 477 U.S. 317 (1986), and specifically noting the

requirement that the court “must construe all facts and reasonable inferences in the

light most favorable to the nonmoving party.” Appx0035 (citing CTL ex rel.

Trebatoski v. Ashland School District, 743 F.3d 524, 528 (7th Cir. 2014)).

Furthermore, the District Court correctly recognized that summary judgment

of non-infringement “is proper when no reasonable jury could find that every

limitation recited in a properly construed claim is found in the accused device

either literally or under the doctrine of equivalents.” Appx0052-0053 (citing

Advanced Steel Recovery, LLC v. X-Body Equip., Inc., 808 F.3d 1313, 1317 (Fed.

Cir. 2015); PC Connector Sols., LLC v. SmartDisk Corp., 406 F.3d 1359, 1364

(Fed. Cir. 2005)). Here, Spin Master pointed out to the District Court that the last

element—the “control system” element—of claim 1 was not infringed for the

reasons as set forth above. The burden then shifted to Rehco to demonstrate a

material fact in dispute such that a reasonable juror could find in Rehco’s favor,

and the Court correctly found Rehco failed to do so.

43

2. The District Court Properly Weighed The Evidence and IssuesPresented.

At Section III.B.2 of its Brief, Rehco unleashes a disjointed attack on the

quality of the District Court’s summary judgment efforts, but it is difficult to

discern which issue Rehco is attempting to address that would have resulted in a

different finding by the District Court. Rehco begins by attacking the District

Court’s use of the word “simultaneous” in relation to the multiple signals used to

determine the altitude of Spin Master’s vehicles. Appellant Br. at 31-32. Whether

the signals are sent simultaneously is not even an issue, and never has been. The

substantive issue turns on the fact that the accused products use multiple signals

rather than a single signal—whether the signals are simultaneous has no relevance.

Rehco’s random attack on a non-issue has no substantive bearing on the arguments

or the District Court’s ruling.

Rehco also quibbles with whether its expert admitted various facts in his

deposition. Appellant Br. at 32-33. Setting aside that the Court’s citations were

accurate, it is neither here nor there. Following Spin Master’s affirmative evidence

regarding how its products operated, it became Rehco’s burden to raise a genuine

dispute of fact. Even if its own expert made no admissions whatsoever, this does

not help Rehco establish a dispute of fact. Rehco does not avoid summary

judgment through the purely defensive argument that its expert did not make

44

certain admissions; it needed to come forward with sufficient affirmative evidence

to create a triable issue. It did not do so.

The affirmative evidence that Rehco refers to as “Evidentiary Tables8” was

nothing more than multiple citations to the same thing—Rehco’s infringement

contentions. For example, Appx2401-2406, Appx2409-2414, and Appx2417-

2422 are pages from Dr. Spenko’s expert report discussing Rehco’s infringement

theories, which, in turn, parrots Rehco’s infringement contentions. Compare

Appx2401-2422 (Spenko Report, ¶¶52-56, 76-80, and 100-104) with Appx2450-

2501 (Rehco’s Final Infringement Contentions, at Appx2456-2463 (Flutterbye

Fairy); Appx2473-2476 (Atmosphere); Appx2486-2496 (Vectron Wave);

Appx2501 (Vectron Wave Battle)). Rehco does not identify “voluminous”

evidence, but, rather, the same conclusory contentions repeatedly pasted into

numerous documents.

And the District Court considered all the evidence identified in Rehco’s

“evidentiary table” and identified by Rehco in opposing summary judgment. For

example, the Court’s opinion reviews Rehco’s Statements of Additional Material

Fact, which, in turn, cite almost exclusively to the “evidence” cited to in Rehco’s

“evidentiary table” (infringement contentions) for claim element D. Appx0061

(citing to PSOAF ¶¶ 25-26). In fact, the District Court’s primary citations are to

8 See pp. 35-36 of Rehco’s Brief.

45

Rehco’s own evidence, as the District Court assessed whether Rehco had raised a

disputed issue of material fact. The District Court did not once rely on Spin

Master’s technical expert’s opinions, foregoing any “battle of the experts” or

“credibility” determinations. The District Court considered all of Rehco’s

evidence and testimony, and correctly found no material factual dispute.

Rehco did not meaningfully try to dispute the underlying facts regarding

the operation of Spin Master’s products. Instead, it attempted to make out a case

for infringement by arguing its view of the undisputed facts. This is precisely

why Rehco’s primary evidence is its own infringement contentions. The District

Court effectively found that no reasonable juror could accept Rehco’s

infringement contentions in view of the claim requirements, as properly

construed. Rehco has an obvious incentive on appeal from a summary judgment

ruling to assert factual disputes and improper evidentiary weighing, but the reality

is that the District Court properly found that Rehco’s infringement theories did

not fit the claim requirements as a matter of law. The District Court’s ruling

followed the appropriate standard and effectively did not need to resolve any

disputed fact questions because Rehco did not raise any.

46

CONCLUSION

Spin Master requests that this Court affirm the District Court’s judgment of

non-infringement and no breach of the Helicopter Agreement based on the Havoc

Heli product.

Dated: March 7, 2018 Respectfully submitted,

/s/ Megan J. Redmond Megan J. Redmond Eric A. Buresh Carrie A. Bader ERISE IP, P.A. 7015 College Blvd, Ste. 700 Overland Park, KS 66211 (913) 777-5600megan.redmond@eriseip.comeric.buresh@eriseip.comcarrie.bader@eriseip.com

Counsel for Defendant-Appellee, Spin Master, Ltd

CERTIFICATE OF FILING AND SERVICE

I hereby certify that, on March 7, 2018, I electronically filed the foregoing

Corrected Non-Confidential Brief of Appellees with the Clerk of Court using the

CM/ECF System, which will send notice of such filing to all registered users.

I further certify that, upon acceptance and request from the Court, the

required paper copies of the foregoing will be deposited with United Parcel Service

for delivery to the Clerk, UNITED STATES COURT OF APPEALS FOR THE FEDERAL

CIRCUIT, 717 Madison Place, N.W., Washington, D.C. 20439.

The necessary filing and service were performed in accordance with the

instructions given to me by counsel in this case.

Dated: March 7, 2018 Respectfully submitted,

/s/ Priscilla C. Winkler Priscilla C. Winkler GIBSON MOORE APPELLATE SERVICES P.O. Box 1460 Richmond, VA 23218 (804) 249-7770priscilla@gibsonmoore.net

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of Fed. Cir. R. 32(a).

This brief contains 11,243 words (including diagrams and images), excluding the

parts of the brief exempted by Fed. R. App. P. 32(f) and Fed. Cir. R. 32(b).

The brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this

brief has been prepared in a proportionally-spaced typeface using Microsoft Word

2010 in 14-point Times New Roman font.

This brief contains 54 words (including numbers) marked as confidential, in

accordance with the pending motion for leave to exceed the fifteen word limit in

Federal Circuit Rule 28(d).

Dated: March 7, 2018

/s/ Megan J. Redmond Megan J. Redmond Eric A. Buresh Carrie A. Bader ERISE IP, P.A. 7015 College Blvd, Ste. 700 Overland Park, KS 66211 (913) 777-5600megan.redmond@eriseip.comeric.buresh@eriseip.comcarrie.bader@eriseip.com

Counsel for Defendant-Appellee, Spin Master, Ltd.