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MARKMAN HEARING BRIEFS ANALYSIS: EDVA GROUP MAY 24, 2013 Worlds Inc. vs. Activision Inc.

. Markman Hearing - Pre-game Overview: Worlds and Activision will have their Markman claim construction (interpretation) hearing on June 27th of this year. According to the Joint Claim Construction Statement filed jointly by the parties on May 17th, the hearing will take about 4 and 1/2 hours and each side will be allotted one half of this time. Each side will present a tutorial (which will count against its 2 hours and 15 minutes). Next, the parties will present their arguments term by term in the order set forth in Exhibit A to the joint statement. There are 11 disputed termsthats it. The terms in exhibit A have been listed by the parties in order of importance. http://www.scribd.com/doc/143378930/Joint-Claim-Construction-Statement A Markman hearing is a one-day affair in contrast to an actual trial, which could last for weeks. The Markman hearing is perhaps the most important aspect of a patent case because the claim terminology to be used in the event of a trial is often predictive, if not determinative, of the outcome. (These hearings are called Markman hearings after the watershed Supreme Court decision in Markman vs. Westview Instruments, which held that the construction of patent terms is a matter of law to be determined by judges.) While the decision in the Markman case is perceived to have helped make the patent litigation process less arbitrary, there is still some level of angst on the part of litigants related to the manner in which judges make their decisions on the appropriate meaning of claims. http://www.onelbriefs.com/cases/civpro/markman_westview.htm There are generally two methods by which judges make these decisions. In a February 2012 publication, Brad Lyerla, Chair of the patent litigation and counseling practice group of Jenner & Block LLP in Chicago, outlines the Words vs. Invention methods that judges typically use. http://apps.americanbar.org/litigation/committees/intellectual/articles/wint er2012-words-invention-claim-construction.html What might this tell us about the approach to claim construction taken by the litigants in the Worlds v. Activision case? For starters, Activision would like the court to agree that the claims, as written, do not accurately describe the invention and instead decide that the terminology Activision provides does a better job and should therefore be adopted. It is important to note that a clean room condition (Hosteny, 2005) should be present during claim construction. In other words, what is to be examined and discussed are the patent(s) themselves - there is to be no discussion of the infringing technology. While this clean room approach is what should happen at the Markman hearing, what most often actually happens is that the defendant takes a look at its technology in light of the patents they are accused of infringing and attempts to have the court determine the patent claim language in a way that puts the defendants technology safely outside the scope of the 1

patent claims as so interpreted. Narrowing the scope of a claim, to pigeonhole it, and ultimately have the jury hold that ones invention does not infringe, is thus the defendants goal. Activisions claim construction brief follows this defendant-oriented playbook. Activisions arguments seek to interpret the WDDD claims to add new limitations by reference to the specifications of the patent and its preferred embodiments, the language of dependent claims, and arguments that words have special meanings that are more narrow than what they ordinarily mean. This is all done in an effort to challenge a WDDD claims meaning without appearing to simply read a limitation from a specification into that claim. The plaintiff, of course, wants to avoid having its patent claims be interpreted in a way that brings them within the prior art or which can be viewed as indefinite (void). We will provide further detail below but we think that it is important to try to set forth some of the Markman rules of engagement. You may be saying to yourself that this is all just a big game of rhetoric and strained arguments. Perhaps so, yet thankfully it usually comes down to whether one party has the goods or not. What is considered will be the language of the patents, whether such language is clear and does not need to be construed at all (in which case the court simply adopts the plain meaning), whether the description of how the patents work (the specification, which includes words, figures and drawings) can be used to understand what is meant, other portions of the patents, and the USPTO patent prosecution history. (Definitions from dictionaries of technical words are also considered in some cases.) This is what supplies the goods. In this case (and not withstanding that we are invested in Worlds), the party with the goods is clearly Worlds. Activision makes a number of clever arguments, yet when you look at the record (as Worlds argues quite expertly in its brief) their arguments often seem contrived. One desperate example of this is Activisions attempt to have language that states that the Avatars in Worlds patents are in 3D stricken as ambiguous. Given the numerous references to 3D graphical worlds and 3D Avatars this seems a stretch, so why do it? Because Activision knows that if they were dealing with a 2D Avatar, or at the very least the absence of a 3D Avatar, it would open the floodgates to prior art that would effectively end this case. This point is made in our earlier invalidity analysis where it is plain to see that much of the prior art submitted by Activision does not relate to a 3D avatar, which points to the shakiness of their case if they are not able to dislodge a presumption of a 3D world. http://edvapatent.wordpress.com/2013/04/18/preliminary-invalidity-analysis-worlds-incv-activision-blizzard-inc/ Since it seems unlikely that an intelligent human being (let alone one skilled in the art) would read the Worlds patents and not conclude that we are talking about a 3D virtual world, we are left to ponder the strength of Activisions case.

Some words about the Judge: Before we jump into the disputed terms there are some factors that we think could play a contributory role at the margins. First, Judge Denise Casper is a relatively new jurist who was sworn in to the District Court in December of 2010. Importantly, she is also presiding over the criminal trial of Whitey Bulger, long reputed to be Bostons most infamous gangster. Early signs point to a long and winding course in that case. Is there anything that can be learned from Judge Caspers time on the bench that could point to the way she is likely to approach claim construction? I wouldnt presume to tell Ropes & Gray or Susman Godfrey how to do their job, but I will point out some observations on Judge Casper that you might find interesting: 1. Judge Casper is young, energetic and very bright (Wesleyan University, Harvard Law School). As such, we posit that she will be unlikely to have much use for received wisdom or doublespeak from counsel and is likely to educate herself about Worlds inventions. This does not mean we think she will not rely on a words approach, as that approach is often the most exacting. For jurists it provides more certainty than trying to grasp advanced technology in patent specifications that reasonable parties can debate ad nauseam. That said, it is our expectation that she will have an understanding of the scope of the invention (as is proper) when determining claim language. 2. Judges in Markman hearings are supposed to construe (interpret) the claims in the patents. This is their job. They are also supposed to construe the claims in such a way as to uphold their validity whenever possible. Activision has invited Judge Casper to find that a number of terms, which seem to have fairly plain meanings (both as a general matter and in the context of the patents), are in fact hopelessly ambiguous and thus indefinite. (If a claim contains words that are indefinite then the claim is per se invalid.) We do not expect Judge Casper to throw up her hands and say she does not know what the words mean. 3. She seems focused on counsel being efficient. She writes in an interesting column reflecting on her first year on the bench that attorneys who appear before her should not assume she knows the intricacies of a given subject matter. She also makes clear that she will let those arguing in front of her know where they may begin with respect to her understanding of what has been briefed. http://bostonbarjournal.com/2012/04/30/reflections-on-my-freshman-year-on-the-benchby-denise-j-casper/ 4. She appears willing to be exactingly thorough in instances where another jurist may rely more fully on a fellow judges opinion. We believe this reflects what we have stated in number (1) above. An example of this may be found in her approach to an opinion in the current Whitey Bulger trial. An excerpt from an article on the case follows: 3

Rather than just rubber stamping Stearns, she set out in fine detail how she would have decided the same issues as Stearns. She went through the ever-evolving arguments of C & B (defense counsel) on the issue of immunity, considered them anew, and found they were lacking. She didnt have to do this, as she noted in her opinion. But she did and gave a refreshing insight into the case. I urge you to read her memorandum and order. Full article: http://thetrialofwhiteybulger.com/judge-casper-takes-command-36515/ The Disputed Claim Language: Lets go through the disputed terms and take a look at the arguments each party is using in order to arrive at their proposed meanings, or, in the case of Activision, its argument that certain terms have no meaning at all. To do this in a manner where the parties are each given a fair shake, it is generally necessary to read the claim construction arguments submitted by both sides and then read the patents again. From there one can see whose arguments make the most sense in light of what has actually been described in the patents. We will not simply repeat what one side or the other offers up but will interpret based upon the thinking that we believe is likely to be applied here. Patents and claims (55 total) 7181690: Claims- 1-20 cited in complaint 7493558: Claims- 4-9 cited in complaint 7945856: Claims- claim 1 cited in complaint 8082501: Claims- 1-8, 10, 12, 14-16 cited in complaint 8145998: Claims- 1-3, 7-8, 11-20 cited in complaint

Disputed term #1 position of less than all of the other users avatars (690 claims 1-5, 11-14, 19) Claim 1 includes a number of the disputed terms. It reads A method for enabling a first user to interact with other users in a virtual space, wherein the first user and the other users each have an avatar and a client process associated therewith, and wherein each client process is in communication with a server process, wherein the method comprises: (a) receiving a position of less than all of the other users' avatars from the server process; and (b) determining, from the received positions, a set of the other users' avatars that are to be displayed to the first user, wherein steps (a) and (b) are performed by the client process associated with the first user. Worlds No construction needed.

Activision Proposes the following construction: positions for up to a set maximum number of the other users avatars, which is less than the total number of other users avatars. Commentary Activison makes what seems a very reasonable argument about the patents overall aim being that of crowd control and goes on to state (reflecting Worlds language) that this was a big problem at the time of the invention. So far quite true. Following that logic they seek to take one embodiment of claim 1 which appears in dependent claim 4 (claim 1 is an independent claim and claim 4 is a dependent claim of claim 1) and in some other dependent claims, and are attempting to read that embodiment into the original claim, which is not allowed (though often attempted) in patent law. Take a look at claim 4 below: the method of claim 1, wherein step (1b) comprises (b)(1) determining from the received positions an actual number of the other users' avatars; (b)(2) determining a maximum number of the other users' avatars to be displayed; and (b)(3) comparing the actual number to the maximum number to determine which of the other users' avatars are to be displayed wherein steps (b)(1) (b)(3) are performed by the client process associated with the first user. We see two uphill climbs for Activision here. One is that typically an embodiment of a claim, written in a dependent claim, is simply one way an invention might be used. Since it is written as an embodiment (part of a specification), there is a presumption that it differs from, and limits, the manner stated in the independent claim. The other is that the words set maximum and determining are appropriate only when a first user chooses. It is not necessary for a first user to choose at all (or to choose a variable N detailed in the specification) and therefore the system would display all of the number of N. The patent also describes that other factors such as User ID can play a role in filtering and that it is not simply based on choosing set maximum numbers of avatars. Two case law citations from the briefs seem particularly important here: Generally, [the Federal Circuit] gives claim terms their ordinary and customary meanings, according to the customary understanding of an artisan of ordinary skill at the time of the invention. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1328 (Fed. Cir. 2008). The Federal Circuit has repeatedly held that courts cannot alter what the patentee has chosen to claim as his invention, that limitations appearing in the specification will not be read into claims, and that interpreting what is meant by a word in a claim is not to be confused with adding an extraneous limitation appearing in the specification, which is improper. Intervet Am., Inc. v. Kee-Vet Labs., Inc., 887 F.2d 1050, 1053 (Fed. Cir. 1989). We think the term extraneous has significant meaning with respect to interpreting a claim through examination of limitations in the specification. 5

We submit that Worlds counsel will quite ably showcase the distinctions here and expect that Judge Casper will stick to the original construction. (1-0 Worlds) Disputed term # 2 determining, from the received positions, [a/the] set of the other users avatars that are to be displayed. (690 Patent claims 1-5, 11-14, 19) Worlds Here again, Worlds argues that this phrase has a clear meaning and no construction or alteration is necessary. Activision Proposes a construction that changes determining, to selecting in addition to a set maximum number of the other users avatars to be displayed language. Commentary This is a repeat of the arguments for disputed term number 1 above. The result is unchanged. Rather than clarifying ambiguity, the defendants seek to replace the word determining with the word selecting. Defendants seek to import the phrase a set maximum number as they have sought to do with respect to other claims. Worlds posits that Activision intends to focus on a single embodiment and make the argument that because the client computer can select N Avatars from the N Avatars provided by the server, determining must mean selecting. The specification makes it clear that selecting only happens in the instance where N is less than N. When N is greater than N, no selection is needed. Defendants construction requires selection in every instance where clearly the preferred embodiment requires selection only in certain cases. In addition the insertion of the set maximum number limitation puts the disputed claims at odds with several dependant claims, which expressly contemplate a maximum number limitation. This is an improper form of claim construction. (2-0 Worlds) Disputed terms 3 and 4 (they are linked so we will look at them together) condition / participant condition condition (998 claims 13, 78, 1118, 2021) Worlds No construction needed. In the alternative, an expression in a software program that affects the status or display of an avatar Activision Indefinite under 35 U.S.C. 112, 2 or in the alternative, a condition set by the client 6

http://www.uspto.gov/web/offices/pac/mpep/s2171.html (indefiniteness described here) participant condition (501 claims 18, 10, 12, 1416) Worlds No construction needed or in the alternative, a condition imposed on an avatar, its controlling user, or its associated client device that affects the status or display of an avatar Activision Indefinite under 35 U.S.C. 112, 2 or in the alternative, a condition set by the client. Commentary It is important for investors to note that for a claim to be invalid as indefinite it must essentially defy construction. The law states that a defendant must show by clear and convincing evidence that a claim is insolubly ambiguous and could not be understood by a person of ordinary skill in the art at the time of invention. We dont agree that condition or participant condition rises to a level of insoluble ambiguity and we firmly believe there will be a construction here. Importantly, the patent prosecution history displays no trouble on the part of the examiner with respect to these terms and their simple meaning, which find support in the specification. Activision makes the argument that condition is one set by the client. We found ATVIs argument unpersuasive in view of the 501 specification: CPU 100, or a specific motion control process, limits the motion of an avatar, notwithstanding commands from input devices 116 to do so, to obey the constraints indicated in rooms database 70. A user may direct his or her avatar through a doorway between two rooms, and if provided in the virtual world, may teleport from one room to another. It would appear that in the virtual world described herein we have several databases such as a rooms database or an objects database. The specification talks about constraints on the Avatar that are part of the database and not controlled by a user but stored essentially as game memory. This is one example of what may be considered a condition or participant condition that is not set by the user. As such we think that while the court may favor some alternative construction it will not include any condition or participant condition set by the client or user, nor will it find these terms indefinite. Disputed term #5 programmed to limit the number of remote user avatars shown on the graphic display (998 claims 11-15)

Worlds No construction needed. Activision Programmed to restrict the number of remote user avatars shown on the graphic display to a maximum number of avatars allowed. Commentary The maximum number argument is obviously key to Activisions case. If they can establish that the filtering criterion essentially comes down to a set maximum number they are likely to win this case. There is established prior art that will be applicable should they prevail in their preferred construction. The problem with their argument is that, as noted above, these claims offer multiple ways to establish filtering and the number of users is only one variable that can be used. If someone of ordinary skill in the art at the time of invention were asked how this invention handles filtering they quite likely would have said that it does so in numerous possible ways. This is the problem we have with Activisions argument-the repeated requirement of a maximum or set maximum number (see disputed terms 1 and 2). Worlds unequivocally states that they utilize a variable in their filtering application. They correctly point out that if they want to import a set maximum embodiment they know how to do so because they have done it. It stands to reason that if no set maximum is mentioned in these claims it is because Worlds did not intend it. It is also not a preferred or oft repeated embodiment so it is our position that Activision is trying to read an extraneous limitation into the claim as a broad rule. This argument is a loser no matter how many times they repeat it. Disputed term #6 Avatar (690 claims 1-16, 18; 558 claims 4-9; 856 claim 1; 501 claims 1-6, 8, 10, 12, 14, 15; 998 claims 1-3, 11-15, 18-20) Worlds graphical representation of a user in three-dimensional form Activision a graphical representation of a user Commentary Activision states that in the earliest Worlds patents the claim language simply utilizes the term avatar in its ordinary manner without a reference to 3D and notes that the latter two patents utilize the 3D language in actual claims. With this as prologue, ATVI argues that either the new patents utilizing the 3D claim moniker say something different from the parent patent about what an avatar is, therefore opening the question of when 3D would be considered part of the Worlds invention (in effect if it is not claimed until

the child patents were filed it could be highly problematic for Worlds in terms of prior art), or, if the parent patent truly represented a 3D graphical interactive world than the 3D language in the latter patents is superfluous, and thus, as Activison contends, makes the claim itself ambiguous. The issue that Activision confronts here is that while both sides can agree that an avatar is a graphical representation of a user, in the case of the Worlds invention it is also and exclusively a 3D representation. We think that 3D is an essential element of the Worlds invention. Throughout the earliest patent it is evident that Worlds utilizes the 3D embodiment in describing the actual worlds and its participants. The first line in the 690 patent summary (the parent patent in suit) makes completely clear what Worlds intends by avatar in their invention: The present invention provides a highly scalable architecture for a three-dimensional graphical, multi-user, interactive virtual world system. This specification most certainly, and repeatedly, describes Worlds intended use of the term avatar. Elsewhere in the specification, and as Worlds points out, avatar is defined in the following manner: each avatar (18) is a 3D figure chosen by the user to represent the user in the virtual world. The Detailed Description in the 690 patent further discloses, the avatar images are 3-D and looks different in (most cases) from different angles. We see no reasonable way to view it otherwise. Disputed terms 7 and 8 (they are linked so we will look at them together) client process (690 claims 120; 558 claims 49; 856 claim 1) Worlds a program executed, stored, or accessible on a users computer to provide access to a server Activision a program being executed by a users computer that receives services from a server server process (690 claims 120; 558 claims 47; 856 claim 1; 501 claims 1-8, 10, 14-16) Worlds a program executed, stored, or accessible by one or more computers that provide one or more services to users of computers across a network Activision a program being executed by a computer that provides services to a client Commentary Worlds points to evidence in the patents that a program can be either executed or simply stored and used for execution later. Activision points to language in the patents and various standard definitions to support its arguments but those arguments are not persuasive. The parties dispute centers on whether a client process or a server process must be in a state of being executed (Activisions argument) or must be only capable of being executed 9

(Worlds argument). We might infer here that the client process and server process in the Activision software is only capable of being executed and not necessarily being executed, which is why they are trying to pose the limitation that the process must be in the state of being executed (to avoid infringement). We believe that the specification language quoted by Worlds makes it clear that a client process can take the form of software accessible by a processor, stored on accessible media or otherwise available to the user. Here is a quote from the specification: that process could be a program executed by a CPU in that client or server system and the program could be stored in a permanent memory, 30 such as a hard drive or read-only memory (ROM), or in a temporary memory, such as random access memory (RAM). We think Activision has little chance here. Disputed term #9 synchronously disseminating (690 claims 9, 18, 20) Worlds No construction needed or in the alternative, transmitting in a manner that is synchronized or coordinated Activision Indefinite under 35 U.S.C. 112, 2. Commentary The common meaning of the terms synchronous and disseminating, combined with the specifications description of how the invention works, seem to clearly support the idea that information is being transmitted continuously based upon numerous factors. We find little support for Activisions claim that the meaning of synchronously disseminating may not be divined by the specification. To the contrary, there are numerous references made by Worlds to items that would be synchronized, such as state changes, real time information exchanges, and other aspects of a virtual world, which generally requires constant updating. Once again the fact that Activision offers no alternative construction seems telling. Unless there is a really low bar for terminology being considered insolubly ambiguous in Judge Caspers courtroom (which would be contrary to applicable law) we just dont see any meaningful ambiguity here. Disputed term #10 third user perspective (998 claim 2) Worlds view from the perspective of the user Activision Indefinite under 35 U.S.C. 112, 2. Commentary Note that in this case ATVI does not even offer a possible meaning - it just claims that this term is hopelessly ambiguous. Once again, since there appears to be enough evidence of an actual or intended meaning, we see little chance of an indefiniteness ruling. Worlds cites a fairly clear example of what is meant by this term using Figure 1 and accompanying text from the 998 specification. For those of you who are following this case closely, Figure 1 is the now ubiquitous screenshot of the Worlds Penguins (Paula and Ken), which is often used to illustrate how the virtual world works, whereby each user executes a client process to view the virtual world from the perspective of that user. The 998 specification further demonstrates that Figure 1 is the view from the perspective of a third user, D, whose avatar

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is not shown. Thus third user perspective actually means exactly what the plaintiff says it means, i.e. the view from the perspective of the game player (user) as the game player is viewing this as a third party because his avatar is not shown. While we think that the language in the patents is somewhat inartful, the illustration makes the meaning fairly clear. We do not see a basis for an indefiniteness ruling on this term. Remember that the court is charged with construing the claims to render them meaningful and the mere fact that this may be difficult to do will not prevent the court from choosing the most appropriate meaning. In this case the penguin illustrations may well be worth a thousand words. If there were a term that we think may be sort of a jump ball in terms of favored construction, this would be it. We note that in order of importance however, it ranks number 10 of 11. Disputed term #11 switch between a rendering in which all of a perspective view of a local user avatar is displayed and a rendering in which less than all of the perspective view is displayed (998 claim 19) Worlds No construction needed or in the alternative, switch between a graphical representation in which all of a local users field of view is displayed, and a graphical representation in which less than all of a local users field of view is displayed Activision Indefinite under 35 U.S.C. 112, 2. Commentary Here we are not at all persuaded by Activisions argument. The terms rendering, perspective view, and less than all in relation to the logical views/perspectives of participants in the virtual world seem clear enough without the need for judicial interpretation. Moreover, the 690 and 998 patent specifications, and the likely reading of such by a person of average skill in the art, seem to make this an obvious win for Worlds. Activision even makes the case when they are challenging perspective view that perhaps perspective means from a viewpoint. This alone would seem to rebut their idea that this claim is insolubly ambiguous. We find Worlds alternative interpretation to be making what is already clear perhaps slightly more so, but we find no basis for a finding of indefiniteness. We conclude from their fairly desperate argument that Activision feels they must obliterate this claim entirely and that offering a passable alternative would do little to help its cause. Final thoughts: We predict a convincing Worlds victory on June 27th. We think Activision may win a jump ball with respect to a term of lesser importance, but we believe it is more likely that it will only prove that the patents could have been a bit more clear in their drafting and the net effect of the hearing will be soundly in favor of all of Worlds proposed constructions. At this moment, our groups investment strategy is tightly linked to our views about the likely Markman hearing outcome. We see little reason to speculate about what may happen at trial, whether a settlement will happen if the Markman proceeds the way we expect, etc. Yes, depending on the market value of Worlds post-Markman we see the prospect of buyout offers from several parties and we think that Activision will be more likely to settle than risk a judgment that would cause considerable damage and share depreciation. However, we are not focused on any events that may occur after the Markman. We think 11

Worlds will prevail in the Markman and in the short days and weeks to come we believe investor focus will intensify and Worlds market cap will more appropriately reflect their unique opportunity. Our plan will be to hold our entire position and to add to it opportunistically. We continue to look at the question of damages and will have more information to share in that respect soon. Disclosure: We are long WDDD and we may add to our position at any time. Do your own due diligence. Our reports and posts reflect our own views and should not be construed as legal or investment advice.

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