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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK KICKSTARTER, INC., Plaintiff, -againstARTISTSHARE, INC. and FAN FUNDED, LLC, Defendants. Civil Action No. 11-cv-6909 (PAC) ORAL ARGUMENT REQUESTED

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’S MOTION TO DISMISS PLAINTIFF’S DECLARATORY JUDGMENT COMPLAINT

Theodore K. Cheng (TC-8414) Stephanie S. Spangler (SS-8900) YOON & KIM LLP 11 East 44th Street – Suite 500 New York, NY 10017-3608 T: (212) 584-0058 F: (212) 584-0059 tcheng@yoonkimlaw.com sspangler@yoonkimlaw.com Craig R. Smith (admission pending) LANDO & ANASTASI, LLP Riverfront Office Park One Main Street – 11th Floor Cambridge, MA 02142 T: (617) 395-7000 F: (617) 395-7070 csmith@lalaw.com Attorneys for Defendants ArtistShare, Inc. and Fan Funded, LLC

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TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................................................................................ 3 FACTUAL BACKGROUND ..................................................................................................... 4 ARGUMENT .............................................................................................................................. 8 I. APPLICABLE LEGAL PRINCIPLES ....................................................................8 A. B. II. General Declaratory Judgment Jurisdiction ................................................ 8 Declaratory Judgment Jurisdiction in Patent Cases .................................... 9

ARTISTSHARE‟S AMICABLE NEGOTIATIONS WITH KICKSTARTER DID NOT CREATE A SUBSTANTIAL CONTROVERSY OF SUFFICIENT IMMEDIACY AND REALITY TO WARRANT THE ISSUANCE OF A DECLARATORY JUDGMENT...............11 THERE IS NO SUBSTANTIAL CONTROVERSY BETWEEN ARTISTSHARE AND KICKSTARTER REGARDING THE VALIDITY OF THE PATENT .................................................................................................14 THE COURT SHOULD EXERCISE ITS DISCRETION AND DISMISS KICKSTARTER‟S DECLARATORY JUDGMENT CLAIMS ...........................14

III.

IV.

CONCLUSION ......................................................................................................................... 15

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Defendants ArtistShare, Inc. and Fan Funded, LLC (“ArtistShare”) move to dismiss Plaintiff Kickstarter, Inc.‟s (“Kickstarter”) Complaint under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction. PRELIMINARY STATEMENT Kickstarter‟s complaint for declaratory relief should be dismissed because there is no case of actual controversy. Kickstarter filed its complaint during business negotiations with ArtistShare in which the parties had exchanged proposals for either licensing or purchasing the ArtistShare patent. When Kickstarter‟s offer to purchase the patent was not accepted, Kickstarter decided to take a different approach – Kickstarter filed suit rather than provide a counter-proposal. The Declaratory Judgment Act was not intended to be used as a tool to force more favorable settlement terms. See EMC Corp. v. Norand Corp., 89 F.3d 807, 815 (Fed. Cir. 1996) (dismissing declaratory judgment complaint that was filed as a tactical measure to improve the litigant‟s posture in ongoing negotiations). ArtistShare‟s communications with Kickstarter, taken individually and in totality, do not show a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. ArtistShare never alleged that Kickstarter infringed the ArtistShare patent during their negotiations; nor did ArtistShare threaten litigation. ArtistShare‟s amicable business negotiations with Kickstarter evince a good faith attempt to enter into a cooperative relationship. The parties should have an opportunity to continue their discussions without the expense and adversity inherent in litigation.

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FACTUAL BACKGROUND ArtistShare Brian Camelio, the founder of ArtistShare, recognized that a substantial number of artists are unable produce and profit from their creative works. Camelio Decl. ¶¶1-2.1 Mr. Camelio developed a novel way for artists to market their projects and obtain funding for them. Id. at ¶2. Rather than trying to obtain funding from large companies, such as major record labels, artists can acquire the funding they need to produce creative works by marketing them directly to their fans. Id. ArtistShare filed for and obtained a patent on Mr. Camelio‟s invention relating to funding projects. Id. at ¶5. U.S. Patent No. 7,885,887 was issued on February 8, 2011, and is titled “Methods and Apparatuses for Financing and Marketing a Creative Work.” Id. The ‟887 patent claims priority to a patent application filed on July 9, 2002. ArtistShare has been in operation for over eight years. Id. at ¶3. It provides an online platform for artists to seek funding from anyone interested in their projects. Id. Several recordings funded through ArtistShare have won or received nominations for Grammy Awards, including Billy Child‟s 2011 Grammy award for “The Path Among the Trees” and Actor Rick Moranis‟s 2006 Grammy nomination for “The Agoraphobic Cowboy.” Id. ArtistShare has spent years developing and refining a software platform called ArtistTools™. Id. at ¶4. ArtistTools allows artists to cultivate and nurture their fan base using powerful marketing and management tools, and helps artists obtain the funding they need to create future creative works. Id. ArtistTools allows artists to effectively manage an interactive dialogue with their fans and facilitates online access to an artist‟s creative process as it unfolds

This refers to the Declaration of Brian Camelio in Support of Defendants‟s Motion to Dismiss Plaintiff‟s Declaratory Judgment Complaint.

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through a combination of audio, video, pictures and text. Id. This robust platform provides a unique and valuable system for artist-to-fan interaction and is a novel mechanism by which artists can raise capital. Id. Kickstarter Kickstarter started operations in 2009, nearly six years after ArtistShare. Kickstarter is an online funding platform that allows artists to raise money for their projects. Fans or “backers” pledge money to help an artist reach a funding goal for a project. Kickstarter has received venture capital investments of over 10 million dollars. Kickstarter filed several of its own patent applications relating to fan funding. During the prosecution of these patent applications, Kickstarter cited the ArtistShare patent as known prior art. Kickstarter later abandoned all of its patent applications after its claims were rejected by the Patent and Trademark Office. Business Negotiations Between ArtistShare and Kickstarter In September, 2010, Mr. Camelio of ArtistShare sent a letter to Kickstarter to see if Kickstarter was interested in “licensing rights to ArtistShare‟s software platform,” which included rights to its then pending patent application. Ex. A2; Camelio Decl. ¶7. The letter was sent to Kickstarter's registered agent for service of process – CT Corporation System – because Mr. Camelio did not know to whom to send the letter. Camelio Decl. ¶7. Kickstarter never responded to this letter. Id. at ¶8. Mr. Camelio sent another letter to Kickstarter in March, 2011, indicating that ArtistShare had obtained the ‟887 patent and that ArtistShare was looking forward to establishing a “mutually successful business relationship” with Kickstarter. Ex. B; Camelio Decl. ¶9. Kickstarter never responded to this letter. Id. at ¶10.

All exhibits are attached to the Declaration of Theodore K. Cheng.

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On May 2, 2011, Kickstarter‟s litigation counsel wrote to ArtistShare. Ex. C; Camelio Decl. ¶11. Michael Allan of Steptoe & Johnson inquired whether ArtistShare was interested in a potential business opportunity or whether ArtistShare was alleging patent infringement. Ex. C. In his letter, Mr. Allan explained that “Kickstarter would be interested in a more specific proposal in terms of how an arrangement with ArtistShare might work and what benefit ArtistShare might provide to Kickstarter.” Id. Mr. Allan also requested that if ArtistShare was asserting patent infringement, that ArtistShare provide an explanation of its infringement claim. Id. Mr. Camelio, who is not an attorney, responded on behalf of ArtistShare to make clear ArtistShare was only interested in pursuing a business opportunity. Ex. D; Camelio Decl. ¶11. He told Mr. Allan that he was interested in “promoting the model to artists and continuing to evolve as the ArtistShare model becomes even more relevant.” Ex. D. Mr. Camelio explained that ArtistShare had a complement of software tools that he believed could augment Kickstarter‟s business to allow creators to develop long term relationships with fans. Id. Mr. Camelio informed Mr. Allan that though ArtistShare did have a patent, ArtistShare was not interested in analyzing claims of patent infringement. Id. Mr. Camelio ended the letter by again informing Mr. Allan he was interested in a business collaboration. Id. Immediately following ArtistShare‟s response, Mr. Allan emailed Mr. Camelio to tell him that a representative of Kickstarter – Jared Cohen – would call Mr. Camelio directly. Camelio Decl. ¶12. Mr. Allan did not request any additional information related to the ArtistShare patent. Kickstarter‟s litigation counsel had no further communications with Mr. Camelio until after the filing of the complaint. Id.

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From May through September 2011, Mr. Camelio of ArtistShare and Mr. Cohen of Kickstarter engaged in discussions relating to potential business opportunities and the ‟887 patent. They met in person, talked by phone, and communicated by email. In early June, Mr. Camelio and Mr. Cohen met at a restaurant in New York City. Camelio Decl. ¶13. They discussed the possibilities of integrating ArtistShare software with Kickstarter, having ArtistShare meet with Kickstarter developers to demonstrate the ArtistShare software, and how ArtistShare would generally improve the Kickstarter business model. Id. On August 5, 2011, Mr. Cohen and Mr. Camelio met again at a restaurant in New York City to discuss how ArtistShare and Kickstarter could beneficially collaborate. Id. at ¶14. At Mr. Cohen‟s express request, Mr. Camelio provided Kickstarter with software and patent licensing options. Id. The August 5 meeting ended amicably with the understanding that Kickstarter and ArtistShare would continue negotiations with the goal of entering into a mutually agreeable collaboration. Id. Mr. Camelio followed up with Mr. Cohen to facilitate a final agreement. Ex. E; Camelio Decl. ¶15. After Mr. Cohen indicated Kickstarter needed more time to reach a decision, Mr. Camelio informed Kickstarter that though ArtistShare remained interested in a deal, ArtistShare was also pursuing other potential business relationships. Id. If Kickstarter and ArtistShare were going to enter into an agreement, Mr. Camelio recommended that they should finalize the terms in the near future. Id. On September 12, Mr. Camelio and Mr. Cohen spoke by phone. Camelio Decl. ¶16. Mr. Cohen informed Mr. Camelio that Kickstarter was interested in licensing the ‟887 patent but wanted better licensing terms. Id. Mr. Camelio indicated that ArtistShare would consider a

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licensing counter-proposal from Kickstarter. Id. Mr. Camelio requested by email that Mr. Cohen furnish Kickstarter‟s offer by September 16. Ex. E; Camelio Decl. ¶17. On September 23, Kickstarter offered to purchase the ‟887 patent instead of licensing it. Camelio Decl. ¶18. Mr. Camelio informed Mr. Cohen that ArtistShare was not interested in selling the patent, but it would entertain a licensing counter proposal. Ex. F; Camelio Decl. ¶19. In the event Kickstarter did not furnish ArtistShare with a counter-proposal by September 30, Mr. Camelio indicated that ArtistShare‟s August 5 offer would be withdrawn. Id. At the time this complaint was filed, ArtistShare was waiting for Kickstarter‟s licensing counter-proposal. Camelio Decl. ¶20. ARGUMENT KICKSTARTER’S COMPLAINT SHOULD BE DISMISSED BECAUSE THERE IS NO “CASE OF ACTUAL CONTROVERSY” AS REQUIRED BY THE DECLARATORY JUDGMENT ACT Kickstarter‟s complaint should be dismissed because there is no actual controversy. ArtistShare never alleged that Kickstarter infringed the ArtistShare patent during their negotiations; nor did ArtistShare threaten litigation. Camelio Decl. ¶21. ArtistShare‟s amicable business negotiations with Kickstarter evince a good faith attempt to enter into a cooperative relationship. I. APPLICABLE LEGAL PRINCIPLES A. General Declaratory Judgment Jurisdiction

The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction...any court of the United States, upon filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201. Declaratory judgment jurisdiction is limited by Article III of the U.S. Constitution, which restricts federal judicial power to the 8

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adjudication of “Cases” or “Controversies.” U.S. Const. art. III, § 2; Cat Tech LLC v. TubeMasterm Inc., 528 F.3d 871, 879 (Fed. Cir. 2008); see also Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40 (1937). A district court may exercise jurisdiction over an action brought under the Declaratory Judgment Act only if, “„the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1361 (Fed. Circ. 2009)) (quoting MedImmune, Inc. v. Genetech, Inc., 549 U.S. 118, 137 (2007)). The alleged dispute must be „“definite and concrete, touching the legal relations of the parties having adverse legal interests‟; and that it be „real and substantial‟ and „admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.”‟ MedImmune, 549 U.S. at 127 (quoting Aetna Life, 300 U.S. at 240-241). Moreover, even if a suit satisfies the case or controversy requirement, a district court may decline to exercise jurisdiction in its discretion. See id. at 136. B. Declaratory Judgment Jurisdiction in Patent Cases

In a patent case, declaratory judgment jurisdiction may arise “where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license.” SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007). However, “[i]n the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some

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affirmative act by the patentee.” Id. at 1380-81; accord Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1339 (Fed. Cir. 2008) (plaintiff must demonstrate Article III standing by showing existence of “substantial controversy” at time complaint is filed, with controversy arising out of affirmative acts be defendant directed against plaintiff). Further, the patentee must cause a “real and immediate injury or threat of future injury” to the plaintiff in order to give rise to an Article III case or controversy. Prasco, 537 F. 3d at 1339. This requirement of standing is an objective inquiry “that cannot be met by a purely subjective or speculative fear of future harm.” Id.; accord City of L.A. v. Lyons, 461 U.S. 95, 107 n.8 (1983). The inquiry into whether there is a case or controversy starts and ends with the patentee‟s conduct. Prasco, 537 F.3d at 1340 (affirming dismissal under Rule 12(b)(1) because patentee had taken no affirmative act against declaratory judgment plaintiff). The court must analyze the “totality of circumstances” to determine whether there exists “(1) an injury-in-fact, i.e., a harm that is concrete and actual or imminent, not conjectural or hypothetical, (2) that is fairly traceable to the defendant‟s conduct, and (3) redressbale by a favorable outcome.” Id. at 1338 (internal quotations omitted). Additionally, the party claiming the declaratory judgment jurisdiction has the burden to establish the existence of such jurisdiction. Benitec Australia, Ltd. V. Nucleonics, Inc., 495 F.3d 1340, 1343 (Fed. Cir. 2007). The Second Circuit has held that when a defendant challenges the subject matter jurisdiction over a complaint, the “plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists.” Id. Moreover, “„[j]urisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the party asserting‟” that jurisdiction exists. APWU v. Potter,

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343 F.3d 619, 623 (2d Cir. 2003) (quoting Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998)). II. ARTISTSHARE’S AMICABLE NEGOTIATIONS WITH KICKSTARTER DID NOT CREATE A SUBSTANTIAL CONTROVERSY OF SUFFICIENT IMMEDIACY AND REALITY TO WARRANT THE ISSUANCE OF A DECLARATORY JUDGMENT ArtistShare‟s communications with Kickstarter, taken individually and in totality, do not show that there was a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. ArtistShare neither accused Kickstarter of infringement nor threatened litigation. Camelio Decl. ¶21. Kickstarter requested that ArtistShare provide a licensing proposal for the ArtistShare patent and later offered to purchase the patent. Id. at ¶14, 16, 18. At the time the complaint was filed, ArtistShare was waiting for Kickstarter to make a licensing proposal. Camelio Decl. ¶20. Because there is no substantial controversy between parties of sufficient immediacy, Kickstarter‟s complaint should be dismissed. See, e.g. Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1340 (Fed. Cir. 2008) (affirming dismissal because, among other things, there was no controversy where patentees neither accused declaratory judgment plaintiff of infringement, asserted any rights to plaintiff‟s product, nor took any actions implying such claims); Baker Hughes Oilfield Operations, Inc. v. Reed Hycalog UK, LTD., No. 2:05-CV-391 TS, 2008 WL 345849, at *2-3 (D. Utah Feb. 6, 2008) (dismissing declaratory judgment action due to absence of “affirmative act” by patentee, even though patentee had sent declaratory judgment plaintiff numerous letters evidencing that patentee was evaluating possible infringement litigation against plaintiff); Viking Injector Co. v. Chemtron, Inc, No. 3:CV-390791, 1993 WL 625543, at *4 (M.D. Pa. Nov. 9, 1993) (dismissing declaratory judgment action because patentee “has not sued Plaintiff, nor threatened to sue Plaintiff, nor made any demands

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on Plaintiff; moreover, there has been no evidence submitted that [patentee] is threatening to sue other parties who produce the same items as Plaintiff”). Brian Camelio tried to initiate business discussions with Kickstarter before ArtistShare received a patent. From the beginning, Mr. Camelio was interested in a business deal. He first contacted Kickstarter in September, 2010, before the ‟887 patent issued. Ex. A; Camelio Decl. ¶7. Because Kickstarter was relatively new to fan funding, Mr. Camelio offered to license “rights to ArtistShare‟s software platform,” including rights to the then pending patent application. Id. After receiving no response, Mr. Camelio sent another letter to Kickstarter in March 2011 indicating that ArtistShare had obtained the ‟887 patent and would like to discuss collaborating. Ex. B; Camelio Decl. ¶9. Kickstarter did not respond to this letter. When Kickstarter finally responded to ArtistShare, Mr. Camelio made it clear that he was interested in a business opportunity. In May 2011, Kickstarter‟s litigation counsel wrote to ArtistShare to determine whether ArtistShare was interested in a business opportunity or was alleging patent infringement. Ex. C. If ArtistShare was asserting infringement, litigation counsel asked that ArtistShare provide Kickstater with an explanation of their claim. Id. In response, ArtistShare emphasized that it was interested in pursuing a business opportunity. Ex. D; Camelio Decl. ¶11. Kickstarter‟s litigation counsel did not dispute ArtistShare‟s interest in a business relationship and referred ArtistShare to a Kickstarter representative to facilitate business negotiations. Kickstarter‟s litigation counsel did not request any additional information from ArtistShare and had no further communications with ArtistShare until after the filing of the complaint. From May through September 2011, ArtistShare and Kickstarter engaged in a series of business discussions relating to ArtistShare‟s business, software and patent. ArtistShare never

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alleged that Kickstarter was infringing the ‟887 patent or threatened to file suit. Camelio Decl. ¶21. Kickstarter has alleged that its complaint “arises out of repeated allegations” by ArtistShare that Kickstarter was infringing the ‟887 patent. See Complaint at ¶1. However, the complaint identifies only one alleged remark. According to Kickstarter‟s complaint, an allegation of infringement was made at a meeting between the parties on August 5, 2011. Id. at ¶16. This allegation is untrue and not supported by the totality of the evidence, including correspondence and conversations between the parties after the meeting. See, e.g., Camelio Decl. ¶14. ArtistShare never alleged infringement at the August 5 meeting. Id. Indeed, the friendly correspondence and negotiations between Kickstarter and ArtistShare following the meeting refute this assertion. Ex. E. After this meeting, the parties engaged in numerous communications, none of which mentioned any allegations of infringement. Id. ArtistShare repeatedly emphasized that it was interested in a business relationship. Id. After the August 5 meeting, Kickstarter continued to express interest in licensing the patent and then offered to purchase the ‟887 patent. Camelio Decl. ¶¶16-18. Although ArtistShare was not interested in selling the patent, it requested a counter-proposal for licensing the patent. Ex. F; Camelio Decl. ¶19. At the time that Kickstarter filed its declaratory judgment complaint, ArtistShare was waiting to receive a licensing proposal from Kickstarter. Ex. F; Camelio Decl. ¶20. The totality of facts surrounding ArtistShare‟s communications with Kickstarter cannot establish a substantial controversy of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. Therefore, Kickstarter‟s complaint should be dismissed.

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III.

THERE IS NO SUBSTANTIAL CONTROVERSY BETWEEN ARTISTSHARE AND KICKSTARTER REGARDING THE VALIDITY OF THE PATENT There is no substantial controversy concerning the validity of the ArtistShare patent.

Kickstarter expressly asked ArtistShare for a patent licensing proposal. Camelio Decl. ¶14. After receiving ArtistShare‟s offer, Kickstarter again confirmed its interest in acquiring rights to the ‟887, but wanted to further negotiate the terms. Id. at ¶16. Days before filing the complaint, Kickstarter offered to buy the ‟887 patent. Id. at ¶18. Thus, the totality of the circumstances demonstrates that there is no support for Kickstarter‟s assertion that the validity of the‟887 patent is controverted. IV. THE COURT SHOULD EXERCISE ITS DISCRETION AND DISMISS KICKSTARTER’S DECLARATORY JUDGMENT CLAIMS Even if Kickstarter could allege sufficient facts to establish a case or controversy, which it cannot, the Court should exercise its discretion to decline to exercise jurisdiction. The Declaratory Judgment Act provides that the Court “may declare the rights and other legal relations of any interested party,” not that it must do so. 28 U.S.C. § 2201(a) (emphasis added). In general, whether to entertain an action for declaratory relief involves “considerations of practicality and wise judicial administration.” Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995). The Federal Circuit has affirmed dismissal, where a declaratory judgment complaint was filed as a tactical measure to improve the litigant's posture in ongoing negotiations. EMC Corp. v. Norand Corp., 89 F.3d 807, 815 (Fed. Cir. 1996). Here, the parties were negotiating a potential license in good faith based on Kickstarter‟s explicit request for one. Rather than responding to ArtistShare‟s request for a counter-proposal, Kickstarter filed this lawsuit. Kickstarter has since used this suit as an attempt to extort from ArtistShare an unreasonable settlement. This type of negotiation tactic should not be condoned. 14

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The parties should have an opportunity to find a business resolution before engaging in expensive and lengthy litigation.3 Accordingly, the Court should decline to exercise subject matter jurisdiction under its discretionary power. CONCLUSION There is no substantial controversy between ArtistShare and Kickstarter constituting adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. The Court should dismiss Kickstarter‟s complaint for declaratory relief.

Dated: February 3, 2012 New York, New York

/s/ Theodore K. Cheng Theodore K. Cheng (TC-8414) Stephanie S. Spangler (SS-8900) YOON & KIM LLP 11 East 44th Street – Suite 500 New York, NY 10017-3608 T: (212) 584-0058 F: (212) 584-0059 tcheng@yoonkimlaw.com sspangler@yoonkimlaw.com Craig R. Smith (admission pending) LANDO & ANASTASI, LLP Riverfront Office Park One Main Street – 11th Floor Cambridge, MA 02142 T: (617) 395-7000 F: (617) 395-7070 csmith@lalaw.com Attorneys for Defendants ArtistShare, Inc. and Fan Funded, LLC

In addition to the settlement discussions between the parties, Defendants ArtistShare and Fan Funded would be willing to engage in mediation facilitated by the Court.

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