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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE MCKESSON AUTOMATION, INC., Plaintiff, v. SWISSLOG ITALIA S.P.A. and TRANSLOGIC CORPORATION, Defendants. ) ) ) ) ) ) ) ) ) ) PUBLIC VERSION

C.A. No. 06-028 (SLR-LPS) Confidential Version Filed: June 20, 2008 Public Version Filed: June 10, 2008

DECLARATION OF BRYAN N. DEMATTEO IN OPPOSITION TO MCKESSON'S MOTION FOR RECONSIDERATION

I, Bryan N. DeMatteo, declare as follows: 1. I am associated with the law firm Dickstein Shapiro LLP, counsel of record for

Defendants Swisslog Italia S.p.A and Translogic Corporation (collectively "Defendants"). I make this declaration in support of Defendants' Opposition to McKesson Automation, Inc.'s Motion for Reconsideration (Re: D.I. 310). 2. Attached as Exhibit A is a true and correct copy of the Assignment of Invention

dated June 29, 1990, bearing bates numbers M0143293 ­ M0143294. 3. Attached as Exhibit B is a true and correct copy of a letter dated June 24, 1992 to

the Commissioner of Patents from Lynn J. Alstadt, enclosing an original assignment document, bearing bates numbers M0125290 ­ M0125294. 4. Attached as Exhibit C is a true and correct copy of a post-it note dated June 27,

1990 authored by Frank Demmler, and forwarding draft promissory notes to Sean McDonald, bearing bates numbers M0474917 ­ M0474919.

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5.

Attached as Exhibit D is a true and correct copy of a letter from David Cohen to

Mark I. Baseman, dated January 3, 1991, forwarding voided Promissory Notes, bearing bates numbers M0474908 ­ M0474913. 6. Attached as Exhibit E is a true and correct copy of excerpts from the transcript of

the deposition of Frank Demmler, taken January 17, 2008. 7. Attached as Exhibit F is a true and correct copy of excerpts from the transcript of

the deposition of Marlin Stephen Heilman, taken January 17, 2008. 8. Attached as Exhibit G is a true and correct copy of excerpts from the transcript of

the deposition of Sean McDonald, taken August 30, 2007. 9. Attached as Exhibit H is a true and correct copy of a bill for professional services

rendered by Cohen & Grigsby, dated July 19, 1990, bearing bates numbers M0477006 ­ M0477013. 10. Attached as Exhibit I is a true and correct copy of a excerpts of a due diligence

file which includes a Stock Purchase Agreement, Promissory Notes and an Assignment of Invention, bearing bates numbers M0143186; M0143189; M0143288 ­ M0143294; M0143797. 11. Attached as Exhibit J is a true and correct copy of unsigned declarations of L.

Frank Demmler and M. Stephan Heilman, bearing bates numbers M0480865 ­ M0480867 and M0480935 ­ M0480937. 12. Attached as Exhibit K is a true and correct copy of the transcript of the telephone

conference held before the Honorable Mary Pat Thynge on October 24, 2007. 13. Attached as Exhibit L is a true and correct copy of the transcript of the pretrial

conference held before the Honorable Leonard P. Stark on May 20, 2008.

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14.

Attached as Exhibit M is a true and correct copy of a letter dated May 22, 2008

from opposing counsel to the Honorable Leonard P. Stark. 15. Attached as Exhibit N is a true and correct copy of cancelled Promissory Notes,

bearing bates numbers M0474909 ­ M0474913.

I declare under penalty of perjury that the foregoing is true and correct to the best of my information and belief. This declaration is executed this 20th day of June, 2008.

____/s/ Bryan N. DeMatteo______ Bryan N. DeMatteo
2377257

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CERTIFICATE OF SERVICE I, the undersigned, hereby certify that on July 10, 2008 I electronically filed the foregoing with the Clerk of the Court using CM/ECF which will send notification of such filing to the following: Dale R. Dubé, Esquire Blank Rome LLP Additionally, I hereby certify that true and correct copies of the foregoing were caused to be served on July 10, 2008 upon the following individuals in the manner indicated BY E-MAIL Dale R. Dubé, Esquire Blank Rome LLP Chase Manhattan Centre 1201 Market Street, Suite 800 Wilmington, DE 19801 Blair M. Jacobs, Esquire Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, NW Washington, DC 20004

/s/ Julia Heaney (#3052)
Julia Heaney (#3052) [email protected]

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IN THE UNITED STATES DISTRICT COURT IN AND FOR THE DISTRICT OF DELAWARE - - MCKESSON AUTOMATION, INC., : : Plaintiff, : : C.A. No. 06-028 (SLR/LPS) v : : SWISSLOG ITALIA S.P.A. and : TRANSLOGIC CORPORATION : : : Defendants. : - - Wilmington, Delaware Tuesday, May 20, 2008 at 11 a.m. PRETRIAL CONFERENCE

13 - - 14 BEFORE: 15 - - 16 17 18 and 19 20 21 (Washington, D.C.) 22 Counsel for Plaintiff 23 24 Ellie Corbett Hannum, Registered Merit Reporter www.corbettreporting.com
www.corbettreporting.com

LEONARD P. STARK, MAGISTRATE

APPEARANCES: BLANK ROME LLP BY: CHRISTINE S. AZAR, ESQ.

SUTHERLAND ASBILL & BRENNAN LLP BY: BLAIR M. JACOBS, ESQ., CHRISTINA A. ONDRICK, ESQ.

Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

Case 1:06-cv-00028-SLR-LPS
1 2 3 4 5 6 7 (New York City, New York) 8 Counsel for the Plaintiffs 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 APPEARANCES: (Continued)

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MORRIS, NICHOLS, ARSHT & TUNNELL LLP BY: JULIA HEANEY, ESQ. and DICKSTEIN SHAPIRO LLP BY: ALFRED R. FABRICANT, ESQ. BY: LAWRENCE C. DRUCKER, ESQ. BY: BRYAN DeMATTEO, ESQ.

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representing the defendants in the case. Our instructor, Brian DeMatteo, also with the law firm of Dickstein Shapiro, and Julie Heaney is our local counsel. Your Honor, the motion to dismiss for lack of standing started as a motion for lack of standing on its own. And it started out that way because during the course of reviewing the documents produced by the plaintiff in the spring and summer of 2007, we discovered a file, which was a due diligence file, of the McKesson attorneys that had been used in connection with their acquisition of the AHI Company, which was the original owner of the patents in suit. And what we found when we reviewed that file was that there had in fact been an assignment, an actual outright assignment, with an assignment document to two separate parties. And, Your Honor, if I may, because there are some documents I would like to go through today, all of them are exhibits to the papers before the Court, but just for reference sake, to show the Court several of these as we go through. THE COURT: That's fine. MR. FABRICANT: And this is the assignment document, which is in DeMatteo Moving Declaration Exhibit B. This is the document which was
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- oOo PROCEEDINGS (REPORTER'S NOTE: The following Pretrial Conference was held in open court, beginning at 11:00 a.m.) THE COURT: Good morning. MR. JACOBS: Good morning, Your Honor. MR. FABRICANT: Good morning, Your Honor. THE COURT: Welcome to you all. This is the time, as you all know, that we have set for oral argument on, I believe, it's four separate motions. If I am right, Swisslog is the movement on three and McKesson on the other. But I think it will be easiest for me if I just give you each time to address whatever issues it is that you want to address. And since the primary motion is the motion to dismiss for lack of standing, I want to hear first from Swisslog. Okay. MR. FABRICANT: Good morning, Your Honor. THE COURT: Good morning. MR. FABRICANT: Your Honor, I am Fred Fabricant from the law firm of Dickstein Shapiro,

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executed by Sean McDonald, the president and founder of AHI, so there is no question he was a person of authority. And this document conveys to two parties, 100 percent of the interest in the then pending patent application and all subsequent rights that might develop as a result of that patent application, including patents that would issue continuations and the like. THE COURT: This copy, though, it's only signed by Mr. McDonald, I believe. Is that typical for an assignment agreement that only the assignor is signing, and have you seen a copy that would be signed by both sides? MR. FABRICANT: I don't think it's typical that an assignee signs an assignment document, Your Honor. THE COURT: And is that a relevant consideration, since I understood your position to be, at least in part, look at the face of this assignment agreement on its own and separate and independent from the notes and the term sheets and the stock purchase agreement, since this recites consideration and it seems clear and unambiguous, but it is in fact only signed by one side to the transaction. So I'm not sure that I could consider it in the abstract and not with all the

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

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other documents. MR. FABRICANT: I understand. I do believe that it is common practice for the assignor to sign an assignment document and for the assignee not to be present as a signatory on an assignment document. That is common in the practice of patent assignments. This document states consideration on its face, having been received and in addition to other stated consideration. It clearly conveys 100 percent -- not unlike if I transferred my automobile to Mr. Drucker, and I signed the title to Mr. Drucker and I conveyed 100 percent of my interest. Mr. Drucker doesn't sign the form that I convey my interest to him. It's not even a place for it on the title assignment. THE COURT: Let me ask you this: Would AHI as the assignor have an enforceable right to the one dollar consideration, absent any signature from the assignee? MR. FABRICANT: Well, the consideration is stated as having been received, I believe, so I guess they wouldn't. And I realize this is typical lawyer boilerplate consideration having been received of one dollar, but that's why it's stated as consideration received.
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despite our repeated e-mail requests and letters and comments at depositions, nothing was forthcoming. So we made a motion to dismiss the case for lack of standing, which is a matter of subject matter jurisdiction. A party to a patent lawsuit does not have ownership rights or sufficient ownership rights, there is a lack of subject matter jurisdiction. So we believe, as a matter of right, that motion was made and timeliness is not even a factor with respect to that aspect of the motion. Ultimately the counsel for McKesson asked Magistrate Judge Thyne for permission to take the depositions of the two parties represented by these assigness, Mr. Demmler, who was the manager of the Pittsburgh seed fund, and Dr. Heilman, who was a separate individual assignee. They split it up at 71.4 percent to the fund and 28.6 percent to Dr. Heilman. And at the time McKesson's counsel urged Magistrate Judge Thyne that it was essential, that they had to take these depositions in order to respond. The time for such depositions had passed. We argued that point before Magistrate Judge Thyne, and she allowed them to take those two depositions. What I think is crucial to this motion is that at the depositions they didn't have any of the
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THE COURT: So just to put the fine point on it. Is it your view that this assignment agreement is legally enforceable in and of itself as a separate stand-alone document. MR. FABRICANT: Yes, it is. Now, I don't ask the Court obviously to ignore the other documents which have been presented to the Court, but I do believe that we start with the premises that this is a legally enforceable assignment document, and that if other things had not happened here -- some of which are still in dispute, Your Honor. It is not undisputed whether this loan arrangement that these gentlemen made at the same time as the assignment, whether those loans were ever repaid. That's an open question. So putting aside those questions, we believe that this is an assignment that stands by itself. It conveyed 100 percent of the rights to this patent application and technology. When we discovered this, Your Honor, we immediately asked the McKesson counsel for any evidence of an assignment back or any proof that, in fact, McKesson is in fact the title holder of the patent. This started in about July of 2007, promises to provide us with the information; and ultimately, by October of 2007,

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questions which this court, I'm sure, would like to have heard the answer to, like: Do you have an ownership interest in the patent? Do you continue to have an ownership interest in the patent? They didn't ask those questions, Your Honor. They didn't ask those questions, Your Honor, because in the gap of time between the time he made the motion and the time of those depositions, a gap of several months, the counsel for McKesson prepared draft affidavits for both of those witnesses, Dr. Heilman and Mr. Demmler. And in those draft affidavits, which are part of the record, and I would like to emphasize some points for the Court, they asked these individuals to disavow, in effect, any ownership rights, any continuing claims they might have. They asked these witnesses to confirm that the loans were repaid. And the reason why they did this, Your Honor, was because in this district when one reviews the cases which ultimately were submitted to the Court, it can be readily seen that Judge Robinson herself, in 2006, in the Matthews case and other decisions of both the District of Delaware and other courts, that the crucial factor that often comes into play in these standing motions is whether or not this other nonparty disavows any rights, says I will never

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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pursue these rights, and in the 2006 case here in the District of Delaware, that's exactly what was the basis for Judge Robinson's decision. We then find these draft affidavits, which we discovered when we spoke to these witnesses and found out that McKesson's counsel had been in contact and had provided them with draft affidavits. Magistrate Judge Thyne ordered that they produce, and we exchange with each other any communications we have had with these individuals. THE COURT: And a suggestion, you proposed draft affidavits as well and the inventors refused to sign yours too; is that correct? MR. FABRICANT: Their characterization is false. We did propose to Mr. Demmler only, not Dr. Heilman, to Mr. Demmler, an affidavit, a proposed affidavit which said only the following -- and I will be happy to submit a copy of it to Your Honor. It is not part of the papers. All it said was, which is what this witness told us on the telephone, "I don't remember whether I assigned that. I don't remember whether the loan was repaid." That's what it said. It did not propose any business relationship. It did not do anything more than that. However, the affidavits, as I mentioned
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additional information. And in that box were draft promissory notes -THE COURT: Let me just caution you at this point. I understand you use the word supposedly and you have made certain suggestions that seem to be suggestions of bad faith on the part of your friend on the other side, and unless you really have strong support for that, I rather you stick to the evidence and don't go to "supposedlies." MR. FABRICANT: Your Honor, I only meant to say documents were produced after the motion was made which were never previously produced. THE COURT: That's fair. MR. FABRICANT: Not getting into the reasons why. I don't know the reasons why. In that box of documents were draft promissory notes for this transaction. And the draft promissory notes did not refer to an assignment of a patent. They referred to an assignment of technology -not even an assignment. They referred to security interests in technology rights. And the language being proposed here, when I show Your Honor those draft notes, is really the language of the draft notes, which were rejected, and not
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from McKesson's counsel, first Mr. Demmler's proposed after, Exhibit L to Mr. DeMatteo's apply declaration. Here is his draft after; it purports to be on firsthand knowledge of the facts. On the second page, in paragraph 13 -and this is important, Your Honor -- they used words about how this individual should characterize this transaction. And they say to secure the repayment of the funds loaned to Automated pursuant to the promissory notes, both the bridge loan and the November loan. The collateral or security for repayment provided by Automated was an assignment of the technology rights associated with the patent application of January 24, 1990." I focused on that for a moment because that's not the language of the assignment. The assignment and the original promissory note, which is actually executed by Mr. Demmler, is an assignment of the patent application itself, not an assignment of the technology rights. Now I will make this point. When I finish with these affidavits I would like to show Your Honor very important evidence that was produced after this motion was pending. A box was supposedly found of documents never previously were produced which had

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the language of the notes which were actually executed by the parties. That evidence will go if the Court looks at the substance, the merits of the case at all, and McKesson has made a point of the intent of the parties. The intent of the parties clearly here, as the witnesses testified at the deposition, was to grant an assignment. They felt secure with an assignment of the outright patent as opposed to -THE COURT: Why after, really after June of '90, why is there no evidence of anyone ever acting as if there was an assignment? That is, in November of '90, you know, they execute the other note and pledge -- I don't know if it's pledge, but they reference assigning those rights again. But on your view of the case, AHI didn't have any rights to assign for the November note. And then you go forward to 1994, in the Partek transaction, and '96, all the representations made to McKesson. And 17 years or whatever pass and the inventors never actively have any interest. So explain to me, if I am agree with you up until the moment of June 29th of 1990, why is it not the case that everything that happened after that is totally contradictory to your view of the case?

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719b3435-759f-41f0-994c-79a533b967e9

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MR. FABRICANT: Well, point by point, first of all, the subsequent McKesson transaction, the subsequent security transaction in 1994, I believe it was, the subsequent representations to McKesson at the time of the transaction, as those witnesses testified at the deposition, when they were handed a 100-page transaction document from McKesson, which in the first sentence said, you know, you agree that everything stated within this document is accurate and correct, and supposedly had schedules attached. First of all the copies produced didn't have the schedule. We don't know if they ever saw the schedule. They testified they don't know if they ever saw the schedule. Even if they had see the schedule, it didn't refer to the patent application that they had an assignment in; it referred to a patent number that had ultimately issued. So it's pretty clear they would not have known, even if they had read the document that this covered this particular aspect. With respect to all of the other things, I will put it this way as a result of this lawsuit and as a result of McKesson looking for the assignment back, they stirred up this issue of whether or not there in fact was a proper chain of title and transfer of title. We can't undo that. The result of
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THE COURT: Because I guess I want to hear what do you say about the November 1990 transaction between AHI and the inventors? I think there was another $50,000 loan. MR. FABRICANT: I don't believe that's at all inconsistent with the prior two assignment documents, the prior two notes entered into in June of that year. And the reason I don't believe it was inconsistent, because that was an additional promissory note which used the same language as the prior notes. If, for example, they wanted to make sure that they still had the assignment, which they already had in their hand, could the words have been different, yes; but if, let's suppose the prior notes had been repaid, but that later note had not been repaid, they wanted to make sure they still had a valid assignment of the patent. It's possible that only one of three would be paid. That two of three would be paid. And I believe it was just, using the same language to make sure it was understood, there was an outright assignment. The assignment was dated June. Now they were borrowing another $50,000. This would have been protected them in the event of default of some but not all of the notes. I don't believe it's inconsistent that
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this, the result of this is -- even if these individuals from the time of the assignment in 1990 until the fall of 2007 were not awakened to the fact that they have legal title to this, to these patents in suit. As a result of what has happened here they were contacted by McKesson's counsel. They were asked whether they had the assignment backed up. They were given a lot of information about this. They retained counsel. Their counsel actually contacted our law firm and wanted to know whether there was a business transaction that could be resolved here. I don't know. Perhaps they made the same kind of advances toward McKesson. I don't know. But what's happened here is if there is a party that has legal title, a claim to legal title based upon the transactions, even if they didn't follow it up, over the last however many years, it creates a situation where we now have two parties, two separate groups, a fund with many limited partners, and an individual who is a very sophisticated individual, who may have claims to patents in suit, which they deem as being very valuable. That wasn't as a result of our doing or our making, that's as a result of -THE COURT: Go back to 1990. MR. FABRICANT: Yes, Your Honor.

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the mere fact they took another $50,000 from these parties undid the nature of the assignment which had been granted several months earlier. THE COURT: So the idea that McKesson raises, which is I need to reject your view of the case because otherwise the November '90 transaction is one in which AHI is purporting to sign something that it had no right to sign. You say that's not the way to read that November '90 document? MR. FABRICANT: I think it's clear they had already received the assignment and therefore the words in the 23406 promissory note which said it shall be secured by an assignment. The assignment had already taken place. There was nothing else they had to do. THE COURT: Well, it's a nullity what AHI had represented with respect to the assignment. MR. FABRICANT: I don't believe it's a nullity. I believe it was additional words which gave them security in the situation where the first two loans were repaid and they still -THE COURT: How can they give that security on your view of the case, AHI didn't have any interest whatsoever in the patent, in the things that they assigned on June 29th of 1990.

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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MR. FABRICANT: I agree that AHI did not have a patent to assign in November of 1990. It had already been assigned. I agree with that. That is our position. THE COURT: So how can AHI say, well, if those first two notes are paid off, you can still use the assignment as security in November '90? I mean, AHI had no ability to control what happened to the assignment, to the patent -MR. FABRICANT: There might be an assignment back prior to the date. There are a number of things that might have happened and I agree that once you assign something it's not the best use of language to not make that a stated point in the third note. But I don't think it undermines the fact that there was an outright assignment, that they had not been repaid as of the date of November. There is no question about that. So that whatever assignment was made, without any dispute, had clearly not been extinguished or undone. They clearly had made that assignment, there had been no repayment. THE COURT: I guess the common sense question, going back to it, is you want to take me through and have me focus on the drafts and everything leading up to the moment on June 29th, 1990, when they
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Your Honor, which that court addresses automatic assignments in that case in the context of an employment agreement but no less applicable in the situation of an automatic assignment back as the McKesson people argued, in which case the Federal Circuit in 2008 stated that you would not gain legal title as a result of a promise to assign in the future an automatic assignment back. The court also went further and said that when it comes to patent assignments, you don't look to state contract law, you look to federal law, which looks to the language of the contract. So when Your Honor starts taking into consideration all of the factors that McKesson has urged in its opposition, what was the intent of the party, form over substance, were the loans repaid, what's the applicant of a self-extinguishing assignment under Pennsylvania state law, in light of the Federal Circuit decision, and keep in mind the No. 1 thing to point out today, which is once all of this became known and the additional documents produced and the draft affidavits were reviewed and the depositions taken, we could see that the seed fund and Dr. Heilman became necessary and indispensable parties in order for the court to resolve this dispute. How can the court resolve this dispute
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executed the assignment agreement as well as those notes, to make it clear, in your view, that the intent of the parties was an absolute assignment and not just a security interest. And yet everything, at least beginning with November 1990, is inconsistent with the parties having such an intent. And so why doesn't that mean that your argument about what the intent was is actually not persuasive? MR. FABRICANT: Well, it starts with the premise, Your Honor, that this court should even be inquiring into the specific intent of the parties, parties not before this court. It starts with the premise that for this court to look at what was meant by the fact that the two notes which didn't assign the patent and only granted the security interest were rejected days before. It asks this court to construe that intent. Then it asks this court to look at what were the reasons for the November language in the note. And then it asks this court to look at whether the loan was repaid, because if the loan wasn't fully repaid, and I mean all three notes repaid, then even the security interests theory wouldn't fly. Then it asks this court to evaluate the ramifications of the recent Federal Circuit decision, from January 2008, which we cited to

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without the parties present. And that's why in reply to all of the factors raised by McKesson -- and all we asked in the initial motion under 12(b)(1) was that they establish they have standing. They raised in opposition all of this, look at the intent, look at the form, all of these issues, which go to the heart of this court having to make a decision without necessary and indispensable parties present. So it became a motion to dismiss as well as 12(b)(1) for lack of standing for, under 12(b)(7), for lack of necessary and indispensable parties. THE COURT: Could I simply say, though, without reaching the ownership issue fully stopped, that had they met their burden of proof or production at this procedural moment in the case and, you know, the final determination, if necessary, as to ownership will be at a later point in this case. MR. FABRICANT: Well, that I think gets to the issue of, if Your Honor were to conclude that, as to whether these parties are necessary and indispensable parties. How are we going to decide at a later date or at any date prior to trial, or even at trial, the ownership issues without the parties present that have

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719b3435-759f-41f0-994c-79a533b967e9

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the facts, that have the evidence, that have the potential claim, without them present, whatever result this court adjudicates ultimately would then run face on into the risks of Rule 19. Not only with respect to Swisslog's interests, because obviously we have counterclaims for invalidity of the patent; we have counterclaims for non- infringement of the patent; we have a proposed counterclaims, which we will address with Your Honor, on enforceability of the patent. If there were be an adjudication, it would not be a final adjudication with respect to the patent. We would have to do it, perhaps, all over again. When it comes to the rights of these individuals in this fund, their rights would be affected. We've cited to Your Honor decisions that, even though the results of this litigation are not res judicata or in collateral estoppel against those entities or those parties, as a practical matter, as the Gonzales case has said in other courts, their rights have been affected. It will be a Markman decision that they will not have been participated in. There may be a practical impact if they have rights to pursue though rights in the future. So we run smack into the fact that they are a necessary party; they are not, we don't believe,
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MR. FABRICANT: What I would like to point out, with respect to the law, is that when Your Honor looks at -- and I thought we had addressed all of the cases cited in their brief. THE COURT: You didn't address that one. MR. FABRICANT: You may be right, Your Honor. But basically, when we went through the cases, case by case, I did not find any case that, where the nonparty, who was the subject of this Rule 19 issue, was a prospective assignee of a patent who might have ultimate ownership rights to the patent and where a court refused to join that -- or where a court allowed a case to go forward without the presence as a necessary indispensable party of a patent owner by assignment. Case by case, as I went through the decisions cited by McKesson, there was the Kahn vs. General Motors case, which was a case where -THE COURT: You don't need to run through those. MR. FABRICANT: Right. But I went through them and I will address the case, if I can, which Your Honor has raised. But I didn't find a case where there was an outright assignment where there wasn't some
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joinder as feasible, although I don't know plaintiff has tried to join them; that they don't reside in the state of Delaware and they have not done any business here, to our knowledge, so they may not be able to get personal jurisdiction over them, in which this case I think clearly they would be an indispensable party. THE COURT: Well, with the Federal Circuit decisions in the Applied Companies, which is a case involving a government contract and looking at whether that was an assignment there or a security interest. It's cited by McKesson, but I didn't see where you had a response to it. MR. FABRICANT: I am trying to recall that case, Your Honor. THE COURT: Sure. There are a lot of cases. MR. FABRICANT: A lot of cases. THE COURT: It's 144 F.3d 1470 (Fed. Cir. 1998), a decision of the Federal Circuit in the Applied Companies vs. United States. MR. FABRICANT: I don't recall it offhand, Your Honor. THE COURT: Maybe we will have you back up on rebuttal, if you have anything to say about that.

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other issue of either reacquiring the rights or disavowing the rights or disclaiming the rights or some other factor not applicable to the present case but an outright assignment to a nonparty not subject to joinder in the case. I didn't see that in the case law. THE COURT: What about Section 261 relating to the recording of assignments? MR. FABRICANT: Yes, Your Honor. THE COURT: Explain to me your position on that and why that doesn't win the day for McKesson. MR. FABRICANT: Our position is that very simple, which is Section 261 has one big requirement, and that is that you don't have actual notice of the prior assignment. THE COURT: And what is the proof here that they had notice of the assignment, specifically the two-page document that you put up earlier? MR. FABRICANT: Yes, Your Honor. This was produced by McKesson out of McKesson's due diligence files involving their acquisition of AHI in 1956. THE COURT: So those two pages you put up the assignment of invention that were produced from that folder by McKesson? MR. FABRICANT: Yes. Along with the

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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executed promissory notes, along with some of the other documents relevant to this transaction. It was in a folder marked "McKesson Due Diligence." So we know that, as a matter of fact, I don't see any way to dispute the fact by McKesson, that they had actual notice of the transaction. And so we believe once you have actual notice, the provisions of 261 do not apply. THE COURT: And go back to an issue you alluded to of these recent Federal Circuit decisions, I think a couple of them from this year. Help me out on what is at stake, in your view, as to whether I apply federal or Pennsylvania law? Is that an issue I need to reach, and if so, why? MR. FABRICANT: Well, the DDB Tech case, from January of 2008, was the case that previously I was referring to about the Federal Circuit. I think the ramifications of that case is that this entire theory on the merits that McKesson has raised in opposition, that even if there was no assignment back, the assignment back was in effect self-extinguishing because of the security interest under Pennsylvania state law. I think what the Federal Circuit said in the DDB Tech case was, if you look to federal contract interpretation law, which
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would be self-extinguishing not be applicable. THE COURT: And what about the Akazawa case, which I think is an even more recent Federal Circuit case, in March of this year, which seemed to talk about state law governing patent ownership over federal? I'm not entirely clear, but I'm looking for help on that. MR. FABRICANT: If I could handle that on rebuttal, Your Honor. THE COURT: Okay. MR. FABRICANT: I am just unprepared, Your Honor. THE COURT: Okay. Why don't -- two things I want to make sure you cover before you sit down. One is are there some new documents that I haven't seen that you wanted to allude to, some recently discovered evidence or something, and also whatever it is you want to tell me about the other motions that we haven't discussed yet. MR. FABRICANT: Oh, sure. I don't believe there are any new documents that are not attached as exhibits to either McKesson's briefs or declarations or ours, no additional documents. THE COURT: Okay. MR. FABRICANT: I do, as I said, I would
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doesn't necessarily take into account the Uniform Commercial Code, and there the court described, looking at the language of the contract, and then they went through that process in that decision where they ultimately remanded to the district court for jurisdictional discovery, which the district judge had not allowed in dismissing the case. So there was no ultimate resolution, as far as I know as of today, but there was a motion to dismiss based on lack of standing; that was a case dealing with an purported automatic assignment. The court not only said, we look to the explicit expressed language of the contract, not to state law in patent cases, but also that made an express statement that the promise to assign in the future or the automatic-assignment scenario would not allow legal title to pass. Even if, even if there was a promise or even if there was to be an automatic assignment, that legal title would not pass. And that was the import, I think, of that decision to this case. So I would argue, and I think we have stated this in our briefs, that the Pennsylvania provision of the Uniform Commercial Code, as to whether or not this was a security interest rather than an assignment, if it was a security interest, whether it

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ask the court to look at -- I won't go through them all, but ask the court to look at, if we got into the issue of deciding the merits of this ownership question at all here without these parties present, the draft notes that were rejected, which have very different language which clearly create a security interest and not an assignment of a patent. And the ramification of that on the evaluation of the intent of the parties. Also, I would point to the fact, and I think this is crucial to Your Honor's decision if you get past the indispensable party issue and actually looked at the merits of the arguments that McKesson has raised, the documents that were produced after the motion was made that were located by McKesson and produced to us, the witnesses were unable to identify or remember or recollect any of the handwriting on these exhibits. They were asked that. They were unable to do that. There is no evidence before the court as to who placed the handwriting destinations on these documents, so we don't know. One of the issues Your Honor would have to decide, we believe, if it was to be an evidentiary determination of this issue of ownership, is were the loans ever even repaid in full, because without that even

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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a security interest theory doesn't cut it. So just for a moment, Your Honor, I would show -- and this causes us some concern -- here is the promissory note that was produced after the motion was filed as to the $42,000 loan, and you can see that there has been placed on the document the word "void." And down at the bottom left it says paid 12/27/90, down here. THE COURT: Is that for Heilman or for PSF? MR. FABRICANT: The notes apply to both of them, I believe. This is, I believe, it's both of them. Oh, no, this is Steven Heilman. This is Steven Heilman, Your Honor. THE COURT: Okay. Just for the record, will you read the Bates number into the record, please. MR. FABRICANT: Yes. This is Bates No. M0474909. And I believe it was DeMatteo Reply Declaration Exhibit M. And then there was another document provided at the same time, after the motion was filed, which was DeMatteo Reply Declaration Exhibit M, but at a different page, M0474912 to 13, and this is the $107,000 note. And this was says "Cancelled, paid in full." It looks like the same handwriting, but no one has
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McKesson to Swisslog in sort of rolling fashion that began sometime in the spring of 2007, after their deadline had already passed. The document production continued until -- in fact, one of the largest productions, if not the largest of 250,000 pages, occurred in the fall of 2007, long after this deadline had passed. And therefore as a result of the timing of the document productions, depositions in this case, by Swisslog of the McKesson witnesses, the 30(b)(6) depositions didn't start until late May of 2007, long after this deadline had passed. We went into the summer of '07. And the crucial depositions actually, in large part, were taken during the summer of 2007, culminating in the deposition of Sean McDonald, the founder, inventor, a person with duty of candor, the person who founded the company, on August 30, 2007. So approximately seven days after the deposition of Sean McDonald, we wrote McKesson's counsel and advised them that we would like to make a motion to amend our answer and counterclaims, asking their permission to do so, consent to do so, and they refused to grant that. So we have, obviously, three major factors on a motion to amend, such as this one, undue
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identified whose handwriting this is or who made these notations. And, again, we have what we believe is a disputed issue as to whether there ever was a full repayment of these loans. And I believe on the lack of standing issue and the indispensable party issue that's all I have for the court at this time. THE COURT: Okay. And on the other motions? MR. FABRICANT: Yes, Your Honor. THE COURT: Was there anything you wanted to say with respect to them? MR. FABRICANT: Yes. Your Honor, I'm going to address, with the Court's permission, the motion to amend the answers, the answer and counterclaims, and Mr. Drucker will address the other motions. THE COURT: That's fine. MR. FABRICANT: Your Honor, on the answer, the amendment, the proposed amendment to the answer and counterclaims, the scheduling order had provided a date for motions to amend cut-off of December 20, 2006. As a matter of fact, no documents were produced before that date, no depositions were taken before that date. The documents were produced from

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delay, whether the amendment would be futile, and the prejudice to the parties as a result of any amendment. THE COURT: Before we get to those, let me just ask you, if I were to grant your motion to dismiss for lack of standing, would your motion then to amend, basically just the counterclaims at that point, would that still be an issue in front of me or would that be mooted? MR. FABRICANT: I think the counterclaims, Your Honor, would still be an issue. Although if Your Honor dismissed without prejudice, as Your Honor might be inclined to do, and not knowing who the true owner of the rights might ultimately be found to be, we might not pursue those counterclaims because we might pursue them against the wrong party. So, as a practical matter, I believe if the case were dismissed without prejudice, probably all of the case would go away until such time as the proper parties stepped forward. THE COURT: On the assumption I am not doing that, tell me what I need to know about this motion. MR. FABRICANT: Yes. Undue delay, Your Honor, not only is the window of time relatively short,

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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particularly in light of the fact the document production just started in the spring of '07 and depositions throughout, until the end of August of '07, but what the evidence collected during that period related directly to the amendments which we now seek to make at this time. With respect to inequitable conduct for failure to disclose material information to the patent office, in our original answer and counterclaim we reserved the right to add additional affirmative offenses with respect to patent defenses. We did not, at that time, and I don't think it would have been appropriate to allege inequitable conduct, because inequitable conduct requires a pleading of the nature of a fraud pleading under Rule 9, and therefore we did not have the ability at that time to plead with particularity. We did receive some documents, in the spring and summer of 2007, which suggested that there had been some demonstrations or tests or public displays, but we didn't know who was at them, who attended them, who knew about them, what actually happened at those demonstrations. We took the deposition in the summer of two people in 2007, the two people who were knowledgeable about what actually happened, Mr. Keyes, who was a cofounder; we took his deposition in the summer of '07,
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But what we also discovered because of his duty of candor as an inventor and his knowledge of what had transpired, that comparing what he testified to with the file history, that there had been no disclosure of material facts and events of material prior art. Remember the difference, Your Honor, between inequitable conduct and invalidity is for invalidity based on an on sale bar, you need to be able to establish what was on sale meets each and every element of each and every claim. But for an inequitable conduct claim, you only need to be able to demonstrate that a person with a duty of candor withheld material information to patentability. It can be something far less than on sale bar if it was material to patentability. Of course, you have to also establish this was done purposefully, with an intent to deceive the examiner. And that's why parties don't allege at the early stages of cases, wisely, inequitable conduct until they gather the facts and the evidence. Once we gathered that and concluded that process on August 30, 2007, we immediately notified the other side of our intent to go forward and we made our motion to amend in October.
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and Sean McDonald, whose deposition occurred on August 30. I know we pointed out in our papers, Your Honor, that we've attempted to take Sean McDonald's deposition since early spring. We wanted him to be early in the process. I think our first request for him was in March. And for a number of reasons the deposition was postponed and postponed again by the plaintiffs until ultimately we had to subpoena his attendance at a deposition at the end of August. So it was not through any lack of our desire or intent to take Mr. McDonald's deposition at an earlier date, but it didn't happen. At that deposition on August 30, just seven days before we raised this issue with McKesson and just a month or so before we made the motion to amend, we discovered all of the particular details and facts as we set forth in our proposed amendment on inequitable conduct, which we believe supports without question an inequitable conduct claim, certainly beyond any question of futility of the event. We discovered that he had personally performed and put on presentations of a device which we believe teaches each and every element of the claims of the patent more than a year prior to the filing date, which would constitute an on sale bar, which we had already alleged invalidity.

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With respect to the antitrust claims, Your Honor, the original answer and counterclaims raised a claim for antitrust violations under the Sherman Act, Section 2, as a result of sham litigation, because at that time all we were able to discern from the complaint and from the lawsuit was that we believed that there was objectively baseless grounds for bringing the action in light of the claim language, the way in which we believe the claim language reads or does not read on the invention, and we didn't believe there was an objective basis for bringing the lawsuit. So we alleged that kind of sham litigation under Sherman 2, but we did not have the ability to allege any other type of antitrust violations at that time. We had no documents; we had no fact depositions. As our papers explain, beginning with the deposition in late May of Mr. Zwolinski, continuing through the summer of '07, and again culminating with Mr. McDonald on August 30th, we discovered that there had been a course of conduct of predatory pricing, of sole-source agreements to protect large segments of the marketplace, of false statements being made about the plaintiff's product, of false and misleading statements being made about, not only the defendant's product but

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

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the defendant's company and its financial wherewithal, and all of those facts, I believe, are set forth in great detail in our proposed amendment. And so therefore, based on the facts and evidence collected from May of 2007, which is the earliest possible date we could have discovered any of this, through the summer of 2007, we put together all of the factual allegations which, we believe, without question, supports the Sherman 2 claim based not on sham litigation but on monopolization or attempt to monopolize and the Sherman 1 and Clayton 3 claim, as well as the Delaware state claim which tracks the federal antitrust laws. So we don't believe the amendments are by any means futile; we don't believe they are subject to a motion to dismiss. If the Court allowed the amendment to be made, for the reasons I described, and I think the pleadings speak for themselves because they are very detailed in the proposed amendment. This is not something we could have discovered at an earlier date. And in light of the law with respect to allowing the amendment of pleadings, the liberal track on that, as well as the fact that there is really no prejudice to the parties, which is the third prong, and I will explain
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-- we presumed, for purposes of discovery and expert reports, that Your Honor would ultimately or this court would ultimately allow us to amend and, therefore, we conducted the discovery which we felt was necessary anticipating that possibility. We had our expert even include that in his expert report. THE COURT: I have got all of that. Just very briefly, if you want to add the affirmative defense of lack of standing, if the motion to dismiss for lack of standing is denied, what impact would it have on the case if we allow you to add that as an affirmative defense going forward in the case? MR. FABRICANT: Your Honor, we did ask for that relief, I believe, as a matter of law. Because it involves subject matter jurisdictions, we are entitled as a matter of law to challenge standing if it affects subject matter jurisdiction. So I would submit that we are entitled to that, notwithstanding the need to amend. I believe it would remain an issue in the case, unless this court is prepared to grant, in effect, what would be summary judgment on the standing issue at this point on this record, in which case there would be adjudication. If the court is not prepared to do that, then we would ask that this amendment be permitted so that we could
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why. Prejudice to the parties -- obviously, there would be a significant prejudice to defendants if they are not allowed to urge inequitable conduct and the antitrust claims in light of the evidence which has been collected, but really nothing has been added to the lawsuit which will delay the case, delay the trial, cause any real need for anyone to have discovery in this case. These issues were all on the table in the original pleadings, although in a slightly different manner. On sale bar, as part of invalidity, was already alleged. So the only thing that changed was Mr. McDonald and Mr. Keyes' knowledge and familiarity with what happened as persons of duty of candor, which we needed to meet the final prong of intent to deceive. With respect to the antitrust claims, we needed to gather the evidence and take the depositions of these individuals. Nothing has changed. We had an antitrust claim. They knew we had an antitrust claim. We were already into that whole body of law and the only thing now is that there is some additional factual allegations which underlie the antitrust claim. Your Honor, we did nothing during this process to hold back the case. And, in fact, we had our

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pursue that through trial. THE COURT: All right. Let me hear from Mr. Drucker briefly on the remaining motion. MR. FABRICANT: Yes, sir. MR. DRUCKER: Good morning, Your Honor. THE COURT: Good morning. MR. FABRICANT: The issue on the motion to dismiss the willfulness claim really arises out of the change of law after Seagate. Just to recap the sequence of events here. McKesson filed its original complaint in January 2006. They amended in July 2006 -- that was a substitution of parties. The allegation of willfulness remained the same. It was just a bare-bones allegation that defendants sold the accused products with full knowledge of McKesson's patent rights. THE COURT: Prior to Seagate, would that have been enough to establish willfulness? MR. FABRICANT: Well, it would have been enough to allege willfulness in the complaint, but the issue is really slightly different. We think it still won't have been enough because it doesn't satisfy the duty of good faith. That existed before Seagate. That's a simple matter of law, Ledmen in Rule 8. They have an

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719b3435-759f-41f0-994c-79a533b967e9

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obligation to show that, at least that they have some basis for saying that we have that knowledge. Discovery proceeded. In February 2007, we decided to elect to rely on the advice of counsel defense, that was a date that had been set by the Court in the scheduling order. Beginning the following week, we produced the remaining documents supporting those opinions. And, I think, by May of 2007, everything had been produced relating to the opinions of counsel. In August 2007, the Federal Circuit decided Seagate. And shortly after we contacted McKesson's counsel and we said, what's the basis for the allegation of willfulness? It seems the bar has been raised. Now it's an objective standard. You have to have acts of objective recklessness in light of knowledge of the patents. Where is the proof? And we were getting toward the end of discovery at that point also. We still had no basis from McKesson as to what the claim of willfulness was based on. Finally, after exchanging correspondence for the following months on that question, we moved to dismiss. And the question is really coming down
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negotiations, there had been several meetings. There was discussion about whether Swisslog would act as a sales agent, and whether McKesson would enter into an agreement to market the Matoped (sic) product. As part of that, there were meetings between executives of the two companies. McKesson was given access to technical information. The senior engineers at McKesson, Mr. Wangoo (sic) and Mr. Spano, the software developer, were told about the Swisslog product. And apparently no mention was ever made of patents. And the reason this is relevant to this motion is because in response to our motion, it seems that the only information McKesson is able to come forward with to show that they had a good-faith basis at the outset of the suit is based on the disclosures that were made well after the suit was filed. THE COURT: But I have to, in a motion to dismiss, take their allegations as true. MR. DRUCKER: That's fine, you can do that. It changes nothing with respect to what they knew at the time they filed suit, and that's expressly what Seagate requires. THE COURT: Well, if Seagate goes to proof, it doesn't go to pleadings, and you have
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to, did they have equitable faith basis? What was it? The response to the motion, McKesson said, well, we can't answer until we have taken the depositions of the Italian attorneys who rendered opinions in this case. And just to recap what happened with respect to those opinions, in 2002, when Swisslog was designing its system, they contacted an Italian law firm, Provissionato & Company. They received an opinion that would help guide them, help guide them around possible infringement. The opinion consisted of a survey of what the relevant patents were in the field and gave them, just highlighted the major issues that they needed to focus on to avoid infringement when they were finishing up the design of their product. In November 2002, they asked for a final opinion and the Italian attorneys provided that. They gave them a final opinion confirming their earlier one that the patents weren't infringed if they followed certain steps, and that was before they even entered the U.S. market. In 2003, Swisslog entered the U.S. market and started to make sales here. In 2002, it's covered in the briefing so I will raise it with Your Honor, the parties actually had

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acknowledged that, I believe, in your filings. MR. DRUCKER: Correct. This is not a matter of what's pled. THE COURT: So the problem I am having is what the procedural basis for me to look behind the pleadings to figure out what they knew and then make a decision, I guess, as to whether it was reasonable based on what they knew at the time of the suit. How is any of that relevant to a motion to dismiss analysis? MR. DRUCKER: Well, we believe it comes down to the good-faith basis of filing the suit in the first place. It comes down to Rule 11, it comes down to -THE COURT: Then you are just bringing just an exception motion? MR. DRUCKER: Well, it's actually a motion to dismiss, because -- well, Seagate says when a compliant is filed the patentee must have a good-faith basis for alleging willful infringement. It says so a willfulness claim asserted in the original complaint -THE COURT: Seagate doesn't say if the defendant thinks the plaintiff doesn't have that, file a motion to dismiss. MR. DRUCKER: No, it doesn't say that

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Electronically signed by Ellen Corbett Hannum (601-396-460-1954)

719b3435-759f-41f0-994c-79a533b967e9

Case 1:06-cv-00028-SLR-LPS
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Document 340-2
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Filed 07/10/2008

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1 way on this point. Seagate is a relatively new decision, 2 as the Court knows. I don't believe the issue has been 3 addressed before, not in any reported decision, but it 4 seems at some point McKesson has to show the basis. And 5 what they have done -- and this ties into the motion to 6 amend. They have come forward now with a proposed second 7 amended complaint, and the entire basis for the 8 allegations of willfulness are information that they've 9 obtained in the course of discovery from us relating to 10 those opinions of counsel. If we had never chosen, if 11 defendants had never chosen to rely on the advice of 12 counsel defense, McKesson right now would have absolutely 13 no basis for their allegation of willful infringement. 14 THE COURT: Okay. 15 MR. DRUCKER: So it's being used against 16 us, to our prejudice. 17 THE COURT: Okay. I understand. I have 18 heard enough on those two motions and we will give 19 Mr. Fabricant a chance for brief rebuttal but not until 20 after we give McKesson a chance to tell me whatever they 21 want to tell me on all four motions. 22 MR. JACOBS: Good morning, Your Honor. 23 Blair Jacobs on behalf of McKesson; Christina Ondrick is 24
expressly. In fact, we are not aware of any cases either
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statement has stood. It has not been overturned to this date. THE COURT: Federal Circuit? MR. JACOBS: Federal Circuit case. In February, we have the DDB Technologies case. Now, that was a question of whether the creation of an automatic assignment or an obligation to assign in the future. So the court was looking at a specific assignment; was it assignment in the future or was it an automatic assignment vesting as of right now? And so that is something that is entwined with patent law, because it relates at some level to interpretati