Free Brief in Support of Motion - District Court of Colorado - Colorado


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Case 1:03-cv-02579-RPM

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I N T HE U NITED S TATES D ISTRICT C OURT F OR T HE D ISTRICT O F C OLORADO Civil Action No. 03-CV-02579-RPM-BNB VARCO, L.P., Plaintiff, vs. PASON SYSTEMS USA CORP., Defendant.

PLAINTIFF'S REPLY BRIEF IN SUPPORT OF ITS MOTION TO COMPEL DEFENDANT TO PRODUCE DOCUMENTS

Plaintiff Varco, L.P. ("Varco"), by its counsel, respectfully submits this Reply Brief in support of its Motion to Compel Defendant to Produce Documents ("Motion to Compel"). INTRODUCTION This is a case of willful patent infringement. Defendant Pason Systems USA Corp. ("Pason") has continued to sell an infringing device even after (1) the United States Patent and Trademark Office ("PTO") determined that all claims of Varco's United States Patent No. 5,472,142 ("the `142 patent") are valid; (2) the Federal Circuit rejected Pason's unduly restrictive interpretation of the `142 patent, thereby vacating the denial of Varco's motion for a preliminary injunction; and (3) Pason received a legal opinion stating, "[T]he operation of the Pason [AutoDriller] system appears to fall within the scope" of at least one of the claims of the `142 patent.

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Pason's primary defense to the assertion of willful infringement is that it relied on two legal opinions that were written by a Canadian lawyer who expressly stated that he was not offering any opinions based on United States patent law regarding the `142 patent. Having voluntarily asserted a "reliance on advice of counsel" defense, Pason was legally obligated to comply with clearly defined Federal Circuit law mandating the disclosure of all relevant documents constituting or reflecting its communications with opinion counsel and with any other attorneys regarding the subject matter of the two legal opinions on which it relies. Such disclosures are required because a defendant waives both the attorney-client privilege and work product immunity for these documents when it asserts a "reliance on advice of counsel" defense. Without these documents, Varco and this Court cannot determine whether Pason's reliance on the two legal opinions is reasonable, or whether Pason is using privilege as both a sword and a shield ­ disclosing communications with counsel that purport to aid its defense, and failing to produce documents that would further undercut its argument. In particular, Pason has neither produced, nor listed on its privilege log, a range of communications mentioned during depositions and referenced in some of the documents that it did produce. The documents that are listed on Pason's privilege log are so vaguely described that it is impossible for Varco to determine definitively whether all of them pertain to Pason's "reliance on advice of counsel" defense. Indeed, the Pason privilege log, attached as Exhibit 1 to Varco's Motion to Compel, actually lists as "privileged" ­ and attempts to shield from discovery ­ one of the very opinion

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letters on which Pason's entire defense hinges. Pason submitted a revised privilege log when it filed its opposition brief, adding ­ without ever mentioning the addition of ­ a November 20, 2002 letter from its opinion counsel, Terry Leier, to James Hill, the CEO of Pason. That letter was written less than a month after the October 29, 2002 opinion letter on which Pason's defense rests. The revised log also corrects the date of another letter from Terry Leier to Pason's CEO, showing that it was written on October 25, 2002, four days before the formal opinion letter of October 29, 2002, which is a centerpiece of Pason's "reliance on advice of counsel" defense. As a result of Pason's lack of voluntary cooperation, Varco seeks to compel production of a clearly defined set of documents: all documents embodying or discussing Pason's communications with counsel concerning whether the `142 patent is valid, enforceable and infringed by Pason's device. Rather than squarely addressing the governing legal standard, Pason's Brief in Opposition to the Motion to Compel sets up a straw man, mischaracterizing Varco's motion and thereafter attacking the adverse consequences of granting a request that Varco has never made. Contrary to Pason's contentions, Varco is not seeking discovery of Pason's trial strategy. Varco is not seeking documents or portions of documents describing trial counsel's mental impressions in preparation for trial. Varco is not seeking every document touching in any way whatsoever on the issues of infringement or invalidity. Rather, Varco is seeking documents embodying or discussing the formal and informal legal opinions Pason received from counsel on the issues of infringement or invalidity, so that the trier

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of fact can ultimately determine whether Pason's alleged reliance on the advice of counsel was reasonable. ARGUMENT I. Pason Must Produce All Documents Embodying or Discussing its Communications Concerning Whether Varco's Patent is Valid or Infringed by Pason's AutoDriller Device. Questions of privilege and discoverability that arise in patent infringement cases are governed by Federal Circuit law. See In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 803-04 (Fed. Cir. 2000). The Federal Circuit's decision in In re EchoStar Communications Corporation, 448 F.3d 1294 (Fed. Cir. 2006), directly addresses "the extent to which a party waives its attorney-client privilege and work-product immunity when it asserts the advice-of-counsel defense in response to a charge of willful patent infringement." Id. at 1298. The case addresses the implications of EchoStar's assertion of a "reliance on advice of counsel" defense in response to TiVo's allegations of willful patent infringement. See id. at 1297. Prior to the commencement of litigation, EchoStar relied on the advice of in-house counsel as to its possible infringement. See id. After the action was filed, EchoStar obtained additional legal advice from outside opinion counsel. See id. When EchoStar ultimately did not rely on the advice from opinion counsel, TiVo sought documents addressing the communications between EchoStar and its opinion counsel, presumably to explore the validity of EchoStar's continued reliance on the advice of its in-house counsel. See id. The Federal Circuit held that by asserting a "reliance on advice of counsel" defense, EchoStar waived both the attorney-client privilege and work product immunity

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for all communications concerning the same subject matter. See id. at 1299 ("Once a party announces that it will rely on advice of counsel . . . in response to an assertion of willful infringement, the attorney-client privilege is waived" for "all other communications relating to the same subject matter." (quotations omitted)); id. at 1304 ("[W]hen an alleged infringer asserts its advice-of-counsel defense regarding willful infringement of a particular patent, it waives [work product] immunity for any document or opinion that embodies or discusses a communication to or from it concerning whether that patent is valid, enforceable, and infringed by the accused."). As EchoStar makes clear, the "subject matter" of opinion counsel's communications in patent infringement suits is whether the patent is "valid, enforceable, and infringed by the accused." Id. at 1299, 1304. Pason mistakenly asserts that Varco's argument is that Pason "waived its right to maintain any attorney-client privilege and/or protections under the work product doctrine." (Def. Pason's Br. in Opp. to Pl.'s Mot. to Compel, Doc. #117, at 2) ("Opp. Br."). Varco makes no such argument. Varco does not seek to compel production of documents that discuss only trial strategy, or that embody work product that Pason's attorneys never communicated to Pason. Rather, Varco seeks to compel production of documents embodying or discussing communications with Pason concerning the validity, enforceability and infringement of the `142 patent ­ the very types of documents that the EchoStar court held must be produced when the defendant asserts a "reliance on advice of counsel" defense to a claim of willful infringement.

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Pason chose to inject its communications with counsel into this dispute. Now Pason must live with the consequences of its choice, and produce all other communications that bear on the reasonableness of its continued reliance on the February 8, 2000 and October 29, 2002 opinion letters of its Canadian lawyer, Terry Leier ­ even after Mr. Leier's May 2004 determination that Pason's accused device does infringe one of the claims of the `142 patent, even after the PTO rejected Pason's invalidity arguments on Re-Examination of the patent-in-suit and even after the Federal Circuit rejected Pason's interpretation of the claims of the `142 patent. Thus, Pason must produce all documents embodying or discussing its communications concerning whether the `142 patent is valid, enforceable and/or infringed by Pason's device. II. Pason Must Produce All Documents Within the Scope of the Waiver. Pason argues that it must produce only "`opinions expressed in a manner comparable'" to the two formal legal opinions on which it relies. (Opp. Br., at 6). Pason's argument is contrary to established Federal Circuit law, inappropriate on the facts of this case, and unwise from a policy perspective. EchoStar directly refutes Pason's argument, stating clearly that when a party asserts a "reliance on advice of counsel" defense, the "waiver of both the attorneyclient privilege and the work-product immunity includes not only any letters, memorandum, conversation, or the like between the attorney and his or her client, but also includes, when appropriate, any documents referencing a communication between attorney and client." 448 F.3d at 1304; see also id. ("[I]f an attorney writes a memorandum or an e-mail to his associate referencing a phone call with the client, in

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which he indicates that he discussed the client's potential infringement, then such a memorandum is discoverable."). Even the case cited by Pason in support of its argument that it need produce only "`opinions expressed in a manner comparable'" to the two formal legal opinions on which it relies, Ampex, 2006 WL 1995140, acknowledges, "It is not the form of the communication that matters, it is the content." Id. at *3. EchoStar's holding is particularly applicable in this case, because Pason's opinion counsel used different types of communications to express his opinions concerning whether the `142 patent is valid and infringed by Pason's device. For example, Benjamin Thomas ­ the General Manager of the defendant company at the time this case was filed ­ revealed in his deposition that (a) on at least one occasion, opinion counsel, Terry Leier, communicated his opinions orally, and (b) this oral communication directly impacted Pason's decision to market its accused device: Q. . . . Is your best recollection that you based your view that the AutoDriller did not infringe on the conversation you had on the telephone with Mr. Leier? A. That is when I finalized my decision, to the best of my recollection. (Thomas Dep. 115:18-115:24, Oct. 24, 2006); see also (id. 44:7-46:1, 105:13-105:24, 107:17-108:17, 109:13-109:17, 114:15-116:16) (Ex. 1). Pason has produced no notes memorializing the content of this purportedly important conversation, or the content of any other conversations addressing whether the `142 patent is valid and infringed by Pason's device.

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As noted above, in selling its AutoDriller device, Pason relied on two letters from opinion counsel stating that the device did not infringe the `142 patent under Canadian law. However, Pason's opinion counsel communicated his opinions, not only orally, but also through e-mail. See E-mail from Terry Leier to J. Ford Brett (May 14, 2004) (Ex. 2); see also (Holt Dep. 16:13-17:12, July 14, 2006) (Ex. 3). Indeed, the existence of this May 14, 2004 e-mail suggests the probable existence of other undisclosed records of informal communications made around that same time. In the May 14, 2004 e-mail, Pason's opinion counsel qualified the comments he had made in his earlier letters, and stated that Pason's device did infringe at least one of the claims of the `142 patent. Aside from the May 14, 2004 e-mail itself, Pason has disclosed no documents embodying or discussing Mr. Leier's noteworthy admonition, which undercut the only legal basis for Pason's continued sales of its accused device. For example, Pason has revealed no additional e-mails to or from its opinion counsel, no notes regarding discussions about this admonition from its opinion counsel, no internal e-mails discussing the significance of the May 14, 2004 e-mail, and no notes from any internal discussions addressing the impact of the May 14, 2004 email admonition. Records of informal communications ­ particularly notes or memoranda capturing the content of conversations, telephone calls, and other discussions ­ are important in this case because Pason intentionally sought to solicit its counsel's opinions orally, rather than in writing. Pason's president and CEO, James Hill, testified

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in his deposition that he intentionally asked solely for an oral clarification of opinion counsel's formal letter: Q. Did you feel that your written opinion from Mr. Terry Leier was unclear? A. Yes. Q. Did you ask him to clarify it? A. Yes. Q. Did he do so in another written opinion? A. No. Q. Did you ask for another written opinion clarifying what you felt was unclear about his opinion? A. No. Q. Why didn't you? A. My experience with lawyers is that you get more candid and clear information verbally than you get in a written opinion. Q. So you had an unclear written opinion, and you thought it was sufficient to have a verbal clarification? A. Yes. Q. And then you just moved on? A. Yes. (Hill Dep. 29:16-30:21, Sept. 20, 2006) (Ex. 4). Without receiving any notes or memoranda reflecting this clarification, Varco cannot determine whether Pason's continued reliance on the admittedly unclear written report of its opinion counsel was reasonable.

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If the form in which an attorney's opinions are communicated were dispositive of whether the attorney-client privilege or work product immunity is waived with respect to those communications, it would provide attorneys with an incentive to convey any reservations or concerns about a potentially infringing device only informally, so that those opinions would not have to be disclosed. Such limited disclosure would impede courts' subsequent efforts to determine whether the more formal ­ and, thus, disclosed ­ opinions were enough to provide a defendant with a valid defense to a charge of willful infringement. See EchoStar, 448 F.3d at 1305. Thus, Varco seeks to compel production of all documents that embody or discuss counsel's communications with Pason concerning whether the `142 patent is valid and infringed by Pason's device, regardless of the form those documents take or the manner in which the communications were made to Pason. III. Pason Must Produce All Documents Within the Scope of the Waiver, Even if the Documents Embody or Discuss Pason's Communications with Trial Counsel. Contrary to Pason's assertions, Pason's waiver of the attorney-client privilege and work product immunity extends to Pason's communications with trial counsel on infringement and invalidity. Trial counsel's advice has informed Pason's decision to continue infringing the `142 patent during the nearly three years that this litigation has been ongoing. In his deposition, James Hill testified that the only basis for his opinion that Pason's device does not infringe Claim 11 of the `142 patent is the advice he received from trial counsel:

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Q. What's your basis of your opinion that you don't infringe Claim 11, since you don't have an opinion from patent counsel about that? A. My knowledge, and I guess what we've talked about with our counsel. Q. What knowledge are you referring to? MR. ATKINSON: Well, if you don't have any knowledge independent of conversations you've had with litigation counsel, then, again, I would instruct you not to answer. Q. Is the only knowledge you have what your lawyers that you've hired to defend you in this case have told you? A. Yes. (Hill Dep. 188:11-188:24, Sept. 20, 2006). Similarly, a Pason employee with extensive knowledge of the AutoDriller, Trevor Holt, testified in his deposition that Pason's trial counsel ­ Ireland, Stapleton, Pryor & Pascoe, P.C. ­ helped form his opinion on whether Pason's device infringes the `142 patent: Q. . . . Do you have an opinion whether or not Pason infringes the 142 patent? A. My opinion is that it does not. Q. Why? A. Because we're ­ first of all, I've ­ our counsel formed my opinion. Secondly, I don't think we do things the same. Q. What counsel is that that formed your opinion? A. Initially it was Terry Leier. Q. Who after that? A. I guess Ireland Stapleton.

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(Holt Dep. 183:6-183:22, Sept. 21, 2006) (Ex. 5); see also (Thomas Dep. 133:10133:12, Oct. 24, 2006) ("Q. Now has Pason USA sought opinions from any counsel other than Terry Leier? A. I believe so, in the course of the lawsuit."). Pason argues that cases construing EchoStar establish that the waiver of the attorney-client privilege and work product immunity resulting from the assertion of a "reliance on advice of counsel" defense does not extend to the communications of trial counsel. (Opp. Br., at 5-6). Pason cites two case for this proposition: Indiana Mills & Manufacturing, Inc. v. Dorel Industries, Inc., 2006 WL 1749413 (S.D. Ind. May 26, 2006), and Ampex, 2006 WL 1995140. Pason's reliance on each of these decisions is misplaced. Pason fails to acknowledge that the Indiana Mills opinion it cites was withdrawn when the court learned that, contrary to its initial impression, the defendant had sought additional opinions of counsel on infringement and invalidity after the filing of the lawsuit. Indiana Mills & Mfg., Inc. v. Dorel Indus., Inc., 2006 WL 1993420 at *1 (S.D. Ind. July 14, 2006). In Ampex, the court denied the plaintiff's motion to compel defendant to produce attorney-client communications between the defendant and the defendant's trial counsel. 2006 WL 1995140 at *1. However, the Ampex court justified its holding by noting that it was not a case "in which the defendant expressly relied on its trial counsel's non-infringement opinion to continue operating." Id. at *4. In this case, by contrast, the testimony of Pason's president and one of its employees establishes that Pason did rely on the opinions of its trial counsel in continuing to infringe the `142 patent ­ even after the United States Patent and Trademark Office determined that the

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`142 patent is valid, and Pason's opinion counsel stated that Pason's device infringed at least one of the claims of the `142 patent. Contrary to Pason's representations, it appears that most courts to consider the issue have held that the waiver of the attorney-client privilege and work product immunity described by EchoStar extends to a defendant's communications with trial counsel ­ particularly when infringement is ongoing. See, e.g., Affinion Net Patents, Inc. v. Maritz, Inc., 440 F. Supp. 2d 354, 356 (D. Del. 2006) (finding that the defendant waived attorney-client privilege "as to communications with `litigation counsel,' and any other counsel, to the extent the communications relate to non-infringement, invalidity, and any other defense to infringement"); Beck Systems, Inc. v. Managesoft Corp., 2006 WL 2037356, at *5 (N.D. Ill. July 14, 2006) ("EchoStar did not disturb the approach . . . which extends the waiver to attorney-client privilege and certain workproduct material involving trial counsel."); Informatica Corp. v. Bus. Objects Data Integration, 2006 WL 2038461, at *8 (N.D. Cal. July 14, 2006) (stating that "[the defendant] waived privilege for both pre- and post-filing pertinent attorney-client communications and work product" and that "it is immaterial whether [the defendant]'s opinion counsel and trial counsel are from the same firms, different firms or are even the same person"); see also EchoStar, 448 F.3d at 1303 n.4 (rejecting argument that "waiver of opinions does not extend to advice and work product given after litigation began" when "the advice is relevant to ongoing willful infringement"). While such waiver does not extend to communications about trial strategy, it does extend to communications addressing opinions on infringement or invalidity ­ the

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only types of communications with trial counsel that Varco seeks. See, e.g., Genentech, Inc. v. Insmed Inc., 442 F. Supp. 2d 838, 847 (N.D. Cal. 2006) ("Waiver of trial counsel communication with the client should apply to documents and communications that are most akin to that which opinion counsel normally renders--i.e., documents and communications that contain opinions (formal or informal) and advice central and highly material to the ultimate questions of infringement and invalidity (the subject matter of the advice given by . . . opinion counsel)."). Thus, any argument that the opinions Pason received from trial counsel on invalidity and infringement must be shielded from discovery is unpersuasive in light of the facts in this case and the development of the law in this area after the Federal Circuit's decision in Echostar.. IV. Pason's Persistent Foot-Dragging in Discovery Supports Varco's Request For Attorney Fees. In addition to refusing to produce documents it is obligated to produce, Pason has failed to provide a clear picture of how many such documents there may be. 1 Pason has presented Varco ­ and now presents the Court ­ with an insufficiently detailed, still-evolving privilege log. Pason's blatant disregard of its discovery obligations supports Varco's request for attorneys' fees pursuant to Fed. R. Civ. P. 37(a)(4)(A). Pason has neither produced, nor listed on its privilege log, a range of communications that must be produced. Pason has not produced or listed on its
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Pason's response to Varco's request for production makes clear that there are at least some such documents. (Pl.'s Mot. to Compel, Doc. #110, at 4 n.1 (delineating Pason's refusal to produce opinion counsel's communications on infringement, validity, and/or enforcement of the `142 patent prepared after the commencement of litigation)).

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privilege log any emails or other communications from Ron Hansford, one of the first attorneys whom Pason contacted as opinion counsel. Nor has Pason produced any invoices from Hansford or Terry Leier showing the amounts that Pason paid for opinion letters. With one exception, Pason has neither produced nor listed any privileged communications within the scope of the waiver that occurred after the commencement of litigation. Pason does not appear to have produced or listed the e-mails or any notes from the telephone conference described in Mr. Leier's February 8, 2000 opinion letter. (Letter from Terry Leier to H. Ronald Hansford (Feb. 8, 2000), at 1) (Ex. 6). These emails and this telephone conference are precisely the sort of communications necessary for Varco to determine the context for Mr. Leier's opinion letter ­ and, concomitantly, the reasonableness of Pason's reliance on that letter. The privilege log attached to Pason's Brief also lists a new document not contained in the privilege log Pason previously provided to Varco. (Opp. Br., Ex. B; Pl.'s Mot. to Compel, Ex. 1). The document ­ a November 20, 2002 letter from Pason's opinion counsel to Pason's president ­ does not appear to be newly-discovered: its Bates number places it in the middle of a range of documents already produced. While Pason's Brief acknowledges other adjustments to its privilege log, the Brief says nothing about the addition of this letter. (Opp. Br., at 9 n.2). Pason appears to be

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trying to pass off the new privilege log as unchanged except for the adjustments noted in its Brief, obscuring the changing nature of the documents it seeks to protect. 2 Indeed, Pason has engaged in an ongoing pattern of non-responsiveness to Varco's discovery requests. On April 10, 2006, Varco requested that Pason update its disclosures following remand of this case from the Federal Circuit. Pason dragged its feet in providing documents and information, then dumped more than 12,000 pages of documents on Varco between October 13, 2006 and November 6, 2006. Because Pason did not provide the requested information in a timely manner prior to the October 1, 2006 discovery deadline, Varco was forced to depose several key witnesses ­ including Pason's opinion counsel, Terry Leier ­ without having received the requested documents. Varco also was forced to depose Pason technical employee Trevor Holt three times because Pason failed to provide the requested critical information and documentation it was required to produce. Having engaged in a pattern of noncompliance and non-responsiveness throughout the discovery process, Pason should be required to pay the attorney fees Varco necessarily expended in filing this Motion to Compel. V. If Pason Continues to Withhold Documents, an In Camera Review of the Documents is Warranted. Pason asserts that the following documents are not discoverable:
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Pason's opposition brief attempts to disparage Varco for seeking to compel production of an October 29, 2002 letter from Pason's opinion counsel to Pason's president. (Opp. Br., at 2). But that document, which was one of the formal opinion letters on which Pason relies for its defense, was listed on the privilege log that Pason provided to Varco. (Pl.'s Mot. to Compel, Doc. #110, Ex. 1). It was deleted from Pason's revised privilege log.

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documents relate[d] to, inter alia, the January 2004 Reexamination Request, patent status searches . . . and invoices for legal services rendered, or documents reflecting the advice . . . of litigation counsel. (Opp. Br., at 8). Despite Pason's cavalier insistence to the contrary, these documents are not automatically privileged under EchoStar. For example, while Varco does not seek trial counsel's advice on litigation strategy, Varco is entitled to documents that reflect ongoing advice from opinion counsel, including trial counsel, regarding whether Pason's device infringes the `142 patent. To the extent that the Court is persuaded that some of the documents listed on Pason's privilege log are not within the scope of the waiver, Varco believes that an in camera review would be warranted. For the foregoing reasons, the Court should order Pason to produce the documents delineated in Varco's Motion to Compel 3; the newly-identified letter on Pason's revised privilege log, which is labeled PAS00864-PAS00865; and any other documents, not yet listed on Pason's privilege log, that embody or discuss Pason's communications with counsel concerning validity and infringement of the `142 patent.

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The Court does not need to order Pason to produce the October 29, 2002 letter from Terry Leier to James Hill, which is labeled PAS00890-PAS00903, because the letter has already been produced.

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Dated this 14th day of November, 2006. Respectfully submitted,

s/Jane Michaels Jane Michaels Joseph T. Jaros Ryan T. Bergsieker H OLLAND & H ART LLP 555 Seventeenth Street, Suite 3200 Post Office Box 8749 Denver, Colorado 80201-8749 Tel. (303) 295-8000 Fax (303) 295-8261 [email protected] [email protected] [email protected] Guy E. Matthews Robert M. Bowick M ATTHEWS , L AWSON , B OWICK & A L -A ZEM , PLLC 2000 Bering Drive, Suite 700 Houston, Texas 77057 Tel. (713) 355-4200 Fax (713) 355-9689 [email protected] [email protected] ATTORNEYS FOR PLAINTIFF VARCO, L.P.

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C ERTIFICATE O F S ERVICE I hereby certify that on November 14, 2006, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following: [email protected] [email protected]

s/Jane Michaels

3626999_5.DOC

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