Free Declaration - District Court of Arizona - Arizona

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PETER E. HEUSER, admitted pro hac vice ELIZABETH A. TEDESCO, admitted pro hac vice Kolisch Hartwell, P.C. 200 Pacific Building, 520 SW Yamhill Street Portland, OR 97204 Telephone: (503) 224-6655 Facsimile: (503) 295-6679 [email protected] [email protected] DANIEL R. MALINSKI (#005911) Burch & Cracchiolo, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Telephone: (602) 274-7611 Facsimile: (602) 234-0341 [email protected] Attorneys for Plaintiffs Richard G. Krauth and R.M. Wade & Co.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA ) ) No.04-544 PHX PGR ) ) Plaintiffs, ) ) DECLARATION OF PETER E. HEUSER v. ) IN SUPPORT OF PLAINTIFFS' ) Phelps Dodge Corporation, a New York SUMMARY JUDGMENT BRIEFING ) corporation; Phelps Dodge Bagdad Inc., a ) Delaware corporation; Phelps Dodge Chino ) Inc., a Delaware corporation; Phelps Dodge Morenci Inc., a Delaware corporation; Phelps ) Dodge Sierrita Inc., a Delaware corporation; ) ) Phelps Dodge Tyrone Inc., a Delaware corporation; and Phelps Dodge Miami Inc., a ) ) Delaware corporation, ) ) Defendants. Richard G. Krauth, an individual; and R.M. Wade & Co., an Oregon corporation,

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I, PETER E. HEUSER, declare: 1. I am a shareholder in the firm of Kolisch Hartwell, P.C. I am a member of the

State Bar of Oregon and am admitted pro hac vice to this Court. I am principal counsel for plaintiffs Richard G. Krauth and R.M. Wade & Co. ("plaintiffs") in the present action. 2. Plaintiffs filed a Request for Reexamination of the patents-in-suit by the Patent

and Trademark Office ("PTO") on September 30, 2004. This action was stayed pending the results of the reexamination. 3. During the month of January 2005, I spoke with plaintiffs about the terms on

which they would be willing to settle. Edward Newbegin ("Newbegin"), President of R.M. Wade & Co. ("Wade"), expressed his hope that the settlement would not include a release of one of Phelps Dodge's suppliers, a major competitor of Wade's, from liability under the patents-insuit. He also stated that, with regard to the future, plaintiffs would release Phelps Dodge from liability for infringement of the patents-in-suit, but that plaintiffs did not want to release Phelps Dodge from liability under U.S. Patent No. 6,817,548 ("the `548 patent") directed to an advanced version of the fluid emitter disclosed in the patents-in-suit. Wade's commercial

embodiment of the `548 patent is called the "Max Emitter." Newbegin asked that I let Phelps Dodge know that plaintiffs would settle for $ *** but remain silent as to the release issues in the hope that the case would settle without needing to provide such releases. A true and correct copy of a chain of email between Newbegin and me, sent between January 4, 2005 and January 7, 2005, and relating to these issues is attached hereto as Exhibit A. 4. On January 11, 2005, I called Mark Kittredge ("Kittredge"), counsel for the

Phelps Dodge defendants in this action ("Phelps Dodge"), to let him know that plaintiffs would agree to settle on certain terms. Because Kittredge was unavailable, I left a voicemail message. During discovery, Phelps Dodge produced a document that purports to be a transcription of my January 11, 2005 voicemail message to Kittredge. Although I cannot state with absolute

certainty that the transcription is accurate, it accords generally with my memory of the voicemail message. A true and correct copy of the document is attached hereto as Exhibit B.

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5.

In particular, I recall stating in the January 11, 2005 voicemail to Kittredge that

my client would settle the case for a *** dollar, prompt cash payment, with the terms of settlement to be confidential, for what "would in effect be a paid-up license for Phelps Dodge Company." I also stated that the settlement would be "regardless of what happens in the PTO." By "what happens in the PTO," I was referring to how the Patent and Trademark Office would decide the reexamination after the settlement agreement was executed. In other words, the settlement agreement would not require Phelps Dodge to pay any additional license fee if the patents-in-suit were upheld by the PTO after the settlement was complete. I assumed in January 2005 that, if Phelps Dodge agreed to these initial terms, the parties would be able to execute the agreement before plaintiffs received any kind of Office Action from the PTO. 6. On January 12, 2005, Kittredge left a voicemail for me stating that $*** was

acceptable to Phelps Dodge. He said that the only possible issue was the confidentiality clause, but he thought we would be able to work that out. We did not discuss any additional terms of settlement. 7. agreement. Within a week, Kittredge and I spoke on the telephone about drafting the In discovery, Phelps Dodge produced a document containing Kittredge's

handwritten notes relating to a telephone conference between Kittredge and me on January 18, 2005. A true and correct copy of this document is attached hereto as Exhibit C (SA 359). After reviewing these notes, I recall that I stated that I would prepare a "simple" draft agreement that would provide a paid-up license in return for a dismissal with prejudice. We agreed that Kittredge would draft the release provisions. We did not discuss a license as to any other patents or for any other parties at that time. 8. On January 19, 2005, I emailed a draft agreement to Kittredge. In that email I

stated, "As I indicated to you, neither of my clients has seen this document, so this should not be considered an offer in condition to be accepted." A true and correct copy of my email with the attached draft agreement is attached hereto as Exhibit D.

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9.

On February 7, 2005, I received an email from Kittredge attaching a draft of the

agreement that Phelps Dodge had revised. A true and correct copy of this email is attached hereto as Exhibit E. I do not recall discussing any of the revisions in this draft prior to receiving the email in Exhibit E. 10. After seeing that Phelps Dodge had revised and broadened the license grant

provision 2a to include "any other patents, patent applications and inventions conceived or owned by either Krauth or Wade...that relate to the field of using drip irrigation for heap or dump leach mining," I brought the `548 patent to Kittredge's attention during a telephone conference on February 14, 2005. I told Kittredge that plaintiffs were not willing to grant a license under the `548 patent and that plaintiffs were reluctant to agree to warrant that Phelps Dodge was not currently infringing the patent. Kittredge agreed to find out from Phelps Dodge which emitters Phelps Dodge was currently using but told me he did not think the `548 patent would be a problem. Kittredge and I agreed that any release of competing manufacturers or suppliers would be only as to products sold to Phelps Dodge. I recall this February 14, 2005 conversation with Kittredge in detail because I wrote an email recounting the conversation to plaintiffs two days later. A true and correct copy of that email is attached hereto as Exhibit F. 11. On March 24, 2005, I sent Kittredge an email attached a proposed settlement

agreement that plaintiffs had revised to account for the `548 patent. A true and correct copy of the email and attached agreement are attached hereto as Exhibit G. 12. Because I had not heard from Kittredge, I called him on April 5, 2005 to see if

Phelps Dodge had given him any input on the latest draft of the agreement. Kittredge stated that he thought the agreement should identify the emitters Phelps Dodge was currently using, expressly warrant that those emitters did not infringe the `548 patent, and allow for continued use of the emitters free from any claim of infringement. He also proposed that the agreement include an exhibit identifying the emitters currently used by Phelps Dodge. I told Kittredge I thought that would be agreeable. Next, Kittredge asked me if plaintiffs had heard anything from the PTO. We agreed that if the PTO rejected the claims of the patents-in-suit, it would not change the settlement we were working on. I also stated, however, that if the PTO does not
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reject all of the claims of the patents-in-suit, the settlement negotiations would change directions entirely. 13. Shortly after speaking with Kittredge, I called Newbegin to tell him about my

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conversation with Kittredge. Newbegin told me that Wade would really like to start selling product to Phelps Dodge, and asked me to be more positive with Kittredge about the progress of the negotiation. Accordingly, I sent an email to Kittredge asking for more emitter information and also, to sound encouraging, asking whether the parties could do business together "now that we have been able to put the case to bed." A true and correct copy of this email, sent April 5, 2005, is attached hereto as Exhibit H. 14. After sending the email to Kittredge, I sent an email to plaintiffs confirming the

telephone conversation with Kittredge from earlier that morning. A true and correct copy of that April 5, 2005 email to plaintiffs is attached hereto as Exhibit I. 15. I sent several emails to Kittredge between April 5, 2005 and May 10, 2005,

asking whether he was obtaining the information relating to the emitter exhibit. On May 10, 2005, I emailed Kittredge asking only, "Anything more?" A true and correct copy of a

document containing these emails is attached hereto as Exhibit J. Kittredge called me right after I sent the email at 9:04 a.m. on May 10, 2005. He said he was still trying to get the emitter information from Phelps Dodge. I told him the longer we waited the more likely it became that there would be a ruling by the PTO. We said both expected a rejection of all of claims but I said that if it was anything other than that, this could entirely change the direction of the negotiation. Kittredge said he felt we had a deal and I said I did know that that was so clear. In any event, we agreed that a mess could be avoided if Kittredge got back to us soon. I remember the contents of this conversation well because, shortly after it was finished, I sent an email to Newbegin recounting the conversation with Kittredge in detail. A true and correct copy of that email, sent on May 10, 2005 at 10:16 a.m., is included in Exhibit J. 16. On June 17, 2005, I received an email from Kittredge attaching a draft of the

settlement agreement with revisions to the draft agreement I sent Kittredge on March 24, 2005.
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A true and correct copy of that email attaching the revised draft is attached hereto as Exhibit K. I was surprised that Phelps Dodge had added Paragraph 2b, a license to Phelps Dodge and its "Affiliates" under the `548 patent, because Kittredge and I had never discussed such a provision and I knew plaintiffs objected to it. 17. On June 22, 2005 and June 24, 2005, I sent emails to Kittredge indicating

plaintiffs' response to the June 17, 2005 revisions to the proposed settlement agreement. In these emails, I referenced two provisions that, as drafted, were unacceptable to plaintiffs. True and correct copies of my June 22 and 24, 2005 emails to Kittredge are attached hereto as Exhibit L. 18. In the next several months, the parties worked to obtain emitter information for

the emitter exhibit to the proposed settlement agreement, "Exhibit C," and plaintiffs reviewed the emitters to ensure they could warrant that such products did not infringe the `548 patent. Kittredge and I continued to negotiate the contract language releasing Phelps Dodge from liability for infringing the `548 patent. 19. On August 12, 2005, I received a voicemail message from Kittredge. After

listening to the voicemail message, I forwarded it by email to Newbegin. In February, Newbegin provided me with the voicemail message recording so that plaintiffs could respond to recent discovery requests from Phelps Dodge. I provided the voicemail message to Kittredge. My office also transcribed the voicemail message. To the best of my knowledge, Exhibit M is a true and correct transcription of Kittredge's August 12, 2005 voicemail. 20. In September and October, the parties continued negotiating the content of

Exhibit C, describing the emitters Phelps Dodge would be free to use without infringing the `548 patent, and the contract language relating thereto. In early September, I forwarded to plaintiffs and Nina Krauth, Richard Krauth's wife, for their signatures what I momentarily thought was the parties' final draft of the agreement. Before I received every signature, Phelps Dodge had revised the proposed agreement and the parties were on to another draft. I had also received the voicemail from Kittredge referenced in Paragraph 20 of this declaration. Because there had been
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no meeting of the minds as to the draft of the settlement signed by plaintiffs and Ms. Krauth, I recognized that the document and the signatures were moot and never transmitted the document to Phelps Dodge. Likewise, because there was no effective assent to any agreement, I never informed Phelps Dodge that an earlier settlement draft had been signed. 21. On September 6, 2005, I received a voicemail message Kittredge indicating that it

was premature to get signatures because Exhibit C looked "very different" and Phelps Dodge needed to undertake a review process. He said he wanted to "make sure we don't get ahead of ourselves." After listening to the voicemail message, I forwarded it by email to Newbegin. I did not, however, keep a copy of the voicemail. On March 30, 2006, Newbegin provided me with the voicemail message recording after I belatedly realized, after reviewing a September email to Newbegin, that I had forwarded Kittredge's voicemail to Newbegin that day. I provided the voicemail message to Kittredge on March 30, 2006. My office also transcribed the voicemail message. To the best of my knowledge, Exhibit N is a true and correct transcription of

Kittredge's September 6, 2005 voicemail. 22. I received an email from Kittredge on October 9, 2005 attaching what would be

the final draft of the settlement agreement, although Exhibit C would change. A true and correct copy of that email and the attached draft of the agreement are attached hereto as Exhibit O. 23. On October 19, 2005, I received an email from Kittredge reporting that Phelps

Dodge had signed the final draft of the proposed agreement. Attached hereto as Exhibit P is a true and correct copy of the email from Kittredge. Plaintiffs had not and have not signed the agreement. 24. On October 20, 2005, I received an Office Action from the PTO confirming the

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validity of both patents-in-suit. I called Kittredge that day and told him that the PTO had ruled and asked if he had seen it. Kittredge said that he had not seen it. I told him that the patentability of all of the claims had been confirmed. I stated that we always knew this was a possibility and that plaintiffs had said that the deal needed to be signed before the PTO rules or we would be back to negotiation. Kittredge said, "That is what you said, but I always said we
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had a deal that merely needed to be confirmed in writing." Kittredge then said, "I guess we agree that we disagree on whether there is or was a deal." I remember this conversation well because I sent an email to plaintiffs the same day recounting the conversation with Kittredge in detail. A true and correct copy of that email is attached hereto as Exhibit Q. 25. The undersigned being warned that willful false statements and the like are

punishable by fine or imprisonment, or both, under 18 U.S.C. 1001, and that such willful false statements and the like may jeopardize the validity of the application or document or any registration resulting therefrom, declares that all statements made of his own knowledge are true; and all statements made on information and belief are believed to be true.

Dated this 31st day of March, 2006.

/s/ Peter E. Heuser

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