Free Response to Motion - District Court of Arizona - Arizona

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David P. Irmscher (Indiana State Bar No. 15026-02) John K. Henning (Indiana State Bar No. 25203-49) Baker & Daniels LLP 111 East Wayne Street, Suite 800 Fort Wayne, IN 46802 Telephone: 260-424-8000 Facsimile: 260-460-1700 Ray Harris (Arizona State Bar No. 007408) Paul Moore (Arizona State Bar No. 019912) Fennemore Craig 3003 North Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Telephone: 602-916-5000 Facsimile: 602-916-5999 Attorneys for the defendant, Omron Corporation UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, CAUSE NO. CV04-0400 PHX PGR DEFENDANT OMRON CORPORATION' RESPONSE TO S HYPERCOM' MOTION FOR LEAVE S TO FILE SECOND AMENDED COMPLAINT

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Plaintiff,
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vs.
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Omron Corporation,
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Defendant
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FENNEMORE CRAIG, P.C.
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The defendant, Omron Corporation ("Omron"), respectfully responds to the Motion For Leave To File Seconded Amended Complaint ("Motion For Leave") filed by the plaintiff, Hypercom Corporation ("Hypercom"), on December 15, 2005. The Motion For Leave should be denied based on the futility of Hypercom' proposed new claims. s I. PROCEDURAL HISTORY On February 25, 2004, Hypercom filed its Original Complaint For Declaratory Judgment ("Original Complaint") against Verve L.L.C. ("Verve") (but not Omron), requesting a declaratory judgment that Hypercom has not infringed U.S. Patent Nos. 4,678,895, 4,562,340, and 4,562,341. See Original Complaint, passim. Verve moved to dismiss the Original Complaint, asserting a lack of personal jurisdiction. See Verve
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L.L.C.' Motion To Dismiss For Lack Of Personal Jurisdiction, filed July 26, 2004. After s Hypercom and Verve briefed the personal jurisdiction issue, Hypercom filed its First Amended Complaint ("Amended Complaint") on July 12, 2004, adding Omron as a defendant and alleging that Omron conspired with Verve to "launch[] a campaign against Hypercom and others for the purpose of instituting costly and inconvenient litigation alleging multiple claims of patent infringement in order to secure ` settlements' that exact monetary tribute from Hypercom in order to stop Verve' harassment." s Amended

Complaint ¶ 17. In response to Verve' subsequent motion to stay discovery, the Court s authorized discovery on Hypercom' conspiracy allegations.1 See Court Order, entered s December 20, 2004. Discovery proceeded over a period of three months. During this period, Hypercom fully explored jurisdictional issues co-extensive with its claims of conspiracy. Specifically, Hypercom served Omron and Verve with extensive written requests, received Omron' complete responses in return, and deposed Omron' Rule 30(b)(6) s s representative on all agreements between Omron and Verve. Hypercom also deposed the two principals of Verve, Raymond Galasso and Kevin Imes. See generally Joint Case Management Report, Section F, filed November 14, 2005. On November 18, 2005, Omron moved for summary judgment. In response to that motion, Hypercom has filed, inter alia, a motion for leave to add to its Amended Complaint two claims against Omron. To its conspiracy claim, Hypercom would now add
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The scope of discovery authorized by the Court was as follows: Hypercom contends that if it is able to move forward with discovery regarding the jurisdictional issue, it will no doubt discover facts sufficient for this Court' exercise of personal jurisdiction over s Verve. Specifically, Hypercom contends that the discovery will show that a conspiracy exists between Verve, its Texas attorneys and Defendant Omron to extort money from Hypercom with frivolous patent infringement claims and by filing multiple lawsuits against Hypercom in distant inconvenient forums. According to Hypercom, discovery will reveal that a number of the actions in furtherance of this conspiracy occurred in Arizona.

See December 20, 2004, Court Order at 3.
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claims that: (1) Omron aided and abetted Verve "in the commission of torts of abuse of process and malicious prosecution;" (2) Omron is liable for malicious prosecution as "an instigator of the wrongful civil actions." Motion For Leave at 5. As set out below, Omron opposes this amendment based on the futility of Hypercom' proposed claims. s II. ARGUMENT Under Rule 15(a) of the Federal Rules of Civil Procedure, a party can amend its complaint only by leave of court or written consent of adverse parties. Fed. R. Civ. P. 15(a). Though leave should be "freely given when justice so requires," futile amendments are an exception. As many courts have noted, "it would be an empty gesture for a court to allow such an amendment when the objecting party could eventually make a formal motion to dismiss or strike or for summary judgment after leave to amend was granted." Unispec Dev. Corp. v. Harwood K. Smith & Partners, 124 F.R.D. 211, 213 (D. Ariz. 1988) (emphasis added) (citing Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986)); Franchise Realty Interstate Corp. v. San Francisco Local Joint Executive Bd. of Culinary Workers, 542 F.2d 1076, 1085 (9th Cir. 1976). Thus, for example, in Gabrielson, 785 F.2d at 766, the Ninth Circuit affirmed the district court' s denial of leave to amend on the basis of futility because the amended complaint would have been defeated on a motion for summary judgment. See also Valerio v. Boise Cascade Corp., 80 F.R.D. 626, 658 (N.D. Cal. 1978), aff' 645 F.2d 699 (9th d, Cir.) (per curiam), cert. denied, 454 U.S. 1126 (1981). Futility should bar the proposed amendment to Hypercom' complaint. s Significantly, Hypercom has already conducted discovery on its new claims. In fact, Hypercom' "aiding and abetting" and "instigation" claims against Omron rest on the s same conduct as its conspiracy claim ­ i.e., acts (if any) connecting Omron to Verve' s prosecution of lawsuits with the assigned patents. Further, Hypercom' new theories are s

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unavailing. For reasons set out below,2 Hypercom can identify no evidence of aiding or instigating malicious prosecution (or abuse of process) by Omron. Its novel theories do not entitle Hypercom to a trial. A. Hypercom Cannot Show Intent to Aid and Abet a Tort

Claims of aiding and abetting tortious conduct require proof that the defendant knows he is aiding a tort. Wells Fargo Bank v. Arizona Laborers, Teamsters And Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485, 38 P.3d 12, 23 (2002). Without the knowledge requirement, "aiding and abetting" liability would ensnare innocent parties to common market transactions. As the Fifth Circuit (in the context of securities fraud) notes: If all that is required in order to impose liability for aiding and abetting is that illegal activity under the securities laws exists and that a secondary defendant, such as a bank, gave aid to that illegal activity, the act of loaning funds to the market manipulator would clearly fall within that category and would expose the bank to liability for aiding and abetting. Imposition of such liability upon banks would virtually make them insurers regarding the conduct of insiders to whom they loan money. Woodward v. Metro Bank of Dallas, 522 F.2d 84, 96 (5th Cir. 1975) (cited in Wells Fargo Bank, 201 Ariz. at 489, 38 P.3d at 27). Consequently, knowledge of a wrongful purpose is not merely a necessary, but "a crucial element in aiding and abetting or conspiracy cases." Id. (Emphasis added). Intent evidence is wholly absent here. To suggest Omron intentionally aided Verve in abusing process and/or prosecuting frivolous lawsuits, Hypercom solely offers inadmissible3 evidence of a Phoenix settlement meeting on September 14, 2004, between Hypercom and Omron. Specifically, Hypercom claims: "Omron knew that the patent infringement claims asserted by Verve against Hypercom were baseless, because
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And addressed in Omron' Reply In Support Of Motion For Summary Judgment. s

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See Defendant Omron Corporation' Motion To Strike Evidence Of Compromise, contemporaneously filed with s this response brief on January 12, 2006.
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Hypercom' representatives met with Omron and demonstrated why none of the s Hypercom products infringed any of the patents asserted against Hypercom." Motion For Leave at 7. Omron has pointed out the many flaws in these assertions. First, Hypercom' own s 30(b)(6) witness, Douglas Reich ("Reich"), explained: [T]hey may have reserved their evaluation of it, but we clearly demonstrated why we believed they didn' infringe the patents that were at that time being t asserted against us. I am not sure that there was much conversation about the actual infringement because we didn' really go into that t much detail about the claims in the patents . . . [W]e attempted to go through maybe one or more of the patents, but it became obvious that that was going to be a very lengthy process. And then we got down to more of a discussion about well, how we can resolve this matter between us and Verve. See Deposition Transcript of Douglas Reich ("Reich Deposition") at 39:15-40:2 (emphasis added), attached as Exhibit 24 to Hypercom Corporation' Statement Of Facts s In Opposition To Omron' Motion For Summary Judgment ("Hypercom' Statement Of s s Facts"), filed on December 23, 2005.4 In other words, Hypercom failed to demonstrate to Omron that it did not infringe the assigned patents. Second, Omron did not know which products and patents were involved. Omron' chief executive officer and Rule 30(b)(6) s designate, Tetsuyuki Nakano ("Nakano"), testified: Q: Did you care whether or not Verve was asserting claims against Hypercom that had no merit? A: At that point I did not know specifically which patent it concerned and I did not know which Hypercom product was involved and if you ask me whether I cared or I was concerned, I will have to say yes but my thinking was that you [Omron] couldn' do t anything about it anyway. ... Q: But has anyone at Omron looked into the merits of the patent infringement claims that Verve is asserting against Hypercom and the
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Pursuant to Local Rule 7.2(d)(2) of the District Court of Arizona, Omron incorporates by reference this exhibit and all other documents previously filed with the Court.
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other companies Verve has sued to reach a conclusion whether you can confirm the infringement that' alleged against those companies? s A: About this matter, I was in charge as a representative of Omron in America and I ­ the Japanese side was, basically, not involved. I asked to get the documents that were concerned but when you ask me whether we analyzed the merit of the Verve' s case in this matter, to this day I do not know what Hypercom product it is involved so there is no way I can analyze anything. See Deposition Transcript of Tetsuyuki Nakano ("Nakano Deposition") at 156:19-22, 157:1-7, and 157:17-158:8 (emphasis added), attached as Exhibit 23 to Hypercom' s Statement Of Facts. Nakano also explained that an independent evaluation of Verve' s claims against Hypercom would have been costly, and Omron had no contractual or other obligation to assume that expense. Id. at 73:11-14. Third, and most significantly, the claim that Hypercom "demonstrated why none of the Hypercom products infringed any of the patents asserted against Hypercom" is fundamentally at odds with the testimony of Reich, Hypercom' 30(b)(6) witness, who s attended the demonstration on behalf of Hypercom: Q: Is it Hypercom' contention that no reasonable attorney could s disagree with Hypercom' conclusion that Hypercom has not s infringed either the ` or the ` patents? 340 341 ... A: As I stated before, I am not a patent or an intellectual property lawyer, and I don' really have a basis for answering the question. t Reich Deposition at 125:25-126:8, attached as Exhibit 24 to Hypercom' Statement Of s Facts. Hypercom' demonstration, in short, did not persuade Hypercom that Verve' s s infringement claims were baseless. How, then, should it have persuaded Omron?5
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The root of Hypercom' claim to have "demonstrated" non-infringement is equally flawed. As set out in Omron' s s Response To Hypercom' Statement Of Facts In Opposition To Omron' Motion For Summary Judgment And s s Supplemental Statement Of Facts In Support Of Motion For Summary Judgment ("Omron' Response To s Hypercom' Statement Of Facts") at 3-5, filed contemporaneously with this response brief on January 12, 2006, s Hypercom contends that: (1) Omron knew Hypercom did not sell electronic cash registers; and (2) Omron must also have known Hypercom did not infringe the assigned patents. There is no evidence, however, that Omron knew what products Hypercom made. See Omron' Response To Hypercom' Statement Of Facts at 3-4. And, as further s s
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Finally, Hypercom admittedly knows of no evidence that "Omron knew Hypercom was not infringing any of the patents when it assigned those patents to Verve." Id. at 128:20-129-3. For the same reasons it cannot demonstrate a conspiracy, Hypercom cannot show that Omron intended to aid and abet a tort. Compare Wells Fargo Bank, 201 Ariz. at 487-88, 39 P.3d at 25-26 (aiding evidence sufficient where lender bank knew the developer-borrower was obligated to provide accurate financial information to potential substitute lender, knew information in the developer' financial statements was false, knew s the potential lender would receive those financial statements, and had drafted internal memoranda admitting their falsity and its interest in avoiding disclosure).6 Accordingly, the court should not grant Hypercom leave to add this futile claim. B. Hypercom Can Identify No Evidence of Substantial Assistance

Under Arizona law, aiding and abetting requires that the abettor "substantially assist" ­ i.e., provide more than "a little aid" to ­ the primary tortfeasor. Wells Fargo Bank, 201 Ariz. at 488, 38 P.3d at 26. Hypercom' Motion For Leave presents the various s acts which underpin its Response To Omron' Motion For Summary Judgment as s "evidence" of substantial assistance. Most, however, are irrelevant. As noted, Hypercom admits it can identify no evidence that Omron knew Hypercom had not infringed the patents when Omron assigned them to Verve. See Reich Deposition at 128:20-129:3, attached as Exhibit 24 to Hypercom' Statement Of Facts. s The remainder of Omron' actions are inconsequential. Hypercom contends that s following Hypercom' "demonstration" of non-infringement, Omron assisted Verve in s three ways. Omron allegedly: (1) contacted a critical third-party witness in Japan; (2) got
explained in Omron' Response To Hypercom' Statement Of Facts, the bare fact that Hypercom did not s s manufacture electronic cash registers would not insulate it from liability for contributory infringement. Id. at 4-5.
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Further inadequacies of this evidence are addressed in Omron' contemporaneously-filed Motion To Strike And s Omron' Response To Hypercom' Statement Of Facts. s s

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a lawyer in Japan "to make sure the witness did not talk to Hypercom;" and (3) provided legal research, that is, several ITC opinions on standing, to Verve' attorneys "in s connection with the ITC proceedings." See Hypercom' Response To Omron' Motion s s For Summary Judgment at 6. As a preliminary matter, the allegation that Omron acted "to make sure the witness did not talk to Hypercom" is unsupported. See Omron' Response s To Hypercom' Statement Of Facts at 5-6. As Omron explained, the record merely shows s that Omron placed its patent assignee, Verve, in contact with the patented technology inventor, and a Japanese attorney. Id. There is no evidence this contact obstructed (much less that Omron knowingly obstructed) discovery in the ITC proceedings or barred any party' access to the witness. s jurisdictional grounds. Further, the ITC proceedings were dismissed on

See ITC Order No. 40 at 21-22, attached as Exhibit 60 to

Hypercom' Statement Of Facts. A "merits" witness therefore could not affect those s proceedings or make any abuse of process "easier" to occur. Compare Wells Fargo Bank, 201 Ariz. at 489, 38 P.3d at 27 (noting that assistance must make violation "easier" to occur).7 The claim that Omron provided ITC opinions to Hypercom is similarly innocuous. First, the ITC did not find Verve' standing argument without legal or factual basis. See s ITC Order No. 40 at 21-22, attached as Exhibit 60 to Hypercom' Statement Of Facts. s And regardless, Omron is aware of no case finding the transmission of legal authority cognizable as a tort. In lieu of evidence, Hypercom offers assurances. The Motion For Leave assures the Court that even ordinary transactions can amount to substantial assistance "under some circumstances." Motion For Leave at 6. But "some circumstances" are limited.

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Further, "abuse of process" claims do not apply to administrative proceedings, such as those before the ITC. See Competitive Technologies v. Fujitsu, Ltd., 286 F. Supp. 2d 1118, 1155 (N.D. Cal. 2003), cert. denied, 126 S. Ct. 44 (2005).
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The required assistance in such cases is not marginal or (as here) non-existent, but material to the fraudulent enterprise. See e.g., Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir. 1983) (finding allegations that defendant served for 10 years as investment advisor and broker for companies and acted as "broker for substantially all the churning transactions with knowledge of their fraudulent nature in order to generate commissions for himself" stated aiding and abetting claim under securities laws) (cited in Wells Fargo Bank, 201 Ariz. at 489, 38 P.3d at 27). Even extraordinary transactions/activities must ­ as disclosed by Wells Fargo Bank and cases cited by the Arizona Supreme Court ­ substantially aid the underlying wrong. See e.g., Wells Fargo Bank, 201 Ariz. at 489-90, 38 P.2d at 27-28 (bank' extraordinary failure to foreclose on loan to delinquent s developer, to report false representations on developer' financial statements, and to s disclose fraud during meeting it called with new lender raised triable issue).8 Omron' de minimis, lawful, and indeed ordinary conduct does not qualify as s "substantial aid" under the law of any jurisdiction. Nor has any court held that mere courtesies between contracting parties make one vicariously liable for conduct of the other. For these reasons too, Hypercom' aiding and abetting claim fails as a matter of s law. C. Hypercom Can Identify No Evidence of Instigation

Hypercom also proposes to sue Omron for malicious prosecution as an "instigator." But for reasons set out above and at length in Omron' Motion For Summary Judgment s and Reply In Support Of Motion For Summary Judgment, this fully-discovered claim lacks any evidentiary support. Compare Bradshaw v. State Farm Mutual Auto. Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (Ariz. 1988) (permitting a malicious prosecution

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Hypercom further suggests that Omron' financial interest in Verve' licensing and settlement revenues gave it "an s s extraordinary economic motivation to aid in Verve' scheme." Motion For Leave at 6. Such payment streams, s however, are common.

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claim against an insurance company that filed suit in the name of the insured). III. CONCLUSION There is no evidence that Omron "aided and abetted" or "instigated" malicious prosecutions, just as no evidence suggests that Omron "conspired" to maliciously prosecute patent infringement claims. Hypercom has asked the Court to shuffle deck chairs on the Titanic. This exercise in futility should be refused. Respectfully submitted on January 12, 2006. FENNEMORE CRAIG, P.C.

By: s/Ray K. Harris Ray Harris Paul Moore BAKER & DANIELS LLC David P. Irmscher John K. Henning Attorneys for Defendant Omron Corporation CERTIFICATE OF SERVICE I hereby certify that on January 12, 2006, I electronically transmitted the attached documents to the Clerk' Office using the CM/ECF System for filing and transmittal f a s Notice of Electronic Filing to the following CM/ECF registrants: Michael K. Kelly Sid Leach SNELL & WILMER L.L.P. One Arizona Center 400 East Van Buren Phoenix, AZ 85004-2202

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Peter Henry Schelstraete SCHELSTRAETE LAW OFFICE 1949 East Broadway Suite 107 Tempe, AZ 85282-0001 I hereby certify that on January 12, 2006, I served the attached document by mail on the following, who are not registered participants of the CM/ECF System:

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Christopher S. Walton Gregory S. Donahue SIMON GALASSO & FRANTZ PLC 115 Wild Basin Road Suite 107 Austin, TX 78703

_s/Melody Tolliver_________________

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