Free Statement - District Court of Arizona - Arizona

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Sid Leach (#019519) Andrew F. Halaby (#017251) Monica A. Limón-Wynn (#019174) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6372 Attorneys for Plaintiff Hypercom Corporation [email protected] [email protected] [email protected] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Verve, L.L.C., and Omron Corporation, Defendants. No. CV 04-0400 PHX PGR HYPERCOM CORPORATION'S STATEMENT OF FACTS IN OPPOSITION TO OMRON'S MOTION FOR SUMMARY JUDGMENT

Pursuant to Local Rule LRCiv 56.1(a), Hypercom Corporation ("Hypercom") respectfully submits specific facts that Hypercom asserts, including those facts which establish a genuine issue of material fact precluding summary judgment in favor of Omron Corporation ("Omron"). Omron Failed to Negate the Alleged Conspiracy 1. Omron did not file any affidavit in support of its motion for summary judgment

denying that Omron was a participant in the overall alleged conspiracy. Doc. #74. 2. In support of Omron's motion for summary judgment, Omron filed certain pages

from the deposition of Omron's witness Mr. Nakano. Doc. #74. However, Mr. Nakano was never asked any question in his deposition about a "conspiracy." 3. Omron's witness Mr. Nakano did not provide any testimony that negates Omron's

involvement in the alleged conspiracy. Exhibit 23. 4. The statement of facts submitted in support of Omron's motion for summary

judgment does not include any statement of fact that expressly denies Omron's

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participation in the alleged conspiracy. Doc. #74. Introduction 5. In a proceeding that Verve L.L.C. ("Verve") brought against Hypercom in the

International Trade Commission, the administrative law judge presiding over the case found that Verve made numerous misrepresentations to the Commission and filed the complaint without an adequate basis for accusing Hypercom's products of infringement. Verve, Raymond Galasso, the Simon, Galasso & Frantz law firm, and Kevin Imes were sanctioned in the amount of $1,000,000.00.1 The sanctions order issued by the administrative law judge in the ITC Action was designated as ITC Order No. 48, and was previously filed with the Court on July 14, 2005, at Doc. #61. Pursuant to Local Rule LRCiv 7.1(d)(2), it is incorporated herein by reference. 6. Omron approved Hypercom as a target without any basis for believing that

Hypercom infringed any of Omron's patents. Exhibit 7; Exhibit 23, Nakano depo., at 16162. Omron knew about the complaints filed against Hypercom from the outset, and aided Verve in Verve's baseless lawsuits against Hypercom. Exhibit 23, Nakano depo., at 6061; Exhibit 10; Exhibit 11; Exhibit 12; Exhibit 13; Exhibit 14; Exhibit 15. Omron never had any good faith basis for accusing Hypercom of infringement of any of the Omron patents. Exhibit 23, Nakano depo., at 161-62. Verve filed the complaint with the International Trade Commission without any probable cause. Doc. #61, ITC Order No. 48, at 1-2, 10-14 & 16-17. As soon as the proceedings in the International Trade Commission began, Hypercom met with Omron and demonstrated that none of the accused Hypercom products infringed any of the asserted Omron patents. Exhibit 18; Exhibit 24, Reich AZ depo., at 22-47; Exhibit 30, Reich Decl. ¶¶ 2-3; Exhibit 23, Nakano depo., at 155-56. Omron had control over Verve and could have stopped the proceedings at any time. Exhibit 30, Reich Decl. ¶¶ 2-4; Exhibit 24, Reich AZ depo., at 22-26, 32-34, 39-47; Exhibit 17. Instead of exercising its control over Verve, Omron participated in Verve's scheme to extract money from Hypercom without regard to whether or not 1 In view of Verve's bad faith, the ITC Investigative Staff recommended that Verve be sanctioned in the amount of $2,000,000.00. Exhibit 71, at 23.
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Hypercom actually infringed any of the Omron patents. Exhibit 12; Exhibit 13; Exhibit 14; Exhibit 15; Exhibit 24, Reich AZ depo., at 34-35 & 40. Omron had Verve file the lawsuits against Hypercom, instead of Omron, so that Omron would have "no risk" when Verve lost the baseless lawsuits if it was unsuccessful in extorting a "settlement" from Hypercom. Exhibit 4; Exhibit 5; Exhibit 8; Exhibit 23, Nakano depo., at 161-62. Omron pretended to look the other way so it could claim that it did not know what Verve was doing if they got caught. Exhibit 23, Nakano depo., at 148. As detailed below, the circumstantial evidence supports an inference that Omron agreed with Verve to assert Omron's patents against Hypercom, without any basis for believing that Hypercom infringed any of Omron's patents, and for the improper purpose of achieving extortionate advantage by imposing excessive litigation costs upon Hypercom until Hypercom was forced to pay Omron and Verve off to buy peace. Exhibit 31, Reich Decl. ¶4; Exhibit 32, Reich ITC depo., at 31-35. Omron and Verve agreed to split the money that was collected through this scheme, Exhibit 8, which Verve estimated would be between $979 Million and $4.9 Billion, Exhibit 22, at 3. The Litigation Filed Against Hypercom In Michigan, Texas, California, and Washington, D.C. 7. On September 11, 2003, Verve filed a complaint against Hypercom in the U.S.

18 District Court for the Eastern District of Michigan, captioned Verve L.L.C. vs. VeriFone, 19 Inc., Lipman USA, Inc. and Hypercom Corp., Civil Action No. 03-73481 (the "Michigan 20 Action"). The complaint filed in the Michigan Action alleged that Hypercom infringed 21 Omron's U.S. Patent No. 4,678,895. Exhibit 33. 22 8. 23 in the Michigan Action. None of the defendants sued in the Michigan Action had their 24 principal place of business in Michigan. Exhibit 33. Moreover, Verve's principal place of 25 business was in Texas. 26 9. 27 District Court for the Western District of Texas, captioned Verve L.L.C. vs. Hypercom 28
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Michigan had no substantial connection with the claims asserted against Hypercom

On February 4, 2004, Verve filed a complaint against Hypercom in the U.S.

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Corporation, VeriFone, Inc., Ingenico Corporation USA, Thales e-Transactions, Inc., First Data Corporation, Radiant Systems, Inc., CyberNet USA, Inc., and Mist Inc., USA, Civil Action No. A04-CA-062 (the "Texas Action"). The complaint filed in the Texas Action alleged that Hypercom infringed Omron's U.S. Patent No. 4,562,341. Exhibit 36. 10. Texas had no substantial connection with the claims asserted in the Texas Action

against Hypercom. None of the defendants sued in the Texas Action had their principal place of business in Texas. Exhibit 36. 11. Although Telecheck Services, Inc. (a defendant in the Michigan Action) has its

principal place of business in Houston, Texas, and Texas would have been a convenient forum for that company, Verve choose not to sue Telecheck in the Texas Action. Similarly, Schlumberger (a defendant in the Michigan Action) has significant operations in Texas, and Texas would have been a convenient forum for that company as well, yet Verve chose not to sue Schlumberger in the Texas Action either. Compare Exhibit 34 with Exhibit 37. 12. Kevin Imes, one of the two principals of Verve, could not offer any justification for

why Verve sued Hypercom in Texas after it already had a suit pending against Hypercom in Michigan. Exhibit 51, Imes AZ depo., at 117. Raymond Galasso could not offer any justification for suing Hypercom in Texas either. Exhibit 25, Galasso AZ depo., at 83-83. 13. With Omron's prior knowledge and consent, on or about July 31, 2004, Verve filed

a complaint with the International Trade Commission ("ITC") in Washington, D.C., and named Hypercom as a respondent in that proceeding. Exhibit 10; Exhibit 11. The complaint filed with the ITC alleged that Hypercom infringed Omron's U.S. Patent No. 5,012,077. Exhibit 38. 14. On September 3, 2004, the ITC instituted an investigation concerning Hypercom's

alleged infringement of Omron's U.S. Patent No. 5,012,077 based on Verve's complaint (the "ITC Action"). The ITC Action was captioned In the Matter of Certain Point of Sale Terminals and Components Thereof, Inv. No. 337-TA-524.

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15.

Verve and Omron used the ultimate weapon in high cost litigation tactics by

bringing the ITC case against Hypercom because ITC proceedings are expedited and are massive. Doc. #61, ITC Order No. 48, at 25 ("Section 337 investigations proceedings are massive, expedited proceedings usually involving very technical issues..."). 16. On August 30, 2004, Verve filed suit against Hypercom in the United State District

Court for the Northern District of California captioned Verve L.L.C. vs. VeriFone, Inc., CyberNe, Inc., Hypercom Corporation, Ingenico Corporation, Lipman USA, Inc., Thales e-Transactions, Inc., and Trintech, Inc., Civil Action No. C-04-03659 HRL (hereafter the "California Action"). The complaint filed in the California Action alleged that Hypercom infringed Omron's U.S. Patent No. 5,012,077, the same patent involved in the ITC proceedings. Exhibit 40. 17. California had no substantial connection with the claims asserted in the California

Action against Hypercom. Verve has no substantial connection with California either, and there was no reason for bringing the case in California other than for the improper purpose of increasing Hypercom's litigation expenses. Exhibit 40. Verve's principal Imes could not offer any justification for why Verve sued Hypercom in California after it already had a case pending in Texas, and had previously sued Hypercom in Michigan. Exhibit 50, Imes AZ depo., at 117-18. 18. On June 7, 2005, the administrative law judge presiding over the ITC Action

imposed sanctions in the amount of $1,000,000 against Verve, the law firm of Simon, Galasso & Frantz, and Verve's principals Raymond M. Galasso and Kevin R. Imes, based upon findings of bad faith and abuse of process. Doc. #61, ITC Order No. 48. The administrative law judge found that Verve had brought the ITC Action against Hypercom without any good faith basis for accusing Hypercom of infringement. The administrative law judge in the ITC Action found that Verve and its counsel had failed to perform an adequate pre-filing investigation of Hypercom's products before filing its complaint. The administrative law judge found that Verve made a number of misrepresentations in its

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complaint. The administrative law judge found that Verve's conduct supported a finding of bad faith. Doc. #61, ITC Order No. 48. 19. On June 8, 2004, the patent infringement claims originally brought against

Hypercom in Michigan were dismissed. Exhibit 41. 20. On March 8, 2005, the patent infringement claims brought against Hypercom in

California were dismissed. Exhibit 42. 21. On June 8, 2005, the patent infringement claims brought against Hypercom in the

ITC Action were dismissed. Exhibit 43. 22. On December 12, 2005, the patent infringement claims originally brought against

Hypercom in Texas were dismissed. Exhibit 45. 23. All of the baseless patent infringement claims filed against Hypercom alleging

infringement of Omron patents have been dismissed in favor of Hypercom. Exhibit 41; Exhibit 42; Exhibit 43; Exhibit 45. Circumstantial Evidence of a Conspiracy 24. Omron entered into an agreement with Verve L.L.C. ("Verve") for the purpose of

bringing patent infringement suits alleging infringement of Omron patents, with the understanding that Omron would receive a percentage of the money that Verve was able to extract from the people that Verve sued. Under the current agreement, Omron receives 50% of the profit obtained by Verve up to $10,000,000, and 40% of the portion above $10,000,000. Exhibit 8. From the beginning, Omron approved Hypercom as a target for Verve to sue. Exhibit 7; Exhibit 4; Exhibit 23, Nakano depo., at 60-61. Neither Omron nor Verve had any good faith basis for asserting patent infringement claims against Hypercom. Exhibit 23, Nakano depo., at 161-62; Doc. #61, ITC Order No. 48, at 1-2, 1014 & 16-17. 25. Verve, L.L.C. purports to be a Texas Limited Liability Company organized under

the laws of the State of Texas, and claims that its principal place of business is in Austin, Texas. Exhibit 81. Verve's principal place of business was nothing more than a post office box, and when it suited Verve's purposes to do so, Verve alleged that its principal place of
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business was in Michigan. Exhibit 76. Verve is an entity controlled by Raymond M. Galasso and/or the Simon, Galasso & Frantz law firm, and was created for the purpose of substituting Verve as the plaintiff in patent infringement suits brought by Raymond M. Galasso and/or the Simon, Galasso & Frantz law firm instead of naming the real party in interest as a party to the suit. Exhibit 84; Exhibit 85; Exhibit 70. Raymond M. Galasso is a partner in the firm of Simon, Galasso & Frantz, and is the head of the law firm's intellectual property practice. Exhibit 65; Exhibit 82. Raymond M. Galasso is also a registered patent attorney. Exhibit 25, Galasso AZ depo., at 60-61; Exhibit 82; Exhibit 65. 26. At the time that Verve was formed, Raymond M. Galasso owned 100% of Verve

and was designated as the managing partner of Verve. Exhibit 81; Exhibit 90. Subsequently, Kevin R. Imes obtained ownership of 50% of Verve, but paid no consideration for his 50% interest in Verve. Exhibit 25, Galasso AZ depo., at 22-23. Galasso had testified that there is no written agreement between Galasso and Imes concerning the transfer of 50% of Verve to Imes, or any other written evidence to substantiate the transaction. Exhibit 25, Galasso AZ depo., at 18-23. 27. Verve is under capitalized and has few, if any, assets. Exhibit 92; Exhibit 91. Verve

does not make or sell any products. At the time that the suits were brought against Hypercom, Verve had no offices. Exhibit 66 at 4. Verve paid no rent, leased no space, and paid no electric bills. Verve had no telephone, and was not listed in any telephone listings. Exhibit 70. Verve had no employees. Exhibit 67, at 4-5; Exhibit 65, at 3. Verve had no corporate records other than a certificate of organization. Exhibit 89. Verve failed to observe any corporate formalities. Verve had no by-laws. There were no minutes of any board of directors meetings during the entire four and 1/2 years that Verve claims it has been in existence. There were no minutes of any shareholders meetings. No board of directors meeting or shareholder meeting had ever been held. Exhibit 70. There were no resolutions adopted by the corporation. There were no policies adopted by the corporation. There were no financial reports, financial statements, or financial records for the

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corporation. Verve had never paid any dividends. Exhibit 70. There was no record that Verve filed any tax returns prior to 2002. Exhibit 91; Exhibit 92. 28. Verve now claims that it has "office space" at 6300 Bridgeport Parkway, Building

One, Austin, Texas. Exhibit 25, Galasso AZ depo., at 8-11. However, this is the same location as the offices of the Simon, Galasso & Frantz law firm. Exhibit 1; Exhibit 2; Exhibit 3 (photographs of the office suite of the Simon, Galasso & Frantz law firm); Exhibit 25, Galasso AZ depo., at 8-11. Exhibit 1 shows the main door to the law firm's offices, and a plaque on the wall immediately to the right of the door is visible in the photograph. Exhibit 2 shows a close up view of the plaque. Verve's name and the law firm's name both appear on the door to the same office suite. Exhibit 3 shows a view of the reception area as seen through the glass window next to the door. Only the name of the law firm of Simon, Galasso & Frantz is displayed on the wall inside the door, and there is only one place for a receptionist. 29. Verve is a façade used to perpetuate a scheme to extort money from Hypercom by

filing patent infringement suits against Hypercom without regard to whether or not Hypercom infringes any of the asserted patents. With the use of Verve as a façade, parties sued by Verve were unable to obtain discovery relevant to the patent claims asserted against them, because Verve claimed that it had no control over Omron and no ability to get any information from Omron. Exhibit 57 at 9 ("Since Verve clearly has no control over Omron, Verve should not be compelled to supplement its discovery responses."); Exhibit 58 at 17 ("Verve is not in control of or affiliated with Omron who prosecuted the above-referenced [patent] application. Therefore, Verve is unable to answer this interrogatory ...".); Exhibit 32, Reich ITC depo., at 36. 30. Verve was used by Raymond M. Galasso to perpetuate the scheme of suing

Hypercom without regard to whether or not Hypercom actually infringed any of the Omron patents, and by making the litigation as expensive as possible, in order to achieve extortionate advantage by imposing excessive litigation expenses on Hypercom. Exhibit 32, Reich ITC depo., at 31-35. Together, Verve and Omron attempted to force Hypercom
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to pay Verve and Omron off in order to buy peace from the excessive costs of the baseless litigation filed by Verve. Exhibit 24, Reich AZ depo., at 22-29, 32-49. 31. Verve maintains a website, on which Verve describes itself as "an Intellectual

Property Service Provider." Exhibit 21. Verve's web site describes Verve's business as providing "patent litigation support." Verve's web site states that, "Verve also assists companies with enforcement activities through offering a turn-key enforcement campaign. . . ." 32. Omron was a knowing participant in Verve's unlawful scheme. Omron aided and

abetted Verve's tortious activities. By using Verve as a façade, Omron attempted to avoid any risk of liability for bringing patent infringement claims against Hypercom without any good faith basis for doing so. 33. Omron is the original owner of the patents that Verve used to commit its acts of

abuse of process and malicious prosecution. Omron committed several overt acts in furtherance of the conspiracy. Omron agreed to Verve's use of Omron's patents to sue Hypercom. 34. Omron stood to make millions if Verve was successful in its wrongful scheme.

Omron had an extraordinary economic motivation to aid in Verve's scheme, because Omron stood to get 50% of the money that Verve collected. Exhibit 8. 35. Verve estimated the revenue from the scheme was potentially between $979

Million and $4.9 Billion. Exhibit 22, at 3. Verve prepared a "Point-Of-Sale Portfolio Assessment and Market Analysis" for Omron's patents. Verve's analysis suggests that Verve and Omron could collect "from $979 Million to $4.9 Billion" if they were successful in imposing a 1% to 5% royalty on everyone in the POS market. Exhibit 22, at 3. 36. Omron did not have any good faith basis for believing that Hypercom infringed

any of the Omron patents. Exhibit 23, Nakano depo., at 101, 157-58, 162-63. On March 2 and 3, 2005, Omron's corporate representative testified under oath that Omron, even at that late date, still did not have any good faith basis for accusing Hypercom of
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infringement of any of the Omron patents. Exhibit 23, Nakano depo., at 101, 157-58, 16263. 37. Omron approved and authorized the initiation of multiple lawsuits against

Hypercom in various states. Exhibit 7; Exhibit 4; Exhibit 8; Exhibit 23, Nakano depo., at 60-61. 38. Omron approved Hypercom as a target before Verve filed any of the lawsuits that

were filed against Hypercom. Exhibit 23, Nakano depo., at 60-61. In a letter dated April 23, 2004, Herbert V. Kerner sent a letter to Raymond M. Galasso confirming that Omron had approved Hypercom as a "licensing target." Exhibit 7. 39. With knowledge of Verve's baseless lawsuit against Hypercom in Michigan,

Omron agreed to have Verve sue Hypercom on additional Omron patents. Exhibit 5; Exhibit 8. Verve's "Point-Of-Sale Portfolio Assessment and Market Analysis" estimated that Verve could collect $2.48 billion more if Omron would throw additional patents into the scheme. Exhibit 22 at 15. Omron agreed to do so. 40. Omron had the right to approve every target that Verve filed suit against before

Verve could sue them. Exhibit 7; Exhibit 75. 41. Omron knew that the patent infringement claims asserted by Verve against

Hypercom were baseless, because Hypercom's representatives met with Omron and demonstrated why none of the Hypercom products infringed any of the patents asserted against Hypercom. Exhibit 24, Reich AZ depo., at 37-40; Exhibit 18. On September 16, 2004, Hypercom's representatives met with representatives of Omron, including Herbert V. Kerner, concerning the patent infringement claims that Verve had asserted against Hypercom in Michigan, Texas, California, and the ITC proceeding in Washington, D.C. Hypercom's representatives demonstrated the operation of Hypercom's accused products, and showed why the Hypercom products clearly did not infringe the Omron patents asserted against Hypercom. Exhibit 18. Herbert V. Kerner, Omron's attorney at the meeting, assured Hypercom's representatives that Omron had the ability to settle all of the

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patent infringement actions that Verve had brought against Hypercom. Exhibit 30, Reich Decl. ¶¶ 2-4; Exhibit 24, Reich AZ depo., at 22-26, 32-34, 39-47. 42. Omron had the power at all times to stop the litigation that Verve filed against

Hypercom. Exhibit 30, Reich Decl. ¶¶ 2-4; Exhibit 24, Reich AZ depo., at 22-26, 32-34, 39-47. Omron retained the right to grant licenses under the Omron patents to anyone without limitation, including anyone that Verve had already sued, and could have granted Hypercom immunity from suit by Verve at any time. Exhibit 17. 43. Omron signed documents for Verve that concealed the true nature of Verve's

interest in the Omron patents and which concealed the fact that Verve did not have standing to file suit on Omron's patents, so that Omron would not have to be a party to the lawsuits and would have "no risk" in case Verve lost any of the lawsuits. Exhibit 23, Nakano depo., at 161-62. 44. Omron had an extraordinary economic motivation to aid in Verve's scheme,

because Omron stood to get 50% of the money that Verve collected, Exhibit 8, and which Verve estimated to be potentially between $979 Million and $4.9 Billion. Exhibit 22, at 3. 45. On July 20, 2004, Raymond M. Galasso sent an email communication to Herbert

V. Kerner stating that "We are now very close to filing the ITC action" and asking for information from Omron that Verve needed in order to proceed with Verve's plan. Exhibit 10. That same day, Kerner replied to Galasso indicating that Kerner had a meeting with Omron's representative and would "stay on him" to get the information for Verve. Exhibit 10. 46. Omron assisted Verve by contacting a critical third party witness in Japan, and by

getting a lawyer in Japan to make sure the witness did not talk to Hypercom. Exhibit 12; Exhibit 13. Omron's representative Mr. Nakano, who is based in the United States, traveled to Japan and met with the witness in person to discuss the pending proceeding before the International trade Commission in which the inventor would be a potential witness. Exhibit 12. Mr. Nakano also called the witness on two additional occasions to talk to the witness about the ITC proceeding. Exhibit 23, Nakano depo., at 151.
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47.

With knowledge of Verve's meritless patent infringement charges against

Hypercom in Michigan, Texas, California, and the ITC proceeding in Washington, D.C., Omron aided Verve in its efforts to extort money from Hypercom. Omron contacted the inventor of the patent asserted in the ITC proceeding (who was not an employee of Omron) so the inventor (who was a critical witness in the patent case) would be "prepared for any contacts he may receive from the other side." Exhibit 12. Omron also contacted a lawyer in Japan to assist in this endeavor. Exhibit 13. Raymond M. Galasso told the lawyer in Japan to "let me know as soon as possible if anyone does try to contact [the inventor witness] and please instruct him not to discuss anything with anybody about United States Patent No. 5,012,077 until we have a chance to discuss first." Exhibit 13. 48. Omron's representative assisted Verve by providing legal research to Verve's

attorneys in connection with the ITC proceeding. Omron's attorney Herbert V. Kerner actively assisted in the ITC proceeding by sending information to Verve's lawyers concerning prior decisions of the ITC on issues involved in the case brought by Verve. Exhibit 14; Exhibit 15. 49. Omron's representative was involved in discussions of "licensing strategy" with

Raymond M. Galasso, the managing member of Verve. Exhibit 16. Omron Wanted Verve To Be The Party Bringing The Baseless Lawsuits So That Omron Would Have "Zero Risk" If Verve Lost the Lawsuits (Or If Verve Was Sanctioned) 50. On or about August 3, 2003, approximately one month before the first lawsuit was

filed against Hypercom, Omron's representative in the United States sent a memorandum to Omron headquarters in Japan seeking approval for Omron to transfer two initial patents to Verve so that Verve could sue Hypercom. Exhibit 4. In this memorandum, Omron's representative emphasized that Omron had "zero payment risk." The memorandum said, "In case of losing suit, as [Omron] is not a party of the suit, it has no risk...". The memorandum acknowledged Omron's knowledge and acquiescence in Verve's plan to sue Hypercom in Michigan, and after suing Hypercom, then "negotiate a license." According

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to the memorandum, Omron would receive a portion of the profit that Verve made in suing Hypercom. Exhibit 4. 51. On or about October 28, 2003, Omron's representative in the United States sent a

second memorandum to Omron headquarters in Japan seeking approval for Omron to transfer two more patents to Verve so that Verve could sue Hypercom again. Exhibit 5. In this second memorandum, Omron's representative again emphasized that "Omron has zero payment risk. In case of losing a suit, as it is not a party of the suit, it has no risk, even other than money." Exhibit 5. 52. On or about March 17, 2004, Omron's representative in the United States sent a

third memorandum to Omron headquarters in Japan seeking approval for Omron to include 20 more Omron patents in the deal with Verve. Exhibit 8. In this third memorandum, Omron's representative referred to this case that was originally filed in Texas, and to the first case filed in Michigan, and noted that "there have been 23 companies as the target of the exercising of rights approved by OC [Omron] to Verve." The third memorandum predicted that a total of about 50 companies would be sued by Verve. The third memorandum supported adding additional patents to the scheme with the statement, "By adding the new patents, the power of Verve LLC in negotiation is reinforced, and the profit by negotiation can be better guaranteed." Exhibit 8. 53. Omron's witness Mr. Nakano testified that he intentionally tried to look the other

way and remain in the dark about Verve's activities: Q How often did you receive reports from Mr. Kerner about the ongoing status of Verve's activities? MR. IRMSCHER: Before you answer, could you read that question back for me one more time? (The reporter read the record as requested.) MR. IRMSCHER: You can answer. A There were some months that I had no report. Some months I had only one report but, basically, since I was aware that Verve's matter was
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involved, I intentionally tried not to ask but despite that, I did hear some things sometime. Exhibit 23, Nakano depo., at 148 (emphasis added). Omron takes the position that since the lawsuits were brought in Verve's name,

Omron had no obligation to perform an adequate pre-filing investigation of the patent infringement claims asserted against Hypercom. Exhibit 23, Nakano depo., at 101. In effect, Omron has used Verve as a facade to escape its obligations under Rule 11 of the Federal Rules of Civil Procedure. Unwritten Agreements Exist Between The Conspirators Verve does business based upon unwritten agreements. There is no written agreement or documentation of any kind evidencing the transfer

of 50% of Verve from Raymond M. Galasso to Kevin R. Imes. Exhibit 25, Galasso AZ depo., at 7. 57. There are no written agreements between Verve, Raymond M. Galasso, or Kevin

R. Imes. Exhibit 25, Galasso AZ depo., at 7. All agreements between Verve, Galasso, and Imes are unwritten. 58. Galasso's testimony about the agreements between him and Kevin Imes was

evasive. His deposition testimony was as follows: Q. When was the first time that you had any communications or discussions with Mr. Imes concerning the possibility of him participating in Verve L.L.C. in some fashion? A. 2002, roughly. Q. Do you remember what month? A. No, huh-uh. Q. Who contacted whom? A. I don't know. I mean, we were pretty ­ I mean, we would stay in contact with one another; so it would be hard to delineate who contacted or initiated that.
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Q. What were the discussions between you and Mr. Imes that led up to him becoming a principal; what was the proposals or the substance of your negotiations? A. I don't understand your question, I'm sorry. If you could just ask a little more specific question and I'll answer whatever -- what kind of question you have, but I don't understand what your question is. Q. Well, what did you and him talk about? A. When? Q. Well, I think it's quite apparent I'm asking about that led up to him becoming a principal. A. Okay. So we're in the time frame leading up to when -Q. Uh-huh. A. What did we talk about? We talked about a lot of different things. Q. Okay. Tell me. A. Sports, weather. Q. No, you know what I'm asking about. I'm asking about what did you talk about in connection with him becoming a principal. A. Okay. Thank you for clarifying that. Q. Answer my question, please. A. What did we talk about? We talked about his interest in -- my desire and his interest of possibly becoming a part of Verve. Q. Okay. What else? A. That's it. Q. He just said, hey, I think I may want to become a part of Verve, and the next day you guys signed a deal? A. No, we -Q. Is that your testimony? A. No, that's not my testimony.
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Q. Then what did you talk about? A. We talked about the -- what that would look like and what sort of things he could help with and what sort of terms and things he would join Verve. Q. Okay. Then tell me what it was that you talked about it would look like and the terms and things. A. I don't understand your question. Q. Then explain your answer further. I want some more details. MR. DONAHUE: Objection, confusing. THE WITNESS: I don't understand your question. Q. (BY MR. LEACH) All right. You said that you talked about what it would look like. You said you talked about terms and things, using your language. Tell me what those were. A. I don't remember. Q. Did you eventually reach an understanding or an agreement with Mr. Imes prior to him becoming a principal in Verve? A. Understanding or agreement with Mr. Imes prior to him becoming -that led up to the reason he became or what -Q. Yes. A. I don't understand your question. Q. What is it that's so hard? A. It sounds like you're asking whether there was like prior agreements prior to -Q. Well, what was the agreement? A. I'm sorry? Q. What was the agreement when he became a principal? A. For him to become a principal in Verve. Q. Uh-huh.
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A. That was the agreement. Q. That's it? A. Fifty percent ownership in Verve. Q. That's it? A. I don't remember anything else. You're asking about a long time ago; so that's what I recall. Q. All right. There was no discussion about what responsibilities he would have, what he would do, what responsibilities you would have, what business you were pursuing, nothing along those lines? A. Not that I specifically recall. But, I mean, I'm sure there was discussions like that. I don't at this time recall anything specifically. Q. Was there any discussion of Omron Corporation at that time? A. No. Q. Did Kevin Imes contribute any capital to Verve L.L.C. in connection with him becoming a principal? A. Did Kevin Imes contribute -- what was the question -Q. Contribute any capital. A. Capital, like what type of capital? Q. Any kind of capital. A. Monetary? Money? Q. Anything. A. I don't know. I don't -- I don't specifically recall any, as I understand your question. Q. Did he pay any money to become a principal? A. Not that I specifically recall. Q. Did he receive any shares of stock? A. Did he receive shares of stock? Q. Yes.
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A. Verve is an L.L.C., so, no. And I still don't understand what any of these questions have to do with personal jurisdiction, but I'll keep answering them. Q. Was there any written agreement or any writing that evidenced Mr. Imes becoming a principal? A. I think you already asked that question before. Q. There isn't -- or you don't know, right? A. I said there may be, but ­ Exhibit 25, Galasso AZ depo., at 18-23. 59. Verve allegedly leases office space from the Simon, Galasso & Frantz law firm,

but the lease is unwritten. Exhibit 25, Galasso AZ depo., at 13-14. 60. Verve has no written employment agreements. Verve has no corporate records

other than a certificate of incorporation. Verve has no by-laws. Verve has no minutes of any board of directors meetings. Verve has no minutes of any shareholders meetings. Verve has no written policies adopted by the corporation. Verve has no written financial reports, financial statements, or financial records for the corporation. There was no record that Verve filed any tax returns prior to 2002. Exhibit 70. 61. On March 19, 2004, Omron's representative Nakano and Verve's managing

member Galasso signed a written agreement purporting to set forth the entire agreement between Omron and Verve. Exhibit 75. 62. However, in Addendum 1-033004, having an effective date of April 1, 2004, Verve

gave back substantially all rights in the Omron patents. Exhibit 17. Addendum 1-033004 was signed by Nakano on behalf of Omron on April 2, 2004, and was signed by Galasso on behalf of Verve on May 5, 2004. Exhibit 17. In Addendum 1-033004, Omron took back the right to sub-license and cross-license anyone Omron wanted to, including "those parties who are initially approved by OMRON [as targets], as well as those parties against whom VERVE has already filed suit." Exhibit 17.

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63.

Verve transferred these rights under the Omron patents back to Omron without the

payment of any consideration. Exhibit 25, Galasso AZ depo., at 59-60. Raymond Galasso testified about Addendum 1-033004 (which was marked as exhibit 12 during his deposition) as follows: Q. Is Exhibit 12 [Addendum 1-033004] an addendum to the agreement that we've marked as Exhibit 8? A. Yes. Q. And was this addendum of Exhibit 12 entered into with an effective date of April 1, 2004? A. That's what Exhibit 12 says, yes. Q. The second page of Exhibit 12 contains your signature, correct? A. Yes. Q. Did you sign this on May 5, 2004? A. Yes, as far as I know. Q. Do you have any information about why your signature is dated May 5 on an agreement that was to have an effective date of April 1? A. No, just that's when it got signed. That -- okay. Q. Now, what did Verve receive as consideration for signing [Addendum 1-033004], if anything? A. What did Verve? Q. (Nods head affirmatively.) A. I'm not sure. I don't know. I think it calls for a legal conclusion or opinion, but I don't ­ I don't know. Exhibit 25, Galasso AZ depo., at 59-60 (emphasis added). 64. Under the terms of Addendum 1-033004, if Omron grants a license to a party

against whom Verve has already filed suit, Omron is only obligated to "reimburse" Verve "for all of its reasonable third-party attorneys fees" incurred by Verve. Exhibit 17. Of course, the "third-party attorneys fees" would be the attorneys fees of the Simon, Galasso
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& Frantz law firm. As Addendum 1-033004 makes clear, the substance of the "agreements" between Omron and Verve is nothing more than a contingency fee agreement with Galasso's law firm, i.e., Simon, Galasso & Frantz. 65. On March 19, 2004, Raymond M. Galasso wrote a letter to Herbert V. Kerner

acknowledging the deal struck with Omron on March 19, 2004, and confirming that Kerner (through an LLC owned by Kerner named DTK Technologies) would be paid "a referral fee of ten percent (10%) of Verve's Net Proceeds" from the Omron patents. Exhibit 9. Prior to the date of this letter, the agreement between Verve and Herbert V. Kerner for payment of a 10% referral fee was unwritten and undocumented. This is further evidence that Verve does business based upon unwritten agreements. 66. Herbert V. Kerner joined the law firm of Baker Daniels after Kerner was offered

the 10% referral fee by Verve. According to Omron's answers to Hypercom's interrogatories in this case, Baker Daniels and Omron determined that the referral fee arrangement that Verve had with Kerner "was not desirable." 67. Obviously, there is more to the deal between Omron and Verve than is reflected in

the written agreements that have been produced by Omron and Verve. Exhibit 24, Reich AZ depo., at 66-67. There was at least a tacit understanding that Omron can take back its patent rights anytime it chooses to do so, and the Omron patents are not really "assigned" to Verve. This is supported by the original proposals suggesting that the patents would be transferred to Verve temporarily as a lease-back arrangement while Verve pursued its scheme of shaking down the POS industry for "royalties." Exhibit 22, at 17; Exhibit 6 (Verve would have the Omron patents "for a period of x years"). This is further supported by the transfer without consideration of essentially all patent rights back to Omron in Addendum 1-033004 (after the Omron patents had allegedly been "assigned" to Verve). Exhibit 17; Exhibit 25, Galasso AZ depo., at 59-60. Finally, the facts demonstrate that Verve has a business practice of operating on secret unwritten agreements. Verve had a deal with Herbert V. Kerner to pay Kerner a referral fee of 10%, which was unwritten until March 19, 2004, after Kerner had already earned his fee and helped Verve
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consummate the deal with Omron. Exhibit 9. The 10% referral fee deal was even kept secret from Omron, because Kerner never disclosed to Omron that he was working for Verve. Exhibit 23, Nakano depo., at 20-26. Verve supposedly leases office space from the Simon, Galasso & Frantz law firm, but the lease is unwritten. Exhibit 25, Galasso AZ depo., at 13-14. All agreements between Galasso and Imes are unwritten. There is no written documentation of the transfer of 50% ownership in Verve from Galasso to Imes. Exhibit 25, Galasso AZ depo., at 18-23. The Joint Efforts By Verve And Omron To Conceal Verve's Lack Of Standing To Sue On The Omron Patents Without Joining Omron As A Party 68. Omron executed fictitious "assignment documents" to make it appear as if Verve

had standing to bring the patent infringement lawsuits without joining Omron as a party. Omron had an extraordinary economic motivation to aid in Verve's scheme, because Omron stood to get 50% of the money that Verve collected, and which Verve estimated to be potentially between $979 Million and $4.9 Billion. Exhibit 22, at 3. 69. In the "Point-Of-Sale Portfolio Assessment and Market Analysis", Verve proposed

a lease-back arrangement in which Verve and Omron would make it look like Omron's patents were assigned to Verve, but in reality the transfer was "in the form of a lease back arrangement to Omron while Verve pursues licensing activities." Exhibit 22, at 17. 70. In December 2003, Raymond M. Galasso met with Herbert V. Kerner "to discuss

Omron's POS portfolio opportunity." In furtherance of those discussions, Raymond M. Galasso stated that "Verve would also like to propose acting as a licensing agent for the additional Omron POS assets. Omron would provide Verve an exclusive right to license (with rights to litigate and enforce) the patents for a period of x years and would allow Verve to license the POS patents with select targets." Exhibit 6. Under this proposal, Verve would only have the Omron patents temporarily "for a period of x years," and Verve would not actually own the Omron patents. Exhibit 6. 71. Omron entered into agreements with Verve that were in substance nothing more

than a contingency fee agreement with the Simon, Galasso & Frantz law firm. See Exhibit
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17. However, the agreements were disguised to look like an assignment of the Omron patents to Verve so that Omron would not have to be a party to the lawsuits filed by Verve. Exhibit 75; Exhibit 52; Exhibit 53; Exhibit 54; Exhibit 23, Nakano depo., at 16162. 72. On February 7, 2005, after reviewing the agreements between Omron and Verve,

including Addendum 1-033004, the administrative law judge presiding over the ITC Action ruled that Verve did not own the Omron patents and did not have standing to bring the ITC Action without joining Omron as a party. Exhibit 26; Doc. #61, ITC Order No. 48, at 3. The administrative law judge gave Omron time to state whether it would join the ITC Action as a party. Omron declined to do so. Exhibit 44; Doc. #61, ITC Order No. 48, at 3. Consequently, the ITC Action was dismissed on the merits. Exhibit 43. 73. Omron signed documents for Verve that concealed the true nature of Verve's

interest in the Omron patents and which concealed the fact that Verve did not have standing to file suit on Omron's patents, so that Omron would not have any risk in case Verve lost any of the lawsuits. Exhibit 52; Exhibit 53; Exhibit 54. Omron executed these fictitious "assignment documents" to make it appear as if Verve had standing to bring the patent infringement lawsuits without joining Omron as a party. Exhibit 4; Exhibit 5; Exhibit 8; Exhibit 52, Exhibit 53; Exhibit 54; Exhibit 23, Nakano depo., at 161-62. 74. On September 5, 2003, Raymond M. Galasso sent an email communication to

Herbert V. Kerner, acting on behalf of Omron, advising Omron that "We are targeting filing suit for at least one of the two patents (the one set to expire in October) covered in the Agreement with Omron next week." Exhibit 87, at 1. Galasso asked Kerner to get Omron's representative to sign a separate "assignment document" that could be made public and which would give the appearance of a complete transfer to Verve of all ownership rights in U.S. Patent No. 4,678,895. Exhibit 87, at 1; Exhibit 54. The fictitious "assignment document" was signed by Omron's representative that day, Exhibit 54, and 6 days later Verve filed suit on that patent against Hypercom in Michigan, Exhibit 33.

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75.

In the ITC Action, in response to discovery requests seeking relevant information

concerning Omron's U.S. Patent No. 5,012,077, Verve claimed that Verve did not possess any information concerning the Omron patents, and had no ability to obtain the information from Omron in Japan. Exhibit 58. 76. In the ITC Action, Verve's complaint falsely represented that Verve owned all

right, title and interest in the Omron patent asserted in that proceeding. Exhibit 38, ¶50. 77. In the ITC Action, Verve was required to file all license agreements involving the

Omron patent asserted in that proceeding. Even though Verve granted a license back to Omron under that patent in the agreements between Verve and Omron, Verve concealed its agreement with Omron from the ITC. Exhibit 38; Exhibit 39. 78. In the ITC Action, Verve claimed that it could not answer questions about the

patent or invalidating prior art patents, allegedly because "Verve is not in control or nor affiliated with Omron who prosecuted the above-referenced application." Exhibit 58, at 17. When the respondents in the ITC proceeding attempted to compel discovery, Verve argued to the administrative law judge, "Since Verve clearly has no control over Omron, Verve should not be compelled to supplement its discovery responses." Exhibit 57, at 9. 79. In the ITC Action, Verve produced a one page "assignment document" to show that

it owned Omron's U.S. Patent No. 5,012,077. Exhibit 52. Under most circumstances, this would have been the end of it, and Verve would have gotten away with the concealment of Verve's other agreements with Omron. However, Hypercom insisted that there must be more to the deal between Verve and Omron that this, and pressed Verve to produce all documents relating to any agreements that Verve had with Omron. 80. In the ITC Action, Verve had to be compelled by two orders before Verve finally

produced Agreement No. 031805 between Verve and Omron. Exhibit 55; Exhibit 56. Verve did everything it could to stonewall discovery of its agreements with Omron. In the ITC Action, in an effort to stall Hypercom's attempts to obtain discovery of the agreements between Verve and Omron, Verve went through a charade pretending to ask

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Omron for permission to produce the Verve-Omron agreements2 in a letter that the administrative law found was "not sufficient." Exhibit 56, at 2. The administrative law judge found, "The letter is only a half-hearted attempt to secure Omron's release, with the assumption that Omron does not wish to waive the confidentiality provisions, which provides Verve with the excuse as to why relevant discovery cannot be provided." Exhibit 56, at 2. On November 17, 2004, Verve was ordered to produce adequate responses to Hypercom's discovery requests, including the agreements between Verve and Omron. Exhibit 56, at 5. Verve's deposition was scheduled for December 7. As that date approached, Verve continued its efforts to conceal the agreements between Verve and Omron. On November 29, 2004, the administrative law judge had to enter yet another order, in which he ordered, "Verve is hereby compelled to produce all discovery requests regarding the assignment and licensing agreements, as they are clearly relevant discovery." Exhibit 55, at 2. 81. Verve filed the ITC Action with the Simon, Galasso & Frantz law firm as Verve's

counsel. Exhibit 38; Exhibit 39. However, the Simon, Galasso & Frantz law firm was disqualified from receiving any confidential information under the protective order. Exhibit 64; Exhibit 67. Consequently, Verve was forced to retain outside counsel who, it turned out, were not willing to participate in the concealment of the Verve-Omron agreements. See Exhibit 29. 82. In the ITC Action, Verve concealed the existence of Addendum No. 1-033004

from Verve's own outside counsel in that proceeding. Exhibit 29. In the ITC Action, Verve gave its outside attorneys at Dewey Ballantine a redacted copy of its Agreement No. 031804 for the first time on November 23, 2004, after Verve had been ordered by the ITC administrative law judge to produce its agreements with Omron. Exhibit 29, Farney Decl. ¶ 7; Exhibit 56. Verve would not give its outside attorneys an unredacted copy of the document at that time. Id. A second order was entered compelling disclosure of the Verve-Omron agreements on November 29, 2004. Exhibit 55. Galasso gave his outside 2 Omron produced the documents in this case without claiming them to be confidential. Verve was the only party who ever claimed there was any confidentiality.
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attorneys an unredacted copy of Agreement No. 031804 for the first time on December 1, 2004, but when he did so, Galasso instructed Verve's outside counsel to limit disclosure of the unredacted agreement to only two attorneys at the law firm "until further notice from Verve." Exhibit 29, Farney Decl. ¶ 9. On December 3, 2004, when one of the outside attorneys (Mr. Conner - who had not seen the unredacted documents) met with Raymond Galasso to obtain information to supplement answers to interrogatories, "Mr. Galasso informed Mr. Conner that it would be accurate to state that Omron did not retain any right, title or interest in the '077 patent and that Verve owned all right, title and interest in the '077 patent." Exhibit 29, Farney Decl. ¶ 12. On December 6, 2004, the day before the deposition of Verve was scheduled to begin in the ITC Action, Raymond Galasso provided his outside counsel with an unredacted copy of Agreement No. 031804 for the first time. Exhibit 29, Farney Decl. ¶ 16. That same day, Galasso disclosed for the first time the existence of Addendum 1-033004 to Verve's attorneys at Dewey Ballantine. Exhibit 29, Farney Decl. ¶ 16. According to Verve's outside counsel, "Prior to that time, no one at Dewey Ballantine had been aware that an Addendum existed, and certainly no one at Dewey Ballantine had seen it prior to this time, or heard of anything regarding its contents." Exhibit 29, Farney Decl. ¶ 16. Under the circumstances, it is a fair inference that Verve knew that the full disclosure of its agreements with Omron, including Addendum No. 1-033004, would demonstrate that Verve did not own the Omron patents, and would demonstrate that Verve's allegations that the Omron patents were "assigned" to Verve were false, and that Verve tried to conceal the documents. Dewey Ballantine withdrew from further representation of Verve. Exhibit 29, Farney Decl. ¶ 17. 83. The representation that Verve owned the Omron patents, which was made in every

complaint filed by Verve, was, to put it bluntly, a fraud on the court. Verve's Attempts To Extract Money From Hypercom While Withholding Service Of The Complaints Filed Against Hypercom 84. Verve filed the original complaint against Hypercom in the Michigan Action on

27 September 11, 2003. Exhibit 33. 28
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85.

Four days after filing the Michigan Action, and ten days after Verve purportedly

acquired U.S. Patent No. 4,678,895, Verve wrote to Hypercom in Arizona enclosing a copy of the original complaint filed in the Michigan Action, indicating that Verve had not yet served the complaint. Verve gave Hypercom 30 days to "provide Verve a proposal for settling this matter." Exhibit 77. 86. On October 14, 2003, U.S. Patent No. 4,562,340 and U.S. Patent No. 4,562,341

were purportedly assigned to Verve by Omron. Exhibit 53. One day later, on October 15, 2003, Verve filed a Second Amended Complaint and Jury Demand in the Michigan Action, attempting to add U.S. Patent No. 4,562,340 to the lawsuit and alleging that Hypercom also infringed that patent. Exhibit 35. The Second Amended Complaint was rejected because Verve failed to obtain leave of court to file the pleading as required by Rule 15(a) of the Federal Rules of Civil Procedure. 87. On October 16, 2003, Verve again wrote to Hypercom in Arizona enclosing a copy

of the First Amended Complaint and Jury Demand, and a copy of the Second Amended Complaint and Jury Demand, and stating "Please note that these Complaints have not yet been served." Exhibit 80. 88. Hypercom's representatives made an attempt to explore the potential for a

resolution of the specious claims asserted by Verve. During a telephone conversation with Raymond M. Galasso, Mr. Galasso stated to Hypercom that he intended to keep filing patent infringement lawsuits against Hypercom until Hypercom agreed to pay Verve to go away. Exhibit 31. 89. After Hypercom failed to pay money to Verve to settle the Michigan Action, Verve

filed a complaint against Hypercom in the Texas Action in an effort to increase the harassment value of its patent infringement claims. Exhibit 36. 90. Although the Texas Action was commenced on February 4, 2004, Verve made no

effort to serve Hypercom until May 11, 2004. Instead, Verve attempted to use the chilling effect created by the mere existence of the lawsuit as leverage against Hypercom in its efforts to extract money from Hypercom.
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91.

Verve filed the California Action against Hypercom on August 30, 2004. Exhibit

40. Verve did not serve Hypercom with the complaint in the California Action until months later. Exhibit 32, Reich ITC depo., at 35. Civil Actions Were Filed Against Hypercom Without Probable Cause 92. The Michigan Action was commenced against Hypercom without probable cause.

6 Omron admits that the patent asserted against Hypercom in the Michigan Action "covers 7 technology for an electronic cash register and payment system." Doc. # 74, Statement of 8 Facts in Support of Omron Corporation's Motion for Summary Judgment ¶12 ("Omron 9 Statement of Facts"). Omron knew that Hypercom does not sell electronic cash registers 10 when Omron approved Hypercom as a target to be sued in the Michigan Action. Verve's 11 principal Kevin Imes could not offer any evidence of any "investigation or information 12 [that] formed the good faith basis for filing the lawsuit against Hypercom in Michigan on 13 September 11, 2003 concerning the '895 patent." Exhibit 51, Imes AZ depo., at 38. 14 Verve's other principal Raymond Galasso testified that any investigation of Hypercom's 15 products prior to bringing the Michigan Action "would have been primarily Kevin 16 Imes...". Exhibit 25, Galasso depo., at 28-29. Galasso could not remember any basis that 17 Verve had to accuse Hypercom products of infringement. Exhibit 25, Galasso depo., at 18 29-30. 19 93. 20 Omron's U.S. Patent No. 4,678,895. Exhibit 33. Omron knew that Omron's U.S. Patent 21 No. 4,678,895 "covers technology for an electronic cash register and payment system," 22 Doc. # 74, Omron Statement of Facts ¶12, and Omron knew that Hypercom does not have 23 any electronic cash register products. 24 94. 25 making terminal device" must be connected to an "electronic cash register." See Exhibit 26 50, claim 1 of U.S. Patent No. 4,678,895. 27 28
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The complaint filed in the Michigan alleged that Hypercom's T7 terminal infringed

In order for a device to infringe Omron's U.S. Patent No. 4,678,895, the "payment

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95.

Hypercom's T7 terminals do not connect to electronic cash registers. Exhibit 27.

Hypercom's T7 terminals connect directly to a telephone line via a phone jack on the rear panel labeled "line." Exhibit 28. Hypercom is not aware of, nor is there any evidence of, any T7 terminal that has ever been connected to an electronic cash register. 96. On May 11, 2004, the U.S. District Court for the Eastern District of Michigan

entered an Opinion and Order granting Hypercom's motion to sever the patent infringement claims asserted against Hypercom, and transferring the case against Hypercom to this Court in the District of Arizona. Exhibit 62. 97. 98. The Michigan Court issued a notice of transfer on May 17, 2004. The transferred file from the Michigan Action arrived in this District Court on or

about May 20, 2004. The case was assigned civil action No. 04-CV-1030 PHX JAT. 99. As soon as the Michigan Action against Hypercom arrived in the District of

Arizona, Verve filed a notice of dismissal and unilaterally dismissed the case on June 8, 2004. Exhibit 41. Having lost the ability to harass Hypercom with litigation in a distant and inconvenient forum, Verve dismissed the action because Verve truly had no interest in obtaining an adjudication on the merits. Verve's Michigan lawsuit against Hypercom was filed solely for purposes of harassment and extortion, and to further the improper purposes of a conspiracy between Verve and Omron. 100. 101. The Michigan Action has been terminated in Hypercom's favor. Exhibit 41. The Texas Action was commenced against Hypercom without probable cause.

Verve's principal Kevin Imes could not remember whether any comparison was made between Omron's U.S. Patent No. 4,562,341 and Hypercom's products accused of infringement prior to filing the Texas Action. Exh. 51, Imes AZ depo., at 72-76. Imes' testimony indicates that Verve did not obtain any Hypercom products and test them prior to filing the Texas Action. Exh. 51, Imes AZ depo., at 76. Imes did not even know whether Verve obtained a copy of the file history from the U.S. Patent and Trademark Office for Omron's U.S. Patent No. 4,562,341 before suing Hypercom for alleged patent infringement. Exh. 51, Imes AZ depo., at 115.
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102.

The complaint filed in the Texas Action alleged that Hypercom's ICE 6000

terminal infringed Omron's U.S. Patent No. 4,562,341. Exhibit 36. Omron knew that Omron's U.S. Patent No. 4,562,341 "covers technology for an electronic cash register," Doc. # 74, Omron Statement of Facts ¶20, and Omron knew that Hypercom does not have any electronic cash register products. 103. Omron's U.S. Patent No. 4,562,341 is limited to an electronic cash register.

Exhibit 49; Doc. # 74, Omron Statement of Facts ¶20. Hypercom's accused ICE 6000 terminal is not an electronic cash register, and clearly cannot infringe Omron's U.S. Patent No. 4,562,341. Exhibit 59. 104. On December 29, 2004, the U.S. District Court for the Western District of Texas

entered an order granting Hypercom's motion to sever the patent infringement claims asserted against Hypercom, and transferring the case against Hypercom to this Court in the District of Arizona. Exhibit 63. Hypercom filed an answer to the complaint before the case was transferred to cut off Verve's ability to unilaterally dismiss the case after it was transferred to Arizona. 105. On January 31, 2005, the transferred Texas Action arrived in this Court, and the

case was assigned civil action No. 05-CV-0365 PHX FJM. 106. On December 12, 2005, Verve's patent infringement claims in the transferred

Texas Action were dismissed by this District Court in civil action No. 05-CV-0365 PHX FJM. Exhibit 45. 107. Verve's patent infringement claims in the Texas Action have now been terminated

in Hypercom's favor. Exhibit 45. 108. The ITC Action was commenced against Hypercom without probable cause. Doc.

#61, ITC Order No. 48, at 1-2, 10-14 & 16-17; Exhibit 23, Nakano depo., at 161-62. 109. The complaint filed in the ITC Action alleged that Hypercom's T8 terminal and

Hypercom's ICE 6000 terminal infringed Omron's U.S. Patent No. 5,012,077. Exhibit 38. 110. Omron's U.S. Patent No. 5,012,077 (the "'077 patent") purports to cover a credit

and debit card processing terminal. Exhibit 47. The claimed terminal includes a processor
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comprising (1) a credit processor for effecting credit card processing on the basis of data stored on a credit card, and (2) a debit processor for effecting debit card processing on the basis of data stored on a debit card. Exhibit 47, U.S. Patent No. 5,012,077, column 6, lines 19-23. A card is inserted into a card reader slot in order to read data from the card. Id., column 4, lines 14-23. 111. The claims of the '077 patent specifically require "a card discriminator for

automatically discriminating whether a card to be used is a credit card or a debit card by reading said data stored on said card." Exhibit 47, U.S. Patent No. 5,012,077, column 6, lines 24-26. Prior to Omron's patent, old terminals would allow the user to press a button to indicate that a card was a debit card before the card was swiped through the card reader. In order to convince the patent examiner to allow the `077 patent to issue, Omron narrow what it claimed as the alleged invention during prosecution of the application for the '077 patent, and limited the patent to a terminal that has a card discriminator that automatically discriminates between credit cards and debit cards based solely on the information read from the card without the user pressing any buttons. Exhibit 46. Specifically, during prosecution of the patent application, Omron made the following argument in order to get the `077 patent allowed: "The present invention as claimed involves a credit and debit card processing terminal including a discriminating device. When a card is inserted into the processing terminal a discriminator contained in the processing terminal determines whether that card is a credit card or a debit card purely on the basis of data recorded on the card. Following entry of a secret code, the credit or debit card processing steps occur. A particular advantage of this invention, is that all of the initial discrimination steps occur automatically. In other words, the input keys or functions are automatically altered based upon the data read from the card." Exhibit 46, at 5.

Case 2:04-cv-00400-PGR

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112.

Hypercom's accused products do not meet this requirement of the `077 patent. All

of Hypercom's accused products require the user to press a button to indicate that the card is a debit card, and the accused products do not automatically discriminate between credit cards and debit cards. Exhibit 19; Exhibit 20; Exhibit 59. 113. In addition, the `077 patent requires "a processing activator for activating any one

of said processors in response to said data automatically discriminated by said card discriminator." Exhibit 47. The Hypercom products accused of infringement in the ITC Action do not activate a processor in response to data automatically discriminated by the card discriminator. Exhibit 59; Exhibit 19; Exhibit 20; Exhibit 88. 114. In the case of the Hypercom T8 terminal accused of infringement, the terminal

clearly has a button labeled "debit" that must be pressed by a user before the card is swiped in order to process a debit card transaction. Exhibit 20; Exhibit 19. The Hypercom T8 terminal does not automatically distinguish between a credit card and a debit card. Exhibi