Free Report - 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 Facsimile: (602) 382-6070 [email protected] [email protected] [email protected] Attorneys for Plaintiff Hypercom Corporation David P. Irmscher John K. Henning, IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204 Phone: 317-237-1317 Fax: 317-237-1000 [email protected] [email protected] Paul Moore Ray K. Harris FENNEMORE CRAIG, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Phone: 602-916-5414 Fax: 602-916-5614 [email protected] [email protected] Attorneys for Defendant Omron Corporation UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Verve L.L.C., and Omron Corporation, Defendants. Pursuant to the Court's Order dated October 26, 2005 setting the scheduling conference for November 21, 2005 at 1:30 p.m., counsel hereby submits the parties' Joint Case Management Report. No. CV 04-0400-PHX-PGR JOINT CASE MANAGEMENT REPORT

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A.

THE NATURE OF THE CASE, INCLUDING THE FACTUAL AND LEGAL BASES OF PLAINTIFF'S CLAIMS AND DEFENDANT'S DEFENSES Hypercom's Statement of the Case Plaintiff Hypercom Corporation ("Hypercom") alleges in its First Amended

Complaint that defendant Omron Corporation ("Omron") and Verve L.L.C. ("Verve")1 entered into an agreement to accomplish an unlawful purpose. Omron and Verve entered into an agreement in the form of a convoluted series of documents that purported to "assign" several Omron patents to Verve. Omron retained significant rights under the agreement, including the right to approve in advance who Verve would sue for patent infringement, and Omron and Verve would split the proceeds on a percentage basis. Hypercom asserts that the Verve-Omron agreement was little more than a contingency fee agreement between Omron and the Texas law firm of Simon, Galasso & Frantz PLC. Raymond Galasso, one of the named partners in the Simon, Galasso & Frantz law firm, created Verve. Hypercom asserts that Mr. Galasso uses Verve as a facade to perpetuate the alleged scheme with Omron. The offices of Simon, Galasso & Frantz also have Verve's name on the door, and Verve's alleged offices are in the same office suite as the law firm. Mr. Galasso was the sole owner of Verve until a couple of years ago, and now owns 50% of Verve with Kevin Imes, a patent agent who owns the other 50% of Verve. Hypercom respectfully submits that the fact that Verve is little more than a facade is supported by the fact that Mr. Imes did not pay anything for his 50% ownership interest in Verve. As a result of the Omron-Verve agreement, Verve initiated a series of lawsuits against Hypercom and other manufacturers of point-of-sale terminals, without regard to On August 29, 2005, Hypercom voluntarily dismissed defendant Verve L.L.C. from this action after Verve challenged the Court's personal jurisdiction over Verve in this case. Because one of the patent infringement lawsuits that Verve filed against Hypercom in Texas was transferred to this District and is now pending here as Civil Action No. CV-05-365-PHX-FJM, Hypercom's claims against Verve can be asserted as counterclaims (including claims for abuse of process and malicious prosecution) in that case without having to resolve the jurisdictional issues raised by Verve's motion to dismiss in this case.
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whether or not Hypercom actually infringed any of the Omron patents. The lawsuits were initiated without probable cause for the improper purpose of imposing significant litigation expenses upon Hypercom to achieve the extortionate advantage of forcing Hypercom to pay off Verve in order to buy peace (and Omron would receive a percentage of the proceeds). Omron has admitted that it did not have any good faith basis for asserting any patent infringement claims against Hypercom. In turn, Verve did not make any pre-filing investigation of Hypercom's products accused of infringement, as required by Rule 11 of the Federal Rules of Civil Procedure. In fact, Verve filed suit against Hypercom immediately after signing the agreements with Omron that gave Verve the authority to sue Hypercom for alleged infringement of the Omron patents. Omron has taken the position that, since it had purportedly "assigned" the patents to Verve, Omron did not have any obligation to comply with Rule 11 before approving Hypercom as a target for Verve. Hypercom is a corporation that has its principal place of business in Arizona. Pursuant to the Verve-Omron agreements, Verve filed multiple patent infringement lawsuits against Hypercom in inconvenient fora in Michigan, Texas, California, and instituted proceedings before the International Trade Commission ("ITC") in Washington, D.C. The Omron patents that were used as the basis for these lawsuits are U.S. Patent No. 4,678,895 ("the `895 Patent"), U.S. Patent No. 4,562,340 ("the `340 Patent"), U.S. Patent No. 4,562,341 ("the `341 Patent"), and U.S. Patent No. 5,012,007 ("the `007 Patent"). The process used by Verve was excessive, and Hypercom submits was employed for the improper purpose of achieving the maximum extortionate advantage possible. In the ITC proceeding in Washington, Administrative Law Judge Robert L. Barton, Jr. sanctioned Verve on June 7, 2005 after finding that Verve had engaged in virtually no pre-filing investigation of Hypercom's accused products, and which Judge Barton found "demonstrate[d] an abuse of process and bad faith." Judge Barton also found that Verve had willfully and in bad faith made numerous misrepresentations to the ITC in that case. Judge Barton sanctioned Verve, its principals Galasso and Kevin Imes, and its law firm
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Simon, Galasso & Frantz in the amount of $1 million, payable to the United States Treasury. Omron's representative was advised of each lawsuit against Hypercom before it was filed. Omron approved Hypercom as a target, and stood to benefit financially by receiving a percentage of the proceeds from Verve, with the remainder eventually going to Raymond Galasso and the Simon, Galasso & Frantz law firm, (through Verve). Hypercom alleges a civil conspiracy between Omron and Verve (with Raymond Galasso and the Simon, Galasso & Frantz law firm using Verve as a facade to shield their participation in the scheme). Omron is liable as a co-conspirator, and its representative also actively participated in the scheme to further the alleged conspiracy. In the ITC case, Hypercom moved to terminate the proceeding on the basis that Verve did not actually own the Omron patents that were allegedly "assigned" to Verve, and that the agreements between Omron and Verve did not confer standing on Verve to sue for infringement of the Omron patents without joining Omron as a party. The ITC agreed, and held that Verve did not have standing to bring that proceeding without joining Omron as a party. Judge Barton ruled that if Omron did not join the case as a party before a certain date, the case would be terminated. Omron declined to participate in the proceeding as a party. After Omron refused to participate in the ITC action, Verve moved to withdraw its complaint in an unsuccessful attempt to avoid sanctions. (The motion to withdraw was conditioned on the ITC not imposing sanctions on Verve). As noted earlier, Judge Barton nevertheless issued a sua sponte show cause order, and subsequently imposed sanctions upon Verve, Raymond Galasso, and the Simon, Galasso & Frantz law firm for bringing the ITC case in bad faith and without conducting an adequate pre-filing investigation to determine whether there was any basis for actually accusing Hypercom's products of patent infringement. In its First Amended Complaint, Hypercom asserts five causes of action. Hypercom's fourth cause of action is a conspiracy claim that was added when the First Amended Complaint was filed. Because of its importance, Hypercom will discuss the
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conspiracy claim first. In this fourth count, Hypercom asserts that Omron conspired with Verve to harass Hypercom with patent infringement lawsuits in order to extract monetary tribute from Hypercom. Hypercom alleges that it suffered damages as a result of Omron's agreement with Verve and the willful, overt acts of Omron and Verve. The underlying torts supporting the conspiracy claim include the tort of abuse of process. In addition, subsequent to the filing of the First Amended Complaint, one or more of the actions have been terminated in favor of Hypercom, thus giving rise to malicious prosecution claims. Malicious Prosecution Under Arizona law, a malicious prosecution claim is made out where: "(1) [Verve] instituted a civil action which was (2) motivated by malice, (3) begun without probable cause, (4) terminated in [Hypercom's] favor and (5) damaged [Hypercom]." Bradshaw v. State Farm Mutual Automobile Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (1988). An instigator of a lawsuit can be held liable as an initiator, even if the action was not filed in the instigator's name. Bradshaw, 157 Ariz. at 417. Omron was an instigator of the litigation against Hypercom. The sanctions order issued in the ITC proceeding includes a finding that Verve brought the ITC proceeding without probable cause. Judge Barton found that sanctions were warranted, in part, "based on Verve's inadequate pre-filing investigation." Judge Barton specifically found that Verve initiated the ITC proceeding in bad faith without conducting an adequate pre-filing infringement analysis of Hypercom's accused products. Judge Barton also found that "there was virtually no [patent] claim construction performed by Verve prior to the filing of this complaint." According to Judge Barton, "Verve's filing of the complaint in the face of virtually no pre-filing investigation of Hypercom's accused products demonstrates an abuse of process and bad faith." On June 8, 2005, Judge Barton made an initial determination terminating the investigation. The Commission determined that it would not review the initial determination, and thus, the termination of the investigation became final on or about July
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24, 2005. 19 C.F.R. § 210.42(h)(2). This was a termination in favor of Hypercom. Hypercom suffered damages as a result of the ITC investigation that Verve brought against Hypercom. As Judge Barton noted in his decision imposing sanctions on Verve and its attorneys: A complainant in a Section 337 proceeding is expected to be truthful, honest and forthcoming. Half-truths, misleading statements, and deceptive filings have no place in these proceedings. Section 337 investigations proceedings are massive, expedited proceedings usually involving very technical issues and the Commission and its Staff expect that all parties, particularly a complainant seeking relief from the Commission, will be completely forthright and open. Even literally truthful but misleading statements cannot be tolerated. Hypercom was forced to incur more than $825,000 in defending the ITC investigation alone, and this does not include Hypercom's costs incurred in connection with the other litigation brought against Hypercom by Verve. In an action for malicious prosecution, the plaintiff may recover actual, compensatory and punitive damages. Bradshaw, 157 Ariz. at 411. Recoverable damages include the costs to Hypercom of defending the prior action, including reasonable attorney's fees. Id. Under Arizona law, malice can be inferred from a lack of probable cause. Cullison v. City of Peoria, 120 Ariz. 165, 169, 584 P.2d 1156, 1160 (1978) ("The key element of malicious prosecution is malice, which can be inferred from a lack of probable cause."). Judge Barton in the ITC proceeding has found that Verve brought that proceeding without probable cause, and therefore malice can be inferred. In addition, there is direct evidence of malice. Raymond Galasso told Hypercom's general counsel that Verve would "keep suing until you pay us," which Hypercom submits meant that Verve would continue to file patent infringement suits against Hypercom, regardless of their merits, in an effort to force Hypercom to pay Verve in order to buy peace, (with a percentage going to Omron). The Michigan Action was dismissed by Verve after it was transferred here to this district. "The malice element in a civil malicious prosecution action does not require

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proof of intent to injure. . . . Instead, a plaintiff must prove that the initiator of the action primarily used the action for a purpose `other than that of securing the proper adjudication of the claim.'" Bradshaw, 157 Ariz. at 418 (citation omitted). The fact that the Michigan Action was dismissed after it was transferred here would support an inference by the jury that the Michigan Action was primarily used for a purpose other than the proper adjudication of any valid patent infringement claim. The jury may find on this record that the Michigan Action was terminated in Hypercom's favor. With respect to an action for malicious prosecution based on the institution of civil proceedings, it is sufficient to show that the prior proceedings have ended in a manner favorable to the Hypercom. "When a termination or dismissal indicates in some fashion that the accused is innocent of wrongdoing it is a favorable termination. However, if it is merely a procedural or technical dismissal it is not favorable." Frey v. Stoneman, 150 Ariz. 106, 110, 722 P.2d 274, 278 (Ariz. 1986) (held that evidence raised many genuine issues of material fact as to whether a dismissal constitutes a favorable termination of a medical malpractice proceeding for purposes of a subsequent malicious prosecution action brought against the attorney who had filed the previous malpractice claim). [W]here there has been no adjudication on the merits the existence of a "favorable termination" of the prior proceeding generally must be found in the substance rather than the form of prior events and often involves questions of fact. In such cases . . . it will be necessary to determine what actually occurred. If the action was dismissed because of voluntary withdrawal or abandonment by the plaintiff, the finder of fact may well determine that this was, in effect, a confession that the case was without merit. However, there may be many reasons, other than lack of merit, for such withdrawal or abandonment. For instance, the plaintiff might have had insufficient funds to pursue the action or could have decided that a possible recovery was not worth the cost, pecuniary or emotional, of litigating; the plaintiff might have decided to forgive and forget or the defendant may have paid smart money or taken other measures, such as apology, to assuage plaintiff's anger. None of these factors alone may be
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determinative, and thus it may actually be necessary to try a case within the case, as is often done in legal malpractice claims. Frey v. Stoneman, 150 Ariz. at 111 (emphasis added and citation omitted). On February 15, 2005, Hypercom's counsel wrote a letter to Verve threatening Rule 11 sanctions against Verve if the complaint in the California case was not withdrawn. On March 8, 2005, the California case was dismissed by Verve. Hypercom respectfully submits that Verve dismissed the California case because of the threat of Rule 11 sanctions. A jury can find that the dismissal of the California case was a termination in Hypercom's favor. Frey v. Stoneman, 150 Ariz. at 110-11. Verve 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. The same patent that was asserted against Hypercom in the ITC proceeding was involved in the California Action. The ITC's finding that the ITC proceeding was commenced in bad faith without any basis for accusing Hypercom of infringement of that patent applies equally to the California case involving the same patent. Abuse of Process Under Arizona law, an abuse of process claim is established where there is shown: "(1) a willful act in the use of judicial process, (2) for an ulterior purpose not proper in the regular conduct of the proceedings." Nienstedt v. Wetzel, 133 Ariz. 348, 353, 651 P.2d 876, 881 (Ariz. Ct. App. 1982). See also Blue Goose Growers, Inc. v. Yuma Groves, Inc., 641 F.2d 695 (9th Cir. 1981). "[T]he word `process' as used in the tort `abuse of process' is not restricted to the narrow sense of that term. Rather, it has been interpreted broadly, and encompasses the entire range of procedures incident to the litigation process." Nienstedt, 133 Ariz. at 352. An action for abuse of process requires a showing that the process has been used primarily to accomplish an ulterior purpose for which the process was not designed. "It is immaterial that the process may have been properly obtained or issued as a normal

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incident of the litigation involved. It is the subsequent misuse which constitutes the misconduct for which liability is imposed." Nienstedt, 133 Ariz. at 353. In explaining this element of the tort, leading commentators have said: The ulterior motive may be shown by showing a direct demand for collateral advantage; or it may be inferred from what is said or done about the process. It may also be inferred in some cases from the way the process was carried out, as for example in the case of excessive attachment from which the inference may be drawn that defendant sought extortionate advantage by tying up all the plaintiff's property when attachment of a small amount would provide sufficient security for the debt. Prosser and Keeton on the Law of Torts § 121 at 899 (5th ed. 1984). The example of excessive attachment used by Prosser and Keeton would support a finding of abuse of process here. In this instance, excessive lawsuits were filed against Hypercom in Michigan, Texas, California, and Washington, D.C., when a single lawsuit in a single location could have been pursued on Omron's patents. "The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club." Prosser and Keeton, at 898. Under Arizona law, abuse of process may be established where the ulterior or collateral purpose involved was to expose the injured party to excessive attorney's fees and legal expenses. Nienstedt, 133 Ariz. at 354. In this case, patent infringement claims were asserted against Hypercom without regard to whether or not Hypercom actually infringed any of the Omron patents. Hypercom submits that multiple lawsuits were filed in an effort to maximize the costs of defending against the claims, and in the hope that Hypercom would be forced to pay money (with a percentage going to Omron) in order to buy peace from the meritless claims. An ulterior motive may be inferred from the way that the process was carried out, i.e., by filing cases against Hypercom across the country, from Michigan to Texas, and

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from California to Washington, D.C. In addition, an ulterior motive may be inferred by what Mr. Galasso said about the process, i.e., that he was going to keep suing Hypercom until Hypercom paid him to go away. When Galasso launched his campaign against Hypercom to try to get Hypercom to pay him money, Galasso sent copies of the complaint he filed in Michigan to Hypercom and its attorneys indicating that the complaint had not yet been served, and seeking a "settlement" or else he would serve Hypercom with process. The evidence in this case would support a jury finding that the ulterior or collateral purpose involved was to seek extortionate advantage by exposing Hypercom to excessive attorney's fees and legal expenses. Under Arizona law, actual as well as compensatory damages proximately caused by an abuse of process can be recovered, including indirect losses such as injury to financial standing and intangible losses such as mental suffering. Morn v. City of Phoenix, 152 Ariz. 164, 730 P.2d 873 (Ariz. Ct. App. 1976). Punitive damages may also be recoverable in an appropriate case. Nienstedt, 133 Ariz. at 348. Verve has forced Hypercom to re-litigate the same issues over again. There is some authority to suggest that this is an abuse of process. In the case of O'Brien v. United States Department of Justice, 927 F. Supp. 382 (D. Ariz. 1995), aff'd without opinion, 76 F.3d 387 (9th Cir. 1996), the plaintiff made duplicative allegations to earlier allegations that had been previously dismissed for lack of subject matter jurisdiction. The court found that the plaintiff had abused the judicial process by forcing the defendants to challenge the court's jurisdiction a second time. The dismissal in CV-93-2401-PHX-PGR provided O'Brien with notice that the district court lacked subject matter jurisdiction over these claims. Nevertheless, O'Brien continued to pursue this action and has recently filed a Motion for Default Judgment and a Motion for Summary Judgment. In so doing, O'Brien knowingly abused the judicial process to compel Defendants to challenge this court's jurisdiction a second time. 927 F. Supp. at 386.

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In the litigation filed against Hypercom, Hypercom was improperly joined with other defendants who had independently developed their own products which were accused of infringement. Such joinder was improper. Hypercom litigated this issue in the Michigan Action, and the Court ruled that the Federal Rules of Civil Procedure do not allow a patentee to join defendants in the same action who independently developed their own products, because the claims do not arise from the same transaction or occurrence, or series of transactions or occurrences. After prevailing on this issue in the Michigan Action, Hypercom was forced to litigate this same issue again in the Texas Action. Even though Verve lost on this issue in the Michigan Action, Verve forced Hypercom to challenge Verve's improper joinder a second time. The O'Brien case would suggest that this is an abuse of the judicial process. Omron, as a co-conspirator, is liable for Verve's actions in furtherance of the conspiracy. Declaratory Judgment Counts In the first three claims asserted in the First Amended Complaint, Hypercom seeks a declaratory judgment that Hypercom has not infringed, is not infringing, and that the manufacture, use, sale and importation of Hypercom products will not infringe any valid claim of the `895 Patent, the `340 Patent, and the `341 Patent, respectively. The validity and enforceability of the Omron patents is also challenged. This case pre-dated the lawsuit on the `007 Patent, and although the `007 Patent is not explicitly named in the complaint, the declaratory relief sought also included any other Omron patent asserted against Hypercom. In Count Five of the First Amended Complaint, Hypercom alleges that Verve has informed Hypercom of its intention to continue filing patent infringement lawsuits against Hypercom on some 40 Omron patents in its possession until Hypercom pays Verve a "settlement." Hypercom asserts that, as a result, it has reasonable apprehension of being sued by Verve and/or Omron for claims of patent infringement for other patents that have yet to be identified to Hypercom. Hypercom seeks a declaratory judgment that it has not
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infringed, is not infringing, and its manufacture, use, sale or importation of Hypercom's products will not infringe any valid claim of any other Omron patent. Omron's Statement of the Case The heart of this case is an alleged conspiracy between Omron and Verve. However, after months of discovery, including depositions of Verve's corporate principals and a Rule 30(b)(6) deposition of an Omron representative, Hypercom has found no evidence of a conspiracy. The evidence unequivocally proves that Omron and Verve executed a series of assignment and license agreements in which Omron granted to Verve its rights to several patents, and Verve granted back to Omron a non-exclusive license to continue using those patents. There is no conspiracy. Hypercom filed this lawsuit against Verve on February 25, 2004, requesting a declaratory judgment that Hypercom has not infringed U.S. Patent Nos. 4,678,895, 4,562,340, and 4,562, 341, which Omron assigned to Verve through several assignment and license agreements. After Verve moved to dismiss Hypercom's declaratory judgment action on the basis that this Court lacked personal jurisdiction over Verve, Hypercom amended its complaint to add a civil conspiracy claim. In its First Amended Complaint ("the Amended Complaint"), filed July 12, 2004, Hypercom alleged that Verve "launched 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 form Hypercom in order to stop Verve's harassment." See Amended Complaint, ¶ 17. However, Hypercom does not allege that Omron committed any wrongful acts, that Omron filed any legal actions against Hypercom, or that Omron even threatened to sue Hypercom. The Amended Complaint is further devoid of any specific facts or evidence indicating that Omron and Verve reached an agreement to harass Verve with baseless patent lawsuits. After filing the Amended Complaint, Hypercom argued that Verve's motion to dismiss for lack of personal jurisdiction was moot because Omron and Verve's conspiracy harmed Hypercom in Arizona, thereby providing the Court with personal jurisdiction. See
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Plaintiff Hypercom's Opposition To Defendant Verve's Motion To Stay Discovery And Supplemental Brief In Opposition To Verve's Motion To Dismiss For Lack Of Personal Jurisdiction, filed August 12, 2004, pp. 2-3. Hypercom alternatively argued that it should at least be permitted to conduct discovery regarding the existence of an alleged conspiracy. Id. at p. 7. On December 20, 2004, the Court held that limited discovery by the parties on the existence of a conspiracy between Omron and Verve would aid the Court in determining whether there was personal jurisdiction over Verve. As Hypercom had argued, "the discovery [would] 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." See Court Order, entered December 20, 2004. In accordance with the Court's order, Hypercom conducted extensive discovery into the existence of a conspiratorial agreement between Omron and Verve. Hypercom served Omron (and Verve) with numerous requests for production and interrogatories, and Omron provided full and timely responses to the discovery requests. Omron produced hundreds of pages of documents, which included information regarding all then-existing agreements between Omron and Verve. Further, Hypercom deposed the two principals of Verve, Raymond Galasso and Kevin Imes, and a Rule 30(b)(6) corporate representative for Omron, Tetsuyuki Nakano. To prove a civil conspiracy under Arizona law, Hypercom must prove by clear and convincing evidence that Omron and Verve agreed to commit a tort. Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 498-99, 38 P.3d 12, 36-37 (2002). However, after significant discovery, including the depositions of all Verve and Omron representatives directly responsible for negotiating the assignment agreements, Hypercom still has no evidence ­ no testimony, no document, no letter, no e-mail, no note ­ that Omron conspired with Verve to harass Hypercom with frivolous litigation. Rather, the evidence reveals nothing more than a series of assignments and licenses between Omron and Verve, all of which are expressly
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permitted by federal law. Hypercom also seeks "a declaration of noninfringement and/or invalidity" with respect to the Omron-assigned patents under 28 U.S.C. § 2201. Amended Complaint, ¶ 4. The Court's jurisdiction under § 2201(a), however, extends only to those cases in which there is an "actual controversy" between the parties. 28 U.S.C. § 2201(a). No controversy exists here. Omron has made no "explicit threat" against Hypercom, and has engaged in no conduct that could create any reasonable apprehension it would sue Hypercom for infringement. Id.; GAF Building Materials Corp. v. Elk Corp. of Dallas, 90 F.3d 479, 481 (Fed. Cir. 1996); see also Arrowhead Industrial Water, Inc. v. Ecolochem, Inc., 846 F. 2d 731, 736 (Fed. Cir. 1988) ("conduct . . . must be such as to indicate [the defendant's] intent to enforce its patent."). Accordingly, the Court lacks subject matter jurisdiction over Hypercom's declaratory relief claims. West Interactive Corp. v. First Data Resources, Inc., 972 F.2d 1295, 1297 (Fed. Cir. 1992). Given the significant discovery that Hypercom has been permitted on the conspiracy allegation, this case is ripe for summary judgment. Therefore, Omron will file no later than November 18, 2005, a motion for summary judgment on all claims. Further, Omron requests that the Court stay all further discovery until the Court decides the motion for summary judgment. See Omron Corporation's Motion To Stay, filed November 14, 2005. Hypercom should not be permitted to fish around for evidence to support its own baseless lawsuit, and Omron should not be forced to incur additional discovery costs. B. JURISDICTIONAL BASES OF THE CASE 1. Hypercom's Position

The Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a) because this action arises under the United States Patent Laws, 35 U.S.C. §§ 1 et seq., and under 28 U.S.C. § 2201. This Court also has subject matter jurisdiction pursuant to 28 U.S.C. § 1332 because the action involves citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. Venue is proper in this district pursuant to 28 U.S.C. § 1391 because Hypercom
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and Omron are subject to personal jurisdiction here, and because a substantial part of the events or omissions giving rise to Hypercom's claims against Omron occurred here. Omron is an alien corporation, which may be sued in any district pursuant to 28 U.S.C. § 1391(d). 2. Omron's Position

Omron disputes that the Court has subject matter jurisdiction under 28 U.S.C. § 2201. Omron does not dispute the remaining statements made by Hypercom regarding the Court's jurisdiction. C. FACTUAL AND LEGAL ISSUES GENUINELY IN DISPUTE 1. Whether Omron retained or currently owns rights in the Omron patents

allegedly "assigned" to Verve. 2. Whether Verve had standing to sue Hypercom for alleged infringement of

the Omron patents without joining Omron as a co-plaintiff. 3. The terms, conditions, obligations, objectives, and expected financial

rewards of the agreements between Omron and Verve regarding pursing Hypercom for patent infringement. 4. What Omron knew about, agreed to, or was complicit in prior to the filing of

each of the patent infringement lawsuits that Verve brought against Hypercom (including all tacit understandings or agreements). 5. Whether Hypercom has infringed or is currently infringing any valid claim

of any asserted Omron patent. 6. 7. Whether the asserted Omron patents are valid or enforceable. Whether Omron and/or Verve intend to bring any additional patent

infringement lawsuits against Hypercom.

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8.

Whether there is any evidence of an agreement between Omron and Verve

to commit tortious acts. 9. Whether Hypercom had any evidence to support its civil conspiracy claim,

or any other claim, against Omron when Hypercom filed its Amended Complaint. D. PARTIES THAT HAVE NOT BEEN SERVED OR HAVE NOT ANSWERED OR HAVE NOT OTHERWISE APPEARED None. PARTIES NOT SUBJECT TO THE COURT'S JURISDICTION None. DISCOVERY CONDUCTED TO DATE On April 12, 2004, Verve moved to dismiss the action for lack of personal jurisdiction. On May 17, 2004, Hypercom served its first set of requests for production of documents upon Verve. On July 26, 2005, this Court entered an order staying discovery pending ruling on defendant Verve LLC's motion to dismiss for lack of personal jurisdiction. On September 21, 2004, Omron moved to dismiss for lack of subject matter jurisdiction. On December 20, 2004, the Court denied Verve's motion to dismiss. The Court set a discovery deadline to respond to Hypercom's discovery requests for February 28, 2005. On January 4, 2005, Hypercom served an amended first set of interrogatories and a modified first set of requests for production of documents upon Verve; and served a first set of requests for production of documents and a first set of interrogatories upon Omron. On January 5, 2005, Hypercom served a second set of requests for production of documents upon Omron. On February 15, 2005, Hypercom served a second set of requests for production of documents upon Verve. On February 17, 2005, Verve served responses to Hypercom's modified first set of requests for production and to Hypercom's amended first set of interrogatories.
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On February 17, 2005, Omron served responses to Hypercom's first set of requests for production, and to Hypercom's first set of interrogatories. On February 18, 2005, Omron served its responses to Hypercom second set of interrogatories. On March 15, 2005, Verve notified Hypercom that Verve's response to Hypercom's third set of document requests, which was served in the ITC investigation, is responsive to Hypercom's second set of requests for production of documents. On March 23, 2005, Omron took the deposition of Douglas Reich of Hypercom. Hypercom took depositions of Tetsuyuki Nakano on March 2 and 3, 2005, Kevin Imes on March 10, 2005, and Raymond Galasso on March 11, 2005. On May 27, 2005, Hypercom moved for an order compelling Omron to produce for deposition Omron's outside counsel, Herb Kerner. On August 9, 2005, the Court denied Omron's motion to dismiss for lack of jurisdiction. On October 19, 2005, the Court denied without prejudice Hypercom's motion to compel Herb Kerner for deposition. G. DISPOSITIVE OR PARTIALLY DISPOSITIVE ISSUES TO BE DECIDED BY PRETRIAL MOTIONS 1. Hypercom's Position

At this time, Hypercom does not believe that the filing of any dispositive motion is 18 appropriate. 19 2. 20 As discussed above in Section A.2., Omron's Statement Of The Case, Omron will 21 move for summary judgment on or before November 18, 2005, on all of Hypercom's 22 claims. Despite extensive discovery, Hypercom has produced no evidence of an 23 agreement between Omron and Verve to harass Hypercom by instituting baseless patent 24 infringement lawsuits. Further, there is no evidence that Omron has ever sued, or even 25 threatened to sue, Hypercom for patent infringement. Thus, there is no actual controversy 26 and this Court does not have subject matter jurisdiction over Hypercom's declaratory 27 judgment claims. 28
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Omron's Position

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In the event that Omron's dispositive motion is unsuccessful, Omron reserves the right to file a subsequent motion for summary judgment on the civil conspiracy and declaratory judgment claims after further discovery. H. WHETHER THE CASE IS SUITABLE FOR REFERENCE TO A UNITED STATES MAGISTRATE JUDGE FOR SETTLEMENT CONFERENCE If the parties are unable to settle this case without assistance from the Court, the parties agree that reference to a United States Magistrate Judge for a settlement

7 conference might be appropriate at a later date. However, Omron's position is that a 8 settlement conference of any kind is premature until the Court decides Omron's Motion 9 For Summary Judgment. 10 11 12 variety of Omron patents, against Hypercom: 13 The Michigan Action. Verve originally filed a complaint against Hypercom in the 14 United States District Court for the Eastern District of Michigan, Civil Action No. 0315 73481 ("the Michigan Action"), based upon Omron's `895 Patent. Verve made no effort 16 to contact Hypercom about Hypercom's alleged infringement of Omron's patent before 17 filing the Michigan Action. After filing the Michigan Action, and while withholding 18 serve of the complaint, Verve contacted Hypercom and requested a "settlement." During 19 the course of the discussions, Raymond Galasso stated in words or substance that he 20 would keep filing patent infringement lawsuits against Hypercom until paid to go away. 21 (Mr. Galasso now denies that he made any such statement.) 22 On October 14, 2003, Omron purportedly assigned the Omron `340 Patent and 23 `341 Patent to Verve. Verve immediately filed a second amended complaint in the 24 Michigan Action attempting to add the `341 Patent to the case. Verve failed to obtain 25 leave of court to file the second amended complaint, and the amendment was never 26 entered. 27 On Hypercom's motion, Verve's claims against it were severed and transferred to 28
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I.

STATUS OF ANY RELATED CASES Verve instituted a total of four different patent infringement actions, involving a

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this Court. On June 8, 2004, Verve unilaterally dismissed the Michigan Action shortly after it arrived in this district, and before Hypercom filed an answer to the complaint. Hypercom respectfully submits that the case was dismissed by Verve because the lawsuit lost its extortion value after it was transferred to this District. The Transferred Action from Texas. After Hypercom refused to pay Verve a "settlement," Verve filed a complaint against Hypercom (and other defendants) in the United States District Court for the Western District of Texas on February 4, 2004, alleging infringement of the `341 Patent. Verve's claim against Hypercom was severed and transferred to the United States District Court for the District of Arizona by order of United States District Judge Lee Yeakel on December 29, 2004, where it is currently pending as Case No. CV 05-0365 PHX FJM. No motion to consolidate has been filed, but the parties have agreed that discovery taken in one action may be used in the other actions. The ITC Investigation. Verve initiated the ITC investigation, based on Omron Patent No. 5,012,077, by filing its complaint with the ITC on July 31, 2004. Administrative Law Judge Robert L. Barton ruled on February 7, 2005 that Verve lacked all substantial rights in the `077 patent, and thus lacked standing (by itself) to pursue the action. Verve then withdrew its complaint. On June 7, 2005, the administrative law judge found that because Verve and its counsel had failed to perform an adequate pre-filing investigation of the Hypercom's products before filing its complaint, Verve's conduct supported a finding of bad faith. As a result, the administrative law judge sanctioned Verve, its principals, and its attorneys in the amount of $1 million, payable to the United States Treasury. Verve has appealed the sanction. The California Action. On or about August 30, 2004, shortly after requesting that the ITC commence an investigation and pleading specifically that "[t]he `077 patent is not the subject of any pending lawsuits," Verve filed a lawsuit alleging infringement of the `077 patent in the United States District Court for the District of California. Verve unilaterally dismissed that complaint on March 8, 2005.
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J.

PROPOSED DEADLINES 1. Hypercom's Proposed Deadlines Proposed Date December 15, 2005 December 30, 2005 March 1, 2006 March 31, 2006 May 8, 2006 July 31, 2006 September 1, 2006 January 8, 2007

Item Event 1. 2. 3. 4. 5. 6. 7. 8. 2. File Rule 12(b) motions, amend pleadings, and join parties Exchange Rule 26(a)(1) initial disclosure statements and disclose expert witnesses Serve expert report(s) as to issues on which each party has the burden of proof Serve rebuttal expert report(s) Complete expert witness depositions Discovery closes File dispositive motions File joint proposed pretrial statement Omron's Proposed Discovery Plan

Omron filed a Motion To Stay Discovery on November 14, 2005, requesting the Court to stay all discovery pending the resolution of Omron's Motion For Summary Judgment, which will be filed on or before November 18, 2005. Therefore, Omron proposes that all of the discovery dates proposed by Hypercom be stayed until the Court issues a ruling on the Motion For Summary Judgment. If the Court grants the motion, then no further discovery will be required. However, if the Court denies Omron's motion, the denial will trigger the discovery deadlines. Thus, the first deadline ­ Item No. 1 above ­ will be scheduled for 30 days after the Court enters its order denying the motion for summary judgment. All other discovery items and their respective deadlines, as listed by Hypercom above, will proceed in accordance with the amount of time proposed by Hypercom between each deadline. K. ESTIMATED DATE CASE WILL BE READY FOR TRIAL AND LENGTH OF TRIAL The trial likely will last no more than 8 days. The parties will be ready for trial on or after January 22, 2007.

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L.

WHETHER A JURY TRIAL HAS BEEN REQUESTED Hypercom filed a demand for trial by jury on August 9, 2005.

M.

WHETHER SETTLEMENT NEGOTIATIONS HAVE TAKEN PLACE AND PROSPECTS FOR SETTLEMENT A settlement meeting between Hypercom representatives and Omron

representatives took place prior to the time that Omron was joined in this action as a defendant in Hypercom's First Amended Complaint. Settlement proposals have been made and are still the subject of negotiation between Hypercom and Omron. It is premature to determine whether any settlement can be reached. N. PROPOSED DATES FOR CLASS ACTION PROCEEDINGS Not applicable. O. WHETHER CASE SHOULD BE PLACED ON COMPLEX TRACK Not applicable. P. OTHER MATTERS THAT WILL AID COURT IN RESOLVING DISPUTE None. RESPECTFULLY SUBMITTED this 14th day of November, 2005. FENNEMORE CRAIG, P.C. SNELL & WILMER L.L.P.

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By s/ John K. Henning Paul Moore Ray K. Harris 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 and

By s/Monica A. Limón-Wynn Sid Leach Andrew F. Halaby Monica A. Limón-Wynn One Arizona Center 400 E. Van Buren Street Phoenix, AZ 85004-2202 Attorneys for Hypercom Corporation

22 23 24 25 Attorneys for Omron Corporation 26 27 28
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David P. Irmscher John K. Henning IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204

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CERTIFICATE OF SERVICE I hereby certify that on November 14, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: David P. Irmscher John K. Henning, IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204 Phone: 317-237-1317 Fax: 317-237-1000 [email protected] [email protected] Paul Moore Ray K. Harris FENNEMORE CRAIG, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Phone: 602-916-5414 Fax: 602-916-5614 [email protected] [email protected] Attorneys for Defendant Omron Corporation s/ Christine M. Hackett

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