Free Response in Opposition to Motion - District Court of Arizona - Arizona

INDEX OF EXHIBITS ATTACHED TO HYPERCOM CORPORATION'S RESPONSE TO OMRON'S MOTION IN LIMINE NO. 3

Exhibit 1

Excerpts from the Trial Transcript, Vol. III, dated October 19,2006 in the Verve Case No. 2:05-cv-00365-FJM

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA _________________ ) ) Plaintiff, ) ) vs. ) ) HYPERCOM CORPORATION, ) ) Defendant. ) ______________________________) ) HYPERCOM CORPORATION, ) ) Counterclaimant, ) ) vs. ) ) VERVE, LLC, et al., ) ) Counterdefendants.) ______________________________) VERVE, LLC, BEFORE:

CIV 05-0365-PHX-FJM Phoenix, Arizona October 19, 2006 9:03 a.m.

THE HONORABLE FREDERICK J. MARTONE, JUDGE

REPORTER'S TRANSCRIPT OF PROCEEDINGS JURY TRIAL VOLUME III (Pages 467 through 674, inclusive.)

Official Court Reporter: Linda Schroeder, RDR, CRR Sandra Day O'Connor U.S. Courthouse, Suite 312 401 West Washington Street, Spc. 32 Phoenix, Arizona 85003-2151 (602) 322-7249 Proceedings Reported by Stenographic Court Reporter Transcript Prepared by Computer-Aided Transcription

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A P P E A R A N C E S For the Counterclaimant:

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES DISTRICT COURT Hunton & Williams By: BRENT L. VanNORMAN, ESQ. 500 East Main Street, Suite 1000 Norfolk, VA 23510 For the Counterdefendant Imes: Gabroy Rollman & Bosse By: SCOTT HUGH RASH, ESQ. 3507 North Campbell Avenue, Suite 111 Tucson, AZ 85719 For the Counterdefendants Verve, Raymond M. Galasso, and Simon Galasso & Frantz: Harper, Christian, Dichter & Graif By: STEPHEN M. DICHTER, ESQ. 2700 North Central Avenue, Suite 1200 Phoenix, AZ 85004 Snell & Wilmer By: SID LEACH, ESQ. MONICA A. LIMON-WYNN, ESQ. 400 East Van Buren Street Phoenix, AZ 85004

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1 2 3 4 5 6 7 8 PRETTY, Laurence H. 9 10 11 12 13 14 15 16 17 18 97 19 98 20 21 22 23 24 25 94 95 96 EXHIBIT NO.: 92 93 IMES, Kevin R. 633 483 WITNESSES FOR THE COUNTERCLAIMANT: SUMMARY OF COURT PROCEEDINGS

INDEX PAGE: 470 591 668

Deposition Testimony of Bryan Farney Proceedings Outside the Presence of the Jury Proceedings Outside the Presence of the Jury

INDEX OF WITNESSES Direct Cross Cross Redirect (Mr. VanNorman)(Mr. Rash) 530 Cross 569 Cross 575 Redirect

WITNESSES FOR THE Direct COUNTERDEFENDANT IMES:

INDEX OF EXHIBITS DESCRIPTION: Order dated 8/23/06 Settlement Agreement Systems Settlement Agreement Settlement Agreement Settlement Agreement Schlumberger Settlement Agreement Technologies Settlement Agreement Data re Verve and Radiant re Verve and CyberNet re Verve and Omron re Verve and re Verve and NBS 590 re Omron and First 590 590 590 590 590 RECEIVED: 580

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intend to assert the attorney-client privilege to anything you might know that was privileged, correct? A. And to preserve any confidentiality. MR. LEACH: deposition reading. THE COURT: Thank you. Mr. Leach. MR. LEACH: witness. Pretty. Mr. Pretty, if you'd come forward please. THE CLERK: If you could state your name and spell it Yes, Your Honor. Hypercom calls its last Thank you very much. Your Honor, that concludes our last

He's an expert witness.

His name is Laurence

for the record please. THE WITNESS: Laurence, L-a-u-r-e-n-c-e, H. Pretty.

LAURENCE H. PRETTY, COUNTERCLAIMANT'S WITNESS, SWORN DIRECT EXAMINATION BY MR. LEACH: Q. Mr. Pretty, would you please introduce yourself by giving

us your name and your occupation. A. Yes. My name is Laurence Pretty, and I am an attorney And I'm registered to practice before And I'm a partner in a

admitted in California.

the U.S. Patent and Trademark Office.

large national law firm called Hogan & Hartson in their Los Angeles office where I work in the patent group. UNITED STATES DISTRICT COURT

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Q.

And is the area in which you practice in patents somewhat

of a specialized area? A. Yes, it is. I -- Mainly I have been, in the last few But over my whole career, I've

years, in patent litigation.

also been involved in what we call patent prosecution, which is actually preparing and filing patent applications and representing inventors to get their patents. Q. A. And what is your educational background please? I have a technical background originally. I was an

engineer.

I went to the Imperial College of Science and

Technology in London, England, which historically is interesting because it was the model for MIT. And then after that, I went to the Royal Air Force Electronics School and studied electronics for a year. And

then eventually I immigrated to this country in 1964, where I attended George Washington University law school and got a law degree. Q. A. Q. And have you testified as an expert before? Yes. I'm holding up a book called Patent Litigation, Laurence Do you recognize this?

H. Pretty. A. Yes.

MR. LEACH: THE COURT: Q. (BY MR. LEACH)

Your Honor, if I may approach please? Yes. Can you please tell me what this is?

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A.

Yes.

There is an organization in New York called

Practising Law Institute, which has been putting on educational programs for lawyers since probably 100 years. It's, I think, the oldest such association in the country. And they have a publishing division. And about eight years ago, they decided they wanted a title on patent litigation. it. book. They didn't have a treatise on

So they approached me and asked if I would author such a And I said that I would. And I planned it. And then I wrote two of the

chapters.

And I found, because I was so busy, it was going to

take me till I would die before I got to the end of it. So I know a lot of patent litigators obviously. So I

went out, and I selected the best I could find to write the other chapters. recall. And then the book got published in 2001, as I And

And it's been continuously in print ever since.

it is supplemented twice a year to keep it up to date. Q. A. What do you expect to testify to in this case? Well, I am going to be talking about patent practice and And I've

procedure as it relates to the facts of this case.

been asked to form certain -- look at certain issues and express opinions concerning them. Q. And in addition to what you've described thus far, can you

describe other qualifications you have in the field of patent office practice and procedure? UNITED STATES DISTRICT COURT

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A.

Yes.

I think it would be -- I won't bore you with a long

history of my life, fascinating as it is to me and my wife, maybe not so much to her, but essentially I, when I got here in '64, I joined a patent firm in Washington, D.C., as a searcher originally. And after a year of that, they trained

me to write patent applications, which I did for the next three years. And I would have to write maybe two or three

applications a month. I wasn't registered to practice because I was still a British citizen, and you can't, at that time, take the exam. You can now, but you couldn't then. And so I did that. And then when I graduated from

law school, I was lucky enough to be invited by a federal judge to come and be his law clerk on a Court of Appeals, which reviewed appeals in patent cases from the patent office. If you don't get your patent, you can appeal to a court. And so that's what I did for a year. And we -- Of

course I learned a lot more about the high level of patents at that point. And so then when -- that gave me a taste for litigation, so then I moved up to a big patent litigation firm in New York, but to my slight surprise, when I got there, they discovered I could write patent applications, and they weren't so experienced at that, so I continued writing quite a lot of patent applications for a number of years, although I got into UNITED STATES DISTRICT COURT

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litigation. And then I moved to California in 1972, and I joined a firm where I got mainly into litigation, although I continued to write some patent applications. And then in 1984, I started my own patent law firm, and we got to about 26 lawyers. And we did quite a lot of

patent prosecution, although our main business was litigation. But I had big clients like Walt Disney Company that I supervised patent prosecution for and did that. And then I joined -- eventually I joined Hogan & Hartson, which is where I am now. Q. How many years had you been working in the area of

patents? A. Q. A. Oh, since 1969. Well, actually since 1964.

What does it mean to be a registered patent attorney? Well, the patent office won't let anyone take its exam,

because they feel that most inventions are technical, and they want people to have a technical degree. that you have a technical training. And then you have to pass a fairly rigorous exam in patent office procedure, which takes quite a long time to learn. And then you take the exam. And then when you've got And So you have to show

that, then you're called a registered patent attorney.

unless you're registered, you can't help applicants apply for patents. It's to protect the public. UNITED STATES DISTRICT COURT

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Q.

And does someone have to pass an examination, test, or

something in order to become registered at the patent office? A. Yes, that's correct. The test is given twice a year

around the country. Q. What additional training and experience do you have in

connection with patent practice before the United States Patent and Trademark Office, or are there any interesting patents that you've been involved in you could discuss? A. fun. ride. Well, interesting patents. Some of the Disney patents are

We got the Indiana Jones ride, and we got the Soarin' If any of you have been on that one, I drafted the

claims on that one. And then I litigated a patent for Disney on the Star Tours ride vehicle against, curiously enough, a British company. So those were interesting ones. Then I've done all the usual things you do in the patent office. I've prepared -- I've interviewed examiners. I've done appeals, the whole gamut.

I've done reexaminations. Q.

Have you been involved in the practice or procedure of

recording documents relating to ownership in the Patent and Trademark Office? A. Yes. It's important -- I'm going to talk, I expect, at

some point on the whole business of assigning and recording patent rights. But customarily, most inventions nowadays, not And so you

all, but most inventors are employed inventors. UNITED STATES DISTRICT COURT

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get involved in transferring the rights that a patent grants from the inventor to the employer. And then if the employer

later sells that patent, then you get involved in recording the various instruments and preparing the other supporting documentation. Q. Over the years that you've been practicing in this area,

can you estimate how many patent applications you've prepared and/or filed? A. Well, actual preparation, over 100. I'm sure I haven't

kept count, but just by knowing how many I did per month at various times, I know it would be over 100. And then I have assisted on the prosecution of many more than that, because as I got more senior, I would supervise the work of junior attorneys. And when I had my own

firm, I had to train a lot of the junior attorneys that would write patent applications. Q. At this point in time are you at a senior level position,

then, of the national law firm of Hogan & Hartson? A. Q. Yes. I'm a partner there, full partner.

Can you detail the experience that you have in litigation

please? A. Yes. When I moved to New York, the firm I was with,

Kenyon & Kenyon, it was one of the country's largest patent litigation firms. clients. We represented lots of very prestigious

And I got involved right away -- I think my first UNITED STATES DISTRICT COURT

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trial in a patent case was in 1972.

And then I've been

litigating patent cases ever since, primarily -- Most patent cases, over 97 percent, I think it is, maybe 95 percent, somewhere around about there, actually never go to trial. They settle, or they get dismissed before they ever go to trial. So there's only about 100 patent trials a year in the

whole of the country. So patent lawyers are always getting to the courthouse steps, and then they get jilted like brides as the parties settle. trials in. Q. And do patent infringement lawsuits tend to be lengthy, But I've managed to get my fair share of

expensive? A. Oh, yes. I had a case here in Arizona that took five

years to get to trial. Q. In addition to the book that we have put up that I've

shown you earlier, do you have any other published articles or have you given speeches on patent litigation and practice? Could you describe any of those activities? A. Yes. I've published lots of articles. I'm a fairly

prolific writer.

And I've had them published in the

professional journals of our profession, like the Journal of the Patent and Trademark Office Society and the American Intellectual Property Law Association Journal. most prestigious, I would say. Those are the

Then I've had them published

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in a lot of other journals, including general journals like the ABA Journal and the Trial Journal. a lot. I have -- I'm talking a lot now. And I've talked to regional patent law associations around the country. And for 14 years I was chair and co-chair And then I've talked

of the national program on patent litigation of the Practising Law Institute. Q. Do you have any experience as a law school professor or

teaching law at law school? A. Yes. I enjoy teaching, and I volunteered to be a visiting

law lecturer at the UCLA law school, where I taught for over ten years in the regular law school class. two-credit course in patent law. Q. A. Are you a member of any patent bar associations? Yes. I've been a director of the American Intellectual I taught a

Property Law Association and a member of council of the ABA IP section. section. Q. And have you in other cases been permitted to testify as And I've been chair of the California State Bar IP

an expert on patent practice and procedure? A. Yes. MR. LEACH: Your Honor, Hypercom offers Laurence

Pretty as an expert in patent practice and procedure and particularly patent practice and procedure in the United States Patent and Trademark Office. UNITED STATES DISTRICT COURT

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reviewed? A. Yes. Q.

THE COURT:

Any objection? No objection, Your Honor.

MR. VanNORMAN: (BY MR. LEACH)

Were you asked to examine the facts of

this case and express any opinions that you formed based upon your experience and analysis? A. Q. A. Q. A. Q. A. Yes. And who asked you to do that? You did. Have you formed any opinions? Yes. Could you summarize what are your opinions? One opinion is that Verve lacked probable cause to bring

this lawsuit without naming Omron as the owner of the patent. And the other -- another opinion is that, looking at the pattern of actions in the light of normal procedure in this type of case, it is my opinion that this lawsuit was brought for an improper purpose. Q. Now, I'm going to ask you more about those opinions, but I

have a few preliminary questions first. Can you describe generally what materials you

You sent me three document boxes filled with papers

and exhibits from the various lawsuits in Michigan and California and Texas and elsewhere, which I studied. And you also sent me the deposition transcripts of UNITED STATES DISTRICT COURT

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Mr. Galasso and Mr. Imes and Mr. Farney.

And you also

provided me with the patents themselves and the patent prosecution files. Those are all the papers filed in the

patent office which are open to the public after the patent issues. Those are what I remember at the moment. There may

have been some other papers, but those are the ones that stick in my mind. Q. And did you have the benefit of deposition transcripts for

Raymond Galasso, Kevin Imes? A. Q. Yes. I think I mentioned them.

And did you have the benefit to review the deposition of

Mr. Farney, the deposition transcript that was just read in this case? A. Q. Yes. I had previously read that.

I'd like to have the clerk provide you with Plaintiff's And I put a copy of

Exhibit 1, which is in evidence.

Plaintiff's Exhibit 1 up on the Elmo here. Have you seen this before? A. Q. Yes. And this is the complaint that Verve filed in Michigan

against Hypercom and others, correct? A. That's correct. I've seen it before. I think the date of

filing is stamped on here as September the 11th, 2003. Q. Is there anything in this document that you found UNITED STATES DISTRICT COURT

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significant in connection with your opinions? A. Well, I did notice in particular in Paragraph 4,

allegation 4, it says, "Plaintiff is now the owner by assignment of the '895 patent." But the only plaintiff that's

listed is Verve, LLC, and Omron is not named as an owner. Q. A. Q. And is that allegation in Paragraph 4 correct? No. It's false.

Let me show you Plaintiff's Exhibit 8, which is in

evidence. Have you seen this before? A. Q. A. Yes, I have. What is this? This is the complaint in the action that was filed in the

name of Verve against Hypercom and some other defendants in Texas. And it's stamped with the filing date of February the

4th, 2004. Q. And just to help us out how this works, is the party

that's bringing a lawsuit, the one who claims to own the patent, is that named as the plaintiff on the first page of this document, in this case, Verve, LLC? A. Q. The plaintiff in a caption in the lawsuit is named first. All right. And then the people -- the companies listed

under that identified as defendants, are those the companies that Verve then sued alleging patent infringement in this particular complaint? UNITED STATES DISTRICT COURT

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A.

Yes.

The people who come after the letter V are

defendants, and they're the subjects who are being charged by Verve with violating its rights. Q. Now, is there anything in this document that you found

significant in connection with your opinions? A. Yes. Again in Paragraph 4 there's an allegation that,

quote, plaintiff is the owner by assignment of the '341 patent. Q. A. Q. A. And there is no mention of Omron as an owner.

And plaintiff here refers to Verve, LLC; is that correct? That's correct. And is this correct? No. This is false. I mean, it's correct that Verve is

named as a plaintiff, but it's not correct that Verve is the alleged -- the owner by assignment of the '341 patent, because Omron retained substantial rights, and that is essential to being named as a plaintiff. Q. All right. Let me show you Plaintiff's Exhibit 12, which Have you seen this before?

is in evidence. A. Q. A. Yes, I have.

And what is this? This is the complaint in another lawsuit filed by Verve,

this time in the Northern District of California in San Jose. And it is named as plaintiff. including Hypercom Corporation. And the defendants are several, And the stamp on this shows

it was filed on August the 30, 2004. UNITED STATES DISTRICT COURT

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Q.

And was there anything in this document that you found

significant in connection with your opinions? A. Q. A. Yes. I noticed in -- Excuse me.

Let me direct your attention to Paragraph 21. Yes. That's where I was going. Paragraph 21 says that Verve is the owner by

assignment of all right, title, and interest in and to U.S. Patent No. 5,012,077, et cetera. statement. Q. And were all of these complaints signed by one or more And that is a false

lawyers in the Simon Galasso & Frantz law firm? Let's take this one at a time. Look at the complaint

in the California case that we've been talking about as Plaintiff's Exhibit 12. Was this complaint signed by a lawyer of the Simon Galasso & Frantz law firm? A. Q. A. Q. Yes. That's the California complaint, correct? That's correct. Now, look with me, if you would, at the Texas complaint,

Plaintiff's Exhibit 8. A. Q. Yes. And was this complaint signed by a lawyer in the Simon

Galasso & Frantz law firm? A. That's right. UNITED STATES DISTRICT COURT

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Q.

Now, look with me, if you would, at the Michigan And was this

complaint, which is Plaintiff's Exhibit 1.

complaint signed by a lawyer at the Simon Galasso & Frantz law firm? A. Q. Yes. And in fact this complaint is signed by Raymond M.

Galasso, correct? A. Well, it's not very easy to read the writing, but it seems

to begin with an R and a G, and the name Raymond Galasso appears under it, so I understand that to be Mr. Galasso's signature. Q. And typical practice is that the first name under the

signature line is most of the time the name of the person who is signing it; is that correct? A. Q. Right. Now, we've talked earlier. You've been involved in

recording documents pertaining to changes of ownership in the patent office system for recording ownership? A. Q. Right. Now, can you explain what the United States Patent and

Trademark Office does or what it has in terms of recording documents? A. Well, I'd like to begin a little early in that, if I can,

because it's very hard for people to understand what a patent is and how you change its ownership. And recording is just a

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part of that. beginning.

So let me begin, if I may, at the very

I find, after talking to inventors for over 35 years, a lot of people have a misconception that a patent is like a dog license. license. If you've got a dog, you've got to have a It allows

But -- So it's kind of a positive thing.

you to do something you couldn't do otherwise. not what a patent is.

Well, that's

A patent is a document that's a grant from the government that allows you to exclude someone from doing something. So that if you come up with something that's inventive like a new toothpaste, you don't need a patent to make the toothpaste. But if someone else copies that

toothpaste, you want something that will enable you to exclude other people from doing it. So it's a right to exclude.

Now, it's very important to know where that bundle of rights, the right to exclude, resides, who owns it, because that's all you're buying when you buy a patent. buying a right to exclude. Now, when an inventor makes an invention, it's in his head, and it belongs to him by natural right, because he can just tell no one about it, or he can practice it in secret, or he can just forget about it. So you have to have some incentive to an inventor to UNITED STATES DISTRICT COURT You're just

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not do any of those other things, which are kind of antisocial, but to bring it forward and tell the public about it. And so there's kind of a deal. The public gets a

disclosure of the invention, and in return for that, the inventor is given this right to exclude. So it begins by nature with the invention -- with the inventor. Now, if he is a sole inventor, he gets the patent. He's got his

The government gives him the right to exclude. patent.

He can take it into court, and if he can show that

what's claimed in the patent has been used without authority by the infringer, then the state comes in and enforces that right to exclude. So it's a very powerful instrument.

Now, in most cases, as I said earlier, inventors are employed. And so they usually have a contract of employment

which requires them to employ their -- assign, that is, to transfer, this right to exclude to the employer. So typically when you prepare a patent application, if you're doing it for a corporation, you'll also, along with the patent application, which is sent out to the inventor to review, you'll also provide a copy of an assignment. And the

inventor assigns the entire right, title, and interest -- but focus on the word right, because that's what I'm really focusing on -- the entire right to the employer. And that

means now the employer has that entire right to exclude. And then -- Well, now, how is the public going to UNITED STATES DISTRICT COURT

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know who owns this thing? There's got to be a way for the public to know, because this affects investment decisions and how people traffic in things. So there is a recording system in the Patent and Trademark Office. It used to be a paper one rather like a

real estate title system. And you could just go in, and you'd look at the paper records, and it would list under the patent number or the name of the inventor or the assignor or the assignee who owned that patent, so you could find out. Nowadays it's pretty much all electronic, and you can do it from home on your -- on the USPTO.gov. And you can look

up those assignments right there and see who owns. Now, very often people will traffic in patents. They'll sell patents. can be sold. And then when you do that, then, again, you want to record this instrument, and you send it into the patent office assignment branch, and they will record it. Now, it's very important to know where this right to exclude resides, because it affects public dealings in patents. Sometimes the right to exclude is divided up amongst And that's a difficult situation for the You know, two different people have the They're like personal property. They

different people.

public to deal with.

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right to exclude. So it's very important that, when you make a recording of an assignment, you're honest with the public. you say you're recording a transfer of the entire right, you're telling them that this entire right to exclude resides with this assignee, and the public can know that. And that's If

the purpose of the recording statute, and that's how it operates. Q. So documents that are sent to the patent office and

recorded would be available to people in the public, and they could go there, look up a patent number, and see what's there if they wanted to know who's supposed to own this patent; who doesn't? A. It's done all the time. I do it anytime we think of

bringing a lawsuit or doing anything, the first thing we do is we get onto the patent office website, and we try to find out who owns it. And you can see from Mr. Farney's unfortunate experience when the patent office assignment records aren't true, look at the trouble you can get into. Q. But is the purpose of the recording system that members of

the public can go and search, and they can rely on the accuracy of the documents that are recorded there, just like Mr. Farney did when he was looking to see if Verve had the right to bring that lawsuit that he was going to get involved UNITED STATES DISTRICT COURT

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in? A. Yes. Let me put a qualification in. Very often there will be other obligations and duties between the parties that the public doesn't really need to know about. right is. But there may be clauses in an employment agreement which deals with, you know, the employee's pension rights, the employee's duty to cooperate after the patent issues, things like that. interest. So what you often do in that situation is you won't record the entire contract of employment or whatever. prepare a document that's a recordable assignment. You'll And those are not really matters of public The public only needs to know where the entire

And that And

has to deal with the transfer of the right -- the right. it has to be accurate there, and it has to say whether the

entire right is being transferred or only a fractional right. And so the public sees the recorded assignment. doesn't see the underlying contractual document. But to the extent that the assignment notifies the public where the right to exclude is located, that has to be in the public record, and it has to be absolutely accurate. Q. So does the -- if you record a separate document from a It

more complicated agreement, is the practice that the recorded document has to be accurate and state what it is that the more UNITED STATES DISTRICT COURT

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complicated document provides in terms of who actually owns it? A. Well, it has to be accurate as to where the right to It does not have to list details such as the

exclude goes.

employee's, you know -Q. A. Q. His salary? -- pension or things like that, no. Now, what significance does this issue of who owns all the

exclusive rights in a patent have to the practice of who gets to be the plaintiff in a patent infringement lawsuit and has the right to go sue people on a patent? A. That is a frequent problem in patent litigation where you And anytime that you as a patent

have divided rights.

plaintiff's attorney are faced with a situation -- and it usually comes up -- Most commonly it comes up with joint inventors sometimes where they don't have an agreement between themselves. It comes up often in a case where someone has

what is called an exclusive license, which says he can be the only licensee. But there's sort of fuzziness.

So when you get into the situation of fuzziness where there's some question of rights being divided, you have to spend a lot of time thinking about that, and you have to go and break out all the knowledge you can that you can find on what you do with these divided rights. And what you have to do is you have to find out who UNITED STATES DISTRICT COURT

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owns the rights so that the totality of rights are embodied in the plaintiff. people. them. If it is someone who purports to be an exclusive licensee but you find that the party who owned the original patent still has retained rights in it, then that party that has retained the rights has to be named because that's part of the right to exclude. Same situation you have with a purported assignment. Sometimes an assignment is not really an assignment of the entire right, because the patent owner has kept a whole piece back for himself. And if that's the case, well, that person has to be named, because otherwise the lawsuit goes ahead, and yet someone is lurking out there with a bundle of rights. And Sometimes you're going to have to name two

If it's joint inventors, you may have to name both of

this could be unfair, for example, to the defendant if he wins that lawsuit, and suddenly this other guy comes out of the woodwork and asserts the rights moreover again. So it's absolutely essential that you find where those rights are located and name those rightly -- the person who holds those rights as a plaintiff. Q. Now, assume hypothetically that Omron and Verve get

together, and they want to bring a bunch of lawsuits, and Omron doesn't want to be a party to any of those lawsuits. UNITED STATES DISTRICT COURT

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They want to stay away from it. MR. VanNORMAN: point. Your Honor, we would object at this

This is an issue that is not a basis for the summary It's an issue in another proceeding

judgment in this court.

that's been excluded from this matter. THE COURT: Q. (BY MR. LEACH) The objection is overruled. Now, assume as a hypothetical that Omron

and Verve get together, and before they file these malicious lawsuits and commit these acts of abuse of process in my hypothetical, they want to keep Omron out from being a named party. Omron wants to keep their distance, so if the scheme

goes bad, they don't get -- they try to pretend like they're not involved. Would it be important in my hypothetical for Verve and Omron to make it appear and for Verve to allege in their complaints that Verve owned all and the entire right, title, and interest in the patents? A. Could you read back the question to me, do you think,

please. THE COURT: MR. LEACH: THE COURT: Q. (BY MR. LEACH) It's a fairly complex question. I'm sorry. Maybe you could simplify this. Sure. Let's say that Omron doesn't want Would it be

to be a party to these lawsuits for some reason.

important for Verve to allege in their complaints that Verve UNITED STATES DISTRICT COURT

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owned the entire right, title, and interest in the patents and make it appear that Omron didn't retain any substantial rights? A. Well, I am not understanding something. Important in what

sense? I mean, would it be important to Omron to further -to sort of conceal itself behind the woodshed as it were, or would it be important for -- The word important in a vacuum doesn't mean anything to me. Q. In order for Omron to not be a party to the lawsuit, would

Omron -- would Omron not have -- would they have to be in a position where they did not retain substantial rights in the patent so that Verve could bring the lawsuit? Let me just ask it this way: In order for Verve to

bring the lawsuits in their own name and Omron not to be a party, what would they have to do in connection with ownership? A. I'm sorry. You lost me.

What I think you're getting at is that -MR. VanNORMAN: I'm going to object, Your Honor.

He's not responding to a question at this point. THE COURT: I know he's not. On the other hand, he's

also quite right that the question is convoluted, complex, and at this point unintelligible. Could you try to break it down so that we could all UNITED STATES DISTRICT COURT

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understand what it is you're asking? Q. (BY MR. LEACH) Sure. What was the significance in these

complaints or why did Verve allege that Verve owned all right, title, and interest in the patents that they were suing on? MR. VanNORMAN: Objection, Your Honor. This is

speculation as to Verve's intent here, which he would not know. THE COURT: asking about intent. The objection is overruled. He's not

I think he's asking about what is the

significance of it from a legal point of view. THE WITNESS: The significance of not naming Omron is

that if the lawsuit went bad, and there was an adverse award of attorney's fees, it would run only against Verve and not against Omron. So Omron would have all the advantages of bringing a lawsuit, and if it wins, it takes money to the bank, but if it turns out to be a lawsuit that should never have been brought, it's insulated from any liability. So it would be safe from the normal redress that would go to the defendant of, you know, such things as attorney's fees or lawsuits for unfair competition. sheltered, safe position. Q. (BY MR. LEACH) All right. Now, were purported assignment It's a

documents of the patents that Verve filed their lawsuits on, did they have some purported assignment documents in this case UNITED STATES DISTRICT COURT

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that were filed in the United States Patent and Trademark Office? A. Q. Yes. Let me show you Plaintiff's Exhibit 23, which is in Is this one of the documents that was filed in the

evidence.

United States Patent and Trademark Office in connection with the '895 patent that was the subject of the Michigan lawsuit that Verve filed? A. Yes. You can tell that, because at the bottom right it is And when they record things

stamped patent, reel, and frame.

in the patent office, that's the stamp they put on to show where it's recorded so you can look it up later. And this

indeed is the recorded assignment of the '895 patent. Q. All right. So if we look in the -- this upper left-hand

part of the first page of the document up in the upper left, you see the Patent No. 4,678,895, and that's the patent that we've been referring to throughout this case as the '895 patent, correct? A. Q. That's right. Now, do you see where this document talks about Verve

acquiring the entire right, title, and interest? A. Q. Yes, I see that. And the statement about assigning the full and exclusive I think you may have that up on

right in and to the patents? the screen in front of you.

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A. Q. A.

That's also there. Now, is this -- are these statements truthful? No, they're not truthful. And also it goes on to say

Omron will not execute any instrument or assignment in conflict herewith also. Q. Those statements aren't truthful.

So you're referring to the place where it says that Omron

has not executed -A. Q. And will not execute. -- and will not execute any instrument or assignment in

conflict with this entire right, title, and interest stuff? A. Q. It ends with the word herewith. Now, let me show you Plaintiff's Exhibit 24, which is in Is this one of the documents that was filed in the

evidence.

United States Patent and Trademark Office? A. Again, you can see the patent, reel, and frame number in And this

the bottom right corner which tells you that.

relates to U.S. Patent No. 4,565,341, which we've been referring to as the '341 patent I understand. Q. And if we look at the screen, that appears right under the

portion that I've underlined here in the first paragraph, third line over on the left, correct? A. Q. Right. Now, does this document also purport to involve the -- a Just

transfer of the full and exclusive right to the patent? to help out here -UNITED STATES DISTRICT COURT

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A.

Yes.

It says that it's transferring the full and And it also says earlier above that that And it also says lower

exclusive right.

Verve wants to get the entire right.

on that Omron will not execute any instrument in conflict therewith. Q. I see all those things. It says entire right, title, and interest,

All right.

right? A. Q. A. Q. Right. Now, is this document accurate? No. All right. Let me show you Plaintiff's Exhibit 25, which And is this also a document that was recorded

is in evidence.

in the United States Patent and Trademark Office? A. Yes. You can see by the reel and frame number on the

bottom right. Q. And did this document relate to U.S. Patent 5,012,077,

which is the patent that we've been referring to throughout this case as the '077 patent that was the subject of the California lawsuit? A. Q. Right. And does this document refer to Verve acquiring the entire

right, title, and interest? A. It says Verve is desirous of acquiring the entire right,

title, and interest, yes. Q. And it purports to transfer the full and exclusive right UNITED STATES DISTRICT COURT

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to the patent, correct? A. Q. A. That's correct. Is this correct? No. It does not transfer the full and exclusive right. That's what it says.

Well, the assignment says that, but the underlying instrument had reserved rights, and further on they would file an addendum to their original agreement which made it even worse. Q. All right. So there's some agreements that we're not

seeing here, if you only look at these three things that were filed in the Patent and Trademark Office, that make this inaccurate; is that right? A. Q. That's correct. All right. Let me show you Plaintiff's Exhibit 21, which

is in evidence. A. Q. All right. Is this one of the agreements that was not made public

that affects the accuracy of the documents that were recorded in the Patent and Trademark Office? A. Q. Yes, this is one of the documents. All right. And is there another one? You mention an

addendum, correct? A. Q. Yes. There's also an addendum to this, which I've seen. Now, this Plaintiff's Exhibit 21, that's one

All right.

of the agreements that Mr. Farney didn't know about and didn't get until the day before he was producing it. UNITED STATES DISTRICT COURT Do you recall

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that from his deposition? A. Q. I understand from his deposition that's what he said. Now, let me show you Plaintiff's Exhibit 22. Is this the

document that we've been referring to as the addendum? A. Q. That's right. And this addendum, does it change or supersede or affect

the earlier agreement we looked at, which is Plaintiff's Exhibit 21? A. Yes, it affects it. There were already retained rights.

This increases the retained rights. Q. In Mr. Farney's deposition, is this one of the documents

Mr. Galasso gave to Jeff Plies and told him only two people at Dewey Ballantine could see it? A. Well, I heard Mr. Farney's testimony, and that's what I

understood Mr. Farney to be testifying. Q. 21. Now, this Plaintiff's Exhibit 22 and Plaintiff's Exhibit These are not documents that were filed in the Patent and

Trademark Office as part of the assignment records, correct? A. Q. No, they weren't. Now, with respect to the addendum perhaps or in whatever

order makes sense to you, could you explain what these non-public agreements 21 and 22, plaintiff's exhibits, what they -- what they show? A. Yes. Now, you remember that I pointed out that the right So let's see

that a patent confers is the right to exclude. UNITED STATES DISTRICT COURT

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where the right to exclude goes when we look at these two agreements. If we look at the first agreement, in Paragraph 2.1 -- this is the Exhibit 21 -- in Paragraph 2.1, it says that Verve has succeeded to all of Omron's right, title, and standing to receive all rights and benefits pertaining to the assigned patents to institute and prosecute all suits and proceedings and to take all actions that Verve in its sole discretion may deem necessary or proper, et cetera. So that looks like on the left hand Verve is really getting the whole deal. But as we go through the agreement, we find that the right hand is grabbing stuff back. When we go down to license right number 3.1, we see that Omron retains a right for itself. Well, that's not unusual, because that's not affecting the right to exclude very much. Omron -- Verve is

getting the right to exclude others, but it takes it subject to the right that Omron already has. But now we look at 3.2. This is one that really

undercuts the right to exclude, because here we find in 3.2 that Omron is granted the right to sublicense and cross-license the assigned patents, licensed patents, or previously assigned patents to Omron's present and future business partners and customers. UNITED STATES DISTRICT COURT

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Well, just think about that for a moment, that anytime Verve wants to go out and exclude somebody, someone can go to Omron and get a license. right to exclude that person. So Verve doesn't have the

The right to exclude is being

divided up, because Omron has retained a right to allow that person into the market. exclude everyone. to exclude. So you don't have the right to exclude. divided up. It's been So you're not getting a right to

In fact, you're getting an illusory right

But by the time they got to some of these

patents, they'd already expired. So what was significant here was what about rights to at least go back for past damages? And even that's taken away

in the addendum, because in that -- that's Exhibit 22 -- in this one, the right to sublicense and cross-license, which was always already pretty huge, is now extended -- I'm sorry; I should have said in Section 2.0 -- it's also extended to parties against whom Verve has already filed suit. So Omron is holding back the right to exclude away from Verve. Verve can't exclude those people. Even though

Verve has filed suit against them, Omron can still give them a free pass. exclude. So Verve has not got the complete right to It's got nothing. It's an illusion.

And there are other provisions in these agreements, by the way, that give Omron the right to approve anyone that UNITED STATES DISTRICT COURT

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Verve wishes to sue.

If Omron doesn't give its approval, So it has no right to exclude

Verve can't even sue them.

someone that Omron hasn't approved first. So Verve really was just a sham, a face to put up there on the complaint. Q. Now, if we look back at Plaintiff's Exhibit 21, briefly,

did this include a -- some provision where Omron would get 50 percent of the first $10 million that Verve got that they called net licensing revenue here in Paragraph 4.1? A. Q. Right. That's where the -- 4.1. That's correct.

And if this results in them getting more than $10 million,

Omron gets 40 percent, right? A. Q. That's correct. Now, in view of your knowledge and experience in practice

and procedures, in your opinion, can this -- the failure to make Omron a party to the lawsuits, knowing about this stuff, be excused as carelessness? A. No. It's definitely not anything that you can excuse as Particularly in light of other documentation I

carelessness.

have seen, this was deliberate. Q. A. And what documentation are you referring to? Well, I'm referring to some memoranda that were prepared

internally by Omron's Japanese attorneys to their management, which make it clear that the purpose was to shield, shelter Omron against risk of liability. UNITED STATES DISTRICT COURT

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THE COURT:

Excuse me. I object to this as hearsay. We have a note

MR. VanNORMAN: THE COURT:

Excuse me just a minute.

from a juror who needs to go to the restroom, so we need to take our break right now. We'll break for 15 minutes.

Please don't talk about the case yet among yourselves or with anyone else. We'll give the note to the clerk.

Let me see if I can read that question and rule on the objection before we leave. The objection is overruled, because under the rules of evidence, an expert can rely on matters that are otherwise not independently admissible. But you can of course go into

all of that on cross-examination. So we'll break for 15 minutes. about the case. (Proceedings recessed.) MR. LEACH: THE COURT: MR. LEACH: It isn't. (BY MR. LEACH) Your Honor, if I may proceed? Please. I'm not sure this is on. Thank you. Now, when we took our break, you were Please don't talk

referring to some documents that you'd seen that relate to your opinion concerning this wasn't just careless. documents were you referring to? A. They were Japanese language documents which had been UNITED STATES DISTRICT COURT What

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translated, which seemed to be from some official of Omron to the president of the company. Q. Now, did you read Mr. Nakano's deposition as part of your

activities in connection with the case? A. Q. I read parts of it, yes. And in his deposition did he refer to these documents as

the documents he sent to headquarters in Japan to get authorization to enter into the series of agreements that he signed on behalf of Omron? A. Q. That was the gist of it. Now, I've put on the overhead here -- or let me direct

your attention to Plaintiff's Exhibit 26, which is in evidence. A. Q. Yes. And if I -- We'll get to that in a minute, but if I put up Is this one of the documents you're referring to?

on the overhead Plaintiff's Exhibit 27, is this also one of the documents that you're referring to? A. Q. Yes, that's correct. Let me go back to the Plaintiff's Exhibit 26 and then also Is this one of the documents that you

Plaintiff's Exhibit 28. were referring to? A. Q. That's true. All right.

So let's go back and start with Plaintiff's

Exhibit 26.

And this one has a date stamp on it of August

3 -- excuse me -- August 8, 2003, using the Japanese UNITED STATES DISTRICT COURT

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nomenclature.

There's also an English translation of this.

Have you read the English translation of this Japanese document? A. Q. That's correct. Now, if we refer to the English translation, can you

explain what this document shows and how it relates to your opinion? A. Yes. You really have to turn to the last page first and

see who's writing to who. And on Line 3 of the translation, it says that a Mr. Kitamura, who is the director of the intellectual property department, is writing to Mr., on Line 6, Nemoto, who is the president of Omron. And in this document he is reporting on a decision on the transmission of rights of titled U.S. patents, the '895 and the '200 patent. And then if you go to what is Page 5 of the translation, you really see what's going on here, that although in halfway down the page you see item two, the first time the numeral 2 appears, it says that "Even after transmission of rights, OC still reserves the right of free licensing to its customers." So Verve wasn't given the right to exclude them. Q. A. You see the reference to OC. Omron Corporation. UNITED STATES DISTRICT COURT What is that referring to?

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Q. A.

All right. Then you go down to the supplementary explanation, and you

see the motivation here in Paragraph 1, and I'll read it. "OC 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." By the way, I should have mentioned another main part of the contract was -- is in Paragraph 1 at the top. Omron,

if things went well, it was going to get a lot of money out of this. Q. Now, if you look under supplementary explanation, the

statement is that Verve will negotiate a license after petitioning for a jury trial in Michigan against three companies, one of which is Hypercom, correct? A. Q. I see that. And it doesn't say anything about Hypercom's infringing; This says Verve's going to

are we going to stop them? negotiate -MR. VanNORMAN: leading. THE COURT: Q. (BY MR. LEACH)

Objection, Your Honor.

This is

It is a little leading. All right. Does this explanation that

Mr. Nakano provided to headquarters in Japan say Hypercom's infringing our patent? A. I don't see the words infringing a patent. UNITED STATES DISTRICT COURT

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Q.

And in reaching your opinion, did you consider

Mr. Nakano's deposition testimony where he testified that Omron had no good faith basis for believing that Hypercom infringed any of the Omron patents? A. Q. I saw that. Now let me show you Plaintiff's Exhibit 27. We referred

to this briefly.

This is a -- the second memo that Mr. Nakano

sent to Japan headquarters for approval, correct? A. Q. That's correct. Now, can you describe for the jury what if anything in

this document pertains or is relevant to your opinion? A. Well, again, you have to look at the back first, and you

find that, once again, that this is the director of IP, Mr. Kitamura, writing to the president of Omron, Mr. Nemoto, in October, 2003. patent. And this time he is concerning the '341

And again he's recommending making a decision on And we see essentially all the same

transmission of rights.

comments that were made in the previous exhibit, Exhibit 26. Q. Now, if you look where it says main points of the

contract, item number two, can you explain what that indicates in the context of the facts of this case? A. Well, there are three main points. The first one is that

Omron is going to get money. And then the second point is that it's still retaining the right to license its customers. UNITED STATES DISTRICT COURT

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And the third one is just referring back to the previous contract of the preceding agreement, which I think I understand to be referring back to the one we already discussed. Q. And then, finally, if you would, look with me at

Plaintiff's Exhibit 28, which is the third memo that went to headquarters in Japan. document shows. A. This is, again, from Mr. Kitamura. This time he's writing And could you explain what this

to -- well, he is writing to Mr. Nemoto again, this time in March, 2004. And this time he is writing about -- I believe

this was the -Q. Was this in connection with the transfer of a group of

patents that included the '077 patent? A. Yes, that's my recollection. I was just looking to see if

'077 was listed in the document itself, but I don't see '077 listed here. But from my recollection of studying this at the

time that I was preparing my report, it was the '077. Q. Is there any other portion of this document that is

relevant? A. Well, yes. Again, we see that in the points of the

contract, which are in the translation on Page 2, again, this is somewhat differently wording in some respects. In Paragraph 2 -- Well, on the points of the agreement again he points out that Omron is going to get a UNITED STATES DISTRICT COURT

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bunch of money.

This time he is, in part 2, he is even more

expansive about all the rights that Omron is going to reserve, including the licensing rights, the re-licensing rights, the cross-licensing rights, then all the rights that Verve doesn't get. In fact, it's just a laundry list of things that Verve doesn't get in terms of right to exclude. And then for the exclusive licensed patents, let me see -- That's exclusive licensed patents. Same thing.

Then the preceding contract should be unified with the new contract. He's just going to tie them together.

Then in the supplementary explanation, he reports that Omron's received a profit of 80K so far. it. Q. Now, to put these in context, the first memo that went to That's about

Japan was to get authorization concerning the '895 patent that was the Michigan case; is that correct? A. Q. That was right. Then the second memo that went to Japan was to get

authorization relating to the '341 patent that was the Texas lawsuit; is that correct? A. Q. That's right. And then this last memo that went to Japan was to get

authorization for some patents that included the '077 patent that was the subject of the California case, correct? UNITED STATES DISTRICT COURT

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A. Q.

That's correct. And in the context of this case, did this explanation that

by giving more -- Verve these patents in this third group, the profit by negotiation can be better guaranteed? consider that language? A. Q. A. Q. Exhibit 28? Yes. I didn't attach a great deal of significance to that. Is there any other reason why you think that the failure Did you

to disclose Omron's retained interest in the patents from the assignment records recorded publicly was deliberately false? A. Well, I think what I read in Mr. Farney's deposition makes

it clear that Verve was fighting desperately to prevent the truth from coming to light. It didn't even tell Mr. Farney.

You don't fight that hard unless you've known you're trying to cover something up. And, by the way, I'm not condoning that people should fight hard to cover things that are wrong. shouldn't. Q. And in connection with the deposition of Mr. Farney that They certainly

you read, was one of the instances of fighting hard to keep this information from becoming known represented in Plaintiff's Exhibit 19, which was the response to -- and you may be able to look at the screen here for convenience -response to first set of interrogatories? UNITED STATES DISTRICT COURT

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A.

Could you direct me to which portion of the first set

you're referring to? Q. To shorten this up, let me direct you to Page 4 that was

in the part of Mr. Farney -- that was referenced in the part of Mr. Farney's deposition that I understand you read. A. Yes, I did. Yeah. I see here that in the answer to interrogatory

3, it says Omron has not retained any right to the '077 patent, and of course that was flat out false. Q. And this is a document that was filed by lawyers at the

Simon Galasso & Frantz law firm, correct? A. I don't recall whether this was filed by Dewey Ballantine

or by the Simon Galasso firm. Q. Let me just put it this way. This document on the face

has the names of the lawyers at the Simon Galasso & Frantz law firm, correct? A. Q. Referring to Page 11, that's correct. And then let me refer you to Plaintiff's Exhibit 8 that is

in evidence -- excuse me -- Plaintiff's Exhibit 80 that is in evidence, which was a Verve response to Hypercom's motion to compel, and specifically direct your attention to what was said on Page 3 of Plaintiff's Exhibit 80. A. Q. I'm looking at it. Was this one of the documents that you were referring to

that supported your opinion? UNITED STATES DISTRICT COURT

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A. Q.

I don't recall that it was. All right. And the -- the statement is made here about

the interrogatory answer we just looked at where it says Omron has not retained any right or title to the patent, and they say that, later, that they changed that answer. that? A. Well, I'm looking at the document, and apparently that's But I really don't have any recollection of Do you recall

what it says. this document. Q.

And then let me refer your attention to Plaintiff's And this is where Verve changed its answer and

Exhibit 91.

provided a supplemental response that instead of saying Omron has not retained any right or title to the '077 patent, they said Omron has not retained any right, title, or interest in the '077 patent. In your opinion, was that supplemental response truthful? A. Q. No, it wasn't. Now, I want to return to your opinion that Verve lacked

probable cause to file suit without naming Omron as the patent owner. Are there any other facts and reasons that we haven't

discussed concerning that opinion, or have we pretty much covered it? A. The things we've discussed so far are all the ones that I

recall that support that opinion. UNITED STATES DISTRICT COURT

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Q.

Now, on your second opinion that Verve filed the lawsuits

for an improper purpose, what are the grounds for that opinion? A. Well, there are quite a lot of grounds. One of them of

course we've already discussed.

It's the first opinion that I

had, which is that it was trying to avoid joining Omron in the lawsuit. But there are other ones. Another one is that they filed so many lawsuits when they could have done it with one lawsuit. You have to

remember that when you want to file a lawsuit against someone, the test is -- You can't file it anywhere. You can't file it But you

in Alaska if you don't have any business in Alaska.

can sue a defendant anywhere where it's doing business if it's a corporation. So, you know, Hypercom being a company that sells nationally pretty much can be sold -- sued anywhere. So

there's no real reason why you have to sue an Arizona company in Michigan on one patent and in Texas on another patent and in California on a third patent when you could file only one lawsuit. And when you look at lawsuits being multiplied by this, you know, when you're a patent attorney, patent litigator, you have a responsibility to avoid burdensome litigation. The purpose of the procedure under which you bring UNITED STATES DISTRICT COURT

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lawsuits is that you are trying to get an expeditious resolution of lawsuits and not burden people more than they have to be. When you see three geographically dispersed lawsuits being brought when they could be in one place, you have to question, well, is this really because they want to stop infringement, or is it because they want to make the lawsuit as burdensome and time diverting and just such a total pain that they'll give up? And here I think that I would certainly say it's in that category. Then another thing that troubled me, particularly with the '341 patent, that was a patent they brought the lawsuit on, and they didn't serve the complaint until after the patent had expired. So there was no chance of getting an The patent's run

order to stop the infringement going ahead. out.

And even to get damages, you can go back six years, but

to be able to get damages, you've got to show that you gave notice to the other side. And there was no notice any earlier

than the service of the complaint, which was after the patent had expired. Or you have to have shown that you marked the Goods that the patent owner itself

patent product, you know.

was making or its licensees had to be marked with the patent product. And I haven't seen any evidence that showed that any UNITED STATES DISTRICT COURT

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products made under the '341 patent by licensees of Omron -I've seen in the papers that I had that they had licensees like National Cash Register a