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

Matthew A. C. Zapf (pro hac vice) A. Colin Wexler (pro hac vice) Chad A. Blumenfield (pro hac vice) GOLDBERG KOHN 55 East Monroe Street, Suite 3300 Chicago, IL 60603-5792 Telephone: 312.201.3914 Facsimile: 312.863.7414 [email protected] [email protected] David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street, Suite 800 Fort Wayne, IN 46802 Telephone: 260-424-8000 Facsimile: 260-460-1700 [email protected] [email protected] H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue, Suite 2000 Phoenix, AZ 85012-2788 Telephone: 602.351.8000 Facsimile: 602.648.7000 [email protected] Attorneys for Defendant Omron Corporation UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Omron Corporation, Defendants. ) ) ) ) ) ) ) ) ) CAUSE NO. CV04-0400 PHX PGR OPPOSITION TO HYPERCOM CORPORATION'S MOTION IN LIMINE REGARDING OMRON CORPORATION'S EXPERT WITNESS BRAD GULKO AND HIS REPORT

Omron Corporation opposes Hypercom Corporation's Motion In Limine Regarding Omron Corporation's Expert Witness Brad Gulko And His Report ("Hypercom's Motion"), for

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the following reasons. First, the Court should reject Hypercom's argument that Gulko's opinions are not relevant to Omron's or Verve's knowledge at the time the lawsuits were filed because Hypercom has placed actual infringement at issue. Hypercom argues that Omron knew Verve's infringement lawsuits were baseless because Hypercom's products do not infringe the Omronassigned patents. Thus, Gulko's opinions regarding infringement are directly relevant in that they rebut Hypercom's only evidence of knowledge, i.e., non-infringement. Second, Gulko's testimony is relevant to the issue of compensatory and punitive damages. The merits of Verve's patent infringement claims are relevant to proving (1) Hypercom's damages were not proximately caused by Verve's failure to sufficiently investigate its infringement claims, and (2) the filing of an under-investigated but meritorious patent infringement claim cannot qualify as the type of "aggravated and outrageous conduct" justifying punitive damages. Third, assuming that the Court permits Hypercom's expert witness, Laurence Pretty, to testify that Hypecom's point-of-sale terminals do not infringe the patents assigned to Verve, Gulko's opinions are relevant as a direct rebuttal to Pretty's opinions. Pretty has opined that none of Hypercom's terminals infringes U.S. Patent Nos. 5,012,077, 4,678,895, and 4,562,341. See Main Report Of Laurence Pretty, Expert For Plaintiff Hypercom Corporation On Patent Litigation Procedure, at 1-2, attached as Exhibit B to Omron Corporation's Motion In Limine No. 3 To Bar Testimony By Hypercom's Expert. To the extent that Pretty is allowed to offer any of those opinions at trial, it would be unfair to prevent Omron from rebutting those opinions with its own expert.

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Finally, Gulko's opinions and testimony are relevant and reliable, and his opinions are based on his extensive engineering experience. His opinions should not be excluded on Daubert grounds. I. A. Argument

Gulko's Testimony Is Relevant Because The Infringement Issue Is Critical To Hypercom's Theory of Liability. In its motion in limine, Hypercom contends Brad Gulko's opinion that Hypercom

infringed the Omron-assigned patents is irrelevant because it does not speak to Omron's or Verve's knowledge at the relevant time (i.e., any time before Verve's infringement actions against Hypercom had been terminated). Yet Hypercom, which must prove that Omron knew Verve failed to perform a reasonable pre-filing investigation of these infringement claims, has placed actual infringement at issue. Hypercom has repeatedly invoked its purported "noninfringement" of any patent assigned by Omron to Verve as circumstantial evidence that Omron knew Verve's claims were baseless. Hypercom argued as follows in opposing Omron's second motion for summary judgment: "[A]fter Hypercom demonstrated on September 16, 2004, that none of the Hypercom products infringed any of the Omron patents, instead of putting a stop to the litigation, Omron demanded millions of dollars from Hypercom." See Hypercom Corporation's Response To Omron Corporation's Second Motion For Summary Judgment ("Hypercom's Response To Second MSJ") at 14 (emphasis added). Similarly, Hypercom repeatedly argued that its demonstrations of noninfringement to Omron during settlement negotiations supplied the intent necessary to support its malicious prosecution and abuse of process claims. See, e.g., Hypercom's Response To Second MSJ at 11 ("On September 16, 2004, less than two weeks after the commencement of the ITC Action, Hypercom met with Mr. Nakano and Omron's attorney Herb Kerner and demonstrated -3Case 2:04-cv-00400-PGR Document 193 Filed 04/27/2007 Page 3 of 9

why none of Hypercom's products infringed any of the asserted Omron patents, including the patent involved in the ITC Action."), and 16 ("In this case, Omron undisputedly knew that Verve's lawsuits were baseless after the meeting with Hypercom on September 16, 2004."); Deposition of Hypercom Corporation (Douglas Reich), attached as Exhibit 24 to Hypercom's Opposition To Omron's Motion For Summary Judgment, at 34-35. Indeed, the cornerstone of Hypercom's wholly circumstantial case that Omron aided and abetted and/or conspired with Verve is Omron's supposed motive to encourage the filing of infringement actions against non-infringers. See, e.g, Hypercom's Response To Second MSJ at 11-15. But that motive, and thus Hypercom's argument to the jury, weakens materially with the introduction of evidence that Hypercom infringed any Omron-assigned patent. Thus, because they contradict Hypercom's general theory of the case, as well as specific contentions, Gulko's opinions on infringement are both material and necessary to Omron's defense. Conversely, depriving Omron of the ability to place Gulko's conclusions before the jury would materially prejudice that defense. B. The Infringement Issue Is Highly Relevant for Damages Purposes. Gulko's testimony is also relevant to the issue of damages. A "party injured by a malicious prosecution is entitled to compensatory damages proximately caused by the defendant's action." CJS Malicious Prosecution, § 94; Auman v. Auman, 653 P.2d 688, 690 (Ariz. 1982) (affirming award of compensatory damages on malicious prosecution claim). To establish proximate cause under Arizona law, however, a plaintiff must show that the injury would not have occurred but for the defendant's wrongdoing. Barrett v. Harris, 207 Ariz. 374, 378, 86 P.3d 954, 958 (Ct. App. 2004). If Verve's infringement claims against Hypercom were meritorious, then Verve's failure to sufficiently investigate those claims could not be a "but for"

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or "proximate cause" of all legal expenses incurred by Hypercom. In other words, if Verve could have filed the same patent infringement action against Hypercom and prevailed, then Verve's inadequate investigation is not a "but for" cause of Hypercom's defense costs. Further, insofar as Hypercom seeks to recover punitive damages, the merits of the underlying infringement claim are clearly relevant. To support an award of punitive damages, "there must be evidence of an 'evil mind' and aggravated and outrageous conduct." Linthicum v. Nationwide Ins. Co., 150 Ariz. 326, 330, 723 P.2d 675, 679 (Ariz. 1986) (emphasis added). The filing of an allegedly under-investigated but meritorious patent infringement claim simply could not qualify as "aggravated and outrageous conduct." Thus, Gulko's testimony is both probative and material to Omron's defense of Hypercom's damages claims. C. Gulko's Opinions Respond Directly to the Opinions of Hypercom's Expert, Laurence Pretty. Insofar as Hypercom's expert Laurence Pretty is permitted to testify at trial, 1 Gulko's testimony is relevant as a direct rebuttal of Pretty's opinions. Indeed, Gulko's April 14, 2006, expert report addresses the specific infringement opinions offered by Pretty; thus, it would not become irrelevant simply because Omron and Verve were unaware of these deficiencies before the underlying infringement actions were terminated. See Exhibit 2 to Hypercom's Motion. D. Gulko's Opinions Are Relevant and Reliable. Hypercom also makes the very narrow claim that Gulko's personal observations of a Hypercom terminal at a "Petco" store are unreliable because: (1) whether Hypercom infringed the assigned patents depends on "the software that was running on the terminals" (Hypercom's Motion at 8); and (2) Gulko does not know what software it ran on its terminals (id. at 8-9).
1

Omron has moved to exclude the testimony and opinions of Pretty for various reasons, including his attempts to improperly invade the decision-making province of this Court. See Omron Corporation's Motion In Limine No. 3 To Bar Testimony By Hypercom's Expert, Laurence Pretty.

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Strikingly, Hypercom does not identify which conclusion in Gulko's supplemental report is affected by this purportedly inferior methodology. Thus, Hypercom does not determine whether Gulko's opinions ­ opinions based on his expertise in computer science, engineering, and software development - venture beyond the limits of supporting evidence. More problematically, Hypercom simply ignores the additional evidence considered by Gulko in setting out the opinions of his supplemental report. Thus, Hypercom does not address assertions that Gulko considered: (1) information disclosed to the International Trade Commission by Hypercom containing the source code for the software that runs the T7 terminal, as well as the configuration, setup information and testing protocols for that software; (2) the ability of the software to automatically discriminate debit and credit transactions if run on a T7 terminal; and (3) testing protocols that describe automated discrimination as an expected behavior of the T7 terminal when properly configured. See Supplemental Report of Brad Gulko at 8-9, dated June 15, 2006, attached as Exhibit 4 to Hypercom's Motion. And while professing ignorance of whether it supplied the software that ran the terminal Gulko observed, Hypercom has publicly lauded itself for providing a comprehensive system to Petco: Hypercom's one-stop, single-source payment system was exactly what Petco wanted. In fact, this competency helped win the contract for Hypercom over another bidder. Today Hypercom provides project management expertise and functions as the primary contractor for implementing the Petco system. Its engineers defined the scope of the project, developed detailed implementation plans, managed the development of custom software, assisted with building software interfaces to the register, tested system software in a Hypercom laboratory and delivered the total solution to the customer in agreed-upon timeframes. See Exhibit A to this Response, Hypercom Business Solutions, Multiple Benefits For Multi-Lane Pet Store Chain, found at http://www.hypercom.com. 2

2

Further, Hypercom ignores the contributory infringement and inducement claims pled against it. For example, in the lawsuit filed in the Western District of Texas, Verve alleged: "Upon information and belief, Defendants

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Attacking the basis for Gulko's opinions, Hypercom has failed to demonstrate that he used facts or data not reasonably relied on by experts in his field. Compare Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579, 595 (1993) ("Rule 703 provides that expert opinions based on otherwise inadmissible hearsay are to be admitted only if the facts or data are 'of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject'"). And Hypercom has failed to demonstrate that Gulko could not reliably opine on whether Hypercom terminals that run on the disclosed software "automatically discriminate[] between credit cards and debit cards." June 15, 2006 Supplemental Report of Brad Gulko, at 4, attached as Exhibit 4 to Hypercom's Motion. In addition, Hypercom argues that Gulko's opinions are "not relevant because such testimony does not involve the application of extensive experience and reliable methodology." See Hypercom's Motion at 8. Hypercom, however, fails to explain why Gulko's opinions are not based on his "extensive experience" (Omron has already explained above why Gulko's methodology was reliable). Contrary to Hypercom's assertion, Gulko has vast experience in computer engineering and software development, including the development of point-of-sale terminals. See Curriculum Vitae of Brad Gulko, attached as part of Exhibit 2 to Hypercom's Motion. Gulko was the technical principal for the development for a credit card transaction processing system, and he has more than twenty years of experience in developing computer software. Id. Gulko obviously is qualified based on his experience.

have been, and still are, directly, indirectly, contributorily, and/or by inducement willfully infringing the '341 patent. . . . " See Verve LLC's Complaint filed in the United States District Court, Western District of Texas, at 3, attached as Exhibit 3 to Hypercom's Motion. Yet Hypercom could be liable for contributory infringement or inducing infringement even if its terminals do not themselves discriminate between credit and debit transactions, i.e., even if discrimination occurs elsewhere in the Petco system.

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II.

Conclusion

In short, none of Hypercom's objections to the expert testimony of Brad Gulko stands up to scrutiny. Furthermore, because it has articulated no sufficient basis for questioning the reliability of Gulko's methods, Hypercom is not entitled to a Daubert hearing. [no new paragraph] Omron therefore respectfully requests that Hypercom's motion to exclude the opinions and testimony of Brad Gulko and, alternatively, for a Daubert hearing, be denied. RESPECTFULLY SUBMITTED on April 27, 2007.

By: Matthew A.C. Zapf A. Colin Wexler Chad A. Blumenfield GOLDBERG KOHN 55 East Monroe Street Suite 3300 Chicago, IL 60603-5792 David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street Suite 800 Fort Wayne, IN 46802 H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue Suite 2000 Phoenix, AZ 85012-2788 Attorneys for Defendant Omron Corporation

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CERTIFICATE OF SERVICE I hereby certify that on April 27, 2007, I electronically transmitted the attached documents 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: Andrew Foster Halaby Ray Kendall Harris John Kenyon Henning, IV David P. Irmscher Sid Leach Monica Anne Limon-Wynn Paul Moore A. Colin Wexler Matthew A.C. Zapf [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

I hereby certify that on April 30, 2007, I caused the attached document to be served by hand delivery on Judge Paul G. Rosenblatt, United States District Court of Arizona, 401 West Washington Street, Phoenix, Arizona 85003-2118

/s/ Lisa M. Sandoval

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