Free Response to Motion - District Court of Arizona - Arizona

Matthew A. C. Zapf (pro hac vice) 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] [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 the 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 DEFENDANT OMRON CORPORATION'S RESPONSE TO HYPERCOM CORPORATION'S MOTION IN LIMINE RE JAMES DUNLOP; OR IN ALTERNATIVE, REQUEST FOR DAUBERT HEARING

Hypercom Corporation ("Hypercom") has moved to exclude from trial any evidence from James Dunlop, including his testimony, written report, and a video that he

Case 2:04-cv-00400-PGR

Document 190

Filed 04/27/2007

Page 1 of 13

created ("the Dunlop evidence"), because: (1) Verve has been found liable for failing to conduct adequate pre-filing investigations (even though Hypercom fails to address how/why this has any bearing on the admissibility of the Dunlop evidence); (2) the Dunlop evidence is not relevant because it was based on an investigation performed after Verve filed its lawsuits; and (3) Omron Corporation ("Omron") failed to timely disclose his "expert opinions." None of these arguments has any merit and, as explained below, Hypercom may have provided false information to this Court in support of its argument. First, Hypercom once again has placed the issue of infringement at the forefront of its case-in-chief against Omron. Hypercom must prove that Omron knew Verve was filing baseless patent infringement actions. With respect to two of those actions involving U.S. Patent No. 5,012,077 ("the '077 Patent"), Hypercom's only "evidence" that Omron knew the infringement actions were baseless is this: Hypercom's products do not infringe because they are not capable of automatically discriminating between credit and debit cards, and Omron knew or should have known this. The Dunlop evidence is relevant because infringement is at issue, and the Dunlop evidence tends to negate Hypercom's "evidence" by showing that Hypercom's terminals are capable of automatic discrimination and are infringing the '077 Patent. Second, Dunlop has not given any expert opinions. Indeed, throughout nine pages of briefing, Hypercom fails to identify any specific testimony by Dunlop, much less any expert testimony within the scope of Rule 702 of the Federal Rules of Evidence. Dunlop is not being offered as an expert. To the contrary, Omron has offered James Dunlop as a percipient witness. Dunlop has simply described what he observed when using a credit and debit card in a Hypercom terminal in Colorado. And while Dunlop has

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been trained as an engineer, anyone who knows how to use a credit card could do the same. Dunlop's testimony, in short, requires no scientific, technical, or other specialized knowledge within the scope of Evidence Rule 702. Accordingly, it is admissible under Evidence Rule 701, and Hypercom's motion should be denied. The evidence is relevant and not unfairly prejudicial. Finally, Hypercom fails to explain how its prior lawsuit against Verve and the resulting judgment have any bearing on the admissibility of the Dunlop evidence. There is no connection between the two. Omron is entitled to put on a complete defense to all claims, and Hypercom cannot complain of any unfairness since Hypercom chose to pursue separate actions against Omron and Verve based on the same conduct. I. A. ARGUMENT

The Dunlop Evidence Directly Rebuts Hypercom's Claim That Omron Knew That Hypercom's Point-Of-Sale Terminals Do Not Infringe The '077 Patent Throughout this litigation, when challenged to present any real evidence that

Omron knew Verve was filing baseless patent infringement action, Hypercom's only response has been to argue that Omron knew or should have known because Hypercom's products do not infringe. See Defendant Omron Corporation's Response To Hypercom Corporation's Motion In Limine To Exclude Claim-Construction Order In Northern District Of California Case No. C 04-02795, at pp. 3-4. Moreover, Hypercom's only evidence of this "knowledge," as explained below, consists of argumentative explanations for why Hypercom products do not infringe. This argument puts infringement squarely at issue by equating non-infringement with knowledge. And one way to permissibly rebut Hypercom's evidence of non-infringement is to demonstrate that Hypercom's products actually do infringe. The Dunlop evidence does just that. -3Case 2:04-cv-00400-PGR Document 190 Filed 04/27/2007 Page 3 of 13

Verve filed two actions, the lawsuit in the Northern District of California and the administrative proceedings in the International Trade Commission, alleging that certain Hypercom point-of-sale ("POS") terminals infringe the '077 Patent. One of the POS terminals alleged to infringe the patent is the Hypercom ICE 6000. Hypercom repeatedly alleges that Omron knew that the Hypercom ICE 6000 does not infringe any Omron-assigned patent, including the '077 Patent, because "only manual input of credit/debit card-type is provided for by T8 and ICE 6000 terminals," i.e., the ICE 6000 terminal is not capable of automatically discriminating between credit and debit cards. See Document No. 85, Hypercom Corporation's Statement Of Facts In Opposition To Omron Motion For Summary Judgment ("Hypercom's Statement Of Facts"), ¶ 6 (citing to Exhibit 18, Hypercom/Omron Meeting Phoenix, AZ September 16, 2004, Slide #6, attached as Exhibit A to this Response). Acknowledging that "the claims of the '077 patent specifically require 'a card discriminator for automatically discriminating whether a card to be used is a credit card or a debit card by reading said data stored on said card," Hypercom represented the following as "facts": Hypercom's accused products do not meet this requirement of the '077 patent. All of Hypercom's accused products require the user to press a button to indicate that the card is a debit card, and the accused products do not automatically discriminate between credit cards and debit cards. Exhibit 19; Exhibit 20; Exhibit 59. Id. at ¶¶ 111-112. In the case of the Hypercom ICE 6000 terminal accused of infringement, the terminal has a display on which command buttons are provided that can be pressed by a user. Exhibit 59; Exhibit 88. Hypercom provides a software tool kit with pre-built command buttons for a credit card and for a debit card. Exhibit 59. A command button must be provided on a screen, and the appropriate command button return key code must be entered, in order for a credit card or a debit card transaction to be activated. Exhibit 59.

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Id. at ¶ 115. These "facts" become less credible, however, if there is evidence showing that the ICE 6000 terminal can and does automatically discriminate between credit and debit cards, because that evidence would tend to prove infringement. The Dunlop evidence is incontrovertible evidence that Hypercom's ICE 6000 can automatically distinguish between credit and debit card transactions. As observed and recorded by Dunlop, an Omron percipient witness, at a Petco pet supply store with Hypercom ICE 6000 machines, the ICE 6000 directs customers to a credit card signature screen based solely on data read from a "swipe" of the card. Similarly, the ICE 6000 directs debit card customers to a PIN screen based solely on card data. See USPN 5,012,077 vs. Hypercom ICE 6000 Patent Analysis Report ("Dunlop Report"), June 15, 2006, attached as Exhibit 1 to Hypercom's Motion In Limine Re James Dunlop ("Hypercom's Motion"). Hypercom does not want a jury to see this evidence, though, because it directly contradicts "facts" presented by Hypercom as part of its claims against Omron. In addition, Hypercom may have presented false information to this Court in support of its motion to exclude Dunlop. Hypercom claims the Dunlop evidence is not relevant, in part because the ICE 6000 terminals that Dunlop investigated were not running on Hypercom's software: Hypercom did not supply the software that was running on the system in use at the PetCo store. The functionality of the Hypercom terminal would have depended on the software running on the electronic cash register, the software running on the POS application server, and/or the software running on the Hypercom terminal, none of which was provided by Hypercom. See Hypercom's Motion at 3 (emphasis added). Hypercom provides no evidence in support of this contention, and Omron independently obtained information during -5Case 2:04-cv-00400-PGR Document 190 Filed 04/27/2007 Page 5 of 13

discovery in this case that directly refutes this contention. As shown in the Hypercom press release attached as Exhibit B, Petco is a large customer for whom Hypercom provides not only POS terminals, but also the software required to operate the terminals, software maintenance, and technical "support." See Hypercom Business Solutions: Multiple Benefits For Multi-Lane Pet Store Chain, attached as Exhibit B to this Response. According to the press release, and contrary to Hypercom's statements in its Motion, Hypercom not only provided Petco with both the ICE 6000 terminals and the software for the system, Hypercom designed software for the ICE 6000 at Petco: [Hypercom's] 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. As a manufacturer of Internet-enabled, point-of-sale devices, Hypercom also provided ICETM 6000 terminals and software to make the system work. This solution interfaces with POS registers and peripherals, ensures proper control over routing transactions to Petco's network . . . Id. (emphasis added). According to Hypercom, the Hypercom system for Petco was designed to avoid the problems that arise when "[s]oftware is purchased over here, hardware is bought over there, installation comes from yet another provider." Therefore, Hypercom offered Petco a "one-stop payment systems responsibility." Id.. (also identified by Hypercom as a "single-source, long-term solution" and "one-stop, single source payment system"). Hypercom's assertions in its press release and its Motion appear to be inconsistent. In conclusion, the Dunlop evidence is directly relevant to defending Hypercom's claim that Omron knew that the ICE 6000 does not infringe because Omron knew the POS terminal cannot automatically discriminate between credit and debit cards. The -6Case 2:04-cv-00400-PGR Document 190 Filed 04/27/2007 Page 6 of 13

Dunlop evidence shows that the ICE 6000 does automatically discriminate, and that discrimination is based on a Hypercom POS terminal and Hypercom software. B. Dunlop's Testimony Does Not Rest on Specialized Knowledge And, Therefore, Is Not Expert Testimony Hypercom has challenged Dunlop's testimony1 as an untimely expert report. Federal Rule of Evidence 701, however, provides that: If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. (Emphasis added). Evidence Rule 701 thus specifically addresses Hypercom's concerns that the "requirements set forth in Rule 702" ­ and the disclosure requirements of Rules 16 and 26 of the Federal Rules of Civil Procedure ­ "will be evaded through the simple expedient of proffering an expert in lay witness clothing." Advisory Committee Notes to Rule 701, Federal Rules of Evidence. As explained in the Committee Notes to the 2000 Amendment, the addition of subsection "c" prevents such evasions. Regardless of a witness's designation as lay or expert, Evidence Rule 702 will govern "to the extent [he] is providing testimony based on scientific, technical, or other specialized knowledge." Id. (Emphasis added). Evidence Rule 702 does not govern here. Dunlop relied on no "specialized" knowledge to report the successful use of credit and debit cards without telling the

1

While Dunlop's testimony is styled a "report," its recitations are properly authenticated by affidavit and remain substantively indistinguishable from the affidavit of a lay witness.

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Hypercom machine which was which. As set out in Omron's second statement of facts in support of summary judgment: 114. Dunlop's investigation included making two purchases of goods at PetCo and paying for one with a credit card and the other with a debit card. Id. at p. 3. 115. During the credit and debit card transactions, Dunlop swiped each card through the ICE 6000 without providing any information to the cashier about the type of card being used. Id. at pp. 3, 5, 10. 116. With the credit card purchase, the [Hypercom] ICE 6000 terminal processed the transaction and requested a signature without requiring any input from the cashier or Dunlop as to credit or debit. Conversely, after swiping a debit card, the ICE 6000 proceeds to ask for the card owner's pin number, again without requesting any additional information from the card owner regarding the type of card being used. Id. at pp. 10-12. 117. Therefore, Dunlop's investigation showed that "no identification had to be given to the cashier or machine to identify the use of a debit or credit card. The displays shown on the Hypercom ICE 6000 prompted the consumer to either enter their PIN or signature depending on the card used." Id. at p. 3. 118. Dunlop recorded both of the debit and credit card transactions on a video recorder, and a copy of the recordings was disclosed as an attachment to his report. See Exhibit 9 to Omron's SOF In Support Of Second MSJ. See Statement Of Facts In Support Of Omron Corporation's Second Motion For Summary Judgment ("Omron's Second Statement Of Facts") at ¶¶ 114-118, filed July 24, 2006. These facts, like the testimony that supports them, consist of visual observations (and the authentication of a video-tape reproducing those observations). And even if Dunlop has offered inferences, they rest squarely and rationally on his perceptions. Thus having watched a Hypercom terminal process his debit card transaction without pressing a "debit button" (or seeing the clerk do so), Dunlop could rationally conclude "no identification had to be given to the cashier to identify the use of a debit or credit card." Notwithstanding his training as an engineer, Dunlop has offered testimony that any credit -8Case 2:04-cv-00400-PGR Document 190 Filed 04/27/2007 Page 8 of 13

cardholder could provide. His testimony is thus plainly admissible under Rule 701. See United States v. Figueroa-Lopez, 125 F.3d 1241, 1246 (9th Cir. 1997) (allowing law enforcement agents to give lay testimony that defendant was acting suspiciously, but applying Evidence Rule 702 to proposed testimony, based on extensive experience, about defendants' use of code words related to drugs); United States v. Soto-Benizquez, 356 F.3d 1 (1st Cir. 2004) ("[w]itnesses who testify only about their perceptions of an event, or about lay opinions arising out of those perceptions, see Fed. R. Evid. 701, are not experts under Rule 702 regardless of any specialized training or experience they may possess"). C. Dunlop's Testimony Is Not Prejudicial And Relates To Facts At Issue As another basis for its Motion, Hypercom argues that Dunlop's testimony should be excluded from trial under Evidence Rule 403 as more prejudicial than probative. Hypercom writes: "It would be prejudicial and unfair to allow Dunlop to testify that [sic] about information that neither Verve nor Omron ever considered prior to bringing their malicious lawsuits, and which neither of them had while the proceedings against Hypercom were pending." See Hypercom's Motion at 9. There are two problems with Hypercom's position. First, Dunlop has not offered, and does not intend to offer, any opinion on infringement. Rather, Dunlop affirms that: (1) "no identification had to be given to the cashier or [Hypercom ICE 6000 terminal at a certain Petco retail store in Colorado Springs, Colorado] to identify the use of a debit or credit card," and (2) the "displays shown on the Hypercom ICE 6000 prompted the consumer to either enter their PIN or signature depending on the card used." See Dunlop Report at 3, attached as Exhibit 1 to

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Hypercom's Motion. Thus, while Omron's experts may rely on these observations to opine on infringement, Dunlop does not do so. Hypercom has wholly failed to articulate any source of prejudice against it. Second, Dunlop's testimony is highly probative. The claim that Hypercom's ICE 6000 terminal cannot be configured to discriminate between credit and debit cards without human intervention lies at the heart of Hypercom's case against Omron. Hypercom has consistently recited this claim as evidence both that Verve's infringements claims lack merit, and that Omron knew it. Thus, for example, Hypercom repeatedly cites its purported assertion to Omron on September 16, 2004, that "only manual input of credit/debit card-type is provided for by T8 and ICE 6000 terminals" as proof that Omron knew the ICE 6000 could not infringe the '077 Patent. See supra, Hypercom's Statement Of Facts at ¶¶ 6 & 41; Hypercom's Second Amended Complaint at ¶¶ 28-29;2 Hypercom Corporation's Response To Omron Corporation's Second Motion For Summary Judgment, pp. 11 and 16.3 And Hypercom has cited its terminals' need for manual input as proof on non-infringement to this court:

2

Paragraph 28 of the Second Amended Complaint states: "On September 16, 2004, Hypercom's representatives met with representatives of Omron, including Herbert V. Kerner, concerning the patent infringement claims that Verve had asserted against Hypercom in Michigan, Texas, California, and the ITC proceeding in Washington, D.C. Hypercom's representatives demonstrated the operation of Hypercom's accused products, and showed why the Hypercom products clearly did not infringe the Omron patents asserted against Hypercom." Paragraph 29 of the Second Amended Complaint states: "With knowledge of Verve's meritless patent infringement charges against Hypercom in Michigan, Texas, California, and the ITC proceeding in Washington, D.C., Omron aided Verve in its efforts to extort money from Hypercom."

3

Hypercom argued in its response brief that: "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 why none of Hypercom's accused products infringed any of the asserted Omron patents, including the patent involved in the ITC Action." Hypercom's Response at p. 11. Hypercom further argued: "In this case Omron undisputedly knew that Verve's lawsuits were baseless after the meeting with Hypercom on September 16, 2004." Id. at p. 16.

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Hypercom's accused products do not meet this requirement of the '077 patent. All of Hypercom's accused products require the user to press a button to indicate that the card is a debit card, and the accused products do not automatically discriminate between credit cards and debit cards. Exhibit 19; Exhibit 20; Exhibit 59. Hypercom's Statement Of Facts, ¶ 112. There is no justification for barring eye-witness testimony that disproves one of Hypercom's central contentions. D. Hypercom Fails To Draw Any Connection Between Its Action And The Judgment Against Verve And The Admissibility Of The Dunlop Evidence Hypercom's first argument in support of excluding the Dunlop evidence is that Verve has been found liable for filing patent infringement lawsuits without conducting an adequate pre-filing investigation. See Hypercom's Motion at 2. Hypercom fails to draw any connection between a finding of liability against Verve in another lawsuit to which Omron was not a party, and the exclusion of the Dunlop evidence. It appears that Hypercom seeks to preclude Omron from introducing the Dunlop evidence because Verve was found liable and, therefore, Omron must be liable too. The claims against Omron are different in that Omron cannot be found liable for any claims unless Hypercom can prove Omron knew Verve's patent infringement lawsuits were baseless. Because Hypercom tries to prove knowledge by demonstrating noninfringement, Omron is entitled to refute this alleged knowledge by demonstrating infringement. The prior action against Verve, which did not include proof of Omron's knowledge, is not relevant to this case, nor is it relevant to the admission of the Dunlop evidence.

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II.

CONCLUSION

The testimony of James Dunlop amounts to nothing more than his visual observations and common sense. Notwithstanding his training as an engineer, Dunlop relies on no scientific, technical, or other specialized knowledge in describing credit and debit card transactions at a Petco store in Colorado. This evidence directly rebuts Hypercom's evidence that Omron knew the infringement lawsuits related to the '077 Patent were baseless. Accordingly, Hypercom's Motion to exclude evidence related to James Dunlop should be denied. RESPECTFULLY SUBMITTED on April 27, 2007.

By: /s/ Matthew A.C. Zapf Matthew A.C. Zapf 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 or overnight mail 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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