Free Motion in Limine - District Court of Arizona - Arizona

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Sid Leach (#019519) Monica A. Limón-Wynn (#019174) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Street Phoenix, AZ 85004-2202 Telephone: (602) 382-6372 Facsimile: (602) 382-6070 [email protected] [email protected] Attorneys for Plaintiff Hypercom Corporation IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Omron Corporation, Defendant. No. CV 04-0400-PHX-PGR HYPERCOM CORPORATION'S MOTION IN LIMINE REGARDING OMRON CORPORATION'S EXPERT WITNESS BRAD GULKO AND HIS REPORT; OR IN THE ALTERNATIVE, REQUEST FOR DAUBERT HEARING

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Plaintiff Hypercom Corporation ("Hypercom") moves in limine for an order precluding Omron's expert witness Brad Gulko from testifying at trial. The testimony, report and opinions of Brad Gulko are not relevant and not reliable. Mr. Gulko's

testimony, report and opinions are not based upon information that was known by either Verve or Omron when Verve filed the malicious lawsuits against Hypercom, or at any time during the pendency of the lawsuits. Instead, Mr. Gulko's opinion is based upon after-the-fact information that Mr. Gulko independently obtained based on his own investigation in April - June 2006, long after the malicious patent infringement claims asserted against Hypercom had all been terminated in Hypercom's favor. In the

alternative, Hypercom requests the Court conduct a Daubert hearing in advance of trial to determine whether Mr. Gulko should be precluded from testifying at trial. This Motion is supported by the following memorandum of points and authorities.

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MEMORANDUM OF POINTS AND AUTHORITIES I. VERVE HAS BEEN FOUND LIABLE FOR BRINGING LAWSUITS ALLEGING PATENT INFRINGEMENT AGAINST HYPERCOM WITHOUT FIRST CONDUCTING AN ADEQUATE PRE-FILING INVESTIGATION Hypercom brought this action seeking to hold Omron liable for damages that Hypercom suffered due to Verve LLC's filing of multiple patent infringement lawsuits, and instigating an investigation before the International Trade Commission, against Hypercom without probable cause. In its Complaint, Hypercom alleges that Omron should be held liable for these damages because: (1) Omron is liable as a co-conspirator for Verve's actions in bringing and maintaining malicious lawsuits (and the ITC investigation) against Hypercom; (2) Omron aided and abetted Verve in the torts of malicious prosecution and abuse of process, and aided and abetted Raymond Galasso's unreasonable and vexatious multiplication of the proceedings against Hypercom, and (3) Omron is liable as an instigator of the malicious lawsuits and the malicious ITC investigation against Hypercom. In Verve LLC v. Hypercom Corp., No. CV-05-0365-PHX-FJM, 2006 U.S. Dist. LEXIS 58398 (D. Ariz. Aug 16, 2006), Verve was found liable for the torts of malicious prosecution and abuse of process, and Raymond Galasso was found liable for unreasonably and vexatiously multiplying the proceedings against Hypercom within the meaning of 28 U.S.C. § 1927 (hereinafter "the Verve Case"). In the Verve Case, the Court concluded that Hypercom had established "malice" through Counterdefendants' conduct of "wholly insufficient pre-filing investigation," continuing to pursue claims in various jurisdictions after it had been established that Verve lacked standing to maintain them; and representing that Verve was a proper patent owner while knowing that Omron held substantial rights in the patents, and "the tactic of filing multiple lawsuits in multiple jurisdictions without a reasonable explanation for doing so." Verve LLC v. Hypercom Corp., at *14.

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On October 26, 2006, after a four-day trial, a unanimous jury awarded compensatory damages and punitive damages against Verve, Verve's principals, and Verve's lawyers, and in favor of Hypercom. On January 9, 2007, Final Judgment was entered in the Verve Case against Verve, LLC, Raymond Galasso, Kevin Imes, and the Simon, Galasso & Frantz law firm, jointly and severally. (A copy of the Final Judgment is attached hereto as Exhibit 1.) Mr. Gulko was offered as an expert witness during the trial of the Verve Case, and his testimony was excluded. (Exhibit 7, Transcript of Proceedings, Vol. IV, dated October 24, 2006, at 756-57.) During voir dire examination of Mr. Gulko by Hypercom's counsel, Gulko admitted that the only Hypercom product he examined, a Hypercom ICE 6000 terminal, was not obtained until after December 13, 2005. (Id., at 749.) This was after the last pending claims against Hypercom had been terminated. Exhibit 8. Gulko also admitted that there was nothing in his expert witness report (nor his supplemental report) that addressed any pre-filing investigation supposedly performed by Galasso, Imes, Verve, or Simon, Galasso & Frantz, PLC. (Exhibit 7, Tr. at 749-50.) Mr. Gulko had his first discussions with Omron's counsel on April 6, 2006. (Exhibit 9, at 1.) There is nothing in his expert reports offering any opinion as to Omron's state of mind concerning the commencement or continuation of the proceedings against Hypercom, and by the time Mr. Gulko was retained by Omron, all of the claims asserted against Hypercom had been dismissed or terminated. In the Verve Case, Judge Martone affirmed his ruling excluding Mr. Gulko's expert testimony when Verve's post-trial motions were denied, and noted, "The record makes clear that neither expert was retained to express an opinion regarding counter-defendants' state of mind." Exhibit 6, at 3-4. Liability for malicious prosecution may also be based upon the continuation of a proceeding beyond the point that a reasonably prudent man would have continued to prosecute the asserted claim. Thus, the relevant state of mind that is at issue in this case must be based upon what Omron (and Verve) knew at the time the proceedings were instituted, and while the claims against Hypercom continued to be asserted. "The test
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generally applied is whether, upon the appearances presented ... a reasonably prudent man would have instituted or continued the proceeding." Slade v. City of Phoenix, 112 Ariz. 298, 301, 541 P.2d 550, 553 (1975); see also McClinton v. Rice, 76 Ariz. 358, 367, 265 P.2d 425, 431 (1953) (Court refers to "institution or continuation of an action without probable cause" as an element of malicious prosecution). II. THE TESTIMONY OF BRAD GULKO IS NOT RELEVANT BECAUSE IT IS BASED SOLELY ON HIS AFTER-THE-FACT INVESTIGATION In a malicious prosecution case, the issue of lack of probable cause must be

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analyzed based on the facts known at the time the underlying lawsuits were filed.
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Bradshaw v. State Farm Mutual Auto. Ins. Co., 157 Ariz. 411, 417-418, 758 P.2d 1313,
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1319-20 (1988) (the "relevant questions are whether, at the time it filed the wrongful
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death action, State Farm believed a jury might find its case meritorious and whether that
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belief was reasonable") (emphasis in original). To the extent that liability is based upon a
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continuation of the malicious proceedings, the analysis would have to be based upon facts
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known to Omron while the proceedings were still pending. Thus, the challenged expert
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testimony is irrelevant to the question of probable cause or Omron's good faith at the time
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the malicious proceedings were instituted, or during any other relevant period of time,
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because Mr. Gulko's expert report was based solely upon information that was not known
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to Omron (or Verve) during the time that any of the malicious proceedings were pending.
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Hydranautics v. FilmTec Corp., 204 F.3d 880, 886 (9th Cir. 2000) ("[T]he lack of
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probable cause question must be answered based upon the facts actually known to
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FilmTec at the time it prosecuted its patent application and infringement case, and not on
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the facts it actually presented.").
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Information obtained subsequent to the filing of the lawsuits is irrelevant to the
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question of whether there was probable cause at the time the malicious complaints were
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filed. Id.; Hite v. Triton Energy Ltd., No. 99-56975, 2002 U.S. App. LEXIS 7518, 35 Fed.
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Appx. 434, 437 (9th Cir. April 23, 2002) ("[A]11 events subsequent to the filing of the
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allegedly malicious lawsuit . . . are irrelevant to the question of probable cause.")
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(unpublished); Gill v. Kostroff, 82 F. Supp.2d 1354, 1364 (M.D. Fla. 2000) ("A determination of whether probable cause exists is based on the facts known by the defendant in the malicious prosecution action at the time the underlying action was initiated, not some later point in time."); Martin Centers v. Dollar Markets, 99 Cal. App.2d 534, 543, 222 P.2d 136 (Cal. App. 2d Dist. 1950) ("The knowledge of facts which may justify the alleged malicious prosecution is that which is possessed at the time of its occurrence; not that which is subsequently acquired."). Omron and its co-conspirator Verve were required to investigate the basis for the patent infringement claims against Hypercom before the lawsuits were filed, not after. View Engineering, Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 986 (Fed. Cir. 2000) ("In bringing a claim of infringement, the patent holder, if challenged, must be prepared to demonstrate to both the court and the alleged infringer exactly why it believed before filing the claim that it had a reasonable chance of proving infringement.") (emphasis added). It is improper to file malicious lawsuits first and then try to investigate whether there was any evidentiary support for the malicious claims later. Burnette v. Godshall, 828 F. Supp. 1439, 1448 (N.D. Cal. 1993) ("Plaintiffs attorney chose to `file first and investigate later,' which is unacceptable."), aff'd, 72 F.3d 766 (9th Cir. 1995); Garr v. United States Healthcare, Inc., 22 F.3d 1274, 1279 (3d Cir. 1994) (if a reasonable inquiry has not been conducted, attorney will not be shielded from sanctions by "the stroke of luck that the document happened to be justified"). Omron's expert, Mr. Gulko, cannot rely on information about Hypercom's terminals obtained as a result of after-the-fact investigations performed by him long after the malicious lawsuits and the ITC investigation had been terminated. When initiating the original cause of action, the defendant in a malicious prosecution action could only rely on information that was obtained by the time the action was initiated, as opposed to information later gained through discovery, indepth inquiry, and communications. Gill v. Kostroff, 82 F.Supp.2d 1354, 1364 (M.D. Fla. 2000) (emphasis added).

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A.

Both of Gulko's Expert Reports Are Based Upon After-the-Fact Investigations Conducted by Gulko

Brad Gulko's expert report offers the following opinions: 3. There is sufficient information in the public domain to provide a reasonable suspicion that the Hypercom Terminals possess characteristics falling within the scope of the patent claim language. There is presently substantial evidence that the Hypercom Terminals can be configured to fall within the scope of the patent claims.

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4.

(See Exhibit 2, Expert Report of Brad Gulko dated April 14, 2006 ("Gulko Report") at 3). (emphasis added). Mr. Gulko's opinions are based upon after-the-fact investigations conducted by him in April - June 2006 of "information in the public domain" about Hypercom's terminals. Gulko independently found the information himself that he used as the basis for his opinions. As shown by the timeline marked as Exhibit 8, Gulko's expert reports are based on his independent investigation performed in the April - June 2006 time frame using materials that he found in the public domain. During his deposition, Gulko admitted that his expert report did not cite any information concerning any alleged investigation allegedly performed by Verve or Omron before the malicious complaints against Hypercom were filed. (Exhibit 3, Deposition of Brad Gulko dated June 20, 2006 ("Gulko Depo.") at 15-16.) Gulko's investigation was performed after all of the claims asserted against Hypercom had been terminated or dismissed. Gulko's expert report does not rely upon any information that was known to Omron or Verve when the patent infringement claims were filed against Hypercom. (Exhibit 2, Gulko Report at 4.) Gulko testified at his deposition that he did not consider such information to be "as relevant" to his opinions. (Gulko Depo. at 15-16) Mr. Gulko began his investigation on or about April 6, 2006. The last pending claims against Hypercom were dismissed on December 13, 2005, when Judge Martone dismissed the patent infringement claim asserted against Hypercom in the Texas lawsuit (the Texas case had been transferred to Arizona). By the time that Mr. Gulko
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independently gathered his own information about the Hypercom products upon which he based his opinions, the Michigan lawsuit had terminated (June 4, 2004), the California lawsuit was terminated (March 8, 2005), the ITC investigation was terminated (July 8, 2005), and the patent infringement claim asserted in the Texas lawsuit had been dismissed (Dec. 13, 2005). Exhibit 1. Brad Gulko's supplemental report fails for similar reasons. The supplemental report relies upon the report and analysis of James Dunlop (identified as the Taeus report and video in Exhibit 4, Supplemental Report of Brad Gulko dated June 15, 2006 ("Gulko Supplemental Report") at 5). In his supplemental report, Gulko claims that he allegedly made personal observations of a Hypercom terminal in use at a PetCo retail store in San Francisco, California, and a Hypercom terminal in use at a PetCo store in San Rafael, California. (Exhibit 4, Gulko Supplemental Report at 6.) But Gulko did not make his personal observations at PetCo until June 2006 and the Dunlop report was not prepared until about March or April 2006 ­ both occurring years after the complaints were filed against Hypercom and after all of the proceedings against Hypercom had been terminated or dismissed. (Id.) Mr. Gulko's original expert report and his supplemental expert report fail to offer any opinions concerning the information that Omron knew at the time when it conspired with Verve to file malicious complaints against Hypercom, or information that Omron knew while the lawsuits and ITC investigation were pending against Hypercom. Mr. Gulko's after-the-fact investigations are not relevant to Omron's state of mind during any relevant period of time, either before the malicious proceedings were filed or while the malicious proceedings were pending. B. Gulko's Testimony Fails the Relevance Test

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Gulko's expert testimony is not relevant to either Omron's state of mind or Verve's state of mind at the time when the torts were committed. The only relevant evidence is what probable cause Omron and Verve had at the time the malicious complaints were

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filed, (which must be based upon what they knew at that time), and/or while the malicious proceedings were pending. C. Gulko's Personal Observations Do Not Meet The Test For Reliability

Testimony about Gulko's alleged ad hoc personal observations of Hypercom terminals in use at PetCo stores is not relevant because such testimony does not involve the application of extensive experience and reliable methodology. See United States v. Dukagjini, 326 F.3d 45, 58 (2nd Cir. 2002) ("When an expert is no longer applying his extensive experience and a reliable methodology, Daubert teaches that the testimony should be excluded."). Gulko's methodology also is unreliable. Whether or not Hypercom's terminals infringed any of the patents depends on the software that was running on the terminals, and whether or not Hypercom supplied that software or someone else supplied the software. Gulko admitted as much during his deposition: Q So whether or not the Hypercom T7, T8, and ICE 6000 terminals infringe any of the patents is going to depend on what software Hypercom supplies with the terminals, correct? A It's going to depend on the software that's operating on the terminals. (Exhibit 3, Gulko Depo. at 27:3-8.) Gulko's supplemental expert report states that his personal observations showed that "the system automatically discriminated between debit and credit card types . . . . " (Exhibit 4, Gulko Supplemental Report at 7) (emphasis added). Exhibit 5 attached hereto is a hand drawn diagram (marked as an exhibit to Gulko's deposition) showing how a Hypercom ICE 6000 terminal is typically connected to an electronic cash register (labeled "ECR") made by someone else, which is connected to a POS application server made by someone else. Both the electronic cash register and the POS application server run software provided by a third party. The only relevant question would be whether the Hypercom ICE 6000 terminal automatically discriminated between credit cards and debit cards. If the observed functionality was due to some other equipment or software provided

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by someone else, then the information relied upon by Mr. Gulko would not only be irrelevant, it would be highly misleading. Mr. Gulko was specifically questioned about the diagram (Exhibit 5 hereto) during his deposition: Q Okay. Now, you're going to have some software that's going to be running on the POS terminal, correct? A Yes.

Q And you're going to have some software that's running on the electronic cash register, correct? A Typically, yes.

Q And you're going to have some software that's running on the POS application server; correct? A Yes.

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Q Now, in trying to determine whether the - whether the Hypercom POS terminal fell within the scope of the patent claims, wouldn't it be relevant whether or not the software [that] is providing the functionality that falls within the scope of the patent claims is on the Hypercom terminal or on the electronic cash register or on the POS application server or somewhere else, just from a technical standpoint? A It might be.

Q But you would concede, just as a technical person, that the software providing the functionality specified in the claims could be on the POS application server, correct? A Could be, yes.

Q And it could be on the electronic cash register as well, correct? A It could be.

(Exhibit 3, Gulko Depo., at 109:23-110:22) (emphasis added). Gulko's testimony should be excluded because the methodology used by Gulko was unreliable. We do not know whether the unknown software that allegedly provided the functionality that Gulko personally observed in PetCo stores was supplied by Hypercom, or whether the unknown software ran on equipment that was not provided by Hypercom. Gulko made no effort to determine what equipment and what software was
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actually providing the observed functionality. Gulko's methodology fails to reliably establish that a Hypercom terminal was responsible for the functionality that Gulko claims he observed, as opposed to the electronic cash register or the POS application server, or some other piece of equipment connected to the network. Gulko's expert testimony should be excluded because he relies upon data that is unreliable. In re TMI Litigation, 922 F. Supp. 997, 1024 (M.D. Pa. 1996), aff'd, 193 F.3d 613, 697 (3d Cir. 1999) (data supporting expert's opinion was not reliable, and the district court did not abuse its discretion in excluding her testimony); see 2 Stephen A. Saltzburg, Michael M. Martin & Daniel J. Capra, Federal Rules of Evidence Manual 1397-99 (7th ed. 1998) (discussing Rule 703 and collecting cases in which courts have excluded expert testimony because the experts unreasonably relied on underlying data that was too speculative or not introduced into evidence); see also Head v. Lithonia Corp., 881 F.2d 941, 944 (10th Cir. 1989) ("Implicit in [Rule 703] is the court's [obligation] to make a preliminary determination pursuant to Rule 104(a) whether the particular underlying data is of a kind that is reasonably relied upon by experts in the particular field in reaching conclusions. Thus, the district court may not abdicate its independent responsibilities to decide if the bases meet minimum standards of reliability as a condition of admissibility."). III. THE "PROBATIVE VALUE," IF ANY, OF BRAD GULKO'S TESTIMONY IS SUBSTANTIALLY OUTWEIGHED BY THE DANGER OF CONFUSION OF THE ISSUES AND MISLEADING THE JURY Additionally, the expert testimony of Gulko should be excluded under Rule 403 of the Federal Rules of Evidence. The Ninth Circuit has noted that expert evidence can be both powerful and quite misleading because of the difficulty in evaluating it. Because of this risk, a trial judge in weighing possible prejudice against probative force under Rule 403 exercises more control over experts than lay witnesses. Jinro America Inc. v. Secure Investments, Inc., 266 F.3d 993, 1005 (9th Cir. 2001). In the Jinro case, the Ninth Circuit reversed the district court for failing to exclude expert testimony under Rule 403.

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266 F.3d at 1005 ("[W]e conclude that the district court abused its discretion in admitting Pelham's testimony for two reasons: it was not reliable and, in any event, it was unduly prejudicial and should have been excluded under Rule 403."). Id., quoting from Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 595 (1993). It would be prejudicial and unfair to allow Mr. Gulko to testify that, based on information that neither Verve nor Omron ever considered prior to bringing their malicious proceedings or while the proceedings were pending, a "reasonable suspicion" might exist for accusing Hypercom products of infringement. Permitting a witness

labeled as an "expert" to offer such an opinion unsupported by a sufficient factual foundation that Omron or Verve even had knowledge of such information will mislead the jury and confuse the issues. United States v. Dukagjini, 326 F.3d 45, 58 (2d Cir. 2002) ("[E]ven if [expert] testimony is admissible under Rule 702, it still must pass muster under Rule 403: Its probative value must not be substantially outweighed by unfair prejudice."), cert. denied, 124 S. Ct. 2832 (2004). Given the realities of litigation, the opinion of a witness impressed by the court with the label of "expert" may carry a great deal of weight with a lay jury, particularly in [complex] matters . . . . Permitting such a witness to offer an opinion unsupported by a sufficient factual foundation would significantly increase the risk of misleading the jury and confusing the issues, the very dangers against which Rule 403 defends. Elcock v. Kmart Corporation, 233 F.3d 734, 756 (3d Cir. 2000). IV. OMRON'S EXPERT WITNESS SHOULD NOT BE PERMITTED TO TESTIFY AT TRIAL In the Ninth Circuit, "[t]he general test regarding the admissibility of expert testimony is whether the jury can receive `appreciable help' from such testimony." United States v. Gwaltney, 790 F.2d 1378, 1381 (9th Cir. 1986), cert denied, 479 U.S. 1104 (1987). Because unreliable and unfairly prejudicial expert witness testimony is not helpful to the trier of fact, the trial court should exclude such evidence. Jinro America Inc. v. Secure Investments, Inc., 266 F.3d 993, 1004 (9th Cir. 2001).

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In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993), the Supreme Court imposed a special gatekeeping obligation upon a trial judge to make a preliminary assessment of the admissibility of expert scientific testimony. Specifically, the Court held that, "the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Id. at 589. In making a preliminary assessment, the trial court engages in a two-part inquiry. First, the court must determine whether the expert's testimony reflects "scientific knowledge," that is, "whether their findings are `derived by scientific method,' and whether their work product amounts to `good science.'" Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1315 (9th Cir.), cert. denied, 516 U.S. 869 (1995). Second, the court must determine whether the proffered expert testimony is relevant, "i.e., that it logically advances a material aspect of the proposing party's case." Id. V. CONCLUSION For the foregoing reasons, Hypercom requests that the Court enter an Order precluding Omron Corporation's expert, Brad Gulko, from testifying at trial, and precluding the use of Mr. Gulko's opinions, his expert witness report, and his supplemental expert witness report. In the alternative, Hypercom requests the Court conduct a Daubert to determine whether Brad Gulko should be precluded from testifying at trial. RESPECTFULLY SUBMITTED this 13th day of April, 2007. SNELL & WILMER L.L.P.

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

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STATEMENT OF MOVING COUNSEL The undersigned certifies that after personal consultation and sincere efforts to do so, counsel for Hypercom and counsel for Omron have been unable to satisfactorily resolve the matters presented in this motion. s/ Sid Leach

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CERTIFICATE OF SERVICE I hereby certify that on April 13, 2007, I electronically transmitted HYPERCOM CORPORATION'S MOTION IN LIMINE REGARDING OMRON CORPORATION'S EXPERT WITNESS BRAD GULKO AND HIS REPORT; OR IN THE ALTERNATIVE, REQUEST FOR DAUBERT HEARING to the Clerk's Office using the ECF System for filing and transmittal of a Notice of Electronic Filing to the following ECF registrants: David P. Irmscher John K. Henning, IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204 Phone: 317-237-1317 Fax: 317-237-1000 [email protected] [email protected] Attorneys for Defendant Omron Corporation Paul Moore Ray K. Harris FENNEMORE CRAIG, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Phone: 602-916-5414 Fax: 602-916-5614 [email protected] [email protected] Attorneys for Defendant Omron Corporation s/ Sid Leach A. Colin Wexler Matthew A.C. Zapf GOLDBERG KOHN BELL BLACK ROSENBLOOM & MORITZ, LTD. 55 E. Monroe Street, Ste. 3300 Chicago, IL 60603 Ph. 312-201-4000 Fax: 312-332-2196 [email protected] [email protected] Attorneys for Defendant Omron Corporation H. Michael Clyde Todd R. Kerr PERKINS COIE BROWN & BAIN P.A. 2901 N. Central Ave., Ste. 2000 Phoenix, AZ 85012-2788 Ph.: 602-351-8000 Fax: 602-648-7000 [email protected] [email protected] Attorneys for Defendant Omron Corporation

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