Free Motion in Limine - District Court of Arizona - Arizona

EXHIBIT B

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 1 of 44

M

1

2 3 4 5 6 7 8
9

Sid Leach (#019519) Andrew F. Halaby (#017251) Monica A. Lim6n-Wynn (#019174) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6372 Attorneys for Plaintiff Hypercom Corporation [email protected] ahalaby2swlaw.coat [email protected] IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA
Hypercom Corporation,

10
11 12

No. CV 04-0400 PHX PGR Plaintiff, MAIN REPORT OF LAURENCE H. PRETTY, EXPERT FOR PLAINTIFF HYPERCOM CORPORATION ON PATENT LITIGATION PROCEDURE

VS.

Verve, L.L.C., and Omron Corporation, Defendants.

I, Laurence H. Pretty, retained as an expert on patent litigation procedure by the Plaintiff Hypercom Corporation in this lawsuit, provide this as my main report in compliance with Rule 26(a)(2)(B) Fed.R.Civ.P. A paginated Table of Contents to 21 22 23 24 25 26 27 1. It is my opinion that U.S. Patent No. 5,012,077 (the `377 patent") is not this report is attached at the end. Copies of all the exhibits referred to in thie report are provided in a separately bound "Compilation of Exhibits Identified in The Main Expert Report of Laurence H. Pretty" accompanying this report.

1.

MY OPINIONS

28

infringed by the Hypercom T8 or ICE 6000 Terminals.
1
MAIN REPORT OF LAURENCE H. PRETTY
WLA - 26036=02 - 260Mv1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 2 of 44

1 2

2.

It is my opinion that U. S. Patent No. 4,678, 895 (the "'895 patent") is not

infringed by the Hypercom T7 terminals.

3
4. 3. It is my opinion that U.S. Patent No. 4,562,341 (the "'341 patent" is not

5 6
7 8 9 10

infringed by the Hypercom ICE 6000 Terminals.

4.

It is my opinion that Omron should have known, in view of the practice

of naming a licensor who has retained substantial patent rights as a party in a case asserting the licensed patent, that it must be named as a party in litigation on its 1077, '341 and'895 patents and that Verve lacked standing to sue.

11 12
13 14

5.

It is my opinion that Omron should have known that it had not

performed the pre-litigation investigation of liability of Hypercom for infringement of its'077,'895 and '341 patents required of a patent licensor who has retained

15
16 17 18 19 20 21 22 23 24 25 26 27 28

substantial rights in its licensed patents.

6.

It is my opinion that, in view of the practice requiring naming a

licensor who has retained substantial rights in a patent as a party in litigation on the patent, Omron cannot shelter itself from liability for the bringing of baseless litigation by its licensee by concealing its retained rights.

The information and data considered by me in forming these opinions is discussed in Section III of this report. The bases and reasons for the opinions are stated in Section IV of this report.

2 MAIN REPORT OF LAURENCE H. PRETTY
k%%LA.28038=0002.280388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 3 of 44

II. 2 3 4 5 6
7 8

MY QUALIFICATIONS

I will preliminarily summarize my qualifications and experience. A more detailed curriculum vitae is provided as Exhibit 1.

I am an attorney whose practice has primarily been in patent litigation for approximately 35 years. Cases which I have tried have included jury trials as well as bench trials. I have filed and argued several appeals in patent cases before the Federal Circuit. I am also a registered patent attorney. Although I have not kept a list of every patent case in which I was lead counsel, my best estimate is that it would be about 70 cases. Many of these cases have been ones in which I was representing a plaintiff patent owner in which I had to perform a pre-suit evaluation

13 14 15 16

whether there was an adequate basis to charge infringement that would satisfy Rule 11 Fed.R.Civ.P. I represented defendants in two cases in which the plaintiff patentee was sanctioned for non-compliance with Rule 11, Fed.R.Civ.P.

17 18 19
20 21 22

I have an undergraduate degree in engineering from the Imperial College of Science and Technology in the United Kingdom and a law degree from George Washington University Law School. I was a law clerk for one year at the U.S. Court
of Customs and Patent Appeals, the predecessor of the U.S. Court of Appeals for the Federal Circuit. Since 1969, I have been continuously in private practice, for 3 years in New York City and, since 1972, in Los Angeles, California. From 2002, to the

23 24 25
26 27

present, I have been a partner in the law firm of Hogan & Hartson L.L.P, in its Patent Litigation Group in the Los Angeles downtown office.

In addition to my professional practice , I taught patent law as an adjunct lecturer in the regular law school program of UCLA Law School from 1974 to 1984

28 11 and again from 1996 to 2002, on an alternate year basis. I have written extensively

3
MAIN REPORT OF LAURENCE H. PRETTY
VILA - 2603614042 - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 4 of 44

on patent litigation topics. I am the editor, planner and co-author of the book 2 PATENT LITIGATION published by Practicing Law Institute, New York, NY, in print since 2001. I am the author of Chapter 8 "Patents" in the two-volume book CALIFORNIA BUSINESS LITIGATION, in print in California since 2002. I have also published articles in professional journals including the Journal of the Patent and Trademark Office Society and the .AIPLA Quarterly Bulletin. Bar offices that I have held have included: Chair of the Intellectual Property Section of the California State Bar; Director, American Intellectual Property Law Association; Member of Council ABA-Intellectual Property Law Section; President of the Los Angeles Intellectual Property Law Association; and President of the Association of Business Trial Lawyers (Los Angeles Chapter). 12

3
4

5
6

III.

INFORMATION AND DATA CONSIDERED AND EXHIBITS

I have been provided by Hypercom's trial counsel with four document boxes containing papers and exhibits filed in the ITC proceedings and in the various couxt actions that Verve has brought against Hypercom, together with copies of the patents, their prosecution histories and other documentation such as prior art and documentation describing Hypercom's products. In this Section III of my report, I . will identify the documents and exhibits that I have considered in forming my opinions. Additional documents and exhibits considered by me are also identified in Section IV of the report.

I will begin with the ITC proceeding in which Verve asserted that its '077 patent was infringed by the Hypercom T8 and ICE 6000 terminals.

4
MAIN REPORT OF LAURENCE H. PRETTY
1111A - 2603810002 - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 5 of 44

A.
2^

The ITC Action on the 1077 Patent Re the Hypercom T8 and ICE
6000 Terminals

3
4 5 6 7 On July 31, 2004, Verve instituted an action captioned "Certain Point of Sale Terminals and Component Parts Thereof' in the U.S. International Trade

1

1.

History

Commission ("ITC") in Washington D.C. (Exhibit 2). Verve asserted that it was ".. .
9 10 11 12 13 14 15 16 now the owner of the '077 patent pursuant to an assignment from Omron Tateisi Electronics Company" and asserted that the '077 patent was infringed by ".. , Hypercom's ICE 6000 and T8 terminals; ..." (Exh. 2, IT 9 and 10). Hypercom responded in September 2004 with a showing under Commission Rule 210.13(b)(1) that its accused products were not covered by the claims of the '077 patent (Exh. 3). Verve ignored this showing. Eventually, as I will describe later, the ITC proceeding was dismissed after it was discovered that Verve lacked standing to sue on the '077 patent.

17
18 19 20 21 22 23 24 25 26 27 28 The application for the '077 patent was filed on September 29, 1988 by a Japanese company Omron Tateisi Electronics Co. ("Omron") (Exh. 4). The patent discloses a card terminal for use in a store to process credit cards and debit cards. When a credit card is used, the store clerk must check with a host computer of the credit card company for authorization. It is required to check whether the card is valid and whether the amount of money for the transaction exceeds an upper credit limit and, if so, an amount of money is transmitted for storage into memory for settlement of the transaction (Exh. 4:23-34). When a debit card is used, information concerning the transaction must be sent to the computer of a bank associated with S
MAIN REPORT OF LAURENCE H. PRETTY
W LA - 26036MOD2 - 2603B6 A

2.

The System Disclosed in the 1077 Patent

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 6 of 44

I 2
3

the debit card which transfers an amount of money from the customer's account to the store's account. Debit card information is manually input by the customer. (Exh. 4:35-43).

4 5 6 7
8 9 10 11 12 13 Before the time of the application, it was quite common for two separate card terminals to be required at the store counter, one for use with credit cards and the other for use with debit cards. (Exh. 4:44.48). An objective of the '077 patent was to provide a credit and debit card processing terminal which could process both credit cards and debit cards in common. (Exh. 4:49-54). The terminal is shown in the following Fig. 1.

Fig.I

The terminal 1 includes a support base 2 on which it can be rotated to face the store clerk, for entry of credit card transaction information, or the customer for a debit transaction. It has a card slot 3 through which a credit card or debit card can be swiped for reading of information encoded on a magnetic stripe. The terminal includes a display window 4, which can display information such as the authorization results or the amount of the transaction, and a touch screen 5. A hardware schematic of the terminal is provided in Fig. 3, shown below. b
MAIN REPORT OF LAURENCE H. PRETTY
I I1 MLA - 2603610002 - 260386 v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 7 of 44

2 3

Fig.3
CPU 10

4 5 6
DISPLAY 7 CREDIT CARD

50 roueH
PANBL

ROM

RAM

8 9

4

70.
ECR Ita wxz To SMIFM Tr37lf EML

90 CARD CAS AM [iR1+Jf(S

10
DEBIT CARD

Additional functional blocks within the terminal include a communications controller 80 by which the CPU can communicate with credit card senders for credit transactions and with banks for debit transactions and an ECR interface block 70 for exchange of data with an electronic cash register ("ECR") or with a point of sale terminal C POS terminal"). The terminal includes a read-only memory 50 and a 19 random access memory 60, which store programs and a card discriminating table, respectively, for enabling the terminal to automatically determine whether a card is a credit card or a debit card. The patent explains:

20
21 22 23 24 25 26 27

"With reference to these drawings, various programs necessary for discriminating the kinds of card, effecting credit processing and debit processing, etc. are stored in the ROM 50. On the other hand, various buffer (internal memory areas) necessary for data processing, a card discriminating table, etc. are stored in the RAM 60. Credit company names corresponding to credit cards to be used, codes 7
MAIN REPORT OF LAURENCE H. PRETTY

28

k

WU · 28038!0002.280386 v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 8 of 44

i

indicative of the kinds of credit cards, bank codes corresponding to debit

2 3
4

cards to be used, etc. are stored in the card discriminating table. These data are compared with data read from a credit card or debit card through the card reader 40 to determine whether a card passed through the card reader 40 is a credit card or a debit card in accordance with the card discrimination program." (Col. 3:64-Col. 4:10).

5
6

7 8 The steps for processing a transaction are shown in Fig, 6 below.

Fiq.6
StAIM HEAP CARD

12

13
14

15
SUD

T---Sro
C"D rr $110MM RM aISiT 8 Brit7GN1f1d

-.Ur

-- sr r
PrM M DWF! WZ=

3K= evaoxwWo To CKM no=

X

six
MM =10SA`S Sq S7 Aid"MIZt CARD VIA ON-LINS SETTLE CARD T1t OAlCTr0" VIA CW-LINE r

SMT=

M
GASH PAYKWr

8
MAIN REPORT OF LAURENCE H. PRETTY
% LA - 2603610402 - 2603B8 vi

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 9 of 44

s

Y

1
2

After step S1 of reading a card, the next step S2 is determining whether it is a credit card. If it is, then the CPU goes through Steps S3 through S7 applicable to credit card transactions resulting in an authorization for the credit transaction. If the determination at Step S2 was that the card was not a credit card, then a determination is automatically made whether it is a debit card in accordance with the card discrimination program. (Exh. 4:11-16). If the card is determined to be a credit card, then the CPU proceeds to execute Steps S9 through S13 which result in settlement of the transaction amount by an on-line transfer from the bank.

3
4

5
6

7
8

3.

Claims of the 1077 Patent and Their Prosecution History

I have reviewed a copy of the prosecution file of the'077 patent (Exh. 5). Only one of the originally filed claims, claim 1,. was an independent claim, (Exh. 5: Original claim 1):

The Examiner issued a first Office Action on January 16, 1990 in which he rejected independent claim 1 for indefiniteness under 35 U.S.C. § 112. Claim 1 was also rejected as anticipated, under 35 U.S.C. § 102(e) by the disclosure of a patent, filed earlier than the'077 application, to Savar, U.S. Patent No. 4,727,243 (Exh. 5, First Office Action; Exh. 6, Savar patent). "Anticipation" means that the every limitation of the claim is found in a single prior art reference, combined as in the claim. I have reviewed the Savar patent (Exh. 6).

In response to the Office Action, the applicant filed a first amendment, received on April 23, 1990. Claim 1 was amended as follows, with additions underlined and deletions in brackets:

27 28
9
MAIN REPORT OF LAURENCE H. PRETTY
VILA-26036!0002- 260366 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 10 of 44

.i

1 2

"1.

A credit and debit card processing terminal, comprising:

3 4 5
6 7

(a)

a processor comprising a credit [processing means]

processor for effecting [a] credit card processing on the basis of data stored on a credit card[;] and [(b)] a debit [processing means] processor for effecting [a] debit card processing on the basis of data stored on a debit card;

8 9 10 11
[(c)] fl)j a card [discriminating means] discriminator for

automatically discriminating whether a card to be used is a credit card or a debit card by reading said data [recorded] stored on [the] said card;

and

[(d)]

cc) a., processing [activating means] activator for activating

any one of said [credit processing means] processors in response to said data automatically, [information] discriminated by said card [discriminating means] discriminator." (Exh. 5, first amendment.)

The applicant also submitted a second independent claim 4 which includes terminology of comparable scope requiring automatic discrimination.

In accompanying remarks in the amendment , the applicant's attorney argued that the claimed invention, as amended., differed patentably from the Savar patent because all of the initial discrimination steps occur automatically in contrast to the Savar disclosure requiring manual input of the type of card. Specifically, applicant argued as follows:

10
MAIN REPORT OF LAURENCE H. PRETTY
\MA - 26036/0002 - 260388 v9

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 11 of 44

1 2 3 4 5 6
7 8 9 10 11 12

"The present invention as claimed involves a credit and debit card processing terminal including a discriminating device. When a card is inserted into the processing terminal a discriminator contained in the processing terminal determines whether that card is a credit card or a debit card purely on the basis of data recorded on the card. Following entry of a secret code, the credit or debit card processing
steps occur. A particular advantage of this invention, is that all of the initial discrimination steps occur automatically. In other words, the input keys or functions are automatically altered based upon the data read on the card. If the system determines that the data read is debit card data, then the alphanumeric keys are automatically shifted and displayed on display 5 (see Fig. 2B). In the case of credit card

13
14 15 16 17 18 19

processing, the information read from the data card automatically
changes the display 5 to show credit card related information (i.e., such as a telephone number of a central installation for the credit card transaction) as shown in Fig. 2A. Thus, the invention saves the user from initially having to identify whether the card is a credit card or a debit card. This makes the terminal easier to use, more accurate, and more efficient.

20
21 22 23 24 25 26 27 "Amended claim 1 recites a card discriminator for automatically determining whether a card is a credit card or a debit card by analyzing transaction -type data stored on the card . There is no such teaching in Savar since only manual input of the card-type is described by Savar. In fact, the present invention is clearly an improvement over Savar II .
MAIN REPORT OF LAURENCE H. PRETTY
1QLA - 2BD351OM2 - 260388 v4

"These features and advantages are neither taught nor illustrated by Savar.

28

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 12 of 44

since automatic discrimination reduces the transaction time, reduces

2 3
4

the amount of information needed from the user and substantially increases the accuracy of the transaction . Accordingly, Savar does not teach the elements of claim 1 . For these reasons, therefore , applicant believes the present invention patentably distinguishes over Savar and thereby respectfully requests reconsideration of the rejection under 35 USC §102(e) and an allowance of claim 1." (Exh . 5, Amendment,

5
6

pp. 5-7, original emphasis).

The Examiner was persuaded by this argument and , in a second Office Action, mailed July 30, 1990 , allowed claim 1, stating:

"The prior art of record considered as a whole fails to teach or suggest a card processing terminal having a processor for performing credit or debit processing using a credit or debit processor depending on the activation of an activator responsive to data automatically discriminated by a card discriminator (claim 1). Further, the prior art of record considered as a whole fails to teach or suggest a card processing system that includes a discriminator for automatically discriminating between types of cards, and a touch panel controller for changing key arrangements according to the type of card discriminated by the discriminator (claim 4)." (Exh. 5, Second Office Action, page 3).

The application passed to allowance and issued as the '077 patent.

27

28
12 MAIN REPORT OF LAURENCE H. PRETTY
Il Nuu · 2603SM002 ·2WW vt

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 13 of 44

i

4, 2
3 4

The Hypercorn T8 and ICE 6000 Terminals

I have reviewed disclosure materials concerning the T8 and ICE 6000 Hypercom terminals accused of infringing the 1077 patent in the ITC proceeding attached as exhibits to Exhibits A-D of Hypercom's Showing of Noncoverage (Exh. 3). In addition, I have reviewed a color photograph of the Hypercom T8 terminal (Exh. 7). Neither the T7 or the ICE 6000 terminal is able to discriminate automatically between credit cards and debit cards.

5 6 7 8

The TS terminal is described in a manual entitled "T7 and T8 Series HyperWare Retail and Restaurant Software Manual", dated February 19, 2001 (Exh. 3, at Tab B). A photograph shows it to be a terminal with a display screen at

13 14 15
16

the top, a card slot for swiping the card along the right side and a plurality of hardwired control buttons centrally positioned on the face of the terminal (Exh. 7). The terminal normally treats every card swiped through it as if it would be a credit card. When a customer wishes to use a debit card, the terminal must be instructed to follow the different processing steps appropriate for processing a debit card by manually pressing a debit button at the upper left corner of the control button array, marked as the debit button and visible in the·photograph (Exh. 7). The T8 terminal has no ability to automatically discriminate between a credit card and a debit card merely from swiping the card through the card reading slot.

The SCE 6000 terminal is shown in an illustration from its product literature (Exh. 3, Tab D, Fig. 2-1). The terminal includes a touch screen, in the upper part of a terminal, with a numeric hard key pad below it and a card swipe slot extending parallel to the right side edge of the terminal. The terminal can be programmed by a software tool kit called "Form Builder" provided by Hypercom. The Hypercom

28

software tool kit comes with pre-built command buttons for a credit card and for a 13 MAIN REPORT OF LAURENCE H. PRETTY
I A. 2843 MD2 - 26MB8v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 14 of 44

i

1 2

debit card. (Exh. 3, Tab C at pp. 1-2, Tab D at pp. 4-2). A command button must be provided on the touch screen, through the software, and an appropriate command

3 4 5 6
7 8 9 10

button return key code must be entered, by touching the screen on the appropriate button, in order for a credit card or a debit card transaction to be activated (Exh. 3, Tab D at p. 4-2 "When building a screen with financial transaction buttons included, Command Button Return Key codes must be entered into the Return Key menu for
the transaction to be activated"). The software tool kit provides a command button return key code for a credit card transaction ("FuneKeyl:'), and a different command button return key code for a debit card transaction ("FuncKey2") (Exh. 3, Tab D at page 4-2). Specifically, if the merchant wants to use an ICE 6000 terminal to

11 12
13 14 15 16 17 18 19

process a debit card transaction, the merchant must provide a display with a debit card command button that must be pressed by the user, and which returns the
appropriate command button return key code ('FuncKey2" to the terminal) in order for a debit card transaction to be activated. The ICE 6000 terminal is not capable of automatically discriminating whether a card swiped through the terminal is a credit card or a debit card.

B.

The Michigan Action on the '895 Patent Re The Hypercom T7 Terminal

The first action filed by Verve was a lawsuit in the U.S. District Court for the Eastern District of Michigan alleging infringement of the '895 patent by Hypercom's T7 series of terminals, filed on September 11, 2003. (Exh. 8). It was subsequently transferred to this Court and was subsequently unilaterally dismissed by Verve. Verve's claim for infringement of the '895 patent has been dismissed by this Court

27 28

for reasons that Y will refer to later. The '895 patent (Exh. 9) shows on its face that

14
MAIN REPORT OF LAURENCE H. PRETTY
1aA - 2W3610002 - 260388 v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 15 of 44

Y

it was filed on October 27, 1983 so that its 20 year term from the filing date expired 2 3
4 5 6 7 The system of the '895 patent is most easily described with reference to Fig. 1, below (Fig. 9).

on October 27, 2003 -- less than seven weeks after the filing of the lawsuit.

2.

The System Disclosed in the '895 Patent

8

The system is disclosed for processing debit card and cash transactions using an electronic cash register (" ECIV) 10 directly connected to a terminal device 30. (Exh, 9, Col. 3:24-52). A hardware schematic, Fig. 3, shows that the cash register and terminal device communicate with a control center 40 at a bank. (Exh. 9, Col. 3:59-63). Each of these principal components 10, 30 and 40 has its own CPU. In a typical transaction, a customer's goods will be rung up by a sales clerk on the cash

28
15
MAIN REPORT OF LAURENCE H. PRETTY
NXI A - 2603810002 · 260388 v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 16 of 44

register and summed to print out a total sum S which is shown on the cash register 2 display and printed on the slip and journal. (Exh. 9, Col. 6:41-49).

3
4 The customer's bank card is then read, by swiping it through a scanning groove 4 of the cash register, and the bank card data and the total sums payable are forwarded from the cash register to the terminal. (Exh. 9, Cal. 6:66-Col. 7:2 and Col. 7:3-40). The information is transmitted from, the terminal device 30 to the control center 40 where it goes through a sequence of processing steps. (Exh. 9, Col. 8:56Col. 9:8). If the transaction satisfies the checking steps, an appropriate receipt is printed by a printer 36 and the receipt and goods are handed over to the user. (Exh. 9, Col. 9:28-45).

5 6
7

8
9

10
11 12

13
14

3.

Claims of the 1895 Patent and Their Prosecution History

The '895 patent has 6 independent claims, claims 1, 6, 7, 10, 11 and 12. Independent claims 1, 6, 7 and 11 all have a limitation either for an electronic cash register or requiring the presence of an electronic cash register in the claimed combination.

Claim 10 does not explicitly recite "an electronic cash register" but contains the following two limitations drafted in "means plus function" form:

22 23
24 25 26 27 28 16
MAIN REPORT OF LAURENCE H. PRETTY
MA - 2603610002 - 260388 vi

"means for entering data relating at least to the prices of goods;

"means for calculating the total sum of the prices entered as the sum to be paid; "

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 17 of 44

I s

Both these claim limitations are drafted in "means plus function" form. Accordingly, 2 3 their coverage, under 35 U.S.C. § 112, paragraph 6, is limited to the

corresponding structure, material or acts described in the specification and equivalents thereof'. The only structure disclosed in the patent for performing the recited functions constitutes the electronic cash register 10. 1 construe these two "means plus function" limitations of claim 10 together to cover only the electronic cash register disclosed in. the '895 patent or a structure equivalent to the disclosed electronic cash register.

4
5 6

The remaining independent claim , claim 12, recites a limitation to

"first means for setting data relating to a sum payable;"

From my review of the specification, I construe the "first means for setting data relating to a sum payable" to cover only the electronic cash register 10 disclosed in the specification or an equivalent of the disclosed electronic cash register.

1 have reviewed a copy of the prosecution file of the '895 patent (Exh. 10). 19 20 21 22 23 24 25 26 27 All of the originally-filed claims 1-9 were rejected, on a first Office Action, as being obvious under 35 U.S.C. § 103 in view of the combination of prior patents to Struckert No, 4,277,837 in combination with either of two patents to Case, Nos. 4,172,552 or 4,270,042 (Exh. 10, First Office Action). The applicant filed an amendment received on April 17, 1985 which made some changes to claims 1-9 and added a new claim, 10, having the earlier-discussed limitations to "means for Independent claims 1, 6 and 7, all including a limitation to the presence of an "electronic cash register" were correspondingly numbered originally filed claims.

28
17
MAIN REPORT OF LAURENCE H. PRETTY
VILA - 26036=W - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 18 of 44

I

10

1

entering data relating to at least to the prices of goods" [and] "means for calculating the total sum of the prices entered as the sum to be paid".

2

4

A second Office Action was mailed on September 3, 1986 in which independent claims 1, 7 and 10 were allowed and claim 6, to electronic cash register, was rejected. (Exh. 14, Second Office Action). The applicant filed a response received on November 25, 1986, further amending claim 6 and adding new claims 11 and 12. With respect to claims 11 and 12, the applicant's explanation of their scope was to assert that:

5
6

7 8
9 10 11

"... Claims 11 and 12 are similar to allowed claims 7 and 10, but are somewhat broader in scope" (Exh. 10, Amendment at p. 4).

Following this Amendment, the application was allowed and resulted in the issuance of the '895 patent with the claims as they appear.

4.

The Hypercom T7 Terminal

The Hypercom T7' terminal is shown in a color photograph (Exh. 11) and is described in a Hypermate Software Manual for the T7 (Exh. 12). As can be seen from the photograph, it is a stand-alone unit having a display panel, a keyboard 22 array and a card swipe slot, together with the printer for a receipt.

23 24
25 26 27 I have been informed that the T7 unit terminal is not sold for use in a system with an electronic cash register and that, so far as Hypercom is aware, no T7 terminal has ever been used with an electronic cash register.

28 18
MAIN REPORT OF LAURENCE H. PRETTY
W-A - 260 3510402 - 2B= 8 v i

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 19 of 44

1 2 3

It is my understanding, based on my review of the T7 software manual and what Hypercom's counsel has told me, that the T7 terminal does not have any ability to add separate transaction items and produce a sum of the amount owed.

4
C. 5 II 6 7 8 On February 4, 2004, Verve filed a lawsuit in the U.S. District Court for the Western District of Texas, Austin Division, alleging that its '341 patent was infringed by Hypercom's ICE 6000 terminals (Exh. 13, 16). On December 29, 2004, the Texas Court severed Verve's claim against Hypercom and transferred it then to this court. After the case had been transferred to this court, its claim against Hypercom under the '341 patent was dismissed by order of this court in view of Verve's failure to obtain substituted counsel on its behalf (Exh. 14). 16 2. By the Time of Service , Plaintiff Had No Possibility of An Injunction or Damages Due to Patent Expiration Thd Teams Action On the'341 Patent Re the Hypercom ICE 6000 Terminal 1. History

17
18

The '341 patent was filed on February 15, 1984 so that, under 35 U.S.C. § 154(a)(2), its expiration elate was February 15, 2004, eleven days after the complaint was filed. (Exh. 15, cover page). Although the complaint was filed an February 4, 2004, I have been informed by Hypercom's trial counsel that it was not served on Hypercom until May 11, 2004, by which time there was no possibility of an injunction due to expiration of the patent.

Nor has Verve shown the basis for a recovery of damages by the time the

27 28

complaint was filed. For patent damages to be recoverable under 35 U.S.C. § 287(a), the patent owner must either have given actual notice to the infringer to commence 19
MAIN REPORT OF LAURENCE H. PRETTY
IMA · 26038 ODD - 280388 of

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 20 of 44

I

r

the running of liability for damages or it must have given constructive notice if it

2 3
4

sells products under its patent in the U.S.A. by marking the products with the patent number. Hypercom was given actual notice that it was charged with infringement until service of the complaint on May 11, 2004, after the patent had expired. There is no allegation in the complaint that the patent owner had satisfied the requirements for constructive notice. Accordingly, under 35 U.S.C. § 287(a), Verve has not shown any legal basis for a claim of damages by the time it served the complaint on Hypercom.

5 6 7
8 9 10 11

3.

The '341 Patent Describes And Claims An Electronic Cash Register

The subject matter of the '343 patent is most easily described with reference to the following Fig. 1: FIG.1

The dictionary definition of a cash register, for example in Webster's TINew College Dictionary (2001) is "A machine that tabulates the amount of sales transactions, makes a permanent and cumulative record of them, and has a drawer in which cash may be kept." (Exh. 16). The '341 patent describes an electronic cash register which includes having a combination of features, characteristic of a cash register, including ".., a keyboard having keys for cash registration", "... a memory

20
MAIN REPORT OF LAURENCE H. PRETTY
IMA . 26036/0002 · 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 21 of 44

1 2

for storing data as to cash registration", "... a control unit for processing cash registration" and "a display for showing data as to cash registration" (Exh. 15, col. 133-48; col. 2: 25-45).

3 4 5 6
7 8

In addition to these characterizing features of a cash register, the cash register includes an internal CPU for processing credit information concerning customers
who wish to pay by credit card and communication blocks for communicating with a credit company CPU or a bank CPU.

There are only two independent claims in the patent. Independent claim 1 claims "1. An electronic cash register". Further limitations of the claim require "a keyboard having keys for cash registration", "means for performing cash registration processing", "a memory for storing data as to cash registration". The other independent claim, claim 11, claims "a system for performing credit transactions, comprising "an electronic cash register ... the electronic cash register comprising a keyboard having keys for cash registration" and "means for performing cash 17 18 Although I have considered the prosecution file of the `341 patent (Exh. 17) it is unnecessary for me to discuss it further since the presence of the foregoing limitations in the only two independent claims of the patent is enough to be determinative on the issue of infringement. registration processing".

4.

The Accused Hypexcom ICE 6000 Terminal

26 27 28

I have already described the Hypercom ICE 6000 terminal in connection with the ITC proceeding, on pages 13-14. It is not a cash register. It includes no cash drawer for holding cash, no keyboard for cash registration, no control unit for 21
MAIN REPORT OF LAURENCE H. PRETTY
MLA - 28036!0002.260888 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 22 of 44

r

1

processing cash registration, and no display for showing cash registration. It is not employed as a cash register in any system having the further features disclosed and claimed in the '341 patent.

2 3
4 5 6

D.

Omron's Status As An Indispensable Party

7
8 9 10 11

1.

Omron's Retention of Substantial Rights

The three patents which Verve has asserted against Hypercom all show, on their face, that the assignee and owner is Omron Tateisi Electronics Co. of Kyoto, Japan (Exhs. 4, 9 and 15). Verve instituted the ITC proceeding in its, own name alone, representing that it was "... the owner of the '077 patent pursuant to an assignment from Omron Tateisi Electronics Co." (Exh. 2, ¶ 9).

The patent statute provides that "a patentee shall have remedy by civil action for }nfringement of his patent", 35 U.S.C. § 281. Ordinarily, suit will be brought by the person holding legal title to the patent. The situation of divided rights in a patent, between an owner and a licensee , raises a question of standing to sue which 19 occurs with some frequency in patent cases and always requires careful attention by those on the patent owner's side before filing the complaint in the patent lawsuit. Any failure to join a party possessing substantial ownership rights in the patent risks exposing the defendant to multiple lawsuits and must be avoided by proper joinder of the necessary parties.

20
21

! The basic ground rules for naming a patent owner , were laid down by the U.S. Supreme Court in 1891 in Waterman u. McKenzie , 138 U.S. 252, 11 S . Ct. 334 ( 1891). Anything less than a complete transfer of rights , the court explained, is a license rather than an assignment even if it is denominated as an assignment. If the patent owner retains substantial rights , the transfer is only a license , the title remains in the owner of the patent and it must be a named party in a suit for infringement. 22

MAIN REPORT OF LAURENCE H. PRETTY
MLA - 28(138!0002 - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 23 of 44

I

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 26

During the ITC proceeding, Hypercom sought the underlying patent assignment agreement between Verve and Omron which Verve refused to provide until ordered to do so by the ITC administrative law judge, as reflected in the ITC's "Order No. 31: Concerning Hypercom's Motion to Terminate Investigation Based on Complainant's Lack of Standing" (Exh. 18, at p. 3). The agreement that Verve had refused to produce voluntarily revealed that Omron retained substantial rights to the purportedly assigned patents including a non-exclusive, royalty-free fully paid license; the right to sublicense and cross-license the patents to Omron's "present and future business partners and customers as Omron determines and sees fit; parties against whom Verve has already filed suit"; and the requirement that Verve obtain Omron's approval before filing suit against anyone (Exh. 19 at pp. OMRON 0016465). The ITC administrative judge, in his Order No. 31, picked out these substantial rights retained by Omron, including others, (Exh. 18, at pp. 5-9). He concluded:

"Accordingly, based on all of the foregoing, it is clear that Verve has not been granted exclusive rights to the '077 patent; therefore, it does not have standing to maintain an action for infringement" (Exh. 18, at p. 10).

The '895 patent asserted in the Michigan lawsuit and the '341 patent asserted in the Texas lawsuit, now the lawsuit before this court, were both included in the same "Patent Assignment and License Agreement Between Omron Corporation and Verve LLC" as the '077 patent (Exh. 19, at p. OMRON 00175), There is the same retention of substantial rights by Omron in the '895 and '341 patents that established Verve's lack of standing to sue on the '077 patent in the ITC proceeding.

27 28
23
MAIN REPORT OF LAURENCE H. PRETTY
MLA - 26036NOW - 2603N v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 24 of 44

2.
2

Omron Intentionally Concealed Its Indispensable Party Status

3 4 5
6 7

From the start of Omron's licensing relationship with Verve, it was a principal objective of Omron to have "zero payment risk" in the case that its licensee Verve. should lose in litigation. Mr. McConnell, the Omron intellectual property executive in its North American subsidiary, in an internal Omron memorandum dated
August 7, 2003, provided the following "supplementary explanation" of the license with Verve then in process of negotiation:

8

"1.

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." (Exhibit 20 [Exhibit 4]).

The same reason, and the same wording, appears in a further Omron internal memorandum dated October 27, 2003 (Exhibit 21). Verve and Omron 16 1.7 18 19 20 executed a Patent Assignment and License Agreement No. 031804 (Exhibit 19). There was a subsequent secret "Addendum 1-033004" effective April 1, 2004 (Exhibit 22). This secret Addendum shows that, despite the purported assignment of Omron's patents to Verve, Omron retained substantial patent rights, specifically:

21 22
23 24 26

"OMRON is granted the right to sublicense and cross - license the ASSIGNED PATENTS, LICENSED PATENTS and PREVIOUSLY
ASSIGNED PATENTS and to OMRON' s present and future business partners and customers as OMRON determines and sees fat" (Exhibit 22, Para. 1.0).

26 27 28
On April 23, 2004, Omron's U.S. attorney, Herbert Kerner, wrote a letter to Verve's attorney, Mr. Galasso, which confirmed "... the status of Omron's review 24
MAIN REPORT OF LAURENCE H. PRETTY
MLA - 2843610002 - 260M v4

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 25 of 44

and approval of Verve's proposed licensing targets" , listing Hypercom as one of the 2 initially-approved targets. (Exhibit 23). On July 30, 2004, Omron' s licensee, Verve, filed a "Verified Complaint Under Section 337 of the Tariff Act of 1930, as amended" naming Hypercom as an alleged infringer of Omron's'077 Patent, in Para. 5 (Exhibit 24). In Paragraph 9, the ITC Complaint alleges (Exhibit 24):

3
4

5
6

"9.

On April 30, 1991, U.S. Patent No. 5,012,077 ('077 Patent)

was duly issued to Omron Tateisi Electronics Company for a 'Credit and Debit Card Processing Terminal'. Complainant Verve is now the owner of the'077 Patent pursuant to an assignment from Omron Tateisi
Electronics Company".

The ITC Complaint referenced an Exhibit E, an Assignment between Omron Corporation and Verve LLC of the '077 Patent . This Assignment incompletely represents (Exhibit 25):

"NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt of which is hereby acknowledged, OMRON, the said Assignor, does hereby sell, assign and transfer unto Assignee, its successors, legal representatives and assigns, the full and exclusive right in and to the Patent;

"AND OMRON HEREBY warrants and covenants that OMRON has the full right to convey the entire interest assigned and that OMRON has not executed and will not execute any instrument or assignment in conflict herewith;"

25
MAIN REPORT OF LAURENCE H. PRETTY
M-A - 2603610002 - 260388 V1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 26 of 44

I 2 3 4 5
6

This Assignment tells less than half the story . Although this Assignment is dated October 26, 2004, this assignment document intentionally conceals the existence of the previously described ADDENDUM TO LICENSE AGREEMENT 1-033004 which deprives Verve LLC of "the full and exclusive right in and to the Patent".

7 8
9 10

Omron's efforts to shelter itself behind Verve were exposed by the efforts of the ITC Administrative Law Judge as described earlier in this Report at paged 2223. As already quoted, the ITC Judge concluded that "Verve has not been granted exclusive rights to the'077 Patent; therefore, it does not have standing to maintain an action for infringement" (Exh. 18, at p. 10).

3.

Omron Made No Investigation Whether Its Patents Were Infringed By Hypercom

Mr. Nakano was designated on behalf of Oraron Corporation for deposition in this case. His deposition establishes that Omron never made any effort to analyze the merits of the patent infringement claims against Hypercom asserted by Verve before the ITC proceeding and in the other lawsuits. (Exhibit 26 at pp. 4 and 155-158).

E.

Customary Investigation Procedure Before Asserting Patent Infringement

1.

Introduction

I will now describe the steps of investigative procedure that a patent litigator customarily follows in performing before asserting infringement of a client's patent 26
MAIN REPORT OF LAURENCE H. PRETTY
%LA · 26036=02.260386 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 27 of 44

I 2 3 4 5 6

by a competitor's product. My basis for providing this description is based on my experience for more than 30 years as a patent litigator . It is consistent with what may be found in texts, such as in Chapter 2 of the reference work PATENT LITIGATION published since 2001 by Practicing Law Institute Press, New York, NY, edited by myself, which is an authoritative text regularly consulted by patent litigators . (Exh.27).

7 8 9 10 Lawyers contacted by Verve to represent it in this Court in a parallel action, Verve L.L.C. v. Hypercom Corporation, No. CV- 05-0365-PHX-FJM, the law firm of Lewis and Roca LLP, have explained the investigation required in a motion filed in that case, as follows:

"Verve seeks a stay of these proceedings to enable its prospective replacement counsel to conduct the requisite reasonable inquiry necessary for representation of Verve in this proceeding. Patent claims, like any other claims, require counsel to engage in a reasonable inquiry into the law and facts to ensure that their client's claims are both legally and factually supported and not asserted for an improper purpose. E.g. Fed.R.Civ.P. 11. In a patent case, that reasonable inquiry typically includes an analysis of the patent claims themselves, a reasonable interpretation of those claims, and a comparison of the patent claims against the accused products. E.g., MEMC Electronic Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.23d 1369, 1382 (Fed. Cir. 2005)."

Motion for Stay of Proceedings and to Amend Pre-Trial Schedule, filed December 5, 2005. (Exh. 28 at p. 2).

27
MAIN REPORT OF LAURENCE H. PRETTY
NUA - 26036!0002 - 260386 vi

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 28 of 44

2. 2

Ensuring That the Motive for The Lawsuit is for a Legally Available Remedy, Not for Oppression

3
4 5

Probable cause and Rule 11(b)(1) Fed,R.Civ.P. do not permit litigation for improper purpose. It is important for the attorney investigating patent litigation to ensure that legally available relief exists as its objective. For example, bringing suit upon a patent which had already been finally hold invalid in another case, or under which the plaintiff had no rights, could be circumstances barring any relief that showed an improper purpose in instituting litigation on the patent.

6
7

8
9

10

3.

Investigating the Target Product

It is very important that a target product, suspected of infringing a patent, be investigated as thoroughly as circumstances permit. A specimen of the product should be obtained or borrowed if it is available at reasonable cost. If the product is not reasonably available or too expensive, efforts should be made to inspect it at trade shows and through literature and Internet information sources. The investigation includes such engineering or chemical analysis as is necessary to fully understand its parts, constituents and operation. An investigation which falls short of obtaining or examining a sample of the accused device, which was available, with the requisite thoroughness to enable it to be compared to the patent claims does not meet the minimum standards imposed by Rule 11.2

4.

Construing the Patent Claims

An essential threshold step of the pre-suit investigation is for the patent attorney to construe the limitations in the claims of his client's patent to determine

28

` See, for example, the inadequate investigations reported in Judin v. United States, 110 F.3d 780, 784 (Fed.Cir. 1997) and Antmious v. Spalding and Even flow Companies Inc., 275 F.3d 1066, 1076.76 (l ed.Cir. 2002).

28
MAIN REPORT OF LAURENCE H. PRETTY
1 11 nut,-2603MOW - 26o3w vi

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 29 of 44

PV

I 2

the proper meaning to be given to any limitations which are ambiguous or were ascribed special significance.

3 4 5 6
7 8 9 10 11 12 13

The step of construing the claims requires examination of all the intrinsic evidence, namely the claims themselves, the patent specification and the prosecution file. Rule 11 has been interpreted to require the patent attorney to perform an
independent claim construction analysis as part of concluding whether there is a 'reasonable basis for finding infringement of at least one claim of the patent by the accused device. The importance of the prosecution file is two-fold. There may have been a change made in the prosecution by amendment, or in an argument, that ascribes particular significance to a term in the claim for purposes of construction that will be definitive for literal infringement. Secondly, an amendment, or argument, can restrict the scope that will be given to the Doctrine of Equivalents.

14
15 16 17 18 A particular area for construction involves claim limitations that are recited in "means plus function" terminology. This term is one of limitation and does iiot extend to every structure that could accomplish the recited function. Instead, under 35 U.S.C. § 112, T 6, the coverage of the means limitation is restricted to the particular structure; material or acts disclosed in the patent specification for performing the function or equivalents of the disclosed structure.

5.

Determining If There Is Literal Infringement

The next step of the analysis requires the patent attorney to apply the properly construed patent claim to the accused device. Each limitation of a claim must be literally compared with its counterpart element in the accused device to see

3 See, for example, View Engineering Inc. v. Robotic Vision Systems, Inc., 208 F.3d 981, 985-986 (Fed.Cir. 2000).

29
MAIN REPORT OF LAURENCE H. PRETTY
%%" · 26036!0002 - 2W388 v4

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 30 of 44

I
2

if limitation is literally satisfied. Each word in a claim can amount to a limitation. Typically, the patent attorney will prepare a claim chart which is a table, in which the claim is set out with its separate limitations separately paragraphed, and the corresponding parts in the accused device are set out with each corresponding element aligned with the limitation that it is supposed to satisfy. Even the failure of a single difference is enough to prevent literal infringement (e.g., a claim limitation to a "screw" is not literally satisfied by a "nail" in an accused device).

3
4

5
6

7
S

9

6.

Determining Infringement By The Doctrine of Equivalents

If there is some difference literally between a claim limitation and its closest counterpart element in'the accused device, there is a second chance opportunity for a patent owner to establish infringement by a rule known as the "Doctrine of Equivalents". Under the application of this rule, if the counterpart element performs substantially the same function as the recited element, in substantially the same way, to provide the same result, and if all other limitations in the claim are satisfied, then the claim can still be held infringed.

There is a severe restriction, however, on the ability of the patent owner to rely on the Doctrine of Equivalents known as the Doctrine of "Prosecution History Estoppel". Equivalents may not be used to recapture a scope of the claim that was narrowed during prosecution to overcome an Examiner's rejection. By having narrowed its claim during prosecution to secure its patent, the patent owner has estopped itself in the Patent Office from recapturing the original scope of the claim later in court under the Doctrine of Equivalents. It is important, therefore, for the patent attorney conducting the pre-suit investigation to have carefully considered the prosecution history file for its potential effect in barring reliance on the Doctrine of Equivalents.

30
MAIN REPORT OF LAURENCE H. PRETTY 11
WM A - 2605=02

.260M A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 31 of 44

I

Another restriction is that the Doctrine of Equivalents may not be used to

2 3 4
5 6 7 8 9 10 11 12 13 14

satisfy a claim limitation for which there is no counterpart element in the accused device that can be asserted to correspond to the claim limitation.

7,

The Applicable Standards for The Investigation

Actions for patent infringement must be brought in U.S. District Courts, so that attorneys filing such cases must meet the standards of Rule 11 Fed.R.Civ.P.
Representations of infringement made in the Complaint, if upon information on belief as Verve has done, must be "... likely to have evidentiary support after a reasonable opportunity for further investigation or discovery". (R. 11(b)(3)).

The opportunity for further discovery is not an excuse for failing to investigate adequately before filing suit as the Federal Circuit has established in two cases sanctioning plaintiff patent owners for inadequate compliance with Rule 11, Judin v. United States, 110 F. 3d 780 (Fed. Cir. 1997) and Refac International Ltd. v. Hitachi Ltd., 921 F.2d 1247 (Fed. Cir. 1980). In Judin, discussing the Rule 11 inquiry, the Federal Circuit held "[d]etermining infringement, however, requires that the patent claims be interpreted and that the claims be found to read on the accused devices" and that "[i]t [Rule 11] requires that the inquiry be undertaken before the suit is filed, not after" (110 F.2d at 784, original emphasis).

15 16
7 18 19 20 21 22

23
24 25 26 27 28

The investigating attorney should also be mindful of the need for probable cause to avoid a claim for wrongful institution of civil proceedings (WICP). It is my understanding that the standard for probable cause can be measured by the objective standard of Rule 11, Fed.R.Civ.P., Wolfinger u. Cheche, 80 F.3d 783, 788-789 (C.A. Ariz. 2003).

31
MAIN REPORT OF LAURENCE H. PRETTY
MA - 2003610002 - 260M v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 32 of 44

I 2 3 4 5

I have followed these standards in my own practice and in forming my opinions in this case.

F.

Verve's and Omron's Description of Their Investigations

6
7
8 9 10 11

The administrative judge in the ITC action in its "Order No. 48: Imposing Sanctions, Jointly and Severally, on Complainant Verve; Simon, Galasso.and Frantz; and Raymond Galasso and Kevin Imes" considered Verve's investigation of Hypercom. (Exh. No. 29, at pp. 16-17). With respect to Verve's investigation of Hypercom, the judge held:

"Verve's pre-filing investigation falls far short of what is required. Verve's filing of its complaint in the face of virtually no pre-filing investigation of Hypercom's accused products demonstrates an abuse of process and bad faith." (Exh. 28, p. 17.)

Omron's lack of investigation has already been described in Section III. D.3.

19 20 21 22 23 24

N.

THE FACTS AND REASONS ON WHICH I BASE MY OPINIONS

In this Section IV, I will describe the facts and reasons on which. I have based my opinions identified in Section I, with references to the foregoing information and data that I have considered.

25 26 27 28
32
MAIN REPORT OF LAURENCE H. PRETTY
V" - 2603610002 - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 33 of 44

1.
2 3

It is my opinion that the '077 patent is not infringed by the

Hypercom TS or ICE 6000 Terminals.

4
5 6 7 8 g 10 11 12

In forming this opinion, I studied the claim language of the independent
claims of the '077 patent, its specification and drawings, and its prosecution file. I noted the amendment to add the word "automatically" and the accompanying argument, which argued the significance of the limitation in the claims requiring "automatically discriminating" between a debit card and a credit card based only on reading the data from the card, to overcome the Examiner's rejection for obviousness in view of the prior art Savar reference, as already described in Sections III.A.2 and 3 of this report. Accordingly, I have construed the "automatically discriminating" limitation to exclude systems which require a manual intervention to input the

13
14 15 16 17 18 19 20 21 22 23 24 25 26 27

character of the card as a debit card or credit card.

I also studied the available information describing the structure and operation of the Hypercom T8 and ICE 6000 terminals and learned that, for each type, the user has to make a manual input to inform the CPU whether the card being processed is a debit card or a credit card, as described earlier at pages 13-15. Applying the properly construed claims to the T8 and ICE 6000 terminals, I conclude that there cannot be literal infringement of any of the claims because the "automatically discriminating' limitation of the claims is not satisfied by the manual inputting of the character of the card as a debit card or credit card necessary in the use of the T8 and ICE 6000 terminals.

I also considered whether the lack of literal infringement could be overcome by reliance on the Doctrine of Equivalents. Availability of that doctrine is barred by the countervailing rule of prosecution history estoppel if the scope of equivalents sought would recapture original scope that was surrendered to overcome a rejection. 33
MAIN REPORT OF LAURENCE H. PRETTY
WCA - 26026fO= - 26MB vi

28

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 34 of 44

I

1

My review of the patent prosecution file, as just discussed, noted that the limitation "automatically" was added by amendment and argued to distinguish over the Savar reference which disclosed inputting manually whether the card was a debit card or a credit card. Claim coverage that would cover manual input was thus disclaimed and may not be recaptured. Accordingly, I conclude that this amendment and argument create a prosecution history estoppel barring availability of infringement by the Doctrine of Equivalents.

2 3
4

5 6
7 8 9 10 11 12 13 14 15 16

2.

It is my opinion that the 1895 patent is not infringed by the

Hypercom T7 terrninals.

In forming this opinion, I studied the claim language of the independent claims of the '895 patent, its specification and drawings, and its prosecution file. I noted that independent claims 1, 6, 7 and 11 all have a limitation for an "electronic cash register". I also noted that independent claim 10 has limitations requiring "means for entering data relating at least to the prices of goods" and "means for calculating the total sum of the prices entered as the sum of the prices entered as the sum to be paid". I am aware that a claim limitation in "means plus function limitation" must be construed as covering only the structure disclosed in the patent for performing the recited function or equivalents of the disclosed structure. I construe these two means clauses, taken together, to cover the electronic cash register described in the '895 patent or equivalents of the described cash register. Later added claim 12 in the application has a limitation to a "first means for setting data relating to a sure payable". My study of the patent specification leads me to construe this means plus function clause is also limited to the electronic cash register disclosed in the '895 patent or its equivalents. In sum, all the independent claims of the '895 patent either explicitly have a limitation to an electronic cash I

28
34
MAIN REPORT OF LAURENCE H. PRETTY
IMLA - 26038/0002 - 26038B A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 35 of 44

PV

register or means plus function elements which should be construed under 35 U.S.C.

2
3

112, ¶6, to require the disclosed electronic cash register or its equivalent.

4
5 6

I have already described in Section III.BA that the T7 terminal is not an electronic cash register and is not used in a system with an electronic cash register. In applying the properly construed independent claims of the '895 patent to the T7 terminal, the claim limitations which explicitly require an electronic cash register in claims 1, 6, 7 and 11, and which require an electronic cash register by construction in claims 10 and 12, are not satisfied in the T7 terminal because it is not an electronic cash register and is not used with an electronic cash register. Accordingly, there can not be literal i nfringement of the '895 patent because of the complete absence of the "electronic cash register" claim element. I also conclude that the failure of literal infringement cannot be overcome by the Doctrine of Equivalents because the doctrine cannot be used to supply a claim element which is entirely lacking.

7
8 9

10

3.

It is my opinion that the '341 patent is not infringed by the

Hypercom ICE 6000 Terminals.

In forming this opinion, I studied the claim language of the independent claims of the '341 patent, the patent specification and drawings, and its prosecution file, as described in Section III.C. I noted that independent claim 1 is for "an electronic cash register" and the only other independent claim, claim 11, claims "a system for performing credit transactions" comprising "an electronic cash register

I also studied the available information describing the Hypercom ICE 6000 terminals and learned that it is not "an electronic cash register" and is not used as 35
MAIN REPORT OF LAURENCE H. PRETTY
MLA - 2603WD02 - 260388 A

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 36 of 44

K

1

part of "a system for performing credit transactions" comprising "an electronic cash register". I reviewed the specification and prosecution history of the '341 patent and determined that there was no special meaning ascribed in them to a cash register different from its ordinary dictionary meaning of "a machine that tabulates the amount of sales transactions, makes a permanent and cumulative record of them, and has a drawer in which cash may be kept". An electronic cash register would have those characteristics of a cash register plus an electronic capability to perform at least some of the calculation steps.

2 3
4

5
6

7
8 9 10 11

Applying the properly construed claim to the Hypercom ICE 6000 terminal, I conclude that neither of the independent claims, both of which require an electronic cash register, is infringed by the ICE 6000 terminal literally. Because there is a complete absence of the "electronic cash register" claim limitation, the Doctrine of Equivalents is not available to overcome the lack of literal infringement. Accordingly, I formed the opinion quoted above.

4.

It is my opinion that Owron should have known, in view of the

practice of naming a licensor who has retained substantial patent rights as 19
20 21 22 23 24 25 In my career as a patent litigator, I have several times had to consider whether an instrument denominated an "Assignment" transferred all substantial rights to the patent to the assignee such that the assignee could bring suit in its own name or retained substantial rights such that the assignor was really a licensor who should have been named as a party. The retention by the assignor of the right to grant sublicenses so severely undermines the exclusivity of the patent grant that the 36
MAIN REPORT OF LAURENCE H. PRETTY
I&A - 2643610002 - 280388 v1

a party i n a case asserting the licensed patent, that it must be named as a party in litigation on its'077,'341 and'895 patents and that Verve lacked standing to sue.

26 27 28

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 37 of 44

1
2 3 4 5 6 7

assignor, in reality a licensor must be named as a party in the lawsuit . Looking at the Addendum to the License Agreement in the light of this experience, it is my
opinion that Omron should have been named as a party in the ITC proceeding and in the Verve lawsuits against Hypercom. I draw support for my opinion as well from the determination of the ITC Administrative Judge that Omron should have been named as a party to the ITC proceeding and that Verve could not maintain the action. Two further Courts, in other lawsuits brought by Verve on the Omron

1

8 9

patents involving the same agreements, have also been dismissed because Omron was not named as a party and that Verve itself lacked standing to sue.4

10 11 12
13 14

5.

It is my opinion that Omron should have known that it had not

performed the pre-litigation investigation of liability of Hypercom for
infringement of its'077,' 895 and '341 patents required of a patent licensor who has retained substantial rights in its licensed patents.

15 16
17 18 19 20

For the reasons I have described, I believe there is no infringement by any
Hypercom product at issue of any of the Hypercom'077, '895 and '341 Patents. It is my opinion that any competent patent attorney who applied the same steps of analysis that I have described to the same patents, and to the exhibits and testimony that I have identified, would have reached the same conclusion of

21
22 23 24 25 26

noninfringement. On March 30, 2006, I checked the website of Baker & Daniels
L.L.P., the law firm in which Omron's outside counsel Herbert Kerner, is a partner, in its Washington, D.C. office. Mr. Kerner is identified as a registered patent attorney who "analyzes and develops strategy for complex intellectual property patents and licensing issues facing highly-regulated and technical industries." I would expect Mr. Kerner, as a patent attorney expert in licensing issues, to know of
4 See orders granting motions to dismiss in Verve L.L. C. v. Thales E-Transactions, Inc. C.A. No. 0540032 (E.D Mich. 3127106) and in Verve L.L.C. v. First Data Corporation C.A. No. A-04-CA-062-LY (N.D. Tex 3127/06), copies of which are attached as Exhibits 30 and 31, respectively.

27 28

37
MAIN REPORT OF LAURENCE H. PRETTY
kALA - 26036/0002 - 260386 v1

Case 2:04-cv-00400-PGR

Document 165-3

Filed 04/13/2007

Page 38 of 44

F
i

1 2 3 4

the obligation of a licensor, that has retained substantial licensing rights. I would expect such an attorney to know that the licensor is obligated to make a prelitigation investigation to determine whether there was a good faith basis for believing there was infringement of the patent against a target defendant. In my opinion, Omron, with Mr. Kerner as its advisor, failed to meet its obligations of inquiry sufficient to form a good faith belief that Hypercom was an infringer of its '077, '341 and '895 patents before enabling these patents to be asserted in the ITC proceeding and the two court actions against Hypercom.

5
6 7

8
9

10
11 12 13

6.

It is my opinion that, in view of the practice requiring naming a

licensor who has retained substantial rig