Free Motion in Limine - District Court of Arizona - Arizona

Matthew A. C. Zapf (pro hac vice) A. Colin Wexler (pro hac vice) GOLDBERG KOHN 55 East Monroe Street, Suite 3300 Chicago, IL 60603-5792 Telephone: 312.201.3914 Facsimile: 312.863.7414 [email protected] [email protected] David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street, Suite 800 Fort Wayne, IN 46802 Telephone: 260-424-8000 Facsimile: 260-460-1700 [email protected] [email protected] H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue, Suite 2000 Phoenix, AZ 85012-2788 Telephone: 602.351.8000 Facsimile: 602.648.7000 [email protected] Attorneys for Defendant Omron Corporation UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Omron Corporation, Defendants. ) ) ) ) ) ) ) ) ) Cause No. CV04-0400 PHX PGR DEFENDANT OMRON CORPORATION'S MOTION IN LIMINE NO. 3 TO BAR TESTIMONY BY HYPERCOM'S EXPERT, LAURENCE PRETTY (Oral Argument Requested)

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Hypercom Corporation ("Hypercom") has sued Omron Corporation ("Omron") over alleged misconduct by Omron's patent assignee Verve, L.L.C. ("Verve") in infringement proceedings against it. Thus to prevail at trial, Hypercom must establish (inter alia) that Verve lacked probable cause to prosecute the patent infringement claims against Hypercom, and that Omron intended and/or agreed to aid what it understood to be frivolous prosecutions. But rather than prove these claims with evidence, Hypercom proposes to place them in the mouth of patent attorney Laurence Pretty. According to its Rule 26(a)(2)(B) filing, Hypercom intends to offer Mr. Pretty's legal conclusions on a variety of subjects, ranging from his views on the merits of Verve's infringement claims against Hypercom to his ultimate (if unexplained) opinion that Omron cannot "shelter" itself from liability for litigation misconduct by Verve. These opinions do not purport to rest on any non-legal expertise--indeed, Mr. Pretty has testified that he "is not a technical expert in anything." (Pretty Dep. at 16:7-12)1. Rather, Hypercom offers Mr. Pretty based on his legal experience alone. It is as if the plaintiff in a tort action has proposed to have his lawyer testify that the defendant is "liable" under governing law. This is categorically impermissible. "The principle that legal opinion evidence concerning the law is inadmissible is so well-established that it is often deemed a basis, premise or assumption of evidence or law--a kind of axiomatic principle."2 Determining the law is not the prerogative of the jury but the province of the judge. Nor does it matter that this lawsuit involves underlying issues of standing and patent infringement. "[W]ell

1

Citations to the transcript of Laurence Pretty's deposition are abbreviated "Pretty Dep. at ___," and deposition exhibits are cited "Pretty Dep. Exh. __". Relevant excerpts are attached to this motion as Exhibit A. The Pinal Creek Group v. Newmont Mining Corp., 352 F. Supp.2d 1037, 1042 (N.D. Ariz. 2005) (internal citations, quotations omitted).

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developed and clear" Arizona law holds that probable cause "is a question of law to be determined solely by the court," and without reference to the opinions of attorney "experts."3 And lacking technical expertise, Mr. Pretty offers infringement opinions that consist solely of inadmissible conclusions of law. Hypercom is not entitled to substitute legal opinions for proof of its claims. Variously unhelpful, unreliable, and highly prejudicial, all opinions of patent attorney Laurence Pretty should be excluded at trial.4 A. Admissibility of Expert Testimony under Federal Rule of Evidence 702 and Standard of Review Fed. R. Evid. 702 provides: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education[] may testify thereto[,] in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. Rule 702, in short, imposes an essential "gatekeeping" function on the court. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993). This function extends to technical and other specialized expert testimony, as well as to expert testimony by scientists. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 156 (1999). The trial court must therefore "ensure that any and all [expert] testimony or evidence admitted" is both relevant and reliable. Daubert, 509 U.S. at 589.

3 4

Smith v. Lucia, 842 P.2d 1303, 1307-08, 1311 (Ariz. Ct. App. 1992). Under Rule 104(a) of the Federal Rules of Evidence, a party proffering expert testimony carries the burden to establish admissibility. Fed. R. Evid. 104.

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B.

Each of Mr. Pretty's Opinions Consists of Inadmissible Conclusions of Law The "expert" opinions of Laurence Pretty are inadmissible first and foremost

because each is a mere conclusion of law. As the Supreme Court noted in Kumho, 526 U.S. at 156, the trial judge must determine whether the specialized knowledge of the particular expert will help the jury decide the particular issues of the case. Specialized knowledge of the law, however, will rarely be helpful. Statements of legal conclusions do not assist the trier of fact because they encroach on the court's duties to explain the law. See Specht v. Jensen, 853 F.2d 805, 807 (10th Cir. 1988). Indeed, testimony that "articulates and applies the relevant law . . . circumvents the [fact finder's] decisionmaking function by telling it how to decide the case." Id. at 497, cited in The Pinal Creek Group v. Newmont Mining Corp., 352 F. Supp. 2d 1037, 1042 (D. Ariz. 2005) (emphasis added). Mr. Pretty offers exactly six opinions in his expert report. See Main Report of Laurence H. Pretty, attached as Exhibit B, at pp. 1-2 (enumerating opinions). He opines that: 1-3) Hypercom's point-of-sale terminals (that is, devices used to read debit and credit cards in connection with retail purchasing) do not infringe, respectively, the '341, '895, and '077 patents assigned by Omron to Verve; 4) Omron should have known that Verve lacked standing to sue Hypercom; 5) Omron should have known it performed no pre-filing investigation of the claims asserted by Verve; and 6) Omron cannot "shelter" itself from liability for Verve's litigation misconduct. Id. Yet in each opinion, Mr. Pretty has impermissibly asserted what the law means. Compare, G.F. Co. v. Pan Ocean Shipping Co., Ltd., 23 F.3d 1498, 1507 & n. 6 (9th Cir. 1994) (striking affidavits constituting legal arguments in the guise of legislative history as "impermissible" and condemning practice "of attempting to introduce law as evidence") (internal quotations -3Case 2:04-cv-00400-PGR Document 165 Filed 04/13/2007 Page 4 of 20

omitted); United States v. Zipkin, 729 F.2d 384, 387 (6th Cir. 1984) (finding expert testimony on meaning of Bankruptcy Act improper). In each, Mr. Pretty has impermissibly applied his legal conclusions to the facts of this case. Compare Aguilar v. International Longshoremen's Union Local 10, 966 F.2d 443, 447 (9th Cir. 1992) (barring expert testimony on reasonableness and foreseeability of workers' reliance on purported promise in employment application as "matters of law for the court's determination"); United States v. Scholl, 166 F.3d 964, 973 (9th Cir. 1999) (testimony that defendant reasonably believed he could "net out" gambling wins and losses for tax purposes called for a legal conclusion and was thus inappropriate for expert testimony). And Mr. Pretty has disregarded Arizona precedent which bars legal experts from opining on the existence of probable cause to institute the underlying proceedings in actions for malicious prosecution. See Murphy v. Russell, 9 P.2d 1020, 1021 (Ariz. 1932) ("[w]hether a given state of facts constitutes probable cause is always a question of law to be determined by the court"; "[t]he only function of the jury in this respect is to determine what the actual facts were"). As courts have often recited: "It is not for witnesses to instruct the jury as to applicable principles of law, but for the judge." Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99 (1st Cir. 1997) (noting that at least seven circuits, including the Ninth, adhere to this "black-letter" principle). Offering an expert in "governing law" and nothing else, Hypercom would violate this fundamental prohibition against legal opinion evidence. For this reason alone, Mr. Pretty should not be permitted to testify at trial.

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C.

Mr. Pretty's First Three Opinions--that Hypercom Has Not Infringed the '077, '894, and '341 Patents, Respectively--Do Not Assist the Trier of Fact. Inadmissible not merely as legal conclusions, Mr. Pretty's opinions that

Hypercom has not infringed the assigned patents rest on false assumptions and an inadequate understanding of the technology at issue. Mr. Pretty admits, in fact, that he has no technical knowledge whatsoever. For these reasons too, his opinions fail the requirements of Rule 702. 1. Mr. Pretty's Infringement Opinions Regarding the '077 and Other Assigned Patents Offer No Specialized Knowledge Within the Scope of Rule 702.

Mr. Pretty proposes to testify that Hypercom's T8 and ICE 6000 terminals do not infringe the '077 patent because they require manual discrimination between credit and debit cards,5 a principle he derives from Hypercom's attorneys, a photograph of the T8 terminal, and his limited review of product manuals. The problem is that Mr. Pretty-who is not a software or technical expert--has merely assumed his conclusion. Thus, he has not assessed whether the terminals' software can be or has been configured to automatically discriminate between debit and credit cards. He has not investigated whether the T8, like the T7, stores information that can link the "BIN" numbers encoded on the back of each card with a credit or debit function. And worse, Mr. Pretty lacks the expertise to make precisely these--i.e., the factually relevant--determinations. Indeed Mr. Pretty has testified that: 1) He has no technical expertise:

5

Pretty writes: "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." Rpt. at 33.

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Q A Q A

Do you consider yourself to be a technical expert with respect to point of sale terminals? I'm not a technical expert in anything. With respect to any technology? No, I'm not a technical expert. I have a bachelor's degree. (Pretty Dep. at 16:7-12.)

2) He has no understanding about how the standard software can be modified: Q Is it your understanding that Hypercom's standard software can be modified to cause those terminals to automatically discriminate between debit and credit cards? Again, you would have to ask a technical expert about that. I'm just dealing with as they are sold in the marketplace. Did you ask any technical experts about that? No. [all 45] (Pretty Dep. at 46:12-21.)

A

Q A 3)

He has no understanding of what it means for software to be configured or modified: Q Well, I'm not trying to be difficult here, but I believe you told us in your report that the ICE 6000 cannot automatically discriminate between the debit and credit cards. It takes action by either the clerk or by the customer; is that right? As sold. I don't know--I mean, it's a computer. You can do anything with a computer. You can set it up to play music, but, you know, I just have to deal with what's actually out there being sold. (Pretty Dep. at 55:14-23.)

A

4)

He did not examine the terminals in operation: A Wasn't necessary. I felt that the literature that was provided to me was adequate for the purposes of comparing the Hypercom products to the patent claims. So if I may be certain I understand your testimony, you didn't see any need to observe a Hypercom terminal operating? -6-

Q

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A Q A Q A

No. Is that right? That's correct. How many different versions of Hypercom software did you examine or study to prepare your reports? Well, what I examined were the technical brochures that are exhibits to the report, and those provided me with description of the operation of the, as I recall, Hypercom T8 and the ICE 6000 terminals and the T7 terminal which are the ones at issue. (Pretty Dep. at 19:14-18.)

and 5) He lacks ordinary skill in the art. Q: A: Well, you're not even somebody of ordinary skill in the art, isn't that right? . . . I'm not a person of ordinary skill in the art for computer programming. . . . " (Pretty Dep. at 71:1-3).

As the Supreme Court noted in Kumho, 526 U.S. at 156, the trial judge must determine whether the specialized knowledge of the particular expert will help the jury decide the particular issues of the case. Lacking any technical or non-legal expertise, Mr. Pretty cannot help the jury resolve fact questions related to alleged infringement of the assigned patents. Accordingly, his opinions on infringement must be excluded under Rule 702. Id.; cf Jinro America, Inc. v. Secured Investments, Inc., 266 F3d. 993, 1040 (9th Cir. 2001) (finding error in admission of testimony of expert whose qualifications were "suspect at best"). 2. Mr. Pretty's Infringement Opinion Regarding the '895 Patent Rests on Erroneous Assumptions.

Mr. Pretty next opines that Hypercom's T7 terminals do not infringe the '895 patent because the T7 is not sold for use in a system with an electronic cash register, as that term is used in the '895 patent. To reach this opinion, he has relied on -7Case 2:04-cv-00400-PGR Document 165 Filed 04/13/2007 Page 8 of 20

representations by Hypercom attorneys that the T7 does not connect to an ECR, and is not sold for use in a system with an ECR. (Pretty Dep. at 35:18-23; 36:2-4; 82:8-20.) Yet in his deposition, Mr. Pretty admits that the Hypercom Point of Sale T7 Series Hardware and Installation Manual describes a specific port that connects the T7 to an ECR. (Pretty Dep. at 83:23-84:17.) Indeed, the manual expressly provides: "The serial port is an RS232 Electronic Cash Register (ECR) interface, allowing the terminals to use the ECR for transaction amount entry and to print receipts." See Pretty Dep. Exh. 3 at 12. Mr. Pretty concedes, moreover, that if connected to an ECR, the T7 system would infringe Claim 12 of the '895 patent when used in a multi-store environment, and possibly in a single store environment as well (--depending on the proper construction of the claim and thus on technical knowledge he admittedly lacks). (Pretty Dep. at 90:17-91:9.) As federal courts have well recognized, "it is critical that an expert's opinion be reliable at every step." Amorgianos v. Nat'l R. R. Passenger Corp., 303 F.3d 256, 267 (2d Cir. 2002) (noting that "any step that renders the analysis unreliable under the Daubert factors renders the expert's testimony inadmissible") (emphasis original; citations and internal quotes omitted). Based on an erroneous first step, Mr. Pretty's opinion that the T7 terminals do not infringe the '895 patent are irrelevant and unreliable as a matter of law. Id. 3. Mr. Pretty's Opinions on Whether the T7 and ICE 6000 Infringe the '341 and '895 Patents Are Unrelated to the Pertinent Inquiry Because He Erroneously Defines Electronic Cash Register.

To opine that the T7 and ICE 6000 terminals do not infringe the '341 and '895 patents, Mr. Pretty first construes the term "electronic cash register" as used by both patents as meaning "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"). -8Case 2:04-cv-00400-PGR Document 165 Filed 04/13/2007 Page 9 of 20

(Rpt. at 36.) Yet even were legal conclusions otherwise admissible, claim interpretation-which precedes both validity and infringement analyses--"is solely a question of law[ and] left exclusively to the courts . . . ." Texas Instr., Inc. v. U.S. Int'l Trade Comm'n, 988 F.2d 1165, 1171 (Fed.Cir. 1993). Indeed, the court "has the obligation to construe as a matter of law the meaning of language used in the patent claim." Markman v. Westview Instruments Inc., 52 F.3d 967, 979 (Fed. Cir. 1995) (emphasis added) aff'd 517 U.S. 370 (1996) (holding that "the interpretation of the word 'inventory' in [the relevant patent] is an issue for the judge, not the jury"). Consequently, claim construction cannot be an appropriate subject of expert testimony in this action. Id. Even when presented solely to the court, moreover, expert testimony on patent interpretation should be admitted only to aid its understanding of technical terms. Brunswick Corp. v. U.S., 34 Fed. Cl. 532, 541 (Fed. Ct. Claims 1995). As the Federal Circuit has explained: Extrinsic evidence, therefore, may be necessary to inform the court about the language in which the patent is written. But this evidence is not for the purpose of clarifying ambiguity in claim terminology. It is not ambiguity in the document that creates the need for extrinsic evidence but rather unfamiliarity of the court with the terminology of the art to which the patent is addressed. Markman, 52 F.3d at 986. Thus where, as here, a non-technical expert offers an ordinary definition6 of an ambiguous term, his opinion is inadmissible as a matter of law. Id. (emphasis added); see also Enress + Hauser, Inc. v. Hawk Measurement Systems Pty, Inc., 122 F.3d 140, 142 (Fed. Cir. 1997) ("this court has on numerous occasions noted the impropriety of patent lawyers testifying as expert witnesses and giving their opinion regarding the proper interpretation of a claim as a matter of law"); Cryovac Inc. v.

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Pechiney Plastic Packaging, Inc., 430 F. Supp. 346, 364 (D. Del. 2006) (expert "testimony on substantive areas of patent or contract law is impermissible"). Mr. Pretty's dictionary definition has, moreover, already been rejected by at least one federal court. Using Webster's Dictionary, Mr. Pretty has interpreted "electronic cash register" as used in the '341 and '895 patents as "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." (Rpt. at 36).7 A California District Court, by contrast, held that "electronic cash register"--as used in the '341 patent and as describing the invention disclosed in the '895 patent--means "an electronic device capable of both calculating a sum to be paid and automatically conducting credit inquiries using data stored on a customer's card." See Verifone v. Verve. LLC et al., 3:04-CV-02795, (N.D. Cal. ), ClaimConstruction Order dated June 10, 2005 at 7, attached as Exhibit C. Explaining its opinion, the court noted that: 1) the '341 patent explicitly defines electronic cash registers to include "a terminal for a point-of-sales system." Id. at 4, citing '341 patent at col. 1:49; and 2) the electronic cash register described in the '341 patent deals exclusively with preapproval based on a credit inquiry, rather than the ultimate payment of a sum owed. Id. at 5. Because Mr. Pretty has not--and lacking any technical expertise cannot--establish his contrary interpretation of "electronic cash register," his infringement conclusions are irrelevant and must be excluded from trial. See Daubert, 509 U.S. at 591-92 (describing
6

When asked how he happened "to pick the Webster's Dictionary that [he] used to define electronic cash register," Pretty responded: "It's the one in my office." (Pretty Dep. at 72:17-20.) He then concludes, for example, that the ICE 6000 is not an ECR because it "includes no cash drawer for holding cash, no keyboard for cash registration, no control unit for processing cash registration, and no display for showing cash registration," and because it "is not employed as a cash register in any system having the further features disclosed and claimed in the '341 patent." Rpt. at 22.

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Rule 702 as requiring "a valid scientific connection to the pertinent inquiry"); Hebert v. Lisle Corp., 99 F.3d 1109, 1117 (Fed. Cir. 1996)(noting "[i]ncorrect statements of [patent] law are no more admissible through 'experts' than are falsifiable scientific theories"). D. Mr. Pretty's Fourth Opinion--That Omron Should Have Known Verve Lacked Standing--is Irrelevant and Unhelpful. Beyond his opinions on infringement, Mr. Pretty asserts 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 '077, '341, and '895 patents and that Verve lacked standing to sue." This attempt to dress up a legal conclusion as a litigation "practice" fails comprehensively to assist the trier of fact. First, Mr. Pretty does not explain why Omron should look to the conduct of unrelated litigants to resolve what is a pure question of law, i.e., whether Verve has standing to sue without Omron. As Mr. Pretty's "methodology" thus lacks reliability, his opinion must be excluded under Rule 702. See generally Argus Chemical Corp. v. Fibre Glass-Evercoat Co., 759 F.2d 10, 13 (Fed. Cir. 1985) (because the "question of the appropriate standard for determining inequitable conduct in procuring a patent is one of law[,] the testimony of an attorney on the practice which some attorneys followed is irrelevant") cert. denied 474 U.S. 903 (1985); In re TMI Litigation, 193 F.3d 613, 664 (3d Cir. 1999) ("expert opinions based on otherwise inadmissible hearsay are to be admitted only if the facts or data relied upon are of a type reasonably relied upon by experts in the particular field in forming opinions"). Further, the notion that general litigation behavior required Omron to reject a complex legal analysis found non-frivolous by at least two tribunals (a federal district court and the International Trade Commission) is untenable. -11Case 2:04-cv-00400-PGR Document 165 Filed 04/13/2007 Page 12 of 20

See ITC Order 40 at 22 (finding Verve's assertion of "sole ownership" of the patents ultimately "unconvincing," but by no means "sanctionable"). If, in the alternative, Mr. Pretty is opining on the law--that is, opining that Omron transferred insufficient patent rights to confer standing on Verve--he has invaded the exclusive province of this court. See discussion, infra. See also Aguilar v. International Longshoremen's Union Local 10, 966 F.2d 443, 447 (9th Cir. 1992) ("matters of law for the court's determination [are] inappropriate subjects for expert testimony"). And if he has offered the legal conclusion that Omron "should have known" Verve lacked standing, he has also contravened settled Arizona law. Any such opinion is tantamount to the claim that Omron should have known Verve could not successfully file suit on the assigned patents. Yet "well developed and clear" Arizona law holds that probable cause "is a question of law to be determined solely by the court." Smith v. Lucia, 842 P.2d 1303, 1307-08 (Ariz. Ct. App. 1992) (because "it is the responsibility of the trial judge to say whether the facts give rise to probable cause, the expressions of opinions by others are not relevant and are wholly immaterial to the decision in the case"); Bird v. Rothman, 627 P.2d 1097, 1101 (Ariz. Ct. App. 1981) ("[t]he only function of the jury in the determination of probable cause is to determine the actual facts of what the prosecuting party or attorneys performed in the way of investigation and research"). This attempt to throw questions of law to the jury through a battle of experts would create reversible error. Murphy, 9 P.2d at 112 ("[w]hether a given state of facts constitutes probable cause is always a question of law to be determined by the court, and it cannot relieve itself of this burden by casting it upon the jury").8

8

Mr. Pretty has also failed to support his opinions with the reasoning and factual basis required by Rule 702. See Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 318-19 (7th Cir. 1996)(expert who offers only

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Nor, even aside from its legal nature, does Mr. Pretty's opinion meet the relevance and reliability requirements of Rule 702. Hypercom has sued Omron for allegedly licensing patents to Verve so Verve could maliciously and abusively prosecute infringement actions against Hypercom. But by defeating such lawsuits, a standing defect would defeat this very scheme. Mr. Pretty implicitly acknowledges this problem, speculating that Omron intentionally "concealed" an addendum to its license agreements to allow Verve--in effect--to fake standing.9 Yet this opinion reflects no expertise and no record support. Mr. Pretty cannot identify evidence that Omron concealed assignment documents from a tribunal.10 And while Mr. Pretty points to the confidentiality of Omron's licensing agreements, he admits that: 1) as a patent attorney, he drafts confidential license agreements as a matter of course (Pretty Dep. at 129:12-25); 2) the document that Omron filed with the Patent and Trademark Office indicating its assignment of patent rights to Verve is typical of such filings; and 3) parties do not typically file the entire license agreements with the Patent and Trademark Office. (Pretty Dep. at 129:12-25.) These admissions, moreover, echo findings of the ITC law judge that the recordation at issue sufficiently notified the public of the Omron-Verve assignments, and that PTO recordings need not "lay out the full agreement between the parties." ITC Order 40 at 21. Compare Daubert, 509 U.S. at 595 ("Rule 703 provides that expert opinions based on otherwise inadmissible hearsay are to be admitted only if the facts or
"bottom line" conclusion does not assist trier of fact). See also Fed. R. Civ. P. 11 (noting that legal contentions need only be warranted "by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law"). Further, Mr. Pretty is admittedly not an expert on licensing law. Pretty Dep. at 191:20-22. Elsewhere, Mr. Pretty opines that Omron "intentionally" concealed its status as an "indispensable party" in infringement proceedings. (Rpt. at 24). This opinion does not purport to rely on any, including legal, expertise and does not refer to a single action or omission by Omron that constituted the "concealment."

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data are 'of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject'") (emphasis added). Consisting of erroneous legal conclusions and unsupported speculation, Mr. Pretty's opinions on standing are inadmissible under Rule 702. They must be excluded from trial. E. Mr. Pretty's Fifth Opinion--That Omron Should Have Known it Did Not Perform a Pre-litigation Investigation--Is Irrelevant, Unhelpful, and Unsupported. Mr. Pretty further opines that Omron should have known it "had not performed the pre-litigation investigation of liability of Hypercom for infringement of its '077, '895, and '341 patents . . ." (Rpt. at 37). As Omron does not contend that it investigated Verve's infringement claims, this opinion is unhelpful and irrelevant. See generally Daubert, 526 U.S. at 591 (explaining that expert testimony "which does not relate to any issue in the case is not relevant and, ergo, non-helpful"). Mr. Pretty continues that Omron did not perform the investigation "required of a patent licensor who has retained substantial rights in its licensed patents." But even if relevant, such assertions are pure legal conclusions and inadmissible for this reason alone. See discussion, infra. Mr. Pretty, moreover, has plainly misconstrued the law. The federal rules of civil procedure (and related administrative rules) solely obligate litigants to perform pre-filing investigations of legal claims. See e.g., FRCP 11. 11 Even the common law obligates non-litigants merely to refrain from conspiring with or aiding and abetting the
10

11

Pretty admits that the ITC judge concluded that "Verve had not acted in bad faith with respect to the standing issue or its production of the assignment documents," and did not find any misstatement of fact. (Pretty Dep. at 147:18-148:7). Though Pretty insists Rule 11 applies to Omron, he was not able to provide any support for this assertion. (Pretty Dep. at 177:2-18.) Compare Michod v. Warker Magnetics Group, Inc., 115 F.R.D. 345, 346 (N.D. Ill. 1987) (imposing sanctions against plaintiff in infringement action that falsely claimed to be exclusive licensee), Rpt. at note 5.

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misconduct of litigants. Thus, Mr. Pretty can identify no statute, case, or other authority that imposes the pre-investigation duty he ascribes to Omron. (Pretty Dep. at 167:5-23; 177:2-18.) Unreliable as well as an inadmissible legal conclusion, Mr. Pretty's opinion fails the stringent requirements of Rule 702.12 F. Pretty's Sixth Opinion -- That Omron Cannot Shelter Itself From Liability -Is Irrelevant, Unhelpful, and Unsupported. For his final opinion, Mr. Pretty would resolve the entire dispute ­ asserting that Omron bears liability for the litigation misconduct of Verve. This opinion, however, is not merely an inadmissible legal conclusion, but one devoid of reliability and helpfulness. Strikingly, Mr. Pretty opines without the benefit of supporting facts, reasoning, or legal authority. Compare Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 318-19 (7th Cir. 1996) (expert who offers only "bottom line" conclusion does not assist trier of fact). Indeed, Mr. Pretty admits that not every licensor who retains substantial rights in a patent is liable for baseless litigation by its licensee. Yet citing no relevant legal authority, he concludes that Omron is liable for the conduct of Verve. (Rpt. at 38-39). To the extent, moreover, that Mr. Pretty hints at bases for his opinion, he cites no relevant fact or law. To the contrary, he variously asserts that liability could arise from: 1) the willful failure to comply with standing requirements--a charge that cannot apply to Omron as Omron did not file any lawsuit; 2) the failure to disclose the terms of a license agreement to the Court--a charge

12

Mr. Pretty's subsidiary opinions about what constitutes a reasonable investigation, and 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 non-infringement" cannot survive the infirmities in his infringement opinions described above. Further, "[w]hether a given set of facts constitutes probable cause [to institute a civil action] is always a question of law to be determined by the court." Carroll, 545 P.2d at 414-415 (finding the opinions of lawyers on the question of probable cause inadmissible). See also Bird, 627 P.2d at 1101 ("the expression of opinions by other attorneys as to whether reasonable and prudent persons would have instituted or continued the proceeding are wholly immaterial to the decision in the case and were correctly not admitted below").

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that belies Omron's status as a non-party to all infringement proceedings, as well as undisputed evidence that Omron disclosed the full licensing agreements to the ITC when asked to do so; and 3) the claim that Omron presented the ITC with a "misleading assignment" agreement--another charge that belies Omron's status as a non-party to ITC proceedings, and one contradicted by Mr. Pretty's own admissions that the assignment which Omron filed with the Patent and Trademark Office was "typical" of such filings. See also ITC Order 40 (rejecting claim that assignment recordation was misleading or inadequate).13 Like his other opinions, Mr. Pretty's conclusions about liability are not merely unhelpful and unreliable, but severely prejudicial. As the Supreme Court wrote in Daubert: Rule 403 permits the exclusion of relevant evidence "if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury...." Judge Weinstein has explained: "Expert evidence can be both powerful and quite misleading because of the difficulty in evaluating it. Because of this risk, the judge in weighing possible prejudice against probative force under Rule 403 ... exercises more control over experts than lay witnesses." Daubert, 509 U.S. at 595 (emphasis added; internal citations omitted). Thus under Rules 403 and 702, Mr. Pretty's opinions on Omron's "liability" are inadmissible. See Jinro, 266 F.3d at 1005 (holding under FRE 403 that district court abused discretion by admitting unduly prejudicial expert testimony). They must be excluded from trial.

13

The administrative law judge wrote: "It would be inappropriate to attribute bad faith to Verve for not making public what the PTO itself does not require in its public records." Pretty Dep., Exh. 8 at 22.

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G.

Mr. Pretty Should Not Be Permitted to Offer Opinions on Whether Verve Performed a Reasonable Pre-filing Investigation. In his report, Mr. Pretty does not opine on whether Verve performed an adequate

pre-filing investigation of any action against Hypercom. He should not, therefore, be permitted to do so at trial. See Fed. R. Civ. P. 26(a)(2)(B) ("The report shall contain a complete statement of all opinions to be expressed and the basis and reasons therefore").14 Testimony, moreover, on whether Verve performed a reasonable pre-filing investigation with respect to an infringement proceeding involving an Omron-assigned patent would be an impermissible and prejudicial legal opinion and invasion of the court's exclusive prerogative to determine probable cause. See discussion, infra. Indeed, Mr. Pretty has admitted that whether or not Mr. Walton--the attorney who signed the pleadings at issue on behalf of Verve--performed an adequate pre-filing investigation before filing the ITC action is a matter for the "finder of fact at trial to decide as a fact" and one that he cannot decide. (Pretty Dep. at 154:1-9.) For all these reasons, Mr. Pretty should not be permitted to opine on Verve's pre-filing investigation at trial. CONCLUSION For all the reasons set out above, the Court should exclude in their entirety the opinions of Laurence Pretty from trial.

14

See also Dairy Farmers of America, Inc. v. Travelers Ins. Co., 391 F.3d 936, 943-44) (8th Cir. 2004) (affirming exclusion of opinion not disclosed in expert's Rule 26 report); cf Hoffman v. Caterpillar, Inc., 368 F.3d 709, 714 (7th Cir. 2004) (affirming exclusion of expert's testimony under Rule 37(c)(1) where expert failed to amend its prior disclosures to include new basis for opinion).

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RESPECTFULLY SUBMITTED on April 13, 2007.

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

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CERTIFICATE OF SERVICE I hereby certify that on April 13, 2007, I electronically transmitted the attached documents to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Andrew Foster Halaby Ray Kendall Harris John Kenyon Henning, IV David P. Irmscher Sid Leach Monica Anne Limon-Wynn Paul Moore A. Colin Wexler Matthew A.C. Zapf [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

I hereby certify that on April 16, 2007, I caused the attached document to be served by hand delivery on Judge Paul G. Rosenblatt, United States District Court of Arizona, 401 West Washington Street, Phoenix, Arizona 85003-2118

/s/ Lisa M. Sandoval

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