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

EXHIBIT B

Case 2:04-cv-00400-PGR

Document 141-3

Filed 08/28/2006

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Herbert V. Kerner III May 17, 2006
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA HYPERCOM CORPORATION, Plaintiff, -vsVERVE L.L.C. and OMRON CORPORATION, Defendants. ) ) ) ) ) ) ) ) ) )

CIVIL ACTION NO. CIV 04-0400 PHX PGR

VIDEOTAPED DEPOSITION OF HERBERT V. KERNER, III

The videotaped deposition upon oral examination of HERBERT V. KERNER, III, a witness produced and sworn before me, Dianne Lockhart, CSR, RMR, CRR, Notary Public in and for the County of Marion, State of Indiana, taken on behalf of the plaintiff at the offices of Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Marion County, Indiana, on the 17th day of May, 2006, at 9:32 a.m., pursuant to the Federal Rules of Civil Procedure with written notice as to time and place thereof. ___________________________________________________ Connor + Associates, Inc. 1650 One American Square Indianapolis, IN 46282 (317)236-6022

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Herbert V. Kerner III May 17, 2006
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A P P E A R A N C E S FOR THE PLAINTIFFS: Mr. Sid Leach SNELL & WILMER One Arizona Center Phoenix, AZ 85004-2202 FOR THE DEFENDANT, OMRON CORPORATION: Mr. David P. Irmscher BAKER & DANIELS 111 East Wayne Street Suite 800 Fort Wayne, IN 46802 VIDEOGRAPHER: Ms. Sara Williams

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DIRECT EXAMINATION .......................... Questions by Mr. Sid Leach CROSS-EXAMINATION ........................... Questions by Mr. David P. Irmscher REDIRECT EXAMINATION ........................ Questions by Mr. Sid Leach CROSS-EXAMINATION ........................... Questions by Mr. David P. Irmscher REDIRECT EXAMINATION ........................ Questions by Mr. Sid Leach

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Herbert V. Kerner III May 17, 2006
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about Texas, they've informed us that they have filed -- that they -- that they had already filed. Q A I don't know that we knew about this case ahead of time. But you didn't know they were going to file any other case before they did it? Our knowledge -- and I'd probably take that back because I've already seen there's one where we had -- where we had -- where we knew that they were contemplating that action or doing the due diligence steps of that action. When we did receive such knowledge, it was anecdotal or it was based upon something they needed that we could surmise from it that they were considering that option. (At this time Deposition Exhibit No. 8 was marked for identification.) Q Let me hand you a document that's been marked as Kerner Deposition Exhibit 8. Exhibit 16. A Q And I believe this was previously marked as Nakano Deposition This is a string of e-mails between you and Raymond Galasso; correct? Yes, appears that way. And in these series of e-mails, the -- starting and working back, the -- the second one sent by

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Raymond Galasso to you on July 2, 2004, that starts at the bottom of the first page -A Q Uh-huh. -- is an e-mail message in which he tells you that, "As you know, we are preparing to file an ITC action with -- with the Omron acquired '077 patent"; correct? A Q Uh-huh. And this was a patent that was given to Verve in a third agreement that was signed between Omron and Verve; correct? A Q Yes. So you knew that they were preparing to file an ITC action on that patent before they did so; correct? A Q That they were preparing for it, they were considering it, yes, from this e-mail, uh-huh. And then there's an e-mail after that on July 20, 2004, to you where he says, "We are now very close to filing the ITC action. Therefore, it is now critical we receive the information requested below by the end of the week." Do you see that? A Q Uh-huh, yes, I do. And you informed Mr. Nakano of that effect?

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A Q

Well, from the -- from the following e-mail, yes. So then Omron knew about the action before the International Trade Commission before it was filed; correct?

A

I knew that they were considering it and I knew that they were in the due diligence stage for it, and this actually would be a good example of exactly when something -- when we would receive information, which is they needed something from us, and under the terms of the agreement, we had an obligation to provide backup administrative documents and so forth, so what they're requesting from us here is a list of -- of licensees under that patent, so in this way, this would be the -- the nature of it. They needed something from us administratively. He's -- he's telling us -- he's telling us about the ITC action because he wants something, and that was -- that's the -- that's the norm. If he didn't tell us what he wanted it for, we'd ask well, why do you need that, because it requires work on our part to go find it, so he's saying we're doing this, please provide us these documents that we need pursuant to the

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Herbert V. Kerner III May 17, 2006
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baseless patent infringement claims take place in the September 2004 time frame? A I can't say exactly. It was -- it was -- it was -- I know it was contemporaneous with -after -- after we were subpoenaed for information, and then that caused me to have a conversation with counsel for Ingenico. Q Did Hypercom communicate to you that the patent infringement claims that were being asserted against them were baseless in September 2004? A I don't recall the -- the actual date. believe it was in regard to a discovery question, there -- there was an initial phone call and then there was a meeting where we discussed -- where Hypercom expressed the opinion that they did not infringe the patents. Q A Q A Q A Q And was that a meeting that took place in Phoenix, Arizona? Yes. And you attended that meeting; correct? Yes, I did. And Mr. Nakano was there; correct? That's correct. And the meeting was also attended by Doug Reich I mean I know that over a period -- at some point, I

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of Hypercom; correct? A Q A Q A Q That's right. And David Caplan of my firm; correct? That's correct. And me; correct? That's correct. Did the communications that you got from Lipman about the baseless nature of Verve's claims take place before or after the meeting with Hypercom? A I think after. time. Q A Q A Q A Q A Q A Lipman -- Lipman we did not have conversations with for a -- for a fair amount of I think it was after. I don't Do you know how long after? Maybe quite a bit of time after. Two months, three months? I couldn't even say. Did the communications from Ingenico take place before the meeting with Hypercom or after? Before, I believe. Okay. Did the communications with VeriFone take place before the Hypercom meeting or after? I believe after. How long after? I believe that was close -- I think -- I think remember those overlapping very much.

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talking to VeriFone, again, about the merits of the case. They had a lot of comments regarding how Verve was communicating with them or not communicating with them, and there was, again, frustration with that and they didn't quite understand because no one had brought it to them and explained to them the case for infringement, so they had a frustration with that. I do not remember talking to VeriFone about the merits of the case. Q Did you have -- what, if anything, did Hypercom tell you about the merits of the claims raised by Verve against it? A Hypercom's view -- Hypercom -- our initial contact with Hypercom came when I believe they were inquiring about discovery or perhaps something related to the ITC, and I believe David Caplan called me about that, and we began a conversation. Again, they expressed frustration at the level of communication with Verve, and one way or the other we switched to this topic of were we able to -- perhaps there might be a role for Omron to improve those communications and -- and act in a capacity to allow that communication.

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And for -- and David thought that that might have some promise. I believe he went and spoke Would you be to Mr. Leach and came back with a firmer idea to say we think that holds promise. interested in meeting and -- and having this discussion, and went back with Omron and there was a decision to go ahead and have this meeting. Our statements to David Caplan were that -and our agreement with Hypercom was that we were there to act as a conduit for communication and that we were not there to talk about the merits of the case. We were there only to discuss any terms for settlement that they might have and any openings for that between the two parties. Q A Q A Q A And did this meeting that you're discussing take place? Yes, it did. Where did it take place? In the offices of Mr. Leach in Arizona. And who was present? Mr. Leach, David Caplan, Mr. Reich, Robert Reich -- Mr. Reich, who is the general counsel for Hypercom. Q Anybody else?

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Herbert V. Kerner III May 17, 2006
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A Q A

Myself and Mr. Nakano. And can you summarize what took place at that meeting briefly for us? When we first arrived at the -- at the meeting -- there's another element before the meeting, which was Hypercom's request was for us to have -- that we were there in the capacity to communicate and that we -- and that we obtain from Verve their permission or -- well, their permission to be there to -- or their agreement that we be there and -- and act as this intermediary. And when we were there, when we showed up in Arizona, the -- David -- well, the only person we spoke to directly -- we talked to Sid Leach and Robert -- and Mr. Reich, but there was an attempt by Hypercom, Mr. Leach, to talk to us about the details of the case and the noninfringement position of Hypercom, and we declined to participate in that presentation immediately. We informed them that -- ahead of time that we were not there to discuss that, we weren't prepared to discuss it, and that our role was clear to be an intermediary and a conduit for communication between the two at

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do, but as we've told them before, we were -- we were not the owners of the patents and -- and we were not there to discuss the detailed merits of the case. MR. IRMSCHER: Thank you. REDIRECT EXAMINATION, QUESTIONS BY MR. SID LEACH: Q It's your testimony now that Hypercom surprised you at the meeting by attempting to discuss the merits of the infringement claims? A Q A Yes, basically. And that was not on the agenda? Basically that in my conversations with Mr. Caplan, we -- we -- we had agreed what our role was, and that we were there to -- to act as an intermediary, but we were not there to go into the technical details of infringement or noninfringement. Q A Do you have that in writing? No, not to my knowledge. what we had. MR. LEACH: exhibit, please. (At this time Deposition Exhibit No. 32 was Could you mark this as an We produced what we -I have no further questions.

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marked for identification.) MR. LEACH: you're finished. Q Okay, I have -- only have one copy of this, but let me show you a document that's been marked as Kerner Deposition Exhibit 32, and this is an e-mail to you on September 8, 2004, prior to the meeting, from me setting forth the agenda for the meeting. MR. IRMSCHER: foundation. Q Objection. Lack of You need to ask him what it is. Let me have that back when

And let me refer you to the third paragraph where it says, "We would be prepared to go first and talk about the Omron patents that Verve has asserted against Hypercom to date. We will present information on the accused Hypercom products and compare them with the patent claims." You received a copy of this e-mail prior to the meeting; correct?

A Q

It appears I did, yes. And that e-mail tells you that the agenda for the meeting is going to include a discussion of the merits of the infringement claims, doesn't it?

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A

Yes.

What this -- this is from you to me.

It

is -- I don't know when this happened in relation to when the meeting was going to take place. Q A Q A The meeting was on the 16th. The -- so the 16th, and we received this the week before. Well, isn't that -- what's the date of that e-mail? It's September 8th. And the two things I note about this -- this -- this information is the first thing that I see here is, "We hope that these discussions may lead to a global settlement of all Omron patents, including those now in the hands of Verve. After this discussion concerning the merits, we would then discuss potential resolutions and explore possible approaches." Q Yeah, see the -- the sentence you just read indicates that there would be a discussion on the merits and then we would explore possibilities; right? A Q This e-mail -MR. IRMSCHER: Correct? You need to ask a question. Isn't that correct?

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A Q

That -- that's the indication, yes. And there's no e-mail from you back saying oh, no, we're not going to talk about the merits, is there?

A

Not -- not to my knowledge, and the reason for that would be that we spoke to David Caplan via the phone and worked out the details of this. This you sent to us via e-mail, but we'd already had a discussion with David Caplan where we were very clear and had assurances regarding what our role would be and made clear, and then when we're sent this, the meeting had already been set up and we were prepared to go, but we were resting more on the assurances we received orally rather than this -- this proposal, and -this e-mail.

Q

Well, there's no e-mail from you back saying wait a minute, we have oral assurances that there's going to be a different agenda; correct?

A Q

That's right.

That's right.

In fact, this e-mail is in a chain where you and I are exchanging e-mails talking about what the agenda for the meeting is going to be; correct?

A

Well, there are two other e-mails talking about the agenda, yes.

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The -- the other thing I notice about this e-mail is where it says global settlement and we're -- we're open to explore creative solutions that may be willing to propose, after this exchange concerning the merits of any infringement issues. We now know from the 30(b)(6) deposition of -- of Hypercom that there was no intention to explore any options, no -- so I don't -MR. LEACH: nonresponsive. A I move to strike. It's That's not part of my question. You can finish your answer.

MR. IRMSCHER:

It's just something to note in terms of how much weight we put on this and whether or not it is a genuine reflection of what the agreement was to -- to -- concerning the agenda of the meeting. We had an oral discussion with -- with David Caplan and made clear what we were there to do. And we made that clear as soon as the presentation -- the attempt to present was made. We made clear that that was not our role, we were not there to talk about that, and --

Q

Well, if you were so intent on making it clear, how long would it have taken you to send an

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e-mail back during the eight days you had prior to the meeting to say wait a minute, this is contrary to what we understand, we want to be clear what the agenda is? How long would it have taken you to send an e-mail back and put in writing and make a record of what you now testify the understanding was? A I believe I did it with a phone call. And I We believe it takes the same amount of time for David Caplan to come down and talk to you. received this, we did not -- we did not have this -- this in mind and we made it clear through a conversation with your associate. But, again, I go back to this statement here, which is we'd be open -- we are open to discuss creative solutions, we're willing to talk about potential resolutions and explore possible approaches to achieve a global settlement. We know that's not true now, so that's -- that -- I think that goes to maybe some bait and switch, but I just wanted to make clear that -- that going into this we had -- we had an oral agreement regarding what we were going to talk about. This doesn't represent that -- that agreement.

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MR. LEACH: exhibit.

Would you mark this as an

(At this time Deposition Exhibit No. 33 was marked for identification.) Q I've marked as Kerner Deposition Exhibit 33 a copy of a document entitled "Hypercom/Omron Meeting, Phoenix, Arizona, September 16, 2004." Deposition Exhibit 33 is a copy of a PowerPoint presentation that was made to you and Mr. Nakano at the meeting that we're talking about; correct? A Q I -- could you ask that question again? This is a copy of a PowerPoint presentation that was made to you and Mr. Nakano at the meeting in Phoenix on September 16, 2004; correct? A Q I do not recall having seen this presentation at any time. Is it possible that your memory may be faulty since you seem to not recall that the agenda included the fact that they were going to discuss the merits of the claims? MR. IRMSCHER: Argumentative. A I know the -- we had gone into -- I know the agenda did not include that as per our phone Objection. Form.

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A

against Hypercom in the ITC requires; correct? No. There is many more elements in the claims, and also there -- there are many more elements in the claims. MR. LEACH: I have no further questions at this time. MR. IRMSCHER: Let me take a short break. THE VIDEOGRAPHER: We're going off the record. The time is 6:36 p.m. (At this time a recess was taken.) THE VIDEOGRAPHER: We're going back on the record. The time is 6:37 p.m. MR. IRMSCHER: We have no further questions at this time. THE VIDEOGRAPHER: This concludes the deposition of Herbert Kerner. The time is 6:38 p.m., and we are off the record.

AND FURTHER THE DEPONENT SAITH NOT.
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_____________________________ HERBERT V. KERNER, III

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Herbert V. Kerner III May 17, 2006
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STATE OF INDIANA COUNTY OF MARION

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) ) )

SS:

I, Dianne Lockhart, a Notary Public in and for the County of Marion, State of Indiana at large, do hereby certify that HERBERT V. KERNER, III, the deponent herein, was by me first duly sworn to tell the truth, the whole truth, and nothing but the truth in the aforementioned matter. That the foregoing videotaped deposition was taken on behalf of the plaintiff at the offices of Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Marion County, Indiana, on the 17th day of May, 2006, commencing at the hour of 9:32 a.m. pursuant to the Federal Rules of Civil Procedure. That said deposition was taken down in stenograph notes and afterwards reduced to typewriting under my direction, and that the typewritten transcript is a true record of the testimony given by the said deponent; and thereafter presented to said deponent for signature. That the parties were represented by their counsel as aforementioned.

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I do further certify that I am a disinterested person in this cause of action; that I am not a relative or attorney of either party, or otherwise interested in the event of this action, and am not in the employ of the attorneys for either party. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal this ______ day of _________________, 2006. ___________________________ N O T A R Y P U B L I C CSR #93-R-1012 My Commission Expires: July 22, 2007 County of Residence: Marion County

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