Free Reply in Support of Motion - District Court of Arizona - Arizona

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Peter D. Baird (001978) [email protected] Robert H. McKirgan (011636) [email protected] Richard A. Halloran (013858) [email protected] Kimberly A. Demarchi (020428) [email protected] Lewis and Roca LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 734-3746 Telephone (602) 262-5311 Attorneys for POST Integrations, Inc., et al. George C. Chen (019704) [email protected] Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406 Tel: (602) 364-7367 Fax: (602) 364-7070 Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc.

William McKinnon [email protected] 800 East Ocean Boulevard, Unit 501 Long Beach, California 90802-5449 Nicholas J. DiCarlo (016457) [email protected] DiCarlo Caserta & Phelps PLLC 6750 East Camelback Road, Suite 100-A Scottsdale, Arizona 85251 Attorneys for Plaintiff MTSI and Third Party Defendant Gene Clothier

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) Defendants. ) ) And Related Counterclaims, Cross-Claims, ) ) and Third-Party Claims. ) ) ) ) ) Merchant Transaction Systems, Inc.,

No. CIV 02-1954-PHX-MHM JOINT PARTIES' REPLY IN SUPPORT OF THEIR MOTION FOR PARTIAL SUMMARY JUDGMENT ON NELCELA'S CLAIMS OF COPYRIGHT INFRINGEMENT, CONVERSION, AND AIDING AND ABETTING TORTIOUS CONDUCT (Assigned to the Hon. Mary H. Murguia)

Nelcela's summary judgment Response reads as if this case was just starting, and

21 that issues such as identifying the similarities between the parties' software and 22 determining the ownership of the software remain to be decided. In fact, these issues 23 have been adjudicated. 24 The similarities between the Lexcel, MTSI, and Nelcela software were the subject

25 of expert disclosures in 2005 and cross-motions for summary judgment in 2006. The 26 Court then ruled in its summary judgment Order in Phase I that "Based upon the 27 undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela 28 software the Court finds that as a matter of law that they are substantially similar beyond
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the possibility of random chance and that copying took place." (Dckt. 383 at 28, lns.1416.) Nelcela's Response simply ignores that ruling. The case then proceeded to trial on the issue of ownership. The jury found that Nelcela does not own either the Nelcela Authorization System or the Nelcela Merchant System. Nelcela did not like the verdict, so Nelcela's Response simply ignores the jury's verdict as well. Nelcela cannot avoid the Court's prior summary judgment Order and the jury's verdict by raising new arguments that they failed to raise earlier. USA Petroleum Co. v. Atlantic Richfield Co., 13 F.3d 1276, 1283 (9th Cir. 1994) (a party that fails to raise a ground in opposition to summary judgment motion cannot later assert that ground to challenge the summary judgment ruling); 11 Wright, Miller & Kane, FEDERAL PRAC. & PROC. § 2805, p. 58-59 ("a party may not seek a second trial on the basis of a theory not urged at the first trial"); Lloyd v. Ashcroft, 208 F.Supp.2d 8, 11 (D.D.C. 2002) (party cannot change theory of case after trial, but rather "is bound by what he pled and attempted to prove at trial"). Nelcela had their day in court and lost. They are now bound by the jury's verdict. The jury's verdict is dispositive of, and disproves, Nelcela's claims for copyright infringement and conversion. The Joint Parties' pending motion for summary judgment should therefore be granted. I. NELCELA'S COPYRIGHT INFRINGEMENT CLAIMS FAIL IRRESPECTIVE OF THIS COURT'S CONCLUSION FOLLOWING ANALYTIC DISSECTION OF THE SOFTWARE. Ownership is an indispensable element of a claim of copyright infringement. Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1217 (9th Cir. 1997), cert. denied, 523 U.S. 1021 (1998). The jury found that Nelcela does not own the Nelcela Authorization System or the Nelcela Merchant System. (Dckt. 513.) The verdict is conclusive of Nelcela's claims of copyright infringement because absent ownership, Nelcela cannot pursue a claim for alleged infringement of that 2

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software. Entertainment Research, 122 F.3d at 1217. Consequently, the Joint Parties are entitled to summary judgment on Nelcela's claims of copyright infringement. Following the jury's verdict, Nelcela asked the Court to rule that Lexcel cannot sue Nelcela for copyright infringement because credit card processing software, according to Nelcela, is inherently not copyrightable. Nelcela's "analytic dissection" motion has no bearing on the present motion. If Nelcela loses its analytic dissection motion, then the case will proceed to a second trial on the issue of the damages Nelcela owes to Lexcel for copyright infringement. Conversely, if Nelcela prevails on that motion, then Nelcela will avoid owing monetary damages to Lexcel. But either way, through some perceived reversal of fortune, Nelcela will not become the owner of the software. The question of ownership has already been decided by the jury against Nelcela, and Nelcela's motion for judgment as a matter of law or a new trial has been denied. Nelcela's lack of ownership has thus been finally determined. A favorable ruling to Nelcela on Nelcela's analytic dissection motion will not vest Nelcela with ownership of any software, but rather will result in neither Lexcel nor Nelcela being able to further pursue claims of copyright infringement. Thus, no matter the outcome of the analytic dissection motion, the Joint Parties are entitled to summary judgment on Nelcela's claims of copyright infringement. II. THE JOINT PARTIES ARE ENTITLED TO SUMMARY JUDGMENT ON NELCELA'S CONVERSION CLAIMS. A claim of conversion requires proof of "an intentional exercise of dominion or control over a chattel." Miller v. Hehlen, 209 Ariz. 462, 472, ¶ 34, 104 P.3d 193 (Ariz.App. 2005) (emphasis added). Nelcela offers no evidence that the Joint Parties deprived Nelcela of control over any chattel. Nelcela's conversion claim does not involve allegations of any form of conversion, such as alleged theft of a compact disk containing the Nelcela Merchant System source code. Thus, summary judgment should be granted on Nelcela's conversion claims.
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Rather than claiming interference with control over a chattel, as required for a claim of conversion, what Nelcela really alleges under the guise of conversion is that Lexcel, MTSI, and POST licensed, modified, and copied the Nelcela Merchant System software. (See Dckt. 514 ¶¶ 10-12, admitted in Dckt. 563 p. 2, ln. 25.) These allegations are governed exclusively by the Copyright Act, not the law of conversion. E.g., 17 U.S.C. § 106.1 But, as explained above, Nelcela's lack of ownership of the Nelcela Merchant System software precludes Nelcela's claims under the Copyright Act. III. THE JOINT PARTIES ARE ENTITLED TO SUMMARY JUDGMENT ON NELCELA'S CLAIMS OF AIDING AND ABETTING COPYRIGHT INFRINGEMENT AND CONVERSION As explained in our Opening Brief, and not disputed by Nelcela, aiding and abetting claims depend on proof of an underlying tort. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485 ¶ 34, 38 P.2d 12, 23 (2002). Nelcela's claims for aiding and abetting copyright infringement and conversion stand or fall with its claims for copyright infringement and conversion. Summary judgment is therefore appropriate on Nelcela's aiding and abetting claims for same the reasons stated above regarding Nelcela's direct claims for copyright infringement and conversion. IV. CONCLUSION For the foregoing reasons, this Court should enter summary judgment in favor of the Lexcel, POST, and MTSI Parties and against the Nelcela Parties on Nelcela's claims of copyright infringement, conversion, and aiding and abetting of copyright infringement and conversion. // //

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The Copyright Act preempts state law claims when those claims are based on conduct that would infringe one of the exclusive rights provided by federal copyright law. Kodakek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir. 1998). 4
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RESPECTFULLY SUBMITTED October 9, 2007. BRYAN CAVE LLP By s/ George C. Chen George C. Chen Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc. DICARLO CASERTA & PHELPS PLLC Nicholas J. DiCarlo and LAW OFFICES OF WILLIAM McKINNON By s/ William McKinnon William McKinnon Attorneys for Merchant Transaction Systems, Inc. and Gene and Tone Clothier LEWIS AND ROCA LLP By s/ Richard A. Halloran Peter D. Baird Robert H. McKirgan Richard A. Halloran Kimberly A. Demarchi Attorneys for POST Integrations, Inc., Ebocom, Inc., Mary L. Gerdts, and Douglas McKinney

CERTIFICATE OF SERVICE I hereby certify that on October 9, 2007, I electronically transmitted the attached document 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: Merrick B. Firestone, Esq. [email protected] Veronica L. Manolio, Esq. [email protected] RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Raymond K. Harris FENNEMORE CRAIG, P.C. [email protected] 3003 North Central Avenue, Suite 2600 Phoenix, Arizona 85012 Attorneys for Defendants Nelcela Incorporated, Alec & Diane Dollarhide, and Len & Helga Terry Campagna s/Diana Clauser

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