Free Notice of Filing Proposed Pretrial Order - District Court of Arizona - Arizona

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40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 734-3746 Telephone (602) 262-5311 Peter D. Baird (001978) ([email protected]) Robert H. McKirgan (011636) ([email protected]) Richard A. Halloran (013858) ([email protected]) Kimberly A. Demarchi (020428) ([email protected]) Attorneys for POST Integrations, Inc., et al.

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) Defendants. ) ) ) ) ) And Related Counterclaims, Cross-Claims, ) and Third-Party Claims. ) ) No. CIV 02-1954-PHX-MHM JOINT PARTIES' WRITTEN OBJECTIONS TO NELCELA'S PROPOSED JURY INSTRUCTIONS (Assigned to The Honorable Mary H. Murguia)

8 Merchant Transaction Systems, Inc., 9 10 11 12 13 14 15 16

The Joint Parties anticipate that this Court will hear oral argument on the jury

17 instructions that have been filed by the parties to this case. The Joint Parties file this 18 written objection to the proposed instructions submitted by the Nelcela Parties to clarify 19 and document their objections. 20 I. 21 Instructions Proposed by All Parties. The proposed jury instructions filed by the Joint Parties and by the Nelcela Parties

22 agree in many respects. For the convenience of the Court, the instructions that appear in 23 both the Joint Parties' proposed instructions and the Nelcela Parties' proposed instructions 24 are listed here: 25 · Preliminary Instructions on Which the Parties Agree: From the Ninth

26 Circuit Manual of Model Jury Instructions ­ Civil, the parties have each requested the 27 following preliminary instructions: 1.1., 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, and 28 1.13.
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· Instructions During Trial on Which the Parties Agree: From the Ninth Circuit Manual of Model Jury Instructions ­ Civil, the parties have each requested the following instructions during the trial when appropriate: 2.1, 2.2, 2.5, 2.6, 2.10, 2.13. · Instructions at End of Case on Which the Parties Agree: From the Ninth Circuit Manual of Model Jury Instructions ­ Civil, the parties have each requested the following instructions at the end of the case: 3.1, 3.2, 3.3, 3.5, 3.6, 3.7, 3.9, 3.10, 3.11, 4.1, 4.2, 4.3, 4.4, 5.1, 6.1, 20.2,1 20.5,2 20.6,3 20.9.4 In addition, the Joint Parties and the Nelcela Parties have each submitted identical instructions based on Model 20.13, with only the relevant portions included.5 II. Nelcela's Additional Proposed Instructions to Which the Joint Parties Do Not Object. Nelcela has requested model instruction 2.4, which addresses factual stipulations by the parties. The parties have not yet agreed to any factual stipulations, but the Joint Parties agree that model instruction 2.4 would be appropriate if the parties were to enter into any factual stipulations. Nelcela has also requested model instruction 4.5, which provides a means for the Court to provide a jury with additional instructions during deliberations. The Joint Parties agree that, if such an additional instruction were to be appropriate, model instruction 4.5 would be an appropriate way to present the additional instruction. The Nelcela Parties and the Joint Parties have each submitted identical proposed instructions (no. 7 in each) regarding the elements of copyright infringement, based on model instruction 20.4. The Nelcela Parties have asked that the instruction be used only if the Court permits evidence on its allegations of infringement by POST during Phase I of the trial. The Joint Parties agree that, if that claim is deferred to Phase II, proposed instruction no. 7 is unnecessary.
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Joint Parties' proposed instruction no. 6; Nelcela's proposed instruction no. 6. Joint Parties' proposed instruction no. 8; Nelcela's proposed instruction no. 8. Joint Parties' proposed instruction no. 9; Nelcela's proposed instruction no. 9. Joint Parties' proposed instruction no. 10; Nelcela's proposed instruction no. 10. Joint Parties' proposed instruction no. 11; Nelcela's proposed instruction no. 11.
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III.

Nelcela's Preliminary Instructions to Which the Joint Parties Object. A. Nelcela's Proposed Instruction No. 2 Is Inaccurate and Confusing.

Both the Nelcela Parties and the Joint Parties have requested a preliminary instruction based on model instruction 1.2, which provides a framework to give the jury an overview of the parties' claims and defenses. (Nelcela's proposed instruction no. 2; Joint Parties' proposed instruction no. 2.) Nelcela's version of this instruction contains misrepresentative and inaccurate information that would prejudice the Joint Parties and confuse the jury. Specifically, Nelcela's instruction contains: · A paragraph specifying that Lexcel, Inc. and Lexcel Solutions, Inc. are separate parties and that the jury will need to find ownership by one party or the other rather than assigning ownership to "Lexcel." As set forth in the Amended Complaint filed by Lexcel, Inc. and Lexcel Solutions, Inc., the copyright registrations for the software at issue are in the name of Lexcel, Inc. and that is the entity that the Lexcel Entities contend owns the software. The Lexcel Entities do not contend that Lexcel Solutions, Inc. owns the software. Neither do the MTSI and POST Parties. And neither does Nelcela, which claims that Lexcel owns nothing. There is no reason to introduce a wholly unnecessary distinction between the two Lexcel corporations in this instruction setting forth the parties' claims, because there is no claim that Lexcel Solutions, Inc., owns the software. This fact is recognized in the Court's summary judgment order, which characterized the ownership determination as between Lexcel, Inc. and Nelcela, Inc. (See Sept. 30, 2006 Order, Docket no. 383, at 28-29.) · A paragraph stating that MTSI claims ownership. MTSI's position in this phase of the trial is that the software at issue is owned by Lexcel. MTSI has reserved its right to argue that any software claimed by Nelcela was written as a work-for-hire for MTSI in the event that Nelcela is found to own the software during Phase I, but MTSI's position in this Phase I is that Lexcel owns the software. The statement to the contrary in Nelcela's proposed instruction no. 2 is incorrect.
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· A paragraph characterizing the Joint Parties reference to themselves as the Lexcel Parties, the MTSI Parties, and the POST Parties and telling the jury that they will be required to find ownership by a particular entity, not a group of parties. This paragraph suggests that the Joint Parties are engaged in some kind of deceptive conduct by grouping the parties for purposes of description. There is no deception here, and Nelcela's suggestion to the contrary is controversial. Moreover, the proposed form of verdict submitted by the Joint Parties makes clear that they are seeking a finding that Lexcel, Inc. owns the software, not introducing any confusion by grouping parties. · A paragraph stating that Nelcela claims POST possesses and is using "portions of software" owned by Nelcela and that POST is "infringing on Nelcela's rights." Based on this Court's summary judgment ruling, Nelcela's actual claim against POST is limited to attempting to show that POST is using a single file of the software Nelcela claims to own, the file named "bnkmerch.pbl." Calling the single file "portions" is misrepresentative and confusing, and the issue of "infringement" is reserved for Phase II. (Sept. 30, 2006 Order, Docket. No 383, at29-30.) None of these incorrect and prejudicial statements should be included in the jury instructions as given. B. Nelcela's Proposed Instruction No. 3 Sets Forth an Order of Presentation That Would Deny the POST Parties' Due Process Rights.

According to the process set forth in the Nelcela Parties' proposed instruction no. 3, POST's sole participation in the trial on ownership will be to cross-examine Lexcel and MTSI's witnesses during their case in chief and to cross-examine Nelcela's witnesses on Nelcela's infringement claim. The proposed instruction does not contemplate providing POST with any opportunity to present evidence in support of its own claims regarding who owns the software. Ownership of the software is an element of both POST's claims in Phase II (such as its claim that Nelcela, Dollarhide, and Campagna defrauded POST by representing that it owned software that it did not own) and its defenses in Phase II (such as its defense to Nelcela's infringement claim). POST cannot be deprived of either the
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opportunity to present evidence on behalf of its position on ownership or the opportunity to cross-examine any witness proffered by any party on the issue of ownership. Any such limitation would violate POST's due process rights. C. Nelcela's Proposed Instruction No. 3 Is Also Inaccurate and Confusing.

Nelcela's proposed instruction on the outline of trial also includes misrepresentative and inaccurate information that would prejudice the Joint Parties and confuse the jury. First, it attempts to give the impression that POST has improperly sided with MTSI and Lexcel. It states that "MTSI sued both Nelcela and Post Integrations" and that "Although Post is a defendant in this matter, Post has `aligned' with MTSI and Lexcel, and those parties entered into an Agreement regarding this litigation. Post is not a Plaintiff but a named Defendant in this matter." While MTSI did join both Nelcela and POST as defendants in this action, POST was only a defendant on MTSI's declaratory judgment claim. MTSI did not claim any wrongdoing by POST at all, but simply joined POST as an interested party in the ownership of the software in a declaratory judgment claim, in dramatic contrast to MTSI's extensive allegations of wrongdoing by Nelcela. (Compare MTSI Complaint, Docket no. 1, at ¶¶ 29-108 (counts against Nelcela Parties) with id. at ¶¶ 109-112 (declaratory judgment claim against POST Parties).) To suggest that MTSI accused both Nelcela and POST of misconduct is misrepresentative and prejudicial. Moreover, this instruction is inconsistent with Nelcela's attempts to silence POST and prohibit it from cooperating with Lexcel and MTSI at trial. Second, Nelcela's proposed instruction no. 3 repeats the error of its proposed instruction no. 2 regarding MTSI's claims, as addressed in detail above. D. Nelcela's Proposed Instruction No. 4 Is Also Inaccurate and Prejudicial.

Nelcela's proposed instruction no. 4 repeats prejudicial errors contained in its proposed instructions 2 and 3 and addressed in more detail above. Specifically, it again (1) mentions both Lexcel Entities instead of making clear that Lexcel, Inc. is claiming ownership, and (2) characterizes Nelcela's claim against POST as for a "portion" of the software instead of a single file.
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Nelcela's proposed instruction no. 4 also inaccurately describes the effect of Nelcela's copyright registrations, stating that they are "evidence" of ownership without indicating that they can be rebutted. Nelcela's proposed instruction inaccurately describes the law on this point. Nelcela has acknowledged this, as set forth in the Joint Proposed Pretrial Order, where the effect of copyright registration was set forth as follows: A certificate of copyright registration issued by the Register of Copyrights made before or within five years of first publication of the work constitutes prima facie evidence of copyright ownership. A certificate of copyright registration shifts the burden to the party accused of infringement to prove the invalidity of the copyright. However, to rebut the presumption, the infringement defendant must simply offer some evidence or proof to dispute or deny the plaintiff's prima facie case of infringement. ("Agreed Upon Statement of the Applicable Law," Proposed Joint Pretrial Order, docket no. 424, at 5 (citations omitted); see also 17 U.S.C. § 410(c); Entertainment Research v. Genesis Creative Group, 122 F.3d 1211, 1217 (9th Cir. 1997).) Nelcela did not dispute this characterization of the applicable law, and the law should not be mischaracterized in the instruction to the jury. The Joint Parties have drafted a proposed jury instruction that accurately reflects the law on this issue. A copy of that proposed instruction has been filed today as with a Notice Filing Joint Parties' Amended and Additional Jury Instructions (Docket no. 448), and a copy is also attached as Exhibit 1 to this written objection. The Joint Parties request that this instruction be used to instruct the jury on the effect of copyright registration. IV. Nelcela's Post-Trial Instructions to Which the Joint Parties Object.6 A. Model Instructions 3.12, 5.3, and 6.3 Do Not Appear to Be Relevant.

Nelcela has asked for model instruction 3.12, which applies when a witness has been impeached with limited-purpose evidence such as conviction of a crime or lying under oath on a prior occasion. The Joint Parties are unaware of any witnesses to whom this instruction would apply.

The Joint Parties reserve their right to supplement their objections during trial.
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Nelcela has asked for model instruction 5.3, which instructs the jury regarding complete affirmative defenses. Phase I of the trial is solely to resolve the issue of ownership. No defenses are at issue in this phase, and there is no need for an instruction on affirmative defenses. Nelcela has asked for model instruction 6.3, which addresses liability of partnerships. All of the entities that are parties to this case are corporations. 6.3 is therefore inapplicable. B. Nelcela's Proposed Instruction No. 5 Misstates the Effect of Copyright Registration.

Nelcela's proposed instruction no. 5, like its proposed instruction no. 4, misstates the effect of a copyright registration to the prejudice of the Joint Parties. The Joint Parties request that their proposed exhibit 18, which accurately states the law on this issue, be used instead. C. Nelcela's Proposed Instruction No. 12 Refers to Both Lexcel Entities and Would Confuse the Jury.

Nelcela's proposed instruction no. 12, like its proposed preliminary instruction no. 2, adds unnecessary references to Lexcel Solutions, Inc. that would unnecessarily confuse the jury and prejudice the Joint Parties. These references should be removed. The Joint Parties' proposed instruction no. 12, which is based on the same underlying model instruction, does not cause this confusion and should be used instead. D. The Joint Parties Are Entitled to an Instruction Informing the Jury that the Court Has Already Found Copying Between the Lexcel Software and the Nelcela Software.

The Joint Parties have submitted a proposed instruction, no. 14, that would instruct the jury that this Court has already found copying and that the sole remaining issue for the jury's determination is which software was created first. Based on this Court's prior rulings, the Joint Parties are entitled to an instruction that the Court has already found copying. (See Sept. 30, 2006 Order, Docket no. 383, at 27-29; Trans. of Nov. 20, 2006 Hearing at 29, Docket no. 412, at p. 29, ll. 20-21.) Omission of this instruction would be
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prejudicial error. The Joint Parties have filed two jury instructions to serve this purpose ­ one to be given in the preliminary instructions and the other for the instructions at the end of trial. Those instructions were filed today as nos. 17 (proposed preliminary instruction) and amended no. 14 (proposed end-of-trial instruction) and they use the language of this Court's order on summary judgment at page 28, lines 14-16. A copy of the relevant proposed instructions is attached hereto as Exhibit 2. E. Nelcela's Proposed Instruction No. 13 Is Inaccurate and Misleading.

Nelcela's proposed instruction no. 13 contains three inaccuracies that would prejudice the Joint Parties. First, the proposed instruction inaccurately characterizes the law regarding the effect of copyright registration, as addressed above. Second, it inaccurately states that "the Nelcela Merchant System . . . is the software at issue in this case." As addressed in more detail in the Joint Parties' Response to Nelcela's Motion in Limine No. 2, the Authorization System is and has been at issue in this case. (See Docket no. 434.) Instructing the jury that only the Merchant System is in issue would be inaccurate and would prejudice the Joint Parties. Third, Nelcela's proposed instruction no. 13 again references Lexcel Solutions, Inc., causing unnecessary and prejudicial confusion because the Joint Parties do not claim that Lexcel Solutions, Inc. owns the software. The Joint Parties' proposed jury instruction no. 17, attached hereto as Exhibit 1, does not introduce these errors and should be used instead. F. Nelcela's Proposed Instruction No. 14 Is Inconsistent with this Court's Ruling on Summary Judgment.

Nelcela's Proposed Instruction No. 14 fails to limit Nelcela's claim against POST to the single file, bnkmerch.pbl, that this Court has held is the only software file at issue in Nelcela's claim against POST. (See Sept. 30, 2006 Order, Docket no. 383, at 29-30.) The Joint Parties' proposed instruction no. 15, which is based on the same model instruction, does not contain this error and should be used instead.
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G.

The Joint Parties Are Entitled to an Instruction on Spoliation.

During discovery, the parties discovered that Mr. Dollarhide had destroyed evidence after the litigation began, including by smashing the computer hard drives on which the software Nelcela claims to own was allegedly written. POST moved for sanctions as a result of this spoliation of evidence. The Court agreed that spoliation had occurred but did not impose any sanctions, instead deferring the issue for trial. (Dec. 22, 2005 Order, Docket no. 331, at 22.) The Joint Parties are entitled to present evidence of spoliation, and therefore to an instruction of the law on spoliation. Nelcela's proposed instructions contain no instruction on spoliation. The Joint Parties' proposed instruction no. 16, which accurately summarizes Ninth Circuit law on spoliation, should be included in the jury instructions. RESPECTFULLY SUBMITTED this 23rd day of March, 2007 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/ Kimberly A. Demarchi 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 BRYAN CAVE LLP By s/ George C. Chen George C. Chen Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on March 23, 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 [email protected] Veronica L. Manolio [email protected] s/ Debi Garrett

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