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

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 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 PROPOSED PRETRIAL ORDER

The following is the Joint Proposed Pretrial Order to be considered at the Final

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A.

TRIAL COUNSEL FOR THE PARTIES MTSI Plaintiffs:

William McKinnon [email protected] 800 East Ocean Boulevard Unit 501 Long Beach, California 908025449

Nicholas J. DiCarlo [email protected] DiCarlo Caserta & Phelps PLLC 6750 East Camelback Road, Suite 100-A Scottsdale, Arizona 85251

Lexcel Intervenors/Plaintiffs: George C. Chen [email protected] Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406 Tel: (602) 364-7367 Fax: (602) 364-7070

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Nelcela Defendants/Counterclaimants: Merrick B. Firestone [email protected] Veronica L. Manolio [email protected] Law Offices Ronan & Firestone, PLC 9300 E. Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Telephone (480) 222-9100 POST Defendants/Counterclaimants: Robert H. McKirgan [email protected] Richard A. Halloran [email protected] Kimberly A. Demarchi [email protected] Lewis and Roca LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 734-3746 Telephone (602) 262-5311 B. STATEMENT OF JURISDICTION. Jurisdiction for this action is based on 28 U.S.C. §§ 1331, 1138, 1367(a). Jurisdiction is not disputed. C. relief sought. Phase I of this case involves competing claims of ownership of computer software that processes credit card transactions. All parties agree that any claims for damages resulting from infringement of software ownership rights, and other state-law claims between the parties over which this Court has exercised supplemental jurisdiction, are reserved for Phase II. The Nelcela Parties believe that any claims involving copyright infringement are also reserved for Phase II. 1. The Joint Parties' Position a. Lexcel and Nelcela Software. 2 NATURE OF ACTION.

Provide a concise statement of the type of case, the cause of the action, and the

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The Lexcel Parties, MTSI Parties, and POST Parties (the "Joint Parties") contend that the Nelcela Software is an unauthorized derivative work based on the software owned by Lexcel. The Nelcela Parties contend that the Nelcela Software was not derived in any respect from the Lexcel Software and is owned by Nelcela. In its ruling on summary judgment, this Court held that, "[b]ased upon the undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software the Court finds as a matter of law that they are substantially similar beyond the possibility of random chance and that copying took place." (Sept. 30, 2006 Order at 28.) The only disputed issue remaining with regard to ownership and infringement as between Lexcel and Nelcela is therefore which software was copied from the other. (Id. at 28-29.) That issue boils down to the question of which software came first, the Lexcel software or the Nelcela software, leaving a narrow issue for trial: Which software came first? (Id. at 30 lns.18-20 (issue remaining in dispute is "which parties' software was created first"); Trans. of Hearing Nov. 20, 2006 p.29 lns.20-21 ("I think we are at a narrow issue of which came first.".)1 b. POST Software.

The POST Parties seek a declaratory judgment that Nelcela owns no part of the credit card processing software currently used by the POST Parties (the "POST Software"). The Nelcela Parties claim that the POST Software was copied from the Nelcela Software. In its ruling on summary judgment, this Court ruled that the only common file between the Nelcela Software and the computer software produced by POST during discovery was a file named "bnkmrch.pbl." (Id. at 29-30.) The POST Parties contend
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The Joint Parties have described the issues for trial consistent with this Court's order on the cross-motions for summary judgment and the Court's instructions at the pre-trial conference held on November 20, 2006. (Tr. of Hearing, November 20, 2006 at pp.3031)("I want you all to submit you Joint Pretrial Order, which includes your witnesses, and outlines the narrow issue that you both will come to an understanding based upon my motion for summary judgment [decision which] will be presented during trial that will be the subject of the trial."). However, the Joint Parties reserve the right, in the event that the jury determines that the Nelcela software came first, to establish that the Nelcela software was derived from the MTSI software. 3 1800169.2
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that that file is not a part of the POST Software, but rather was a file licensed from MTSI and not used by POST when creating the POST Software. Based on the Court's summary judgment ruling, the only issue remaining for trial with regard to the ownership of the POST Software is whether POST uses the file "bnkmerch.pbl" as part of the POST Software. (Id. at 30.) 2. The Nelcela Parties' Position

Leonard "Len" Campagna, Alec Dollarhide and Nelcela, Inc. ("Nelcela") agree that this Phase I involves competing claims of ownership of computer software that processes credit card transactions for merchants. Nelcela specifically asserts that its software cannot be "derivative of" Lexcel's credit card processing software because Lexcel never had any such software prior to Nelcela. Lexcel's 1994/1995 floppy disks do not include any software that "processes credit card transactions." Lexcel's software was not developed "first in time," nor did Nelcela derive its Merchant System or merchant software from Lexcel. Nelcela specifically disagrees with the joint parties' position that two codes are "substantially similar" to one another. The joint parties played a game of "smoke and mirrors" at summary judgment and provided this court evidence of copying between code that is not at issue in this litigation. The only code at issue is that merchant code which, "processes credit card transactions," and Lexcel never had that code prior to Nelcela having created it in the 1996-1997 time frame. Nelcela disagrees with Post's position that the "bnkmrch.pbl" is the only file in common between Post and Nelcela. Post may have additional file(s) belonging to

Nelcela's code. Whether Post uses the Nelcela code or not is irrelevant, Post's retention of Nelcela's file(s) is unauthorized, unwarranted, and proves some of Nelcela's claims. The trial issue(s), as Nelcela sees them, will be whether Nelcela owns the Merchant System software that it independently developed; whether Lexcel's 2001 software contains elements that Nelcela created first; and, whether POST improperly 4

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maintains any portion of Nelcela's code (namely, "bnkmrch.pbl," but other similar files may still exist on the Post system) without Nelcela's authorization to have that code. D. CONTENTIONS OF THE PARTIES.

With respect to each count of the complaint, counterclaim or cross-claim, and to any defense, affirmative defense, or the rebuttal of a presumption where the burden of proof has shifted, the party having the burden of proof shall list the elements or standards that must be proved in order for the party to prevail on that claim or defense. 1. Agreed Statement of the Applicable Law:

Copyright Infringement.* A claim for copyright infringement has two elements: (1) ownership of a valid copyright and (2) infringement ­ unauthorized copying of protected elements of the copyrighted work. See, e.g., Three Boys Music Corp. v. Bolton, 212 F.3d 477, 481 (9th Cir. 2000). Copyright Ownership. In order to prove ownership of a valid copyright in a copyrightable work, such as computer software, the party claiming ownership must prove (1) that its work is original and (2) that it is (a) the author or creator of the work, (b) the employer for whom the work was created as a work-for hire, or (c) that it has obtained ownership from the author or creator of the work. 17 U.S.C. § 201(a) (author or creator owns work); § 201(b) (works for hire are owned by the employer or person for whom the work is created), § 101 (defining "work for hire"), § 201(d) (ownership may be transferred in whole or part). Effect of Copyright Registration. 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. 17 U.S.C. § 410(c). A certificate of copyright registration shifts the burden to the party accused of infringement to prove the invalidity of the copyright. Entertainment Research v. Genesis Creative Group, 122 F.3d 1211, 1217 (9th Cir. 1997). 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." Id. 5
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Ownership of Derivative Works. A "derivative work" is a work that is not original but is rather based on one or more pre-existing works, such as a translation or adaptation. 17 U.S.C. § 101. Only the owner of a copyright has the authority to make derivative works, though the owner may choose to permit others to do so. 17 U.S.C. § 106(2). Copyright ownership only vests in original works; unauthorized derivative works do not give rise to an ownership interest under the copyright laws. 17 U.S.C. §§ 102(a), 201(a). 2. Nelcela's Position

*Nelclea does not agree the Copyright Infringement is at issue in this Phase I. Nelcela does not believe this "Copyright Infringement" section to be an incorrect statement of law, Nelcela just respectfully asserts that this Phase I has been limited only to ownership of software. Nelcela believes that Post has attempted to enlarge the issue to infringement when seeking a Declaration of ownership of the "Post software," mainly because the Post software is known to have at least one element of code in common with Nelclea's software. To the extent that this Court has limited Phase I to ownership only, Post's Declaratory Action cannot be determined in this Phase I. Nelcela believes that if this Court allows evidence regarding Post's copyright infringement, then all issues of infringement will have to be determined in this Phase I. 3. The POST Parties' Response to Nelcela's Position

The POST Parties seek to litigate only the issues for trial identified by the Court in its summary judgment ruling, which include whether or not the POST Parties use the file "bnkmerch.pbl" in their credit card processing software. (Sept. 30 Order at 30 lns. 1215.) E. None. F. CONTESTED ISSUES OF FACT AND LAW STIPULATIONS AND UNCONTESTED FACTS

Each issue of fact/law must be stated separately and in specific terms, as must the parties' contentions as to each issue.
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1.

Contentions of the Lexcel, MTSI, and POST Parties (the "Joint Parties". a. The Lexcel Software.

In its ruling on summary judgment, this Court held that, "[b]ased upon the undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software the Court finds as a matter of law that they are substantially similar beyond the possibility of random chance and that copying took place." (Sept. 30, 2006 Order at 28.) The Lexcel Software is owned by Lexcel. The Lexcel Software was written for Credit Card Services, Ltd. ("CCS") under an agreement that permitted CCS to use the software while Lexcel retained all ownership of the software. The Lexcel-CCS project began in 1994 and ended in 1995. The Lexcel Software was created by Lexcel in 199495. It was an original work of creative expression at the time it was written. Ownership of the software vested in Lexcel at the time it was written. At the end of the Lexcel-CCS project, Lexcel and CCS agreed that Lexcel would continue to own the software, while CCS would receive a copy that it would be permitted to use. CCS was also authorized by Lexcel, the copyright owner, to modify the software, but Lexcel would own all modifications as well. To carry out the terms of the agreement, in 1995 Lexcel provided a copy of the software source code to Alec Dollarhide, an employee of CCS, on computer diskettes. The Lexcel Software was created before the Nelcela Software. Nelcela was not formed until 1997. Alec Dollarhide and Len Campagna met at the Lexcel offices where they shared a common office space. Nelcela's principals, Leonard Campagna and Alec Dollarhide, and their associates, Jac and Anthony Dollarhide, did not begin creating the Nelcela Software until long after Lexcel provided the source code for the Lexcel Software to Alec Dollarhide for delivery to CCS. Nelcela has infringed the Lexcel Software. The Nelcela Software is a derivative work of the Lexcel Software.

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Nelcela had access to the source code for the Lexcel Software. Alec Dollarhide was provided access to the Lexcel offices, the Lexcel computer system, and portions of the Lexcel Software pursuant to a confidentiality agreement. Additionally, in 1995, Mr. Dollarhide was provided diskettes containing the source code for the Lexcel Software which Mr. Dollarhide and Mr. Campagna kept rather than delivering to CCS. The Nelcela Software is substantially similar to the Lexcel Software, which this Court has found as a matter of law. (Sept. 30, 2006 Order at 28-29.) Both the Nelcela "Authorization System" and the Nelcela "Merchant System" are substantially similar to, and copied from, the Lexcel Software. This copying is demonstrated by the presence of many identical lines of code in the Lexcel Software and the Nelcela Authorization System, as well as many identical, unique identifiers that appear in both the Lexcel Software and the Nelcela Merchant System. Lexcel has never authorized Nelcela to copy the Lexcel Software or prepare derivatives of that software. Nelcela therefore does not own copyrights in the Nelcela Authorization and Merchant Systems, which are unauthorized derivative works of the Lexcel Software. b. The POST Software.

In its ruling on summary judgment, this Court ruled that the only common file between the Nelcela Software and the software files produced by POST during discovery was a file named "bnkmrch.pbl." (Id. at 29-30.) POST has not infringed the Nelcela Software. Because the Nelcela Software is an unauthorized derivative work of the Lexcel Software, Nelcela cannot prove that it holds a valid copyright, one of the elements of an infringement claim. Additionally, the only file Nelcela has identified as common to the Nelcela and POST Software, bnkmerch.pbl, is not a file used in the POST Software, rather it is a file that is part of the MTSI software that was licensed by POST from MTSI in 2001.

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2.

Contentions of the Nelcela Parties.

Lexcel was hired by Credit Card Services ("CCS") and Charlie Anderson in the 1994/1995 time frame to develop software. Lexcel created nothing but an unusable, defunct system. That is precisely why the Lexcel/CCS relationship ended and Lexcel was sued. Lexcel never could (and still has not) develop any working/functional system. To this date, Lexcel has not created software that processes credit card transactions, and Lexcel has never worked in the industry of processing credit card transactions. Nelcela was formed for the purpose of developing credit card processing software, and the Nelcela parties spent hundreds of hours creating that new software. The Nelcela software is not derivative of any Lexcel software; no functional software even existed when Nelcela created its Merchant System. The relevant Nelcela software was written in 1996-1997 and was all copyrighted on May 18, 1999. Lexcel did not copyright any software until 2001 ­ in the midst of this litigation and after Lexcel admittedly met with Mary Gerdts/Post and Gerdts' counsel. Lexcel copyrighted software (presumably, that it received from Mary Gerdts/Post in the course of this litigation and in the course of the joint parties' conspiracy) in 2001. The 1994/1995 floppy disks that Lexcel has provided in this litigation contain unusable, non-functioning fragments of source code. Lexcel did not have any software that, "processes credit card transactions" in 1994/1995 or at any time prior to Nelcela having developed its software. This Court found "substantial similarity" between software/code that is not at issue in this litigation. The joint parties played a game of "smoke and mirrors" and provided this Court with irrelevant analysis of similarities ­ none of which can be found between the Lexcel 1994/1995 floppy disks and the Nelcela Merchant System. Post has portions of Nelcela's copyrighted code including, at least, the Nelceal "bnkmrch.pbl" file. Post's retention and use of Nelcela's code is without authorization and illegal. 9

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G.

LIST OF WITNESSES.

A jointly prepared list of witnesses and their respective addresses, identifying each as either plaintiff's or defendant's, and indicating whether a fact or expert witness, must accompany this proposed order. If a witness' address is unknown, it should be so stated. A brief statement as to the testimony of each witness must also be included. Additionally, the parties shall designate which witnesses (1) shall be called at trial, (2) may be called at trial, and (3) are unlikely to be called at trial. The Parties' list of witnesses is attached hereto as Exhibit 1. Each Party reserves the right to call any of the witnesses identified on Exhibit 1. H. EXPERTS.

Attached as Exhibits 2 and 3 are brief summaries of each side's experts' qualifications and proposed testimony. I. LIST OF EXHIBITS.

Each Party must submit with this proposed order a list of numbered exhibits, with a description of each containing sufficient information to identify the exhibit, and indicating whether an objection to its admission is anticipated and the basis for such objection. The trial exhibits used during depositions, along with the parties' objections thereto, are listed in the attached Exhibit 4. The Parties' respective lists of additional exhibits are attached hereto as Exhibits 5 and 6. Each Party reserves the right to use any of the exhibits identified on Exhibits 4, 5, and 6. Each Party also reserves the right to use impeachment evidence that may be necessary at trial to impeach testimony, but which evidence is not reasonably anticipated at this time. Each Party may use demonstrative exhibits subject to evidentiary objections at trial. J. INFORMATION FOR COURT REPORTER.

Each party shall file a Notice to Court Reporter ONE WEEK prior to the trial. The Notice shall contain the following information: 10

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(1) Proper names that may be used during trial. This should include the proper names of all witnesses. (2) Acronyms that may be used during trial. (3) Geographic locations that may be used during trial. (4) Technical Jargon: Please list any technical names, medical terms or special jargon that may be used during trial. (5) Case Names: Please provide any case names or case citations that may be used during trial. If possible, please transmit a copy of the concordance from key depositions to the Court Reporter by electronic or paper correspondence. K. DEPOSITIONS TO BE OFFERED.

Those portions of depositions that will be read at trial must be listed by page and line number, and objections along with the legal basis for the objection must be specified. 1. Depositions to Be Offered by the Lexcel, MTSI, and POST Parties.

The Joint Parties intend to offer the testimony of Robert DeCicco and Charles Anderson by deposition if those witnesses do not appear to testify at trial. Attached as Exhibit 7 is a designation of the deposition excerpts the Joint Parties plan to offer. 2. Depositions to Be Offered by the Nelcela Parties.

Nelcela intends to offer these depositions in lieu of trial testimony. However, should any of these witness(es) be called at trial by another party, Nelcela reserves the right to cross-examine the live witness instead of only using designated deposition(s). Nelcela also hereby reserves the right to call any witness listed in its "May be called" category, regardless of whether deposition desginations have been made at this time. Nelcela's deposition designations are attached here as Exhibit 8. At this time, it is only anticipated that Nelcela will introduce depositions of Charles Anderson, Robert Zeidman, Rose Ana Iniquez, and David Posner. 11

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L.

MOTIONS IN LIMINE.

Set forth the motions in limine which have been filed, whether they have been ruled upon or are scheduled to be ruled upon at the Final Pretrial Conference. Briefly state objections to admission of any anticipated testimony with citation to the applicable Federal Rule(s) of Evidence. 1. The Joint Parties' Motions in Limine.

The Joint Parties are filing three motions in limine. The Joint Parties' first motion seeks to exclude Exhibit 5, the alleged April 1995 agreement between Alec Dollarhide and Charles Anderson, CEO of CCS, Ltd. The Nelcela Parties have failed to produce the original document, and the authenticity of the proffered copy is questioned. Therefore, the document is inadmissible under Rule 1002 of the Federal Rules of Evidence. The document is also irrelevant to the issues set for trial in Phase I. The Joint Parties' second motion seeks to exclude the testimony of Kevin Faulkner, one of the Nelcela Parties' designated expert witnesses. The Nelcela Parties selected a different expert witness, Robert DeCicco, who was deposed by the Joint Parties. Evidently unhappy with Mr. DeCicco's testimony, the Nelcela Parties seek to switch experts, yet they have refused to make Mr. Faulkner available for deposition. The Joint Parties' third motion seeks to exclude any of Nelcela's experts from testifying to expert opinions not previously disclosed, pursuant to Rules 26(a)(2)(B) and 37(c)(1), FED.R.CIV.P. These motions will be filed on January 19, 2007, along with this Joint Proposed Pretrial Order, and the parties anticipate that they will be ruled upon at the Final Pretrial Conference. 2. The Nelcela Parties' Motions in Limine.

Nelcela will file two (2) motions in limine. The first is to exclude any evidence or testimony by expert Robert Zeidman, who used a technologically-unreliable methodology (CodeMatchTM) that he pioneered for his unreliable analysis of matching source code. 12

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The second motion in limine seeks to exclude any evidence related to the "Authorization" system(s) that are not at issue in this litigation. M. 1. LIST OF ANY PENDING MOTIONS. The Joint Parties' Motion to Strike Nelcela's Answer, Counterclaims, and

Third-Party Complaint; Nelcela's Response to the Motion to Strike; Joint Parties' Reply. 2. Carl and Flora Kubitz's Motion to Dismiss Nelcela's Third-Party

Complaint; Nelcela's Response to the Motion to Dismiss. 3. Nelcela's "Supplemental Brief"; Joint Parties' Response to Nelcela's

"Supplemental Briefing re: Inconsistent Verdicts" N. PROBABLE LENGTH OF TRIAL.

The Joint Parties believe the trial can be completed in one week provided the primary issue for resolution at trial is whether the Lexcel or the Nelcela software came first. The Nelcela Parties expect the trial will last 8 days as the court ordered. O. TRIAL DATE.

This matter is set for trial on April 10, 2007. This is a firm trial date and will only be vacated by this Court for good cause. P. JURY DEMAND.

A timely jury demand was filed. The Parties' joint statement of proposed voir dire questions is attached hereto as Exhibit 9. The parties proposed jury instructions are attached hereto as Exhibits 10 and 11. And, the parties' proposed forms of verdict are attached hereto as Exhibits 12 and 13. Q. CERTIFICATIONS.

The undersigned counsel for each of the parties in this action do hereby certify and acknowledge the following: 1. Discovery The Joint Parties certify that all discovery has been completed. 13

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Nelcela believes that discovery on the Statute(s) of Limitation was not concluded and must be done prior to trial. Nelcela also believes that Lexcel thwarted discovery, including failing to respond to a subpoena duces tecum directed at its accountant, Twila Hudgins which is wholly relevant to the issue of ownership on Phase I. (Nelcela raised this in both its Motion to Dismiss Lexcel and its Motion for Summary Judgment, but the issue(s) were never resolved.) Nelcela believes that the outstanding discovery goes to ownership issues and should have been resolved/completed prior to the Phase I trial. 2. Witnesses The parties certify that the identity of each witness has been disclosed to opposing counsel. 3. Each exhibit listed herein (a) is in existence; (b) is numbered; and (c) has been disclosed and shown to opposing counsel. 4. The parties have complied in all respects with the mandates of the Court's Rule 16 Scheduling Order. 5. Unless otherwise previously ordered to the contrary, the parties have made all of the disclosures required by the Federal Rules of Civil Procedure, except as stated by the Nelcela parties in this Joint Proposed Pretrial Order. APPROVED AS TO FORM AND CONTENT: 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 RONAN & FIRESTONE Merrick B. Firestone Veronica L. Manolio By s/ Veronica L. Manolio Veronica L. Manolio Attorneys for Nelcela, Inc., Alec Dollarhide, and Len Campagna

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Case 2:02-cv-01954-MHM Document 424

LEWIS AND ROCA LLP

BRYAN CAVE LLP

By __s/ Richard A. Halloran________ By s/ George C. Chen Peter D. Baird George C. Chen Robert H. McKirgan Attorneys for Lexcel, Inc. and Lexcel Richard A. Halloran Solutions, Inc. Kimberly A. Demarchi Attorneys for POST Integrations, Inc., Ebocom, Inc., Mary L. Gerdts, and Douglas McKinney

Based on the foregoing, IT IS ORDERED that this Proposed Pretrial Order jointly submitted by the parties is hereby APPROVED and is thereby ADOPTED as the official Pretrial Order of this Court. DATED this _________ day of _________, 2007. ________________________________ Mary H. Murguia United States District Judge

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CERTIFICATE OF SERVICE I hereby certify that on January 19, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing.

s/

Debi Garrett

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