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IBM's Affirmative Defenses: Take That!
Thursday, July 17 2003 @ 01:01 AM EDT



So far, Groklaw has covered a number of subjects, in relation to the SCO-IBM case. Here's a list of those that rated separate articles; the rest can be found in the SCO Archives:
Patents and Copyrights
How the 10th Circuit Defines Derivative Code
Declaratory Judgments
Discovery Rules
Trade Libel
Trade Secrets
Judge Kimball's Record
Legal Links to information by others on relevant topics.
Today, we'll cover IBM's affirmative defenses. First, what is an affirmative defense?

Despite it's name, it's not just defensive in nature. It's a plaintiff's first opportunity to accuse back, as well as to raise issues that help it defend itself. As this dictionary defines it, it means:
A defense in which the defendant introduces evidence, which, if found to be credible, will negate criminal or civil liability, even if it is proven that the defendant committed the alleged acts.
By the way, you can just go to dictionary.com and type in whatever you want defined for any legal term, in addition to the links I will provide.

Dictionary.com's definition of an affirmative defense is that it's the "part of an answer to a charge or complaint in which a defendant takes the offense and responds to the allegations with his/her own charges, which are called 'affirmative defenses.' These defenses can contain allegations, take the initiative against statements of facts contrary to those stated in the original complaint against them, and include various defenses based on legal principles. Many of these defenses fall into the 'boilerplate' (stated in routine, non-specific language) category, but one or more of the defenses may help the defendant."

Affirmative defenses are equitable in nature. What is equity? The definition basically is that it's a group of rights that arise out of concepts of fairness, when the strict letter of the law doesn't provide a remedy. It's a way for the judge to Do the Right Thing, you might say, and figure out a solution where the law may have none. So in your affirmative defenses, you are appealing to the conscience of the judge and/or jury. So, with that introduction, let's take them one at a time.

First Affirmative Defense: that the complaint fails to state a claim upon which relief can be granted.

This is an example of boilerplate language, wording you pretty much always see in an answer, but that doesn't mean it doesn't sometimes actually mean something. You fail to state a claim for which relief can be granted if, for example, you weren't injured by the defendant in any way. There isn't any relief when there isn't any wrong.
Second Affirmative Defense: that their claims are barred because IBM has not engaged in any unlawful or unfair business practices, and IBM's conduct was privileged, performed in the exercise of an absolute right, proper and/or justified.
The first half says IBM didn't do anything unlawful or unfair and the second half says whatever they did, they had the right to do it. Remember IBM's mantra: we have a fully paid up, irrevocable license. Also, they will no doubt argue that whatever code they released was code that they owned themselves and that it wasn't derivative code owned by SCO.
Third Affirmative Defense: that SCO lacks standing to pursue its claims against IBM.
Standing is whether you have a right to bring a lawsuit under the particular circumstances. To have standing in federal court, there has to be an actual controversy (meaning you aren't asking the judge to rule on something you are thinking might happen or something you're just curious about), there has to be a federal statute that says the federal courts can hear this type of issue (copyright law is an example of a statute that says the federal courts can hear it), and/or the parties must be residents of different states. If both SCO and IBM were Utah corporations, for example, the dispute could simply be heard in Utah state courts, God forbid, unless it were about copyrights only or mainly. In fact, SCO originally filed in Utah state court. IBM got it moved to federal court in Utah, but they are still trying to get out of Utah, period, as we'll see, because although they are in federal court, Utah's laws will be applied, unless IBM can get that changed.

If you would like to understand how the federal courts work, the best reference I found is "Understanding the Federal Courts", a pdf which you can find linked to on this page. It even has a diagram showing all the courts, leading up to the Supreme Court. And there is a glossary of legal terms at the end.

The main point is this: you can't just waltz into federal court the way you can into state court in the state where you live. You have to meet the requirements to be heard there, and here IBM is saying SCO didn't meet the three-prong requirements. If you examine the three-part test, the last one seems at first glance ruled out, because they are in different states, so they must be saying there is no actual controversy and/or there is no federal statute being relied on. Contract disputes are based on state law, not federal, and so far there are no copyright claims, which would make it appropriate to be in federal court. It's about a contract and some tort claims, which would be under state law. Which state? That's what IBM is arguing. Obviously, they don't want to be in Utah state court, but they don't want to be in federal court using Utah's laws either. More on that in a later affirmative defense. Here they are saying that SCO doesn't belong where it is.

Why argue about it? Because sometimes a state's laws are stricter or more helpful than federal laws or one state's law might be better for your side than another. For example, HIPAA is the law governing privacy of patient medical records, federally. But some states, CA, for example, have stricter privacy provisions than HIPAA. In that case, the stricter provisions would prevail. Where a state has less strict regulations, HIPAA would apply rather than the looser state provisions. So, if you're a plaintiff and you are trying to decide where to bring your case, and let's say you live in CA but your HMO is located in a less strict privacy state, you would want to go into a federal court in CA and apply HIPAA plus California law there. Your HMO would try its best to avoid that, because they would want to avoid the stricter CA privacy laws.

How does the judge decide which state's law gets applied? There are rules about it. You can't just sue someone anywhere you like. The defendant has to have some connection to the place where they are sued. If there is a contract, it may spell out that the contract is to be interpreted according to a particular state's laws. Look at your next EULA or any Terms of Use on a web site and you'll normally see a state's laws chosen for any disputes. Software companies like to choose Virginia, because the law there favors them. When the contract doesn't say, you must persuade a judge that the state you like has the strongest tie to the claims at issue. That's why SCO keeps saying that IBM committed their alleged wrongs inside of Utah, and that IBM has an office in Utah, etc. This affirmative defense is part of IBM's campaign to get out of Utah, as well as saying that SCO has no case. It's an elaborate dance that has only just begun. Head explode yet? If not, let's move on.

Fourth Affirmative Defense: that the claims are barred, in whole or in part, by the applicable statutes of limitations.
A statute of limitations defense just means that you only have a certain window in which to bring a claim. The period of time varies by wrong alleged and from state to state. For example, there is one statutory time period set for personal injury cases, breach of contract, fraud, etc. But wherever you are, if you don't file by the deadline, whatever it is in your area for your claim, your right to sue is forever barred, or blocked. There are federal statutes of limitations too for certain claims.
Fifth Affirmative Defense: that the claims are barred, in whole or in part, by the economic-loss doctrine or the independent-duty doctrine.
This is one you can't just look up in a dictionary. For this, you must look to what judges have written in their decisions. Sometimes you can find such cases by looking in legal papers submitted to judges, but that only works up to a point. For one thing, the judge may not have been persuaded by the argument. Each side tends to play up its side of the story and to paint the law in the colors best suited to its argument. That's why judges' decisions are more reliable, although you have to check always to make sure a new case hasn't made the case you found no longer applicable. I'm just explaining this because some folks have written to me that they couldn't figure out what "economic-loss doctrine" was. The method I just described is how you do it. Stick to the state or jurisdiction your case is in, and then look up in Lexis or Westlaw or Loislaw or some similar service -- by keywords. They will charge you. Your nearest legal library, maybe in the courthouse, or in a law school, may be free.

If you do that, this is what you'll find: The economic-loss doctrine basically says that if you suffer only economic losses, you can't sue under a tort theory but must stay inside the contract you are in. Oddly enough, the clearest explanation is found in a Microsoft legal document that it presented in the case between it and Caldera, the one that ended with a settlement. Here's their explanation:

The basic theory behind the economic loss rule is that when two parties have a contract and the opportunity to negotiate how they want to be protected by the contract, the policy considerations and incentives for proper conduct of tort law are irrelevant.
This rule exists to assist in determining whether contract or tort theories are applicable to a given case. Tort law seeks to protect you and your property when you are not in a contract; contract law protects bargained-for expectations. The economic-loss doctrine began with product liability law and then spread to other claims. The idea was that if a product didn't harm anything but itself, with no damage to your other property or to yourself, you couldn't sue under a tort theory, because your loss was economic only. So, if they were negligent, it was just too bad. You couldn't recover solely economic losses under tort theories like negligence, strict liability, etc. You should have thought of those possibilities and put in the contract what they would have to do for you if they were negligent or whatever. The thought was that you should be able to rely on the terms of the contract, so as to have certainty as to your potential liability.

Utah is a state that has accepted this doctrine, which is sometimes called the Moorman doctrine, named after a famous case, Moorman Mfg. Co. v. National Tank Co., 435 N.E.2d 443 (Ill. 1982) which held that purely economic damages cannot be recovered in tort. The case is old enough that I couldn't find a free copy of it to link to, so you'll have to find it for yourself at the library if you want to read it, or pay a service.

If you bought a product, and it didn't work the way you wanted, your remedy was whatever you wrote in the contract when you bought it. If the product catches on fire and you're left with third-degree burns on top of a product that doesn't work, however, that's a different story. Now you're talking tort claims for the burns, if the victim prefers, because that isn't an economic loss, or he or she can sue under the contract, but it's their choice.

Tort, which if you speak French you know just means "wrong" in that language, in the law means a civil wrong, or wrongful act. Negligence would be a tort, assault, battery, libel, defamation -- these are all torts. Breach of contract may be wrong, but it's not a tort wrong, so to speak. The idea is that when two businesses work out a contract, and they both are sophisticated and have legal representation, they should be able to figure out what could go wrong and spell out in the contract what the remedies should be if something goes wrong. If they fail to do so, later, when something does go wrong, they are still stuck with the contract if their losses are economic only.

There can be some exceptions to this (false representations, for example), but that is the general doctrine. Failed expectations -- one side thought it was going to make a killing in a business deal and it didn't -- is strictly a contract issue, not a tort.

So what IBM is saying here is: all you say you lost is money. That keeps us inside the terms of whatever the contract says should happen. You can't sue for the other things you are asking for that are torts. Remember SCO is claiming IBM caused "tortious injury and breach of contract." IBM is saying, Hey, you said we have a contract, so you can't also bring tort claims when there is a contract, because of the economic-loss doctrine. They may also argue that they aren't in any contract with SCO, as we've pointed out before, but here they are saying that if we are in a contract with you, it bars you from recovering under the tort theories you have alleged. So the only remedies SCO could ask for, under this affirmative defense, would be that IBM return or destroy all of AIX and stop distributing it and anything else specifically spelled out in the contract The enormous money damages SCO is asking for are not specified in the contract. Neat slice from IBM, huh? Like a razor. Here are some links where you can read more about the economic-loss theory, if you wish, here and here [PDF] and here [PDF].

Sometimes you get to escape the economic-loss doctrine's severity, namely, if the defendant had an independent duty, one separate from the contract, that it breached. Here is a description of the three exceptions to the economic-loss doctrine:

There are three exceptions to the economic loss rule: The plaintiff may sue in tort where (1) the plaintiff sustained personal injury or property damage resulting from a sudden or dangerous occurrence; (2) the plaintiff's damages were proximately caused by the defendant's intentional, false representation; or (3) the plaintiff's damages were proximately caused by negligent misrepresentation on the part of a defendant who was in the business of supplying information for the guidance of others in their business transactions.
A lawyer, for example, has certain responsibilities under the law, and lawyers can't hide behind a contract's terms under the economic-loss doctrine, because they are supposed to do certain things no matter what a contract says or doesn't say. An accountant also has certain duties of care and so an accountant could be sued for certain torts. And no one can contract away fraud. In other words, a right to be free from fraudulent inducements to contract doesn't arise out of contract. Moorman doesn't protect from intentional interference with a prospective business advantage.

But here, IBM is saying they had no independent duty toward SCO and weren't guilty of anything that would take them outside of the contract. What could take you outside of a contract? If, for example, a company deliberately set out to ruin your business, you can sue under tort. But if the company made a valid business decision that also happened to affect you adversely, but there was no intention to harm you, then it's just too bad. There is no legal right to make a profit. IBM's position will be that their decision to support Linux was a valid business decision that had nothing to do with any desire to destroy UNIX, as SCO alleged.

Sixth Affirmative Defense: the claims are barred by the doctrine of laches and delay.
Laches just means you waited too long to sue. It's kind of like the statute of limitations defense, but laches is equitable. IBM is pleading both. At some point, I believe they may have to choose, depending on some factors I don't know now, but you can do that in an Answer. You can even plead mutually exclusive defenses. One might stick, even if the other fails. You can argue: I didn't do it. Next you can argue: I had the contractual right to do it. Here's a legal explanation of laches, from Steven H. Gifis' Law Dictionary:
LACHES a doctrine providing a party with an equitable defense where long-neglected rights are sought to be enforced against the party. Laches signifies an undue lapse of time in enforcing a right of action and negligence in failing to act more promptly. It recognizes that because of the delay, the defendant's ability to defend may be unfairly impaired because witnesses or evidence needed to defend against the state claim may have become unavailable or lost. The doctrine also recognizes that if the delay has led the adverse party to change his or her position as to the property or right in question, it is inequitable to allow the negligent delaying party to be preferred in their legal right.... The consequent preclusion of the negligent party's action constitutes a species of equitable estoppel known as ESTOPPEL BY LACHES.
Seventh Affirmative Defense: that the claims are barred by the doctrines of waiver, estoppel and unclean hands.
Waiver is "an intentional and voluntary giving up, relinquishment, or surrender of some known right. In general, a waiver may either result from an express agreement or be inferred by circumstances," as Gifis' dictionary explains. If you wait too long to assert your right, you may have waived it. Or think about Caldera itself releasing some UNIX code under the GPL. IBM may be thinking about it, all right.

Estoppel just means stopped, or barred. Here's 'Lectric Law's explanation:

A bar which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body. An estoppel arises when someone has done some act which the policy of the law will not permit her to deny.

In certain situations, the law refuses to allow a person to deny facts when another person has relied on and acted in accordance with the facts on the basis of the first person's behavior.

There are two kinds of estoppel.

Collateral estoppel prevents a party to a lawsuit from raising a fact or issue which was already decided against him in another lawsuit. For example, if Donna obtained a paternity judgment against Leroy and then sued him for child support, Leroy would be collaterally estopped from claiming he isn't the father.

Equitable estoppel prevents one party from taking a different position at trial than she did at an earlier time if the other party would be harmed by the change. For example, if after obtaining the paternity judgment, Leroy sues Donna for custody, Donna is now equitably estopped from claiming in the custody suit that Leroy is not the father.

Both types could be in this picture. The old BSDi case and its agreement terms may have a bearing in this case. And old Caldera's actions in promoting open source and encouraging it, as well as any unknown agreements or actions that I don't know about but the parties do regarding Project Monterey could be involved too. Then there is the way UNIX was distributed in its early history, as well as SCO releasing the code in dispute themselves under the GPL.

Unclean hands is basically saying you don't deserve to get any relief because you have been bad yourself. Here is dictionary.com's definition:

a legal doctrine which is a defense to a complaint, which states that a party who is asking for a judgment cannot have the help of the court if he/she has done anything unethical in relation to the subject of the lawsuit. Thus, if a defendant can show the plaintiff had "unclean hands," the plaintiff's complaint will be dismissed or the plaintiff will be denied judgment. Unclean hands is a common "affirmative defense" pleaded by defendants and must be proved by the defendant. Example: Hank Hardnose sues Grace Goodenough for breach of contract for failure to pay the full amount for construction of an addition to her house. Goodenough proves that Hardnose had shown her faked estimates from subcontractors to justify his original bid to Goodenough.
I think we can all figure out how this might apply. If you need a hint, read IBM's introduction in its Amended Answer.
Eighth Affirmative Defense: that their claims are, in whole or in part, pre-empted by federal law.
I haven't figured out yet why IBM put this in, but I'll give you an example of how it can be used. Copyright law is federal law. You can't go into a state court and fight about copyright infringement, because federal law pre-empts. And if you're in federal court, you can't apply a state law if there is a federal law that pre-empts the state law.
Ninth Affirmative Defense: that the claims are improperly venued in this district.
This is more of IBM saying, Get me out of here. Venue is synonymous with "place of trial". IBM is arguing: this isn't the place. Venue has to do with where the alleged wrongs took place, and here SCO argued, in a bit of a stretch, that it all happened in Utah because it affected them and they are in Utah. It could have sued in New York, where the defendant is located. They chose to sue in Utah instead, and IBM is going to argue that they chose the wrong place. Here's part of what dictionary.com says about venue:
1) the proper or most convenient location for trial of a case. Normally, the venue in a criminal case is the judicial district or county where the crime was committed. For civil cases, venue is usually the district or county which is the residence of a principal defendant, where a contract was executed or is to be performed, or where an accident took place. However, the parties may agree to a different venue for convenience (such as where most witnesses are located). Sometimes a lawsuit is filed in a district or county which is not the proper venue, and if the defendant promptly objects (asks for a change of venue), the court will order transfer of the case to the proper venue.

Example: a promissory note states that any suit for collection must be filed in Washington County, Indiana, and the case is filed in Lake County, Indiana. In high profile criminal cases the original venue may be considered not the best venue due to possible prejudice stemming from pre-trial publicity in the area or public sentiment about the case which might impact upon potential jurors. For these various reasons either party to a lawsuit or prosecution may move (ask) for a change of venue, which is up to the discretion of a judge in the court where the case or prosecution was originally filed. Venue is not to be confused with 'jurisdiction,' which establishes the right to bring a lawsuit (often anywhere within a state) whether or not it is the place which is the most convenient or appropriate location.

This is, despite its length, just the tip of the iceberg of all that could be said. Likely there are attorneys out there seeing details I missed. If so, do share. But for now, it's enough. Lucky you. You can read just the parts that interest you, whereas I was compelled to look carefully at every last word. Keep the laches and waiver affirmative defenses in mind. I have some very interesting information I have found that relates to those affirmative defenses, for next time.

  


IBM's Affirmative Defenses: Take That! | 8 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
radiocomment
Authored by: Anonymous on Thursday, July 17 2003 @ 05:02 AM EDT
Having read your excellent piece on IBM's defences I took a look at the original (AT&T) licences and whether they specified a venue. No venue is mentioned, but the contracts specify that the laws of the state of New York apply. http://www.sco.com/scosourc e/ExhibitA.qxd.pdf section 7.13.

In another exhibit http://www.sco.com/scosourc e/ExhibitD.qxd.pdf California law is deemed applicable. (for other code?) Could this be the reason the case is inappropriate for Utah state court?


MathFox

[ Reply to This | # ]

  • radiocomment - Authored by: Anonymous on Friday, April 02 2004 @ 11:08 AM EST
radiocomment
Authored by: Anonymous on Saturday, July 19 2003 @ 05:41 AM EDT
"Laches" appears to be one of the standard Linux-supporters' arguments - Caldera was actively involved in working with the Linux community when they took over the Unix Source Code portfolio. If there had've been any problems there, then would've been the time to raise them.

And likewise the argument from "waiver" and "estoppel" - if Caldera/SCO had been serious, they wouldn't've taken so long to stop distributing the Linux Source Code - however, since they are still a member of the UnitedLinux group, and you can still download the Linux Source Code from the SCO website, that counts as a voluntary relinquishment of the rights to any proprietary source code that might be included therein; and as they have profited from the sale of GPLed source code, they are estopped from denying the application of the GPL to all source code they have released under those terms.

All in all, a very helpful article. What I think would be helpful as well, would be an article discussing SCO executives' claims and allegations in terms of defamation of character, insider trading, fraud and extortion - since they have recently declared that Linux users are next on the list for their absurd claims, and if that isn't extortion, what is?


Wesley Parish

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Sunday, July 20 2003 @ 11:13 AM EDT
Are you sure about this >>> So the only remedies SCO could ask for, under this affirmative defense, would be that IBM return or destroy all of AIX and stop distributing it and anything else specifically spelled out in the contract The enormous money dam <<< The way I read exhibit D is that SCO can only ask IBM to destroy the "REFERENCE PRODUCT", this being the SysV source code. And in fact all the talk about audits pertains only to "REFERENCE PRODUCT", NOT to AIX. Regarding AIX it seems clear to me that after January 31 2001 IBM was free to do anything it liked with AIX, even lift whole sections of code into other products. That part is in paragraph 6, specifically towards the end >>> The second to last sentence of paragraph 9 of the February 1, 1985 amendment to SOFT-00015is modified by deleting the words: "and employees of Licensee shall not refer to the physical documents and materials comprising Software Products subject to this Agreement when they are developing any such products or sevices or providing any such service. <<<

Thereby giving IBM the right even to copy blocks of code wholesale from AIX to anywhere they wanted to.

From this it's clear to me that after Jan 1 2001 IBM was completely free to do ANYTHING it wanted with AIX, ANYTHING.


Sanjeev Sharma

[ Reply to This | # ]

  • radiocomment - Authored by: Anonymous on Friday, April 02 2004 @ 11:10 AM EST
radiocomment
Authored by: Anonymous on Sunday, July 20 2003 @ 11:27 AM EDT
I'll try this again, perhaps properly formatted this time. Apologies all around.
Are you sure about this
>>> So the only remedies SCO could ask for, under this affirmative defense, would be that IBM return or destroy all of AIX and stop distributing it and anything else specifically spelled out in the contract The enormous money dam <<<

The way I read exhibit D is that SCO can only ask IBM to destroy the "REFERENCE PRODUCT", this being the SysV source code. And in fact all the talk about audits pertains only to "REFERENCE PRODUCT", NOT to AIX. Regarding AIX it seems clear to me that after January 31 2001 IBM was free to do anything it liked with AIX, even lift whole sections of code into other products. That part is in paragraph 6, specifically towards the end

>>> The second to last sentence of paragraph 9 of the February 1, 1985 amendment to SOFT-00015is modified by deleting the words: "and employees of Licensee shall not refer to the physical documents and materials comprising Software Products subject to this Agreement when they are developing any such products or sevices or providing any such service. <<<

Thereby giving IBM the right even to copy blocks of code wholesale from AIX to anywhere they wanted to.

From this it's clear to me that after Jan 1 2001 IBM was completely free to do ANYTHING it wanted with AIX, ANYTHING.


Sanjeev Sharma

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Sunday, July 20 2003 @ 11:36 AM EDT
Another addendum, regarding SCO's rights over AIX.

Exhibit C, paragraph 12.

12. Regarding Section 5.01, we agree that neither you nor your AUTHORIZED COPIERS or DISTRIBUTORS will be required to provide or disclose the identity of customers to us or our accredited auditing representatives.

</


From my reading of the original contracts and amendments it seems a clear concerted, deliberate action on IBM's part that AT&T rights end<ed> at SysV source and DID NOT EXTEND to AIX binaries or AIX source.

If SCO does not even have the right to know who's running AIX, how can they possibly claim a right to have all copies of AIX destroyed?


Sanjeev Sharma

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Tuesday, July 29 2003 @ 04:23 PM EDT
Sanjeev,

Your point about Reference Product is correct. I goofed. I must be absorbing SCO's derivative code argument. If the court did, though, it still couldn't ask for more than what I wrote, from what I see.


pj

[ Reply to This | # ]

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