"5/4/04 Answer Brief Filed by SCO Group Inc. motion for Reconsideration of order - Reply Brief due 5/11/04 [Entry date 05/05/04]"

In this document, as you will see, SCO has the gall to tell this overworked judge that it's appropriate for Red Hat to have to wait until the IBM case is resolved, because Red Hat's copyright issues are going to be covered by IBM's 10th counterclaim. Yes, that counterclaim. The one SCO is asking the Utah court to dismiss or stay.

They briefly mention in footnote 2 that they filed that motion to dismiss or stay just days prior to this Statement of Facts (the motion in Utah is dated April 23rd and this document is May 4). Despite asking the Utah court to dismiss or stay this counterclaim, they argue that Red Hat's request for a reconsideration should be denied because this counterclaim will resolve Red Hat's issues. They must really be relying on the judge's case load being too heavy for her to be able to keep her eye on the ball.

Here's what they told Judge Kimball while simultaneously telling Judge Robinson that the 10th counterclaim will resolve the Red Hat copyright issue:

"On March 29, 2004, Defendant/Counter-Plaintiff International Business Machines Corp. ('IBM') filed its 'Second Amended Counterclaims Against SCO.' In Count Ten of that pleading, IBM added an entirely new claim seeking a declaratory judgment 'that IBM does not infringe, induce infringement of, or contribute to the infringement of any SCO copyright through its Linux activities, including its use, reproduction and improvement of Linux, and that some or all of SCO's purported copyrights in UNIX are invalid and unenforceable.' ¶ 173. In other words, IBM is seeking to declare that a person or entity using Linux does not infringe upon SCO's copyrights and that some or all of SCO's copyrights are invalid or unenforceable. This precise issue will be litigated in a case filed by SCO against AutoZone in federal district court in Nevada; a case filed prior to IBM filing its Tenth Counterclaim. See The SCO Group Inc. v. AutoZone, Inc., Case No. CV-S-04-0237-DWH-LRL (D. Nev. 2004). This newly added counterclaim raises issues separate and apart from the primary breach of contract and other direct claims and counterclaims in this case. Given this fact, and to avoid multiple suits determining substantially similar issues, this Court should decline to exercise jurisdiction over and dismiss Counterclaim Ten. In the alternative, Counterclaim Ten should be stayed pending the outcome in the prior filed AutoZone case."

They'll keep Judge Robinson posted on developments, they say. But where is Novell in this picture? How can AutoZone resolve the Novell/SCO dispute over who owns the copyrights? That's right. AutoZone can't. So to say that the AutoZone case will wrap up IBM's copyright issues, and that IBM will resolve Red Hat's issues doesn't ring true. Here is what they recently told Judge Kimball about their claims against IBM:

"The only copyright claim SCO has asserted against IBM is primarily for IBM's continuing use of AIX and Dynix after SCO terminated IBM's UNIX licenses. See Second Amended Complaint, Count V. The Second Amended Complaint, however, does not contain a claim against IBM for copyright infringement arising out of its use, reproduction or improvement of Linux. With SCO's Second Amended Complaint being the final amendment and not containing a claim for infringement arising out of IBM's Linux Activities, the need for IBM's Tenth Counterclaim seeking such a declaratory judgment is nil."

So the Red Hat case and the IBM case are not identical. Of course, AutoZone, which uses Red Hat, has asked that their case be dismissed or stayed until after IBM and all the other legal lawsuits bringing up IBM's caboose are heard and decided, and they specifically stated that their case should not be decided until Novell and Red Hat are resolved. For one thing, all of SCO's claims depend on whether or not they actually own the copyrights, which is something Novell disputes. Even if there were code infringing a copyright in Linux, if it doesn't belong to SCO, they have no standing to sue. Here is how AutoZone expressed themselves:

"To prevail on its claim, SCO must establish two elements: (1) that it owns valid and enforceable copyrights in UNIX; and (2) that the Linux operating system infringes those rights.

"Both of these elements are already at issue in three prior filed federal court lawsuits. Whether SCO owns copyrights in the UNIX operating system is the sole issue in an action SCO filed against Novell, Inc. ('Novell') in Utah last January. Whether Linux infringes any copyrights SCO purports to own in UNIX is a central issue in a lawsuit SCO filed against IBM in Utah last year, and it is the central issue to be decided in a declaratory judgment action that Linux distributor Red Hat, Inc. ("Red Hat") filed against SCO in Delaware last August.

"The resolution of each of these prior filed actions will significantly clarify, if not resolve, SCO's claims against AutoZone. Staying SCO's claims will thereby avoid duplicative litigation and save the parties and the court significant time and expense that may ultimately prove to be unnecessary. Recognizing the same, Judge Robinson, to whom Red Hat's case was assigned in Delaware, recently stayed that case sua sponte pending resolution of the IBM case. Red Hat v. SCO, Mem. Order (attached to Appendix of Exhibits to Motion to Stay or, in the Alternative, for a More Definite Statement ('Appendix') as Ex. A), at 4. In reaching this conclusion, she wrote: 'It is a waste of judicial resources to have two district courts resolving the same issue, especially when the first filed suit in Utah [i.e., IBM] involves the primary parties to the dispute.' Id. at 5. Judge Robinson's conclusion applies with even greater force in the present case because AutoZone operates Red Hat Linux. AutoZone therefore submits that this case should be stayed pending resolution of the Red Hat litigation."

So it's a game where nobody wants to be "It" and go first. Actually, IBM is happy to, but SCO told that judge AutoZone should go first, that that is the true copyright case, not IBM, making Red Hat's potential wait even longer and more damaging. SCO tells a different story. They tell the judge that Red Hat isn't suffering one bit from all of SCO's lawsuits against end users, so there is no reason they can't wait:

"Red Hat's claim that the Court's Order will result in 'manifest injustice' is also unavailing. In fact, all indications are that Red Hat is thriving, and there is serious reason to doubt Red Hat's position that a stay of this case will result in 'injustice'. . . .

"Red Hat offers no substantiation for its conclusory assertion of harm, or for the idea that SCO's lawsuits against end-users render the stay of this case unjust."

However, here's what SCO told the media out of the other side of its mouth some months ago about companies slowing down their use of Linux because of SCO:

"McBride: A research report came out saying 80 percent of users had not slowed down. Our take on that is 20 percent have. So one out of five. We sent out our letter three to four months ago and in that period, one out of five have changed. We think that's significant. We only mailed letters out to 1,500 companies. I would argue that is one out of five out there...it could be 100 percent of all[the companies] we sent it to, we don't think that's actually the case. Anecdotally, I can tell you... it has an impact. People are concerned. One transportation company said, 'We don't want to be on the wrong side of you guys on this. What do we do to get clean?'

"We think as we head down this path of license or litigate, if look at what we've done over past three months, [it's been] pretty soft in reality. We've focused on playing defense against IBM and Red Hat through August and September. We focused on getting some money raised in October, we wanted our money base underneath us for the fiscal year. We got our legal case in place, taking care of business in defense of other suits. Now it's time to go back on offense.

"I think where the barometer is going now, I think you'll see some increased interest in Chris's licensing program.

"VARBusiness: At the end of the day are you guys going to do to Linux what was done to Napster?

"McBride: Our goal is not to blow up Linux. People ask why we don't go after the distributors...'If you have such a strong case, why not shut down Red Hat?' Our belief is that SCO has great opportunity in the future to let Linux keep going, not to put it on its back but for us to get a transaction fee every time it's sold. That's really our goal.

"To the extent that we have to take it down and put it on its back, we're fully prepared and willing to do that."

That sounds like lost business to me. Red Hat asked for a reconsideration, citing as one reason that "The Court did not have the benefit of briefing on the issue of a stay before it when the Court stayed this case sua sponte. . . " SCO responds by telling the judge that they are sure she suffered no misapprehension of the IBM case, because for one thing the IBM pleadings are widely available on the internet.

I hope that means they believe the judge may read about the case that way, on sites like this one. I hope they are right and that she notices they are filing for a dismissal or stay of the very counterclaim they are standing before her and asserting is a fine reason not to lift her stay.

Years ago, I worked for attorneys who did domestic relations law. The first thing we'd tell clients was not to fudge about their financials. Each side had to declare their financial info, and if the judge caught you being cute in your representations so as to hide assets, it went badly for you from that day onward, because you'd lost your credibility. I so hope the Honorable Sue Robinson feels the same way about civil litigants, and that she will take the time to read all SCO's IBM, AutoZone, and DaimlerChrysler pleadings. If she does, she should get the picture. SCO doesn't want to be pinned down anywhere, any time, especially not soon.

*********************************

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

_____________________________

RED HAT, INC.,

Plaintiff,

v.

THE SCO GROUP, INC.,

Defendant.

____________________________

C. A. No. 03-772-SLR

SCO'S OPPOSITION TO RED HAT'S MOTION FOR RECONSIDERATION
STATEMENT OF FACTS

____________________________

In its Order denying SCO's motion to dismiss Red Hat's complaint, the Court stayed this action pending resolution of the litigation between SCO and IBM in federal district court in Utah, with the proviso that the parties report to the Court every 90 days regarding the status of the IBM case so that the Court can evaluate whether the stay should be lifted prior to final resolution of that matter. See D. I. 34 at 4. On April 20, 2004, Red Hat filed a motion for reconsideration of that Order (D.I. 35-36)[1] contending that:

• The Court mistakenly assumed that the Red Hat litigation and the IBM litigation involved the same core issue -- whether Linux contains misappropriated Unix system source code (D.I. 36 at 2); and

• Manifest injustice will result from the Court's Order (D.I. 36 at 2).

ARGUMENT

As Red Hat acknowledges, a movant seeking to alter or amend a judgment must demonstrate that reconsideration is warranted in light of: (1) a change in the controlling law, (2) new evidence, or (3) a "clear error of law or fact or to prevent a manifest injustice." See Max's Seafood Cafe v. Quinteros, 176 F. 3d 669, 677 (3d Cir. 1999) (citing North River Ins. Co. v. CIGNA Reins, Co., 52 F. 3d 1194, 1218 (3d Cir. 1995).

Red Hat's motion does not refer the Court to any new legal authority or new evidence. Nor does Red Hat establish that there has been a clear error of law or fact. Instead, Red Hat's motion reduces to a claim that this Court's April 6, 2004 Order will result in "manifest injustice". This claim is baseless, and Red Hat's reconsideration motion should be denied. See Dentsply Int'l, Inc. v. Kerr Mfg. Co., 42 F. Supp.2d 385, 419 (D. Del. 1999).

A. There is No Change In The Law Or New Evidence Warranting Reconsideration

Red Hat's initial argument in favor of reconsideration is that the "the Court did not have the benefit of the law and the facts regarding the first filed rule" when it ordered a stay in this case, and that the Court erred in applying the "first filed rule." (D.I. 36 at 8.) Red Hat presumes that the stay in this case is predicated on the "first filed" rule, but SCO reads the Court's Order differently. Regardless, however, of whether "first filed" principles suggest that this case should be stayed, the Court clearly had ample authority to order a stay as part of its power to manage litigation before it.

Red Hat ignores the wealth of case law explaining that federal courts have inherent power to manage their dockets and stay proceedings. See, e.g., Alloc, Inc. v. Unilin Decor N.V., 2003 WL 21640372, *2 (D. Del. July 11, 2003) ("The decision to stay a case is firmly within the discretion of the court." As Justice Cardozo explained in Landis v. North American Co., 299 U.S. 248, 254-255 (1936):

[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.

There can be no dispute that the Court had authority to issue a stay in this case.

Red Hat's "first filed" argument is also based on a mistaken belief that the court ordered a stay based on a "misapprehension" about the nature of the claims at issue in this case and those in the IBM case. (D.I. 36 at 1.) In addition to the fact that the pleadings in the IBM case are a matter of public record and widely available on the internet, Red Hat previously presented the Court with its views about the differences between this case and the IBM matter. See D.I. 13 at 16-18. There is no basis for presuming the Court was under any "misapprehension" about these issues.

Indeed, the Court correctly observed that the IBM case will address a central issue in this case: whether Linux contains misappropriated UNIX code. As noted in the Court's Order, this issue is raised by SCO's claim for breach of contract arising from IBM's contributions of code to Linux in violation of its contractual obligations. This issue is also raised directly by IBM's Tenth Counterclaim against SCO, which seeks a declaratory judgment that "IBM does not infringe, induce infringement of, or contribute to the infringement of any SCO copyright through its Linux activities, including its use, reproduction and improvement of Linux, and that some or all of SCO's purported copyrights in Linux are invalid and unenforceable." [2] In claiming that this case is "fundamentally different" from the IBM matter, Red Hat focuses on SCO's copyright claim against IBM, ignoring IBM's Counterclaim which focuses on violations of SCO's rights arising from the use, reproduction and use of Linux. There is no doubt that, as it is presently constituted, the IBM case will address central issues raised in this lawsuit. [3] Therefore, it would be "a waste of judicial resources," and resources of the parties, to litigate this case while a substantially similar question is being litigated in federal district court in Utah.

The Court's Order Will Not Result in "Manifest Injustice"

Red Hat's claim that the Court's Order will result in "manifest injustice" is also unavailing. In fact, all indications are that Red Hat is thriving, and there is serious reason to doubt Red Hat's position that a stay of this case will result in "injustice".

Red Hat asserts that it is suffering "damage" to its business, and that "[t]he damage to Red Hat and its customers has become even more clear from the new evidence of SCO's recent lawsuits against [DaimlerChrysler and AutoZone]." See D.I. 36 at 15 and n. 8. If SCO's claims against DaimlerChrysler and AutoZone posed a grave risk to Red Hat's business, presumably that fact would be disclosed in Red Hat's SEC filings. SCO is unaware of any such disclosures by Red Hat, however. To the contrary, Red Hat's most recent 8-K -- filed several weeks after SCO sued DaimlerChrysler and AutoZone -- is replete with news of Red Hat's successes, while making no mention of SCO's lawsuits. For instance, a press release attached to the 8-K quotes Red Hat Executive Vice President and Chief Financial Officer Kevin Thompson as stating: "[t]he growth rates in adoption of Red Hat Enterprise Linux has exceeded our expectations to date and we are positive on the outlook for fiscal 2005." See Exh. A at 12 (emphasis added). Red Hat offers no substantiation for its conclusory assertion of harm, or for the idea that SCO's lawsuits against end-users render the stay of this case unjust.

Red Hat's claim of "manifest injustice" also rings hollow in light of the Court's requirement for periodic reports from the parties, and its commitment to review the propriety of the stay as events in the IBM case unfold. See D.I. 34 at 5. In light of these, there is no basis for the grant of Red Hat's motion.

Red Hat's Request For An Injunction Is Inappropriate and Unfounded

Red Hat's motion proposes "[i]n the alternative" that "the Court modify its order to enjoin SCO from threatening or initiating additional lawsuits against Red Hat or its customers based on alleged copyright infringement through use of LINUX until the stay is lifted." Red Hat's request is in effect a request for a preliminary injunction. Neither the procedural nor substantive requirements for a preliminary injunction have been met here.

First, Red Hat did not request a preliminary injunction in its complaint, nor did it move this Court for such an injunction. Accordingly, adequate notice has not been provided to SCO as required by Fed. R. Civ. P. 65.

Second, a preliminary injunction may be granted only after the following factors have been weighed by the court: (1) whether the party seeking the injunction demonstrates a reasonable likelihood of success on the merits; (2) whether irreparable harm will occur if an injunction is not granted; (3) whether the balance of hardships weighs in favor of granting the injunction; and (4) whether granting the injunction is in the public interest. See, e.g., 2660 Woodley Road Joint Venture v. ITT Sheraton Corp., 1998 WL 1469541, *2 (D. Del. Feb. 4, 1998) (preliminary injunction denied; stating that a preliminary injunction is an extraordinary remedy that must be "thoroughly justified"); Black & Decker Corp. v. American Standard Inc., 679 F. Supp. 1183 (D. Del. 1988)(preliminary injunction denied and other factors not examined where irreparable harm was not initially demonstrated). Here, Red Hat has not demonstrated a single factor warranting a preliminary injunction. Accordingly, Red Hat's request for an injunction should be denied.

CONCLUSION

For the foregoing reasons, Red Hat's motion for reconsideration should be denied.

MORRIS, NICHOLS, ARSHT & TUNNELL

_____[signature]______
Jack B. Blumenfeld (#1014)
Jack C. Schecter (#4335)
[address, phone]
Attorneys for Defendant
The SCO Group, Inc.

OF COUNSEL:

Stephen N. Zack
Mark J. Heise
Boies, Schiller & Flexner, LLP
[address]

May 4, 2004

CERTIFICATE OF SERVICE

I, Jack B. Blumenfeld, hereby certify that copies of the foregoing were caused to be served on May 4, 2004 upon the following in the manner indicated:

BY HAND DELIVERY

Josy W. Ingersoll
Adam W. Poff
Young, Conaway, Stargatt & Taylor, LLP
[address]

BY FEDERAL EXPRESS

William F. Lee
Mark G. Matuschak
Michelle D. Miller
Donald R. Steinberg
Hale and Dorr LLP
[address]

______[signature]_______
Jack B. Blumenfeld