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IBM Gets More Time on Privilege Log Motion Reply
Friday, November 18 2005 @ 11:36 AM EST

The parties have stipulated [PDF] to IBM getting more time to file its Reply Memorandum in Support of its Motion to Compel Production of Documents on SCO's Privilege Log and the Court has so ordered [PDF]. IBM's new date will be December 8.

IBM's Motion to Compel is here, and SCO's Opposition Memo is here [PDF]. I'm working my way through the cases and will write about what I'm finding when I'm done. I know you want to know which party is right, but it makes little sense to comment on that until the motion is fully briefed. Meanwhile, if someone could please OCR SCO's Opposition Memo, I'd appreciate it very much. Thank you. For now, let's look at what each side is claiming.

In SCO's Memorandum in Opposition to IBM's Motion to Compel Production of Documents on SCO's Privilege Log [PDF], they sum up their position like this, in the Preliminary Statement:

SCO is the successor-in-interest to the UNIX business. In 1993 the original owner of the UNIX technology, AT&T, transferred the UNIX business to Novell, Inc. ("Novell"); in 1995 Novell sold the UNIX business to The Santa Cruz Operation ("Santa Cruz"); and in 2001, Santa Cruz sold that business to SCO, which was then named Caldera, Inc. ("Caldera"). Through this unbroken chain, SCO became the owner of the UNIX business.

IBM's motion turns on whether the transfer of control of a continuing business also transfers control of the attorney-client privilege attending that business. In seeking to sidestep the cases that have examined that question (answering in the affirmative), IBM repeatedly describes the transactions that transferred the UNIX business to Santa Cruz and SCO as sales of mere assets that do not, either as a formal or practical matter, transfer control of a business.

The cases on which IBM relies are inapposite. Santa Cruz acquired from Novell, and SCO from Santa Cruz, not only the UNIX technology and related assets, but also a business that continued in operation through each transaction. SCO has properly asserted the privilege once held by its predecessors with respect to the UNIX business. The Court should deny IBM's motion.

IBM's position, in contrast, as delineated in its Motion, goes like this:

SCO claims that documents created by or for four entirely different companies, AT&T, USL, Novell, and Santa Cruz, are privileged as to SCO. Although SCO has nowhere articulated the precise basis for such a claim, SCO apparently contends that it may assert an attorney-privilege belonging to other companies still in existence because these companies, like SCO, once owned certain of the UNIX assets at issue in this and other litigation. SCO cannot properly claim attorney-client privilege over documents originating with other corporations and their attorneys. The transfer of assets from one entity to another does not transfer the attorney-client privilege as well. Instead, control of the entity possessing the privileges must pass to the purchaser for the privilege to pass. It is undisputed that SCO does not control any of the corporations whose privilege it now claims. To the extent documents that were once privileged as to these corporations have been transferred to SCO, any privilege in them has been waived. For the foregoing reasons, and as set forth in further detail in IBM's memorandum in support of its motion to compel production of privileged documents, IBM respectfully requests that this Court order SCO to produce to IBM all documents on its privilege log created by or for third parties.

Marbux says that his opinion is that the unsworn declaration of William Broderick which SCO offers in support of their memo is inadmissible evidence, and the judge could hold that they have failed to prove the applicability of the privilege in any event because of that problem. It's on page 14 of their filing. The form of attestation "to the best of my knowledge" fails the personal knowledge requirement, he says, and highlights the fact that most of the declaration is obvious hearsay, as you can see clearly in paragraph 11 of the Broderick attachment. The crux of Broderick's argument, and it's what SCO relies on, is in paragraph 16:

As stated, AT&T/USL, Novell, and Santa Cruz each successively transferred the continuing UNIX technology and business to its respective successor. Even though the transfer from AT&T to Novell was structured as a merger and the subsequent transfers from Novell to Santa Cruz and from Santa Cruz to Caldera were structured as asset purchases, the transactions did not differ except as to form. The same continuing UNIX enterprise, including all the assets listed in paragraphs 10-14 above and more, changed hands in all three transactions.

Unfortunately for SCO, that is not completely accurate, in that paragraph 11 says that intellectual property transferred. We know that the UNIX trademark didn't transfer from Novell to any of the later entities. And Novell itself is asserting with vigor that it never transferred the copyrights either in SCO v. Novell. And the most the Novell-Santa Cruz agreement called for under Amendment 2 was the copyrights deemed "required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies," as opposed to all, and that's if you accept SCO's claim that they shoulda woulda coulda already got those copyrights. There's a difference between acquiring technologies and acquiring someone's business. And if everything transferred, why is SCO paying proceeds to Novell and getting a 5% administrative fee? So it is a puzzlement to me how Mr. Broderick can make the statement that he did.

SCO, and Broderick, are also claiming that although some of the contracts in the transfers were specifically called asset transfer agreements, in reality they were more than that. They are defining a UNIX business as being what transferred. Of course, they need to, or they are sunk. It's not an argument that has zero merit, however, from where I sit, particularly if the facts were better than they are, and I'm looking forward to seeing what IBM says in response. I doubt it matters, from a practical standpoint, since IBM has subpoenaed Arthur Andersen and other accountants involved over the years for all the documents regarding all of the transfers.

The problem SCO has, as I see it, is that the facts don't match what they wrote. For just one example, in the Novell-Santa Cruz deal, the Asset Purchase Agreement specifically lists "Excluded Assets", and it requires Novell to pay an administrative fee to SCO (who has to pay 100% to Novell first) for collecting SVRX royalties:

(b) Royalties. Buyer agrees to collect and pass through to Seller one hundred percent (100%) of the SVRX Royalties as defined and described in Section 4.16 hereof. Seller agrees to pay Buyer an administrative fee of five percent (5%) of the SVRX Royalties. Seller and Buyer further acknowledge and agree that Seller is retaining all rights to the SVRX Royalties notwithstanding the transfer of the SVRX Licenses to Buyer pursuant hereto, and that Buyer only has legal title and not an equitable interest in such royalties within the meaning of Section 541(d) of the Bankruptcy Code. For purposes of administering the collection of SVRX Royalties, the Parties acknowledge that the royalties shall continue to be recognized as royalties by Seller on an ongoing basis and the parties shall take such commercially reasonable steps as may be necessary to effectuate the foregoing for financial accounting and tax purposes. In addition, Buyer agrees to make payment to Seller of additional royalties retained by Seller in respect of the transfer of UnixWare and on account of Buyer's future sale of UnixWare products. The amounts and timing of additional royalties to be paid in connection with Buyer's sale of the UnixWare products are identified in detail on Schedule 1.2(b) hereto. Seller shall be entitled to conduct periodic audits of Buyer concerning all royalties and payments due to Seller hereunder or under the SVRX Licenses, provided that Seller shall conduct such audits after reasonable notice to Buyer and during normal business hours and shall not be entitle to more than two (2) such audits per year. The cost of any such audit shall be borne by Seller, unless such audit reveals a payment shortfall in excess of 5% of amounts due hereunder in which case the cost of such audit shall be borne by Buyer.

That was something new, a new twist to the "UNIX business" and Broderick's statement that the business changed not one bit from owner to owner doesn't seem to me to match the wording here. Had SCO claimed less, I think their argument would have been stronger, actually. That agreement also gave Novell a Right of First Refusal on Change of Control, so that if Santa Cruz wanted to sell to certain companies, it had to give Novell a chance to buy first, and it defines what Change of Control means for purposes of the agreement:

(c) Change of Control. For purposes of this Agreement a "Change of Control" with respect to one party shall be deemed to have occurred whenever (1) there shall be consummated (1) any consolidation or merger of such party in which such party is not the continuing or surviving corporation, or pursuant to which shares of such party's common stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger or (2) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all the assets of such party, or (ii) the stockholders of such party shall approve any plan or proposal for the liquidation or dissolution of such party, or (iii) any party, other than such party or a subsidiary thereof or any employee benefit plan sponsored by such party or a subsidiary thereof or a corporation owned, directly or indirectly, by the stockholders of such party in substantially the same proportions as their ownership of stock of such party, shall become the beneficial owner of securities of such party representing greater than fifty percent (50%) of the combined voting power of then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise. or (iv) at any time after the date of this Agreement, individuals who at the date hereof constituted the Board of Directors of such party shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election by such party's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the date hereof, or (v) any other event shall occur with respect to such party that would be required to be reported in response to Item 6(e) (or any successor provision) of Schedule 14A or Regulation 14A promulgated under the Exchange Act.

That definition is certainly not helpful to SCO, who would like the court to define things differently. And there were other restrictions on Santa Cruz, like this, for example:

(b) Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf. Buyer shall not, and shall have no right to, enter into future licenses or amendments of the SVRX Licenses, except as may be incidentally involved through its rights to sell and license the Assets or the Merged Product (as such term is defined in the proposed Operating Agreement, attached hereto as Exhibit 5.1(c)) or future versions thereof of the Merged Product.

Further, the preamble of the agreement states that only certain assets, not all, were being transferred:

B. The Boards of Directors of each of Seller and Buyer believe it is in the best interests of each company and their respective stockholders that Buyer acquire certain of the assets of, and assume certain of the liabilities of Seller comprising the Business (the "Acquisition").

If Novell retained certain rights, and the contract itself says only certain assets were to transfer, on what basis can SCO argue, and Mr. Broderick state, that the entire UNIX business transferred? All in all, I think SCO's position would have been more solid if they had not attached the Broderick statement. That may remind you of Mr. Broderick's affidavit, and his supplemental affidavit in the SCO v. DaimlerChrysler affair, where SCO got stomped, despite SCO employee Broderick's efforts to help his employer.


  


IBM Gets More Time on Privilege Log Motion Reply | 146 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections here please.
Authored by: Acrow Nimh on Friday, November 18 2005 @ 11:42 AM EST


---
Supporting Open Sauce since 1947 ;)

[ Reply to This | # ]

OT here please...
Authored by: Acrow Nimh on Friday, November 18 2005 @ 11:44 AM EST
...and see the red text under the comment box for how to make 'em clickable

---
Supporting Open Sauce since 1947 ;)

[ Reply to This | # ]

Excluded Assets from SCO and Novell Purchase Agreement
Authored by: Anonymous on Friday, November 18 2005 @ 12:12 PM EST
It is interesting to read the Asset Purchase agreement to see what was
specifically excluded:

Schedule 1.1(b) Excluded Assets (Page 1 of 2)
...
V. Intellectual Property:
A. All copyrights and trademarks, except for the trademarks UNIX and
UnixWare.
B. All Patents
...
VIII. All rights, title and interest to the SVR's Royalties less than 5%
fee for adminstrating the collecting thereof pursuant to Section 4.16
hereof.

In plain and clear English, ALL copyrights, trademarks, and patents were
excluded in the purchase agreement.

I don't know how SCO can get around this in either its litigation with IBM or
Novell. SCO has NO copyrights or patents with regard to Unix. As such, it
cannot assert a copyright claim.

Plain as Day.

[ Reply to This | # ]

IBM Gets More Time on Privilege Log Motion Reply
Authored by: Anonymous on Friday, November 18 2005 @ 12:32 PM EST
My poor mind has these light blubs from time to time, and they are way outside
of reality, but here goes any way.

1) Ballmar's statement at Gartner about M$ implied having a better Unix then
Linux

2) SCO claiming to have "all" of Unix

3) then what has been speculated about a buy out. If SCO had "all" of
Unix, what would happen if M$ bought out SCO/

Okay its a Friday and I'm waiting for the weekend.

wb

[ Reply to This | # ]

  • IBM Gets More Time on Privilege Log Motion Reply - Authored by: Anonymous on Friday, November 18 2005 @ 12:38 PM EST
  • Simple - Authored by: Anonymous on Friday, November 18 2005 @ 12:39 PM EST
    • Simple - Authored by: danb35 on Friday, November 18 2005 @ 04:31 PM EST
      • Simple - Authored by: John Hasler on Friday, November 18 2005 @ 05:36 PM EST
        • Simple - Authored by: Anonymous on Friday, November 18 2005 @ 06:24 PM EST
          • Simple - Authored by: John Hasler on Friday, November 18 2005 @ 07:14 PM EST
            • Simple - Authored by: Anonymous on Saturday, November 19 2005 @ 08:05 AM EST
        • Simple - Authored by: bstone on Friday, November 18 2005 @ 07:51 PM EST
IBM Gets More Time on Privilege Log Motion Reply
Authored by: GrueMaster on Friday, November 18 2005 @ 12:39 PM EST
This and the Novell case either need to be combined, or the Novell case needs to
be heard first. Everything about this case and the rest of the cases (except
the Redhat case) really hinge on the question of copyright ownership. Once that
is answered, all other cases can procede. If they do rightfully own Unix, then
they have a more stable foundation to stand on. Their claims of code copying
may still be baseless, but it is moot if they don't own the original to begin
with. It is all very similar to the way the RIAA went after the lounge I worked
at 10 years ago, because they were playing CDs from local artists on their
jukebox, none of which had any recording contracts.

This is just another example of corporate greed gone amuck.

---
You've entered a dark place. You are likely to be eaten by a Grue!

[ Reply to This | # ]

Broderick's statement: why "Unsworn"?
Authored by: Larry West on Friday, November 18 2005 @ 12:41 PM EST
Why does Marbux characterize Broderick's statement as "unsworn"? He
does sign, and his closing is that he declares his statement to be true and
correct under penalty of perjury.

Is it the weasel words "to the best of my knowledge" that disqualifies
here?

Curious,
L

[ Reply to This | # ]

At what point does a business become a legal entity.
Authored by: hardcode57 on Friday, November 18 2005 @ 12:52 PM EST
My understanding (probably faulty) is that SCO purchased assets sufficient to
conduct a business with, but did not purchase any existing business
organisations such as companies or partnerships.

So my questions for them as knows are these:-

Does (or can) the purchase of assets of one business by another sufficient for
the purchaser to conduct business imply that the the purchaser has purchased
something that is itself a legal entity?

If not how does SCO claim to be successor in interest to Old SCO without public
ridicule?

Does the company that originally took the legal advice, retain the right to
waive privilege on it?

Can SCO waive privilege or does it require that all parties act in concert?

Anyone?

[ Reply to This | # ]

Project Monterey Change of Control
Authored by: Anonymous on Friday, November 18 2005 @ 01:07 PM EST
This seems to me that SCO is admitting to a change of control in terms of the
1998 IBM-Santa Cruz Project Monterey Agreement.

[ Reply to This | # ]

What about SCO arguing IBM's Sequent documents are unprivileged
Authored by: Anonymous on Friday, November 18 2005 @ 01:31 PM EST
Also to be heard on the next hearing: SCO's renewed motion to compel, in which,
amongst other things, SCO appears to argue that IBM's Sequent documents are
unprivileged:

i.e.

SCO argues:

(a) SCO got some assets/continuing-business from its predecessors [Santa Cruz,
Novell, USL, AT&T] and therefore all the documents are privileged.

(b) IBM got the WHOLE darn thing from its predecessor [Sequent], but somehow the
documents are NOT privileged.

Am I the only person who sees a contradiction between SCO's arguments in (a) and
(b) ????

Basically I'm saying if SCO were correct on (a), then surely IBM's Sequent
documents must be at least as privileged as SCO's stuff ????

Thoughts??

Quatermass
IANAL IMHO etc




[ Reply to This | # ]

Declarations that contradict a contract
Authored by: Anonymous on Friday, November 18 2005 @ 02:48 PM EST
I was under the impression that evidence that contradicted the terms of a
contract, generally wasn't allowed (but you could introduce evidence to make
clear the meaning of a contract).

Is (or isn't) Broderick's declaration about the nature of Santa Cruz-Novell
transaction, contradicted by the APA contract?

i.e.

vs: According to Broderick, Santa Cruz got everything UNIX thru the APA
contract.

vs: According to the APA document itself, Novell retained some UNIX rights.


Thoughts?

Quatermass
IANAL IMHO etc

[ Reply to This | # ]

Sony root kit materials
Authored by: Anonymous on Friday, November 18 2005 @ 03:18 PM EST
This was noted on DVD Jon's blog

Link

Please note this includes the destruction of Sonys and F4I assets that were used and that which lie in US jurisdiction.

Statutory damages lie between US$150,000 and US$200 per copy. At 4 million copies (and possibly rising) on 52 CDs (possibly more) thats at the low end US$800 million and an upper end of US$600 billion. The upper end looks a *bit* unlikely but who knows what might happen in front of a jury. Now add in punative damages given Sony aggressive stance on copyright infringement (think of all the 14 years olds being sued), that the infringement was being done for comercial gain, the scale of the infringment, etc you really are talking the thick end of a billion or so.

Bill Gates - move over.

It was also noted that Sony offended in the UK where copyright infringement is a criminal offense. Also that F4I is a company that specilizes in copyright protection schemes. One hopes for their sake that they did comply with the GPL. The Copyright, Designs and Patent Act in the UK isnt much nicer to the physical assets used to make and distribute the copyrighted materials.

Does any one here have the details for other jurisdictions?

Sony's assets are about 20 billion currently. This could be an interesting spectator sport.

--

MadScientist

[ Reply to This | # ]

Are SCO's cases valid?
Authored by: Christian on Friday, November 18 2005 @ 03:57 PM EST
I do not understand the details of case citations, but looking at the cases SCO
cites, I keep seeing things like D.C., N.Y., and Tex. I would guess that "N.Y.
Sup. Ct." stands for New York Superior Court. Why does the federal circuit
court in Utah give a flying fig what a New York state court decided? Or am I
misunderstanding something?

[ Reply to This | # ]

I think SCOG is saying they bought the Business Unit
Authored by: WatchfulEye on Friday, November 18 2005 @ 05:41 PM EST
I think SCOG is trying to say the bought the whole business unit from Novell.
It is the only thing that would make any sense. Maybe they mumbled the
"unit" part.

It is always such fun to watch someone squirm in their seat as they try and
convince you that what they say is true.

"No really, we did buy Unix for only a few million. It was in the bargain
bin marked down 70%. But today it is worth $5 billion. Don't you believe
us?"

[ Reply to This | # ]

"What's The Diffence Between...."--the start of another joke?
Authored by: TheBlueSkyRanger on Friday, November 18 2005 @ 07:16 PM EST
Hey, everybody!

The part that made me scratch my head the most was the mention that the
transfers in the UNIX businesses were fundamentally the same except for form.

I know in science that form is independent of function, but with the law, it
seems they are intertwined. Isn't saying that these things are the same aside
from form kind of like saying "These cars are the same aside from the
engine?" Isn't the very thing that makes it what it is different, so how
can it be the same?

Or am I not getting this?

Dobre utka,
The Blue Sky Ranger

It takes 46 muscles to frown but only 4 to flip 'em the bird.

[ Reply to This | # ]

Privilege
Authored by: brian on Friday, November 18 2005 @ 08:34 PM EST
" Although SCO has nowhere articulated the precise basis
for such a claim, SCO apparently contends that it may
assert an attorney-privilege belonging to other companies
still in existence because these companies, like SCO, once
owned certain of the UNIX assets at issue in this and
other litigation. "

This raises an interesting question...One I think has
never been asked before....

SCO is claiming privilege on documents between attornies
and NOVELL, AT&T, oldSCO, et al. The question is can the
CLIENT (say Novell or AT&T or even oldSCO) disclose those
documents (assuming they had them)? That would turn SCO's
head...

B.

---
#ifndef IANAL
#define IANAL
#endif

[ Reply to This | # ]

I must be dreaming.
Authored by: rsteinmetz70112 on Friday, November 18 2005 @ 10:49 PM EST
In reading the comments on this article I see a number of comments which seem to
be from people who have more knowledge of the details of the privilege log
argument than has been released.

I'm probably wrong, I've been less attentive for the last couple of months.

A couple of these comments got me wondering if there were now people involved
with the case who are commenting here.

---
Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

  • Don't forget - Authored by: Anonymous on Friday, November 18 2005 @ 11:43 PM EST
  • Maybe - Authored by: Anonymous on Saturday, November 19 2005 @ 03:29 AM EST
  • I must be dreaming. - Authored by: Anonymous on Saturday, November 19 2005 @ 07:30 AM EST
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