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Hearing over - Minutes Posted - Eyewitnesses Reports
Wednesday, December 05 2007 @ 11:29 AM EST

The hearing is over. The minutes are now on Pacer:
255 - Filed & Entered: 12/05/2007
Minute Entry
Docket Text: Minutes of Hearing held on: 12/05/2007 Subject: OMNIBUS, Bidding Procedures and CFO (con't from 11/16). (vCal Hearing ID (57216)). (related document(s) [253]) (SS, ) Additional attachment(s) added on 12/5/2007 (SS, ).

Until we can read the orders, or hopefully get any eyewitness reports, we can't know what "Order signed" means, since the order could say, yes, no, or have adjustments to what we have earlier seen. So we just have to be patient. You can go down the list, though, by comparing numbers with the agenda. It was snowing, I'm told, in Delaware, and that may affect eyewitnesses attending. And you'll see the sign in sheet is sparsely populated this time too.

For example, number 1 on the agenda is the Mesirow application, and you can see on the minutes that the CNO (certificate of no objection) was filed and the order signed. That is straightforward. But on item 5, about Boies Schiller's retention, it says "Certificate of counsel to be submitted". Ditto on the Cattleback motion. So, we'll have to wait on those for either eyewitness reports or the transcript.

And here they are. First from MikeD:

Today was a very quick hearing. It started late and was done in about 20 minutes. Mr. O'Neil and another lawyer appeared for SCO. Adam Lewis and another lawyers were there for Novell. Mr. McMahon attended. There were 3 Groklaw members there.

Mr. O'Neil spoke first.

#1 Motion for Expansion of Mesirow
Matter resolved. Order enter. Approved by Judge Gross.

#2 Motion to Use Bank Accounts, etc.
Matters resolved with Trustee. New order entered which was approved by the judge.

#3 Motion to approve employment of Tanner LC.
Resolved. New form of order presented and approved by the Judge. Mr. McMahon spoke and noted that there were $9,000 worth of expenses pre-petition which he wanted on the record.

#4 Motion of Al Petrofsky.
Some confusion as to what exactly Mr. Petrofsky was asking. Mr. O'Neil reviewed this document and stated he has no objection. Mr. Petrosfsky was on the phone and was given the opportunity to speak. He agreed with the order. He will be able to e-file documents. The Judge reminded him that he could only file motions and documents on his own behalf - not for anyone else.

#5 Motion to approve Boies, Schiller.
Agreed that a new proposed form of order would be presented to the Trustee. If he agrees, the order will be forthcoming. Mr. McMahon spoke of a standard of review. Any recovery or transaction fees will be reviewed and subject to the jurisdiction of the court.

#6 Motion to hire CFO solutions.
Resolved and approved by the Judge.

#7 Motion on Incipient Controversy.
If you were hoping for fireworks, there were none.

Mr. O'Neill spoke of how this was an unusual filing. The judge was grinning at this statement. Mr. O'Neill spoke of a novation agreement. Ocean's fees will be paid by the subsidiary.

Mr. Lewis spoke to this issue and said Novell did not necessarily oppose this sale. They simply did not have enough information to make a judgment on it. Since the last hearing they have apparently been given a number of documents which helped them come to some conclusions.

Mr. Lewis said something along the lines that this was not a big deal and they did not intend to tie up the court with it.

I'm not sure whether it was Mr. O'Neill or Mr. Lewis who said it - but proceeds of this sale will be put back into the estate.

The Judge said that Novell retained the rights to object to facts contained in submissions or any testimony that may be brought up in the future.

That was it. There was no mention of future hearings which leads me to believe we are done until after the Holidays.

And UD's report:

I knew something was up at the hearing this morning when SCO only had two lawyers and nobody else there. It was in stark contrast to the 22 lawyers present for the trial for whoever it was whose trial ran over into the 10:00 time slot.

The parties all came to agreements about today's outstanding issues before trial. The Incipient Controversy is no longer a controversy to the court. The net proceeds of the sale will go to SCO and the fees to Ocean Tomo will be paid by Cattleback (the difference being....???). Mr O'Neill said he thinks they have filled in all the gaps with a Novation Agreement to be filed.

Mr. Lewis said the he was not necessarily opposing the sale, but had not known enough about the sale before. He doesn't want to stand in the way of the sale and now thinks that the sale price seems to be fair. Judge Gross tells him that even though he (Lewis) isn't objecting now, he isn't waiving his right to object down the line if something doesn't seem right.

That was it. No fireworks. All the fancy lawyering took place out of view. Bummer....

So you can get an idea of what this is all saying, here's what Novation Agreement means:

NOVATION AGREEMENT - A legal instrument executed by (a) the contractor (transferor), (b) the successor in interest (transferee), and (c) the [?] by which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the purchaser recognizes the transfer of the contract and related assets.

More here. So I gather there will be one filed, and when everyone sees the details, they can still object. So despite there being no obvious fireworks, I gather this story isn't over yet, but it's getting there, subject to further scrutiny as documents are filed.

And that is now confirmed in our third eyewitness report:

It started late, and ended quickly. Jamie O'Neill first spoke on behalf of SCO, informing the court that basically all matters had been agreed to, and he provided the Court with a folder of all the proposed orders.

The discussions of the items was as follows:

1. Mesirow issue agreed to.

2. Cash managment issues agreed to.

3. Tanner LLC issue agreed to. J McMahon,UST, indicated that SCO would be submitting a supplemental declaration about some prepetition work.

4. Al Petrofsky submitting electronically agreed to. The Court clarified and he confirmed that means on behalf of himself only, and not for others.

5. BSF issues agreed to, provided a revised supplemental declaration is expected later today. UST highlighted mostly the standards of review for fees, 328A for IBM/Novell, 330 for all others.

6. CFO Solutions issue agreed to.

7. Objections to incipient controversy no longer an issue. Mutiple references to a "novation" agreement. Net proceeds of sale to be remitted to SCO. Some prepetition fees to Ocean Tomo to be paid by the subsidiary. Mr. Lewis for Novell spoke of several supplemental declarations so far that have filled in the gaps. He is satisfied that at least they have had questions answered, but they have not conceeded or concurred with anything, and are not waiving their rights with regard to objecting to any of the facts portrayed in those answers.

The light snow falling made the ride home a little bit treacherous, but gave a nice feeling that winter is approaching....

So, time will tell whether it gets approved or not. Hopefully before anything gets approved, someone will find out for sure if this is a Unix patent or not and whether or not Microsoft has a license to it. One would hope to avoid any nasty surprises down the road, with the new buyer alleging that it is too a Unix patent, and pointing to a Microsoft license as "proof" and then suing Linux end users for patent infringement. I know. Far-fetched. But is it beyond the scope of what we've seen so far in SCOland? Some folks don't seem to care if a lawsuit can be won, only if it can be begun.


  


Hearing over - Minutes Posted - Eyewitnesses Reports | 183 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections Thread
Authored by: gumnos on Wednesday, December 05 2007 @ 11:40 AM EST
Please put the correction in the Title

[ Reply to This | # ]

Off Topic here
Authored by: gumnos on Wednesday, December 05 2007 @ 11:41 AM EST
Be sure to read the instructions in red

[ Reply to This | # ]

News Picks comments here
Authored by: gumnos on Wednesday, December 05 2007 @ 11:42 AM EST
For comments on the news-picks thread

[ Reply to This | # ]

Hearing over - Minutes Posted
Authored by: RFD on Wednesday, December 05 2007 @ 11:51 AM EST
According to one of the attendees, who has posted elsewhere, the hearing lasted
from 10:14 to 10:28 and that there was no real argument. Even items 5 and 7
seem to be pretty much resolved.

I think I made the right decision not to drive 125 miles each way during a snow
storm to attend.

---
Eschew obfuscation assiduously.

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: Anonymous on Wednesday, December 05 2007 @ 12:13 PM EST
So for both matters #5 (BSF's motion for appointment as "special litigation
counsel") and matter #7 (the sale of the patent through Cattleback), the
minutes say:

"Certification of Counsel to be submitted".

So in both cases it appears that SCO has been asked to back up some assertion
they've made, that is material to the court's evaluation of the request. Do I
have that right?

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: Anonymous on Wednesday, December 05 2007 @ 12:13 PM EST
Did Mr. McMahon have anything to say on item #7?

He did file an objection to this originally.

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: AceBtibucket on Wednesday, December 05 2007 @ 12:34 PM EST
OK, I am mildly confused, as usual.

Does this mean that we are done here, nothing to see, everybody is reloading and
heading for Judge Kimball's Corral?

Or,

Does it mean that everyone is more focused on the holidays and the long knives
will be back later?

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: Anonymous on Wednesday, December 05 2007 @ 01:20 PM EST
What can we say in summary? We don't know that SCO has been asked to certify,
but assuming that they (truthfully) can make and prove the requested assertion,
then it appears that the patent sale can occur.

So what was accomplished? It's been clarified, hopefully, that the offer to buy
was a bona fide offer and not an insider sham, and it's been 'clarified'
(required, really) that the proceeds of the sale must go back to the estate, and
not be sheltered in the new SCO holding entity.

It's also created some new fodder for Novell to inquire about (in
cross-examination, in the upcoming Utah trial) regarding the true consideration
that Microsoft was paying for, when it bought $20M worth of
"something" licenses and rights from SCO.

If it wasn't a license to this patent, then what patent was it? (It's not clear
to me how many patents SCO might have held). Was the patent in question listed
in one of the redacted references to the SCO-MS licensing agreement? It couldn't
have been a patent that passed from Novell to Santa Cruz, because patents didn't
pass to Santa Cruz.

To the extent that this exercise has been a flashlight shining into some of the
many SCO dark corners, I expect it's been worthwhile and the results may still
be seen in the future, even though it ended uneventfully today.

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: Anonymous on Wednesday, December 05 2007 @ 01:47 PM EST
Here's another point to consider in the aftermath of this exercise.

We learned, if I understand this correctly, that SCO apparently lost one
prospective buyer because the buyer's pre-purchase due diligence investigation
could not disprove that MS already held a license to this Cattleback patent
being offered for sale.

That's pretty unusual, since one would suspect that SCO was able to provide that
buyer with access to the facts in the SCO-MS licensing agreement. We've only
seen redacted references to that agreement, and it has 5-6 sections of different
considerations. And we know that MS proclaimed in publicity releases that it
licensed UNIX source code and "a patent".

So -- I can only infer that the actual license agreement between MS and SCO was
very unclear about "what" patent was being licensed to MS. After all,
if the prospective Cattleback patent buyer couldn't EXCLUDE that his patent was
the one licensed to Microsoft, the licensing contract must be unclear.

But if it's unclear, then why was MS willing to pay $20M for something that
wasn't even worth stating with specificity? If that's the case, then it would
appear that MS's motives, and SCO's motives, were not about the ostensible
consideration in the licensing agreement.

How does this strengthen Novell's position in Utah? Unless other valuable
consideration can be specified with certainty (and can withstand the scrutiny of
cross-examination), the presumption is going to be that MS paid $20M for actual
and implied licenses to UNIX. I say "implied" because in addition to
any licenses actually granted, a covenant not to sue from SCO regarding UNIX is,
in actuality, an implied license to the underlying materials that COULD have
been the basis for any future lawsuit.

And since that implied license is to UNIX rights transferred from Novell to
SCO, then Novell has a claim to the value.

As someone once said in a treatise about evidence, "Evidence is a brick,
not a wall." And I think Novell has found itself another brick to use in
Utah to construct it's wall.

[ Reply to This | # ]

Signed a Novation Once
Authored by: KevinR on Wednesday, December 05 2007 @ 06:47 PM EST
As it was explained to me at the time (English law) the novation was essentially a big blob of legal tipex. It picked up the existing contract and replaced the names in it with the new people involved. This reinstated it as an ongoing contract between the new parties and freed the participation in the previously ongoing contract and its parties. One important note was that it was officially seamless with the original contract - the names just magically changed during the life of the contract. (Presumably the novation's magic tipex could actually change any of the terms that all three parties could agree to.)

This was needed as the company I was working on contract to, sold only that part of their business to another company and so the work moved to the new party and they wanted me to keep doing it.

What's interesting is that a novation would not - I presume - have been needed in law if they new guys had completely bought the old company. In that case I assume they would have been the successor party automatically - since they merged it in. It might be clearer to still do novations in such cases.

Now in the now famous Novell->Old SCO->New SCO (via two steps) transactions PARTS of companies were sold with the contracts and licenses that they performed, owned or held. It seems to me that in a tidier world there would be big piles of Novations which transfered the contracts and licenses at each step even the multiple new-SCO ones. Maybe US law is different - but it would seem to me that IBM had original licenses with AT&T and later with Novell BUT these would have been much tidier with Novations transferring the obligations between the parties especially as partial companies were sold at many of the steps. So the obligation might lie with/to the original owner and not the buyer. It appears that all those APAs tried (or succeeded) in assigning the contracts, licenses and rights without telling all the original parties. More like banks selling mortgage debt (eek) or you selling on a life or endowment policy before maturity. It seems odd that some paper can be easily sold without one of the parties being involved (or told) while other things need novations or new contracts.

Naturally the unix novations would all be filed next to all those copyright and patent assignments, which no-one can quite find. Maybe there's a whole dusty office building somewhere that SCO never new they bought....!?

[ Reply to This | # ]

Conflict of interest?
Authored by: bstone on Wednesday, December 05 2007 @ 09:26 PM EST
I don't quite understand the standards for conflicts of interest. MoFo is
representing Novell and, inadvertently found themselves representing the buyer
of the patent. Those two things don't sound to me like a conflict at all.
Assuming the court OKs that the patent sale was in the best interest of the
creditors, it seems like MoFo has two interests on the same side. Where is the
conflict?

OTOH, Boies is representing SCO against the court and creditors while at the
same time they are both a major creditor and a major benefactor of SCO's
spending. They certainly participated in the York deal and I would assume that
they also participated in the patent sale deal. The obvious conflicts are huge,
yet they are allowed to take on more conflicting work?

Why is is such a big deal that MoFo has to stop working for the patent buyer,
while Boies, rather than being removed from conflicting roles, is allowed to add
new, even more conflicting roles?

[ Reply to This | # ]

Hearing over - Minutes Posted - Eyewitnesses Reports
Authored by: Ian Al on Thursday, December 06 2007 @ 05:16 AM EST
PJ gave us a good review of the patent sale details in this article.

UD reported,

The net proceeds of the sale will go to SCO and the fees to Ocean Tomo will be paid by Cattleback. Mr O'Neill said he thinks they have filled in all the gaps with a Novation Agreement to be filed.
and added the comment'(the difference being....???)'.

I think I might see why the court is more comfortable with this new position. It seems like the 'marketing' work pre-petition is to be paid by Cattleback as this was the company (for want of a more colourful description) selling the goods and getting the marketing service. PJ reported that the balance Ocean Tomo are owed is $60,500, so some fees have already been paid. Our third reporter said 'Some pre-petition fees to Ocean Tomo to be paid by the subsidiary'. There is a hint, then, that not all the $60,500 will be paid. Perhaps there is a substantial part that is post-petition as well and this would make Ocean Tomo a creditor for the unpaid pre-petition and the post-petition sums.

The sale is being novated to SCO so that SCO receive all the dosh. The sale is post-petition and the receipts goes into the estate. They say 'net dosh' so there are some sums to come out of the gross payment. Since Cattleback are paying any Ocean Tomo marketing fees that are not ending up as creditor sums, there must be other sums coming out of the gross payment. This is before $45,000 is paid out to inventors and employees. These cannot be Cattleback or SCO sales or other company taxes so, what will Ocean Tomo net out of the full payment?

Since Cattleback will only have Darl as an asset after the patent has gone, I assume SCO will have to apply to the BK court to transfer funds for the Cattleback pre-petition payments. The court will also have to agree to the inventor and employee payments. I think they will be treated, at best, as low priority debtors or, at worst, the court will overturn those parts of the marketing agreement. That would not harm Ocean Tomo who have that as a term in the marketing agreement, but it would be appropriate for a company in bankruptcy to protect existing creditors.

So, the remaining, immediate issue is whether the price is right. Novell think it is OK. No one else has complained. The court have complete control of any payments out of the sale and must approve each payment. The remaining issues are ones of sharp or underhand practice. It is interesting, then, that the Judge went out of his way to repeat Novell's position when he pointedly stated that this is not a green light.

Judge Gross tells him that even though he (Lewis) isn't objecting now, he isn't waiving his right to object down the line if something doesn't seem right.
Doesn't that sound unusually suspicious?

I heard that!

---
Regards
Ian Al

Linux: Genuine Advantage

[ Reply to This | # ]

  • Perhaps? - Authored by: Anonymous on Thursday, December 06 2007 @ 03:35 PM EST
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