It's breathtaking to me. SCO actually argues, quoting selectively from the trial order's wording, that while one clause of the 2003 Sun agreement was not authorized, the rest of the agreement was, and in fact in the judge's "nuanced" trial order, that's what he meant, that SCO was authorized to enter into the agreement except for that one itsy bitsy part. Just excise that one clause, and what do you get? An *authorized* agreement. What? Don't hyperventilate. SCO does this.

Here's the part of the July 16, 2008 trial order SCO *doesn't* quote from:

The Court concludes that Sun's 2003 Agreement License, therefore, "concerns" a buy-out, and SCO was required to follow the additional restrictions imposed by Amendment No. 2 on transactions that concern buy-outs. SCO did not comply with these terms. The Court thus concludes and declares that SCO was without authority to enter into the 2003 Sun Agreement under Amendment 2, Section B, of the APA.

Joke. Joke.

The filings:

11/06/2008 - 564 - REPLY to Response to Motion re 554 MOTION for Entry of Judgment and Re 561 SCO's Motion to Voluntarily Dismiss Its Unresolved Stayed Claims With Prejudice filed by Counter Defendant SCO Group. (Attachments: # 1 Exhibit 1, # 2 Text of Proposed Order [Proposed] Final Judgment)(Normand, Edward) (Entered: 11/06/2008)

D. 2003 Sun Agreement

The 2003 Sun Agreement increases Sun's rights to at least 30 versions of SVRX products provided in Item VI of Schedule 1.1(a) of the APA and gives Sun broad rights to several versions of SVRX. The 2003 Sun Agreement is an SVRX License.

Section 12 of the Sun Agreement is a release and waiver provision similar to the Other SCOsource Licenses. As with those licenses, the court finds that the provision does not release Novell's claims based on its ownership of the SVRX copyrights, and thus does not implicate SVRX technology and cannot be the basis for SVRX Royalties.

Section 4 of the Sun Agreement is a license to UnixWare and prior SVRX products. Although this section provides a license to prior SVRX products to which Sun did not previously have a right to under its 1994 Agreement with Novell, the court concludes that this section's inclusion of SVRX as prior products is only incidental to a license to the most recent version of SCO's UnixWare. Accordingly, Novell is not entitled to revenue attributable to this section of the Sun Agreement.

Section 8.1 of the Sun Agreement, however, lifts the confidentiality provisions with respect to 30 versions of SVRX technology granted to Sun under its 1994 Buy-out Agreement with Novell.

Under Section 4.16 of the amended APA, SCO can only amend an SVRX license if it is done incidentally to its licensing of UnixWare. Also, Section B of Amendment No. 2 to the APA provides that before entering into any potential transaction with an SVRX licensee which "concerns" a buy-out of any such licensee's royalty obligations, SCO must obtain Novell's consent. This provision requires either party who even "become[s] aware of any such potential transaction" to immediately notify the other in writing. The provision further requires that any negotiations with the licensee be attended by both parties, and that both parties consent to any such transaction. There are no exceptions to this provision.

The 2003 Sun Agreement specifically states that it "amends and restates" Sun's 1994 SVRX buy-out agreement with Novell. SCO has no authority to enter such an agreement unless it is incidentally involved in the licensing of UnixWare.

The court concludes that the release of confidentiality requirements in Section 8.1 of the 2003 Sun Agreement is not merely incidental to a UnixWare license. The provision had significant independent value to Sun as it allowed Sun to opensource its Solaris UNIX-based product. While several of the provisions in the Agreement focus on UnixWare and specific device drivers, the amendment with respect to confidentiality relates to the same technology licensed in the 1994 Buy-out Agreement and had significant independent value to Sun apart from a license to the newest versions of UnixWare.

SCO argues that Section B of Amendment No. 2 to the APA relates only to future buyout transactions, but the language of the provision broadly states that it relates to any potential transaction that "concerns a buy-out of any such licensee's royalty obligations." This provision refers to any transaction that "concerns" a buyout, not just buy-outs. SCO's interpretation would allow SCO to unilaterally amend any buy-out agreement negotiated by all the parties if it wanted to re-negotiate more favorable terms to itself. Even if there is testimony about the parties focusing on future buy-outs, it does not change the fact that Amendment No. 2 was drafted more broadly. In the 2003 Sun Agreement, SCO renegotiated a contract and expanded Sun's rights to technology still owned by Novell. And, SCO improperly received the money for granting such rights even though those rights remained with Novell.

There is no dispute that Sun's 1994 Agreement with Novell was a "buy-out" of Sun's SVRX royalty obligations as that term is used in Amendment No. 2. Sun's 2003 Agreement explicitly acknowledges that it is intended to "amend and restate" the 1994 buy-out agreement, including expansion of Sun's existing license rights to permit opensource licensing of SVRX code. The Court concludes that Sun's 2003 Agreement License, therefore, "concerns" a buy-out, and SCO was required to follow the additional restrictions imposed by Amendment No. 2 on transactions that concern buy-outs. SCO did not comply with these terms. The Court thus concludes and declares that SCO was without authority to enter into the 2003 Sun Agreement under Amendment 2, Section B, of the APA.

I earlier said that I'd provide, as text, the correspondence between Novell's outside attorney, David E. Melaugh of Morrison & Foerster, and SCO's outside attorney, Mauricio A. Gonzalez of Boies Schiller, which was attached as an exhibit to the Melaugh Declaration. This is the right moment to do it, because the current filings stem directly from that interaction.

"I am disappointed with the tone of this email..."

You'll find the emails, four of them, beginning on page 46 of the Declaration of David Melaugh, which in turn was in support of Novell's Response to SCO's Notice of Voluntary Dismissal. It's fascinating to see how the strategies each side is now implementing can be seen coming into view in the emails. Apparently, judging from one of Novell's emails, the conversations between the lawyers were friendly and cordial, and the parties were able to agree to the amount that ought to fund the trust. But then something happened that completely altered the mood. And after this exchange, you can see what happened in Novell and SCO's filings in both Utah and in bankruptcy court ever since.

At issue was this: were the two working out the terms of just the amount of the constructive trust, as Novell asserts, or were they also discussing how Novell would handle the final judgment issue in bankruptcy court? The emails are all dated August 29, 2008, and you can figure out the order they were sent by the times sent. The last two are in reverse order in the PDF, but here I have rearranged them chronologically. The lawyers reference phone calls they were having too.

August 29, if you check the SCO v. Novell timeline, is the day Novell filed two documents with the court in Utah, one, the info about the parties agreeing to the amount of the trust and second, Novell's reasons for feeling that it was premature to have a final judgment in the case, since the arbitration has not yet been decided, among other reasons. So while this discussion by email was going on, Novell was acting with dispatch.

SCO represents that its proposal to dismiss SCO's claims is a lot like Novell's, when it earlier conditionally dropped some claims: "Our proposal was to dismiss the claims on terms nearly identical to those by which Novell agreed to dismiss its claims in the Joint Statement and Supplemental Joint Statement by the parties," Gonzalez writes.

Nearly identical isn't the same as identical, however. Novell dropped some claims and said it would not bring them back to the table unless *SCO* took certain actions, as I read it. SCO offers to drop claims without promising not to bring them back to the table itself, no matter what Novell does or doesn't do. That isn't the same thing at all. I think this is the joint status report and the supplemental one [PDF] that SCO means, so you can judge for yourself. Here's the offer by Novell to conditionally drop punitive damages in the first document:

Further, the parties have agreed that Novell will not pursue punitive damages under any claim, without prejudice to seeking such relief should there be any subsequent adjudication or trial in this action or any enlargement of the issues for this trial beyond that contemplated by this report. The parties will incorporate this agreement into the proposed final judgment.

II. NOVELL DOES NOT SEEK A GENERAL DISMISSAL WITHOUT PREJUDICE, ONLY A NARROW RIGHT TO RENEW THE CLAIM.

Though the Court is authorized to dismiss claims without prejudice under Rule 41 (and that is in fact the default), Novell seeks only considerably more narrow rights here. Pursuant to the terms of the dismissal described in the proposed order filed herewith, Novell shall only have the right to renew its Third Claim should there be any subsequent adjudication or trial in this action or any enlargement of the issues for trial beyond that contemplated by the parties' August 17, 2007 Joint Statement. Absent such a subsequent adjudication or enlargement, Novell would have no right to renew this Claim.

Here's SCO's language, in contrast, in its current Notice of Voluntary Dismissal:

In order to expedite the resolution of this case and foreclose further disputes about finality, SCO will voluntarily dismiss with prejudice those portions of its severed and stayed claims that remain pending. While SCO believes that the position set forth in its initial motion is legally correct -- that its voluntary dismissal of pending claims with the right to pursue them upon remand perfects finality under controlling law -- it is more important for SCO to avoid extended litigation on this issue.

Novell offered to dismiss some claims it doesn't expect to resurrect, barring something unexpected from SCO or the cosmos. SCO offers to dismiss its claims now so it can get a quick final judgment and then immediately appeal. But it will keep the dismissed claims in a back pocket, ready to use if and when they are useful again, like a marked card in a card game. Given SCO's representations to the world that it is confident it will win on appeal, it's equivalent to saying SCO will dismiss the claims temporarily, but it has no intention of dropping them. That's not identical at all to my way of thinking. It's not even nearly identical.

So, here are the emails as text, followed by SCO's Statement on Entry of Final Judgment as text.

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

From: Mauricio A. Gonzalez [email]
Sent: Friday, August 29, 2008 11:22 AM
To: Melaugh, David E.
Subject: confirmation of meet and confer agreements

David,

I write to confirm our meet and confer on the prejudgment interest and final judgment issues.

As Novell has agreed with our calculations, the parties have reached an agreement about the amount of prejudgment interest, with Novell's acknowledgement that the agreement does not increase Novell's rights under the applicable law.

As to the disposition of stayed claims, Novell has not agreed to our proposed dismissal of those claims, but will determine whether to oppose any motion SCO may bring to dismiss those claims as proposed. Our proposal was to dismiss the claims on terms nearly identical to those by which Novell agreed to dismiss its claims in the Joint Statement and Supplemental Joint Statement by the parties. As you know, Novell also agreed to incorporate such agreements into the proposed final judgment.

As to the amount of the constructive trust, Novell agrees that the Lowest Intermediate Balance ("LIB") method of tracing controls, not the LIB-plus-deposits or any other method. While we believe that the weight of binding authority supports use of the established LIB method instead of the modified approach you propose, in the interest of finality, we agreed to the trust amount of $625,486.90 you proposed under your approach, corresponding to the balance of the relevant SCO bank accounts on September 7, 2005, as reflected in the expansive tracing spreadsheet we provided you.

Finally, you have asked that we put in writing the following representations we have made regarding the tracing work:

1. SCO finance personnel built the tracing spreadsheet and performed the analysis of the underlying bank statements under my direction and supervision. Thus, I have personal knowledge of the procedures and methods SCO used to identify, enter, and verify the transactions involved in the tracing.

2. To the best of our knowledge, the spreadsheet reflects all the SCO accounts that contained trust funds under your tracing approach (the "trust accounts") from April 30, 2003, the date of the first Sun payment, to September 7, 2005, the date of the lowest intermediate balance in the trust accounts under your approach (the "relevant period"). To the best of our knowledge, SCO's cash position in excess of the trust accounts during the relevant period was held in other accounts, which had not received transfers of funds from the trust accounts during the relevant period. Such non-trust accounts included those of SCO's numerous foreign subsidiaries at the time.

3. Further to the foregoing point, SCO has verified that withdrawals from the trust accounts during the relevant period were expenses and not transfers to other SCO accounts. Specifically, where it was not evident on the face of a bank statement that a transaction was an expense, SCO found the transaction on SCO's QAD Enterprise Resource Planning account. In addition, at your request, SCO confirmed with Zions Bank that it is virtually certain that all the "checks" numbered "0" out of the Operating Account represent transfers to other trust accounts, all of which are accounts at that bank.

4. As to your requests for a breakdown of SCO's cash position by bank account during the relevant period, SCO has not been able to gather or identify that information for the reasons we have discussed on our calls.

Sincerely yours,

Mauricio

__________

From: Mauricio A. Gonzalez [email]
Sent: Friday, August 29, 2008 3:49 PM
To: Melaugh, David E.

Subject:

David,
We have met and conferred for several weeks on the two issues Novell regards as impediments to the entry of final judgment: (1) the amount of the constructive trust, and (2) the disposition of the stayed claims. You confirmed today that Novell intends to tell the District Court that Novell does not believe that the Court's recent order permits any final judgment, and yet you informed us this afternoon that Novell intends to ask the Bankruptcy Court to recover the agreed-upon amount of the constructive trust. Novell's intention to seek such relief in the Bankruptcy Court is utterly inconsistent with the position you will take in your submission to the District Court today that there is no finality in this action. There is no sound theory on which Novell could obtain the monetary relief you propose, which requires finality in all of the claims Novell has brought, and at the same time claim that there is no finality to SCO's claims. In our view, you should tell the District Court that Novell intends to seek such relief from the Bankruptcy Court, and if you don't, we will.

Thanks.

Mauricio
Mauricio A. Gonzalez, Esq.
BOIES, SCHILLER & FLEXNER LLP
[address, phones, fax, email]

_____________

From: Mauricio A. Gonzalez [email]
Sent: Friday, August 29, 2008 3:54 PM
To: Melaugh, David E.

This confirms that we agree to the trust amount in our earlier communications. Thanks.

Mauricio A. Gonzalez, Esq.
BOIES, SCHILLER & FLEXNER LLP
[address, phones, fax, email]

___________________

From: Melaugh, David E.

Sent: Friday, August 29, 2008 5:01 PM

To: Mauricio A. Gonzalez

Subject: RE:

Mauricio,

I am disappointed with the tone of this email, which stands in contrast to the cordial correspondence and conversations we have otherwise had on this topic. Worse, it substantively misrepresents our discussion. I have not informed you that Novell intends to take any one particular path with respect to the constructive trust in the Bankruptcy Court. To the contrary, I said explicitly that I expected this matter would be subject to meet and confer between the parties' bankruptcy counsel. I therefore encourage you not to "tell the District Court" any such thing (as you threaten), as you would be misrepresenting our position to the Court.

So that the history is clear: our discussion to date has focused on the amount of the constructive trust. Based on your representations as to the state and history of SCO's accounts, it appears we have reach an agreement on that point. Today, you sought to inject into that discussion an agreement as to the proper disposition of the trust in the Bankruptcy Court. You never stated precisely what your advocated disposition was, aside from the point that the money remain in SCO's hands. I responded only that there are any number of variations as to how this money is treated and that this matter would best be discussed by counsel more experienced in the underlying law. I sought only confirmation that the scope of our agreement was limited to the amount of the trust, which you have confirmed.

David E. Melaugh
Morrison & Foerster LLP
[address, phone, fax, email]

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

Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE, PC
[address]
[phone]
[fax]

Stephen N. Zack (admitted Pro Hac Vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

David Boies (admitted pro hac vice)
Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Stuart Singer (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Devan V. Padmanabhan (admitted pro hac vice)
DORSEY & WHITNEY LLP
[address]
[phone]
[fax]

Attorneys for Plaintiff, The SCO Group, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., a Delaware corporation,
Plaintiff/Counterclaim-Defendant,
vs.
NOVELL, INC., a Delaware corporation,
Defendant/Counterclaim-Plaintiff.

SCO'S STATEMENT REGARDING ENTRY OF FINAL JUDGMENT

Civil No. 2:04 CV-00139
Judge Dale A. Kimball
Magistrate Brooke C. Wells

STATEMENT

Nearly four months after the Court ordered Novell to submit a Proposed Final Judgment, Novell finally agrees that entry of Final Judgment is proper, but now takes issue with portions of the Proposed Final Judgment that SCO twice submitted. In order again to achieve final resolution of this case, SCO will not object to the changes that Novell has included in its Proposed Final Judgment, except the one that is substantive, though now academic,¹ in nature: the revision related to the Sun Agreement in Paragraph 4. Since only that very limited issue remains and the parties otherwise agree on both the proprietary of the entry of Final Judgment and the Proposed Final Judgment itself, SCO respectfully renews its request that the Court enter Final Judgment on an expedited basis.²

Novell's Fourth Counterclaim asks whether SCO was authorized to enter into the Sun Agreement. In its Response to SCO's Notice of Voluntary Dismissal, Novell seeks to lock the Court into a "binary" choice: the Agreement must be either authorized or unauthorized as a whole under the Trial Order. But there is a third option, the one the Court for good reason

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actually took in the Trial Order: The Sun Agreement was unauthorized in part. As the Court explained:

Section 4 of the Sun Agreement is a license to UnixWare and prior SVRX products. Although this section provides a license to prior SVRX products to which Sun did not previously have a right to under its 1994 Agreement with Novell, the court concludes that this section's inclusion of SVRX as prior products is only incidental to a license to the most recent version of SCO's UnixWare. Accordingly, Novell is not entitled to revenue attributable to this section of the Sun Agreement.

Section 8.1 of the Sun Agreement, however, lifts the confidentiality provisions with respect to 30 versions of SVRX technology granted to Sun under its 1994 Buy-out Agreement with Novell.

Under Section 4.16 of the amended APA, SCO can only amend an SVRX license if it is done incidentally to its licensing of UnixWare. Also, Section B of Amendment No. 2 to the APA provides that before entering into any potential transaction with an SVRX licensee which "concerns" a buy-out of any such licensee's royalty obligations, SCO must obtain Novell's consent. This provision requires either party who even "become[s] aware of any such potential transaction" to immediately notify the other in writing. The provision further requires that any negotiations with the licensee be attended by both parties, and that both parties consent to any such transaction. There are no exceptions to this provision.

The 2003 Sun Agreement specifically states that it "amends and restates" Sun's 1994 SVRX buy-out agreement with Novell. SCO has no authority to enter such an agreement unless it is incidentally involved in the licensing of UnixWare. The court concludes that the release of confidentiality requirements in Section 8.1 of the 2003 Sun Agreement is not merely incidental to a UnixWare license. The provision had significant independent value to Sun as it allowed Sun to opensource its Solaris UNIX-based product. While several of the provisions in the Agreement focus on UnixWare and specific device drivers, the amendment with respect to confidentiality relates to the same technology licensed in the 1994 Buy-out

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Agreement and had significant independent value to Sun apart from a license to the newest versions of UnixWare.

Instead of the all-or-nothing reading Novell advocates, the Court thus actually made a series of nuanced findings and conclusions about specific provisions of the Sun Agreement. And the Court's reasoning is clear:

1. "Under Section 4.16 of the amended APA, SCO can only amend an SVRX license if it is done incidentally to its licensing of UnixWare."
2. The SVRX License in Section 4 of the Sun Agreement was "incidentally involved in the licensing of to UnixWare." Accordingly, that SVRX License was fully authorized.
3. Conversely, with respect to the requirements of Section B of Amendment No. 2, SCO was precluded from entering into the Sun Agreement "unless it is incidentally involved in the licensing of UnixWare." The plain language the Court used thus makes clear that the Sun Agreement does not run afoul of Section B insofar as it licenses SVRX incidentally to the licensing of UnixWare.
4. "The court concludes that the release of confidentiality requirements in Section 8.1 of the 2003 Sun Agreement is not merely incidental to a UnixWare license." Thus Section 8.1 is the only SVRX provision in the Sun Agreement that the Court found did not fit into the "incidental" exception.
5. Accordingly, only Section 8.1 — the only provision of the Sun Agreement that actually concerns the 1994 buy-out agreement by relaxing its confidentiality restrictions — was found to be unauthorized under Section B of Amendment No. 2.

Contrary to Novell's assertions, there is nothing wrong with SCO's understanding of the Court's Order. As to "agreement splitting," while the Court previously found that the Sun and Microsoft Agreements were SVRX Licenses under Item VI of the APA, the Court has also repeatedly acknowledged that the Agreements consist of SVRX and non-SVRX "components." (See, e.g., Docket No. 453 at 15-17.) Indeed, the very purpose of trial was to determine the relative value of such components. (Id.) The relevant question at trial was not whether the Sun Agreement as a whole fits the APA's definition of SVRX Licenses — that was resolved by the

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Court on summary judgment — but whether the SVRX "components" were unauthorized under other provisions. The Court only found that the release of confidentiality restrictions in Section 8.1 was unauthorized because it "is not merely incidental to a UnixWare license."

Similarly, the Court's conclusions do not amount to "an advisory opinion." They do not address the hypothetical Novell poses — "if the 2003 Sun Agreement had not excised the 1994 Sun buy-out's confidentiality requirements, would SCO have been authorized to enter into it?" — but the question posed by the Fourth Counterclaim: whether SCO had the authority to enter in the 2003 Sun Agreement. Novell actually does not object to the question the Court addresses, but to the Court's answer, as SCO understands it: SCO was authorized to enter into the 2003 Sun Agreement, except the release of confidentiality restrictions in Section 8.1.

It is Novell's reading of the Court's Trial Order that suffers from incurable defects. Novell has never disputed and this Court has affirmed that SCO owns and has unfettered rights to license its valuable UnixWare and OpenServer software. Indeed, in the Trial Order, the Court concluded that the UnixWare and OpenServer licenses in the Sun Agreement accounted for the bulk of the value of the Agreement, and that those payments were SCO's to keep. (Order at 41- 42.) Novell's proposed reading of the Order would have the Court declare that even the UnixWare and OpenServer licenses in the Sun Agreement were unauthorized merely because they happen to be granted in the same document that also contained a provision "concerning" the 1994 buy-out agreement.

For the foregoing reasons, SCO respectfully asks the Court to enter SCO's Proposed Final Judgment, as attached hereto.

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DATED this 6th day of November, 2008.

HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James

BOIES, SCHILLER & FLEXNER LLP
David Boies
Robert Silver
Stuart H. Singer
Edward Normand

DORSEY & WHITNEY LLP
Devan V. Padmanabhan

By: /s/ Edward Normand

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CERTIFICATE OF SERVICE

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc., hereby certifies that on this 6th day of November, 2008, a true and correct copy of the foregoing SCO's Statement Regarding the Entry of Final Judgment was electronically filed with the Clerk of Court and delivered by CM/ECF to:

Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
ANDERSON & KARRENBERG
[address]

Michael A. Jacobs
Matthew I. Kreeger
MORRISON & FOERSTER
[address]

By: /s/ Edward Normand

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