The appeal decision [PDF] in SCO v. Novell is in:
For the foregoing reasons, we AFFIRM the district court’s judgment with
regards to the royalties due Novell under the 2003 Sun-SCO Agreement, but REVERSE the district court’s entry of summary judgment on (1) the ownership of the UNIX and UnixWare copyrights; (2) SCO’s claim seeking specific performance; (3) the scope of Novell’s rights under Section 4.16 of the APA; (4) the application of the covenant of good faith and fair dealing to Novell’s rights under Section 4.16 of the APA. On these issues, we REMAND for trial.
The issue was whether it is appropriate to decide matters on summary judgment, and this court thought the APA was complex enough and ambiguous enough that a jury trial is more appropriate. Here's the heart of it all:
But so long as
sufficient evidence could lead a rational trier of fact to resolve the dispute in
favor of either party, granting either party's dueling motions for summary
judgment would be inappropriate. I think that means Chapter 7 looms, because SCO was counting on the appeal to overturn on the issue of the money that the Utah decision gave Novell from the Sun license deal, and that didn't happen. Of course, there could be new investors. But the odd thing is, SCO management is no longer in control of any decisions, as
pointed out in its recent 8K:
Pursuant to the Bankruptcy Code, and subject to the supervision and approval of the Bankruptcy Court, the Chapter 11 Trustee will have, upon appointment, authority over the Debtors’ assets and affairs and the future course of the Debtors’ litigation against Novell, IBM, et al.
So, it's back to Utah! Unless Novell tries to appeal higher, of course, or asks for a full en banc rehearing. And it's up the the Chapter 11 trustee, once appointed, to decide what he thinks would be the next step, including Chapter 7. SCO's world has changed since it filed this appeal.
Yes, Judge McConnell wrote it. SCO accurately predicted a number of things, which is a bit weird. But it is what it is. It certainly doesn't matter to IBM. They don't care who owns the copyrights, as their position has always been that they haven't infringed, no matter who owns them. But Novell has to spend more money now, but they knew this could happen, because this is how litigation goes. No doubt they've budgeted for it.
It's mighty hard to win on summary judgment, because there has to be absolutely no way the party ruled against could ever prevail. It's a very high bar, and everything tilts away from the party seeking summary judgment, so it is remarkable that Novell even won in Utah on that, and the royalties remain a huge win for them, now upheld. I guess SCO could try to appeal that part of this order, if they wish to. Or rather, the Chapter 11 trustee that is being appointed by the US Trustee's Office will make that decision. SCO management no longer controls.
But the bottom line is that this court thought the APA wasn't quite clear enough for summary judgment. That's all this means, that a jury, not the judge on summary judgment should decide some of this. I disagree, but they haven't been following SCO for six years. Personally, I trust juries a lot, more than judges, actually. I don't doubt the ultimate outcome. Do you really think Ed Chatlos will convince a jury, when he is subject to cross examination, not just putting in a declaration, as here? And anyway, I enjoy writing Groklaw. Now we need to start planning to cover the trial itself, if it actually happens.
[ Update: The Salt Lake Tribune has Darl McBride's reaction, and it's what you would expect:
CEO Darl McBride hailed the decision as a "huge validation for SCO" that will enable it to continue its lawsuit against IBM and a related suit against Novell.Well, that's no longer up to Darl, happily. We know the prior SCO manangement's intentions. And it's not a validation. It's saying a jury has to decide certain things. And the headline isn't accurate ("Appeals court overturns decision in SCO Group, Novell case"), or the coverage. The Utah District Court decision was not "overturned". It was overturned in part, and affirmed in part, as you can read for yourself. The money part was upheld, and the rest is to be determined. But SCO has no money left. - end update.]
[ Update 2: SCO has already filed an 8K about the ruling:
On August 24, 2009, the United States Court of Appeals for the Tenth Circuit (the "Tenth Circuit Court") issued its published opinion in the case of The SCO Group, Inc. v. Novell, Inc. (No. 08-4217). In the opinion, the Tenth Circuit Court reversed in material respects the summary judgment of August 10, 2007, rendered by the United States District Court of Utah, (the "District Court") and the Final Judgment entered on November 20, 2008. In its opinion, the Tenth Circuit Court reversed the summary judgment that Novell did not transfer certain UNIX copyrights to the Santa Cruz Operations as part of an Asset Purchase Agreement executed in 1995, as amended, and it also reversed the summary judgment that Novell had the right, under that Asset Purchase Agreement, to waive on behalf of SCO, or to direct SCO to waive, certain claims it had asserted against International Business Machines. That's sort of accurate, but it sounds better than it is, I think. It reversed the summary judgment, saying certain things need a trial, but it certainly didn't say that SCO now has the copyrights. Basically, we go back to Go, and it's like the judge had denied the summary judgment motions, and it starts back again from there, but with a jury trial instead of just a judge.]
The Tenth Circuit Court affirmed the District Court's judgement with regards to the royalties due Novell under the 2003 Sun-SCO Agreement of $2,547,817 plus interest. The Court remanded the case back to the District Court for trial.
[ Update 3: Judge Kimball has recused himself from both the Novell and the IBM cases. First Novell:
08/24/2009 - 596 - ORDER OF RECUSAL Judge Dale A. Kimball recused. Case reassigned to Judge Ted Stewart for all further proceedings. Signed by Judge Dale A. Kimball on 8/24/09. (jwt) (Entered: 08/24/2009)
And here's IBM:
I'm puzzled about the IBM recusal. Maybe he's sick of SCO.
08/24/2009 - 1086 - ORDER OF RECUSAL Judge Dale A. Kimball recused. Case reassigned to Judge Tena Campbell for all further proceedings. Signed by Judge Dale A. Kimball on 8/24/09. (jwt) (Entered: 08/24/2009)
[ Update 4:
The media is struggling. Only Wired's David Kravetz notices this part of the ruling:
The appellate court, without taking any sides, ordered a jury trial to determine whether SCO Group properly owned the Unix and UnixWare copyrights. The court, in short, said the case was too close to call without a trial. And Steven J. Vaughan Nichols on ComputerWorld
notices this section:
“We take no position on which party ultimately owns the Unix copyrights or which copyrights were required for Santa Cruz to exercise its rights under the agreement,” the court wrote. “Such matters are for the finder of fact on remand.”
As the ruling itself states ... "We recognize that Novell has powerful arguments to support its version of the transaction, and that, as the district court suggested, there may be reasons to discount the credibility, relevance, or persuasiveness of the extrinsic evidence that SCO presents." But, since "the evidence presented on a dispositive issue is subject to conflicting, reasonable interpretations, summary judgment is improper. So, "We think SCO has presented sufficient evidence to create a triable fact as to whether at least some UNIX copyrights were required for it to exercise its rights under the agreement."
So, if the court was leaning in either direction, it's not hard to see which way. But the issue was summary judgment or trial.
At the other end of the spectrum, Deseret News
Part of the Unix computer code was developed by AT&T Inc. in 1969 and is used in the Linux computer operating system that is distributed for free.
Sigh. That is the question, not the answer. That is SCO's claim, but they have yet to prove it. Wow, this is like the early days. Is Darl calling up the media again? Why, yes. Yes, he is:
"For us it's a case of survival, of protecting what we own." SCO chief executive Darl McBride told The Associated Press.
Part of the Unix computer code, which was developed by AT&T in 1969, is used in the Linux operating system.
He says it. They print it. Just like the early days. Amazing. Here's more wrong info, from NetworkWorld:
McBride said the development and distribution of Linux has caused the company's revenues to drop from $250 million a year to $15 million, forcing the company to file for bankruptcy.
"There are 20 million versions of Linux running around the world," McBride said, referring to his estimate of company servers using Linux. "Linux at the end of the day is a knock off of our Unix."
The ruling likely will re-open the company’s litigation of IBM, based on a relationship SCO has with private equity firm Stephen Norris Capital Partners.They pumped no money into SCO. Vice versa, actually, according to testimony in the bankruptcy. I truly hope when the media reports on urgent matters, like swine flu, they get the facts more accurate than this. - end update 4.]
In February of last year, Stephen Norris Capital Partners pumped up to $100 million into SCO believing the rulings against the company could be reversed on appeal to a higher court. The firm’s commitment requires SCO to “aggressively continue” its ongoing litigation against Novell and IBM, as well as another case against AutoZone Inc.
[ Update 5: Remember at the last bankruptcy hearing, when SCO kept trying to tell the court that if they could just win something on appeal, their stock would go up, up and away? Well, they have now put out a press release about a teleconference tomorrow at 10 AM their time with Darl and Ryan Tibbitts, titled "Investor Alert: SCO Group to Hold Investor Call; CEO, General Counsel to Discuss Ruling by Tenth Circuit Court of Appeals". Investor alert, indeed. I'd recommend that totally:
INVESTOR ALERT: The SCO Group, Inc., (PinkSheets: SCOXQ) a leading provider of UNIX(R) software technology and mobility solutions, today announced that it will conduct a live investor call tomorrow morning at 10:00 a.m. Mountain Time with CEO Darl McBride and SCO general counsel, Ryan Tibbitts. The call will be to discuss the ruling by the Tenth Circuit Court of Appeals that overturns material aspects of the district court's 2007 summary judgment against SCO and its remanding of the case for jury trial.
The press release gives you the number to call, should you wish to do so, all you drooling investors out there.]
Meanwhile, news on the Pelican story, the fraud litigation, Darl apparently has his brother representing him, and he tried to file a motion to dismiss, but the court clerk rejected it. He has to file it electronically:
08/24/2009 - ***REJECTION OF ATTEMPTED PAPER FILING IN ECF CASE. The following document(s) Darl McBride's Motion to dismiss for lack of personal jurisdiction, Memorandum in support of Darl McBride's Motion to Dismiss for lack of personal jurisdiction, Declaration of Darl McBrid in support of motion to dismiss for lack of personal jurisdiction. Filing Attorney: McBride Law, PC, was rejected by the Clerk's Office and must be FILED ELECTRONICALLY on the Court's ECF System. (eef) (Entered: 08/24/2009)
Not a good start.]
Here is the ruling as rough text, which I'll perfect as time allows, and I'll swing back by after I have a chance to read it more carefully [update: I'm done, so if you see any errors now, let me know, and go by the PDF for anything that matters], but I knew you'd want to see it right away. [As for further thoughts, footnote 2 seems oddly contradictory to every else written in the body of the ruling. See what you think.]:
UNITED STATES COURT OF APPEALS
THE SCO GROUP, INC.,
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 2:04-CV-00139-DAK
Stuart Singer, Boies, Schiller & Flexner LLP, Fort Lauderdale, Florida (David Boies, Robert Silver, and Edward Normand, Boies Schiller & Flexner LLP, Armonk, New York; Brent O. Hatch, Mark F. James, Hatch, James & Dodge, PC, Salt Lake City, Utah; Devan V. Padmanabhan, Dorsey & Whitney LLP, Minneapolis, Minnesota with him on the briefs) for Plaintiff-Appellant.
Michael Jacobs, Morrison & Foerster LLP, San Francisco, California (George C. Harris, Grant L. Kim, David E. Melaugh, Morrison & Foerster LLP, San Francisco, California; Thomas R. Karrenberg, Heather M. Sneddon, Anderson & Karrenberg, Salt Lake City, Utah with him on the briefs) for Defendant-Appellee.
Before LUCERO, BALDOCK and McCONNELL, Circuit Judges.
McCONNELL, Circuit Judge.
This case primarily involves a dispute between SCO and Novell regarding
the scope of intellectual property in certain UNIX and UnixWare technology and
other rights retained by Novell following the sale of part of its UNIX business to
Santa Cruz, a predecessor corporate entity to SCO, in the mid-1990s. Following
competing motions for summary judgment, the district court issued a detailed
opinion granting summary judgment to Novell on many of the key issues. We
affirm the judgment of the district court in part, reverse in part, and remand for
trial on the remaining issues.
We begin by laying out some of the basic facts underlying Novell's transfer
of certain UNIX-related assets to Santa Cruz, as well as the background to the
instant litigation. Other facts will be discussed as the issues require.
A. The UNIX Business and the Sale to Santa Cruz
UNIX is a computer operating system originally developed in the late
1960s at AT&T. By the 1980s, AT&T had developed UNIX System V ("SVRX");
it built a substantial business by licensing UNIX source code to a number of
major computer manufacturers, including IBM, Sun, and Hewlett-Packard. These
manufacturers, in turn, would use the SVRX source code to develop their own
individualized UNIX-derived "flavors" for use on their computer systems.
Licensees could modify the source code and create derivative products mostly for
internal use, but agreed to keep the UNIX source code confidential.
In 1993, Novell paid over $300 million to purchase UNIX System
Laboratories, the AT&T spin-off that owned the UNIX copyrights and licenses.
Only two years later, however, Novell decided to sell its UNIX business.
Although Novell may have initially intended "to sell the complete UNIX
business," both parties agree that Santa Cruz was either unwilling or unable to
commit sufficient financial resources to purchase the entire UNIX business
outright. App'x 8610; Aplt. Br. 8; Aple. Br. 5. The deal was therefore
structured so that Novell would retain a 95% interest in SVRX license royalties,
which had totaled $50 million in 1995.
The transfer of Unix-related rights occurred pursuant to three documents:
an asset purchase agreement ("APA") executed on September 19, 1995;
"Amendment No. 1" signed by the parties at the actual closing on December 6,
1995; and "Amendment No. 2" on October 16, 1996. The APA provided that:
"Buyer will purchase and acquire from Seller on the Closing Date . .
. all of Seller's right, title, and interest in and to the assets and
properties of Seller relating to the Business (collectively the
"Assets") identified on Schedule 1.1(a). Notwithstanding the
foregoing, the Assets to be so purchased shall not include those
assets (the "Excluded Assets") set forth on Schedule 1.1(b).
Schedule 1.1(a) included within the list of "Assets" transferred, "[a]ll rights and
ownership of UNIX and UnixWare." App'x 313. Section V of the Asset
Schedule, entitled "Intellectual property" provided that Santa Cruz would obtain
"[t]rademarks UNIX and UnixWare as and to the extent held by Seller" but did
not explicitly mention copyrights. App'x 315. In contrast, Schedule 1.1(b), the
list of assets excluded from the deal, did expressly speak to copyrights. Section
V--"Intellectual Property"--explained that "All copyrights and trademarks,
except for the trademarks UNIX and UnixWare," as well as "[a]ll [p]atents," were
excluded from the deal. App'x 318 (emphasis added).
Less than a year after the deal closed, the parties agreed to Amendment No.
2, which amended the APA's treatment of copyrights. Amendment No. 2
With respect to Schedule 1.1(b) of the Agreement, titled 'Excluded
Assets', Section V, Subsection A shall be revised to read:
All copyrights and trademarks, except for the copyrights and
trademarks owned by Novell as of the date of the Agreement required
for SCO to exercise its rights with respect to the acquisition of UNIX
and UnixWare technologies. However, in no event shall Novell be
liable to SCO for any claim brought by any third party pertaining to
said copyrights and trademarks.
The APA separately purported to give Novell certain residual control over
"SVRX Licenses." Section 4.16(b) of the agreement provided that:
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.
The parties differ markedly in their characterization of the rights
transferred to Santa Cruz and the value of the deal. According to SCO, Santa
Cruz purchased the bulk of the business, including the core UNIX copyrights, for
$250 million, but Novell retained a 95% interest in royalties as a "financing
device." According to Novell, SCO's $250 million figure improperly inflates the
value of the deal, by accounting not only for the value of assets actually
transferred by SCO to Novell, but including the share of the SVRX royalty stream
retained by Novell. See Aple. Br. 5 n1. Novell calculates that it received only
about $50 million in stock, as well as a promised share of the "UnixWare"
revenue stream exceeding certain targets. Novell contends that it retained
ownership of the UNIX copyrights, extending only an implied license to Santa
Cruz to use the copyrights, for instance, to develop and distribute an improved
version of Novell's "UnixWare" product.
In support of its understanding of the transaction, SCO relies heavily on
extrinsic evidence of the parties' intent at the time of the APA--including
testimony from Novell's leadership at the time--suggesting that the parties' intent
was to transfer the copyrights. For instance, Robert Frankenberg, then President
and CEO of Novell, testified that it was his "initial intent," his "intent at the time
when the APA was signed," and his "intent when that transaction closed" that
"Novell would transfer the copyrights to UNIX and UnixWare technology to
Santa Cruz" and that "that intent never changed." App'x 8563. Similarly, Ed
Chatlos, a Senior Director for UNIX Strategic Partnerships and Business
Development within Novell's Strategic Relations and Mergers and Acquisitions
organization, submitted an affidavit affirming SCO's version of the facts. See
In or about June 1995, I became the lead negotiator for Novell in the
negotiations with SCO and headed the day-to-day responsibility for
the potential deal. . . . During these negotiations, I met regularly with
SCO representatives. . . . Early in our discussions, it became
apparent that SCO could not pay the full purchase price as
contemplated by Novell. To bridge the price gap, it was ultimately
agreed that Novell would retain certain binary royalty payments
under UNIX licenses. It was my understanding and intent, on behalf
of Novell--that the complete UNIX business would be transferred to
Novell, in contrast, defends its interpretation of the transaction largely by
pointing to the language of the contract itself, and by arguing that the witnesses
put forward by SCO to offer extrinsic evidence of the parties' intent lacked any
familiarity with the actual drafting of the APA's language or Amendment No. 2.
See Aple. Br. 610. At oral argument, Novell suggested that whatever the intent
of the business negotiators involved in the deal, it was superseded by the work of
those lawyers who ultimately negotiated the language of the contract that governs
B. Proceedings Below
In May 2001, Santa Cruz sold its UNIX business to Caldera, the immediate
predecessor to SCO. Santa Cruz purported to transfer its interest in the UNIX and
UnixWare copyrights to Caldera / SCO. In 2002 and 2003, tensions increased
between Novell and SCO. SCO asserted that users of Linux, an alternative to
UNIX, might be infringing on SCO's UNIX-related intellectual property rights.
See App'x 7178. It purported to offer Linux users the opportunity to purchase an
intellectual property license in order to continue using Linux without infringing
any of SCO's copyrights. See id.; Aple. Br. 13. In March 2003, SCO brought
contract and copyright claims against IBM on the basis of SCO's alleged
intellectual property rights in UNIX. Novell then directed SCO "to waive any
purported right SCO may claim to terminate [certain of] IBM's SVRX Licenses,"
on the basis of its aforementioned waiver rights, set out in Section 4.16 of the
APA. After SCO refused, Novell ultimately claimed publicly that it--rather than
SCO--maintained ownership over the UNIX copyrights. App'x 5875.
SCO filed a slander of title action against Novell. Novell asserted
counterclaims for slander of title, breach of contract, and unjust enrichment. Both
parties then proceeded to amend their pleadings to add additional claims and
counterclaims. After the parties filed dueling motions for summary judgment, the
United States District Court for the District of Utah issued a detailed
memorandum decision and order on August 10, 2007.
The district court first concluded that Novell is the owner of the UNIX and
UnixWare copyrights. It reviewed the APA and Amendment No. 2 separately and
sequentially. See Dist. Ct. Op. 4546. The court found that the plain language of
the APA indicated that the UNIX copyrights were not transferred to Santa Cruz.
See Dist. Ct. Op. 52. The court also determined that Amendment No. 2 did not
transfer ownership of the copyrights. See id. at 59. It reasoned that "[u]nlike the
APA, Amendment No. 2 was not accompanied by a separate 'Bill of Sale'
transferring any assets." Id. In addition, it found persuasive that Amendment No.
2 amended only the list of excluded assets from the transaction (Schedule 1.1(b)),
but did not alter the language of the list of included assets (Schedule 1.1(a)).
Finally, the court determined that Amendment No. 2 did not sufficiently identify
which copyrights were to change hands, and therefore failed to satisfy the
requirements necessary to transfer ownership of a copyright under Section 204(a)
of the Copyright Act, 17 U.S.C. § 204(a).
Having found that SCO's assertions of copyright ownership were false, the
court granted summary judgment to Novell on SCO's claims alleging slander of
title and seeking specific performance of Novell's alleged duty to transfer
ownership of the UNIX and UnixWare copyrights to SCO. See Dist. Ct. Op. 62.
The court also rejected SCO's claims against Novell for unfair competition under
Utah common law or statutory law, or for breach of the implied covenant of good
faith under California law. See id. at 63.
Next, the court reviewed the parties' competing cross motions regarding
whether the APA authorized Novell to direct SCO to waive its claims against
IBM and Sequent (which had been acquired by IBM in 1999) for alleged breach
of their SVRX license agreements. The parties disputed both whether the IBM
and Sequent Sublicensing Agreements were "SVRX Licenses" within the meaning
of the APA, as well as the scope of provisions in the APA purportedly authorizing
Novell to take action on SCO's behalf after SCO refused to waive the claims. See
id. at 76. Although the district court agreed with SCO that "there appears to be
some ambiguity in the APA's attempt to define SVRX Licenses," id. at 78, it
ultimately found "no support in the language and structure of the APA for SCO's
interpretation of SVRX License[s]." Id. at 86. It therefore concluded that
"SVRX Licenses" referred to the "entire set of agreements relating to the
licensing of SVRX code." Id. As a result, the court found that Novell "was and
is entitled, at its sole discretion, to direct SCO to waive its purported claims
against IBM and Sequent, and [that] SCO is obligated to recognize Novell's
waiver." Id. at 88. Having determined that SCO gave Novell the right to waive
SCO's claims by virtue of "an explicit grant of contractual authority," the court
also concluded that California law precluded the application of the covenant of
good faith and fair dealing. Id. at 87.
Finally, the court addressed Novell's entitlement to royalties from certain
licensing agreements entered into between SCO and Sun and Microsoft in 2003.
The court found that SCO's duty to turn over revenue from SVRX licenses was
not limited only to licenses existing at the time of the APA. See id. at 93. It also
concluded that the Sun agreement represented an unauthorized amendment to an
SVRX License, in violation of Section 4.16(b) of the APA. As a result, it
concluded that "SCO breached its fiduciary duties to Novell by failing to account
for and remit the appropriate SVRX Royalty payments to Novell for the SVRX
portions of the 2003 Sun and Microsoft Agreements." Id. at 96. After a later
bench trial on the value of payments due to Novell, the district court awarded
Novell judgment in the amount of $2,547,817. Findings of Fact, July 16, 2008 at
On appeal, SCO challenges various aspects of the decision below. It argues
that the district court erred by concluding, as a matter of law, that (1) Santa Cruz
did not obtain the UNIX and UnixWare copyrights from Novell, but instead
acquired only an implied license; (2) SCO was not now entitled to specific
performance--the transfer of any copyrights not transferred by the APA; (3)
Novell has the right under the APA to force SCO to waive legal claims against
IBM for its alleged breach of software and sublicensing agreements; (4) Novell
did not have to comply with the implied covenant of good faith and fair dealing in
exercising any waiver rights; (5) Novell retained an interest in royalties from
SCO's 2003 agreement with Sun Microsystems and other post-APA contracts
related to SVRX technology. We address each argument in turn.
II. The Ownership of UNIX and UnixWare Copyrights
We begin by reviewing the district court's decision to grant summary
judgment to Novell with regard to SCO's claims of ownership in the UNIX and
UnixWare copyrights. Summary judgment is appropriate only "if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(c). "When applying this standard, we view the evidence and draw reasonable
inferences therefrom in the light most favorable to the nonmoving party."
Davidson v. America Online, Inc., 337 F.3d 1179, 1182 (10th Cir. 2003) (citation
omitted). We review the district court's grant of summary judgment de novo. Id.
SCO argues that the district court erred by interpreting the APA and
Amendment No. 2 as separate and independent. It further contends that the text
of the APA and Amendment No. 2 is at least ambiguous concerning whether the
parties intended to transfer ownership of the copyrights, making it appropriate to
consider extrinsic evidence. SCO asserts that a thorough review of extrinsic
evidence makes summary judgment inappropriate on whether the copyrights were
transferred by the transaction. Finally, SCO argues that the language in the APA
and Amendment No. 2 was sufficient to meet the requirements to transfer
ownership of a copyright under the Section 204(a) of the Copyright Act.
Novell, in contrast, argues that we ought to consider the APA and
Amendment No. 2 separately. It asserts that the plain language of the APA itself
unambiguously did not transfer copyright ownership, making consideration of
parol evidence inappropriate. As for Amendment No. 2, Novell contends that no
admissible extrinsic evidence shows that it was intended to transfer copyright
ownership. Additionally, Novell claims that "SCO presented no evidence that
copyright ownership was required to exercise its APA rights." Aple. Br. 33
(emphasis added). Because Amendment No. 2 revised the excluded assets
schedule so as to allow only for transfer of those "copyrights . . . owned by
Novell as of the date of the Agreement required for SCO to exercise its rights
with respect to the acquisition of UNIX and UnixWare technologies," Novell
argues that SCO has failed to demonstrate that any copyrights were transferred.
Finally, Novell argues that any purported transfer of copyrights did not meet the
requirements for transfer of ownership under the Copyright Act.
We will proceed in three steps, asking first, whether the APA and
Amendment No. 2 should be considered separately or together; second, whether
the APA and Amendment No. 2 satisfy any requirements imposed by the
Copyright Act in order to effect a transfer of copyright ownership; and third,
whether the district court erred by concluding, as a matter of law, that the
transaction's language and any admissible extrinsic evidence could not support
the conclusion that Novell and Santa Cruz intended the copyrights to transfer.
A. Should We Consider APA and Amendment No. 2 Separately or Together?
The parties initially contest whether Amendment No. 2 should be read
separately from the APA or together with it, as a successive writing elucidating
the parties' intent in the original document. As we explain below, our disposition
on this point is important primarily because it operates to fix the scope of
extrinsic evidence admissible to clarify the contract.
California law "generally prohibits the introduction of any extrinsic
evidence to vary or contradict the terms of an integrated written instrument."
Gerdlund v. Elec. Dispensers Int'l, 190 Cal. App. 3d 263, 270 (Cal. Ct. App.
1987). California's parol evidence rule provides that "[t]erms set forth in a
writing intended by the parties as a final expression of their agreement . . . may
not be contradicted by evidence of any prior agreement or of a contemporaneous
oral agreement." Cal. Code Civ. Proc. § 1856(a). Such a writing "may not be
contradicted by even the most persuasive evidence of collateral agreements. Such
evidence is legally irrelevant." EPA Real Estate P'ship v. Kang, 12 Cal. App. 4th
171, 175 (Cal. Ct. App. 1992); see also Gerdlund, 190 Cal. App. 3d at 270 (Cal.
Ct. App. 1987) (although all parties testified that they shared same intent as to
employment agreement, evidence was not admissible to prove meaning of
contract where plain language of contract could not support that interpretation).
The rule "is based upon the premise that the written instrument is the agreement
of the parties." Id. (citing Tahoe Nat'l Bank v. Phillips, 480 P.2d 320, 4 Cal.3d
11, 2223 (Cal. 1971)).
On the other hand, "[e]ven if a contract appears unambiguous on its face,
California law permits the use of extrinsic evidence to expose "a latent ambiguity
. . . which reveals more than one possible meaning to which the language of the
contract is yet reasonably susceptible." Dore v. Arnold Worldwide, Inc., 139 P.3d
56, 60 (Cal. 2006) (emphasis added). "The test of admissibility of extrinsic
evidence to explain the meaning of a written instrument is not whether it appears
to the court to be plain and unambiguous on its face, but whether the offered
evidence is relevant to prove a meaning to which the language of the instrument is
reasonably susceptible." Id. (quoting Pacific Gas & E. Co. v. G.W. Thomas
Drayage & Rigging Co., 442 P.2d 641, 644 (Cal. 1968)). Thus, California law
does not permit the use of extrinsic evidence to establish an ambiguity in the
parties' intent independent from the terms of the contract; instead, it can only be
used to expose or resolve a latent ambiguity in the language of the agreement
If we were to interpret the contract based initially only on the APA
itself--without regard to Amendment No. 2--we agree that its language
unambiguously excludes the transfer of copyrights. Although SCO argues that
the asset schedule approves of the transfer of "[a]ll rights and ownership of UNIX
and UnixWare" to SCO, this ignores that the APA explicitly provides that
"Notwithstanding [those assets listed on the Asset Schedule], the Assets to be so
purchased shall not include those assets (the "Excluded Assets") set forth on
Schedule 1.1(b)." App'x 26465. Schedule 1.1(b), in turn, explains
straightforwardly that "all copyrights" were excluded from the transaction. App'x
318. None of SCO's extrinsic evidence explains how the actual language of the
APA is "reasonably susceptible" to its interpretation of the transaction--namely,
that all relevant copyrights were transferred (or in other words, the exact opposite
of what the APA's language suggests). See Dist. Ct. Op. 4651 (explaining why
the language of the APA itself cannot bear the interpretation that copyrights
transferred to SCO). Novell argues, therefore, that we ought not consider any of
SCO's extrinsic evidence bearing on the development of the APA itself, and limit
any inquiry beyond the text of the agreement to the course of the parties'
negotiations over Amendment No. 2.
But if we understand Amendment No. 2 to clarify the parties' original
intent as to the transfer of copyrights, SCO's extrinsic evidence concerning the
business negotiations may be relevant to resolving ambiguity concerning the
content of that original intent. Indeed, SCO argues that Amendment No. 2 was
designed to bring the language of the transaction in line with the parties' original
intent to transfer the copyrights. See Aplt. R. Br. 10 ("Amendment No. 2
clarified the APA to confirm that the copyrights had been transferred
thereunder.") Of course, Novell disputes this characterization of Amendment No.
2. But unlike the language of the APA itself, the contractual language of
Amendment No. 2 concerning the transfer of copyrights is ambiguous.
Amendment No. 2 revises the excluded asset schedule to limit those copyrights
excluded from the transaction to "[a]ll copyrights and trademarks, except for the
copyrights and trademarks owned by Novell as of the date of the Agreement
required for SCO to exercise its rights with respect to the acquisition of UNIX
and UnixWare technologies." App'x 374 (emphasis added). Because what
copyrights are "required" for SCO to exercise its rights under the agreement is not
clear on its face, California law allows courts to consider extrinsic evidence to
resolve the ambiguity. See ASP Properties Group v. Fard, Inc., 133 Cal. Rptr. 3d
343, 349 (Cal. Ct. App. 2005). Thus, to the extent that it is proper for us to read
Amendment No. 2 as clarifying the APA, SCO's extrinsic evidence of the
business negotiators' intent concerning the transaction ought to be admissible.
Having closely considered the parties' arguments, as well as the district
court's reasoning, we find that Amendment No. 2 must be considered together
with the APA as a unified document. Under California law, "[s]everal contracts
relating to the same matters, between the same parties, and made as parts of
substantially one transaction, are to be taken together." Cal. Civ. Code § 1642.
"[M]ultiple writings must be considered together when part of the same contract."
Nish Noroian Farms v. Agric. Labor Relations Bd., 35 Cal. 3d 726, 735 (Cal.
1984). Even if we considered the language of the APA and Amendment No. 2 to
be mutually antagonistic, California law still dictates that we construe them
together, following Amendment No. 2 wherever its language contradicts the APA.
Where "two contracts are made at different times, [but where] the later is not
intended to entirely supersede the first, but only modif[y] it in certain
particulars[,] [t]he two are to be construed as parts of one contract, the later
superseding the earlier one wherever it is inconsistent therewith." Hawes v. Lux,
294 P. 1080, 1081 (Cal. Dist. Ct. App. 1931); accord San Diego Const. Co. v.
Mannix, 166 P. 325, 326 (Cal. 1917).
In so doing, we note that SCO paid no additional consideration for Novell's
agreement to Amendment No. 2. That makes sense if Amendment No. 2 was a
clarification of the agreement, to bring the language of the APA into line with the
parties' intent. If Amendment No. 2 were a change in the agreement (and a
commercially significant one, at that), it is hard to see why Novell would have
agreed to it without compensation.
Therefore, we construe the contract and Amendment No. 2 together for the
purpose of assessing any ambiguities in the contract. This means that extrinsic
evidence regarding the parties' intent is relevant to our interpretation of the
B. Does the Amended APA Satisfy the Requirements of the Copyright Act?
We next consider whether the amended APA constituted a writing
sufficient to transfer copyrights under federal law. Under the Copyright Act, "[a]
transfer of copyright ownership, other than by operation of law, is not valid
unless an instrument of conveyance, or a note or memorandum of the transfer, is
in writing and signed by the owner of the rights conveyed or such owner's duly
authorized agent." 17 U.S.C. § 204(a). Section 204 is intended "to protect
copyright holders from persons mistakenly or fraudulently claiming oral licenses
[or transfers]." Eden Toys, Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27,
36 (2d Cir. 1982). As a result, Section 204 "enhances predictability and certainty
of ownership-- 'Congress's paramount goal' when it revised the [Copyright] Act
in 1976." Konigsberg Intern. Inc. v. Rice, 16 F.3d 355, 357 (9th Cir. 1994)
(quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 749
(1989)). Novell argues that the Copyright Act imposes not only the requirement
that a copyright transfer be in writing, but also that it state with sufficient clarity
the copyrights to be transferred. See Aple. Br. 2526; 34. Novell contends that
Amendment No. 2 fails this test because its language is ambiguous. Since it is
not clearly apparent which copyrights are "required for Novell to exercise its
rights with respect to the acquisition of UNIX and UnixWare technologies,"
Novell asserts that Amendment No. 2 was not a valid "instrument of conveyance."
As an initial matter, we note that the language of 17 U.S.C. § 204(a) does
not readily lend itself to the construction Novell seeks to give it. Section 204(a),
by its terms, imposes only the requirement that a copyright transfer be in writing
and signed by the parties from whom the copyright is transferred; it does not on
its face impose any heightened burden of clarity or particularity. Likewise,
Novell points to nothing in the legislative history of Section 204 which suggests
that Congress envisioned it to invalidate copyright transfer agreements carrying
material language subject to multiple reasonable interpretations. Nonetheless,
some courts have understood Section 204(a) to impose requirements similar to
that necessary to satisfy the statute of frauds. They have found that a writing is
insufficient to transfer copyrights unless (1) it reasonably identifies the subject
matter of the agreement, (2) is sufficient to indicate that the parties have come to
an agreement, and (3) states with reasonable certainty the essential terms of the
agreement. Pamfiloff v. Giant Records, Inc., 794 F. Supp 933, 936 (N.D. Cal.
1992) (citing Restatement (2d) of Contracts § 131 (1981)).
Novell argues that Section 204's writing requirement would disserve the
goals of "predictability and certainty of copyright ownership" if parties could
fulfill it without making clear what copyrights they intend to transfer. But it is
hardly clear that imposing strict requirements of clarity in order to effect a
copyright transfer will always aid "predictability and certainty of copyright
ownership." "[A]mbiguities in copyright grants are anything but rare in the
jurisprudence." 3 Melville B. Nimmer and David Nimmer, Nimmer on Copyright
§ 10.08 (2009). "The written memorialization of [an] agreement [transferring
copyrights] inevitably fails to mandate only one pellucid interpretation." Id. If
every copyright transaction were vulnerable to challenge whenever a party is able
to point out some ambiguity within the governing agreement, parties might be
forced to engage in costly, protracted litigation to determine whether the transfer
is valid, putting into doubt the proper holder of the copyright.
In the absence of any support from the language or legislative history, we
are unwilling to read into Section 204 such an onerous restraint on the alienability
of copyrights. As the Second Circuit has commented, "[t]he need for
interpretation of a contract does not necessarily mean that there is a bona fide
issue as to whether the contract is a writing for purposes of section 204(a). In
most cases, there will be no doubt that the contract is a section 204(a) writing,
and the only substantial issue will be contract interpretation." Jasper v. Bovina
Music, 314 F.3d 42, 47 (2d Cir. 2002). In copyright as elsewhere, "[t]he making
of a contract depends not on the agreement of two minds in one intention, but on
the agreement of two sets of external signs--not on the parties having meant the
same thing but on their having said the same thing." Nimmer on Copyright, §
10.08 (quoting Tingley Sys. v. Healthlink, Inc., 509 F. Supp.2d 1209, 1216 (M.D.
Fla. 2007)). Where ambiguity persists in the language of a parties' shared
agreement concerning a copyright transfer, the transfer is not invalidated; instead,
we look to parol evidence to construe the terms of the agreement. See Nimmer on
Copyright, § 10.08.
We think that Section 204's writing requirement is best understood as a
means of ensuring that parties intend to transfer copyrights themselves, as
opposed to other categories of rights. See, e.g., Papa's-June Music, Inc. v.
McLean, 921 F. Supp. 1154, 115859 (S.D.N.Y. 1996) (although a writing need
not explicitly mention "copyright" or "exclusive rights" to satisfy 204(a), the
better practice is that it should). But when it is clear that the parties contemplated
that copyrights transfer, we do not think that a linguistic ambiguity concerning
which particular copyrights transferred creates an insuperable barrier invalidating
the transaction. Thus, the majority of cases that Novell draws our attention to, in
which alleged copyright transfers are found not to satisfy Section 204, involve
transactions where it is not clear whether the parties intended that copyrights
would transfer at all--not disputes over which specific copyrights were within the
scope of an intended transfer. See, e.g., Radio Television Espanola S.A. v. New
World Entertainment, Ltd., 183 F.3d 922, 92728 (9th Cir. 1995) (finding faxes
referring to ongoing negotiations insufficient to confirm a finalized deal to
transfer copyrights); Playboy Enterprises, Inc. v. Dumas, 53 F.3d 549, 564 (2d
Cir. 1995) (finding check legend allegedly purporting to recognize past
"assignment . . . of all rights, title and interest" insufficient to transfer
copyrights); Konigsberg Intern. Inc., 16 F.3d at 357 (letter written three and a
half years after oral agreement did not constitute a writing sufficient to confirm
parties' intent to transfer copyrights in earlier agreement).
Notwithstanding the above, the district court found Amendment No. 2
insufficient to convey Novell's copyrights under Section 204 for several
additional reasons. It first determined that Amendment No. 2 "[did] not include
any provision that purports to transfer ownership of copyrights." because it did
not profess to "amend Schedule 1.1(a)," the Asset Schedule, and because
"[u]nlike the APA, Amendment No. 2 was not accompanied by a separate 'Bill of
Sale' transferring any assets." Dist. Ct. Op. 59. We are not persuaded that either
prevents our recognition of a copyright transfer.
Although Amendment No. 2 did not purport to amend Schedule 1.1(a), this
does not mean that the balance of assets transferred to Santa Cruz remained
unchanged. The transaction was structured such that Santa Cruz would acquire
"all of Seller's right, title and interest in and to the assets . . . identified on
Schedule 1.1(a)," but that "the Assets to be so purchased not include those assets
(the 'Excluded Assets') set forth on Schedule 1.1(b)." App'x 26465. Schedule
1.1(a), in turn, provided that Santa Cruz would receive "[a]ll rights and
ownership of UNIX and UnixWare. . . including all source code," a broad set of
assets limited only by Schedule 1.1(b). As a result, any change to the set of
Excluded Assets in Schedule 1.1(b) necessarily implicated those copyrights
actually transferred under Schedule 1.1(a).
Of course, it is not always the case that the absence of certain or all
copyrights from an "excluded asset" schedule will suffice to indicate the inclusion
of copyrights in the transaction. But a written asset transfer agreement may
satisfy Section 204(a) even when it "does not mention the word 'copyright'"
itself. Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 413 (7th Cir.
1992). And when a party acquires "[a]ll rights and ownership" in a set of items,
as was the case here, courts have generally found such language sufficient to
satisfy Section 204(a) in the absence of language excepting copyrights or other
special circumstances. See ITOFCA, Inc. v. MegaTrans Logistics, Inc., 322 F.3d
928, 931 (7th Cir. 2003) (written intent to transfer "all assets" can indicate intent
to transfer copyrights); Chugrue v. Continental Airlines, Inc., 977 F. Supp. 280,
28485 (S.D.N.Y. 1997) (written agreement to transfer "all right, title and
interest" in software indicated intent to transfer copyrights); Relational Design &
Technology, Inc. v. Brock, No. 91-2452-EEO, 1993 WL 191323 at *6 (D. Kan.
May 25, 1993) (transfer of "all rights" in software program included copyright).
But see Playboy Enters. v. Dumas, 53 F.3d 549, 564 (2d Cir. 1995) (check legend
indicating that payment was for past transfer of "all right, title and interest" was
insufficient, by itself, to indicate a copyright transfer under Section 204). Of
course, under the language of the original agreement, copyrights were expressly
excluded from the assets transferred. But here, where a written agreement to the
contract excised certain copyrights from that exclusion, we think the Copyright
Act's writing requirement is satisfied.
We also do not see why the absence of a Bill of Sale is fatal to an alleged
transfer under the Copyright Act. Section 204 makes clear that the writing
requirement can be satisfied not only by "an instrument of conveyance" but also
by "a note or memorandum of the transfer." 17 U.S.C. § 204(a). Amendment No.
2 was a writing signed by both parties evincing a clear intent to revise or clarify
the formal schedule of copyrights transferred by Novell to Santa Cruz. The
Copyright Act did not require more. For similar reasons, we reject the
significance that the district court attributed to the fact that Amendment No. 2
revised the APA "[a]s of the 16th day of October, 1996" as opposed to the date of
the Bill of Sale. App'x 374. The Copyright Act does not require its writing
requirement be fulfilled concurrently with the production of a Bill of Sale.2
Eden Toys, Inc., 697 F.2d at 36 ("the 'note or memorandum of the transfer' need
not be made at the time when the license is initiated; the requirement is satisfied
by the copyright owner's later execution of a writing which confirms the
We therefore conclude that the APA, as revised by Amendment No. 2,
satisfied the Copyright Act's writing requirement.
C. Is Summary Judgment Appropriate on the Ownership of the Copyrights?
We come finally to the question of whether the district court was correct to
enter summary judgment on the issue of whether Novell or SCO owns the UNIX
and UnixWare copyrights under the APA as revised by Amendment No. 2. In
contract actions, the interpretation of a written agreement is a question of fact.
See Gomez v. American Elec. Power Service Corp., 726 F.2d 649, 651 (10th Cir.
1984). When a contract is ambiguous, and parties present conflicting evidence
regarding their intent at the time of the agreement, a genuine issue of material
fact exists which cannot be determined summarily by the court. Id. Of course,
the party opposing summary judgment "must do more than simply show that there
is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial
Co. v. Zenith Radio Corp., 475 U.S. 574, 58687 (1986). But so long as
sufficient evidence could lead a rational trier of fact to resolve the dispute in
favor of either party, granting either party's dueling motions for summary
judgment would be inappropriate. See Anderson v. Liberty Lobby, 477 U.S. 242,
This case, involving a complicated, multi-million dollar business
transaction involving ambiguous language about which the parties offer
dramatically different explanations, is particularly ill-suited to summary
judgment. We recognize that Novell has powerful arguments to support its
version of the transaction, and that, as the district court suggested, there may be
reasons to discount the credibility, relevance, or persuasiveness of the extrinsic
evidence that SCO presents. Moreover, we appreciate the difficulties that follow
when the resolution of ambiguous language in a ten-year-old contract is left to
trial. At trial in a case like this, the intention of the parties often "must be
divined from self-serving testimony offered by partisan witnesses whose
recollection is hazy from passage of time and colored by their conflicting
interests." Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564,
569 (9th Cir. 1988). Even though the parties may have shared a common
understanding of a transaction at the time of the deal, now that "circumstances
have changed and new financial incentives have arisen, one side may wish it had
a different agreement." Nimmer on Copyright, § 10.08. Nevertheless, when
conflicting evidence is presented such that the ambiguities in a contract could
legitimately be resolved in favor of either party, it is for the ultimate finder of
fact--not the court on summary judgment--to interpret the contract. As we now
explain, Novell's arguments do not convince us that the admissible evidence
concerning the ambiguous contract language concerning contract ownership is so
one-sided as to warrant summary judgment.
Novell contends that SCO has failed to establish a disputed issue of
material fact as to copyright ownership for several reasons. It first claims that
SCO has failed to present any evidence to support that the APA, as revised by
Amendment No. 2, clarified the agreement to indicate that SCO received
ownership of some or all UNIX and UnixWare copyrights as a result of the
transaction. In the alternative, it argues that SCO has failed to present any
evidence to suggest that ownership of UNIX and UnixWare copyrights was
"required" for Santa Cruz to exercise its rights under the APA.
In support of its initial argument, Novell argues that it has introduced
undisputed evidence that (1) Santa Cruz admitted that the initial APA excluded
copyrights from the asset sale and that (2) Novell expressly rejected Santa Cruz's
proposal to use Amendment No. 2 to transfer copyrights to Santa Cruz. See Aple.
Br. 3942. As to the first point, Santa Cruz's admission that the initial APA
excluded copyrights is not inconsistent with SCO's position that this exclusion
was a mistake and failed to reflect the parties' intent. Novell itself admits that
the negotiations that led to the language of Amendment No. 2 concerning
copyrights began when Santa Cruz's attorney contacted Novell, informing them
that "the Original APA explicitly excluded copyrights to UNIX and UnixWare as
assets being sold by Novell to Santa Cruz and that it shouldn't have." App'x
As to the second point, Novell directs us to various pieces of evidence
supporting its claim that Amendment No. 2 was not intended to affirm that
ownership of copyrights had transferred to Santa Cruz, but only "to affirm that
Santa Cruz had a license under the Original APA to use Novell's UNIX and
UnixWare copyrighted works in its business." App'x 6064. Novell primarily
relies on evidence of the negotiations over Amendment No. 2. Santa Cruz
initially proposed a draft of Amendment No. 2 that would have revised the
Intellectual Property section of the Excluded Assets Schedule to read:
> All copyrights and trademarks, except for the copyrights and
trademarks owned by Novell as of the date of this Amendment No. 2,
which pertain to the UNIX and UnixWare technologies and which
SCO has acquired hereunder. However, in no event shall Novell be
liable to SCO for any claim brought by any third party pertaining to
said copyrights and trademarks.
App'x 6670. Novell rejected this language, and the final language of
Amendment No. 2 instead reformed the Excluded Assets Schedule to read:
All copyrights and trademarks, except for the copyrights owned by
Novell as of the date of the Agreement required for SCO to exercise
its rights with respect to the acquisition of UNIX and UnixWare
technologies. However, in no event shall Novell be liable to SCO for
any claim brought by any third party pertaining to said copyrights
App'x 374. The revised language contains two relevant changes. Instead of
excepting from the Excluded Assets Schedule "the copyrights . . . which pertain
to UNIX and UnixWare technologies" the final language refers to "the copyrights
. . . required for SCO to exercise its rights with respect to the acquisition of
UNIX and UnixWare technologies." In addition, instead of referring to "the
copyrights . . . owned by Novell as of the date of this Amendment No. 2 . . . and
which SCO has acquired hereunder," the final language refers to "the copyrights .
. . owned by Novell as of the date of the Agreement."
Novell contends that because it did not accept Santa Cruz's initial proposal,
there is no basis for construing Amendment No. 2 as SCO would--an affirmation
of the transfer of all UNIX and UnixWare copyrights. See Apple Computer v.
Microsoft Corp., 35 F.3d 1435, 144041 (no basis for construing agreement in
line with draft proposal rejected by one of the parties). It insists that the language
reflects its explanation of Amendment No. 2 as a mere affirmation of Santa
Cruz's implied license to use the copyrights. SCO, in contrast, claims that the
final language of Amendment No. 2 only represented "a different way" of saying
what its initial draft proposed--a clarification that the parties' had intended for
ownership of the UNIX copyrights to transfer. Aplt. Br. 4445.
As an initial matter, we are skeptical of Novell's interpretation of the
Amendment. Whatever the Amendment means, it refers to the ownership of
copyrights, not to licenses. A rational trier of fact could surely find that
Amendment No. 2 clarified the APA so as to indicate that at least some
copyrights transferred to SCO. It is true that the final language of Amendment
No. 2, by referring to "required copyrights" rather than "copyrights that pertain
to" UNIX, is narrower than that initially proposed by Santa Cruz. But is it
plausible to think that Santa Cruz would have found the final language equally
sufficient for its purposes, given its insistence that all the UNIX copyrights were
required for it to exercise its rights under the deal. See, e.g., Testimony of Steve
Sabbath, Santa Cruz Attorney, App'x 10722 ("all of the [UNIX and UnixWare]
copyrights" were "required" for SCO to exercise its rights with respect to the
acquisition of UNIX and UnixWare technologies.) Alternatively, the final
language of Amendment No. 2 may have represented a compromise whereby
Novell agreed to confirm that Santa Cruz obtained ownership only of those
copyrights "necessary" for Santa Cruz to run its business.
Our conclusion that a rational trier of fact could find that Amendment No. 2
clarified the APA to affirm that the parties intended to transfer certain UNIX and
UnixWare copyrights to Novell is bolstered by SCO's extrinsic evidence of the
transaction. SCO presents testimony from a variety of witnesses involved in the
business negotiations on both sides of the deal, which generally supports its
version of the transaction. See, e.g., Aplt. Br. 1315. It is true, as Novell points
out, that many of these witnesses were involved in the business negotiations, as
opposed to the actual drafting of the contract. But because we cannot exclude the
possibility that Amendment No. 2 was designed to restore the language of the
transaction to the parties' actual intent during the business negotiations over the
deal, such testimony is not irrelevant. Cf. California Pac. Title Co., Sacramento
Division v. Moore, 40 Cal. Rptr. 2d 61, 63 (Cal. Dist. Ct. App. 1964) ("A conflict
in the evidence does not preclude a court from finding that the two parties had a
common intent which was incorrectly reduced to writing."). Moreover, SCO's
extrinsic evidence extends not only to the business negotiations preceding the
contract, but also to the parties' understanding of the contractual language itself.
For instance, Novell points out that the Board resolution approving the
transaction on its side of the deal stated that "Novell will retain all of its patents,
copyrights and trademarks." App'x 5192. But SCO notes that Mr. Frankenberg,
then Novell's CEO, testified that he understood the Board resolution's reference
to Novell's retention of copyrights to refer to Netware copyrights, as opposed to
the core UNIX intellectual property. Aplt. R. Br. 14.
Finally, SCO presents evidence of the parties' course of performance
following the transaction. Under California law, "course of performance"
evidence may be used to interpret an ambiguous contractual provision. Cal. Code
Civ. Proc. § 1856. See also Universal Sales Corp. v. Cal. Press Mfg. Co., 128
P.2d 665, 762 (Cal. 1942) ("[P]ractical construction placed by the parties upon
the instrument is the best evidence of their intention"). SCO points to a variety of
steps taken by the parties following the signing of the APA and Amendment No. 2
that it claims supports its interpretation of the contract. These include Novell's
modification of copyright notices on certain UnixWare source code, see App'x
1030313, certain statements related to the transfer of intellectual property within
transition documents following the deal, see, e.g., App'x 13362, and the
publication of a press release in 1995 stating that "SCO will acquire Novell's
UnixWare business and UNIX intellectual property."3
App'x 5626. Of course,
such documents are not dispositive of the companies' intent at the time of the
transaction. But they illustrate the difficulties with granting summary judgment
Novell finally argues that SCO has failed to show what UNIX copyrights
are "required" for Santa Cruz to exercise its rights under the APA. The parties
each argue for plausible, but diametrically opposed, interpretations of the word
"required." SCO argues that the bulk of the UNIX and UnixWare copyrights are
"required" in order for it to exercise its rights. For instance, the APA transferred
to Santa Cruz "all of [Novell's] claims arising after the Closing Date against any
parties relating to any right, property or asset included in the Business." App'x
313. SCO argues that it could not defend any of its intellectual property against
software piracy or other business harm without ownership of the copyrights.
Indeed, a key reason why this litigation is so important to SCO is that it has
claimed that other companies, including IBM, are infringing on the proprietary
technology that it supposedly received through its transaction with Novell.
Novell, in contrast, asserts that the class of "required" copyrights
constitutes a null set. See Aple. Br. 40, 41 n.8 (arguing that Amendment No. 2
was not intended to transfer any copyright ownership, but merely to affirm its
license to use certain copyrights). The district court agreed, noting amongst other
things that "Santa Cruz had been able to pursue its UNIX business from
December 6, 1995 until October 16, 1996 [the date of Amendment No. 2] without
any problems due to its [alleged] lack of ownership of the copyrights." Dist. Ct.
Op. 61. But the fact that SCO did not need to assert ownership of the UNIX
copyrights publicly following the closing of the transaction does not indicate that
the UNIX copyrights are unnecessary to SCO's full exercise of its rights under
the agreement. Indeed, it would seem that neither party asserted public ownership
of the copyrights until the events leading to the instant litigation, almost a decade
after the closing of the transaction. See, e.g., Aple. Br. 32 (noting that Novell and
SCO did not file their competing copyright registrations until after this dispute
arose in 2003).
We need not determine at the summary judgment stage which copyrights
were "required." If the evidence presented on a dispositive issue is subject to
conflicting, reasonable interpretations, summary judgment is improper.
v. Wal-Mart Stores, Inc., 543 F.3d 1226, 1234 (10th Cir. 2008). Although the
district court found that "there is . . . significant evidence that Santa Cruz did not
'require' the UNIX and UnixWare copyrights," we think SCO has presented
sufficient evidence to create a triable fact as to whether at least some UNIX
copyrights were required for it to exercise its rights under the agreement.
Although the district court acknowledged that "SCO has submitted testimony
from witnesses stating generally that the copyrights were necessary to running a
software business," it found that "none of those witnesses give specific examples
of how a lack of copyright ownership impeded Santa Cruz's ability to exercise its
rights under the APA." Dist. Ct. Op. 61. But the documents detailing the actions
of the transition team at least create ambiguity over whether the transfer of
copyrights was required to support SCO's rights under the APA. See, e.g., App'x
13362 ("All of the technology and intellectual assets covered by the work
outlined in this document will be transitioned to SCO after December 1, 1995").
And we think it a commonsense proposition that intellectual property at least may
be required to protect the underlying assets in SCO software business should, for
instance, a UNIX licensee have attempted to resell technology licensed from
Because we conclude summary judgment is inappropriate on the question of
which party owns the UNIX and UnixWare copyrights, we must likewise reverse
the district court's determination that "Novell is entitled to summary judgment
[on SCO's claim] seeking an order directing Novell to specifically perform its
alleged obligations under the APA by executing all documents needed to transfer
ownership of the UNIX and UnixWare copyrights to SCO." Dist. Ct. Op. 62. We
take no position on which party ultimately owns the UNIX copyrights or which
copyrights were "required" for Santa Cruz to exercise its rights under the
agreement. Such matters are for the finder of fact on remand.
III. Novell's Waiver Rights under Section 4.16(b) of the APA
The other chief dispute between the parties concerns the extent of Novell's
rights under the APA to waive or modify rights under SVRX Licenses. Section
4.16(a) of the APA provides that "Following the Closing, Buyer shall administer
the collection of all royalties, fees and other amounts due under all SVRX
Licenses (as listed in detail under item VI of Schedule 1.1(a) hereof an referred to
herein as "SVRX Royalties")." Section 4.16(b) preserved to Novell certain
waiver rights with regard to SVRX Licenses. It states that:
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.
App'x 287. In 2003, after SCO had claimed that IBM and Sequent had violated
certain software and sublicensing agreements, Novell directed SCO "to waive any
purported right SCO may claim to terminate IBM's SVRX Licenses . . . ." Aple.
Br. 19. The scope of Novell's waiver rights turns on the meaning of the term
The APA provides some assistance in interpreting the meaning of an
"SVRX License." Section 4.16(a) of the APA indicates that SVRX Licenses are
"listed in detail under item VI of Schedule 1.1(a) hereof." Item VI of Schedule
1.1(a) states that among the assets transferred to SCO under the APA are "[a]ll
contracts relating to the SVRX Licenses listed below." As the district court
recognized, however, the list provided in Item VI is not "a list of license
agreements," but instead "a list of SVRX software releases," or products. Dist.
Ct. Op. 77.
The parties principally contest whether Novell's waiver rights extend to all
three types of agreements bearing upon the licensing of SVRX
technology--software agreements, sublicensing agreements, and product
supplement agreements (or Product Schedule Licenses)--or just to product
supplement agreements. Aple. Br. 17; Aplt. Br. 19. Software agreements specify
a licensee's rights to modify and prepare derivative works based on source code
and binary code. See Dist. Ct. Op. 82; Aple. Br. 16. Sublicensing agreements set
out the general conditions governing the licensee's use of the product and grant
certain rights to distribute binary code. See Dist. Ct. Op. 82; Aplt. Br. 18.
According to SCO, both of these agreements required licensees to keep UNIX
source code and derivatives confidential. See Aplt. Br. 18. Product supplement
agreements, in contrast, actually identify the product the licensee has a right to
use, the CPUs on which it has that right, and the fees that the licensor has a right
to receive in exchange. These agreements authorize licensees to sell a UNIX-
derivative product in exchange for remitting certain royalties to the current owner
of the UNIX business. As SCO points out, each licensee executed a single
umbrella Software and Sublicensing agreement with AT&T (or later Novell),
which purported to govern any product added to the relationship by a product
supplement agreement. When a licensee secured a license to use a SVRX
product, it would execute a product supplement agreement, and the software
product would "become subject to" the previously executed umbrella agreements.
See, e.g., App'x 1471.
Novell contends that the APA's reference to any SVRX license "plainly
means that the term 'SVRX Licenses' under the APA includes all contracts
relating to the UNIX System V Releases listed in Item VI." Dist. Ct. Op. 77
(emphasis added). SCO argues that the term SVRX Licenses is ambiguous on its
face, but suggests that it refers only to product supplement agreements related to
the products listed in Item VI. The district court agreed with SCO that there was
"some ambiguity in the APA's attempt to define SVRX licenses," but found that
Novell's interpretation of the term--as referring to all System V Release
licenses--was "the only reading that is consistent with all of the APA's
provisions, its Schedules, and its Amendments." Dist. Ct. Op. 88. It also noted
that "[e]ven if this court were to consider SCO's extrinsic evidence, it does not
uniformly support SCO's interpretation as SCO claims. If the contract language
was susceptible to SCO's interpretation, SCO's evidence would, at most, create
only a question of fact for the jury." Id. at 86 n.6.
Of course, if SCO's evidence is sufficient to "create a question of fact for
the jury," this is sufficient to enable SCO to survive summary judgment. But the
district court found summary judgment appropriate, concluding that despite
ambiguity in the meaning of "SVRX Licenses," "there is no support in the
language and structure of the APA for SCO's interpretation of SVRX License to
mean product supplements rather than the entire set of agreements relating to the
licensing of SVRX code." Dist. Ct. Op. 86. We review the conclusions of the
district court de novo.
A. Is the Scope of Novell's Waiver Rights Ambiguous?
As an initial matter, we agree with the district court that there is some
ambiguity in the scope of the term "SVRX License." While the APA expressly
indicates that SVRX Licenses are listed in Item VI of 1.1(a), that list refers only
to products. While this product list may resolve ambiguity over the meaning of
SVRX, it does not reveal what is intended by "rights under any . . . SVRX
License" in Section 4.16 of the APA. Novell argues that "license" is "an ordinary
word that needs no definition." Aple. Br. 52. But we are skeptical that this
resolves its meaning for several reasons.
First, under California law, "[t]he words of a contract are to be understood
in their ordinary and popular sense . . . unless used by the parties in a technical
sense." Cal. Civ. Code § 1644 (emphasis added). As SCO points out, the APA
expressly made "SVRX License" a defined term, albeit one defined with some
lack of clarity. Second, it is not clear to us that even the "ordinary meaning" of
rights under a license is so broad as to encompass the kind of rights Novell seeks
to assert. Black's Law Dictionary (8th ed. 2004), for instance, defines license as
"[a] permission, usually revocable, to commit some act that would otherwise be
unlawful" or the "document evidencing such permission." In line with this
definition, the sublicensing and software agreements grant certain rights to
licensees, for instance, enabling them to use, modify, and prepare derivative
works based on a given software product. But as we understand Novell's
argument, it does not seek to waive rights given to the licensee in the licensing
agreement--but rather the licensor's (SCO's) ability to enforce the boundaries of
those rights extended to licensees. This would be a broad power indeed. For
instance, the sublicensing agreements expressly provided that "no title to the
intellectual property in the sublicensed product is transferred to [the licensee]."
See App'x 1493 (Section II(a)(II): Grant of Rights). If we read Novell's waiver
rights as broadly as it asks us to, however, Novell could waive this limitation at
its sole discretion, thereby divesting SCO of all title to any intellectual property
in any UNIX product for which a sublicensing agreement existed. Similarly,
Novell's interpretation of Section 4.16 would mean it was free to waive
limitations on a licensee's ability to copy, transfer, or sell the derivative products
it created based on UNIX, see App'x 1472, something that would substantially
limit the value to Santa Cruz of its UNIX ownership rights.
Given that the APA expressly provides Novell the power to direct SCO to
"amend, supplement, modify, or waive any rights under any SVRX License," we
cannot say that Novell's interpretation of Section 4.16 is foreclosed by the
dictionary. But the California Supreme Court has made clear that the "dictionary
definition of a word" does not necessarily yield "the 'ordinary and popular'
sense of the word if it disregards the [contract's] context." MacKinnon v. Truck
Ins. Exchange, 73 P.3d 1205, 1214 (Cal. 2003). To read Novell's rights as
broadly as it asks would give it unlimited power not only to reduce or increase its
own rights under an SVRX License after the APA (namely rights to royalties), but
also to direct SCO to supplement a licensee's substantive rights "in any manner,"
even if by doing so, Novell forced SCO to divest rights unquestionably owned by
SCO after the transaction.5
As SCO argues, this would enable Novell, at its sole
discretion, to destroy a substantial part of the value of Santa Cruz's acquisition of
the UNIX business. Although Novell argues that "the APA provided
consideration to Santa Cruz independent of UNIX System V, including . . . the
right to develop new products based on UNIXWare . . .[,] customer lists . . .[,
and] office furniture," this misses the mark. The issue is not whether independent
consideration existed, but whether it is consistent with the context of the deal to
imagine that Santa Cruz would have paid the price that it did if this was the only
value it obtained in the deal, unencumbered from Novell's powerful discretionary
rights to control the underlying UNIX source code.
Finally, even if we considered "rights under . . . any SVRX License" to be
unambiguous on its face, California law would still permit the introduction of
extrinsic evidence to expose a latent ambiguity in the contract's language. Dore,
139 P.3d at 60. Similarly, California directs us to consider the parties' course of
performance not only for purposes of "ascertaining the meaning of the parties'
agreement," but also to "supplement or qualify the terms of the agreement."
Employers Reinsurance Co. v. Superior Court, 161 Cal. Rptr. 3d 733, 745 (Cal.
Ct. App. 2008) (citing Cal. Com. Code § 1303). As we now explain, this
evidence at least creates ambiguity regarding the scope of Novell's waiver rights
under the agreement.
B. Is the Scope of Novell's Waiver Rights Susceptible to SCO's Reading?
Although the parties present a variety of arguments concerning the extrinsic
evidence bearing on the parties' intent at the time of the APA and the parties'
course of performance, we think a discussion of the events leading to
"Amendment No. X" between IBM, SCO, and Santa Cruz is sufficient to illustrate
both that the scope of Novell's waiver rights is ambiguous and that Section 4.16
is at least susceptible to SCO's interpretation.
In April 1996, several months after the transaction closed, Novell entered
into direct negotiations with IBM for the purpose of revising IBM's rights under
its licensing agreement for SVRX technology. Although Novell acknowledged
that all rights under the software and sublicensing agreements had been
transferred to SCO under the APA, it professed the right to amend IBM's rights
under its licensing agreement, stating:
Except for all right, title and interest to the Software Product
royalties (less an administration fee to SCO for administering the
collection of such royalties), SCO purchased the Related Agreements
[the relevant software, sublicensing, and product supplement
agreements] in an Asset Purchase Agreement between Novell and
SCO dated September 19, 1995 (the "SCO Agreement"). In the SCO
Agreement, Novell has the right to amend the Related Agreements on
behalf of SCO under certain circumstances applicable in this
App'x 10400. The agreement enabled IBM to "buy out" its ongoing royalty
obligations in exchange for a one time fee. In addition, Novell purported to
expand IBM's freedom to share licensed technology with third parties. See App'x
10401 (describing "relief" of certain limitations on IBM's rights under the
Related Agreements). As Novell prepared to enter into its agreement with IBM, it
wrote SCO, requesting that it "revise the terms and conditions of IBM's Software
License and Sublicense Agreements with Novell." App'x 3876. Thus, Novell's
asserted ability under the APA to require SCO to amend or waive rights under the
Software and Sublicensing Agreements, even when it would expand a licensee's
rights with regard to SVRX source code--the precise issue in controversy
today--was implicated by Novell's 1996 negotiations with IBM and SCO.
Novell denied that its proposed agreement with IBM would have authorized
IBM to "sub-license source code," and suggested that it granted only limited
additional rights to IBM, such as "allowing IBM's major accounts to make
temporary fixes from AIX source code." App'x 3887. SCO, however, interpreted
the agreement as impinging on its asserted "ownership and exclusive rights to
license the UNIX source." App'x 3890. Ultimately, the parties agreed to revise
Novell's proposed agreement with IBM, and SCO became a party to the
agreement. Among other things, the final agreement excised the language that
"Novell has the right to amend the Related Agreements on behalf of SCO under
certain circumstances applicable in this instance," replacing it with the more
general language, "SCO purchased, and Novell retained, certain rights with
respect to the Related Agreements."6
SCO also received a payment of $1.5
million from Novell in exchange for a release of claims relating to the buy out of
IBM's royalty obligations. SCO contends that this payment definitively signaled
Novell's "capitulat[ion] to Santa Cruz's claims" of ownership and exclusive
licensing rights concerning UNIX source code. We agree with Novell that this
reading goes too far. Parties may choose to settle claims for a variety of reasons
unrelated to their merits, not the least to avoid expensive litigation or to maintain
civility in an important commercial relationship. Indeed, the agreement expressly
provided that the settlement should not "be deemed . . . an admission of the truth
or falsity of any claims heretofore made." App'x 3917; see also Fed. R. Evid.
408(a)(1) (Evidence of furnishing or accepting a valuable consideration in
compromising a claim is not admissible on behalf of any party, when offered to
prove validity of a disputed claim.).
More relevant, however, is the amendment to the APA that followed after
resolution of the tripartite negotiations. In addition to addressing the intellectual
property exchanged through the APA, Amendment No. 2 also set out conditions
for any future buy-out of a licensee's royalty obligations. It provided that:
[N]otwithstanding the provisions of Article 4.16 . . . any potential
transaction with an SVRX licensee which concerns a buy-out of any
such licensee's royalty obligations shall be managed as follows: . . .
App'x 374, ¶B.5 [emphasis added).
This Amendment does not give Novell the right to increase any
SVRX licensee's rights to SVRX code, nor does it give Novell the
right to grant new SVRX source code licenses. In addition, Novell
may not prevent SCO from exercising its rights with respect to SVRX
source code in accordance with the agreement.
The district court concluded that Amendment No. 2 "provides no insight
into the source code rights SCO had or did not have under Section 4.16(b) of the
original APA," because the heading for this section of the Amendment makes
clear that it refers only to situations involving buyouts of royalty obligations. But
at least some of SCO's extrinsic evidence supports its assertion that this provision
was meant to affirm that Novell's rights under the APA precluded Novell from
unilaterally expanding a third party's rights to source code. See, e.g., App'x
10725, 10730. This would also explain why Amendment No. 2 took pains to
clarify that the "Amendment does not give Novell the right to increase any SVRX
licensee's rights to SVRX code." If Novell already had the right under the APA
itself to force SCO to increase any SVRX licensee's rights to SVRX code, then
this provision would be pointless and ineffectual. Of course, it is plausible to
think that this provision merely preserved an ambiguous status quo--but that is
consistent with our conclusion that neither party's interpretation of Novell's
waiver rights is foreclosed by the language of the APA.
Novell resists the conclusion that Section 4.16's waiver rights are not
susceptible to SCO's interpretation--that they apply primarily to the royalty
provisions of the product supplement agreements--for several reasons. First,
Novell asserts that the product supplement agreements "refer to the Software and
Sublicensing Agreements, which in turn refer to the Supplements as part of the
same integrated agreement." Aple. Br. 52. As parts of essentially integrated
agreements, Novell argues that SVRX Licenses must refer to the entire set of
agreements governing the license relationship. But several SCO witnesses, who
had previously worked at Novell before the transaction testified that they
"understood an SVRX license to be an SVRX product supplement." See App'x
4610, 4625; see also App'x 460910 ("While the software and sublicensing
agreements described general rights and obligations that would apply if a licensee
licensed a product, they did not themselves license any product.").
The district court also found persuasive the argument that Section 4.16(b)
indicates that an SVRX License must be something that grants rights. See App'x
287 ("at Seller's sole discretion and direction, Buyer shall amend, supplement,
modify or waive any rights under . . . any SVRX License."). Novell argues that
the software and sublicensing agreements, rather than the product supplement
agreements, set out the licensee's rights and obligations. Therefore, it contends
that the "rights under" the SVRX License must refer to the rights in the software
and sublicensing agreements. But it is clear that the product supplement
agreements also grant rights--specifically the right to license and use a given
product in exchange for financial compensation.
Finally, Novell argues, and the district court agreed, that its reading of
SVRX Licenses to include all three sets of licensing agreements is most
consistent with the APA's use of broad language referring to "any" and "all"
SVRX Licenses. But we think it plain that this only begs the question of the
scope of what an "SVRX License" is.
Ultimately, we do not think that the language of Section 4.16 is so clear as
to preclude SCO's interpretation of the scope of Novell's waiver rights. It is
reasonable to think that the parties would have covenanted in such a manner as to
protect Novell's substantial pecuniary interest in the revenue stream that, even
under SCO's interpretation, financed the acquisition. It is less easy to accept that
SCO would have consented to giving Novell the unilateral power to unravel its
exclusive and undisputed ownership rights in the underlying source code of
UNIX. Because we cannot say that the evidence is so one-sided as to preclude a
rational finder of fact from agreeing with SCO's interpretation of the scope of
Novell's waiver rights, we think summary judgment is premature.
IV. Limitations Imposed by the Covenant of Good Faith
SCO also argued below that the covenant of good faith and fair dealing
independently limits the scope of Novell's waiver rights under the APA. Under
California law, "[e]very contract imposes upon each party a duty of good faith
and fair dealing in its performance and its enforcement." Carma Developers
(Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 371, 6 Cal. Rptr. 2d 467
(Cal. 1992). "The covenant of good faith finds particular application in
situations," as here, "where one party is invested with a discretionary power
affecting the rights of another." Id. "[B]reach of the covenant of good faith has
been characterized as an attempt by the party holding the discretionary power to
use it to recapture opportunities forgone in contracting." Id. at 372; see also
Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in
Good Faith, 94 Harv.L.Rev. 369, 373 (1980). That said, "[i]t is universally
recognized [that] the scope of conduct prohibited by the covenant of good faith is
circumscribed by the purposes and express terms of the contract." Id.
The district court concluded that the covenant of good faith was
inapplicable to constrain Novell's waiver rights, as a matter of law, reasoning that
Novell would be "acting within an explicit grant of contractual authority." Dist.
Ct. Op. 87 (citing Carma Developers, Inc., 2 Cal. 4th at 374). Because we
conclude that the scope of Novell's waiver rights is not clarified expressly by the
contract, we must reverse the district court's judgment on this point.
On remand, however, we caution that it is not always the case that an
express grant of contractual authority is not constrained by the operation of the
covenant of good faith. California recognizes at least two exceptional situations
where the covenant of good faith may inform the interpretation of even an express
grant of contractual authority. First, where the express discretion makes the
contract, viewed as a whole, "contradictory and ambiguous," the implied covenant
may be applied to aid in construction. April Enterprises, Inc. v. KTTV, 147 Cal.
App. 3d 805, 816 (Cal. Ct. App. 1983). Thus in April Enterprises, by the express
terms of a contract, one party had the right to syndicate episodes of a television
show, while the other had the right to erase episodes of the show. Both parties
shared revenues from compensation. Although the contract expressly granted one
party the right to erase episodes, the court applied the covenant of good faith,
holding that the contract was contradictory and ambiguous as to whether tapes
could be erased while the other party was negotiating for syndication. Id.
Second, the covenant may aid in the interpretation of a contract seemingly
expressly granting unbridled discretion "in those relatively rare instances when
reading the provision literally would, contrary to the parties' clear intention,
result in an unenforceable, illusory agreement." Third Story Music, Inc. v. Waits,
41 Cal. App. 4th 798, 808 (Cal. Ct. App. 1995).
On remand, the district court may consider the applicability of either of
these exceptions to the general rule that an express grant of contractual authority
is not susceptible to limitation by the covenant of good faith.
V. Novell's Entitlement to SVRX Licenses Entered Into After the APA
The parties finally dispute Novell's entitlement to royalties from an
agreement entered into between SCO and Sun and Microsoft in 2003 concerning
Sun's rights to SVRX technology. Pursuant to the 2003 agreement, Sun paid SCO
roughly $9 million in exchange for an amendment to its rights under a 1994
SVRX License between Novell and Sun. In 1994, Sun paid Novell $83 million in
exchange for a buyout of its royalty obligations under its licensing agreement.
Most importantly, the 2003 agreement purported to lift Sun's obligation under the
1994 agreement to keep licensed SVRX source code confidential. See Aple. Br.
66. These confidentiality restrictions would have prevented Sun from publicly
releasing or "opensourcing" the source code for its proprietary, UNIX-based
operating system, "Solaris," until 2014. After entering into its 2003 agreement
with SCO, Sun released an opensource version of Solaris that would have been
barred under the 1994 agreement.
The district court ruled for several independent reasons that Novell was due
a share of the revenues that SCO had obtained in exchange for the amendment to
Sun's licensing rights. First, the court held as a matter of law that the 2003
agreement constituted an "SVRX License" within the meaning of the APA, to
which Novell was due royalties under the APA. See Dist. Ct. Op. 10001.
Second, in a bench trial, the district court concluded that the 2003 agreement was
an unauthorized amendment to an SVRX License (Novell and Sun's 1994
agreement), expressly prohibited by Article 4.16(b) of the APA. The court
further noted that 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 was obligated to notify Novell and
engage it in the negotiations. Findings of Fact, July 16, 2008 at 35 (referencing
App'x 374, ¶ B). Because the court concluded that SCO was without authority to
enter into the 2003 Sun Agreement, it found SCO liable for breach of fiduciary
duty, conversion, and unjust enrichment from its failure to pass through to Novell
certain revenues that it received from its agreement with Sun. The court awarded
Novell $2,547,817. We review the district court's factual findings for clear error
and its legal conclusions de novo. Weyerhaeuser Co. v. Brantley, 510 F.3d 1256,
1260 (10th Cir. 2007).
In its opening brief on appeal, SCO appeared to contest only the district
court's finding that the 2003 agreement constituted an "SVRX License." SCO
argued that the district court erred by concluding that a licensing agreement
entered after the closing of the APA could constitute an SVRX License.
Whatever the merits of this argument, SCO neglected to challenge the alternative,
independently sufficient basis for the district court's ruling--that its 2003
agreement with Sun represented an impermissible amendment to an SVRX
License. An issue or argument insufficiently raised in a party's opening brief is
deemed waived. Headrick v. Rockwell Int'l Corp., 24 F.3d 1272, 127778 (10th
Cir. 1994). Although SCO addresses this issue in its reply brief, the general rule
in this circuit is that a party waives issues and arguments raised there for the first
time. See M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753 (10th Cir. 2009).
Even if the issue were properly before us, we are skeptical of the merits of
SCO's claim. Even if "SVRX Licenses" include only those licenses entered into
prior to the APA, as SCO argues, Sun's 1994 agreement with Novell would
qualify. Section 4.16(b) of the APA makes clear that SCO "shall not have the
authority to amend [or] modify . . . any right under . . . any SVRX License
without the prior written consent of Seller." SCO does not dispute that the
royalties provided by Sun under its licensing agreement constitute a right within
the meaning of Section 4.16. Instead it contends that "the 1994 buyout was not
modified in any way" because Novell was not required to relinquish any of the
money it received from the 1994 buyout. But the 2003 agreement expressly
purports to "amend and restate" the parties' 1994 agreement, by increasing the
value of Sun's rights under its buyout. And even if Section 4.16 did not apply to
the 2003 agreement, we agree with the district court that Amendment No. 2
would. Paragraph B of the Amendment sets out rules to govern "any potential
transaction with an SVRX licensee which concerns a buy-out of any such
licensee's royalty obligations." App'x 374 (emphasis added). SCO argues that
"Section B does not apply when a licensee already has a buyout and now enters
into a subsequent agreement that merely relates to the prior buyout agreement."
Aplt. R. Br. 30. But we fail to see any support in the language for this limitation.
Indeed, were this so, Amendment No. 2 would only have obligated the parties to
jointly negotiate an initial buyout agreement. But Amendment No. 2 would not
have prevented the parties from taking unilateral action to expand or modify the
terms of that buyout thereafter. See Findings of Fact, July 16, 2008 at 3536.
This seems counterintuitive.
In any case, we also agree with the district court that agreements that post-date the APA may constitute SVRX Licenses. SCO presents a variety of evidence
to suggest that SVRX referred only to existing licenses under the APA. See Aplt.
Br. 6668. This may have been consistent with the parties' intent at the time of
the APA, which expressly provided that SCO "shall have no right to enter into
future licenses or amendments of the SVRX Licenses." App'x 287. But the
parties subsequently agreed to Amendment No. 2, which revised this section of
the APA to provide that SCO "shall not, and shall have no right to enter into
new SVRX Licenses except in [certain enumerated situations]." Thus, the clear
language of the amended APA anticipates "new SVRX Licenses," indicating that
an SVRX License can post-date the APA. To the extent that SCO argues that this
amended language envisioning "new SVRX Licenses" is somehow inconsistent
with the APA itself, we remind it that when "two contracts are made at different
times, [but where] the later is not intended to entirely supersede the first, but only
modif[y] it in certain particulars[,] [t]he two are to be construed as parts of one
contract, the later superseding the earlier one wherever it is inconsistent
therewith." Hawes v. Lux, 294 P. 1080, 1081 (Cal. Dist. Ct. App. 1931). What is
sauce for the goose is sauce for the gander. Since SCO's challenge to the district
court's ruling was premised only on its argument that "SVRX License" is a term
temporally limited to assets existing at the time of the APA,7
see Aplt. Br. 66, we
are compelled to reject it.
For all these reasons, we affirm the district court's ruling with respect to
SCO's liability from its 2003 agreement with Sun.
For the foregoing reasons, we AFFIRM the district court's judgment with
regards to the royalties due Novell under the 2003 Sun-SCO Agreement, but
REVERSE the district court's entry of summary judgment on (1) the ownership
of the UNIX and UnixWare copyrights; (2) SCO's claim seeking specific
performance; (3) the scope of Novell's rights under Section 4.16 of the APA; (4)
the application of the covenant of good faith and fair dealing to Novell's rights
under Section 4.16 of the APA. On these issues, we REMAND for trial.
The district court also issued a number of rulings regarding specific
arguments made in support of both parties' claims and counterclaims. To the
extent that those rulings do not directly affect the substance of this appeal, we do
not address them.
We think the parties' dispute over whether Amendment No. 2 retroactively
changed the APA or affected a clarification as of October 16, 1996 is ultimately
much ado about nothing. None of the claims in this litigation depend on the
meaning of the APA during the time period prior to Amendment No. 2.
Moreover, while both parties attribute different meanings to the APA and
Amendment No. 2, neither party argues that Amendment No. 2 was meant to
substantively change the intent of the APA; both SCO and Novell agree that it
merely clarified or affirmed the original intent of the transaction. Compare Aplt.
R. Br. 10 ("Amendment No. 2 clarified the APA to confirm that the copyrights
had been transferred thereunder.") with Aple. Br. 40 (Amendment No. 2 merely
"affirm[ed] that Santa Cruz had a license under the original APA to use Novell's
UNIX and UnixWare copyrighted works in its business") (emphasis added).
Although SCO claims that this was a "joint press release," it provides no
evidence to support this assertion. The district court reasonably cast doubt on
whether the press release cited to in the record is, in fact, a joint press release. In
any case, it at least provides a contemporaneous view of Santa Cruz's view of the
For this reason, we fail to see why SCO's argument that copyright
ownership would be necessary to bring "claims" under the agreement is
"circular," as Novell argues. Aple. Br. 47. SCO indisputably acquired certain
assets under the APA. SCO's claim, as we understand it, is that copyrights are
necessary to protect the value of the assets themselves, and are therefore
necessary to prosecute seller's claims "relating to any . . . asset" included in the
Business. Novell has not explained, for instance, what recourse SCO had under
Novell's theory of the transaction if a third party had copied and attempted to
resell the core UNIX assets Santa Cruz received in the deal.
Section III.L of the Asset Schedule of the APA transferred to Santa Cruz
"[a]ll of Seller's rights pertaining to UNIX and UnixWare under any software
development contracts [or] licenses . . . and which pertain to the Business,
including without limitation: . . . Software and Sublicensing Agreements."
As we noted with respect to the negotiations over Amendment No. 2's
revision to the Intellectual Property Excluded Assets Schedule, the fact that the
final language of the agreement eliminated the specific language affirming
Novell's right under the APA to amend sublicensing and software agreements
should not be construed as an admission by Novell that it does not have such
SCO notes in its reply brief that the provision referring to "new SVRX
licenses" provides that SCO retains the source code right-to-use fees thereunder. But
the district court found that SCO was unjustly enriched not with regard to right-to-use
fees, but by SCO's willingness to provide Sun with relief from the confidentiality
restrictions imposed by the 1994 agreement.