Now we're cooking with gas. Here's Darl McBride on the stand at last, in the transcript of day 6 of the second SCO v. Novell trial in Utah. That makes it Monday, March 15th, the beginning of the second week of the trial, with the Hon. Ted Stewart presiding. Steve Sabbath appears by video deposition on this day too, and Kimberlee Madsen also takes a turn on the stand live, and in fact she is the first witness. And then it's Darl. The day begins with an issue that shows up in SCO's
appeal of its devastating loss at this jury trial, namely whether the jury should be allowed to hear that SCO already lost once before at an earlier trial and on summary judgment. And it ends with Darl talking about Novell issuing a press release on December 22, 2003 about registering the UNIX copyrights, but the story he tells about it doesn't match the day's events that I chronicled on Groklaw at the time. His story is that Novell deliberately chose the day of SCO's earnings results conference call to announce that they'd filed at the US Copyright Office, with devastating results to SCO's stock and business. But I'll show you from the transcript of that call that in fact it was Darl himself who announced to the world that Novell had registered the copyrights, prior to Novell saying anything about it in public. The teleconference was scheduled for 11 AM. It wasn't until late that afternoon, at around 4, that I wrote that Novell had confirmed it.
If you prefer to skip directly to the transcript itself, here's Part 1, Part 2, and
Part 3.
Here is Groklaw's eyewitness report from the trial for that day.
The Evidentiary Issues: Let's look at the three evidentiary issues SCO has raised in its appeal. The very first one was this issue:
First, over SCO’s objections (A2548-49), the district court permitted Novell to tell the jury about the prior, reversed decisions the district court had issued in Novell’s favor. (A2548-50.) Novell had repeatedly sought to have the decisions introduced, beginning with its motions in limine (A400-19) and continuing throughout the first half of trial (A1117-21;A1471-75 ;A1638-72; A1734-41). The court denied all of those requests on the grounds that informing the jury of the decision would be unduly confusing and prejudicial. (A1112-16;A1334-38; A1476-79; A2363:775-76.) In so doing, the court acknowledged that the prejudicial effect to SCO of such evidence was “extremely high.” (A2628:1794.)
In the second week of trial, however, the court decided to permit Novell to quote from the prior decisions in cross-examining Dr. Christine Botosan, SCO’s damages expert, on the theory that the decisions pertained to the “but for” world of Dr. Botosan’s damages model. (A2549:1494-95.) Botosan is not on the stand today -- she shows up on the 9th day of the trial -- but the judge opens the day by denying Novell's motion asking to tell the jury about earlier trial history. Novell pinned its request on SCO's opening statement, during which Stuart Singer said that Novell continues to slander SCO's title to this day: And in 2003, their vice
chairman stands up and says, quote, we still own UNIX. That
was false, that was slander we believe you will find. And
to this day Novell, on their Web site, continues to
republish that slander. So there will be plenty of evidence
where you will be able to conclude that Novell acted
recklessly, intentionally and maliciously. Naturally, Novell felt it was relevant that Judge Dale Kimball had ruled on summary judgment that it did own the copyrights, which might explain why it continued to say so. But when Novell's Sterling Brennan stood up to speak, he restrained himself in his opening statement by responding like this:
And we believe, and as we intend to show, the
evidence will establish that Novell has not slandered, as
you've heard today, the claim of ownership to the UNIX
copyrights. In fact, Novell intends to show that no slander
could have occurred for a number of reasons.
First of all, Novell believes that to this day it
owns the UNIX copyrights. But after the day was done, Novell presented the court with a motion, asking to present evidence to defend itself. But the judge here rejected the motion, saying that while SCO should not have said what it said in the opening remarks, and shouldn't say it again, he thought the jury would be misled by hearing that information. So he warns SCO not to repeat the offense or he could reconsider, then Novell moves for a mistrial, which the judge takes under advisement, and the day moves forward. Obviously, though, it did come up again later.
Kim Madsen: Kim Madsen is the first one on the stand, and she testifies that she was working on negotiations for the APA on behalf of Santa Cruz, under her boss, Steve Sabbath. She never says that she is a paralegal, I notice, and all during Ted Normand's questioning on direct examination, the jury might well have thought she was a lawyer if they were not paying attention, since she describes herself as manager of law and corporate affairs at Santa Cruz:
Q What was your title at Santa Cruz at that point?
A In 1995, I believe it was manager of law and corporate affairs. In her Declaration [PDF], Ex. 21 in that collection, back in 2006, she wrote that back then she was "a Manager in the Law and Corporate Affairs Group." That doesn't sound exactly the same. She worked for Steve Sabbath, and in her testimony at trial, she says he was the only lawyer there. Normand asks her first what her title is now at Apple, and she says she is senior contracts manager, which is consistent with a job category a paralegal with many years experience could have. But in 1995? Asked what she does at Apple, this is her answer: Q Could you summarize your responsibilities?
A Yes. I negotiate enterprise contracts. Those are contracts where Apple is selling product directly to Fortune 100 companies for their own internal corporate use. I also negotiate reseller contracts where Apple is selling products to Fry's or Best Buy for resell to end-user customers. Now, if you are not in the business, that might sound important indeed, almost like she is practicing law, flying solo and striking deals. But paralegals must work under a lawyer's oversight, and this is describing a Fortune 100 company wanting so many copies of MacBook Pro or iPads or whatever, and she does the paperwork. Or so it sounds to me. I would faint dead away if it turned out she was negotiating business deals, like buying a company or something like that. So, my point is just to say that Normand is trying to make her sound like she is more exalted than a paralegal. Of course, if he had me on the stand, he'd be doing the exact opposite.
Her education, she says, is that she went to college. She doesn't mention any paralegal schooling or law school. She worked for a family law firm prior to going to Santa Cruz. And it's certainly legal and it was perfectly fine, especially back then, to get your paralegal training that way, on the job. Nowadays, most companies would look for a certificate, but back then it was not uncommon for paralegals to just be trained at a law firm.
She testifies repeatedly that it was her understanding that Santa Cruz was buying from Novell all rights and interests in Unix and UnixWare and that they needed the copyrights to run the business. "I understood that SCO was acquiring all right, title and interest in UNIX and UnixWare," she says. But then she tells the courtroom that the patents didn't go to SCO. So how is that *all*?
Does no one notice, but me, that this right there proves that SCO did not get all rights that Novell had in Unix and Unixware? Well, probably the judge noticed and the jury, given the outcome. SCO in its appeal complains that the judge didn't credit her testimony, but can you blame him? I don't either, because it's contradictory.
There is a sidebar, where it's explained that Wilson Sonsini represented Novell in the APA but it also represented Santa Cruz later, and it's brought out that there was a waiver by both sides to allow that to happen. I've always wondered about that, so it's nice to find out. During that sidebar, SCO lawyer Ted Normand says the following: "Part of the discussion at trial was you read the APA, it's self-evident that copyrights are not included." Bingo. However, that is decidedly not what Boies Schiller argued for half a decade. Ms. Madsen is asked about how Santa Cruz paid for what it got under the APA:
Q To your understanding what were the other components of this payment or compensation?
A I don't remember all of the specific details, but my general recollection is in addition to the six million shares -- 6,127,500 shares, that Novell was also retaining a portion of the binary royalties -- SVRX binary royalties, and that there were certain sales thresholds. And if those thresholds were met, additional monies would be paid to Novell.
Q Do you ever recall hearing from anyone that Novell would keep the UNIX and UnixWare copyrights because Santa Crux did not have enough cash?
A No. The binary royalties were the mechanism that we used to provide additional consideration. That, to me, is like me sitting at a lunch counter eating my club sandwich, and you come up to me and say you would like to buy my pocketbook. You offer to give me $5, and I say that's not enough. So you offer me $5 plus my club sandwich. Am I likely to agree?
I already had the sandwich, did I not? So how is that consideration? Ditto for the royalties, and by the way the APA doesn't say they retained just *binary* royalties. We have covered that earlier in some detail on Groklaw, not that SCO ever catches on, nor do their supporters even change their song. The APA just says SVRX royalties were retained, and think for a moment. What kind of license did IBM have? What about Sequent? HP? Go down the line. As for UnixWare, the amount they'd have to sell to have to pay more money to Novell under the APA was never reached. So we end up with the consideration being the stock.
Here's what the APA itself, as opposed to Ms. Madsen's testimony, says Santa Cruz would have to pay Novell and vice versa: 1.2. Payments.
(a) Consideration for Assets: Stock. On the terms and subject to the conditions set forth in this Agreement, as full payment for the transfer of the Assets by Seller to Buyer, at the Closing Buyer shall assume the Assumed Liabilities and issue to Seller 6,127,500 shares of fully paid and nonassessable shares of Common Stock of Buyer (the "Shares" or the "Purchase Price").
(b) Royalties. Buyer agrees to collect and pass through to Seller one hundred percent (100%) of the SVRX Royalties as defined and described in Section 4.16 hereof. Seller agrees to pay Buyer an administrative fee of five percent (5%) of the SVRX Royalties. Seller and Buyer further acknowledge and agree that Seller is retaining all rights to the SVRX Royalties notwithstanding the transfer of the SVRX Licenses to Buyer pursuant hereto, and that Buyer only has legal title and not an equitable interest in such royalties within the meaning of Section 541(d) of the Bankruptcy Code. For purposes of administering the collection of SVRX Royalties, the Parties acknowledge that the royalties shall continue to be recognized as royalties by Seller on an ongoing basis and the parties shall take such commercially reasonable steps as may be necessary to effectuate the foregoing for financial accounting and tax purposes. In addition, Buyer agrees to make payment to Seller of additional royalties retained by Seller in respect of the transfer of UnixWare and on account of Buyer's future sale of UnixWare products. The amounts and timing of additional royalties to be paid in connection with Buyer's sale of the UnixWare products are identified in detail on Schedule 1.2(b) hereto. Seller shall be entitled to conduct periodic audits of Buyer concerning all royalties and payments due to Seller hereunder or under the SVRX Licenses, provided that Seller shall conduct such audits after reasonable notice to Buyer and during normal business hours and shall not be entitled to more than two (2) such audits per year. The cost of
any such audit shall be borne by Seller, unless such audit reveals a payment shortfall in excess of 5% of amounts due hereunder in which case the cost of such audit shall be borne by Buyer.
As you can see with your own two eyes, it says the consideration for the assets was the stock. As for the SVRX licenses, the payment there was from Novell to SCO, to compensate them for doing the collecting. SCO's consideration, if you want to call it that, was that it would do the collecting job. Novell kept the royalties. So if you look at it that way, it had the royalties 100 per cent prior to the APA, and afterward it got less, 95%. So how is it consideration if you end up with less than when you started? The only benefit to Novell was it didn't have to collect the royalties any more, leaving it to its agent, SCO, but it did also pay SCO. Even more contradictions follow. Let's look at Amendment 1, which she claims to have worked on. SCO, according to the amendment, was to provide monthly reports to Novell, with a breakdown, and notice the elements of the breakdown, which I have highlighted for her and you:
(f) Monthly Reports. Within one (1) calendar month following each calendar month in which SVRX Royalties [and royalties from Royalty-Bearing Products as contemplated in Schedule1.2(b) hereof] are received by Buyer, Buyer shall provide to Seller, in electronic file format, a report detailing all such royalties. Such monthly reports shall be separately broken down by revenue type (i.e. source code right to use fees, gross and net binary per copy fees, and support fees), by product, by customer, by quarterly period by which distribution occurs, and by country (if provided by customer) of distribution. Each such report shall also detail, with respect to the revenues reported, any third party payments attributable to such revenues, broken down by the identity of such third parties and the applicable payments to each. Buyer shall provide Seller with a single point of contact to discuss specific additional revenue and unit information (by customer) which, in Seller's judgment, are appropriate to supplement such monthly reports. Buyer shall also provide to Seller, on a monthly basis, a report that reconciles monthly revenues reported (and accounts receivable) to cash remittances actually made to Seller by Buyer.
Madsen is a paralegal, and others testify that she was very sharp, manager of something in her department. How can she testify that it was only binary royalties, then? I simply can't explain it. But I can, as a result, explain why the judge might not have credited her testimony.
She is asked if she ever heard anyone say that SCO didn't have enough money to afford the copyrights, and she says no. But notice what she wrote in her 2006 Declaration: My understanding was that Novell had no interest in continuing in the UNIX business at all, and if Santa Cruz could have paid the full purchase price originally proposed by Novell, Novell would not have retained the binary royalty stream or any rights to protect that royalty stream. So, they did retain rights, then, I gather she is admitting.
Normand then asks her if she recalls working on Amendment 2: Q Do you recall the execution of Amendment No. 2 to the asset purchase agreement?
A I have some general memory.
Q Did you draft the language of Amendment No. 2?
A I wasn't the author, but I would have reviewed and commented on it.
Q Do you have any specific recollection of any specific discussions with Mr. Sabbath about Amendment No. 2?
A No specific recollections, just general recollections....
Q Did Mr. Sabbath ever say to you that Santa Cruz had acquired only a license to the UNIX or UnixWare copyrights?
A No.
Q Now, in connection with Amendment No. 2, did Mr. Sabbath ever say to you that Santa Cruz had agreed to a process whereby Santa Cruz could ask Novell to transfer UNIX or UnixWare copyrights?
A No. If she has no specific memory, what is she testifying about Amendment 2? Why? And if she can't remember any specifics, on what basis does she answer a question about what Sabbath said about Amendment 2? Her declaration said this about it, by the way:If there were any ambiguity on that meaning of Section 1.2(e)(iii), Amendment No. 2 made clear, referring to the APA, that "Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement." Is she testifying in that declaration as an expert, then? Or exactly on what basis, if she has no specific recollections, what the effect was?Maybe you are starting to grasp why the judge may not have found her testimony compelling?
Novell's Michael A. Jacobs then does cross examination, and he takes her to the dust-up about IBM's buyout, and the following exchange ensues as he shows her the IBM agreements, including the three-party one resolving the dispute: Q. And then it says: Novell acquired AT&T rights under the related agreement.
Do you see that?
A. Yes.
Q. And then it says:
In an agreement between Novell and SCO dated September 19, 1995, the asset purchase agreement, SCO purchased and Novell retained certain rights with respect to the related agreements.
Do you see that?
A. I do.
Q. That makes clear, does it not, that Novell retained rights with respect to the supplements, the sublicensing agreement and the software agreement? Doesn't it, Ms. Madsen?
A. No, I don't believe so; because the first sentence is talking about the agreements that were entered into between IBM and AT&T, and the second sentence is saying that Novell
retained certain rights with respect to the agreements, but it doesn't say which ones.
Q. Okay. So you're reading that and your understanding at the time is that it retained certain rights with respect only to some of the related agreements?
A. I don't know -- I mean, without looking at these agreements it's really hard for me to talk about the specifics of the sublicensing agreements and the software agreements and the supplements. Hard, indeed, especially when the document says the opposite of your testimony. Jacobs then gets her to say that the excluded assets section in the APA was a mistake that she didn't notice, her boss, the lawyer, didn't notice, neither legal team noticed in the three months leading up to Amendment 1 being signed. He makes her sound a little silly, in that there is a better explanation he suggests, after eliciting from her that Santa Cruz had been selling OpenServer for 12 years without owning the copyrights:Q. And there's two possibilities, at least in my view. One possibility is that you and your colleagues on the Santa
Cruz side, leave aside the Novell people who were going to go with the business like Mr. Levine, the people on the Santa Cruz side didn't catch what you regard as a mistake in the drafting during that period.
A. Yes. I mean, mistake, the drafting, yes. It certainly could have been more clear. And we did not correct that, no. We didn't catch it.
Q. And your explanation is, everybody on the Santa Cruz side, people you had trust and confidence in, including your boss Mr. Sabbath, blew it.
A. Blew it. I don't want to say my former boss blew it. I would say that, yes, that was overlooked. But everyone understood that the copyrights were transferred. The Novell people that came over to the Santa Cruz Operation understood that the copyrights were transferred. It just wasn't in our mind to clarify the agreement.
Q. It wasn't in your mind to read the excluded assets closely?
A. Not with respect to copyrights, no.
Q. So that's your explanation, and you reject the explanation, again, trying to put all these pieces of the puzzle together and figuring out actually the relevant question in this lawsuit, what copyrights are required, you reject that explanation, that explanation being that Santa Cruz had been in the UNIX flavor business. It had not owned
copyrights to the UNIX operating system. In order to be in the flavor business, now they were going to be in a second flavor, UnixWare, and the negotiators thought to themselves, we can live with this. We don't need ownership of the copyrights because we have all the permissions we need in the asset purchase agreement to carry on the business of UnixWare.
A. No, that was not my understanding at all. SCO wanted to unify UNIX. It wanted to be the UNIX company. It wanted all rights to the UNIX, and it wanted to be able to enforce and protect its intellectual property rights. The copyrights would have been essential to that. And we wanted to be able to take action such as we did with the European union with respect to Microsoft, and we needed the copyrights to do that, as well.
Q. And it was just -- to sum all of this up, then, your testimony is that as of the exclusion of the asset purchase agreement on September 19th, 1995, the execution of the closing documents including the bill of sale on December 6th, 1995, as of that period, Santa Cruz and yourself thought that the copyrights in UNIX were essential, were required for SCO to carry out, to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies, and nobody on the SCO side caught the fact that the excluded assets schedule includes all copyrights.
A. Yes. SCO's Ted Normand tries to fix some of the damage to his witness, but in my view, he makes it worse. He reads to her from an Alok Mohan letter which states, "SCO is now the primary supplier of the UNIX technology." Jacobs has pointed out that source code is technology. Normand asks her, though, if copyrights are also UNIX technology, and she mystifyingly says yes. Then he goes on to read about how SCO supplys UNIX technology to the market, which makes her answer sound goofier and goofier, unless SCO was supplying copyrights.
Steve Sabbath:
Next up is the video of Steve Sabbaths' deposition. I don't know that it even matters what he said, because he said directly contradictory things, both of which were played to the jury. My reaction was to discount everything he said, because both declarations were under penalty of perjury, and they don't match. What can you rely on then? If SCO complains about the judge not crediting his testimony, one can only respond, which version should one credit?
Darl McBride:
And then we have Darl McBride to the stand live. It's late in the day, so he will finish his testimony on the next day. Here's what he says he did when Novell first publicly told the world on May 28, 2003 that Novell, not SCO, owned the UNIX copyrights: Q. Now, after Mr. Messman's letter was received, what did you do?
A. Well, after we picked ourselves up and tried to figure out what was going on here, the first thing I had to do, as the CEO of a publicly traded company, is I had to go meet with our large shareholders, many of whom were in New York, on Wall Street, and I had to go settle them down and try and explain to them that, in fact, SCO did own UNIX and we did own the copyrights.
So, I got on a plane soon after this, went back to New York and spent a few days back there with them. That was the first thing that I did.
So, SCO's large shareholders were on Wall Street, according to his testimony. And he felt he had to fly to New York to calm them down and stayed for days.
He goes on to claim that he first heard about Amendment 2 at that point, when his secretary called him and told him about it. He claims it was his secretary who found it. That contradicts the story SCO told the world at the time this all happened in 2003, when we were told it was a paralegal who found it. Stephen Shankland at CNET reported, "A SCO paralegal found the amendment Thursday in a filing cabinet, Stowell said. It's titled "Amendment No. 2". Now it's Darl's secretary who allegedly found it.
I don't believe either story, by the way.
Apparently neither did Jack Messman, who accused Darl of tricking him and of knowing about Amendment 2 from the start, which Darl denies in his testimony. Darl also says that he had been "trying to get clarification around a problem in an Asset Purchase Agreement from an early agreement with Novell over the previous six months". That's him telling it his way, with Novell, if you recall, saying he asked them to give him the copyrights.
The detail about whether SCO tricked Novell by holding back Amendment 2's existence is significant to me, in that we learn the following details about the phone call between Jack Messman and Darl after Darl faxed him the document and Darl told him the three things he he wanted from Messman:
A. So then we went to number three. And I said: "Jack, we need to talk about damages."
Q. What was his reaction to you raising that subject?
A. "Damages? What damages? What are you talking about? There hasn't been any damages."
And I explained to him that the day that their
letter went out, on a day that our stock should have been going up because we had record revenue and record profits, in fact, instead of our stock going up that day, our stock sank significantly and that we had been damaged as a result of their letters that had gone out, his press release that had gone out.
Q. Was there any further conversation?
A. Jack was upset about the discussion of damages, and, effectively, that was the end of the call. So let's just imagine for a moment that this was a trick. It'd be a setup to get "damages" money, looked at like that. Because what actual damages would there be to SCO from the stock going down for a couple of hours or even a day, unless the company was playing the stock market? How otherwise does that damage SCO, the company? That's what Messman would have been expressing by his question. I can see if the Wall Street backers and the SCO executives and directors felt they were personally damaged, if they were expecting that the stock was going up and then it didn't. But the company? Here's a page we did at the time on insider trades. It's interesting to see them in March 2003 before all this happened, and then see them selling right afterward.
So to me this is a pivotal piece of testimony, because to me it fairly screams uh oh, and it makes me wonder if it hints that this whole assault on Linux, aside from whatever else it was, was a bit of a hustle. It's strikes me as very odd indeed that he'd ask for monetary compensation for what Novell had said, right off the bat like that, if it was not planned in advance and approved by his lawyer before making such a demand. To me, it feels like there was some planning, and that's how I took Messman's question. And by the way, I noticed in my article that the stock went up on June 5, the day SCO announced the paralegal had found Amendment 2, even if it had gone down on May 28, the
day Novell spoke up. In a letter from Messman to SCO made public that day, Novell pointed out damages that SCO was causing: "SCO's actions are disrupting business relations that might otherwise form at a critical time among partners around Linux technologies and are depriving these partners of important economic opportunities," Messman stated. "We hope you understand the potential significant legal liability SCO faces for the possible harm it is causing to countless customers, developers and other Linux community members. SCO's actions, if carried forward, will lead to the loss of sales and jobs, delayed projects, canceled financing and a balkanized Linux community." So, at a minimum, if there was damage to SCO, it was not one-sided.
If you go to Google Finance, they have a chart and you can go back in time by moving the sliders beneath it. You'll see that on May 23, the price of SCO stock was 8.66. On May 30 it was 6.70. On June 6, it was 9.05, higher than it had been prior to Novell's statement about copyright ownership. On September 19, 2003, it was 19.41. So any dip was not only temporary but completely wiped out.
And if you set the sliders to go back to a couple of days after SCO announced it was suing IBM and go through June 6, the stock was up around 264%, even after Novell claimed ownership. So unless the company was playing the stock market, essentially day trading, where are the damages in this picture?
If you set the sliders to show the entire saga, going back to 2002, the stock was trading in September 6 of that year at 1.75. It's now at 8 cents. Here are two screen shots of the chart, to show you what I mean. First, setting the sliders for
early May of 2003 and ending on June 6, what I see is that the stock started to go down on May 23, not on the 28th. SCO keeps talking about this dramatic drop on the 28th because of Novell's statement. But do you see that in the chart? I don't. If there had been some outstanding lunge downward, wouldn't it show?
Take a look:
Isn't that odd? The letter H represents June 6, by the way, which you can verify by going to the chart and setting the sliders as I did and then moving your mouse over the hills and valleys. The chart doesn't find May 28 worth noting on the significant points of interest. If the downward path began on May 23, not May 28, what does that do to SCO's story? Update: In an earlier article, I looked at May 28 in depth, if you recall. I couldn't remember which article it was, but now I have found it. Tracing the details, you find that Novell put out a press release early that morning, then SCO had its conference call at 11. At 10:41 AM, the stock was up. It wasn't until afternoon, from all I could trace, that the stock began to go down. There surely were factors that came out in the Q & A that might give one pause. So who knows what made the stock go down that day? But if Novell was a factor, it surely isn't obvious from the facts available.
Here's a screenshot of the chart showing the entire history of this SCO saga, from before it began up to the present:
I'd call that a picture of how long it took for the investing public at large to figure this all out. Wall Street, it appears, is not exactly a quick study. Neither is Darl, because he repeats a story that he should know from reading Groklaw is not accurate:
Q. And can you tell me, Mr. McBride, whether this assertion by Novell in December, 2003, had an effect on your business?
A. It had a devastating effect on our business.
Q. Can you elaborate a bit?
A. On December 22, 2003, we had just finished up our fiscal year, so we had a full year, now, of reporting, and it was the first full year of having SCOsource licensing within one year. And the results that we announced were record breaking revenues of nearly 80 million dollars for the year and record breaking profits. I believe they were over 5 million dollars. On the day that we announced, once again, SCO was facing another attack from Novell about the question of UNIX copyright ownership.
Novell came out and announced that it had filed copyright registrations with the copyright office, it reasserted its ownership claims of UNIX, and, once again, on a day that our stock would be expected to go up -- I mean, when you have record breaking revenues, usually, as a publicly traded company, your stock goes up. Instead of our stock going up on what should have been the best day of our company's life with our record breaking earnings and revenue, our stock went down on the heaviness of yet another Novell statement that they owned UNIX. Here's how Linux.com reported on their press release about their earnings and the teleconference set for that day, in contrast:
In other holiday news from SCO, they will hold a "listen-only" teleconference this morning to discuss their latest financial results. The refusal to take questions is interesting since the company typically uses these calls to maximize and dramatize their legal claim of the day.
In a press release ahead of the teleconference, SCO states: "Fourth quarter revenue from UNIX products and services was $14.0 million. In addition, revenue generated from the Company's SCOsource licensing initiative was $10.3 million, which was derived from licensing agreements reached with Microsoft Corporation and Sun Microsystems, Inc. earlier in fiscal 2003."
What that actually means is that revenue from normal business operations is down one million dollars from the same quarter last year, and that there are no new sales of its "licensing initiative." The two sales noted for that initiative, to Microsoft and Sun, have long been known.
Novell didn't scheme to announce anything that day, by the way. Novell announced the copyright registrations after Groklaw broke the story, and then the media called them up and asked them. A Groklaw member had noticed the copyright registrations and I did a story on his find on December 22, as you can see here, at around 9:18 in the morning Eastern time. The SCO teleconference was scheduled to begin at 11 on Monday. Novell confirmed our finding at 3:57 PM that day.
Here's the most interesting bit in SCO's earnings call, keeping the above timeline in mind: Operator: This concludes the portion of our question and answer session. At this time I would like to turn the call back over to Mr. Darl McBride.
McBride: OK. I would like to ask one more question that is on the mind of some people out there. I know because they have called in separately, and it didn't come up here now, so I take that one head on.
That is the question about Novell and a recent action that they have taken. We found out over the last couple of weeks that Novell snuck into the copyright office and tried to file some copyrights that would be basically on top of the claims ... the copyright registrations that we have made. Notice that this is still in the morning of December 22, 2003. This was hours before Novell said anything at all. So it was actually Darl himself who announced to the world that Novell had registered the copyrights. And he says that he was getting calls about it too, as was Novell. Yet years later, at the trial, he was portraying it that Novell deliberately picked that very day to announce the copyrights registrations because it was the day of SCO's earnings call. But he did it himself without anyone even asking him a question about it. So if that piece of news caused SCO damage, it was a self-inflicted wound.
The transcript of this day is, once again, in three parts: part 1
[PDF] [Text], part 2
[PDF] [Text] and part 3
[PDF] [Text].
These transcripts, by the way, are coming to us in HTML thanks to Python, Regexp, bash, wget, KDE Quanta and a few other pieces of software. We have transcripts as text for all days of the trial without commentary, and if you want to jump to any other day of the 15-day trial, here you go:
*****************************************
771
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
| THE SCO GROUP, INC., a Delaware | ) | |
| corporation, | ) | |
| Plaintiff, | ) | |
| vs. | ) | Case No. 2:04-CV-139TS |
| NOVELL, INC., a Delaware | ) | |
| corporation, | ) | |
| Defendant. | ) | |
| _________________________________ | ) | |
| AND RELATED COUNTERCLAIMS. | ) | |
| _________________________________ | ) | |
BEFORE THE HONORABLE TED STEWART
---------------------------------
March 15, 2010
Jury Trial
REPORTED BY: Patti Walker, CSR, RPR, CP
[Address] Salt Lake City, Utah [Zip]
772
A P P E A R A N C E S
For Plaintiff: Brent Hatch
HATCH JAMES & DODGE
[Address]
Salt Lake City, Utah [Zip]
Stuart Singer
BOIES SCHILLER & FLEXNER
[Address]
Fort Lauderdale, Florida [Zip]
Edward Normand
BOIES SCHILLER & FLEXNER
[Address]
Armonk, New York [Zip]
For Defendant: Sterling Brennan
WORKMAN NYDEGGER
[Address]
Salt Lake City, Utah [Zip]
Eric Acker
Michael Jacobs
MORRISON & FOERSTER
[Address]
San Francisco, California [Zip]
773
I N D E X
| Witness | Examination By | PAGE |
| Kimberlee Madsen | Mr. Normand (Direct) | |
| Mr. Jacobs (Cross) | |
| Mr. Normand (Redirect) | |
| Mr. Jacobs (Recross) | |
| Stephen Sabbath Deposition | | |
| Darl McBride | Mr. Singer (Direct) | |
774
775
SALT LAKE CITY, UTAH; MONDAY, MARCH 15, 2010; 8:30 A.M.
PROCEEDINGS
THE COURT: Good morning, counsel.
I want to deal, first of all, with the motion by
defendant to allow evidence responding to plaintiff's
allegation that Novell's slander continues to this very day.
The Court is going to deny the motion. The Court believes
that the questions that were asked and the statements that
were made in opening were unwise and inappropriate, but did
not bring enough attention to the jury that it justify
opening up the Court's prior ruling on denying the
opportunity for prior Court rulings to be introduced.
The Court is concerned primarily with the fact
that it would be very difficult to present to the jury in a
fair and accurate fashion the legal history of this case.
And to do so would, I think, become ultimately very
confusing to the jury and would be very prejudicial, and the
probative value to the defendants would be minimal.
The Court will, however, state that plaintiffs had
better be very, very careful not to come close to the line
again because this ruling could be revisited. And,
secondly, the Court will try to make sure that in the jury
instructions it gives to the jury that it is very, very
clear to the jury that any issue of, say, scienter, has to
focus on that period of time when the statements, allegedly
776
evidencing malice, took place.
Are there any questions, counsel?
MR. BRENNAN: Your Honor, thank you.
Novell does move for a mistrial on the grounds set
forth in the papers, Your Honor.
THE COURT: Do you wish to respond, Mr. Singer?
MR. SINGER: We believe, for all the reasons the
Court has stated in denying the motion, that the motion for
mistrial should be denied.
THE COURT: The Court will take the issue of
mistrial under advisement and will issue a ruling at an
appropriate time.
Do we have anything else, counsel, before we bring
the jury in?
MR. SINGER: Your Honor, I just want to report
that Mr. Jacobs and his jury instruction group and our jury
instruction group met over the weekend. I think we made
some progress in resolving points of disagreement between
the respective sets of jury instructions. There are certain
jury instructions as to which we indicated we would take a
further look and some that Novell was going to take a
further look. We hope that continuing process is acceptable
to the Court. We hope to be able to submit a narrow set of
areas of disagreement to the Court as soon as possible.
THE COURT: By when do you think, Mr. Singer?
777
MR. SINGER: I think if we had a couple of days,
perhaps two days, they might be in a position where we could
submit those. We are in disagreement on the verdict form,
and we do plan to go ahead and submit that to the Court to
begin considering.
THE COURT: All right, counsel. The Court will
give you until Wednesday, but no later than Wednesday
because we need to do what work we'll have that remains and
try to get you something by the end of the week. So you
have over the weekend to look at what we consider to be the
appropriate packet, and then we can deal with the further
objections next week. So if you can get them to us by five
o'clock, Wednesday, all right, Mr. Singer?
MR. SINGER: We'll do so. Thank you.
THE COURT: I do want to express gratitude to both
sides for making this additional effort. I hope it remains
your attitude throughout the remainder of this trial to,
where possible, cooperate and try to solve these dilemmas.
Mr. Brennan, do you have anything before we bring
the jury in?
MR. BRENNAN: No. Thank you, Your Honor.
THE COURT: Remind me where we're going to start
today, Mr. Singer.
MR. SINGER: Your Honor, our first witness is Kim
Madsen, she's a life witness, followed by deposition
778
testimony of Steve Sabbath. That is approximately one hour
with designations from both sides. And after that we would
call Darl McBride as a life witness.
THE COURT: All right. Thank you.
Ms. Malley, if you would please bring the jury in.
Mr. Singer, what is your new Exhibit 748?
MR. SINGER: This is a document that was
inadvertently omitted from the exhibit list that was used in
the deposition of Mr. McBride. It is a July 2003
presentation with respect to the SCOsource program.
THE COURT: Are defendants aware of it? Are we
going to have any special problem regarding it?
MR. SINGER: It was a document used in
cross-examination of Mr. McBride at his deposition.
MR. ACKER: We'll see what they try to use it for.
It's hearsay. We're going to object to it as we go along.
In terms of surprise, we'll deal with it on an evidentiary
basis, as we did.
(Jury present)
THE COURT: Good morning, ladies and gentlemen of
the jury. I hope you had a pleasant weekend. I need to ask
whether or not any of you violated those instructions that
you have been given as to your conduct in any way or in any
respect?
Good.
779
Mr. Singer, if you would, please.
MR. NORMAND: Your Honor, we call Kimberlee Madsen
as our next witness.
THE CLERK: Ms. Madsen, do you want to come
forward.
KIMBERLEE MADSEN,
Having been duly sworn, was examined
and testified as follows:
THE CLERK: If you would please state and spell
your name for the Court.
THE WITNESS: My name is Kimberlee Madsen.
Kimberlee, K-i-m-b-e-r-l-e-e, Madsen, M-a-d-s-e-n.
DIRECT EXAMINATION
BY MR. NORMAND:
Q Good morning, Ms. Madsen.
A Good morning.
Q Could you briefly describe your educational background?
A Yes. I attended the University of California at Santa
Cruz and graduated with a bachelor's degree in politics and
English literature.
Q Could you briefly describe your work experience up to
the present?
A Yes. I worked for -- my senior year in college I
worked for a small family law firm. And then I worked for
the Santa Cruz Operation. I believe that started at the end
780
of 1990. And the Santa Cruz Operation became Tarantella
after it sold the UNIX assets to Caldera. I remained with
Tarantella, and left there -- I believe it was in August of
2004. And I went to work for a CRM software company called
Accordant. I stayed there for about a year. Then I went to
work for Apple, and I am currently employed at Apple.
Q What is your title at Apple?
A I'm senior contracts manager at Apple.
Q Could you summarize your responsibilities?
A Yes. I negotiate enterprise contracts. Those are
contracts where Apple is selling product directly to Fortune
100 companies for their own internal corporate use. I also
negotiate reseller contracts where Apple is selling products
to Fry's or Best Buy for resell to end-user customers.
Q Now you said you were at Santa Cruz in 1995?
A Yes, I was.
Q How many attorneys were in the Santa Cruz legal
department in 1995?
A One.
Q Who was that?
A Steve Sabbath.
Q What was your title at Santa Cruz at that point?
A In 1995, I believe it was manager of law and corporate
affairs.
Q In brief, what were your responsibilities at Santa Cruz
781
at that point?
A I had a variety of responsibilities, primarily
pertaining to corporate law, so preparing SEC filings,
mergers and acquisitions to the extent that SCO engaged in
those activities. I did a little bit of HR, legal, but it
was mainly supporting SCO's corporate legal work.
Q Is that work that you did with Mr. Sabbath?
A Yes, I worked directly for Mr. Sabbath.
Q Did there come a time in 1995 when you became involved
with a potential transaction between Novell and Santa Cruz?
A Yes.
Q Who was the buyer and who was the seller?
A SCO was the buyer and Novell was the seller.
Q What was the nature of your involvement in the events
leading up to that transaction?
A I supported Mr. Sabbath and was involved in the
negotiations with Novell.
Q Where did those discussions that you participated in
take place?
A There were discussions in New Jersey at Novell's
facilities. There were also discussions in Santa Cruz at
SCO's facilities, and discussions at the law firms in Palo
Alto. I think they were primarily at the Brobeck Phleger &
Harrison law firm, but there may have been some
conversations at Wilson Sonsini as well.
782
Q Who do you recall participating in those discussions?
A Oh, there was quite a cast of characters. For SCO, I
remember Steve Sabbath of course, as well as Jim Wilt and
Jeff Seabrook, Doug Michels.
Q Do you recall who you participated in discussions with
on the Novell side?
A I remember discussions with Burt Levine, John
Maciaszek, Ed Chatlos. I'm sure there were others. Their
names just don't come to mind.
Q Do you recall if Novell had outside counsel in
connection with this transaction?
A Yes. The Wilson Sonsini law firm represented Novell.
Q Do you recall participating in any discussions with
those attorneys?
A I do.
Q Did you participate in discussions in which Steve
Sabbath, the general counsel at Santa Cruz, was not present?
A I remember a couple of conversations where Steve was
not present.
Q Did you develop an understanding during these
discussions as to what assets Santa Cruz was acquiring?
A Yes.
Q To your understand, what were those assets?
A Apple was purchasing all of the UNIX --
Q Did you say Apple?
783
A I'm sorry. Different life.
SCO was purchasing all of the UNIX and UnixWare assets.
Q Was it your intent, as a representative of Santa Cruz,
to acquire the copyrights of that business?
A Yes.
Q Was it your understanding and belief after the
transaction was completed that Santa Cruz had acquired those
copyrights?
A Yes.
Q In any discussion in which you participated before the
agreement was signed, did you ever hear any discussion about
the prospect of Novell retaining any UNIX or UnixWare
copyrights?
A No.
Q Before the agreement was signed, did anyone from Novell
ever say to you that Novell would retain any UNIX or
UnixWare copyrights?
A No.
Q Would you have remembered that if they would have said
something like that?
A Yes, that would have been a significant deal point and
I would have recalled that.
Q Before the agreement was signed, did anyone from Santa
Cruz ever say to you that Novell would retain the UNIX or
UnixWare copyrights?
784
A No.
Q Would you have remembered that if they would have said
something like that?
A Yes.
Q Did you have any understanding during these discussions
as to whether Novell would retain its intellectual property
in NetWare?
A Yes. That was very important to Novell to retain that
business.
Q Did you have an understanding as to why?
A Well, that was their crown jewels, that was their
going-forward business. I don't know much more about
NetWare or even what it really does.
Q Do you recall any discussion about a license back to
Novell?
A Yes.
Q Just, in general, what can you recall about those
discussions?
A I know that Novell wanted to retain rights to the UNIX
and UnixWare technology for use in NetWare and for its own
corporate use, so SCO licensed back certain rights -- use
rights to Novell.
Q Do you know if there was a meeting with the Santa Cruz
board of directors in which the approval of this transaction
was discussed?
785
A Yes.
Q Did you attend that meeting?
A I did.
Q Did Mr. Sabbath attend the meeting?
A Yes, he did.
MR. NORMAND: Mr. Calvin, can you put SCO Exhibit
29 on the screen.
BY MR. NORMAND:
Q Is the document on the screen in front of you,
Ms. Madsen?
A Yes, it is.
Q Do you recognize this document?
A Yes, I remember this.
Q Do you see your name toward the bottom half of the
document?
A Yes.
Q I think you said you do recall participating in this
meeting?
A I have a general recollection, yes.
MR. NORMAND: Your Honor, I move SCO Exhibit 29
into evidence.
THE COURT: Any objection?
MR. JACOBS: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 29 was received into
786
evidence.)
MR. NORMAND: Mr. Calvin, would you show the jury
the top of the document so they see what it is.
BY MR. NORMAND:
Q So, Ms. Madsen, these are the minutes of the meeting of
the board of directors on September 19th, 1995. This is the
meeting you at least have a general recollection of
attending?
A Yes.
Q And if we look at the names identified who are part of
the quorum of the board of directors, who was Doug Michels?
A Doug Michels, I believe he was -- his title was
executive vice president.
Q Who was Alok Mohan?
A Alok was the CEO.
Q And do you see the next paragraph identifying who was
also present at the meeting?
A Yes.
MR. NORMAND: Mr. Calvin, if we could bring up
that paragraph also present.
BY MR. NORMAND:
Q Do you see the reference in the second line to the
Brobeck firm, Ms. Madsen?
A Yes.
Q Who was the Brobeck firm?
787
A Brobeck represented SCO in the acquisition of the UNIX
and UnixWare technology from Novell.
Q Do you see the next line down towards the right side
there is a reference to Jim Wilt?
A Yes.
Q Who was Jim Wilt?
A He was the vice president of business development and
one of the lead negotiators for SCO.
Q In the next line down there is a reference to Steve
Sabbath. Who was Steve Sabbath again?
A Steve Sabbath was the vice president of law and
corporate affairs, and my supervisor.
MR. NORMAND: Mr. Calvin, would you take that
away, and let's bring out the bottom, beginning with project
sleigh ride.
BY MR. NORMAND:
Q Ms. Madsen, do you see the reference to project sleigh
ride?
A Uh-huh. (Affirmative)
Q What was project sleigh ride?
A Project sleigh ride was the code name. We always had
code names for various projects. So it was the code name
for the acquisition.
Q I see reference to Jeff Seabrook presented a detailed
overview of project sleigh ride?
788
A Yes.
Q Who was Jeff Seabrook?
A Jeff Seabrook was vice president of strategic planning
along with Jim Wilt, one of the lead negotiators for SCO.
Q And to your knowledge, in this discussion to the board,
did Mr. Seabrook say that Novell had retained any UNIX or
UnixWare copyrights?
A No.
MR. JACOBS: Objection, Your Honor, hearsay.
MR. NORMAND: It's not going in for the truth of
the matter. It's going in for her recollection and opinion.
THE COURT: The Court will overrule the objection.
Ms. Madsen, if, however, during the course of your
examination here while or after a question has been raised,
if Mr. Jacobs, who just stood up, stands up again, I want
you to not answer the question until he's had a chance to
address the Court.
THE WITNESS: Okay.
BY MR. NORMAND:
Q Ms. Madsen, do you recall any discussion at all in the
meeting about the prospect of Novell retaining UNIX or
UnixWare copyrights?
A No.
Q During this board meeting, what did you understand that
Santa Cruz was acquiring under the asset purchase agreement?
789
A I understood that SCO was acquiring all right, title
and interest in UNIX and UnixWare.
Q To your understanding, at the time of this meeting, did
that include UNIX and UnixWare copyrights?
A Yes.
Q Ms. Madsen, did you participate in any negotiation
meetings in which representatives discussed the issue of
patents?
A Yes.
Q And did you develop an understanding from those
meetings as to whether Novell would sell any patents under
the asset purchase agreement?
A No. Novell was very clear that it would not be selling
any patents.
Q And did you have an understanding at that time as to
whether patents were an important part of the UNIX or
UnixWare business?
A They weren't important to SCO.
Q Why was that, to your recollection?
A Well, because there was no patent covering all of UNIX.
Patent covers a specific routine. So it was really the
copyrights that were fundamental to the business, not the
patents. I'm not even sure that Novell had acquired all of
the patents from AT&T. So it just wasn't -- it wasn't that
important to SCO, but I do recall Novell being very specific
790
that it would not be transferring any patents that were
associated with the technology.
Q Do you recall any discussion of copyrights in
connection with the discussion of patents?
A No.
Q Is that something that you would have remembered?
A Yes.
Q Was there a transition period after the execution of
the asset purchase agreement in which Novell transferred the
UNIX and UnixWare business to Santa Cruz?
A Yes.
Q Did you participate in that process?
A I did. There was a transition team set up and I was a
member of that team.
MR. NORMAND: Mr. Calvin, can you show the witness
N-5. If you could show the witness two or three pages in.
One more.
BY MR. NORMAND:
Q Ms. Madsen, do you recognize this document?
MR. JACOBS: Your Honor, are we going to receive
copies of exhibits?
THE WITNESS: Yes. I remember this closing
checklist.
BY MR. NORMAND:
Q Do you recall receiving it?
791
A I have a general recollection.
MR. NORMAND: Let's go back two pages, Mr. Calvin.
BY MR. NORMAND:
Q Ms. Madsen, do you see your name on the fax cover
sheet?
A Yes.
MR. NORMAND: Your Honor, this is a document on
Novell's list of exhibits, I would move into evidence.
MR. JACOBS: No objection, Your Honor.
THE COURT: N-5 will be admitted.
(Defendant's Exhibit N-5 was received into
evidence.)
MR. NORMAND: Let's go to the first page, Mr.
Calvin. Let's show the jury the top half. I'm sorry, the
very first page of the document.
BY MR. NORMAND:
Q So, Ms. Madsen, this is a fax cover sheet from Wilson
Sonsini. Who was Wilson Sonsini again?
A Wilson Sonsini represented Novell in the asset purchase
agreement. However, Wilson Sonsini was also SCO's corporate
attorneys.
Q Now what is the date of this document?
A November 22nd, 1995.
THE COURT: Just one second.
Mr. Jacobs.
792
MR. JACOBS: Could we have a quick side-bar?
THE COURT: Do you want this on the record?
MR. JACOBS: Yes, please.
(Side-bar conference held outside the hearing of
the jury)
MR. JACOBS: We had a specific discussion about
this in our counsel meeting yesterday. We have to be
concerned there is an implication of an improper conflict
here. In fact, as I believe SCO will readily agree, there
was a waiver on all sides -- a written waiver by SCO there
is an ethical wall internally at Wilson Sonsini to deal with
the Novell representation versus the Santa Cruz
representation. I'm very concerned there is going to be an
implication of something improper in her answer.
MR. NORMAND: This is not what I think she was
implying. Certainly not what we intended to show. Part of
the discussion at trial was you read the APA, it's
self-evident that copyrights are not included. Whether
there was an ethical wall, I think it's relevant to show
that Wilson Sonsini subsequently participated with Santa
Cruz in creating documents showing the copyrights
transferred. So whether the same attorneys were involved or
not, I think it's of probative value.
THE COURT: I would agree, but I do believe that
the jury will have heard that and immediately have the same
793
question that Mr. Jacobs just addressed. I don't know
whether or not you want to deal with it with some voir dire
right now or whether or not you, Mr. Normand, want to do
what you must to make it clear that this was not some
oversight by the law firm, that it was a clear addressing of
the issues or something. I think we need to do something.
MR. NORMAND: Trying to do that without leading
will be a challenge. I can try. Why don't we try for a few
minutes. I really don't think the point --
THE COURT: I'm not worried about if it was her
point, I'm worried about that the jury --
MR. NORMAND: My point, Your Honor, because it
wasn't her point, I don't think it will take that long to
clarify it.
MR. JACOBS: I believe the appropriate thing is
for Mr. Normand to stand up and say the following words:
Ladies and gentlemen of the jury, Ms. Madsen alluded to
Novell's role in representing -- I'm sorry, Wilson Sonsini's
role in representing Novell in the transaction and to the
fact that it was also Santa Cruz's outside counsel. On
behalf of SCO, we wish to stipulate that Wilson Sonsini had
permission from both companies, a written waiver, so both
companies understood the role it would play in this
particular transaction.
MR. NORMAND: Whether you prefer that or whether
794
you want me to do that through the witness, Your Honor.
THE COURT: I think it would be more efficient if
you would do it. All right.
MR. NORMAND: I'll make sure I get those words
out.
(Side-bar conference concluded)
MR. NORMAND: Ladies and gentlemen of the jury,
just to clarify, you may have heard Ms. Madsen answer a
question regarding the involvement of the Wilson Sonsini
firm in both negotiating and participating in negotiations
of the APA on behalf of Novell and then also representing
Santa Cruz in connection with its corporate work. What we
want the jury to be clear about is that there is no
suggestion from the witness that Wilson Sonsini was acting
inappropriately in any respect in undertaking both of those
representations. Is that clear?
THE COURT: There was, in fact, apparently -- it
had been addressed by the parties, there was a written
acknowledgment, and procedures were put in place to make
certain that the same attorneys were not representing both
sides, and there was a clear firewall between those who were
representing Novell and those who were representing Santa
Cruz.
Mr. Jacobs, does that address everything do you
think?
795
MR. JACOBS: Yes, Your Honor. Thank you very
much.
THE COURT: Thank you, Mr. Normand.
MR. NORMAND: Thank you, Your Honor.
BY MR. NORMAND:
Q Ms. Madsen, we were talking about the transition
process after the signing of the APA in September 1995. Do
you recall that?
A Yes.
Q I think you were starting to say you did participate in
that transition process; is that right?
A Yes.
Q And do you recall --
MR. NORMAND: Mr. Calvin, can you pull up pages 5
and 6 of this document.
BY MR. NORMAND:
Q Do you generally recall what aspects of the transition
process you were involved in?
A Is it possible to make this a little larger?
Q It is.
A Thank you.
So specifically relating to the items on this
checklist?
Q Well, we can do it that way, or if you generally
recall, we can do it that way as well.
796
A Okay. I remember some general involvement in the HSR
filing.
Q What's an HSR filing the first?
A The Hart-Scott-Rodino filings. Those are filings to
make sure that -- you have to get Hart-Scott-Rodino approval
to make sure there are no violations of antitrust laws.
I was involved in finalizing the disclosure schedules,
amending the asset purchase agreement. I may have reviewed
the NetWare license. I don't have any specific
recollection.
Q Were you involved, as part of this transition process,
in registering the shares of Santa Cruz stock in Novell's
name?
A Yes, I was.
MR. NORMAND: Mr. Calvin, if we could bring up
Exhibit C-6.
BY MR. NORMAND:
Q Do you recognize this document?
A Yes.
MR. NORMAND: Mr. Calvin, could you focus in on
this text of the letter for the witness.
BY MR. NORMAND:
Q Do you recall making the request referenced in the
first line of this document?
A Yes.
797
MR. NORMAND: Your Honor, I move Exhibit C-6 into
evidence.
MR. JACOBS: No objection, Your Honor.
THE COURT: It will be admitted.
(Defendant's Exhibit C-6 was admitted into
evidence.)
BY MR. NORMAND:
Q What is the date of this document, Ms. Madsen?
A December 14th, 1995.
MR. NORMAND: Mr. Calvin, bring out the text of
the letter.
Let's see the address as well, Mr. Calvin.
BY MR. NORMAND:
Q So this letter says in the first sentence, Ms. Madsen,
at the request of Kim Madsen, enclosed please find original
stock certificate FBU 17088 representing 6,127,500 shares of
common stock of The Santa Cruz Operation, Inc. registered in
the name of Novell, Inc. Do you see that language?
A Yes.
Q Did you direct that request to Ms. Zenit of the Wilson
Sonsini law firm?
A Yes.
Q And why did you do that?
A The shares were a part -- were one component of the
consideration under the asset purchase agreement.
798
Q To your understanding what were the other components of
this payment or compensation?
A I don't remember all of the specific details, but my
general recollection is in addition to the six million
shares -- 6,127,500 shares, that Novell was also retaining a
portion of the binary royalties -- SVRX binary royalties,
and that there were certain sales thresholds. And if those
thresholds were met, additional monies would be paid to
Novell.
Q Do you ever recall hearing from anyone that Novell
would keep the UNIX and UnixWare copyrights because Santa
Crux did not have enough cash?
A No. The binary royalties were the mechanism that we
used to provide additional consideration.
Q Ms. Madsen, in the course of your responsibilities at
Santa Cruz, did you work on annual reports?
A Yes.
Q In general, what is an annual report?
A Well, it's just that. It's a report that's prepared
annually. It is filed with the SEC. And it is sent out to
the shareholders or it's incorporated by reference in the
proxy statement that is sent out to all of the shareholders.
MR. NORMAND: Mr. Calvin, could we show the
witness SCO Exhibit 30.
//
799
BY MR. NORMAND:
Q It's not the best resolution, Ms. Madsen, but do you
recognize this document?
MR. NORMAND: Why don't we page a couple pages in,
Mr. Calvin.
THE WITNESS: Yes.
BY MR. NORMAND:
Q Did you have any involvement in reviewing this document
before it was made public?
A Yes. I would have reviewed, you know, commented,
edited the document, or at least portions of it.
MR. NORMAND: Your Honor, I move SCO Exhibit 30
into evidence.
MR. JACOBS: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 30 was received into
evidence.)
BY MR. NORMAND:
Q So the jury is now looking at the document, Ms. Madsen.
At the top, do you see the language, the Santa Cruz
Operation, Inc. 1995 annual report? Do you see that
language?
A Yes.
Q I wanted to direct your attention to page 3 of the
document.
800
MR. NORMAND: Let's bring out that middle
paragraph in the middle column, Mr. Calvin.
BY MR. NORMAND:
Q Do you see the language, looking into the future, SCO
will play a more central role in the UNIX market. In
addition to our well established packaged product market for
UNIX Business Critical Servers, the acquisition of the UNIX
technologies and UnixWare business places us in a much more
strategic position to license technology to the computer
manufacturers and system providers. Do you see that
language?
A Yes.
Q How does that reference to the acquisition of the UNIX
technologies and UnixWare business compare to your
understanding of the assets that Santa Cruz had acquired
under the asset purchase agreement?
THE COURT: Mr. Jacobs.
MR. JACOBS: Lacks foundation. It doesn't
establish any relationship between this witness and this
letter.
THE COURT: I will sustain the objection.
BY MR. NORMAND:
Q The question, Ms. Madsen, is how does this language
compare to your understanding of the assets that had been
acquired?
801
THE WITNESS: Can I answer?
THE COURT: You may. Go ahead.
THE WITNESS: This reflects the transaction in the
asset purchase agreement. This language reflects that.
BY MR. NORMAND:
Q Did you draft this language? Do you recall drafting
that language?
A No, I don't recall drafting this language.
Q Did there come a time in 1996 when you learned of a
dispute between Novell and Santa Cruz concerning the scope
of Novell's rights under the asset purchase agreement?
A Yes.
Q In general, to the best of your recollection, what was
the dispute?
A The dispute involved some expanded UNIX rights that
Novell had offered to IBM that were contrary to the rights
that SCO had acquired under the asset purchase agreement.
Q Do you recall any discussions with Novell about that
issue?
A Yes.
Q What, in general, was your recollection of those
discussions? Who did you speak with?
A I remember speaking with Larry Bufford of Novell and
Allison -- I think her last name was Lisbon. She was an
attorney at Novell. And we subsequently entered into an
802
amendment to the asset purchase agreement to clarify SCO's
rights.
Q Now to your recollection, at any time during that
dispute as a defense to what it had done with respect to
IBM, did Novell ever assert that it owned the UNIX or
UnixWare copyrights?
A No, it did not.
Q Is that something you would remember?
A It's something that I would remember, yes.
Q Did you remember any discussions with Novell about UNIX
or UnixWare copyrights at all during the course of this
dispute?
A No.
Q Do you recall the execution of Amendment No. 2 to the
asset purchase agreement?
A I have some general memory.
Q Did you draft the language of Amendment No. 2?
A I wasn't the author, but I would have reviewed and
commented on it.
Q Do you have any specific recollection of any specific
discussions with Mr. Sabbath about Amendment No. 2?
A No specific recollections, just general recollections.
Q Did you have a view, as of 1996, as to what copyrights
were required for Santa Cruz to operate its UNIX and
UnixWare business?
803
A We would have acquired all the copyrights.
Q Now how long did you remain at Santa Cruz after
Amendment No. 2 had been signed?
A Well, the history of SCO is a little bit confusing
because SCO sold -- subsequently sold the UNIX business to
Caldera. Caldera then assumed the name SCO, but the legal
entity remained the same and changed its name to Tarantella.
So I remained with Tarantella. So, you know, SCO -- I
stayed with SCO until it sold the technology in 2001 -- I
can't remember the specific date, and then I stayed with
Tarantella until 2004.
Q And during the time when you were at Santa Cruz, when
it was called Santa Cruz, did you have occasion to work with
any form 10-Ks?
A Yes. I would have reviewed and edited those.
Q To the best your recollection, what is a form 10-K?
A A form 10-K is an annual financial filing with the SEC.
Q What is SEC?
A The Securities and Exchange Commission.
MR. NORMAND: And, Mr. Calvin, could you put SCO
Exhibit 521 up for the witness.
BY MR. NORMAND:
Q It may be a little hard to see, but do you recall
seeing this document before, Ms. Madsen?
A Yes, I'm sure that I did.
804
Q Is this Santa Cruz's form 10-K for the fiscal year
ended September 30th, 1996?
MR. NORMAND: I think that's reflected on the next
page, Mr. Calvin.
THE WITNESS: Yes. Yes.
BY MR. NORMAND:
Q Now would you have reviewed this document before it was
filed with the Securities and Exchange Commission?
A Yes, I would have.
MR. NORMAND: Your Honor, I move SCO Exhibit 521
into evidence.
MR. JACOBS: Your Honor, we don't object as a
reflection of Santa Cruz's state of mind. We do object on
hearsay grounds for the truth of the matter asserted.
THE COURT: All right. The Court will allow the
document to be introduced, but I think on cross-examination
you perhaps need to explore that a little bit, Mr. Jacobs.
(Plaintiff's Exhibit 521 was received into
evidence.)
MR. NORMAND: So, Mr. Calvin, let's show the jury
the top half of the document and see what it is.
BY MR. NORMAND:
Q Do you see the reference at the top, Ms. Madsen, for
the fiscal year ending September 30th, 1996?
A Yes.
805
Q What does that mean?
A Well, we would report on the year ending, we would
report on our financials for the year ending in
September 30th, 1996.
MR. NORMAND: Mr. Calvin, on page 2, I think it's
toward the bottom -- next page -- previous page, Mr. Calvin,
at the bottom -- very bottom.
BY MR. NORMAND:
Q Do you see the bottom line, quote, as of December 16th,
1996?
A Yes.
Q So was this document filed after December 16th, 1996?
A Yes.
Q Now let's go to page 57.
A Can I clarify something?
Q Of course.
A While the financial report concerns the time period
ending September 30th, 1996, my recollection of the SEC
requirements is that if there is something material that
occurs subsequent to that, you would include that in the
financial filing as well. So that's why you would see a
date that is subsequent to the time period of the filing.
Q Thank you.
We're going to show you and the jury, Ms. Madsen, page
57. I think it's the bottom paragraph. This is the
806
language saying, quote, UNIX business in December 1995, the
company -- who's the company being referred to here?
A SCO, or the Santa Cruz Operation.
Q The company acquired certain assets related to the UNIX
business including the core intellectual property from
Novell, end quote. Do you see that language?
A Yes.
Q How does that statement compare with your
understanding, as of this time, as to the intellectual
property that Santa Cruz had acquired from Novell under the
agreement?
A That is my understanding. That's what the asset
purchase agreement was to accomplish.
Q To your understanding, did the core intellectual
property of the UNIX business include the UNIX and UnixWare
copyrights?
A Yes.
Q Now did an outside law firm represent Santa Cruz in
connection with this transaction?
A In connection with the asset purchase agreement or in
connection with this filing?
Q With this filing. I'm sorry.
A Yes. Wilson Sonsini would have represented us and
assisted in the preparation of this filing.
Q Now, to the best of your understanding, was it
807
appropriate for Wilson Sonsini to be representing Santa Cruz
at that time?
A Yes.
Q After October 1996 when Amendment No. 2 was signed, did
any dispute arise between Santa Cruz and Microsoft?
A Yes.
Q And can you recall the general nature of that dispute?
Did it concern royalties?
A Yes, it did. Microsoft was imposing a royalty on SCO
and a compatibility requirement that all versions of UNIX
remain compatible with some ancient version of -- I can't
remember the technology specifically, but there was this
ongoing compatibility requirement. And in order to maintain
that compatibility, we also had to always remit a royalty to
Microsoft.
Q Were you involved in any discussions about what actions
Santa Cruz would take with respect to Microsoft?
A Yes, I was.
MR. NORMAND: Now, Mr. Calvin, can we bring up SCO
Exhibit 127.
BY MR. NORMAND:
Q Ms. Madsen, do you recognize this document?
A Yes, I do.
Q In general terms, what is this document?
A This was an application with the European Union's
808
anticompetition division.
Q And did you have occasion to review this petition in
the course of your job responsibilities?
A I did.
MR. NORMAND: Your Honor, I would move SCO Exhibit
127 into evidence.
MR. JACOBS: Your Honor, objection on hearsay
grounds. Again, if they are offering this to prove that
something occurred during the asset purchase agreement as a
matter of fact, then it's hearsay. If they want to have
another document in to show Santa Cruz's state of mind, that
would be different.
MR. NORMAND: Your Honor, of course the document
goes to the parties' course of performance which, under Mr.
Jacobs' definition, would all be stricken because it's
hearsay. It's course of performance.
MR. JACOBS: It is not course of performance, Your
Honor. It's a unilateral statement made by Santa Cruz to a
regulatory body in Europe with no showing that Novell had
anything to do with it whatsoever.
MR. NORMAND: There is no requirement for course
of performance that the parties' conduct be bilateral, Your
Honor.
THE COURT: The Court will overrule the objection
and allow the admission of the document.
809
(Plaintiff's Exhibit 127 was received into
evidence.)
BY MR. NORMAND:
Q Now I think the jury can see the document, Ms. Madsen,
so we'll go through briefly what it is. It says in the
front, application for the initiation of proceedings
pursuant to Article 3 of Regulation 17/62 to establish the
existence of infringements Articles 85 and 86 of the Treaty
of Rome. Sounds important.
What was your recollection about where this was filed?
A This was filed with the anticompetition division of the
European union.
MR. NORMAND: Mr. Calvin, show the jury the middle
part of the document on the front.
BY MR. NORMAND:
Q When was this document filed?
A January 31st, 1997.
Q So how long after Amendment No. 2 is this being filed?
A I think it was just a couple months.
Q Let's go to Section 3.4. First sentence of section
3.4, it says, as a result of the chain of transactions
described below, SCO has now acquired ownership of the UNIX
program itself so that it no longer requires a license from
anyone to produce UNIX products. Do you see that language?
A That's right.
810
Q Is that language consistent with your understanding of
what SCO had acquired under the asset purchase agreement?
A Yes, it is.
Q Let's look at section 4.9. The next sentence of
section 4.9 says, quote, because it has acquired ownership
of the copyrights to UNIX from AT&T, SCO should be free to
develop new UNIX based works without the necessity of a
license from anybody. Do you see that language?
A Yes.
Q How does that assertion compare with your understanding
of what Santa Cruz had acquired under the asset purchase
agreement?
A That matches my understanding.
MR. NORMAND: Let's go to the top of page 12, Mr.
Calvin.
BY MR. NORMAND:
Q There is a reference in the top paragraph in the second
sentence, quote, whereas Microsoft is free to innovate and
change its Windows product line as it sees fit and price
them as it chooses, the copyright owner of UNIX is required
to include unnecessary features for a common product that no
longer exists and bear a royalty charge for the required
inclusion of such features.
The reference to the copyrights owner of UNIX, who is
that referring to?
811
A That's referring to SCO.
MR. NORMAND: Now, Mr. Calvin, let's look at the
last page of this document. We can bring out all of that
text.
BY MR. NORMAND:
Q You see the reference on the bottom left, Ms. Madsen,
to Brobeck Phleger & Harrison?
A Yes.
Q Is that the same firm that represented Santa Cruz in
connection with the asset purchase agreement?
A That's correct.
Q Let's go back to section 4.9. We had look before,
Ms. Madsen, at the statement, because it has acquired
ownership of the copyrights to UNIX from AT&T. Do you see
that language?
A Yes.
Q Is this statement consistent with your understanding of
Santa Cruz's ownership rights just after the execution of
Amendment No. 2?
A Yes, it is.
Q Do you know if Santa Cruz and Microsoft came to enter
into a settlement concerning the dispute reflected in this
petition?
A Yes, we did.
MR. NORMAND: Mr. Calvin, can we bring up SCO
812
Exhibit 199.
BY MR. NORMAND:
Q Ms. Madsen, do you recognize this document entitled
settlement agreement?
A Yes, I do.
Q Are you familiar with the settlement referenced in this
agreement, when it occurred?
A Yes.
Q Did you have occasion to review this settlement
agreement in the course of your job responsibilities?
A Yes, I did.
MR. NORMAND: Your Honor, I move SCO Exhibit 199
into evidence.
MR. JACOBS: Your Honor, same objection. This is
unilateral statements by SCO out of court about something
they claim there is probative value here, but this is not
showing Novell had anything to do with this.
MR. NORMAND: Your Honor, it goes to the same
argument I made before, and really the same as the document
we just went through and that was admitted into evidence.
THE COURT: The Court will overrule the objection
and admit Exhibit 199.
(Plaintiff's Exhibit 199 was received into
evidence.)
//
813
BY MR. NORMAND:
Q Ms. Madsen, the jury can see the document.
MR. NORMAND: Mr. Calvin, let's bring out the
title in the first paragraph of the document. Let's start
at the very stop, Mr. Calvin, so they see what this is.
BY MR. NORMAND:
Q This document is titled Settlement Agreement, and it is
made on what date, Ms. Madsen?
A May 29th.
Q Which year?
A 1998.
MR. NORMAND: Let bring that down, Mr. Calvin, and
look at the recitals. Down to the paragraph B.
BY MR. NORMAND:
Q Now do you see, Ms. Madsen, among the recitals in
paragraph B stating, quote, SCO has acquired AT&T's
ownership of the copyright in the UNIX System V operating
system program and is the successor in interest of AT&T and
the Centaur agreement, as subsequently amended?
A Yes, I do.
Q How does this language compare with your understanding
at the time as to what assets Santa Cruz had acquired under
the asset purchase agreement?
A It matches my understanding.
MR. NORMAND: Can we look at the last page of the
814
document, Mr. Calvin. Let's bring out the signature blocks.
BY MR. NORMAND:
Q Do you see the signature block for the Santa Cruz
Operation, Inc., Ms. Madsen?
A Yes.
Q Whose signature is that?
A Steve Sabbath's.
Q What was Mr. Sabbath's position as of the asset
purchase agreement?
A He was the senior vice president of law and corporate
affairs.
Q Did you ever have any discussion with Mr. Sabbath at
any time about the prospect that Novell had retained any
UNIX or UnixWare copyrights?
A No, I did not.
Q Did Mr. Sabbath ever say to you that Santa Cruz had
acquired only a license to the UNIX or UnixWare copyrights?
A No.
Q Now, in connection with Amendment No. 2, did Mr.
Sabbath ever say to you that Santa Cruz had agreed to a
process whereby Santa Cruz could ask Novell to transfer UNIX
or UnixWare copyrights?
A No.
Q In 1995, was it your understanding and intent that
Santa Cruz had acquired the UNIX and UnixWare copyrights?
815
A Yes, it was.
Q Did your understanding or intent ever change?
A No.
MR. NORMAND: No further questions, Your Honor.
THE COURT: Mr. Jacobs.
CROSS-EXAMINATION
BY MR. JACOBS:
Q The thickness is not representative of how long.
A Thank you.
Q But I do want you to have your deposition transcript in
case we have to refer to it.
A Okay. Thank you.
Q Ms. Madsen, good morning. I'm Michael Jacobs. I'm one
of the counsel for Novell in this action.
A Good morning, Mr. Jacobs.
Q So let's start at the beginning. You joined Santa Cruz
in the early '90s?
A Yes. I think it was 1990.
Q At that time Santa Cruz was already in the UNIX
business, wasn't it?
A It was.
Q It had a product called Open Server?
A I don't think Open Server was available when I first
started in 1990, but it did develop Open Server, yes.
Q There was a UNIX product available in 1990?
816
A Yes.
Q Santa Cruz developed that product as a flavor of UNIX,
correct?
A Yes.
Q It did so under a license originally from AT&T?
A Yes. I'm sorry.
Q Go ahead.
A And it also had a license from Microsoft.
Q The license from AT&T transferred to Novell when Novell
bought the UNIX subsidiary of AT&T, correct?
A I believe so.
Q Isn't that kind of key to your understanding of the
whole chain of transactions here, Ms. Madsen, that Novell
acquired the UNIX business originally from AT&T?
A Yes.
Q So at that point Santa Cruz was a licensee of Novell
under the original AT&T, Santa Cruz license, correct?
A Yes.
Q Santa Cruz was developing its flavor of UNIX under a
license from Novell?
A SCO had a license with Novell. It also had a license
from Microsoft. It developed its flavor of UNIX pursuant to
those agreements.
Q Santa Cruz had developed a pretty substantial business
around its flavor of UNIX at that time, correct?
817
A Yes.
Q And it had -- I think we've been told in court that
Santa Cruz had about a thousand employees at that point?
A That sounds right.
Q Doing about $200 million a year in business?
A 200 million was what it probably did at its peak.
Q It did so insofar as the UNIX product -- the UNIX
flavor was concerned, it did so under a license from
AT&T-Novell and a license from Microsoft, correct?
A Yes.
Q So at that point there was no issue that Santa Cruz
didn't own the copyrights to the underlying UNIX code, did
it?
A Not at that time, no.
Q Now you have said, as have many witnesses in this trial
so far, that you understood that Santa Cruz was acquiring
the whole UNIX business from Novell; is that right?
A Yes.
Q Let me ask you to take a look at an internal Santa Cruz
announcement from the time of the asset purchase agreement.
THE COURT: What is this identified as, Mr.
Jacobs?
MR. JACOBS: This is SCO Exhibit 163, Your Honor.
THE COURT: SCO 163.
//
818
BY MR. JACOBS:
Q Take a look at the first -- as much as you want, but
take a look at the first two pages of that, Ms. Madsen. I
don't know that you've seen it recently, so take a moment.
The highlighting, by the way, Ms. Madsen, comes from Santa
Cruz.
Ms. Madsen, were you at Santa Cruz on September 19th,
1995?
A Yes.
Q You were an employee of Santa Cruz?
A I was.
Q And you likely received this announcement by Alok
Mohan, the CEO of Santa Cruz, in connection with the
acquisition of the UNIX business from Novell, correct?
A I have no specific recollection of receiving this, but
I have no reason to doubt that I did.
MR. JACOBS: Your Honor, we move SCO Exhibit 163
into evidence.
THE COURT: Mr. Normand.
MR. NORMAND: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 163 was received into
evidence.)
BY MR. JACOBS:
Q So just to review, Ms. Madsen, this is a message from
819
Alok Mohan, the CEO of Santa Cruz, correct?
A Yes.
Q It's dated September 19th, 1995, and the subject is the
acquisition of the UNIX business from Novell and
relationship announcement to all SCO employees. Do you see
that?
A Yes.
Q I would like to focus your attention on the portions
that SCO, when it marked the exhibits, has highlighted. So
let's look at the first box there, Ms. Madsen. Do you see
Mr. Mohan represents to the company, today, we announced the
purchase of the UNIX business from Novell? Do you see that?
A Yes.
Q So I'm just going to try my hand at a little drawing,
Ms. Madsen, to see if we can help the jury understand this.
If we imagine there is a UNIX business, that announcement
suggests that that whole business -- or that portion of the
announcement suggests that whole business is going to Santa
Cruz, right?
A Yes.
Q So we announced the purchase of the UNIX business from
Novell. That would be a pretty simple transaction. We
bought the whole UNIX business. Here's the pie. The
business goes from Novell to Santa Cruz, correct?
A Yes.
820
Q But, in fact, the transaction was more complicated than
that, wasn't it?
A It was.
Q So let's look at what Mr. Mohan says in the next
portion that SCO highlighted when they marked this exhibit,
and let's take it literally word by word, Ms. Madsen. SCO
has signed an agreement with Novell whereby we become the
owner of the UnixWare product line and UnixWare licensing to
OEMs. Do you see that?
A Yes.
Q Then he says, in addition, we will manage the licensing
business for UNIX prior to UnixWare 1.0 (SVRX). Do you see
that?
A I do.
Q Mr. Mohan, as he gets a little more detailed, is now
dividing up our pie, isn't he, Ms. Madsen? Isn't he really
dividing the pie between UNIX and UnixWare?
A No, I don't think that is a fair characterization.
Q Doesn't he say that we're acquiring the UnixWare
business, it looks like that portion of the business is
going to go to Santa Cruz under this announcement, but as to
UNIX, Mr. Mohan is saying, we get a little sliver of it
because we're going to manage the licensing business, but
we're not doing anymore than that as to UNIX? Doesn't it
say that, Ms. Madsen?
821
A No, that's not my understanding of what he's trying to
convey.
Q Ms. Madsen, isn't he going to say we're going to manage
the licensing business much as you might hire a manager for
a piece of property to rent out apartments to potential
tenants?
A No, that's not my understanding of the intent of what
he's trying to say here.
Q Isn't it true that Santa Cruz was, with respect to the
System V Release X UNIX product licenses from Novell, merely
Novell's agent in managing that property?
A No.
Q Let's take a look, please, Ms. Madsen, at Exhibit D-11.
This is a different Securities and Exchange Commission
filing, the form 10-K from right around the time -- I'm
sorry. This is from Caldera after the acquisition under its
agreement with Santa Cruz. So this is a form 10-K filed by
Caldera, the plaintiff in this action. Do you see that,
Ms. Madsen?
A Yes.
Q Take a look at page --
MR. JACOBS: Let's move this exhibit into
evidence, Your Honor.
THE COURT: Any objection?
MR. NORMAND: I am not sure we've layed a
822
foundation yet.
THE COURT: Let's have a few more questions.
BY MR. JACOBS:
Q You conveyed to Caldera, that is you, Mr. Sabbath and
others at Santa Cruz, your understanding of the relationship
between Santa Cruz and Novell under the asset purchase
agreement, didn't you, Ms. Madsen?
A I am not sure I understand the question.
Q Did you have discussions with Caldera, which became
SCO, the plaintiff in this action, did you have discussions
with them about your understanding of the asset purchase
agreement and how it worked?
A Yes.
Q So let's turn to page 42 of this form 10-K.
After all, Caldera wasn't there in 1995 and 1996,
correct?
A Correct.
Q So what they learned, they learned from the documents
and from what you and others at Santa Cruz told them about
the asset purchase agreement?
A We would have been one source of knowledge. I can't
say that we would have been their only source.
MR. JACOBS: Your Honor, this is a 10-K filed by
the plaintiff in this action. We would move it into
evidence as an admission of a party opponent, Exhibit D-11.
823
MR. NORMAND: I'm not sure a foundation has been
laid with this witness. She hasn't testified to any
personal involvement.
MR. JACOBS: I don't believe we need a foundation
for an admission by a party opponent, and I could ask her
whether this admission comports with her understanding, such
as Mr. Normand did with documents that Santa Cruz filed.
MR. NORMAND: Your Honor, if we have that
understanding going forward, that's okay, but we've been
trying to lay foundation with witnesses to date.
THE COURT: Were you still with -- after Caldera
obtained the assets from Santa Cruz, were you with -- did
you go with Caldera or did you stay with what remained of
Santa Cruz?
THE WITNESS: I stayed with what remained of Santa
Cruz.
THE COURT: Do you have any other witness that
will be able to have -- if you can tell me you will be able
to establish a foundation for this subsequently, I'm going
to allow you to go ahead. Will you be able to do that?
MR. JACOBS: We will, Your Honor. We'll establish
it.
THE COURT: I'll allow the admission of D-11 based
upon the representation that a better foundation will be
laid in the future.
824
(Defendant's Exhibit D-11 was received into
evidence.)
BY MR. JACOBS:
Q Do you see the discussion on page 42 of this exhibit,
Ms. Madsen, about the arrangement with Novell?
A Which section in particular are you referring to.
Q It's called restricted cash and royalty payable to
Novell, Inc.?
A Yes.
Q It says, the company has an arrangement with Novell in
which it acts as an administrative agent in the collection
of royalties for customers who deploy SVRX technology. Do
you see that?
A I do see that.
Q It says, under the agency agreement, the company
collects all customer payments and remits 95 percent of the
collected funds to Novell and retains five percent as an
administrative fee. Do you see that?
A I see those words.
Q And the agency agreement that's been referred to is the
asset purchase agreement, correct?
A I don't know. I am unaware of any agency relationship.
Q So when Mr. Mohan -- back to 163 -- said, in addition,
we will manage the licensing business for UNIX prior to
UnixWare 1.0 (SVRX), you didn't understand that that was
825
managing as Novell's agent?
A I didn't understand that there was an agency
relationship, no.
Q You understood that -- are you disputing the truth of
that sentence, Ms. Madsen?
A I'm not disputing it, I'm just saying I have no
knowledge --
THE COURT: Which sentence? The one in the
agreement or the one in the 10-K?
MR. JACOBS: Sorry, Your Honor.
BY MR. JACOBS:
Q In addition, we'll manage the licensing business for
UNIX prior to UnixWare 1.0. Are you disputing the truth of
that sentence, Ms. Madsen, the accuracy of it?
A I think you were saying two different things. You keep
talking about an agency relationship, of which I have no
specific knowledge, or general knowledge. With respect to
Mr. Mohan's statement, he sent out a memo to all employees,
so he is giving a general overview of the transaction for
that audience. This wasn't prepared for attorneys review or
executives review, but for all employees.
Q So it's a simplification?
A I wouldn't disagree with that.
Q As is the sentence we're purchasing the UNIX business
from Novell a simplification?
826
A Simplification, sure. It's one sentence that is
describing a complicated transaction.
Q A complicated transaction documented in a lot of
complicated transactional documents, isn't it, Ms. Madsen?
A I'm sorry. What was the question?
Q It's a complicated transaction documented in
complicated transactional documents, the asset purchase
agreement?
A It is a complicated transaction, yes, I'll agree with
that.
Q So I'm going to hand you SCO Exhibit 1, Ms. Madsen.
SCO Exhibit 1 is the asset purchase agreement with its two
amendments, Amendment No. 1 and Amendment No. 2. I'll hand
to you the last piece of paper in this stack.
A Okay.
Q I would like to -- if we go back to the pie chart a
little bit, I would like to start with your understanding of
the transaction as refreshed by the asset purchase
agreement, or whatever else you have in mind. Let's start
with the UNIX portion of this and the portion that was
simplified by Mr. Mohan in his sentence, in addition, we
will manage the licensing business for UNIX prior to
UnixWare?
A Uh-huh. (Affirmative)
Q So if you turn to section 4.16(b) in particular,
827
Ms. Madsen --
A I'm sorry. 4.16(b) of what?
Q Of SCO Exhibit 1, the asset purchase agreement?
A I'm sorry. I thought you had referred me to Amendment
No. 2.
Q No. I was just describing the package.
A Oh, okay.
Yes.
Q This is about SVRX licenses, correct?
A Yes.
Q And Mr. Mohan, in his message to the troops, refers to
managing the licensing business for UNIX prior to UnixWare
1.0 (SVRX)? Do you recall that?
A Yes.
Q It says, 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. Do you see that?
A I do.
Q Then it says, 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. Do you see that?
A I do.
828
Q And you've worked on a lot of transactional documents,
you had some experience in '95 and '96, you understand the
meaning of the words sole discretion and direction, correct?
A I understand what those words mean.
Q They mean that, here, seller, Novell, in its sole
discretion and direction, can tell buyer, SCO, what to do
under these licenses, doesn't it?
MR. NORMAND: Your Honor, this is calling for a
legal conclusion, which is not something I asked.
BY MR. JACOBS:
Q That was your understanding at the time, wasn't it, Ms.
Madsen, when your eyes passed over these words?
THE COURT: I will overrule the objection.
THE WITNESS: No, that was not my understanding of
the transaction. It was so that it could modify or amend
the royalties related to the SVRX license.
BY MR. JACOBS:
Q Do you see that word reflected here, Ms. Madsen?
A No.
Q So are you relying, for your understanding, on the
language of the asset purchase agreement or on something
else?
A I'm relying on the intent of the agreement.
Q The intent from where? Intent isn't in the air, is it,
Ms. Madsen? It comes from somewhere, doesn't it?
829
What are you basing that on? You are in court and
you're telling this jury, you are explaining that you think
there is an intent to the agreement that's different than
these words, right?
A Yes, I'm relying on conversations that were held
internally among SCO personnel as well as conversations with
Novell.
Q What specific conversations are you relying on with
Novell in which somebody said to you, Ms. Madsen, this
language is limited -- this language is limited to the
binary royalty stream?
A I remember conversations with Novell where Novell was
concerned about SCO's financial viability and therefore
needed to protect the binary royalty stream as a way to
protect its interests in the event that SCO became
insolvent.
Q That was a very important concern of Novell, correct?
A It was a concern of Novell's. I can't say how
important it was.
Q But in connection with this language, Ms. Madsen -- I
want to distinguish, you've been in a lot of negotiations,
right? You're an experienced negotiator, yes?
A I have been in a lot of negotiations.
Q Negotiators can talk to each other about what is
bothering them at a particular moment, what is of concern to
830
them in a particular moment as a way of explaining to the
other side what's going on in their head at that time,
right?
A Yes.
Q That may reflect at that moment an intent behind a
particular provision?
A Sure.
Q Of course, the language itself may be broader than that
specific intent reflected at that particular moment,
correct?
A Yes.
Q It's the language that the negotiators intend to
control, right, not what they say to each other across the
table at that moment? Based on your experience, isn't that
right, isn't that what you do with your contracts?
A I'm sorry. I've lost track of what the question was.
Q The question is this: Isn't there -- don't you
understand, as a negotiator of contracts, that what somebody
says as a concern that may be reflected in some language is
different from what the deal is, the deal is what is in the
language, isn't it, Ms. Madsen?
A The deal is is what is in the contract. But you have
to -- I think you have to look at the contract in the
context.
Q Ms. Madsen, just to review where we were on 4.16(b),
831
the language includes, if you truncate it a little bit, in
addition, at seller's sole discretion and direction, buyer
shall assign any rights to any SVRX license to the extent so
directed in any manner or respect by seller. Do you see
that?
A I see it.
Q That language, you understood, as your eyes passed over
that language in 1995, that that language meant that Novell
could direct Santa Cruz to assign rights under an SVRX
license to someone else?
A That is not how I understood it in 1995.
Q That's not how you understood the words, Ms. Madsen?
That's not how you understood the words of this contract?
A No, that isn't how I understood it.
Q You have a specific recollection of 1995, 15 years ago,
you have a specific recollection of your eyes passing over
this language and thinking something different from what I
just read and said to you?
A I have no specific recollection. I have a general
recollection of not understanding the intent to mean how you
have interpreted it.
Q So you have no specific recollection of understanding
these words differently than the way I just articulated it?
A That's correct.
Q Because the words say that Novell, for whatever reason
832
it wants, in its sole discretion, can tell the buyer, Santa
Cruz, assign the rights under the SVRX licenses to someone
else, that's what the words say?
A Is that a question?
Q Yes.
A That's what the words say.
Q Terrific.
That's like an agency, isn't it, Ms. Madsen? That's
like when you hire a real estate agent, you know what, you
are fired. I don't like the way you are selling my house.
I'm going to assign the right to sell my house on my behalf
to someone else. Isn't that right, Ms. Madsen?
A No. I really don't know very much about agency
relationships, so I couldn't make that statement one way or
the other.
Q You never had any relationship with a property manager?
Let's say, it's like a property manager, isn't it,
Ms. Madsen, where you say to the property manager, you're
not doing a good job with these apartments, I'm going to
assign your right to be my property manager to someone else?
Isn't it like that, Ms. Madsen?
A That's not what I understood this provision to mean.
Q Then if we go back to SCO Exhibit 163, Mr. Mohan's memo
to the troops, he says, in addition, Santa Cruz will manage
the licensing business for UNIX prior to UnixWare?
833
A Yes.
Q That's consistent with the language of section 4.16(b),
or 4.16(a), for that matter, if you want to take a look at
it, that buyer shall administer the collection -- let's look
at (a) for a minute, buyer shall administer the collection
of all royalties, fees and other amounts due under all SVRX
licenses. Do you see that?
A Yes.
Q Administer, that's pretty close to the word Mr. Mohan
used, isn't it, manage?
A Yes.
Q So, in fact, in this particular sentence, you haven't
seen anything that's inconsistent in the language of the
asset purchase agreement with Mr. Mohan's nice simple
sentence, we will manage the licensing business for UNIX
prior to UnixWare, correct?
A No, I haven't seen anything inconsistent.
Q Let's turn to the other half of the pie. Let's turn to
the UnixWare side of things. Here, Ms. Madsen, I think I'm
going to agree with you that this is a simplification from
UnixWare, we signed an agreement with Novell whereby we
become the owner of the UNIX product line and the UnixWare
license for the OEMs. Do you recall that sentence from
Mr. Mohan's e-mail?
A I'm sorry, where is that?
834
Yes, I see that.
Q So let's talk about -- let's walk through your
understanding of Santa Cruz's role with respect to UnixWare
at the time of the asset purchase agreement. Let's see if
we can work through this. There are some provisions in the
asset purchase agreement. With your knowledge of the APA, I
think we can help the jury understand how this works.
So let's turn first to 1.2(b) of the asset purchase
agreement, SCO Exhibit 1, section 1.2(b).
Section 1.2(b), the first half of it is about SVRX
royalties. Do you see, Ms. Madsen?
A 1.2(b), yes.
Q Then there's transition about -- I don't know, about
ten lines down, in addition, buyer agrees to make payment to
seller. Do you see that? It's on the screen.
A Yes. Thank you.
Q Mr. Lee knows the asset purchase agreement intimately
by now.
It says, on account of buyer's future sale of UnixWare
products. Do you see that?
A Yes.
Q So buyer is going to make payments to seller -- Santa
Cruz is going to make payments to Novell on account of Santa
Cruz's future sale of UnixWare products, that's consistent
with your understanding of the agreement, correct?
835
You said if they hit the royalty threshold or the sale
threshold, there will be royalty payments, right?
A Yes.
Q It says, that seller is going to sell -- I'm sorry,
buyer, Santa Cruz, is going to sell UnixWare products,
doesn't it?
A Yes.
Q So there is no doubt under the asset purchase agreement
that Santa Cruz was given the right to sell UnixWare, is
there?
A No.
Q Then in the next sentence it says, the amounts and
timing of additional royalties to be paid in connection with
buyer's sale of the UnixWare products are identified in
detail on schedule 1.2(b) hereto. Do you see that?
A Yes.
Q Let's go to schedule 1.2(b). In fact, here is the
royalty schedule, correct?
A Yes.
Q And down at the bottom below, I think (b) of this
schedule, is all the discussion of the various thresholds
that have to be met, the forecasts, before the royalties are
due. Do you see that?
A No. Where is the forecast?
Q Amount of royalties, including an annual forecast by
836
seller.
A Yes.
Q But if we go up into (a), we understand what the
royalty-bearing products that Santa Cruz is going to sell
are. Do you see that?
A Yes, I see that.
Q It says, royalties shall be paid on sales of the
following products by buyer, buyer's inventory?
A That's correct.
Q It refers to UnixWare, for example, right?
A Yes.
Q So Santa Cruz is going to make payments for its sales
of UnixWare, isn't it, in accordance with the schedule?
A Yes.
Q And then down in (v) it says, any derivative, upgrades,
updates or new releases of little (i) through Roman (iv)
above. Do you see that?
A Yes.
Q So the royalty-bearing products are UnixWare -- among
others, are UnixWare and any derivatives, upgrades, updates
or new releases of UnixWare, right?
A I see this, but I don't have any specific recollection
of what the understanding of this language was at the time.
So, I mean, I can read this and say, yes, I see this. But
if you're asking me about my knowledge about it, I just
837
don't recall much discussion about this particular
provision.
Q But in some cases you have an understanding of the
parties' intent that's different from the words as I'm
reading them to you. In this case, that is consistent with
your understanding of the parties' intent, or at least not
inconsistent, correct, Ms. Madsen?
A I just don't remember what the intent was, so I have no
reason to believe it's inconsistent.
Q The language, as you see it and as you recall your
understanding of the overall intent of the parties, is
pretty clear that Santa Cruz is going to be making
derivatives, upgrades, updates or new releases of UnixWare,
right?
A Yes, that was the intent.
Q Now let's go a little more deeply for just a few
minutes so that the jury gets a sense of the overall
structure of this agreement. Take a look at section 4.18.
Part of the intent of the parties to the asset purchase
agreement was that Santa Cruz was actually going to develop
a product that was jointly specified by Novell and Santa
Cruz, correct?
A Jointly specified by?
Q Yes. The merged product, the specifications for the
merged product Novell and Santa Cruz had agreed to, correct?
838
A I don't know.
Q Do you see that -- you see the merged product there,
right?
A Yes.
Q You had an understanding that there was going to be a
merged product developed by Santa Cruz, correct?
A Yes.
Q And it's pretty clear that in this provision, that's
what Santa Cruz is going to do, develop the merged product,
right?
A Yes.
Q It's given both the right and the obligation to take
the assets it's acquiring under the asset purchase agreement
and develop a merged product, right?
A Yes.
Q And then it says, in the second sentence, buyer shall
use its commercially reasonably efforts to complete the
merged product. Do you see that?
A Yes.
Q And the merged product is going to be defined into yet
another document that I don't think the jury has seen yet
called the operating agreement. Do you see that?
A Yes.
Q Then it sells, buyer shall be entitled to modify the
specifications of the merged product. Do you see that?
839
A Yes.
Q It refers to this architecture board that is going to
review the specifications of the merged product?
A I do.
Q So although what is happening here, consistent with
your understanding of the asset purchase agreement,
Ms. Madsen, is that actually the road map, the product road
map for Santa Cruz as it relates to the assets its acquiring
relevant to UnixWare, that product road map is agreed to by
the parties, isn't it?
A I have no knowledge of the product road map.
Q And no knowledge of this part of the asset purchase
agreement?
A I remember reviewing this part of the asset purchase
agreement, but the details behind this would have been
supplied by other groups.
Q There was a road map?
A Okay.
Q You agree with that. It was supplied by others?
A The details to support this provision would have been
supplied by others. I have no knowledge of a road map. I
don't recall seeing a road map.
Q Fair enough.
THE COURT: Mr. Jacobs, how much more do you have?
MR. JACOBS: I have about 25 minutes, Your Honor.
840
THE COURT: Okay. Why don't we go ahead and take
a recess now.
Ms. Malley.
(Jury excused)
THE COURT: We'll take 15 minutes.
(Recess)
***** Part 2 *****
THE COURT: Are you ready, counsel?
MR. JACOBS: Yes, Your Honor.
(Whereupon, the jury returned to the court
proceedings.)
THE COURT: Where did our witness go?
Go ahead, Mr. Jacobs.
Q. BY MR. JACOBS: Ms. Madsen, over the course of your
time at Santa Cruz, various internal issues would arise in
which people were needing advice about how to apply the asset
purchase agreement day to day; correct?
A. Yes.
Q. And you were involved in the rendering of that
advice to the individuals who asked questions; correct?
A. From time to time.
Q. So you had occasion during your time at Santa Cruz
to actually sit down with the asset purchase agreement, sort
through the provisions, many of which we're discussing today,
and figure out how they actually apply to the day-to-day
business of Santa Cruz; correct?
A. From time to time, yes.
Q. Let me ask you about, I mentioned this before the
break, the operating agreement, Exhibit X5. If you turn to
the signature page, Ms. Madsen, you'll see that the agreement
was executed by the CEO of Santa Cruz. Do you see that?
A. I do.
841
MR. JACOBS: Your Honor, we would move X5 into
evidence.
MR. NORMAND: No objection.
THE COURT: X5 will be admitted.
(Whereupon, Defendant's Exhibit X5 was received.)
Q. BY MR. JACOBS: So as I mentioned, Ms. Madsen, I
don't think the jury has seen this piece of the package of APA
related agreements. But you had seen this around the time of
the asset purchase agreement; correct?
A. Yes. I have a general recollection of seeing this.
Q. And the operating agreement is referred to in the
asset purchase agreement as one of the other pieces of the
transactional arrangement; correct?
A. I believe so.
Q. And in particular, Ms. Madsen, take a look with
me -- well, let's go to just the introductory paragraph. Do
you see, this operating agreement is made by and between Santa
Cruz Operation and Novell?
A. Yes.
Q. And the effective date is the closing date, do you
see that?
A. Yes.
Q. And the closing date is the defined term in the
asset purchase agreement, but it was actually, I'll represent
to you, December 6th, 1995; correct, Ms. Madsen?
842
A. That sounds right.
Q. So now let's look at, product and channel strategy,
on Page 5 of X5. And we're talking in the operating agreement
about, in this section in particular, about UnixWare. Do you
see that?
A. In which section? I'm sorry?
Q. Product and channel strategy, B(i), as the closing
date.
A. Yes.
Q. It says: SCO will begin to distribute, offer,
promote and market UnixWare through the channel, the
distributorship channel that's there.
Do you see that?
A. Yes.
Q. And it says:
Novell will cease distributing UnixWare
product through its indirect channel and cease
signing the distribution agreement.
Do you see that?
A. I do.
Q. So the contract is pretty clear as of the closing
date and it is consistent with your understanding that as of
the closing date Santa Cruz would be the UnixWare business in
terms of actually selling UnixWare products; right?
A. Yes.
843
Q. And Novell would, through the mechanisms set forth
in the asset purchase agreement and the operating agreement
transfer that sales relationship, those customer
relationships, to Santa Cruz; correct?
A. Yes.
MR. JACOBS: May I, Mr. Hatch, borrow this for a
second?
MR. HATCH: Sure.
Q. BY MR. JACOBS: And when we're talking about
UnixWare we are talking about something like this; right,
Mrs. Madsen?
A. Wow. I haven't seen this in a long time. Yes.
Q. It's a disk; right?
A. Yep, it is.
Q. So when we talk about distributing UnixWare, we're
not talking about anything much more than distributing these
packages; right? These disks?
A. I'm sorry. I lost the question.
Q. This is how UnixWare was distributed in 1995-1996,
on a disk; right?
A. Umm, you know what, I don't know that that was the
only way that it was distributed. We may have -- we may have
distributed it electronically. I'm not sure.
Q. Okay. So let's go on and see if this refreshes
your recollection about how all of this was going to occur.
844
This specifies, first of all, as we began that
Santa Cruz is, in fact, going to distribute and market
UnixWare; correct?
A. Yes.
Q. And that was your understanding at the time?
A. That was my understanding at the time.
Q. And it is clear in the contract, isn't it, that
that's one of the rights and obligations of Santa Cruz, to
distribute the UnixWare software?
A. Yes.
Q. And so there's no -- you don't see any -- you
didn't have any at the time, there was never any issue,
Santa Cruz had permission from Novell to distribute UnixWare?
A. That's right. That was one of the fundemental
pieces of the asset purchase agreement. We were acquiring all
right, title and interest in UnixWare.
Q. Now, if you look at little (b) little iv, Roman iv.
A. Yes.
Q. It says:
SCO will continue to offer OpenServer
Release V in conjunction with the UnixWare 2x
after the closing date.
Do you see that?
A. I do.
Q. So that was the legacy, the older Santa Cruz
845
product, and now it's going to be -- and this is making clear
and this is your understanding that both products would be in
distribution after the closing date?
A. Yes.
Q. You know what, Ms. Madsen. I don't believe in
trick questions. So if I'm going to ask you a trick question,
I'll raise my hand and warn you in advance, okay? So for the
moment I just want to walk you through your understanding of
the asset purchase agreement at the time and how the contract
worked, okay?
A. Okay.
Q. So in the next sentence:
Additionally SCO will begin offering Eiger
binary and source offerings.
Do you see that?
A. Yes.
Q. So there is explicit grant or permission for SCO to
offer the Eiger release. Do you see that?
A. You know, I'm uncomfortable with the word
permission. But it does reflect the intent that SCO would be
offering Eiger binary. I don't know that we needed
permission.
Q. But it certainly could be understood as both a
right and obligation under the contract to do that; right? To
agree to offer Eiger binary and source offerings?
846
A. It was SCO's intent to offer Eiger binary and
source offerings, yes.
Q. And then in the next sentence we're talking about
the merge product. Do you see that?
SCO will also offer a binary and source
offering of the merged products.
A. Right.
Q. So at the time in the first half of 1997?
A. Yes.
Q. So that's an explicit permission about SCO's
offering of the merged product; right?
A. Again, I don't -- I'm not comfortable with the word
permission. I don't see where this is permission. It's
stating what SCO intends to do. It will offer binary and
source offerings of the merged product.
Q. And Novell is agreeing that that's what Santa Cruz
will do.
A. Yes.
Q. Now, if you turn to Page 6 of the operating
agreement, product packaging.
A. Uh-huh (affirmative).
Q. This is back to our disk package.
A. Uh-huh (affirmative).
Q. Commencing after the closing date, SCO
plans to sell the UnixWare 1.1 and the
847
UnixWare 2.x product and may use existing
Novell inventory with the SCO sticker on it.
Do you see that?
A. I do.
Q. So that's how the distribution will occur right
after the closing date; right?
A. I see that, yes. Again, I really don't have any
specific knowledge about our distribution processes.
Q. You recall the operating agreement?
A. I recall the operating agreement.
Q. You recall picking up the operating agreement from
time to time to understand the party's rights and obligations
under the asset purchase agreement?
A. I do.
Q. Next sentence, Ms. Madsen.
A. Yes.
Q. Once this stock is exhausted, SCO will
be responsible for manufacturing all products
in the UnixWare 1.1 and UnixWare 2.x product family.
Do you see that?
A. Yes. Yes.
Q. And so once again, the operating agreement is quite
clear at this moment in time, that is, once the stock is
exhausted, SCO is going to manufacture; right?
A. Yes.
848
Q. SCO is going to take these, re-using this
distribution mechanism, SCO is going to cut the disks; right?
A. Yes.
Q. The contract is clear that SCO has both the right
and obligation to do that, isn't it?
A. Yes.
Q. No issue ever came up between the parties with
respect to this question of whether SCO would actually have a
right to make disks of UnixWare, did it?
A. Not that I'm aware of, no.
Q. Mr. Normand asked you about Amendment X. Do you
recall this question on that subject?
MR. NORMAND: Your Honor, that's not true.
THE WITNESS: No. I don't recall any discussion of
Amendment X.
Q. BY MR. JACOBS: Do you recall Amendment X?
A. I do.
Q. That was the amendment between Santa Cruz, Novell
and -- Santa Cruz and Novell that resolved the dispute about
the IBM buyout; correct?
A. Yes.
Q. And you were involved in that dispute?
A. Yes.
Q. And you were involved in some way in Amendment X;
correct?
849
A. Yes.
Q. And Mr. Normand is correct. I'm refreshed, my
recollection is refreshed. We didn't talk specifically about
Amendment X. You didn't talk with Mr. Normand about that, but
you did talk about the IBM dispute; correct? The buyout
dispute?
A. I do remember that giving rise to Amendment 2.
Q. Do you recall it giving rise to Amendment X, also?
A. I do, yes.
Q. So let me hand you this. This is O8.
And if you'll turn to the signature page for
Santa Cruz you'll see that Steve Sabbath signed this
agreement. Do you see that?
A. Yes.
MR. JACOBS: Your Honor, we offer O8 into evidence.
MR. NORMAND: No objection, Your Honor.
THE COURT: It will be admitted.
(Whereupon, Defendant's Exhibit O8 was received.)
Q. BY MR. JACOBS: Now, Ms. Madsen, if you look at the
top of this document, you'll see it's, International Business
Machines Corporation, The Santa Cruz Operation, Novell. Do
you see that?
A. I do.
Q. And then if you look at the next several lines, it
says:
850
Amendment Number X to software agreement
SOFT-00015.
Do you see that?
A. I do.
Q. You became familiar with the structure of the old
AT&T UNIX licensing system that applied to companies like IBM
that were in the business of creating their own flavor of
UNIX; correct?
A. Marginally familiar. I relied on other people who
had greater familiarity to inform me about those agreements.
Q. Were you familiar with what a software agreement
SOFT-00015 would contain? Let me help you.
A. At that time, yes, I would have. But as I sit here
today, I have no specific knowledge of the contents of that
agreement.
Q. Do you recall that the software agreement
SOFT-00015 is kind of a master agreement in that the
sublicensing agreement and the supplements are part of a
package with the software agreement?
A. I remember that there was a master, and then there
was a supplement, but I don't remember which was which.
Q. So you don't recall which agreement was the
software agreement, the sublicensing agreement and the
agreement, do you?
A. No. Not as I sit here today, no.
851
Q. So in conjunction with the asset purchase
agreement, if we go back to 4.16(b) or 4.16(a), when it refers
to SVRX licenses in the asset purchase agreement, you don't
have an opinion one way or another whether it's referring to
the entire package of agreement, the software agreement, the
supplement and the schedule or pieces of those agreements, do
you?
A. It was my understanding that it related to a
subsection of the agreement relating to the distribution of
binary royalties.
Q. And that was your understanding as you worked at
Santa Cruz?
A. That's correct.
Q. In the legal department of Santa Cruz?
A. Correct.
Q. Under Steve Sabbath?
A. Yes.
Q. The lawyer at Santa Cruz?
A. Yes.
Q. Who signed the agreement?
A. Yes.
Q. Hand up. Take a look at Recitals on O8.
A. Yes.
Q. Do you see there the Recitals, the first sentence
of the recitals?
852
A. Uh-huh (affirmative).
Q. AT&T and IBM entered into various software
license agreements concerning the software product
UNIX System V Release 3.2.
Do you see that?
A. I see that language.
Q. Which are software agreement, SOFT-00015 as
amended.
A. Uh-huh (affirmative).
Q. That's the software agreement; right?
A. Yes.
Q. Sublicensing agreement SOFT-00015 as amended. Do
you see that?
A. Yes.
Q. And then software agreement SOFT-00015
Supplement Number 170 as amended.
Do you see that?
A. Yes.
Q. Or any other supplements that pertain to --
THE COURT: Mr. Jacobs, will you slow down when you
start reading?
MR. JACOBS: Sure.
Q. BY MR. JACOBS: Or any other supplements that
pertain to prior versions or releases of the software
product.
853
Do you see that?
A. Yes.
Q. And substitution agreement XFER-00015B.
A. Yes.
Q. And then that's all the defined terms in related
agreement.
Do you see that?
A. I do.
Q. And then it says: Novell acquired AT&T rights
under the related agreement.
Do you see that?
A. Yes.
Q. And then it says:
In an agreement between Novell and SCO dated
September 19, 1995, the asset purchase agreement,
SCO purchased and Novell retained certain rights
with respect to the related agreements.
Do you see that?
A. I do.
Q. That makes clear, does it not, that Novell retained
rights with respect to the supplements, the sublicensing
agreement and the software agreement? Doesn't it, Ms. Madsen?
A. No, I don't believe so; because the first sentence
is talking about the agreements that were entered into between
IBM and AT&T, and the second sentence is saying that Novell
854
retained certain rights with respect to the agreements, but it
doesn't say which ones.
Q. Okay. So you're reading that and your
understanding at the time is that it retained certain rights
with respect only to some of the related agreements?
A. I don't know -- I mean, without looking at these
agreements it's really hard for me to talk about the specifics
of the sublicensing agreements and the software agreements and
the supplements.
Q. All right. Fair enough, Ms. Madsen.
Let's go back, then, to SCO Exhibit 1.
You testified in your direct examination as to your
role in the original asset purchase agreement. Do you recall
that back and forth with Mr. Normand?
A. Yes.
Q. And by the original asset purchase agreement
meaning the version that was signed on September 19th, 1995.
A. Yes.
Q. Do you recall that back and forth?
A. Yes.
Q. There is a section in this agreement, Section 1 in
Article One that defines what's going to Santa Cruz and what's
being kept by Novell; right?
A. Yes.
Q. It's the purchase of asset section; right?
855
A. Yes.
Q. And you understood that at the time?
A. Yes.
Q. So my hand is up again. You have a specific
recollection as you sit here today of understanding that
1.1(a) was the purchase and sale of assets provision that
governed the -- what Novell would sell to Santa Cruz and what
Novell would retain?
A. Well, I think the entire agreement talks about what
is being conveyed. So, I mean, I hesitate to just pluck out
one sentence and say that captures in its entirety what assets
are being transferred.
Q. My question was a little different. I'm trying to
figure out what exactly you remember about 1995, 15 years ago,
versus what looking at the agreements, trying to understand
the general context, you're trying to think what must have
happened --
A. Yes.
Q. -- back in 1995?
A. Yes.
Q. That's the thrust of my question.
A. Yes.
Q. So is it more the former or more the latter? What
you specifically remember or what you're able to reconstruct
and say must have happened based on the documents and the few
856
things that you do actually remember?
A. It's both. And it would be hard for me, you know,
to draw a bright line between the two. But it's both.
Q. All right. Then let's go through this a little
bit. You understood that Section 1.1(a) says that Novell
is going -- in a nutshell it says that Novell is going to sell
to Santa Cruz the assets identified on Schedule 1.1(a), but
there's a Schedule 1.1(b). And Schedule 1.1(b) is controlling
as to what is excluded; correct, Miss Madsen? You understood
that?
A. Well, I understood that the two worked together.
Q. Well, that you understood that the language, not
withstanding the foregoing, means that the excluded asset
sentence, if you will, is more powerful than the included
asset sentence; right?
A. No, I would disagree with that characterization.
The excluded assets might modify, but more powerful? No, I
wouldn't agree with that characterization.
Q. In your understanding and belief, sometimes lawyers
talk about one provision trumping another provision? Isn't it
true that the excluded asset schedule trumps the included
asset schedule if there's a disagreement between the two?
A. I don't know.
Q. You don't know what, not withstanding the
foregoing, meant or means?
857
A. I understand what that means, yes.
Q. Notwithstanding the foregoing, because now you do a
lot of contracts, so now you know when somebody writes,
notwithstanding the foregoing, the mean --
A. However.
Q. However, or, forget what came before because if
this next sentence says something different, it's this next
sentence that applies; right?
A. That is my understanding of the clause, not
withstanding the foregoing. It's making an exception to what
was previously stated. But I wouldn't use that statement to
say something blatantly contradictory.
Q. You don't think, notwithstanding the foregoing,
means, I mean -- let's go back to 1995. What did you
understand, then, when your eyes passed over this provision
about the words, not withstanding the foregoing?
A. That the excluded assets is modifying the
including. So there's a however. You get this, however,
there might be, you know, an exception.
Q. And you don't get what's in the exception?
A. Right.
Q. Okay. So now let's look at the excluded assets
schedule as the agreement was signed on September 19th, 1995.
A. Okay.
Q. You testified that you were present at meetings
858
between Santa Cruz representatives and Novell representatives?
A. Yes.
Q. You were present at business level meetings
involving people like Ed Chatlos and Mr. Wilt and other
business level negotiators. You were actually at those
meetings?
A. I was. I can't say that I was at all of them, but
I was present at some of them.
Q. And you were also present when the legal teams met
to negotiate the final change of the asset purchase agreement;
correct?
A. Correct.
Q. And in those meetings, it was really legal team to
legal team, wasn't it, Ms. Madsen?
A. No, not exclusively. The business team was also
present during many of those meetings.
Q. Let's talk about the week leading up to the signing
of the asset purchase agreement. Do you recall those
meetings?
A. Yes.
Q. Those were at the Brobeck, Phleger & Harrison
office in Palo Alto?
A. Yes.
Q. And the legal teams met face to face; correct?
A. They did.
859
Q. And drafts were exchanged back and forth.
A. Yes, they were.
Q. Including drafts of the excluded assets schedule?
A. I don't remember specifically the excluded asset
schedule, but, yes, I'm sure that it was.
Q. And that's a classic example of, you don't have a
specific recollection, but surely they must have been
exchanged back and forth; right?
A. Well, I remember, you know, the agreement being
exchanged back and forth. I don't remember when a specific
schedule was exchanged. But I remember the contract packet
being exchanged.
Q. Do you have a specific recollection of your eyes
passing over the excluded asset schedule before the agreement
was signed?
A. I have a general recollection, but not a specific
recollection.
Q. So general recollection that you're present in the
room, the drafts are flying back and forth, people are working
hard because there's deadline, isn't there --
A. Yes.
Q. -- to sign it?
By the way, where did the deadline come from?
A. I believe that we needed to get the transaction
finalized prior to a scheduled board meeting --
860
Q. Of --
A. -- that Novell had.
Q. That's your recollection?
A. That's my recollection.
Q. It didn't come from the Santa Cruz side as you
recall? The time pressure?
A. I know that the Santa Cruz operation was anxious to
get the deal done, but I don't remember them setting the
specific timeline.
Q. So the Santa Cruz side wants to get the deal done
and is anxious to do so?
A. Absolutely.
Q. The excluded asset schedule goes back and forth
between the parties, yes?
A. I believe so.
Q. But you don't have a recollection as you sit here
today of looking at the excluded asset schedule and in
particular the intellectual property section that so much of
this case revolves around; correct?
A. No.
Q. So you don't recall as you sit here today that you
read and thought, oh, this must be related to NetWare?
A. I don't have that specific recollection, no.
Q. Do you have a general -- I'm not sure -- we'll have
to figure out what we mean by specific versus general. But do
861
you have a general recollection of that? And I should put my
hand up again.
A. I have a general recollection of reading this asset
schedule, but I cannot recall what I thought about it in 1995.
Q. You had occasion to look at this excluded asset
schedule again well before this dispute arose; correct? The
dispute between -- this dispute in this courtroom.
A. Yes.
Q. Did you look at it in connection with the
negotiations around Amendment Number 2?
A. Yes.
Q. Did you look at it and did you conclude that when
it was referring to intellectual property and all copyrights
and trademarks it must be referring -- it was referring --
I'll withdraw the must be and ask was -- it was referring to
network copyrights?
A. I'm sorry. I'm not sure I understand your
question.
Q. It wasn't a very good one. Let me start over.
When you looked at the excluded asset schedule in
the period following the exclusion of the asset purchase
agreement for whatever purpose in your business role --
A. Uh-huh (affirmative).
Q. -- at Santa Cruz and you came across Roman V,
intellectual property, all copyrights and trademarks except
862
for the trademarks UNIX and UnixWare, did you conclude, did
your mind go, oh, that's excluding the NetWare copyrights?
A. I don't know. I know that we modified this, but I
don't recall saying, oh -- I don't know.
Q. No recollection as you sit here today in this
courtroom of reading this provision and thinking, this is
referring to NetWare?
A. SCO understood that the copyrights were being
transferred, so I wasn't looking at this provision in that
context. I mean, I just don't have any specific recollection
of thinking, oh, you know, this is NetWare. It's the
copyrights for UNIX and UnixWare were being transferred as
part of the asset purchase agreement.
Q. Well, sort of actually, your last fragment there is
relevant to the next question I was going to ask, which is,
you see it says, except for the trademarks in UNIX and
UnixWare; right? Do you see that?
A. Uh-huh (affirmative).
Q. Now the trademarks in UNIX, that doesn't have
anything to do with NetWare, does it?
A. No. I have no reason to think so. No.
Q. So when we're talking about excluding all
copyrights and trademarks except for the UNIX and UnixWare, we
must be talking about UNIX -- we must be talking at least in
part about intellectual property relating to UNIX; correct?
863
A. I'm sorry.
Q. When it says except for the trademarks UNIX --
A. Yes.
Q. -- that's referring to UNIX intellectual property;
right?
A. It's referring to the trademark UNIX.
Q. And that's UNIX intellectual property, not NetWare
intellectual property; correct?
A. Yes.
Q. So this section must be dealing with, at least in
part UNIX intellectual property; correct?
A. At least in part, yes.
Q. So when it says, all copyrights and trademarks, it
just doesn't make any sense to have understood it as your eyes
were passing over it in 1995 or 1996 as referring to NetWare,
does it?
A. This provision doesn't make any sense, is the
problem.
Q. Can you answer my question? It doesn't make any
sense that when your eyes passed over this in 1995 or 1996,
you would have understood it as NetWare copyrights and
trademarks?
A. I didn't say that it did.
Q. And it wouldn't have made any sense to you, would
it?
864
A. I don't know. I mean, I just -- I don't know how I
was thinking about NetWare at that time.
Q. Let me approach the topic this way. At the end of
your direct examination, Mr. Normand asked you whether over
the course of your tenure at Santa Cruz you understood that
the UNIX copyrights were required for Santa Cruz to exercise
its rights with respect to the acquisition of UNIX and
UnixWare technologies?
A. Yes.
Q. I may have reformulated a little bit from the way
he asked it.
A. Yes.
Q. And I believe I heard that you said in response, we
acquired the UNIX copyrights. Do you recall that answer?
A. That sounds right.
Q. So let me ask his question again. Over the course
of your tenure at Santa Cruz, did you understand that
Santa Cruz required the UNIX copyrights to exercise its rights
with respect to the acquisition of the UNIX and UnixWare
technologies?
A. Yes.
Q. Did you understand that requirement to exist when
you were sitting there at the negotiating table in connection
with the asset purchase agreement as originally signed on
September 19th, 1995?
865
A. Yes.
Q. So let's see if we can set the stage. You're there
at the negotiating table. There are lawyers from both sides,
Wilson Sonsini lawyers; right?
A. Yes.
Q. Brobeck, Phleger & Harrison lawyers; right?
A. Yes.
Q. The Brobeck lawyers representing Santa Cruz; right?
A. Yes.
Q. The Wilson lawyers representing Novell?
A. Correct.
Q. You never had any doubt about the legal team in
that transaction?
A. No.
Q. Brobeck lawyers were well recognized as outstanding
lawyers in the mid '90s in Silicon Valley; right?
A. I believe so.
Q. And you're sitting there and you're thinking, we
require the UNIX copyrights in order for this UNIX, UnixWare
business to be successful.
A. Yes.
Q. And a schedule comes across the table, and the
schedule says it excluded assets, intellectual property, all
copyrights, and no one catches it. You don't catch it, the
Brobeck lawyers don't catch it, Steve Sabbath doesn't catch
866
it, nobody catches it. You're sitting there thinking it's
required --
A. Yes.
Q. -- but you don't catch it; right?
A. Yes; because the entire asset purchase agreement is
contrary to this one statement. So we were looking at this in
its entirety, and we just didn't notice that this statement
really didn't make sense. It's an asset purchase agreement,
not a license agreement.
Q. It's a complicated transaction; right, Ms. Madsen?
A. It is a complicated transaction, yes.
Q. And what's included in the included asset schedule
is superceded if there's a disagreement by what's excluded by
the excluded asset schedule.
A. Well, we just talked about this a little bit. It
modifies it. You wouldn't put, I'm giving you this and then
I'm taking the exact same thing away, in two different
schedules. It would be, I'm giving you this. However, you
know, there's an exception to this.
Q. So let's see what we were giving on the included
assets, Roman V, on the included asset. Schedule 1.1(a),
Roman V.
So here's a specific provision in the included
asset governing intellectual property; right, Ms. Madsen?
A. Yes.
867
Q. And copyrights aren't listed there?
A. Correct.
Q. Trademarks UNIX and UnixWare are listed.
A. Yes.
Q. Now, if we put the included assets sort of back to
back against the excluded assets, they mesh quite well, don't
they, Ms. Madsen? That is, copyrights aren't listed under
intellectual property in V, and copyrights are excluded on the
excluded asset schedule. The trademarks UNIX and UnixWare are
entirely consistent between the two provisions; right?
A. Yes.
Q. So let me ask you the same question again. It's
1995. You have in your head that copyrights are required,
essential, not optional, not nice to have, not a good thing to
keep around in case you have to go file a lawsuit, required to
exercise your rights. And you look at the included assets
under intellectual property, and no one on the Santa Cruz
legal team notices copyrights aren't on the included assets,
either?
A. Yes. Copyrights -- because copyrights were always
understood to be transferred. And I have a specific
recollection that the reason why this statement was inserted
was because of the transaction between Novell and X/Open
regarding the trademark UNIX. So they wanted to clarify that.
Q. Let me offer you --
868
A. There was no need to clarify that the copyrights
were transferring because everybody understood they were
transferring.
Q. Let me offer an alternative explanation. We've
talked a little bit about memory, Ms. Madsen, and how you can
be in the courtroom and you're trying to think what happened
back 15 years ago, and it's a mix of specific recollections
and general recollection and what must have happened.
A. Right.
Q. So let me offer you an alternative explanation.
You've been in the business of UNIX, the company Santa Cruz,
for I think 12 years without owning the underlying UNIX
copyrights but successfully selling OpenServer; right?
A. Yes.
Q. And you're now going to get, an important part of
what you're going to get is another flavor of UNIX, UnixWare;
right? According to Mr. Mohan in his summary, we're going to
own UnixWare product line.
A. Yes.
Q. So UnixWare is another flavor of UNIX; right?
A. Yes.
Q. And so we're going to be in the flavor business
again. We don't need ownership of the UNIX copyrights in
order to be in the flavor business.
Isn't that a more plausible explanation,
869
Ms. Madsen, of how legal teams on both sides could have left
the asset purchase agreement the way it was?
A. No.
Q. Well, you know, Mr. Sabbath disagrees with you in a
sworn declaration; right?
MR. NORMAND: Your Honor, obvious hearsay.
THE COURT: Sustained.
Q. BY MR. JACOBS: Ms. Madsen, are you aware of a
declaration that Mr. Sabbath, your superior, signed under oath
under penalties of perjury --
MR. NORMAND: Same objection, Your Honor.
Q. BY MR. JACOBS: -- in December of 2003?
THE COURT: The Court will sustain the objection.
Q. BY MR. JACOBS: Ms. Madsen, who was Mr. Sabbath
again?
A. Mr. Sabbath was the senior vice-president law in
corporate affairs and my boss.
Q. And so he's the actual lawyer, the in-house lawyer
on the deal; right?
A. He is.
Q. And he has many years at that time of software and
software licensing and copyright experience; right?
A. Yes.
Q. And he's an experienced lawyer in dealing with
UNIX-related issues because SCO has had this OpenServer
870
business for a while.
A. Yes.
Q. And Mr. Sabbath did not speak up during the asset
purchase agreement negotiations and say, wait a minute, why is
Novell retaining all copyrights under the excluded asset
schedule? You have no memory of that; right?
A. I have no memory of that.
Q. By the way, the same is true for the next three
months, isn't it, Ms. Madsen, after the asset purchase
agreement is signed?
A. Because we believed that the copyrights were
transferring, there would have been no need to speak up.
Q. So, Ms. Madsen, there's now a team of lawyers again
on both sides. They have all the time in the world compared
to the closing of the asset purchase agreement -- I'm sorry --
the signing of the asset purchase agreement; right? They have
three months to look at this document?
A. No. That's an unfair characterization because
during that three months, we were conducting all of the
transition activities as well as that closing check list that
Mr. Normand showed. So, I mean, there was still a lot of
activity and not a lot of leisure to reflect on missed
language in an agreement.
Q. If you go to Amendment Number 1 as part of SCO's
Exhibit Number 1, and you've seen this before, Miss Madsen, I
871
believe, you know that, in fact, the excluded asset schedule
was modified?
A. Yes.
Q. And the included asset schedule was modified?
A. Yes.
Q. And so attention was paid to the included asset
schedule during the follow three months.
A. It was.
Q. And there were adjustments made to make it; right?
A. Yes.
Q. And this specific exclusion, all copyrights and
trademarks, was not adjusted; correct?
A. Correct.
Q. So surely you would agree with me that there was
more time that one could spend on the asset purchase agreement
and, if I will, its details over the months after the asset
purchase agreement than during the week just before signing.
A. Yes. I agree that there was more time.
Q. And yet --
A. That's the question.
Q. -- in that period of time Mr. Sabbath didn't raise
his hand and say, there's a bug here. We meant to get the
copyrights, but it excludes all copyrights.
A. No, he didn't.
Q. He didn't do that?
872
A. No, he didn't.
Q. And you agree with me there is a bug.
A. I agree that that language is unclear.
Q. And so I'll ask you my question again. Here's an
experienced software lawyer. He's been in the business for
years and years. He's been in the UNIX business, and there
are two possibilities. He along with everybody else blew it
or their eyes passed over it. They understood it, and they
said, we're going to be in the UNIX flavor business. We don't
need to own the UNIX copyrights. And your testimony is that
the former is the better explanation.
A. I lost the question in that.
Q. And I loved it. So I'm sorry. I'll have to try it
again.
We have Mr. Sabbath looking at the asset purchase
agreement in Amendment Number 1 and not catching the bug in
the period leading up to Amendment Number 1; right?
A. Correct.
Q. And in that period the lawyers and Mr. Sabbath and
yourself all have additional time to focus on the excluded
asset schedule.
A. We had a lot of things that we were working on.
But, yes, we did have some time to create Amendment 1.
Q. And there's two possibilities, at least in my view.
One possibility is that you and your colleagues on the Santa
873
Cruz side, leave aside the Novell people who were going to go
with the business like Mr. Levine, the people on the Santa
Cruz side didn't catch what you regard as a mistake in the
drafting during that period.
A. Yes. I mean, mistake, the drafting, yes. It
certainly could have been more clear. And we did not correct
that, no. We didn't catch it.
Q. And your explanation is, everybody on the Santa
Cruz side, people you had trust and confidence in, including
your boss Mr. Sabbath, blew it.
A. Blew it. I don't want to say my former boss blew
it. I would say that, yes, that was overlooked. But everyone
understood that the copyrights were transferred. The Novell
people that came over to the Santa Cruz Operation understood
that the copyrights were transferred. It just wasn't in our
mind to clarify the agreement.
Q. It wasn't in your mind to read the excluded assets
closely?
A. Not with respect to copyrights, no.
Q. So that's your explanation, and you reject the
explanation, again, trying to put all these pieces of the
puzzle together and figuring out actually the relevant
question in this lawsuit, what copyrights are required, you
reject that explanation, that explanation being that Santa
Cruz had been in the UNIX flavor business. It had not owned
874
copyrights to the UNIX operating system. In order to be in
the flavor business, now they were going to be in a second
flavor, UnixWare, and the negotiators thought to themselves,
we can live with this. We don't need ownership of the
copyrights because we have all the permissions we need in the
asset purchase agreement to carry on the business of UnixWare.
A. No, that was not my understanding at all. SCO
wanted to unify UNIX. It wanted to be the UNIX company. It
wanted all rights to the UNIX, and it wanted to be able to
enforce and protect its intellectual property rights. The
copyrights would have been essential to that. And we wanted
to be able to take action such as we did with the European
union with respect to Microsoft, and we needed the copyrights
to do that, as well.
Q. And it was just -- to sum all of this up, then,
your testimony is that as of the exclusion of the asset
purchase agreement on September 19th, 1995, the execution of
the closing documents including the bill of sale on
December 6th, 1995, as of that period, Santa Cruz and yourself
thought that the copyrights in UNIX were essential, were
required for SCO to carry out, to exercise its rights with
respect to the acquisition of UNIX and UnixWare technologies,
and nobody on the SCO side caught the fact that the excluded
assets schedule includes all copyrights.
A. Yes.
875
Q. And your testimony to that effect is not in any way
called into question in your mind by what you understand
Mr. Sabbath believes to have been as stated in a sworn
declaration.
MR. NORMAND: Same objection, Your Honor.
MR. JACOBS: Your Honor, I believe I can impeach
with an out-of-court statement. And I can show the witness
the declaration, and I can ask her whether it affects her
understanding.
MR. NORMAND: I don't think that's right, Your
Honor.
MR. JACOBS: And it will be referred to in
Mr. Sabbath's videotaped deposition. SCO isn't calling him
live, but it will be in the videotape.
MR. NORMAND: Same objection, Your Honor.
THE COURT: I will sustain the objection.
Q. BY MR. JACOBS: Ms. Madsen, just to clarify a few
things about the exhibits Mr. Normand asked you about. So he
asked you about SCO Exhibit 30, and in particular he asked you
about a paragraph that the SCO side had put a bracket around
on Mr. Mohan's letter. Do you recall that?
A. Yes.
Q. 1456, Mr. Lee.
It refers to the acquisition of UNIX technologies.
A. Yes.
876
Q. Now, you understood that, in fact, Santa Cruz was
acquiring UNIX source code from Novell; correct?
A. Yes.
Q. And you know enough about this dispute that's
arisen to know that there's never been any question that Santa
Cruz rightfully acquired the actual physical source code;
correct?
A. I haven't heard that there's been any dispute with
respect to source code, no.
Q. So when it refers to acquisition of the UNIX
technologies, that could simply be referring to the
acquisition of UNIX source code, couldn't it?
A. It could. That wasn't my understanding of the
transaction, but it's not rendered inaccurate by that.
Q. So now let's look back at the asset purchase
agreement just for a minute, and let's look at the provision
governing the technology license agreement, which is in 1.6.
And this is a license back of assets. Do you see that?
A. Yes.
Q. Concurrent with the closing, buyer shall
execute a license agreement under which it shall
grant to seller a royalty free perpetual worldwide
license to all of the technology including the assets.
Do you see that?
A. Yes.
877
Q. Now there was technology included in the assets;
right? There was source code included in the assets.
A. Yes.
Q. And this license, then, would license Novell to
have access to and use the source code; right, Ms. Madsen?
A. Correct. However, if it retained the copyrights,
it wouldn't have needed such a license.
Q. Well, are you aware, Ms. Madsen, that Novell has
actually written to SCO and said under the technology
licensing agreement, we have a right to access the source code
because we have a license back, we retained a license to the
technology included in the assets, and that Novell actually
asked to get a copy of the source code under that provision?
Are you aware of that?
MR. NORMAND: Your Honor, I think that's both
hearsay and best evidence problem.
MR. JACOBS: I'm asking her if she's aware, Your
Honor.
THE COURT: I'll overrule the objection.
THE WITNESS: To which letter are you referring and
what's the time frame and --
Q. BY MR. JACOBS: You're not aware of it, are you,
Ms. Madsen?
A. Well, you haven't given me enough detail about the
letter to say one way or another.
878
Q. Fair enough.
It again then goes on, let's stay on with this for
a minute:
All derivatives of this technology included in
the assets including the Eiger product release.
Do you see that?
A. Yes.
Q. And such licensed back technology to be
referred to collectively as licensed technology.
Do you see that?
A. Yes.
Q. Now for the terms of the Eiger product release,
that was one of the evolving products that Santa Cruz was
supposed to pursue; correct?
A. Yes.
Q. And Santa Cruz would, as you understand the way the
mechanics of ownership works in the software business, you
understood that at the very least Santa Cruz would own the
copyright in the code that Santa Cruz wrote; correct?
A. It would own a copyright in the new product that it
created, yes.
Q. And so this provision makes sense as you sit here
today or as you looked at it in 1995, this provision makes
sense even if Novell owns the underlying UNIX copyrights
because the derivatives Santa Cruz would own, and Novell would
879
get a license of the derivatives.
A. But that's not what this provision states.
Q. It says, all derivatives of the technology included
in the assets, doesn't it?
A. It does. But it also says, all technology included
in the assets.
Q. And if we want to know what technology was included
in the assets as of the asset purchase agreement of September
1995 --
A. Right.
Q. -- we should go look at the included assets and
throw out what's in the excluded assets; correct?
A. No.
Q. We shouldn't do that? Isn't that how assets is
defined in this agreement, Ms. Madsen?
A. I'm sorry. I'm really trying to understand your
question here. I'm not trying to be obtuse. But I'm not sure
what you're asking me.
Q. I'm asking you for your understanding because
you've testified that you have to look at this as a whole.
A. Yes.
Q. You have to make it all work.
A. Yes.
Q. And I'm just asking you, can you make it all work
under my alternative explanation?
880
A. No, I can't.
Q. Because you reject the idea that Novell would want
a license to all of the technology included in the assets when
the technology includes the source code, Ms. Madsen?
A. Yes.
Q. And you reject the idea that Novell would want a
license to all derivatives of the technology included in the
assets --
A. No. It's not that I reject that. It's just that
this gives them broader rights than what they would have
needed if they retained the copyrights. So it would make
sense if they said, we want, you know, future versions, we
want the derivatives. But here they're talking about they
want a license back of all technology. But if they retained
the copyrights, they wouldn't need that.
Q. And that's because as a legal matter, Ms. Madsen,
your understanding is that the word technology equals the word
copyrights?
A. Well, it's a portion of that.
Q. So if we go to the included assets and we go to the
excluded assets to see under the plain language of the asset
purchase agreement of September 1995, isn't it true,
Ms. Madsen, that all of the technology included in the assets
included the source code to UNIX?
A. Well, if I could look at that provision again.
881
But, yes, I believe that's correct.
Q. So at the very least, Novell got a license back to
the source code in UNIX; right, Ms. Madsen?
A. I believe so.
Q. Now, a couple of other exhibits that Mr. Normand
asked you about.
The settlement agreement between Santa Cruz
Operation and Microsoft, SCO Exhibit 199.
A. Yes.
Q. Novell had no role in that; correct?
A. I don't know. I have a general recollection that
SCO may have apprised Novell of this. Certainly Duff Thompson
who was Novell's representative on SCO's board, would have
known about this.
Q. By the 29th of May, 1998, Duff Thompson was no
longer a Novell representative; correct, Ms. Madsen?
A. I don't know when Duff departed the board. But
discussions regarding this were prior to that, so I'm not sure
when he left.
Q. Let me sharpen up my question. No one at Novell
legal reviewed Recital B, SCO has acquired AT&T ownership of
the copyright.
A. Not that I'm aware of, no.
Q. And same question with respect to SCO Exhibit 127,
the filing with the European union, which Mr. Normand asked
882
you about. No one in Novell legal reviewed that document;
correct?
A. No, not to my knowledge.
MR. JACOBS: No further questions, Ms. Madsen.
THE COURT: Mr. Normand?
REDIRECT EXAMINATION
BY MR. NORMAND:
Q. Thank you for your patience, Mrs. Madsen.
Mr. Jacobs finished or nearly finished by asking
about the technology license agreement. Do you recall that?
A. Yes.
Q. And he showed you repeatedly the word license in
that document.
A. Yes.
Q. Do you recall there being the word license in the
asset purchase agreement with respect to Santa Cruz' rights?
A. No.
Q. Mr. Jacobs asked you about a bug, as he called it,
in the excluded assets provision in the APA. Do you recall
that question and answer?
A. Yes.
Q. To your understanding, was the bug subsequently
fixed?
A. Yes.
Q. In what form?
883
A. Amendment Number 2.
Q. Did Mr. Sabbath ever express to you any
dissatisfaction with the way the bug had been fixed?
A. No.
Q. Did Santa Cruz shortly after Amendment Number 2
represent that it owned the UNIX copyright?
A. It did in the Microsoft filing -- or the filing
with the European union.
Q. And was that representation consistent with your
understanding of what assets Santa Cruz had acquired?
A. Yes.
Q. Now, do you recall questions about this box and
this disk?
A. Yes.
Q. Is there intellectual property in here to your
understanding?
A. Yes.
Q. And do you recall being asked a hypothetical about
contract interpretation?
A. Yes.
Q. Do you recall being asked about whether copyrights
are required?
A. Yes.
Q. Let me give you a hypothetical. Let's say you're
Santa Cruz in the hypothetical, and I'm a licensee. In that
884
hypothetical do I have to have a contract with you?
A. Yes.
Q. In order to acquire this I need to execute a
contract?
A. Correct.
Q. Let's say I give this to Mr. Hatch. He's not a
licensee. Just a good citizen of Utah.
A. Yes.
Q. Can you sue me for breach of contract?
A. Yes, I can.
Q. Can you sue him for breach of contract? Do you
have a contract with him?
A. No, I don't.
Q. On what basis could you enforce rights against him?
Would you need intellectual property to do that?
A. I would. I would need to look to copyright law.
Q. Is that what's happening in connection with the
Microsoft dispute? You were exercising intellectual property
rights that were required in your view to operate the
business?
A. Yes.
Q. Now, do you recall being asked about the operating
agreement that was signed in 1995?
A. I do.
Q. Mr. Calvin, can we pull that up?
885
THE COURT: Which exhibit is it again?
MR. NORMAND: It's X5, Your Honor.
THE COURT: Thank you.
Q. BY MR. NORMAND: And let's go to Paragraph 7,
Mr. Calvin, and let's bring up the paragraph at the bottom.
You see, Ms. Madsen, in the operating agreement it
states, quote:
It is the intent of the parties to transfer
the agreements and associated rights and obligations
which relate to Novell's UNIX system business to SCO.
A. I do.
Q. Did Mr. Jacobs show you that language?
A. No. I don't remember him showing me that language.
Q. Should he have raised his hand?
A. Shame on you, Mr. Jacobs.
Q. Let's look at SCO's Exhibit 163.
You recall questions and answers about this e-mail,
Ms. Madsen, when it comes up? This is the Alok Mohan e-mail.
A. I do.
Q. And let's look at the top box, Mr. Calvin, if you
could pull up that paragraph.
Do you see here, Ms. Madsen, that Mr. Mohan says:
We announce the purchase of the UNIX business
from Novell?
A. Yes.
886
Q. Did you understand the UNIX business to include the
UNIX copyrights?
A. Yes.
Q. Did you understand it to include the UnixWare
copyrights?
A. Yes.
Q. And could you compare that, Mr. Calvin, to the
language at the very bottom of the e-mail, very bottom.
And here Mr. Mohan explains that, quote:
SCO is now the primary supplier of the UNIX
technology.
Do you see that language?
A. I do.
Q. To your understanding, was UNIX technology part of
the UNIX business?
A. Yes.
Q. To your understanding, was the copyrights for UNIX
and UnixWare part of the UNIX technology?
A. Yes.
Q. Now, Mr. Jacobs asked you a series of questions
about the license that Santa Cruz had before the asset
purchase agreement was signed. Do you recall that?
A. Yes.
Q. Now, looking at the top paragraph, before the asset
purchase agreement, was Santa Cruz the principal provider of
887
UNIX products and technology to the entire computer industry?
A. No.
Q. And before the asset purchase agreement was signed,
was SCO the, looking at the bottom paragraph, primary supplier
of UNIX technology to most OEMs?
A. No.
Q. Now, this exhibit also contains a press release.
And, Mr. Calvin, if you could bring up the first
page of the press release.
At the bottom, Ms. Madsen, we'll bring that up for
you and the jury. This is a press release with the title, SCO
Acquires Unix Business From Novell and Licenses of NetWare
Technology.
Do you see that?
A. Yes.
Q. Does the title say that SCO licenses UNIX business
from Novell?
A. No.
Q. Now let's go to the next page of that press
release.
And let's bring up, Mr. Calvin, the paragraph
beginning, according.
This press release states:
According to the terms of the agreement, SCO
will acquire Novell's UnixWare business and UNIX
888
intellectual property.
Do you see that statement?
A. I do.
Q. Is that statement consistent with your
understanding of the assets that Santa Cruz acquired?
A. Yes.
Q. Mr. Jacobs showed you Exhibit D11.
And, Mr. Calvin, can we pull that up?
And you were shown Page 42 of this Caldera
document. And I think its the restricted cash and royalty
payable to Novell paragraph, Mr. Calvin.
THE COURT: What page is that on?
MR. NORMAND: Page 42, Your Honor.
THE COURT: Thank you.
Q. BY MR. NORMAND: And these were the series of
questions and answers about agency. Do you recall that,
Miss Madsen?
A. Yes.
Q. Now, does this document speak to the fact that
Santa Cruz had acquired all copies of the UNIX source code
under the asset purchase agreement?
A. Yes.
Q. Show me where it says that.
In other words, does it speak to anything other
than agency?
889
A. Well, I'm not comfortable with the word agency.
Q. I'm asking you to just look at the words on the
page. Do you see anything other than agency discussed in this
paragraph of this document?
A. Well, what I see is a royalty stream where we're
going to collect the royalties, and we're going to remit a
portion of those royalties to Novell.
Q. Do you read this paragraph to be a complete
description of the assets Santa Cruz had acquired?
A. No.
Q. Now, Mr. Jacobs showed you Section 4.16(b) of the
original APA.
Can you pull that up, Mr. Calvin? And why don't
you bring up Paragraph B for now.
And Mr. Jacobs asked you about whether the
reference to SVRX license in this paragraph refers only to
royalties. Do you recall all of those questions and answers?
A. Yes.
Q. Mr. Calvin, could you bring up Paragraph A of
4.16(b)?
And I'm looking at the language, Ms. Madsen, in the
first sentence, which says:
Following the closing, buyer, Santa Cruz,
shall administer the collection of all royalties,
fees and other amounts due under all SVRX
890
licenses.
A. Right.
Q. As listed in detail under Item 6 of
Schedule 1.1(a) hereof and referred to herein as
SVRX royalties.
A. Yes.
Q. Do you see that?
How does that language compare as to your
understanding of what payment Santa Cruz will be making to
Novell after the APA?
A. Well, I'm not sure I understand the question.
Q. What was your understanding of what payments Santa
Cruz would be making to Novell after the APA?
A. Well, there were three components that I recall.
There were the stock, which we talked about earlier; there was
the royalty stream; and then I remember that there were
certain thresholds, revenue thresholds, that if we met those,
there would be additional monies transferred to Novell.
Q. And when Mr. Jacobs was asking you about
Subsection B in his questions about royalties, did he show you
the reference to royalties in Subsection A?
A. No, I don't recall that.
Q. Now, Mr. Jacobs asked you a series of questions
based on your experience as a contracts person. Do you
remember those questions?
891
A. Yes.
Q. Are contracts sometimes ambiguous?
A. Yes. Unfortunately, you know, they are not perfect
documents. And in mind sight we wish we could perfect them.
Q. Do provisions of contracts sometimes contradict
each other?
A. Unfortunately sometimes they do.
Q. Are contracts sometimes amended?
A. Yes.
Q. And when they're amended, is the only language in
the contract in your view relevant anymore?
A. No.
Q. Now, Mr. Jacobs asked you about Section 4.16(b).
That's still on the screen. And he asked about the second
sentence. Let's read it again.
As sellers, Novell's, sole discretion, buyer,
Santa Cruz, 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 with respect to seller.
Do you recall questions and answers about that
provision?
A. Yes.
Q. And then Mr. Jacobs referred to what he called the
master agreement, which he called the software agreement. Do
892
you remember that?
A. Yes.
Q. Do you have a view as a contracts person as to the
consequences if Novell could waive all of Santa Cruz' rights
under all of the master agreements it had just acquired under
the APA?
A. Well, that would have rendered this asset purchase
agreement meaningless.
Q. How so?
A. Well, they could -- they could give away, they
could waive confidentiality requirements. They could, you
know, essentially resell the Brooklyn Bridge.
Q. Ms. Madsen, have you seen anything today that is
inconsistent with your view that Santa Cruz acquired UNIX and
UnixWare copyrights under the asset purchase agreement?
A. No.
MR. NORMAND: No further questions, Your Honor.
THE COURT: Mr. Jacobs?
MR. JACOBS: Your Honor, could we have a brief side
bar or maybe use this as a break to talk about possibly
recalling Ms. Madsen?
THE COURT: Let's do it with a side bar.
(Whereupon, the following proceedings were
held outside the hearing of the jury:)
MR. JACOBS: Mr. Sabbath executed a declaration
893
that directly contradicts her testimony today. It is a
statement like many of the statements that Mr. Normand showed
Ms. Madsen that is completely inconsistent with her testimony.
It will be introduced by way of deposition testimony in the
next segment of the trial. Mr. Normand asked Mr. Sabbath
about that declaration as did I. We will offer it into
evidence in conjunction with that deposition. We would then
like to -- we would like to be able to recall Ms. Madsen and
ask her about how her understanding is affected by
Mr. Sabbath's declaration.
MR. NORMAND: Your Honor, we object to the use of
the declaration in the way that Mr. Jacobs proposes. And I
suppose if it rises to this level of gravity we should address
the issue in writing to Your Honor.
THE COURT: The Court is not going to allow the use
of the declaration with no foundation. And if she has to be
recalled, then she'll have to be recalled. So --
MR. NORMAND: Okay.
THE COURT: The dilemma I have is that in effect
what she would be asked to do would then to comment on the
testimony of another witness, which is prohibited.
MR. NORMAND: For what it's worth, Your Honor,
Mrs. Madsen was asked about that declaration in her
deposition, and her answer was, this is not my understanding
of Mr. Sabbath's understanding of the transaction. So she
894
offered no explanation one way or the other. I think it's of
a tiny probative value in terms of the substance of her
testimony, and its massively prejudicial hearsay with respect
to the remainder of the trial.
THE COURT: Again, the Court is not going to allow
her to be questioned at this time. I'm going to have to see
how the declaration is treated in the video deposition of
Mr. Sabbath, and then we'll have to revisit it at that time.
MR. NORMAND: But in the interim you'd like us to
not close testimony with Ms. Madsen?
THE COURT: Yes.
MR. NORMAND: Thank you.
(Whereupon, the following proceedings were
held in open court:)
THE COURT: Mr. Jacobs, do you have anything else
at this time?
MR. JACOBS: No, Your Honor. Thank you very much.
THE COURT: All right.
Ms. Madsen, I've been informed that you may be
recalled. So if you would be available to return, if
necessary, at some subsequent point. Is that going to be a
great inconvenience to you?
THE WITNESS: It would be a great inconvenience to
me. I have two children back in Santa Cruz, California, that
I don't have child care arrangements for. They are missing
895
school today. And I have an infant child outside waiting for
me. Plus my employer would be most aggrieved if I were to
miss additional work.
THE COURT: The decision as to whether to recall
you will be made very carefully by the Court, but I still
think it's possible that it could happen. So you just need to
be aware of that.
THE WITNESS: Okay.
THE COURT: But it will not be till many days have
passed by, so you certainly should be able to return to
California now.
THE WITNESS: Okay. Thank you.
MR. NORMAND: Your Honor, I'm sorry. Could we have
one brief side bar on this issue, having heard what Ms. Madsen
just said?
THE COURT: Yes.
(Whereupon, the following proceedings were held
outside the hearing of the jury:)
MR. NORMAND: And I apologize, Your Honor. I
started to speak to that issue, and I should have completed
the thought. At a maximum her deposition testimony when she
was asked about what Mr. Sabbath said would come in. Of
course, we object to it coming in, but we don't need her back
live. She was asked at deposition, and she gave an answer.
And I know Mr. Jacobs would like to do a more extensive cross,
896
but under the circumstances we object whole-heartedly. But if
anything could come in perhaps that portion of the deposition
where she's asked about that prior deposition.
MR. JACOBS: I have an alternative proposal. Let's
see what happens with Sabbath. And if we need to recall her,
we will discuss it after Sabbath, and we'll do it today.
MR. BRENNAN: Sabbath is the next witness through
designations. And it would be a sufficient time to hear what
Mr. Sabbath has to say before the Court concludes testimony
for the day. And if the decision is then made at that time,
then we would reexamine her. That could all happen today.
MR. NORMAND: I do believe she has a 3 o'clock
flight today. I just feel we're treading on her.
THE COURT: My inclination is not to allow her to
be directly examined on the testimony of Mr. Sabbath. I would
agree that the Court will consider, ought to consider whether
the deposition testimony should be permitted, but I want to
see the deposition testimony. So if any of you could get that
for me so I could look at it during the next break.
Well, try to make -- let's just proceed. But it's
highly unlikely I'm going to make her stay if that's all we're
going to do.
MR. NORMAND: So we should keep her?
THE COURT: Keep her in the witness room until --
MR. NORMAND: Okay.
897
THE COURT: If she had a 3 o'clock flight, she'll
have plenty of time once we finish and it is done.
(Whereupon, the following proceedings were
continued in open court:)
THE COURT: You have a 3 o'clock flight today?
THE WITNESS: I do.
THE COURT: We will try to deal with anything we
need to with you before you leave today. So just make
yourself, keep yourself available throughout the remainder of
this trial time today, which should be 1:30.
THE WITNESS: Okay. Thank you.
THE COURT: Thank you, Ms. Madsen.
Mr. Singer, Mr. Norman, call your next witness.
MR. SINGER: Thank you, Your Honor. We call Steve
Sabbath by his deposition.
(Whereupon, the following excerpts were
played by video deposition of Steven Sabbath:)
Q. And how long were you at Santa Cruz?
A. Well, I was there almost 13 years. I believe
12 1/2, 13 years.
Q. And you were the general counsel throughout that
time?
A. That's correct.
Q. Did you understand in 1995 that there were
negotiations between Novell and Santa Cruz regarding this
898
potential acquisition?
A. Sure.
Q. And who did you understand on the Santa Cruz side
was leading those negotiations?
A. Well, we had two corporate development
vice-presidents or senior vice-presidents, I can't recall.
Jim Wilt or James Wilt and Geoff Seabrook.
Q. And did those individuals have occasion to speak
with you regarding progress of the negotiations?
A. Yes. I mean, once we engaged with Novell, I worked
with those two individuals constantly.
Q. Did you develop an understanding during these
negotiations as to whether Santa Cruz would be acquiring UNIX
intellectual property?
A. Sure. I mean, sure. We were buying the entire
business including the intellectual property.
Q. And what was your basis for that understanding?
A. I'm not sure I understand the question.
Q. How did you develop that understanding?
A. Well, I mean, that is what the corporate
development guys told me. As we started meeting with the
Novell people and their attorneys, that was the discussion.
We were buying the entire business. Novell didn't want to
keep any part of it so that they could go off and do other
things, mainly focus on NetWare.
899
Q. Did you have occasion during the negotiations
regarding this potential transaction to deal with folks on the
Novell side?
A. Oh, sure. Sure.
Q. And who did you personally deal with, if you can
recall?
A. Well, their chief negotiator, their counterpart to
our Geoff and Jim, was a fellow named Ed Chatlos who was
stationed in New Jersey, worked for Novell out of New Jersey.
He was their project manager.
There were a few others from Utah that I met from
time to time. I can't recall their names or their titles. To
some extent David Bradford, their general counsel, was
involved. He did appear in California at least once that I
can recall and worked on the deal with us. And then, of
course, there was Wilson Sonsini, outside counsel.
Q. Can you recall any of the attorneys from Wilson
Sonsini that you dealt with?
A. Well, Tor Braham was their lead. He was Ed
Leonard's counterpart. Tor Braham, and I think his Number 2
might have been Aaron Alter, who would have been Scott
Lester's counterpart on the Wilson side.
Q. Was it ever your understanding during the
negotiations leading up to the APA or thereafter that
copyrights in the UNIX business were being excluded from the
900
assets transfer?
A. No. Copyrights were going with the assets.
Q. Do you have a view as you sit here as to whether
the parties to the APA intended that UNIX or UnixWare
copyrights would be retained by Novell?
A. Well, no. The intent was clearly to me that the
copyrights for the UNIX and UnixWare were to be transferred to
Santa Cruz Operation. This Schedule 1.1(b) looks to me like
it pertains to NetWare.
Q. Did you have a view at the time the APA was
executed as to whether in order to improve upon and give
better performance to UNIX technology Santa Cruz would have to
copy and distribute the UNIX source code?
A. Well, certainly. It would have to do that.
Q. Did you have a view at the time of the execution of
the APA of what the source of Santa Cruz' rights to copy and
reproduce the UNIX source code would be?
A. It would be limitless. Santa Cruz Operation, you
know, would -- you know, owned the source code, owned the
technology, owned everything, and it could do as it saw fit.
Q. Since the execution of the APA, has it come to your
attention that Novell was claiming to own the UNIX and
UnixWare copyrights?
A. I'm sorry. Can you say that again?
Q. Has it come to your attention that Novell is now
901
claiming to own the UNIX and UnixWare copyrights?
A. Yes, it has come to my attention.
Q. And how did that come to your attention?
A. Umm, I believe somebody from your law firm
explained that to me.
Q. Do you have a view as to the merit of that claim?
A. Well, I just -- I can't see where Novell is coming
from, to be honest with you. I mean, no offense to Novell,
but I just don't see what they base that position on.
Q. Do you recall whether at sometime in 1996 the issue
of UNIX and UnixWare copyrights with respect to the APA arose
between the parties?
A. Copyright issue? No, I don't ever recall any
discussion between Novell and Santa Cruz Operation regarding
copyrights.
Q. In your view as of the execution of the APA, what
copyrights were required for SCO to exercise its rights with
respect to the acquisition of UNIX and UnixWare technologies?
A. (No answer.)
Q. At any time after the execution of Amendment
Number 2, did Santa Cruz ever have occasion to ask Novell to
transfer any UNIX or UnixWare copyrights to Santa Cruz?
A. Not that I recall.
Q. Did you ever have an understanding during your
tenure at Santa Cruz that Santa Cruz was obligated to ask
902
Novell to transfer particular UNIX and UnixWare copyrights?
A. No.
Q. No one from Santa Cruz ever told you that that was
a process in place that needed to be pursued with Novell?
A. I don't recall that.
Q. Do you know whether after the execution of the APA,
Santa Cruz had occasion to enter into source code licenses
with any third parties in which Santa Cruz licensed UNIX or
UnixWare source code to those third parties?
A. Well, I mean, we routinely licensed source code to
customers who needed it for development purposes, for
supporting their own customer base, what have you.
Q. And at the time did you have a view as to what gave
Santa Cruz the right to enter into such licenses?
A. We owned the technology, lock, stock and barrel.
Q. During the negotiations of the APA that we
discussed earlier, did anyone from Santa Cruz ever say to you
that -- I'm sorry -- did anyone from Novell ever say to you
that Novell intended to retain any UNIX or UnixWare
copyrights?
A. No.
Q. After the execution of Amendment Number 2 that we
referred to earlier, did anyone from Novell ever say to you
that Novell believed SCO would have to come back to Novell and
ask for the transfer of any particular UNIX or UnixWare
903
copyrights in this case?
A. No.
Q. Did Santa Cruz have occasion to sell its UNIX and
UnixWare business at any time in your tenure at Santa Cruz?
A. Yes. The business that we had bought from Novell
was subsequently sold to Caldera based out of Utah, which now
goes by the name of SCO Group.
Q. Do you recall when that transaction occurred?
A. I don't.
Q. What role, if any, did you play with respect to
that transaction?
A. Very similar to the role I played when we acquired
the technology. It was just the flip side, and again, I
worked with the corporate development people and outside
counsel, et cetera.
Q. With respect to the UNIX and UnixWare business,
what did Santa Cruz intend to transfer to Caldera?
A. The entire UNIX business, exactly what we had
purchased from Novell.
Q. In your view at the time of the Santa Cruz/Caldera
transaction, did that UNIX business include UNIX and UnixWare
copyrights?
A. Yes, of course.
Q. The language in Paragraph D5 of Amendment Number 2
says, quote:
904
This amendment does not give Novell the right
to increase any SVRX licensee's rights to SVRX
source 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.
How does that language comport with your
understanding of what a parties had -- how the
parties had resolved the issue that you referred
to earlier?
A. Well, it clarifies the fact that Santa Cruz
Operation owned the source code, all UNIX source code
including SVRX, that Novell could not give any future SVRX
source code licenses to anybody, and that Novell couldn't
prevent us from exercising from whatever -- from taking
whatever actions we wanted with regard to that source code.
Q. You say in Paragraph 4, based on my involvement
with the APA, I understand what the parties' intent and
purpose in executing the APA was to transfer to Santa Cruz
Novell's entire UNIX-related business, including all rights to
UNIX and UnixWare and UNIX copyrights. But the parties agreed
to permit Novell to retain an interest in the future System 5
binary royalties to enable SCO to afford the asset purchase
and that the parties never intended to give Novell any right
905
with respect to any Santa Cruz' future source code interests
in UNIX and UnixWare including the SVRX licenses, end quote.
Do you see that language?
A. Yes, I do.
Q. Are those statements accurate?
A. Yes, they are.
Q. You say in Paragraph 5:
I understand that IBM has argued that Section
4.136(b) of the APA gave Novell the right to
acquire Santa Cruz to waive any breach of the
intellectual property protections provided in the
SVRX licenses. That argument is contrary to the
intent of Paragraph 4.16(b) as I understood it.
Indeed, Santa Cruz would never have agreed to give
Novell the right under the APA to waive such
protections under the SVRX licences because such a
right could have eviscerated the entire purpose of
the APA and the value of the assets transferred to
Santa Cruz under the APA, end quote.
Do you see that language?
A. I do.
Q. Are those statements accurate?
A. Yes. I believe them to be true.
Q. When you say that such a rate could have
eviscerated the entire purpose of the APA and the value of the
906
assets transferred to Santa Cruz under the APA, would you
elaborate on that?
A. Yes. I think I explained before, if IBM or any
other hardware OEM were to get expanded rights, it would have
been far less likely that Santa Cruz would have been able to
convert them to future versions of UNIX, and that was the
purpose of purchasing the UNIX business from Novell and then
spending a lot of money in trying to come up with future
enhanced versions of UNIX in an attempt to unify UNIX.
Q. Mr. Sabbath, during your tenure at Santa Cruz, did
you have occasion to work with Kim Madsen?
A. Yes, I did. She reported to me.
Q. And do you recall approximately what Ms. Madsen's
tenure was at Santa Cruz?
A. I got to Santa Cruz in January of '91, and she was
already there. So she had arrived at least some time in 1990.
And when I departed the company the end of '03, she was still
there.
Q. And I think you said that she reported to you. Do
you recall what the scope of her responsibilities were in
reporting to you?
A. She was more or less the department's chief
paralegal, the most senior paralegal we had. And, I mean,
over the years, we're talking 12, 13 years, she had various
duties. But when it came to M and A work, for example, she
907
was always on the M and A team typically working with the
documents such as the APA and the related documents. As a
matter of fact, I mean, she was pretty senior and pretty darn
sharp. So any major project she normally got sucked into and
asked to play a major role, sometimes lead role.
Q. Do you recall what role, if any, she played in the
connection with the negotiation of the APA?
A. Yeah. She was really my Number 2 in doing the APA
and the related documents.
Q. And when you say, she was my Number 2, what do you
mean?
A. Well, she sat in in many, if not all, of the
meetings. She would review the documents, whether I reviewed
them or not. Sometimes she reviewed them. I didn't even need
to review them. Really played a -- you know, just like
Jim Wilt and Geoff Seabrook were partnered up in the corporate
development side, Kim Madsen and I were partnered up in the
in-house legal side.
Q. Do you recall what role, if any, Ms. Madsen played
in connection with the events that culminated in Amendment X
and Amendment Number 2 that we reviewed earlier?
A. Again, she played a very important role as the
Number 2 or in some cases taking the lead on pieces of these
documents.
Q. Do you know whether Ms. Madsen's title changed
908
during her tenure at Santa Cruz?
A. Well, I'm sure she got promoted and got bumped up
in pay and the like, but I can't remember what her titles
were.
Q. Did her responsibilities change during the course
of her work --
A. Oh --
Q. -- of reporting to you?
A. Yes. Her responsibilities broadened considerably
as well as the number of the people that reported to her from
time to time.
Q. And how did they change considerably?
A. Well, as she gained experience and, you know, it
became obvious to myself and the other executives in the
company that she was exceptionally good at what she did, she
got more and more responsibility, taking on more important
projects, working more independently, managing the work of
others.
Q. IBM didn't compensate you for your work on that
declaration, did they?
A. Absolutely not.
Q. What compensation are you receiving from SCO in
connection with your ongoing work on the litigation?
A. They bought them lunch today.
Q. Are you being paid an hourly fee?
909
A. I'm not being paid a nickel.
Q. You were not retained as a consultant to SCO at
all?
A. I wish.
Q. So you've not been paid any compensation by SCO or
its law firm in connection with litigation?
A. No. Haven't been paid a nickel by anybody.
Q. Do you have any ongoing financial interest in SCO?
A. I do not.
Q. No stock?
A. No stock.
Q. Any relatives work at SCO?
A. Not that I'm aware of.
Q. Any close friends?
A. No.
Q. So in your 19th November 2004 declaration, you say
Amendment Number 2 was intended to confirm, among other
things, the parties' intent that SCO would obtain ownership of
the UNIX copyrights under the APA.
Do you see that?
A. Let's see.
Q. Right in the middle of the Paragraph 6.
A. Was intended to confirm among other things, the
parties' intent. Yeah, correct.
Q. And did you review and approve that sentence?
910
A. I suspect so.
Q. You understood in saying the UNIX copyrights that
you were talking about the entirety of the copyright rights in
UNIX System V?
A. I'm sorry. Ask that question again.
Q. When you were referring to the UNIX copyrights
there, what did you mean?
A. I meant that when we bought the UNIX business from
Novell, all copyrights pertaining to that business came with
the product, and Amendment Number 2 was meant to confirm that.
Q. And when you said -- so when you were using the
expression, the UNIX copyrights, you meant all UNIX
copyrights?
A. Yes.
Q. And, the UNIX copyrights, or, all UNIX copyrights,
is a simple way of saying all the copyrights relating to UNIX
that Novell had at the time; correct?
A. That's correct.
Q. It's not hard to say "all" or "the" --
MR. NORMAND: Objection to form.
Q. -- to mean that, to get -- to convey that intent;
right?
A. I suppose so.
Q. And if you look at Amendment Number 2 it doesn't
say that, does it?
911
A. Well, if you're saying the word "all" isn't there,
you're absolutely right.
Q. And a simple expression like, the UNIX copyrights,
isn't there, either.
A. No. The UNIX copyrights.
Q. I'm sorry. I'm looking at Amendment Number 2, sir.
A. Oh. With respect to -- well, it says, all
copyrights and trademarks.
Q. That's the exclusionary part.
A. Let me read it. Oh, except for the copyrights and
trademarks covered by Novell. Yeah. It doesn't say, except
for all the copyrights and trademarks, true.
Q. And when it says, the copyrights necessarily to
carry on the business, do want to read that expression again?
A. Umm, okay. 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 technology.
Q. So it referred to the exercise of rights; correct?
A. Yes.
Q. And up until the time that you left Santa
Cruz/Tarantella, what copyright rights in UNIX did Santa Cruz
need in order to carry on the business contemplated by the
asset purchase agreement?
A. Well, once we sold the business to Caldera now the
912
SCO Group and became Tarantella, we didn't need those rights.
Up till then you would need all rights to run your business.
You don't know what you're going to be doing day to day, what
kind of situations you'll find yourself in with the potential
partners, with the potential customers. So you want all
rights to do anything that you deem fit with the technology.
Q. SCO wasn't going to enter into new SVRX licenses;
correct?
A. Right. We didn't want to do that, anyway.
Q. So you didn't need the copyright necessary to enter
into new SVRX licenses?
A. But we did need to protect the technology. We
didn't want somebody to be able to go off and pirate, for
example. So we needed the copyright in order to defend the
property.
THE COURT: Mr. Singer, Mr. Normand, if you would
stop it there, we are going to go ahead and take a break.
MR. NORMAND: Your Honor, could I ask if I could
read two of the designations that did not make their way into
the video but that the parties did agree to be played? I
propose to read those to the jury now with Your Honor's
permission.
MR. BRENNAN: No objection, Your Honor.
THE COURT: All right. Go ahead.
MR. NORMAND: Question. If anyone on either side
913
of this transaction had proposed that Novell would retain the
UNIX and UnixWare copyrights, do you think that's something
you would have heard about in the course of negotiations?
MR. BRENNAN: Excuse me. Excuse me. Mr. Normand,
where are you?
MR. NORMAND: Page 31.
Answer. Yes, of course, I would have heard about
it. I doubt the deal would have been consummated. I don't
know how you could sell a software business and not pass
copyrights. It just didn't make sense.
Question. Why in your view doesn't that make
sense?
Answer. Well, then the buyer's not really buying
the business. So I'm not sure what the buyer would get. What
could he do? What would be his purpose to buy the business
without the copyrights?
Question. In your view as of the execution of the
APA, what copyrights were required for SCO to exercise its
rights with respect to the acquisition of UNIX and UnixWare
technologies?
Answer. Well, you would need all of the
copyrights.
Question. And why do you say that?
Answer. To do the future development, you would
need the copyrights. To license the technology the way you
914
saw fit you would need the copyrights. My gosh, if you didn't
own the copyrights, how could you even go after somebody that
is pirating your software? How could you enforce your right
to the technology? So you would need all the copyrights and
binaries and source code.
Thank you, Your Honor.
THE COURT: All right. We will go ahead and take
our recess at this time.
Miss Malley?
(Whereupon, the jury left the court proceedings.)
THE COURT: I was looking for -- I have a copy of
Mr. Sabbath's deposition here, and I was looking for what you
might be giving me. I couldn't find it, so I hope you have
been able to. And I would also appreciate a copy of the
declaration that you would be questioning him about during the
course of the deposition. If you could get those and get them
to me. And we'll take 20 minutes.
(Recess.)
915
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
I, KELLY BROWN HICKEN, do hereby certify that I am
a certified court reporter for the State of Utah;
That as such reporter, I attended the hearing of
the foregoing matter on March 15, 2010, and thereat reported
in Stenotype all of the testimony and proceedings had, and
caused said notes to be transcribed into typewriting; and the
foregoing pages number from 841 through 915 constitute a full,
true and correct report of the same.
That I am not of kin to any of the parties and have
no interest in the outcome of the matter;
And hereby set my hand and seal, this ____ day of
_________ 2010.
______________________________________
KELLY BROWN HICKEN, CSR, RPR, RMR
916
***** Part 3 *****
THE COURT: Counsel, as to recalling
Ms. Madsen, as I understand it, you want to recall her to
have her comment on Mr. Sabbath's declaration, which he
has already disowned in his own testimony. The Court
sees nothing to be gained by having her come and disown
it as well. And, for that reason, I think we are just
going to release her and let her go.
MR. JACOBS: I understand, Your Honor, but can
we spend a little more time on the declaration --
THE COURT: Yes.
MR. JACOBS: -- before the next segment of
depositions? There are two ways one could look at
declarations. One could look at them as relatively
trivial, frivolous things that people sign casually, or
one could look at them as sworn statements under penalty
of perjury that are given in court and should have the
same weight as testimony given in court.
In this case, this is a declaration signed by a
lawyer, a member of the bar, who, although he says he was
lazy and says in some ways it doesn't completely comport
with his recollection, it is still his statement under
penalty of perjury.
And it is flatly inconsistent with the
portions -- with the evidence and with the testimony that
SCO introduced in their portion of his deposition.
916
THE COURT: Correct.
MR. JACOBS: We're a little surprised they
brought Mr. Sabbath in any capacity here because that
declaration so rebuts the testimony they have offered,
but they have done that. To use an expression we may
grow fond of in this lawsuit, they have opened the door.
And what they have opened the door to specifically is
for the jury to hear the paragraphs of Mr. Sabbath's
declaration that he offered, under penalty of perjury,
that directly contradict the testimony that they played
in their portion of his videotape deposition.
Had he been here live, there is no question
that we could have read those segments of his declaration
to him, and we could have asked for his live testimony on
them.
And so, when we get to that portion of the
declaration, particularly because we now can't ask
Ms. Madsen about those portions, what I would like to do
is to be able to read to the jury the portions of his
declaration, signed under penalty of perjury, that
directly contradict what he testified to in SCO's
presentation of his testimony.
THE COURT: And the way you do it is, when you
come to those questions, you would stop, and you would
personally read those portions of the declaration and
917
then proceed with the question regarding it?
MR. JACOBS: I think that I would flip it
slightly. I will have him testify that -- there is a
brief segment of our designations, Your Honor, where he
says that he provided this declaration to Ron Lauderdale
in 2003. And I would stand up, and I would say:
With Your Honor's permission, I would now like
to read portions of Mr. Sabbath's December, 2003,
declaration.
THE COURT: Okay.
MR. NORMAND: Your Honor, there are multiple
problems with this proposal, Your Honor. The first is
that the general rule is extraneous testimony, testimony
from outside court, whether it's read to a witness for
impeachment or not, does not come in as evidence. That's
the general rule.
Second. The fact that we called Mr. Sabbath as
a witness doesn't open the door to controverting that
rule. Every other witness that we've called, parties
could have addressed them by trying to get in prior
testimony. No one has tried to do that. It's improper.
Third, Your Honor, if we're going to get into a
little mini trial about what Mr. Sabbath was thinking or
doing when he signed this prior declaration, we would
need to explore his deposition testimony in the IBM case.
918
We did not designate that because we did not understand
there to be a prospective fight about the circumstances
under which that declaration was signed. That would be
incredibly collateral, confusing to the jury, and
prejudicial.
And, for all those reasons, Your Honor, we
don't see any reason to change the general rule that,
one, when you have a witness by deposition designation,
you don't make special rules for the witness just because
they haven't shown up in person; and, two, the general
rule, which Mr. Jacobs' proposal would controvert, that
impeachment evidence somehow comes in and should be given
special consideration by the jury.
THE COURT: Mr. Jacobs?
MR. JACOBS: I think we're mixing apples and
oranges a little bit. The witness has the declaration in
front of him when he is testifying in the deposition.
THE COURT: And I did not get all the way
through that which you gave me at the beginning of that
break, which are your designated portions, which it is
clear you did examine him on it, correct?
MR. JACOBS: That is true, Your Honor.
THE COURT: So, I'm not inclined to supplement
what has been designated by you, by an actual reading. I
wish I had been able to get through it all, but I simply
919
did not have the time, but I have to assume that you
effectively brought out the contradictions between the
testimony as heard by the plaintiff's designations and
that which you cross examined him on, showing the
inconsistencies. And I think that we better just leave
it at that.
MR. JACOBS: So the other alternative, Your
Honor, is, rather than reading it to the jury, we should
be able to put on the screen the portion of the
declaration, and they should be able to look at it as the
witness is looking at it. He had it in front of him at
the time. They need to know what he's talking about when
he's talking about that declaration. Otherwise --
THE COURT: Don't you ask him to read those
parts of it that you then cross examine him on?
MR. JACOBS: Candidly, Your Honor, not all of
them. There are some portions of his declaration that go
specifically to the logic and structure of the
transaction, that go to Amendment Number 2. We did not
want to waste valuable deposition time just reading
portions of a deposition -- of a declaration into the
record.
THE COURT: I'm sorry, Mr. Jacobs, but I don't
believe I ought to make up for your unwillingness to take
the time during the deposition to have him read it,
920
recognizing that you would be possibly using that
deposition testimony in this fashion, by now allowing you
to bring undue attention to that declaration. So, again,
the Court will not allow that to happen either.
MR. JACOBS: And the last point, Your Honor, to
make in this connection is that there is really not that
much difference between this declaration and the other
out-of-court statements that, for example, SCO has used
to question witnesses and say:
Is this consistent with your understanding or
not?
They are all out-oF-court statements. This
happens to be under penalty of perjury.
THE COURT: But you have -- you're going to be
cross examining him on it in the designated portions of
the deposition, so you have in fact been allowed to use
it in that fashion in the deposition, but what you're
asking for is something well beyond that now, and the
Court believes that the appropriate way to deal with this
is just to rely on what you did at the deposition with
those designated portions that the jury will now hear
MR. JAOCBS: So, just so we don't have to do
this in front of the jury, Your Honor, we would move to
strike Mr. Sabbath's testimony that SCO has offered in
their portion of Mr. Sabbath's testimony on the grounds
921
that it's flatly contradicted by a sworn declaration he
gave under penalty of perjury that we now cannot
effectively impeach him on because he is not here live.
THE COURT: But you were able to cross examine
him in the deposition, and you will now show those
designated portions of that deposition; is that correct?
MR. JACOBS: We will be doing that, Your Honor,
absent a grant of the motion to strike.
THE COURT: The Court will deny the motion to
strike.
MR. JACOBS: Thank you, Your Honor.
THE COURT: Do you have anything also before we
bring the jury in?
MR. NORMAND: No, Your Honor.
THE COURT: All right.
MR. JACOBS: I'm sorry, Your Honor, one quick
question.
THE COURT: Yes.
MR. JACOBS: There are portions that we're
asking him about during the deposition testimony. Can we
put those portions on the screen as we're doing so?
MR. NORMAND: Your Honor, I thought that was
the third of Mr. Jacobs' four proposals.
THE COURT: That was my understanding as well.
You may not show anything that does not occur in the
922
actual deposition. If you have the running words below
it, as you have in the banner, then you may certainly
focus their attention -- or the jury will focus their
attention as they read that, but nothing supplemental to
that which will appear in the designated portions of the
deposition of Mr. Sabbath.
MR. JACOBS: Thank you, Your Honor.
MS. MALLEY: All rise for the jury, please.
(Jury brought into the courtroom.)
THE COURT: Mr. Norman, let me clarify. Have
you now shown everything of Mr. Sabbath that you
intended?
MR. NORMAND: We have, Your Honor. Thank
you.
THE COURT: Mr. Jacobs.
MR. JACOBS: We would offer testimony of
Mr. Sabbath as well, Your Honor.
THE COURT: Thank you.
Designated portions of the deposition
testimony of Mr. Sabbath were read as
follows:
Q. Did Santa Cruz have occasion to retain outside
counsel in connection with the potential transaction?
A. Yes. We retained the Brobeck law firm, Brobeck
Phleger and Harrison, I believe it was. It doesn't exist
923
anymore, but at the time they were one of the large
Silicon Valley San Francisco law firms.
Q. And who were the attorneys at Brobeck with whom
you dealt with respect to this potential transaction?
A. Sure. Ed Leonard was the lead attorney, the
most senior of the Brobeck attorneys. I believe he was
even the managing partner at that time; if not of the
entire firm, at least of the Palo Alto office, very
experienced in M&A work. Scott Lester was either a
senior associate or more junior partner on the team. And
then there were, I don't know, three or four others,
maybe a Jeff Higgins, I seem to kind of recall, but I may
be confusing law firms at this point.
But, anyway, it was Ed Leonard and Scott
Lester, the leads, and they had several attorneys, maybe
some paralegals as backup.
Q. Paragraph A of Amendment Number 2 --
A. Yeah, paragraph A I didn't recall being here in
this Amendment A, but it looks to me like a clarification
of some sort to the APA.
Q. Is paragraph A a part of Amendment Number 2
that you recall negotiating to any extent?
A. I don't recall that, but I don't know.
Q. And, to the best of your recollection, who, at
Santa Cruz, would have been involved in negotiating the
924
language of paragraph A of Amendment Number 2?
A. I don't know.
Q. Can you recall, prior to signing Amendment
Number 2, focusing on paragraph A to any extent?
A. I don't.
Q. You have the APA among the documents in front
of you?
A. Uh-huh.
Q. And I wanted to direct your attention to one
section in particular, Section 1.2(b), which begins on
the page with the Bates number ending 901. In the
language I read into the record, there's a reference to
equitable interest within the meaning of Section 541(d)
of the Bankruptcy Code. Do you see that language?
A. Yes. Yes.
Q. Do you recall having an understanding of that
provision at the time the APA was executed?
A. Well, when we were writing this paragraph, we
being the business guys, the Wilson Sonsini guys, the
Brobeck guys; Tor Braham, the Wilson lead outside counsel
felt that he wanted to run this issue by his bankruptcy
specialist, secure transaction specialist.
The fear of Novell was that Santa Cruz would go
bankrupt and then what would happen to this revenue
stream that could become the property of the bank or bank
925
or lenders, some sort of creditor? And they would lose
the right to collect that 95 percent.
So, his bankruptcy secure transaction
specialist came back with this kind of language, which
doesn't make a lot of sense to me and I suspect to
everybody else in the room that was handed the language,
but that's what we plugged in there to make those people
happy.
Q. I want to ask you, Mr. Sabbath, about the
declaration you've previously signed. And I'm handing
you that declaration marked Exhibit 1049. It's a
declaration dated December 22, 2003, in the SCO Group vs.
IBM case.
And if you want to take a minute to review the
document. Let me know if you recognize it.
A. Okay. Yes.
Q. Do you recall executing this declaration?
A. I do, yes.
Q. Would you say that you reviewed this
declaration very carefully before you signed it?
A. Well, I mean I read it through. I have to say
I didn't really read the documents it refers to.
Q. Why not?
A. It's just -- I mean, you know, this is just the
Asset Purchase Agreement, and there were other documents
926
I believe here that were referred to, and, you know, I
don't have any skin in the game. I wasn't that
interested. Okay? I was being lazy.
Q. You say in paragraph 11 of the declaration.
"Under the Asset Purchase Agreement novell
retained significant UNIX-related assets following the
sale. For example, Schedule 1.1(b) of the Asset Purchase
Agreement provided that much of the UNIX System V
intellectual property would not be transferred to Santa
Cruz by listing the following items as excluded assets."
And then the paragraph 11 quotes from the
Schedule 1.1(b) of the APA. Do you see that language?
A. I do.
Q. How does the content of that paragraph 11
comport what your understanding today regarding any UNIX
System V intellectual property that was not transferred
to Santa Cruz?
A. Well, you mean -- the easy answer is this
language would be correct if it said -- instead of UNIX
System V it said Netware, which is really what the
language below refers to.
Q. But, in your declaration, it doesn't refer to
Netware, does it?
A. No. No. I just -- I missed that. They missed
it or I missed it or both.
927
Q. If you look at paragraph 29 of your
declaration, you say:
"It is my understanding, based upon my review
of plaintiff's Amended Complaint that plaintiff claims to
have acquired all right, title and interest in and to
UNIX System V operating system source code, software and
sublicensing agreements together with copyrights,
additional licensing rights in and to UNIX System V and
claims again all parties breaching such agreements. I
understand that plaintiff also claims to control the
right of all UNIX vendors to use and distribute UNIX
System V. I believe that these claims are incorrect. As
described above in relation to the related agreements and
Amendment Number 2, Novell retained certain rights under
the UNIX System V licensing agreements as well as certain
UNIX System V intellectual property, as described above."
Do you see that language?
A. I do.
Q. As you sit here today, are you satisfied that
this declaration accurately reflects your views regarding
the issues we've discussed?
A. Well, I mean, this declaration was a quick and
dirty, you know, done before the holidays, over the
phone, with an associate in -- somewhere in the East
Coast and me. And, I mean, it's, you know, close enough
928
for government work, if you want to use that phrase, but
it's a hundred percent accurate? No. Not at all.
Q. The work you did on the Asset Purchase
Agreement occurred over -- between Novell and Santa Cruz
occurred about 11 -- about 11 and a half years ago, now,
didn't it?
A. Yes.
Q. And it's hard to remember the specifics of
negotiations that occurred that many years ago, isn't it?
A. It sure is.
Q. It's hard, in part, because it's a long time?
A. Yeah.
Q. It's hard, in part, because a lot of
negotiations occurred after that negotiation in which you
were closely involved?
A. Right.
Q. We know that you had considerable experience
dealing with transactions in the software industry?
A. That's true.
Q. We know that you retained highly skilled
outside counsel to assist you in the negotiation of the
Asset Purchase Agreement?
A. That's true.
Q. We know that you considered an agreement like
the Asset Purchase Agreement to be an agreement that
929
would have a major impact on SCO's business?
A. Yes.
Q. Specifically, that the Asset Purchase Agreement
would have a major impact on SCO's business?
A. Sure.
Q. And that it was, therefore, an important
document?
A. Yes.
Q. You knew, as a skilled attorney, that while you
might have an understanding going into the negotiations
of the parties' intent, ultimately, if a dispute arose,
the first thing people would do is pick up the contract
itself?
A. Sure.
Q. You do recall, you do acknowledge that there
was a three-month period or so during which the Asset
Purchase Agreement was subject to further review by the
parties and an amendment was prepared?
A. Sure.
Q. Now, we also know that, as of 1995, you
understood software licensing?
A. Yes.
Q. And that you held yourself out to your
colleagues as somebody who could handle the legal
intricacies of software licensing?
930
A. For the most part, yes.
Q. You understood that -- what role copyrights
played in computer software?
A. Sure.
Q. And you understood what role patents were
evolving to play in computer software?
A. Sure.
Q. Now take a look at Section 1.1(a) of the Asset
Purchase Agreement, please.
A. 1.1(a)? Purchase and Sale of Assets?
Q. Yes.
A. Uh-huh.
Q. You understood that the -- really the meat of
the agreement, in a way, in Schedule 1.1(a), the list of
included assets, and Schedule 1.1(b), the list of
excluded assets when you reviewed this agreement,
correct?
A. Yes.
Q. As a skilled attorney, you understood that an
an agreement like this, as a layperson might say, the
devil is in the details?
A. Yes.
Q. And, even though, in your answer to your
question to Mr. Normand, you said that the UNIX business
was being sold lock, stock and barrel. In fact, exactly
931
what was being sold by Novell was shown in Schedule
1.1(a) and what was not being sold was shown in shown in
Schedule 1.1(b), correct?
A. I can't really agree with you. It is what is
here and in the clean up amendments.
Q. Fair enough. So in here and in the clean up
amendments is -- documents what is included in the assets
that were transferred to SCO?
A. That's right.
Q. Now, let's turn to Section 1.6.
A. License Back?
Q. That's the provision that anticipated the
technology license agreement, correct?
A. Yes. That's right.
Q. And let me -- let's just break this down a
little bit. It states:
"License Back of Assets. Concurrent with the
closing, buyer shall execute a license agreement under
which it shall grant to seller a royalty-free, perpetual
worldwide license to, small little i, all of the
technology included in the, capital A, Assets and, two
little i, all derivatives of the technology included in
the Assets, including Eiger product release, such
licensed-back technology to be referred to collectively
as, capital L, license, capital T, Technology."
932
Do you see that, sir?
A. I do.
Q. And SCO, as the employer of the coders, under
your understanding of the way law worked with respect to
software, SCO would own the copyrights and the code that
it wrote?
A. That's true.
Q. And so the license back of derivatives of the
technology included in the assets would grant Novell a
right to license back SCO-developed code in which SCO
owned the copyrights, correct?
A. That's correct.
Q. So, did you tell Allison Lisbonne, later
Allison Amadia --
A. Uh-huh.
Q. -- that the copyrights were specifically
excluded from the Asset Purchase Agreement?
A. I don't recall that, no.
Q. Would you -- if she testified that you said
that to her, would you be able to contradict her?
A. No. I just don't recall that discussion.
Q. You understood one of the deal points of the
Asset Purchase Agreement was that SCO, generally, was not
going to be in the SVRX licensing, new licensing
business, correct?
933
A. That is absolutely correct.
Q. You described how you came to provide a
declaration at the request of the Ron Lauderdale?
A. Yes.
Q. And that declaration was provided in 2003?
A. I think so.
Q. It was -- at the time you looked at it, it was
your best recollection of the topics it covered?
A. In general, yes. Overall, yes. You know, keep
in mind, I thought what I was really doing is helping
them understand the history and the overall facts of the
transaction.
Q. You understood that you were providing it under
penalty of perjury?
A. Sure.
Q. And you could explain to the jury what penalty
of perjury means?
A. I think so, yeah.
Q. Could you do that, please?
A. Well, I think it means that under oath you're
bound to tell the truth and, if you don't, you're
committing a crime, either a serious misdemeanor or a
felony.
Q. Well, in your response to Mr. Normand earlier,
you said you were being lazy about it?
934
A. Yeah. I was being lazy.
Q. Do you really think that's what happened, that
you were lazy on an important legal document you were
signing under penalty of perjury?
A. At that point in time, I wasn't concerned with
min -- what I thought was minutia. You know, I didn't
realize that a case -- that your case could turn on one
word being different from what I think that -- you know,
a better word would be.
Q. When you prepared the declaration at the
request of Mr. Lauderdale, you did have the Asset
Purchase Agreement in front of you?
A. I'm sorry. I did not prepare it. I was sent a
bunch of documents from Lauderdale's outside law firm
that must have been several inches thick. I looked at
them, scanned them just to see what they were. I did not
read all the documents.
Q. IBM didn't compensate you for your work on that
declaration, did they?
A. Absolutely not.
Q. The Asset Purchase Agreement limits SCO's
rights to license SVRX code, doesn't it?
A. Yes, it does.
Q. And SVRX is part of UNIX, isn't it?
A. Yes.
935
Q. The Asset Purchase Agreement, even under your
interpretation, allows Novell to direct SCO to take
certain actions with respect to SVRX licenses, correct?
A. Yes.
Q. By the way, that section, that Section 4.16(b),
it doesn't say anything about limiting Novell's right to
direct SCO to take action to the CPU's or the number of
CPU's on which the source code is residing, does it?
A. It is not that specific.
Q. In fact, it says "any," in several places,
doesn't it?
A. I think.
Q. And it says "in Novell's sole discretion,"
doesn't it?
A. I don't know.
Q. Take a look.
A. Where is it? 416?
Q. Right?
A. 416 where?
Q. B.
A. B? Yes. At seller's sole discretion and
direct.
Q. And by sole discretion, you understand that to
mean that Novell can really do it for any reason it
wants, correct?
936
A. That's correct.
Q. And it is correct, is it not, that Novell had
the right to veto new source code SVRX licenses that SCO
wished to enter into pursuant to the terms of Amendment
Number 1?
A. That's correct.
Q. And so Novell did have a right with respect to
Santa Cruz's future source code interests in UNIX, as
particularly with respect to SVRX, didn't it?
A. Novell had that limited right, yes.
Q. So the parties intended to give Novell at least
a limited right with respect to Santa Cruz's future
source code interests in UNIX as it pertained to SVRX?
A. Yes.
Q. And when you have said -- so when you were
using the expression "the UNIX copyrights," you meant all
UNIX copyrights?
A. Yes.
Q. And the UNIX copyrights or all UNIX copyrights
is a simple way of saying all the copyrights relating to
UNIX that Novell had at the time, correct?
A. That's correct.
Q. It's not hard to say "all" or "the" to mean
that -- to get -- to convey that intent, right?
A. I suppose so.
937
Q. And if you look at Amendment Number 2, it
doesn't say that, does it?
A. If you are saying the word "all" isn't there,
you're absolutely right.
Q. And a simple expression like "the UNIX
copyrights" isn't there either?
A. The UNIX copyrights?
Q. I'm sorry. I'm looking at Amendment Number 2,
sir.
A. Oh, with respect -- well, it says, "all
copyrights and trademarks."
Q. That's the exclusionary part.
A. Oh. Let me read it. Oh. Except for the
copyrights and trademarks covered by Novell. Yeah. It
doesn't say, "except for all the copyrights and
trademarks," true.
Q. And when it says, "the copyrights necessary to
carry on the business," you want to read that expression
again?
A. Okay. "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," period.
Q. So it refers to the exercise of rights,
938
correct?
A. Yes.
Q. And with respect to the code that you developed
at UnixWare, we established that the UnixWare code that
Santa Cruz developed, we established earlier that you
would own that by virtue of the operation of copyright
law, correct?
A. Yeah. It may not be that simple, but if what
You're getting at is anything we developed we would hold
the copyright in, true, but there might be some other
UNIX, older UNIX code in it, okay, which could be a
problem if you don't own the copyright to it.
Q. But the specific right you need in order to
effectuate that, based upon your knowledge and experience
in the software industry, is the right to create a
derivative work, correct?
A. You definitely need that, but you could do that
as a licensee.
Q. After Amendment Number 2 was executed, did you
write any memos or create any communications internally
in which you said something to the effect that now that
we have the rights we need, we can go for it, guys.
A. I have no idea.
(Whereupon the reading of the designated
portions of the deposition were concluded.)
939
MR. JACOBS: That concludes the portions of the
testimony we wished to present to the Court, Your Honor.
THE COURT: Thank you, Mr. Jacobs.
Mr. Singer, your next witness.
MR. SINGER: Our next witness is Darl McBride.
DARL MC BRIDE,
the witness hereinbefore named, being first duly
cautioned and sworn or affirmed to tell the truth, the
whole truth, and nothing but the truth, was examined and
testified as follows:
THE CLERK: Would you please state and spell
your name for the Court.
THE WITNESS: My name is Darl McBride. That's
D-a-r-l. M-c, capital B-r-i-d-e,
THE CLERK: Thank you.
THE WITNESS: There's a Charles in the middle,
if you want that.
THE CLERK: Thank you.
DIRECT EXAMINATION
BY MR. SINGER:
Q. Good afternoon, Mr. McBride. Can you begin by
telling us a little bit about your background.
A. Okay. I grew up in Ephraim, Utah, a couple
hours south of here, graduated from Manti High School,
went to Snow College, eventually graduated from Brigham
940
Young University and then, after that, went to graduate
school at University of Illinois, back in
Urbana-Champaign.
Q. Can you tell the jury a little bit about your
employment before you joined SCO Group?
A. Sure. After graduating from University of
Illinois, I was recruited to go work at Texas Instruments
down in Dallas. I went down there for a couple of years,
later moved back to Utah, worked at Novell from 1988 to
1996 and kind of grew up the ranks from manager level.
Eventually, in '96, I was vice-president of one of their
operating divisions.
From there I was recruited out of Novell, went
and worked for a company back east, helped them build a
network systems integration business, about a
half-billion-dollar business over a couple-year period
and then, from there, did a couple of startups where I
was chief executive and president of a couple of startup
operations during the internet boom years.
And, eventually, from there, went and worked
for Franklin Covey as the president of one of their
online planner operations, worked there a couple years
and was there when I was recruited to go work at SCO as
their president and CEO. That was in, I believe, June of
2002 when I went to SCO.
941
Q. June of 2002 is when you joined SCO?
A. Correct.
Q. And did you join as chief executive officer?
A. Yes, I did.
Q. Were you the chief executive officer of SCO in
May of 2003?
A. Yes, I was.
Q. Do you recall, Mr. McBride, how SCO's business
did in the quarter ending April of 2003?
A. It was a good quarter. It was a record quarter
for the company in terms of both revenues and in terms of
profits.
Q. I'd like to hand you a book of exhibits that
we're going to be using in connection with your
examination.
A. Okay. Are we going to use these two?
Q. You can put those on the side. We won't be
using those.
A. Okay.
Q. I'd like to ask you to take a look at what is
SCO Exhibit 94, which is in evidence.
A. Right.
Q. Did you receive this letter from Jack Messman,
the CEO of Novell, on May 28, 2003?
A. Yes, I did.
942
Q. This was sent in the case by fax and certified
mail?
A. Yes. That's correct.
Q. And if you turn to page 2 --
A. Right.
Q. -- did you see his statement in the last
paragraph, that SCO is not the owner of the UNIX
copyrights?
A. Yes. I see that.
Q. What was your reaction to that?
A. I was shocked, quite frankly.
Q. Why were you shocked?
A. I had been trying to get clarification around a
problem in an Asset Purchase Agreement from an early
agreement with Novell over the previous six months, and,
ultimately, what the word had come down to me from Novell
management was that upper management at Novell didn't
want to get involved with that old UNIX stuff, and they
were not involved. Then, to have them come out in this
letter and say not only were they not going to be
involved, but to step up and say that they were the owner
of the UNIX copyrights was really surprising.
Q. Did you learn that Novell issued this letter as
a press release to the general public?
A. Yes, I did. I think they had a press release,
943
and this was attached to the release as -- the letter was
part of the content of the release as I recall.
Q. Could you turn to SCO Exhibit 525, which is in
evidence, and it's the next document in your binder.
A. Okay.
Q. And was this the press release that you're
referring to?
A. That's the one.
Q. Before they reproduced your letter, do you see
in the second paragraph of the press release, it says
first, Novell challenged SCO's assertion that it owns the
copyrights and the patents in the UNIX System V, pointing
out that the Asset Purchase Agreement entered into
between Novell and SCO in 1995 did not transfer these
rights to SCO? Do you see that?
A. Yes. I see that.
Q. Do you see, in the second paragraph -- not the
second, it's the third paragraph.
A. Okay.
Q. Where it says:
"To Novell's knowledge, the 1995 agreement
concerning SCO's purchase of UNIX from Novell does not
convey to SCO the associated copyrights," as has been
said in the letter.
Do you see that?
944
A. Yes. I see that.
Q. And then, if we turn to the next page of the
press release, is this now a copy of the letter that
Mr. Messman sent to you?
A. Yes, it is.
Q. And do you see that in the third paragraph from
the bottom, it says:
"Importantly, and contrary to SCO's assertions,
SCO is not the owner of the UNIX copyrights."
A. Yes. I see that.
Q. So, in this press release, Novell said three
times that SCO didn't own the UNIX copyrights?
A. Yes.
Q. And Novell did?
A. Yes.
Q. What was the effect of Novell having sent this
out as a press release, claiming that SCO did not own the
copyrights?
A. It had a very damaging effect on SCO that very
day.
Q. Did it get a lot of play in the press?
A. Yes. It got a lot of play.
Q. Did it have an effect on SCO's stock?
A. Yes. SCO's stock dropped, I want to say
somewhere on the order of 25 to 30 percent in that single
945
day.
Q. Was it particularly important to you that it
was Novell, as opposed to some other company, that was
making this claim?
A. Yeah. It was a big deal that it was Novell.
Q. Why is that?
A. Well, we had bought the property from Novell.
It would be like somebody -- you buy a house from
somebody and then that owner of the house comes out later
and tries to say, "I never sold you the house."
It was stunning.
Q. Now, after Mr. Messman's letter was received,
what did you do?
A. Well, after we picked ourselves up and tried to
figure out what was going on here, the first thing I had
to do, as the CEO of a publicly traded company, is I had
to go meet with our large shareholders, many of whom were
in New York, on Wall Street, and I had to go settle them
down and try and explain to them that, in fact, SCO did
own UNIX and we did own the copyrights.
So, I got on a plane soon after this, went back
to New York and spent a few days back there with them.
That was the first thing that I did.
Q. Did there come a time when you called Jack
Messman directly about this?
946
A. Yes, I did.
Q. When was that?
A. That happened on -- so, May 28 was the date of
this. It would have been June 5, the following week.
Q. Would you please tell the jury about that
conversation?
A. Sure. So, after I had gone to Wall Street and
I tried to settle these guys down, explaining to them
that we actually did own the copyrights, I received a
call from my secretary indicating she had something that
I probably wanted to see.
Q. And what was that?
A. It was something called Amendment Number 2.
Q. And was this before your conversation with
Mr. Messman?
A. Yes, it was.
Q. Did you then call Mr. Messman?
A. Yes. So, I -- come to find out what Amendment
Number 2 was, I read it. It cleared up the problems that
I had been struggling with before around some odd
language in the Asset Purchase Agreement. This made it
clear that we did own the UNIX copyrights and so, at that
point in time, I picked up the phone and called Jack.
Q. Tell us about that conversation, please.
A. So, on the afternoon of June 5, then, I called
947
Jack. He got on the phone, and we talked for a few
moments. And then he said:
"What's up?"
And I said: "Well, Jack, I've got a real
problem with this letter that you sent not only me but
broadcast around the world saying that you still owned
UNIX and the copyrights."
And he said: "Well, Darl, we do."
And I said: "Well, Jack, that's a point of
contention. I totally disagree with that, but if there
was ever any doubt before, it's certainly cleared up when
you read Amendment Number 2 to the purchase agreement."
Q. What did he say to that?
A. He got pretty excited and said: "Amendment
Number 2? What are you talking about? What's Amendment
Number 2?"
Q. And what did you tell him?
A. I explained to him that this clarifies that SCO
in fact does own the UNIX copyrights.
Q. What happened next?
A. He said: "Darl, is this a trick? Are you
trying to trick me?"
Q. And I said: "Trick you into what? What are
you talking about?"
"Did you trick me into sending out the letter
948
and now you're coming out afterwards? You had this all
the time, didn't you? You knew?"
I said: "Jack, I didn't even know you were
sending a letter. That was a shock to me. There's no
trick here. My secretary just found this letter. A few
hours after finding it, I came back. I came and looked
at it. I verified it, and the first thing I did is I
called you."
Q. What did he say then?
A. "Well, I don't know what you're talking about,
but send it over to me."
Q. Did you do that?
A. I said: "Okay. I'll get it over to you. And
then maybe we can talk tomorrow."
He said: "I want you to send it right now.
Fax it to me."
So I faxed it to him.
Q. What happened next?
A. About ten minutes later, Jack called me back.
Q. What did he say?
A. He said: "Okay, Darl, you got the copyrights.
What do you want?"
Q. Did you -- what did you say in response to
that?
A. I said: "Jack, there are three things that we
949
want."
Q. What were the three things?
A. "The first thing is we want you to send out a
retraction letter with respect to the letter you just
sent out saying you own UNIX. You need to retract that."
Q. What did he say to that?
A. He said: "Okay. What else?"
I said: "The second thing is, I want you to
disclose to me, right now, whether IBM was involved in
your communications in sending this letter out."
Q. How did he respond to that?
A. He was evasive. He didn't say yes. He didn't
say no. So I pressed him on it further. I pressed him
two or three times on the issue about whether he had
coordinated with IBM, and then finally he said: "I don't
want to talk about this topic anymore until I have an
attorney with me."
Q. What else occurred in the conversation?
A. So then we went to number three. And I said:
"Jack, we need to talk about damages."
Q. What was his reaction to you raising that
subject?
A. "Damages? What damages? What are you talking
about? There hasn't been any damages."
And I explained to him that the day that their
950
letter went out, on a day that our stock should have been
going up because we had record revenue and record
profits, in fact, instead of our stock going up that day,
our stock sank significantly and that we had been damaged
as a result of their letters that had gone out, his press
release that had gone out.
Q. Was there any further conversation?
A. Jack was upset about the discussion of damages,
and, effectively, that was the end of the call.
Q. I'd like you to take a look at Exhibit 95. Is
this a letter which you sent Mr. Messman on June 6, 2003?
A. Yes, it is.
MR. SINGER: I move the admission of Exhibit
95.
MR. ACKER: No objection.
MR. SINGER: I'm sorry?
MR. ACKER: No objection.
THE COURT: It will be admitted.
(SCO Exhibit 95 received in evidence.)
Q. BY MR. SINGER: Mr. McBride, is this a letter
which you caused to be sent to Mr. Messman by fax and
certified mail on June 6, 2003?
A. Yes, it is.
Q. This was -- was this the day following the
conversation on the phone that you have just been telling
951
the jury about?
A. That's correct.
Q. Can we walk through the letter?
A. Sure.
Q. In the first paragraph, you state: "In a well
orchestrated press release on May 28, 2003, entitled
Novell Challenges SCO's Position, Reiterates Support For
Linux, you stated: 'Importantly and contrary to SCO's
assertions, SCO is not the owner of the UNIX
copyrights.'"
Did you then say: "As you know, your
accusation that SCO does not own the UNIX copyrights was
false and without a good faith basis for belief."
A. Yes. That's correct.
Q. Did you then proceed to say: "The documents
clarifying this issue have been in your possession for
nearly seven years."
A. Yes.
Q. Was that referring to Amendment Number 2 as
well as the APA?
A. Yes. All of the documents, including Amendment
Number 2.
Q. "Any question of whether the UNIX copyrights
transferred to SCO under the September, 1995 -- 19, 1995,
Asset Purchase Agreement was clarified in Amendment
952
Number 2 to the Asset Purchase Agreement dated October
16, 1996, you either knew or should have known of
Amendment Number 2 prior to issuing your press release
attack against SCO's ownership rights of the UNIX
copyrights on May 28, 2003."
"Therefore your conduct in this matter was
either maliciously or recklessly intended to harm SCO's
share value and customer relations."
Did you believe that when you wrote it on June
6, 2003?
A. Yes. Absolutely.
Q. It then says: "As to the question of whether
your conduct was malicious or reckless, we have a direct
statement that Chris Stone, an executive employee working
closely with you on this matter, stated that the timing
of your May 28, 2003, press release was intended to
coincide with our earnings announcement that occurred
later that day."
Did you have information that led you to say
that Mr. Stone had timed the press release to coincide
with the release of your earnings?
A. Yes, we did.
MR. ACKER: Objection, Your Honor. Calls for
hearsay.
THE COURT: I'll sustain the objection.
953
Q. BY MR. SINGER: Did this part of the letter
reflect your belief at the time?
MR. ACKER: Same objection, Your Honor.
THE WITNESS: Yes, sir.
MR. ACKER: Just a back door to the last
question.
THE COURT: I'll overrule the objection. You
may answer.
THE WITNESS: Yes. This was my belief at that
point in time.
Q. Did the next sentence also reflect your belief
when you stated: "I am also concerned that IBM may have
possibly been involved in your decision to issue this
groundless press release based upon statements that you
made in our telephone conversation on June 5."
A. Yes, based on the previous statement he had
made to me when we were on the phone.
Q. And are those the statements that you relayed
earlier in your testimony today?
A. Yes. Point number 2, the phone call I had with
Jack.
Q. If you go back -- if you go down the letter a
little bit further to the next paragraph where it says:
"SCO will hold a press call at 11 a.m., eastern standard
time, to clear up this matter so that our shareholders
954
and customers are fully aware of SCO's rights with
respect to the UNIX copyrights. You have time before
that call to take the following corrective action in
order to possibly mitigate any liability on the part of
you, Jack Messman, and Novell, to SCO and to your own
shareholders for your false and groundless accusations."
And did you then set forth in the letter what
you had asked Mr. Messman to do on the phone call?
A. Yes, I did.
Q. And, following this letter, did you learn that
Mr. Messman authorized a press release to be issued by
Novell with respect to these claims?
A. Yes, I did.
Q. I'd like to turn to SCO Exhibit 96, which I
believe is already in evidence. This was a letter to you
on the same day, June 6, by fax; is that right?
A. That's correct.
Q. Was Mr. LaSala an executive of Novell?
A. Yes. He was their general counsel.
Q. Did you understand that this was a response to
the letter we have just been looking at?
A. Yes. That was my understanding.
Q. And you see where, in the second paragraph of
the letter, it says: "For your information, Novell has
to date issued a press release with respect to Amendment
955
Number 2, and a copy is attached."
A. Yes. Correct.
Q. And was there a copy attached to this?
A. Yes.
Q. And if we turn to SCO Exhibit 97, which I
believe is also in evidence, is this, in fact, a press
release that Novell issued on June 6, 2003?
A. Yes. That's right.
Q. Did you read it when it was issued?
A. Yes, I did.
Q. Did you see that it stated that in a May 28
letter to SCO, Novell challenged SCO's claims to UNIX
patent and copyright ownership and demanded that SCO
substantiate its allegations that Linux infringes SCO's
intellectual property rights. "Amendment Number 2 to the
1995 SCO/Novell Asset Purchase Agreement was sent to
Novell last night by SCO."
Did you understand that to refer to what you
had sent to Mr. Messman?
A. Yes. That's right.
Q. "To Novell's knowledge, this Amendment is not
present in Novell's files."
Did you have any way of knowing, at that time,
whether that was true or not?
A. I didn't know what was in their files.
956
Q. "The Amendment appears to support SCO's claim
that ownership of certain copyrights for UNIX did
transfer to SCO in 1996."
A. Right.
Q. Then it says: "The Amendment does not address
ownership of patents, however, which clearly remain with
Novell."
What was your reaction, Mr. McBride, to
Novell's press release of June 6?
A. I was very pleased that Jack not only gave us a
retraction letter as I had requested of him, but he did
it inside of the 24-hour window.
Q. Now, is it -- had SCO brought a lawsuit against
IBM for breach of contract in March of 2003?
A. Yes, we had.
Q. And during this time, in June, were you in
discussions with IBM regarding whether their license
rights should be terminated?
A. Yes, we were.
Q. Can you tell us whether those had started in
March?
A. We had started discussions with them in March.
Per our contract with IBM, we had a hundred-day cure
period where we needed to work through and try and
resolve the issues. In June, we were getting towards the
957
latter end of that hundred-day period. I believe the
period expired the middle of June in order for them to
get square with us so we wouldn't be terminating their
AIX license
Q. Three days after the June 6 letter and press
release from Novell, did you receive SCO Exhibit 672,
which is another letter from Jack Messman, this one dated
June 9, 2003?
A. Yes, I did.
MR. SINGER: I move the admission of Exhibit
672.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(SCO Exhibit 672 received in evidence.)
Q. BY MR. SINGER: Did you understand that this
letter had to do with the discussions that you were
having with IBM and the issue of terminating IBM's
license rights?
A. Yes. I did understand that.
Q. Why were you engaged in a discussion about
terminating IBM's license rights?
A. Well, that was part of the contract
requirement, that we would sit down and try and work
through that and try and come to a resolution to the
problem.
958
Q. Was there a particular concern that you had had
with what IBM had done that would give you reason to
terminate those license rights?
A. Yes. There was a big concern we had.
Q. Can you briefly summarize what that concern
was?
A. The concern was, IBM had taken their version of
UNIX, called AIX. They had taken significant portions of
that, and they had moved that technology over to this
upstart operating system called Linux to help Linux grow
up to be a business-worthy, business-qualified operating
system, and that was against the rights that they had
with respect to their AIX contract and license
Q. Had you provided, in March, 2003, a notice of
intent to terminate your license because of that?
A. Yes, we did.
Q. And did that begin a period of discussion
between SCO Group and IBM?
A. Yes, it did.
Q. Can you look at the last paragraph of
Mr. Messman's letter of June 9, 2003.
A. Okay.
Q. Where it says: "Accordingly, pursuant to
Section 4.16(b) of the Asset Purchase Agreement, Novell
hereby directs SCO to waive any purported right SCO may
959
claim to terminate IBM's SVRX licenses enumerated in
Amendment X or to revoke any rights thereunder, including
any purported rights to terminate asserted in SCO's
letter of March 6, 2003, to IBM. Novell directs SCO to
take this action by noon, mountain daylight time, June
12, 2003, and to notify Novell it has done so by that
time."
Did you understand this to be basically a
three-month -- three-day ultimatum to waive your rights?
A. Yes. That's right.
Q. Did you do so?
A. No, we did not.
Q. I'd like to turn to Exhibit 675. Is this
another letter from Mr. Messman, dated June 12, 2003 that
was sent to you?
A. Okay.
MR. SINGER: I move the admission of Exhibit
675.
MR. ACKER: No objection, Your Honor.
THE COURT: It will be admitted.
(SCO Exhibit 675 received in evidence.)
Q. BY MR. SINGER: Mr. McBride, can you read
for the jury, after it refers to the various agreements,
what Mr. Messman told you in his letter of June 12, 2003?
A. Do you want me to read that?
960
Q. Please.
A. "In its June 9 letter to the SCO Group, Novell
directed SCO to waive any purported right SCO may claim
to terminate IBM's SVRX licenses enumerated in Amendment
X or to revoke any rights thereunder, including any
purported rights to terminate asserted in SCO's letter of
March 6, 2003, to IBM. Novell directed SCO to take this
action by noon, mountain daylight time, June 12, 2003."
Q. Can you read the next paragraph. I think
there's a paragraph at the bottom of the page, Mr. Calvin
(sic). Please continue, Mr. Messman -- or, Mr. McBride,
with Mr. Messman's letter.
A. Okay.
Q. The last --
A. Oh, okay: "SCO has failed to take the action
directed by Novell."
Q. And then, can you read the paragraph on page 2?
A. Okay: "Accordingly, pursuant to Section
4.16(b) of the Asset Purchase Agreement, Novell, on
behalf of the SCO Group, hereby waives any purported
right SCO may claim to terminate IBM's SVRX licenses
enumerated in Amendment X or to revoke any rights
thereunder, including any purported rights to terminate
asserted in SCO's letter of March 6, 2003, to IBM."
Q. Did you understand this to be Novell seeking to
961
act to force SCO to waive its rights?
A. Yes. That's exactly the way I viewed it.
THE COURT: Mr. Singer, Mr. Acker has not
objected, but I've got to instruct you to not ask leading
questions.
MR. SINGER: Yes, Your Honor.
Q. BY MR. SINGER: Did Novell change its position
with respect to the UNIX copyright ownership after June
6?
A. Yes, it did.
Q. And I'd like you to look at Mr. LaSala's letter
of June 26, SCO Exhibit 678. I move the admission -- is
this a letter from Mr. LaSala to you dated June 26, 2003?
A. Yes, it is.
MR. SINGER: I move the admission of Exhibit
678.
MR. ACKER: No objection, Your Honor.
THE COURT: It will be admitted.
(SCO Exhibit 678 received in evidence.)
Q. BY MR. SINGER: Do you -- would you go down to
the second paragraph of this letter?
A. Okay.
Q. Do you see where it says: "SCO's statements
are simply wrong."
A. Yes.
962
Q. And can you read the balance of that paragraph
for the jury, please.
A. "SCO's statements are simply wrong. We
acknowledge, as noted in our June 6 public statement,
that Amendment Number 2 to the Asset Purchase Agreement
appears to support a claim that the Santa Cruz Operation
had the right to acquire some copyrights from Novell."
Q. Can you stop there, Mr. McBride?
A. Yes.
Q. Is that what your view of the June 6 public
statement by Novell said?
A. No. That's not what it said at all.
Q. Can you explain the difference?
A. Well, if you look at the word "acquire" in
here, that's not what Jack said in the statement that
went out. He said "transfer." He didn't use the word
"acquire." He said "transfer."
Q. What was the significance of that, to you?
A. He admitted, when he saw the thing come
through, and the first statement he came out with was
that, in fact, copyrights had transferred to SCO.
Q. Can we look back at the June 6 press release
for a moment. That would be Exhibit Number 97.
A. Okay.
Q. Are you referring to the statement that appears
963
in the first paragraph -- can you show what you're
referring to in this paragraph?
A. Let me find it here. Let's see. Yes. So if
you go down to the second-to-the-last sentence, it says
very clearly: "The Amendment appears to support SCO's
claim that ownership of certain copyrights for UNIX did
transfer to SCO in 1996".
Q. Can we turn back, now, to SCO Exhibit 678. And
can you pick up with your reading of the second paragraph
of Mr. LaSala's letter of June 26?
A. Yes. So we got down to the part where they did
some wordsmithing to change what was actually in the
letter. Then we go to the next part. Then he says:
"Upon closer scrutiny, however, Amendment Number 2 raises
as many questions about copyright transfers as it
answers. Indeed, what is most certainly not the case is
that any question whether UNIX copyrights were
transferred to SCO as part of the Asset Purchase
Agreement was clarified in Amendment Number 2 as SCO
stated in its June 6 press release, and there is no
indication whatsoever that SCO owns all the patents
associated with UNIX or UnixWare."
Q. How did you regard Mr. LaSala's letter of June
26?
A. Well, it was flipflopping, to use the term from
964
the political world. They had gone out publicly and said
we own UNIX. We had come back and produced Amendment
Number 2, and right on the phone, Jack said to me:
"Okay. You got the copyrights. What do you want?"
And the first thing I said is: "We want a
retraction letter."
And within 24 hours they sent a retraction
letter. Now, several weeks later, they were reversing
their position again. It was getting dizzying to figure
out which direction they were. Did they own them or did
they not own them?
Q. Can you turn to Exhibit 105, which I believe
has already been admitted into evidence. This is a
letter from Mr. LaSala, now, August 4, 2003. Did you
receive this letter?
A. Yes, I did.
Q. And did you regard this -- in your judgment,
was this a change in Novell's position?
MR. ACKER: Objection. Leading, Your Honor.
THE COURT: Sustained.
Q. BY MR. SINGER: Can you explain how you viewed
this letter of August 14, 2003?
A. Yeah. And it's not coming up on my screen.
Which Exhibit Number is it?
Q. It's Exhibit 105.
965
A. 105?
THE COURT: It has been admitted, so it should
be on the screen.
THE WITNESS: It stops at "Dear Mr. McBride."
There. Thank you. If you blow it up so I can read it.
There. Thank you.
Q. BY MR. SINGER: Can you turn to the second
paragraph.
A. Okay.
Q. Do you see where it says: "We dispute SCO's
claim to ownership of these copyrights."
A. Yes, I do.
Q. And can you turn to the third paragraph.
A. Okay.
Q. What was your reaction to the letter of August
4, 2003?
A. Well, it was -- again, this -- the flipflopping
mentality comes to mind, that Jack had clearly told me:
"You got the copyrights." They had sent out the
retraction letter. Then, the end of June, they send a
letter trying to modify what we had said. Now, in
August, they are coming out with another story. It just
appeared they were trying to make up stories to create a
claim for ownership, when in fact they had told me -- he
had told me over the phone: "You've got the copyrights.
966
What do you want?"
Q. Could you turn to the last paragraph of the
letter and read that to the jury, please.
A. Okay: "Unless and until SCO is able to
establish that some particular copyright right is
required for SCO to exercise its rights under the APA,
SCO's claim to ownership of any copyrights in its UNIX
technologies must be rejected and ownership of such
rights, instead, remains with Novell."
Q. We will talk about this in more detail later,
but, in general, what effect did Novell's statements
claiming that it owned the copyrights, that SCO did not
own the UNIX copyrights have on SCO's business?
MR. ACKER: Objection. Compound. Which
statement?
THE COURT: Sustained.
Q. BY MR. SINGER: Let's start with, what effect
did the statement that SCO did not own the UNIX and
UnixWare copyrights have on SCO's business?
MR. ACKER: Same objection. Statements. He's
got to identify which statements, Your Honor.
MR. SINGER: I think that this is --
MR. ACKER: Some are public and some are
private, and he's talking -- he's glumping them all
together. He needs to break it out. It's a compound
967
question.
THE COURT: Why don't you reask the question,
Mr. Singer.
Q. BY MR. SINGER: At this point in time, you were
aware of -- were you aware of statements that we had
looked at in June of 2003 --
A. Yes.
Q. -- including a press release which had
retracted the May 28 press release?
A. Yes.
Q. This letter of August 4, 2003, do you know if
this was published at this time?
A. At this time, to my knowledge, it was not
published publicly.
Q. Do you know whether it was published at a later
time?
A. Yes, it was, eventually.
Q. Do you know approximately when that was?
A. Yes. It was later published on our earnings
call, two quarters later, on December 22, 2003.
Q. And can you tell me, Mr. McBride, whether this
assertion by Novell in December, 2003, had an effect on
your business?
A. It had a devastating effect on our business.
Q. Can you elaborate a bit?
968
A. On December 22, 2003, we had just finished up
our fiscal year, so we had a full year, now, of
reporting, and it was the first full year of having
SCOsource licensing within one year. And the results
that we announced were record breaking revenues of nearly
80 million dollars for the year and record breaking
profits. I believe they were over 5 million dollars. On
the day that we announced, once again, SCO was facing
another attack from Novell about the question of UNIX
copyright ownership.
Novell came out and announced that it had filed
copyright registrations with the copyright office, it
reasserted its ownership claims of UNIX, and, once again,
on a day that our stock would be expected to go up -- I
mean, when you have record breaking revenues, usually, as
a publicly traded company, your stock goes up. Instead
of our stock going up on what should have been the best
day of our company's life with our record breaking
earnings and revenue, our stock went down on the
heaviness of yet another Novell statement that they owned
UNIX.
Q. Would you look at Exhibit 134, which I believe
is later in your book. I'm sorry. It's A-24.
A. A-24?
Q. Yes. It should be near the end of the book.
969
A. Got it.
Q. Was this SCO's announcement at the end of 2003,
specifically on December 22, 2003, regarding financial
results?
A. Yes. That's right. This is the one we were
just talking about.
MR. SINGER: I move the admission of A-24.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit A-24 received in evidence.)
Q. BY MR. SINGER: And can you read out loud the
first paragraph of the report.
A. Sure: "The SCO Group, owner of the UNIX
operating system and the leading provider of UNIX based
solutions today reported revenue of 24.3 million for the
fourth quarter of its fiscal year ended October 31, 2003,
a 57 percent increase of revenue over 15.5 million
for the comparable quarter a year ago."
Q. And this press release was issued, you said, on
December 22?
A. Correct.
Q. Could you turn to the exhibit that's right
before this in your book, Exhibit 517. Is this a press
release by Novell dated December 22, 2003?
A. Yes. Correct.
970
Q. I believe this is already in evidence. Can you
read out loud the one paragraph of this press release.
A. Sure: "Novell believes it owns the copyrights
in UNIX and has applied for and received copyright
registrations pertaining to UNIX consistent with that
position. Novell detailed the basis for its ownership
position in correspondence with SCO. Copies of our
correspondence and SCO's reply are available here.
Contrary to SCO's public statements, as demonstrated by
this correspondence, SCO has been well aware that Novell
continues to assert ownership of the UNIX copyrights."
Q. Do you know what correspondence -- whether the
correspondence being referred to in its press release
included the letters we've been looking at in August and
June?
A. That was my assumption.
Q. The letter of June 26 from Mr. LaSala, was that
published, at the time, as a press release?
A. No, it was --
MR. ACKER: Objection. Vague as to which time.
September 22 or in December?
Q. BY MR. SINGER: At the time it was written, in
June, 2003, was that published as a press release?
A. It was not published in June, no.
Q. Was the -- did you come to learn that Novell
971
had registered copyrights in its name in 2003 for UNIX
and UnixWare?
A. Yes.
Q. Was that publicly made known at that time by
Novell?
A. No.
MR. ACKER: The question misstates facts.
There is no copyright registrations for UnixWare.
Q. BY MR. SINGER: We're talking about UNIX and
UnixWare. Are you aware of whether or not any of the
copyrights registered by Novell were for UNIX
technology?
MR. ACKER: Calls for speculation -- oh, for
UNIX technology? I have no objection to that.
THE WITNESS: Yes. I was aware that they had
registered copyright notices on UNIX back in the October
time frame.
Q. BY MR. SINGER: Are you aware of whether or not
those copyrights covered the same technology which you
had obtained copyrights on from AT&T through Novell?
A. Yes, they did.
Q. Did -- was that publicly announced by Novell
prior to December 22, 2003?
A. No, it was not.
Q. Can you summarize what the effect of the press
972
release on December 22, 2003 had on your SCOsource
business?
MR. ACKER: Objection. Asked and answered,
Your Honor.
THE COURT: Overruled.
THE WITNESS: It had the effect of killing off
our SCOsource business over the period of time from when
that was announced, going forward. Eventually, because
of the statements that Novell had made, we were unable to
complete anymore SCOsource licensing deals. "Anymore" is
not the right word. Eventually it got to the point we
could not complete SCOsource transactions because people
kept pointing to the Novell public statements that were
out there that they still owned UNIX.
MR. SINGER: Your Honor, I am at a breaking
point before going on to a different topic. I can start
that or --
THE COURT: No. I think it's best that we just
go ahead and recess for the afternoon. That is what
you're asking me, correct?
MR. SINGER: Yes, Your Honor.
THE COURT: Ladies and gentlemen, I will not
repeat what you have been told to do. Because I don't
repeat it doesn't mean it doesn't still apply to you.
All right. We will be in recess until 8:30 in the
973
morning.
Ms. Malley.
MS. MALLEY: All rise for the jury.
(Jury leaves the courtroom.)
THE COURT: Mr. McBride, I do need to caution
you not to discuss your testimony with any other
witnesses in this case.
THE WITNESS: Understood.
THE COURT: Or in the presence of any other
witnesses.
THE WITNESS: Okay.
THE COURT: And we will have you back on at
8:30 in the morning.
Do you have anything, counsel, before we
recess?
MR. SINGER: Your Honor, is Mr. McBride able
to discuss the case with counsel, since he is still under
direct examination?
THE COURT: Mr. Acker?
MR. ACKER: That's fine.
THE COURT: I know of no reason why he
couldn't.
MR. ACKER: No objection. He can continue to
get down.
THE COURT: Counsel, we do have hearings this
974
afternoon, so if you would not mind clearing off the
desks.
MR. JACOBS: Your Honor, because the colloquy
among us about Ms. Madsen and her recall and what's in
the declaration refers to documents such as some
deposition testimony and the declaration itself, and
because I think we need to make a record on this, we
would propose to submit a proffer or offer of proof,
maybe tomorrow, that contains the declaration, the
deposition testimony, etc., so that there's a clear
record.
THE COURT: So that you have a record. I see.
That will be appropriate, certainly.
MR. JACOBS: Thank you.
THE COURT: If there's nothing else --
MR. NORMAND: Your Honor, there is one other
issue.
THE COURT: Mr. Normand.
MR. NORMAND: There are, respectively, three
sets of deposition designations that relate to
depositions that were taken in the IBM case, and SCO is
still contemplating using them. My understanding is that
Novell objects to them, among other reasons, on the
grounds that they were taken in the IBM case and not this
case. If that objection stands, we would propose to put
975
in a resubmission to the Court on that issue.
THE COURT: All right.
MR. JACOBS: The objection stands, Your Honor.
THE COURT: All right. You better put in a
submission, then.
MR. NORMAND: Thank you, Your Honor.
MR. SINGER: Thank you, Your Honor.
THE COURT: We will be in recess until 8:30.
(Whereupon the proceedings were concluded
for the day.)
976
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