Here's the transcript of Day 7 of the SCO v. Novell trial in Utah, March 16, 2010, as text, the second trial, with the Hon. Ted Stewart presiding, and it's Darl McBride, all day long on the witness stand. He was on the stand the day before, and he'll be returning for more on the next day, but this day is by far the most intriguing so far.
We find out something we never noticed, but Morrison & Foerster's Eric Acker did, and Acker uses it in his questioning of Darl. You know that SCO accused Novell of slander of title, and part of SCO's shtick was that on the day that SCO announced its fabulous financials from the Microsoft and Sun license deals, on May 28, 2003, Novell ruined everything and sent SCO's stock into the tank by choosing that same day to announce that Novell, not SCO, owned the UNIX copyrights. In opening statements, both SCO lawyers, Boies Schiller's Stuart Singer and Brent Hatch, went on and on about the damage to SCO's stock after Novell made its announcement that day.
Guess what Acker demonstrates? That actually what really happened is SCO had already announced their projected financials prior to May 28, on May 14th, in a press release, and on that day, without Novell saying a word, the SCO stock only went up by the end of the day from $3.34 at the start of the day and to a closing price at $3.55. By May 28, it was at around $10, and early in the morning of May 28, despite SCO announcing its fabulous numbers at a 9 AM conference call, the SCO stock began trending downward *before* Novell's announcement. At the time of Novell's press release, it was at around $8 and it went down by the end of the day to $6 something. Who can say that it was Novell at all, considering the pattern from the morning onward? Plus $6 is higher than it was on May 14th, when SCO had the stage to itself and told the world about its wonderful numbers. Now *that's* good lawyering. It pretty much evicerates SCO's claim. Because SCO was depending on the concept that their stock was going to go to the moon, had it not been for Novell saying what it did, but that is not what happened at all on May 14, and then on May 28th, the stock started to trend downward after SCO announced its numbers before Novell said a word. After all that is on the table, SCO finds itself in a leaking boat, and the water up to their ankles. If SCO had prevailed on its slander of title claim, at a minimum this testimony could be used to make any damages very, very small. I can't believe SCO wants a do over. But we find out why some might want it. Darl admits on this day that he stands to make millions if SCO were to prevail, thanks to him owning millions of options and shares. He began buying shares in Caldera in 2000, as he mentioned in a July 2002 "Dear Shareholder" letter [PDF]: "I became a shareholder of Caldera, along with many of you, at the time of their IPO
in March 2000. My goal over the next few years is to make a profit on my initial investment in Caldera." Indeed.
Here's how the interchange goes, with Acker pounding Darl and Darl trying to squirm away every which way: Q. And your earnings announcement on May 28, 2003,
was for the quarter that ended a month earlier, on
April 30, 2003, right?
A. Yes. That's right.
Q. And so the quarter had actually been closed for
a month before May 28, right?
A. Roughly, yes.
Q. And the revenue and earnings you reported on
May 28 was about 21 million in the top line revenue and
income of a little over 4 million, right?
A. Yes.
Q. But that wasn't the first time you told the
public those numbers, was it?
A. I don't recall.
Q. Let me show you Exhibit M-14.
THE COURT: M?
MR. ACKER: M. Yes, Your Honor.
Q. BY MR. ACKER: M-14 is a SCO press release
dated May 14, 2003; isn't that right?
A. Yes. That's correct.
Q. And you're announcing a couple things in this
press --
I move for admission of M-14, Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit M-14 received in evidence.)
Q. And you're announcing a couple of things in
this press release. You're announcing, one, what you
expect your earnings to be at the end of the quarter,
correct?
A. Yes.
Q. And you're also saying that we did this great
deal in the SCO -- in the licensing campaign we executed
this deal with Microsoft, right?
A. Yes. That's right.
Q. You don't say "Microsoft," but that's what
we're talking about, right?
A. I'm not sure if it was Microsoft or SUN. We
had a couple of different deals going on at that point in
time. I'd have to break this down a little it. It was
either Microsoft or SUN.
Q. And the reason you put out these press releases
was to tell people: "Hey, we had a great quarter and we
did this great deal," is so that the news gets out to the
market and they buy your stock, right?
A. That's not correct. That's not why we put them
out.
Q. But that's the reason for telling the market
what's going on, so that they know what's going on with
the company?
A. The reason we put this out was, as a publicly
traded company, when you have material information that's
hit your company, whether it's good or bad, you have an
obligation to publish it, so this was a material change,
so part of that was published.
Q. So you had an obligation on May 14 to tell the
investing public the following:
Lindon, Utah, May 14, 2003. The SCO Group --
and then you have a NASDAQ ticker -- announced today the
signing of another major SCOsource licensing agreement.
This agreement marks the second substantial licensing
agreement since the formation of SCOsource in January of
this year. The SCOsource division was created to manage
the substantial UNIX intellectual property owned by SCO.
And then you also told them:
SCO updated its guidance on expected results
for its second fiscal quarter ended April 30, 2003. The
company expects to report net income of approximately 4
million or 29 cents per diluted share or an estimated
revenue of 21 million.
Correct?
A. Yes. That's correct.
Q. And those were the numbers that hit the street
on May 28, $4 million in net income and 21 million in
revenue, right?
A. I don't see that in front of me. It was close
to that if not that.
Q. So you told the investing public that two weeks
before Novell said anything in the press release about
the ownership of the UNIX copyrights, correct?
A. Yes.
Q. And do you know how much your stock went up
that day?
A. I don't have it in front of me.
Q. Would it surprise you to know that, based on
these numbers, your stock went up 39 cents?
A. I don't have a reason to believe one way or
another.
Q. Let me show you a document so we can take a
look at that. And this is Exhibit Q-33. And you see,
Mr. McBride, what I've handed to you? Exhibit Q-33 is a
daily report of the movement of the SCO stock price over
a period of time. And if you could take a look on the
fourth page in, there's a date, May 14, 2003 date.
First I would move for admission of Q-33, Your
Honor.
MR. SINGER: Objection. There is no
foundation. I have no idea what this is.
THE COURT: I think we're going to need more
foundation, Mr. Acker.
MR. ACKER: Well, let me just ask Mr. McBride
some questions and see if he'll disagree with the
information in this document.
Q. BY MR. ACKER: You see, sir, that on May 14
this chart indicates your stock opened at $3.34, and it
finished the day at $3.55. Do you see that?
A. Yes, I do.
Q. Do you have any reason to disputes that that's
what your stock did that day?
A. I don't know without looking at it.
Q. I'm sorry, sir?
A. I don't know offhand. I just don't know.
Q. Okay. You don't know one way or another. And
that's the day that you told the market:
We did the second SCOsource license, and this
is what our numbers are going to be at the end of the
month.
Right?
A. Yes.
Q. Okay. Now -- now, before the market opened on
May 28 --
If we could pull up the SCO's opening slide for
that May 28 stock drop, Mr. Lee.
THE COURT: Which is?
MR. ACKER: This is a slide used by SCO in its
opening statements, Your Honor.
THE COURT: All right.
Q. BY MR. ACKER: Now, so, on May 14 your stock is
trading a little over $3.00 and the news is out on the
street that you're going to have $21 million in revenue
and $4 million in income and you've signed the second
Microsoft deal. And your stock, at the beginning of the
day on May 28, is a little over $10 before the market
opens. Do you see that? It's on the screen,
Mr. McBride.
A. Oh. Okay. Okay. I've got it.
Q. So your stock opens at ten bucks on the 28th.
And then you make your second announcement regarding your
earnings. You recall that your conference call was about
9:00 o'clock in the morning on central mountain time?
A. We usually had them in the morning. I don't
have any reason to disagree with that.
Q. And you see what happens to your stock after
starting at $10 a share, after -- even with your
announcement, your reannouncement of these earnings, it
drops down to below $9.00, just a little over $8.00. Do
you see that?
A. Okay. Yes.
Q. And that all happens before Novell says
anything about ownership of the UNIX copyrights, correct?
A. I don't know what time they --
Q. Well, your lawyers -- your lawyers claim that
the time the statement was made is a dotted line going up
and down the chart. Do you see that?
A. Okay. So let's take that one, then. Okay.
Q. And so, before that statement is made, your
stock has dropped from $10.00 to just a little over
$8.00, despite the fact that you have announced to the
street for the second time your revenue for the second
quarter, right?
A. Yes.
Q. So, before Novell said anything about ownership
of the UNIX copyrights on May 28, 2003, your stock was
dropping, despite the fact that you made your second
announcement about your revenue the second quarter,
right?
A. It had gone down a little bit.
Q. But even after the end of the day when -- after
SCO makes its announcements, the stock is still trading
at $6.00, a little over $6.00 a share, right?
A. Yes.
Q. And so it's $3.00 higher than it actually
closed when you made your first announcement of your
revenue two weeks earlier on May 14, right?
A. Give or take some pennies. It's in that
range. Isn't that amazing? I can't believe SCO wants to appeal. Here's that May 14 press release, if you'd like to read it for yourself. After announcing the second deal, it said this about the money:SCO updated its guidance on expected results for its second fiscal quarter ended April 30, 2003. The Company expects to report net income of approximately $4.0 million, or $0.29 per diluted share, on estimated revenue of $21.0 million.
Of the $21.0 million in anticipated second-quarter revenue, approximately $12.8 million is expected to come from the sale of its operating system platform products, and $8.2 million is expected to come from its SCOsource licensing initiative. The Company's current fiscal year ends October 31, 2003.
Conference Call
The Company will host a conference call at 9 a.m. MDT on Wednesday May 28, 2003, to discuss second-quarter fiscal 2003 results. Note that the SCO conference call was at 9AM on May 28. Here's
the transcript we did at Groklaw of that conference call. Here's an earlier Groklaw article on the stock story on May 28, 2003, where I noticed that SCO's story seemed to have some problems matching the events.
By the way, if you would like to go directly to the transcript of the day's testimony and skip my remarks, here is Part 1, Part 2, and
Part 3.
And if you'd like to jump to transcripts of other days of the trial, here you go:
Here's the report from the courtroom that day, live, if you would like to compare notes. So, Darl, Darl, Darl. I don't know about you, but I never get enough Darl McBride. And in fact, that turns out to be a good thing, because even after spending all day on the stand, he isn't done by the end of the day, so he'll be back on the stand again.
Acker handled cross examination of Darl at the first trial before Judge Dale Kimball also, if you recall, back in 2008. I have the impression that MOFO assigns Acker to the witnesses they would like to pulverize, witnesses they suspect may not tell the truth, the whole truth, and nothing but the truth without a helping hand from them. But let's begin at the beginning now, and work our way through the day's events.
On the Question of Letting the Jury Hear About Prior Litigation Events:
The day begins with the usual discussions with the judge and both sides bringing to his attention various issues they wish resolved before the jury is brought in. And this day is significant because the day begins with Sterling Brennan, for Novell, raising the issue about the jury getting to hear about prior decisions in the case. It's significant because that is one issue that SCO is appealing, because eventually the judge did allow them to hear at least some of it, in connection with SCO expert Christine Botosan's testimony. Brennan gives SCO fair warning that if they ask her the questions he thinks they will, SCO will open the door to Novell being allowed to mention prior litigation events.
Here's the part of question four that SCO is asking the appeals court to answer in the affirmative: 4. Did the district court abuse its discretion by (i) changing course from its rulings in the first two weeks of trial, in which it found that such evidence was extremely prejudicial to SCO, and allowing Novell to inform the jury of judicial decisions in Novell’s favor that this Court had reversed; So that's the issue, and now we get to see how it all played out.
Brennan begins by pointing out that Botosan has prepared a kind of alternate universe in order to calculate damages SCO could be entitled to if it were to prevail. It didn't, but at the time, it was not yet known what the outcome would be. She had prepared two reports, one of them an events study, looking at stock performance in light of various events, like SCO suing IBM, in order to figure out what SCO's stock would have been. While she measured the impact of the announcement that SCO had filed suit against IBM, she left out of her study significantly negative events, such as Judge Dale Kimball ruling on a motion in early 2004 that the APA didn't look like it transferred the copyrights or even the day SCO announced it was suing Novell. I can't help but point out that neither was reversed by the appeals court. Here's a snip of Brennan's argument:
As the Court may recall from the Daubert motions, Dr. Botosan conducted what is known as an events study, pegged certain events and marked those as against variations in SCO's stock price performance relative to the NASDAQ composite index, and if there was a variation that she
believed was not explained by the market, then looked to see whether there was an event that occurred that could be explained or a predictor for the variation.
Of the events that she seized on, some of them are litigation activities. For example, the filing of the lawsuit by SCO against IBM. She identifies that as a significant predictor of a variation in SCO's stock performance. There are events that she does not include. For example, the filing of this lawsuit against Novell in early 2004. There are other events, litigation related, that she does not include in her analysis that we believe would be subject to cross-examination, and by virtue of offering her opinions would open the door to various litigation events that occurred during the period of her damages analysis.
In 2004 there is significant litigation activity in this case when Judge Kimball made his initial ruling that it did not appear that the asset purchase agreement constituted a transfer of copyright assets, and that in any event it was unlikely that that agreement met the written description or written requirement for transfer of the copyright ownership. That was in the public domain. That was information that the market could react to. That was information that potential licensees could react to. Dr. Botosan's opinion is premised entirely on the
prognostication or prediction of what both the marketplace would do in reaction to certain events and, more importantly, what potential licensees might do. Why not, then, look at events throughout the period that SCO's damages are calculated from, 2003 through 2007?
SCO's response, through Brent Hatch, is that she only looked at 2003 events for the events study: MR. HATCH: Well, he is kind of mixing two things,
because he is talking about causation again and then damages. On the event study, which talks about causation, those are events in 2003. The particular event that he is most concerned about apparently is Judge Kimball's summary judgment ruling which came down in August of 2004. Excuse me, 2007. The damages study, and that is where he moves to damages, the damages study went through October of that year, because that was the month leading up to the trial, so we are only going to talk about a couple of months there.
So I think in large part what Novell is trying to do is essentially they are trying to bootstrap in information that is not relevant. It is not relevant to the causation study, which is only the 2003 time period, and it really does not have an effect on damages. But Novell asks the judge to let them ask her in cross examination why she stopped there in the events study, why not look at later events, since the damages period includes all those years? Surely they have the right to cross examine her as to the efficacy of her study:So if, in fact, the opinion that is going to be offered through direct examination is what is the mind-set, the state of mind of the market for potential licensees in either 2004, 2005, 2006 or 2007, which is her damages period, then in all fairness Novell ought to be able, since they would open the door, to examine the witness regarding other events. In fact, these are not even predicted events, these are actual events that would have a significant impact on the reaction both in the market and to potential licensees.
I have pointed out Judge Kimball's initial ruling in 2004 which is within the damages period and because, according to Dr. Botosan's report, and the deposition testimony that was taken, she also includes damages, a very significant amount of damages for 2007, and that is the very year where Judge Kimball, of course, issued his ruling finding in favor of Novell.
So, Your Honor, I wanted to alert the Court that if they are going to proceed with this line of testimony, they would be clearly opening the door and Novell in every respect ought to be able to examine Dr. Botosan regarding these events. The judge is inclined to grant Novell's request, as you would be too. You don't have to be a lawyer to sense what is fair. Some of you would probably argue that indeed it helps. Next they discuss a couple of housekeeping issues. For example, Novell has a new exhibit it wishes to use, the transcript of the SCO November 2003 conference call. SCO doesn't want the jury to hear about the terms of Boies Schiller's retention discussed that day in the call, so Novell agrees to remove all such portions of the exhibit. But you can read it here, if you wish to. SCO has removed the mp3 from its original place on its website. But I remember listening to it, because it was the one that David Boies attended, where he and Darl threatened Linux end users. Here's one of my favorite parts: Berr: Gentlemen, there's been suspicion, you know, from Linux users, that you guys are being funded ... this litigation is being funded by, Microsoft, or that you have been coordinating with Microsoft. I was wondering if Darl or Mr. Boies would either care to address that?
Boies: I have not had any conversation, nor, in so far as I know, and I think I would know, has anybody from my firm had any conversation, either with Microsoft, or with Microsoft representatives. This has been entirely litigation that we have undertaken on behalf of SCO. And obviously the recent equity transaction -- Dollar Series A Preferred transaction -- is something that as I think Darl indicated, will provide adequate financing for the litigation without looking to any other companies. Just reading it again makes me laugh. He's talking about the BayStar investment that was announced the previous month, which investment BayStar's Lawrence Goldfarb said pointblank in a Declaration in the SCO v. IBM case was indeed inspired by Microsoft. He says they guaranteed the investment and introduced BayStar to SCO, both things Microsoft denied. And as you know, Microsoft is world famous for being honest as the day is long.
Here's the transcript of the October SCO conference call on the BayStar investment. But the part SCO doesn't want mentioned in the November conference call is the part in the call when SCO announced Boies was to be given a million dollars and a significant chunk of SCO stock, something unusual enough that it evoked questions about it at the event and elsewhere:
McBride: ...
We are pleased today to announce that we are deepening our relationship with the law firm of Boies, Schiller & Flexner and other associated firms by expanding the scope of their representation. Throughout the course of this year, Mr. Boies and his colleagues have served us extremely well, focusing primarily on contract issues related to IBM. With today's announcement, we are confirming a significant expansion of that scope to include broader protection and enforcement of our Unix System V source code, our copyrights and related intellectual property.
On a related note, in connection with our recent 50 million dollar private equity placement completed on October 16, we will provide our law firms with 400,000 shares of SCO common stock and 1 million dollars in cash. This consideration will result in a charge to earnings of approximately 8.9 million dollars in our 4th quarter that ended October 31, 2003. This 8.9 million dollar charge is comprised of a non-cash expense of 7.9 million related to the issuance of the 400,000 shares I mentioned, and a cash expense of 1 million dollars.
I would like to add that we are very pleased to have Mr. Boies's firm and his colleagues join us as significant shareholders in SCO....
Finally, I'd like to comment on the additional copyright issues we referenced in our press release. For the last several months, we have consistently stated and maintained that our System V code is in Linux. We have been careful and responsible in the manner in which we have addressed these issues with the software industry, with Linux end users, and with members of the open-source community. The claims that SCO has are both broad and deep. These claims touch not ... just not IBM, but other vendors as well. They also touch certain industry consortia, and corporate Linux end users. Our claims are not trivial. The violations of our intellectual property are not easily repaired. As we have stated over the last several months, it is our intention to vigorously protect and enforce SCO's intellectual property, our System V source code, and our copyrights. We are now fully prepared to do that. As a result of our October private placement, we have a significant war chest to fund this effort. As a result of the expanded scope of representation of Boies, Schiller & Flexner and their associated firms, we have more then ample legal talent and resource for this effort. Ah, SCO's salad days, when they were mean as a snake and happily bullying Linux users right and left. How awful it felt at the time to hear him speak like that. And even now, I find it chilling, don't you?
The terms of the Boies Schiller retention changed later, with the firm asking instead of stock for cash up front. I suspect the latter is the part they didn't want the jury to hear about, as it reeks of a certain lack of confidence in the ultimate outcome, I'd say, which one might posit was positively prophetic.
McBride Takes the Stand:
Anyway, with all the issues thrashed out, in walks Mr. McBride and he retakes the stand, and Mr. Singer begins his direct examination. He had begun his testimony the day before, so now it resumes. Interestingly, he is asked about his shares in the company. He says he now holds only 26,000 shares. But in March of 2003, the month SCO sued IBM, look what he got, 200,000 options. He already had obtained in October of 2002 5,000 shares and 3,000, and in June he got another 7,003 at the princely price of 0.001 per share, with the notation that at that point he had 15,003 shares. So he's added some since. He says that he still has a significant amount of options, and Acker asks how many, precisely: Q Over time you acquired a significant number of stock options to purchase SCO stock, correct?
A Yes, that's correct.
Q Today you have over a million such options, correct?
A That's correct.
Q In fact, of that million, 600,000 of those options are fully vested, right?
A I don't know exactly how many are vested. I think it would be more than that, but yes.
Q Of those 600,000 that you initially received upon
becoming CEO in 2002, your strike price is 76 cents, isn't it?
A That's correct.
Q So what that means is that if SCO is successful in this lawsuit and the SCO stock goes to $1.76, you stand to make $600,000, right?
A I think the way you did the math, that's correct.
Q If the SCO stock price goes to $2.76, you stand to make $1.2 million, correct?
A Correct.
Q If the SCO stock price goes to $5.76, you stand to make $3 million, correct?
A Correct.
Q It's a lot of money, isn't it, Mr. McBride?
A Yes, it is.
Q That is not considering additional stock options you have and stock ownership, correct?
A That's correct.
Q So you have a significant financial stake in the outcome of this case, don't you, sir?
A I have a material -- what should I say -- interest in the outcome of this case here, there is no doubt about that. So that's what's in it for Darl. As you know, dreams don't always come true, though. As of today, the stock is priced at 4 cents. But there is the appeal, and if Darl owns this much, imagine the others, so that explains why they bother with an appeal. If the odds are against you, but the possible prize is so large, there are those who will continue to salivate against all odds.
Then Singer asks Darl what business Caldera was in when he became CEO in 2002, and get a load of his answer:
Q. What I would like to do now, is go back to 2002 and when you became C.E.O. What was SCO's business at the time?
A. The core business of S-C-O was selling operating systems.
Q. Which particular products were being sold?
A. There were two main products being sold, the UNIX operating system and then they had started to dabble in trying to sell the Linux operating system. That, of course is precisely backward. Caldera had been from its inception a pure Linux vendor, which then in 2001 purchased the UNIX products from Santa Cruz and began to dabble in UNIX. In that Dear Shareholder letter, in fact, there are some excerpts from recent Caldera press releases quoted, and Caldera is described by itself as a Linux Industry leader. He is, of course, pretending to be Santa Cruz, I gather, as you can see by this answer:
A. Yes, I can. The company had gone through a serious decline when I joined. In fact, I had been brought in for a turn around, to try and get those revenues to go back up again. The company was once a high flying seller of this UNIX operating system, had over $200 million per year in revenue, that was in the late nineties, and then by the time that you get to 2002 you see that revenue coming all the way down to 50, $60 million. It was heading south rapidly. It was not in good shape when I joined the company. A little later, he adds this remarkable story:A. Yes. I mentioned that we had been dabbling with Linux and we have been trying to get in there. We actually had formed a group or joined in a group called United Linux. The idea was that we have our UNIX system over here, and if people want to try this Linux system, even though it is a smaller part of our company, we have an offering there. It was back to this idea of what are some new things that we can go to our customers with. Linux a new thing to offer the customers. Unix was the new thing for Caldera.
He also pretends that the company needs the copyrights to run its business: Q. Let me interrupt you three, if I might, for a moment, Mr. McBride, and ask is ownership of the UNIX copyrights required for SCO's business?
A. Yes, absolutely.
Q. Can you explain why ownership of the UNIX copyrights is required?
A. Well, you can't make copies of things if you don't have the copyright protection. You can't go out and do deals with people. You can't enforce your rights if somebody tries to take advantage of your property. There are a number of reasons. It would be like the Beatles trying to protect their music catalog without having the underlying copyrights. You have to have the copyrights to protect it. As you can see, he indicates they couldn't even make copies of things without the copyrights or do deals. So he's not talking about SCOsource there. He's talking about the *Unix* business. Perhaps he forgot that he already told the SEC the company didn't need the copyrights. But notice how this conflicts with SCO's wording in its appeal brief:
The district court also cited testimony from SCO witnesses Darl McBride and Ryan Tibbitts for the proposition that SCO could run its UnixWare product business without the copyrights (A3010-11), although their testimony carefully and consistently pointed out that protecting the underlying technology from infringement in contrast to simply licensing a software product required the copyrights. (A2421:997(McBride); A2640-41:1844-46(Tibbitts); A2642:1850- 51(Tibbitts).) That's just not what I'm reading in Darl's testimony at all. That's not the only statement that seems to me to clash with reality. Acker rakes Darl over the coals for telling the world that SCO owned UNIX patents, even though he could read in the APA that they were excluded and that the exclusion was not altered in Amendment 2. Darl claims, when Singer tries to rehabilitate him later, that he didn't say that after January of 2003. But he did. All you have to do is go through our Quote Database on Groklaw for Darl quotes, and you find him saying it again. Here's Darl making the claim to eWeek's Peter Galli in an article published on February 26 of 2003, for example: In an interview with eWEEK on Wednesday, McBride said the company had received a lot of positive response to its SCOsource initiative, including calls from companies who were concerned they could be infringing on its intellectual property. ...
But the unlicensed use of its Unix shared libraries was just the "tip of the iceberg as there are so much IP were dealing with here, ranging from copyright, trade secrets, patents, source code and licensing issues.
"Because this range of IP-related issues is so broad-based and there is such a wide-range of players involved, were just making sure we move forward very sure-footedly. We don't want to start running before we can walk. Were trying to take things in the right order," McBride said.
And that's not the only time. Here's Darl in a May 23, 2003, article in BusinessWeek:
Q: Microsoft just purchased a Unix license from you. What's significant about that?
A: They agree with our approach to intellectual property. They've taken a patent license on our technology to build better integration between Unix and Windows. I believe that sends a statement to others with respect to what it means to honor intellectual property.
If that's what Microsoft paid for, they wuz robbed. And without a doubt, the public was misled.
I'm not done yet. A few days later, on the significant day of May 28, 2003, here's Darl in MarketWatch threatening to sue Linus for patent infringement: McBride added that unless more companies start licensing SCO's property, he may also sue Linus Torvalds, who is credited with inventing the Linux operating system, for patent infringement
If you read the Novell May 28 press release, one of the things it tried to correct was SCO telling the world that it owned Unix patents: Defending its interests in developing services to operate on the Linux platform, Novell today issued a dual challenge to The SCO Group over its recent statements regarding its UNIX ownership and potential intellectual property rights claims over Linux.
First, Novell challenged SCO's assertion that it owns the copyrights and patents to 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. Included in the press release was a Novell letter from then-CEO Jack Messman to Darl that said, among other things, this about patents: SCO continues to say that it owns the UNIX System V patents, yet it must know that it does not. A simple review of U.S. Patent Office records reveals that Novell owns those patents. So as of May 28, 2003, SCO was still claiming to own the patents, and that was part of what Novell was setting straight. Here's Darl on the subject in his testimony, with Acker asking the questions:
Q. You also stated in your press release, when you
announced SCOsource in January of 2002, that Santa
Cruz -- SCO, the plaintiff in this case, also owned the
UNIX patents. You said that in the press release, didn't
you?
A. There was a press release that went out that
mentioned UNIX patents.
Q. And you also know that in the APA, in the
language that you looked at and the exclusion language of
the APA, excluded patents as being transferred as part of
the APA, right?
A. Yes.
Q. And there is nothing in Amendment Number 2 that
says anything about patents, is there?
A. No, there is not.
Q. And so, the information that you have is that
patents were excluded in the original deal by the plain
language of the agreement, correct?
A. Yes.
Q. And there's nothing in Amendment Number 2 that
says anything about patents, correct?
A. Correct.
Q. But you, as CEO of SCO, put out a press release
to the world in January, 2002, or 2003, saying that you
owned those patents, didn't you?
A. I wouldn't quite characterize it that way....
Q. In January of 2003, you announced the SCOsource
in Linux World at New York, correct?
A. Yes. That's correct.
Q. If we could bring up Exhibit N-12, please. And
if we could highlight the first line under SCOsource.
And what you told the community, the software
community, was that you believed that you owned the UNIX
copyrights, correct?
A. Yes.
Q. And you also believed that you owned the UNIX
patents, right?
A. Yes.
Q. And we know that's not true, that you don't own
the UNIX patents or SCO never did, correct?
A. Over time, we came to that understanding. We
had been trying to clarify the situation with Novell, but
at that time, that was our understanding.
Q. You came to the understanding that you didn't
own the patents, right?
A. That's correct.
Q. And you came to that understanding you didn't
own the patents because the plain language of the
exclusion in 1.(b) of the asset purchase agreement says
that, right?
A. No. Here's the January 2003 press release they are talking about. SCO made the same patent claim in a letter to partners that same day.
And here's Stuart Singer trying to rehabilitate Darl: Q Now let's turn back to some of the points that were
raised in cross-examination. There was some questioning
earlier today about the fact there was initially made -- I
think the first press release is a statement about patents
and copyrights. Do you remember that line of
cross-examination?
A Yes, I do.
Q Did the company, that is SCO, determine after that that
there were no patents which were owned?
A Yes, we did.
Q Did the company ever bring a patent infringement claim
against anyone?
A No, we did not.
Q Did the company ever seek to sell a SCOsource license
at that point based on patents as opposed to copyrights?
A No, we did not.
Q In subsequent press releases, did you refer to
copyrights?
A No -- yes, we referred to copyrights. We didn't refer
to patents after those January press releases were issued.
I think one could argue that by insisting to this very day that SCO got whatever Novell got from AT&T, hook, line and sinker, that this also is a claim to patents, if you think about it. But even without that, it's rather obvious that SCO continued to make the patent claim after January of 2003. In addition to all the others I've collected, here's Darl's letter to partners that Internet Archive still has, dated July of 2003, when the company announced it was stopping its Linux distribution:This communication is about recent efforts SCO has made to license and protect our patents, copyrights and intellectual property pertaining to the UNIX® operating system. And as to SCO not trying to sell any licenses to patents, they surely did so. SCO's May 2003 announcement of the deal with Microsoft said it was about patents and copyrights, something Microsoft confirmed:The SCO® Group (SCO) (Nasdaq: SCOX), the owner of the UNIX® operating system, today announced it has licensed its UNIX technology including a patent and source code licenses to Microsoft® Corporation. The licensing deal ensures Microsoft's intellectual property compliance across all Microsoft solutions and will better enable Microsoft to ensure compatibility with UNIX and UNIX services. SCO's press release is here, dated May 19, 2003, and the headline reads, "SCO Announces UNIX Licensing Deal With Microsoft --
SCO Licenses UNIX Patents and Source Code to Microsoft". And here's ZDNet UK quoting Microsoft's Brad Smith, saying that is what they licensed from SCO:Microsoft is acquiring the rights to Unix technology from SCO Group, a move that could impact the battle between Windows and Linux in the market for computer operating systems.
According to a statement from Microsoft, the company will license SCO's Unix patents and the source code. Patents, plural. This was very widely reported. But SCO didn't have any to license. And as Acker made Darl confess, he knew it at some point, a point Darl claims was in or around January of 2003. The deal was in May of that year. Even when EV1 took a license, the language of the SCOsource license it signed in March of 2004 included wording implying the "IP" being licensed might include patents and copyrights: 1.11 "Update" means the updates or revisions in Object Code format of the Software that You may receive. To the extent that the SCO IP includes patents, "Update" shall include all extensions, divisionals, continuations, continuations-in-part, examinations and reissue patents of such patents, as well as patent applications thereof. TO the extent that the SCO IP includes copyrights "Update" shall include any and all renewals and extensions thereof. If you recall, the very first SCOsource press release [PDF], the one in December of 2002, did say that the covered IP included patents, in fact it stressed patents:The first offering from SCOsource will be SCO System V for Linux -- an end-user licensed product for use on Linux systems. SCO System V for Linux has two key components that protect and expand the use of Linux as a business server platform. First, SCO System V for Linux provides unbundled licensing of SCO's UNIX System shared libraries for use with UNIX applications running on Linux. Second, users of SCO IP Pack licensed systems are protected from future claims based on unlicensed use of SCO UNIX intellectual property in Linux....Customers frequently cite intellectual property concerns as a barrier to their adoption and use of Linux. To alleviate this uncertainty, SCO today is announcing a program that protects customers from any claims to SCO UNIX source code as it pertains to Linux. Customers who purchase a one-time SCO System V for Linux license will be protected and can be assured that the SCO UNIX source code in Linux is authentic and safe from IP patent issues. That's rather obviously an end user license, which Darl testified had not yet been announced.
If you are going to tell stories on the witness stand, it's best to get your story straight. Because at Groklaw, we remember it all with great clarity. And while I expect this from SCO, what is Stuart Singers's excuse? Note this exchange:Q In your cross-examination you were asked about vendor licenses such as Microsoft and Sun. Do you recall that?
A That's right.
Q And at that time -- I think the question was were these SCOsource licenses. At that time had you announced a right to use -- license to the public in the first quarter or
second quarter of 2003?
A No, we had not.
Q So in April 2003, was that yet on the market?
A No, it was not. But they announced it in December of 2002. Notice the crafty question: did you announce it in 2003? I mean, really. No, because it had already been announced in December of 2002.
[Update: At the first trial in 2008, Chris Sontag testified
on the first day that he wasn't sure if that press release was or wasn't released to the public, but he said for sure they used the materials in briefing analysts. He also tried to claim that the patents referenced were patents on other things, despite the description in the press release of January 2003 describing the IP like this: "SCO's patents, copyrights and core technology date back to 1969..."]
SCO's lawyers, knew about it, because SCO attached it as an exhibit [PDF], bearing Bates range SCO1275727-46, to Brent Hatch's Declaration, in support of SCO's Opposition to Novell's Motion for Summary Judgment on its 4th Claim for Relief in 2007. How, then, can they say such contradictory things in court? It's a submitted exhibit. Aren't they afraid someone besides me will notice? That's still not the end. As you can see in this June 26, 2003 letter from Novell to SCO, SCO still had posted on its website then that it owned the patents: Dear Darl:
I write to address SCO's recent statements (to the press, in a securities
filing, in your amended complaint in the IBM case, and in other materials)
that SCO owns all of the intellectual property rights associated with UNIX
and UnixWare. For example, your June 6 press release states that SCO owns
"all rights to the UNIX and UnixWare technology," and the description of
your "SCOsource" program on your Web site states that SCO owns "the patents,
copyrights and core technology associated with the UNIX System."
SCO's statements are simply wrong. And if you recall, the SCOsource license SCO made public in August 2003 included this wording:6.2 SCO Products and related materials, and all copyrights, patent,
trade secret and other intellectual and proprietary rights therein, are
and remain the valuable property of SCO and its suppliers. But the worst, to me, about all this is that SCO knew in January of 2003 that it didn't own the patents, or it had every reason to know. I deduce that because the Michael Davidson memo telling SCO that way back in August of 2002:Note that the scope of the project was limited to looking for evidence of copyright infringement (we didn't consider patents because SCO didn't own the rights to any patents... Remember the Wired article calling Darl the "Linux Killer"? That article said Darl started analyzing the IP assets once he became CEO in 2002:In 2002, when Darl McBride bounced into the top spot at SCO, he began studying its patents and other intellectual property assets. Presumably, that study would include the SEC filings. And in this Caldera 10Q from 2001, it listed what it got from Tarantella, and no patents were listed:
Intangible assets acquired:
Distribution/reseller channel
Existing technology (consisting primarily of UnixWare and OpenServer)
Acquired in-process research and development
Trade name and trademarks
Distribution agreement
Goodwill My point in reminding everyone of all this is that I can't see how SCO had any basis for any patent claim ever, in January of 2003 or later. Not that it stopped them.
The transcript of this particular day is in three parts, as mentioned and here they are as PDF and text: part 1
[PDF] [Text], part 2
[PDF] [Text] and part 3
[PDF] [Text].
********************************
977
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 16, 2010
Jury Trial
Volume VII
978
A P P E A R A N C E S
For Plaintiff: BRENT HATCH
[Address]
Salt Lake City, Utah
STUART SINGER
[Address]
Fort Lauderdale, Florida
EDWARD NORMAND
JASON CYRULNIK
[Address]
Armonk, New York
For Defendant: STERLING BRENNAN
[Address]
Salt Lake City, Utah
ERIC ACKER
MICHAEL JACOBS
[Address]
San Francisco, California
Court Reporters Ed Young
Becky Janke
Patti Walker
U.S. Courthouse
[Address]
Salt Lake City, Utah
[Phone]
979
I N D E X
Witness | Examination By | Page |
Darl McBride | Mr. Singer (Direct Cont.) | 990 |
Darl McBride | Mr. Acker (Cross) | 1053 |
Darl McBride | Mr. Singer (Redirect) | 1153 |
|
Exhibit | Received |
Defendant's Exhibit Y-10 | | 995 |
Defendant's Exhibit Y-11 | | 1004 |
Plaintiff's Exhibit 174 | | 1005 |
Plaintiff's Exhibit 241 | | 1017 |
Plaintiff's Exhibit 532 | | 1028 |
Plaintiff's Exhibit 533 | | 1030 |
Defendant's Exhibit H-18 | | 1031 |
Defendant's Exhibit T-19 | | 1034 |
Plaintiff's Exhibit 394 | | 1051 |
Defendant's Exhibit N-12 | | 1064 |
Defendant's Exhibit I-12 | | 1064 |
Defendant's Exhibit P-12 | | 1064 |
Defendant's Exhibit C-12 | | 1095 |
Defendant's Exhibit O-14 | | 1103 |
Defendant's Exhibit A-16 | | 1106 |
Defendant's Exhibit P-17 | | 1107 |
Defendant's Exhibit X-17 | | 1109 |
Defendant's Exhibit A-15 | | 1111 |
Defendant's Exhibit M-14 | | 1116 |
Defendant's Exhibit N-13 and T-13 | | 1127 |
Defendant's Exhibit J-16 | | 1133 |
Defendant's Exhibit L-17 | | 1138 |
Defendant's Exhibit J-19 | | 1140 |
Defendant's Exhibit P-45 | | 1142 |
Plaintiff's Exhibit 748 | | 1160 |
980
March 16, 2010 8:30 a.m.
P R O C E E D I N G S
THE COURT: Good morning.
MR. BRENNAN: Good morning.
THE COURT: Mr. Brennan, you have something?
MR. BRENNAN: I do. Thank you, Your Honor.
In the interest of avoiding surprise, and to make
sure that we have fully apprised the Court of developments
as we see them and raise issues, we have been informed by
counsel for plaintiff that they intend likely today to call
as one of their witnesses one of their designated experts,
Dr. Christine Botosan. This is the issue. Dr. Botosan in
her analysis forms two general opinions. One is a causation
opinion and the other is a damage opinion premised on the
lost profits analysis. The period for which she calculates
damages runs through the end of 2007. There is significance
to that for several reasons, but let me first back up and
explain how this is connected to her analysis regarding
causation.
As the Court may recall from the Daubert motions,
Dr. Botosan conducted what is known as an events study,
pegged certain events and marked those as against variations
in SCO's stock price performance relative to the NASDAQ
composite index, and if there was a variation that she
981
believed was not explained by the market, then looked to see
whether there was an event that occurred that could be
explained or a predictor for the variation.
Of the events that she seized on, some of them are
litigation activities. For example, the filing of the
lawsuit by SCO against IBM. She identifies that as a
significant predictor of a variation in SCO's stock
performance. There are events that she does not include.
For example, the filing of this lawsuit against Novell in
early 2004. There are other events, litigation related,
that she does not include in her analysis that we believe
would be subject to cross-examination, and by virtue of
offering her opinions would open the door to various
litigation events that occurred during the period of her
damages analysis.
In 2004 there is significant litigation activity
in this case when Judge Kimball made his initial ruling that
it did not appear that the asset purchase agreement
constituted a transfer of copyright assets, and that in any
event it was unlikely that that agreement met the written
description or written requirement for transfer of the
copyright ownership. That was in the public domain. That
was information that the market could react to. That was
information that potential licensees could react to. Dr.
Botosan's opinion is premised entirely on the
982
prognostication or prediction of what both the marketplace
would do in reaction to certain events and, more
importantly, what potential licensees might do.
So if, in fact, the opinion that is going to be
offered through direct examination is what is the mind-set,
the state of mind of the market for potential licensees in
either 2004, 2005, 2006 or 2007, which is her damages
period, then in all fairness Novell ought to be able, since
they would open the door, to examine the witness regarding
other events. In fact, these are not even predicted events,
these are actual events that would have a significant impact
on the reaction both in the market and to potential
licensees.
I have pointed out Judge Kimball's initial ruling
in 2004 which is within the damages period and because,
according to Dr. Botosan's report, and the deposition
testimony that was taken, she also includes damages, a very
significant amount of damages for 2007, and that is the very
year where Judge Kimball, of course, issued his ruling
finding in favor of Novell.
So, Your Honor, I wanted to alert the Court that
if they are going to proceed with this line of testimony,
they would be clearly opening the door and Novell in every
respect ought to be able to examine Dr. Botosan regarding
these events. This is not simply an analysis of what was
983
Novell's state of mind, because the expert testimony now
goes to what is the state of mind of third parties.
Similarly, Dr. Pisano, we are told they may also
call, and is the one that conducted the analysis based on
surveys, again, prognostications. Here we have actual real
world events that play a significant role, and we ought to
be able to cross-examine both Dr. Botosan and Dr. Pisano
regarding these developments should they seek to recover
damages at any point beyond 2003.
THE COURT: Thank you.
Mr. Hatch.
MR. HATCH: Your Honor, of course, this is the
first time we have heard of this listening to it today, but
Dr. Botosan's regression analysis only involves events in
2003. We don't intend, given the prior discussions with the
Court, we don't intend to specifically identify court
hearings or talk about court hearings, and those were part
of her report, and, as I understand it, that does not come
in as evidence, but we'll be discussing her event study
analysis and oral opinions and as we did when we had the
Daubert hearing.
THE COURT: Mr. Brennan is saying, if I understand
him, that regardless of whether you plan to discuss them
that her report would have to reflect those events.
MR. HATCH: Well, he is kind of mixing two things,
984
because he is talking about causation again and then
damages. On the event study, which talks about causation,
those are events in 2003. The particular event that he is
most concerned about apparently is Judge Kimball's summary
judgment ruling which came down in August of 2004. Excuse
me, 2007. The damages study, and that is where he moves to
damages, the damages study went through October of that
year, because that was the month leading up to the trial, so
we are only going to talk about a couple of months there.
So I think in large part what Novell is trying to
do is essentially they are trying to bootstrap in
information that is not relevant. It is not relevant to the
causation study, which is only the 2003 time period, and it
really does not have an effect on damages.
THE COURT: Mr. Brennan.
MR. BRENNAN: Well, clearly we have the right to
cross-examine the witness regarding the efficacy of the
events study. If the witness, that is Dr. Botosan, cherry
picked, in other words said I am going to pick a regression
period that does not include other events, and I am going to
cut it off before there are signal events that could have an
impact, we should be entitled on cross-examination to ask
about that.
Here is a perfect example. Her event study runs
through the end of 2003. Why stop there? What is
985
significant about the end of 2003? Why not go another 20
days into early 2004? January 20th is when this litigation
was filed. We will be able to show through stock analysis,
the very premise that Dr. Botosan's testimony is based on,
that a precipitous change in SCO's stock price was the day
that this lawsuit was filed.
In addition, the causation is not necessarily cut
off at a particular date, particularly when they are seeking
damages all the way through 2007. So, yes, there are two
lines of analysis. The first is her causation analysis.
There is nothing in the law that says that we can't go
beyond the arbitrary period that she picked and say, well,
let's look at events that happened right after 2003. Let's
look at early 2004. Let's look at what happened to SCO's
stock price in 2005, 2006, 2007, because that is their
damages period.
Now, moving to the other side, the lost profits
analysis, they are seeking multi-millions of dollars of
damages, more than $50 million of damages in 2007 alone. In
that year Judge Kimball issued his summary judgment ruling.
We don't need to wait until 2007. In 2004 Judge Kimball
ruled on a motion to dismiss that the asset purchase
agreement did not transfer copyrights, and that it was
highly unlikely that amendment number two met the writing
requirement for transfer of ownership of a copyright.
986
Now, whether or not that ultimately proved to be
correct or not, that was in the marketplace. Dr. Botosan is
going to present to this jury events in the marketplace and
make prognostications. So as long as they are going to put
on expert witnesses who are going to testify as to what
happened in 2004, 2005, 2006 and 2007, and seek
multi-millions of dollars of damages on the premise of how
the market would have reacted, what was the state of mind of
people in the market for causation, and what was the state
of mind of potential licensees, Novell has every right then
to look at all of the events, other events that would have
occurred in those same periods. They will open the door if
they present this testimony, Your Honor.
THE COURT: Counsel, the Court will try to give
you some more precise parameters, but the Court is inclined
to allow the cross-examination request by Mr. Brennan. I
will say to you that if the issue of Judge Kimball's motion
for summary judgment comes up, then this Court is ultimately
going to have to reveal to the jury that that decision was
reversed. We'll just have to play that by ear. If I think
I can give you more guidance, I will give you something
before she testifies, but I do believe that it is within the
realm of your cross-examination --
MR. BRENNAN: Thank you.
THE COURT: -- that you be allowed to do that.
987
The Court received a letter from the plaintiffs
regarding the deposition testimony of three former SCO
employees whose depositions were taken in the IBM case.
First of all, counsel, it is much preferable that
you bring this to the Court's attention by way of motions
not by way of letters, okay, if you can remember that in the
future.
MR. SINGER: Yes, Your Honor.
THE COURT: Mr. Brennan, I am going to assume that
you want to respond to that.
MR. BRENNAN: We do. Our intention was to put
something together today and we can get it to Your Honor.
THE COURT: You do not intend to use the
depositions today, do you, Mr. Singer?
MR. SINGER: No, we do not, Your Honor.
THE COURT: Get us something as early this
afternoon as possible, Mr. Brennan. That would be very
helpful.
MR. BRENNAN: We'll do that, Your Honor.
THE COURT: Mr. Singer.
MR. SINGER: Your Honor, there is an additional
issue. We received last night notice from Novell that they
intended to add two exhibits to their exhibit list. One of
them involves an H.P. transaction, and we don't have a
problem with the late notice on that. We are not saying it
988
is admissible, but we will deal with it like any other
exhibit.
The other one, however, is a different matter. It
is an exhibit that essentially involves the financial terms
of the retention of our law firm in 2003, and does not seem
to have any particular relevance beyond that. It has, of
course, been disclosed now at the eleventh hour with Mr.
McBride already on the stand. We strongly object to the use
of that document.
MR. ACKER: Your Honor, it is Exhibit P-45, and
what it is is a transcript of a conference call that Mr.
McBride and others had in November of 2003. I am fully
willing to redact any reference to the Boies Schiller law
firm or how much they were paid. I simply want to use it
for statements that Mr. McBride and others made to the
investing public in November of 2003.
THE COURT: If the portions pertaining to your law
firm and the amounts paid, and what ever else it may be, if
those are redacted do you have a continued opposition to it?
MR. SINGER: We would like to see from Mr. Acker
what parts he plans to show the jury, because the retention
of the law firm is -- in fact, my partner, David Boies, is
involved in this conference and starts at the headline and
goes throughout the article, so we would like to see how it
is planned to be redacted to see if we have an objection.
989
MR. ACKER: I will represent to the Court and to
Mr. Singer that I won't show any portion of that part of the
conference call to the jury or ask it be admitted.
THE COURT: Mr. Acker, I am going to trust you on
this and just presume that you'll be very prudent and not
allow anything inappropriate pursuant to Mr. Singer's
opposition.
MR. ACKER: I will do that, Your Honor.
THE COURT: All right.
MR. SINGER: We don't have anything further, Your
Honor.
THE COURT: Mr. McBride?
Would someone get him?
Ms. Malley, if you would please bring the jury in.
Mr. McBride, if I could get you to please re-take
the witness chair.
Thank you.
(WHEREUPON, the jury enters the proceedings.)
THE COURT: Good morning, ladies and gentlemen of
the jury. In case you're wondering why the blinds are shut,
it is because we didn't want you to see that the sun is
shining outside and have any desire to be out there. All
right.
Mr. Singer, were you through your examination with
Mr. McBride?
990
MR. SINGER: No, Your Honor, I have more.
THE COURT: Go ahead, please.
MR. SINGER: Thank you.
DIRECT EXAMINATION (Cont.)
BY MR. SINGER
Q. Good morning, Mr. McBride.
I would like to start by bringing up SCO Exhibit 1 and
amendment two which is part of SCO Exhibit 1.
Do you recognize this as amendment number two?
A. Yes, I do.
Q. Yesterday in your testimony you were saying that you
had obtained some comfort from finding the language in
amendment number two with respect to the transfer of
copyrights.
Can you explain that?
A. Yes. My initial concern was when I read the asset
purchase agreement, and the excluded assets section said the
copyrights were excluded. That was why I was trying to get
some comfort around that. When this amendment number two
came in it gave me exactly the comfort that I was looking
for, because this effectively replaced the language that was
in the A.P.A. with this new language which said we had the
copyrights for UNIX and UnixWare necessary to run our
business.
Q. You also testified yesterday with respect to certain
991
letters on June 9th and June 12th from Jack Messman
pertaining to the waiver of SCO's claims against IBM.
Do you remember that testimony?
A. Yes, I do.
Q. I want to ask you this morning whether or not you know
if Novell had any continuing interest in a royalty stream
from IBM at the time of these letters in June of 2003?
A. No, they did not.
Q. At one time was there such an interest?
A. Yes, there was. At the time of the asset purchase
agreement in September of 1995 there was an interest.
However, one year later that was replaced or that was taken
out in a buyout. IBM effectively bought out their interest
of ongoing royalties, so there was not anything ongoing at
the point in time when they were sending me these letters.
Q. I would also like to ask you, Mr. McBride, if you're
still the C.E.O. of SCO Group?
A. No, I am not currently.
Q. When did you lose your job?
A. That was in October of last year.
Q. Do you have any stock holdings in SCO Group?
A. Yes, I do.
Q. Approximately how much?
A. As far as the shares that I own it is a little over
26,000 shares.
992
Q. Do you hold a substantial number of options?
A. Yes, I do have a material number of options that I hold
as well.
Q. What I would like to do now, is go back to 2002 and
when you became C.E.O.
What was SCO's business at the time?
A. The core business of S-C-O was selling operating
systems.
Q. Which particular products were being sold?
A. There were two main products being sold, the UNIX
operating system and then they had started to dabble in
trying to sell the Linux operating system.
Q. Which UNIX based products were being sold?
A. Which were UNIX based?
Q. Yes.
A. We had two main products. One was called UnixWare and
the other one was OpenServer.
Q. Explain what OpenServer was.
A. OpenServer was a product that a lot of store owners and
a lot of companies, large companies and small companies
would use to run their business. It was very popular in
retail environments and with companies like McDonald's, Good
Year Tire, BMW, let's see, C.V.S. Pharmacy, Walgreens.
There were a number of large organizations that would use
these in their branch offices.
993
Q. How about your server base, how large was that at the
time?
A. Between both products, both of the UNIX products we had
over two million servers worldwide.
Q. What are some examples of SCO's UNIX customers?
A. Well, besides the ones I mentioned, and, again, when
you have two million servers obviously that touches a lot of
customers. A lot of retailers had them. Many governments
around the world had them. For example, the United States
government uses SCO UnixWare. Even today before you can
launch an F-16 fighter jet off from a deck, it has to get an
okay from a SCO UnixWare system. Until it has this
encrypted key that says launch, it does not go.
The German train system, basically our SCO UNIX runs
the entire network of trains in Germany. The postal service
in China runs on SCO UNIX. Large banks in Russia and India
and other parts of the world run on SCO UNIX. There are a
number of small organizations that run it too, but I'm kind
of giving you the flavor of the big brands or the big ones
that you would recognize.
Q. You mentioned McDonald's, I believe?
A. Yes, McDonald's is another one.
Q. How does McDonald's make use of SCO UNIX?
A. Well, every time you pull through to order a Happy Meal
or a Big Mac, there is a server back there that is
994
processing these orders. The attendant will take your order
and enter it into a computer, and the SCO UNIX is the think
that is processing that transaction. So there are over
10,000 McDonald's, I think all of them here in the United
States that run on SCO UNIX. When you go into McDonald's
and you see the green screen computer behind the clerk
there, you see these orders rolling through, behind that is
OpenServer, SCO UNIX.
Q. Mr. McBride, what was the financial condition of the
company in July of 2002?
A. It was in pretty rough shape when I joined the company.
Q. Can you elaborate on that?
A. Yes, I can.
The company had gone through a serious decline when I
joined. In fact, I had been brought in for a turn around,
to try and get those revenues to go back up again. The
company was once a high flying seller of this UNIX operating
system, had over $200 million per year in revenue, that was
in the late nineties, and then by the time that you get to
2002 you see that revenue coming all the way down to 50, $60
million. It was heading south rapidly. It was not in good
shape when I joined the company.
Q. How much money on research and development was being
spent during that time period?
A. There was millions, tens of millions of dollars being
995
spent on research and development for new products.
Q. I would like you to turn to Exhibit Y-10 that appears
in your binder of exhibits.
A. Okay.
Q. Is Y-10 a memorandum or letter that you sent to
shareholders of Caldera on August 12, 2002?
A. Yes, it is.
Q. Is Caldera the company whose name was changed to SCO
Group, Inc.?
A. That is correct. It was changed just right after this
letter went out.
MR. SINGER: I move the admission of Y-10.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit Y-10 was
received into evidence.)
BY MR. SINGER
Q. Mr. McBride, explain the purpose of your letter to
shareholders on August 12, 2002.
A. It was to inform them of my findings having been on
board now for not quite two months, as to what the state of
the company was, what the assets were that I had found
inside of the company. Generally it was a road map as to
where I hoped to take the company going forward and how to
capitalize on the assets that the company did have.
996
Q. Can you look at the first paragraph and explain what
you were doing during the first month that you became
C.E.O.?
A. Do you want me to read that?
Q. You can read it to yourself. The question is to
explain what you were doing when you joined the company.
A. Right. It was, again, going through this diligence
process, focussing on the assets that we had and trying to
understand how we can take those assets into the marketplace
and try to come up with some new ideas, instead of the
revenue going south, trying to figure out how to get it to
go up again.
Q. You state here that your findings were encouraging.
A. Yes.
Q. Explain why. Feel free to point to any of the bullet
points or discuss any of the bullet points in the course of
that.
A. Sure. If you look at the bullet points -- I can't see
them right now. If you could blow up that section there
just a bit. Thank you.
I would almost take these in order of importance as to
how I wrote them out here in the letter. The first thing
that I found that was incredibly valuable was the ownership
rights to the UNIX operating system. If you look at the
world of operating systems, worldwide you would essentially
997
see two very big systems. You would see one that was UNIX
and you would see one called Windows.
As we all know, Windows has become pervasive in our
daily use and lives, but as big as windows is, UNIX is much
bigger in the business environment. Through my
understanding and research and really coming down to what
our assets were, we had this asset purchase agreement and we
had this document that says in it, in part, SCO owns all
right and interest in the UNIX operating system, in UNIX and
UnixWare. SCO owns all versions of UNIX and UnixWare.
Q. Let me interrupt you three, if I might, for a moment,
Mr. McBride, and ask is ownership of the UNIX copyrights
required for SCO's business?
A. Yes, absolutely.
Q. Can you explain why ownership of the UNIX copyrights is
required?
A. Well, you can't make copies of things if you don't have
the copyright protection. You can't go out and do deals
with people. You can't enforce your rights if somebody
tries to take advantage of your property. There are a
number of reasons. It would be like the Beatles trying to
protect their music catalog without having the underlying
copyrights. You have to have the copyrights to protect it.
Q. Can you continue with your explanation of the points
that you were making in memorandum Y-10.
998
A. Sure. Again, UNIX was the first big thing we saw. We
mentioned the customers, and that was a big deal. When you
have seven of the top ten retailers in the country that run
on your servers, that is a good thing.
NASDAQ is another example. Every stock trade that goes
through NASDAQ runs through a SCO UNIX server. So the
customer base was something that we felt like we could go
back to and offer them new products and new offerings.
Q. Can you describe the importance of the distribution
channel?
A. Sure. As we mentioned earlier, we have these big
companies that we're talking about, but you also have a lot
of small companies, thousands and thousands of small
companies that run their business on SCO UNIX. If you were
to go over here to Wasatch Marine in Salt Lake City, a
little company like that, they have built their operating
business on a SCO UNIX server.
The problem is when you go to a small company like
Wasatch Marine, we don't have the capacity with the 300
people in the company to reach out and service thousands of
those kinds of customers. So what you see in bullet number
three, was we had over 16,000 resellers worldwide that had
signed up to support and be an extension, if your will, of
SCO's sales force but also of SCO's service and support
team.
999
We were selling into 82 countries and we had 12 offices
around the world, so we had a very broad reach through that
distribution channel.
Q. Can you explain item four?
A. Yes. We felt like we had this very good business and
we had a market capitalization at the time of $10 million,
but we were competing against other companies doing similar
things that had a market value of, in the case of Red Hat,
our number one competitor, who had $800 million. We
believed that from a shareholder standpoint that we were
undervalued, and that it was an opportunity that we could
have for our investors to make more money in the stock as we
went forward.
Q. Can you explain item number five?
A. Yes. I mentioned that we had been dabbling with Linux
and we have been trying to get in there. We actually had
formed a group or joined in a group called United Linux.
The idea was that we have our UNIX system over here, and if
people want to try this Linux system, even though it is a
smaller part of our company, we have an offering there. It
was back to this idea of what are some new things that we
can go to our customers with.
Q. Finally, can you talk about item number six?
A. Yes. The company did not have any debt. Although the
revenues were coming down and we were in a loss position on
1000
a quarter-by-quarter basis, we felt like if we could get the
loss situation turned around, and we didn't have debt, we
were undervalued as a company, we felt like we had an upside
for investors.
Q. Were you aware in 2002 of what SCO's market share had
been in the late 1990s?
A. Yes. When we talk about SCO, the SCO UNIX product
line, which at the time was owned by the Santa Cruz
Operation, it had revenues that exceeded $230 million, and
market capitalization that was multiples more than that.
Q. In terms of the share of the market, though, of
servers, of UNIX servers --
A. At that point in time when the company was selling a
couple hundred million dollars a year, the market share for
UNIX, the UNIX operating system that the company held was 43
percent.
Additionally, if you take just the UNIX on Intel, which
is really where the company specialized, which was the P.C.
Intel type chips, the company had an 85 percent market
share.
Q. What had been happening to the sales of UNIX over the
time frame of the late the 1990s to when you joined the
company in 2002?
A. They had been falling precipitously.
Q. Did you develop an understanding why the company's
1001
sales were falling precipitously?
A. Yes. It was mainly due to the competition from this
Linux operating system.
Q. Can you explain how Linux became a competing operating
system?
A. Yes. Linux, as we talked a little bit about yesterday,
in the initial phases was somewhat of a hobbyist tool, a
hobbyist operating system. It was like a garage band
operating system with college students and free programmers
and people getting together and coming up with this fun
little operating system.
Somewhere along the way, though, there was a transition
where it went from being a fun little garage band toy to
being a major operating system that big companies used.
What happened along the way is we had a joint venture
partnership with the IBM Corporation that went sour, and
later we found that important materials of ours had found
their way via IBM into Linux, which made it a very viable
operating system for businesses to buy.
Q. Now, why would IBM want to spend money on something
like Linux that was being distributed for free?
MR. ACKER: Objection, calls for speculation, Your
Honor.
THE COURT: Overruled.
THE WITNESS: IBM's main business was selling
1002
hardware systems and selling service to support those
systems. The fact that Linux was there as a free operating
system played right into their strategic hands. They liked
the fact that they could go out and sell a system and get
people to buy an entire package from them, and they could
sell the value saying, look, you got your software for free.
That was a big strategic opportunity for them.
BY MR. SINGER
Q. Did there come a time, Mr. McBride, when you became
concerned that Linux contained within it propriety UNIX
technology?
A. Yes, I did.
Q. Can you explain how that came to your attention?
A. Sure. I joined the company in June of 2002. The
company is in a free fall in terms of revenue. Up to that
point in my life I had done a lot of start-ups. I had done
companies that were at zero going up, and now I'm looking at
you take a company that is coming done and turn it around.
My first thought was, well, this can't be that hard. They
have a lot a revenue. It ends up that it is a difficult
proposition.
What I did first when I came in is I brought together
the top 12 managers of the company and asked each of them
what is going on with the company? What can we do to turn
this around? How can we get our revenues returned? In the
1003
course of discussing opportunities with those 12 managers,
one of them, who was the Linux evangelist, who had come to
me in my one-on-one interview with him, said to me that
there were UNIX materials that were being misused with
Linux, and that it was a problem for the company, but it
could also be an opportunity if we played it right. That
was really the first introduction that I had that there was
misuse going on inside of Linux.
Q. Did you have people investigate that further?
A. Yes, I did.
Q. Did you determine what part of UNIX you were initially
concerned with that had been put into Linux?
A. Yes. The individual we're talking about, his name is
John Terpstra, and he is a very bright individual and has
been around the Linux environment for many years. He
informed me that the main area he was concerned with was
something called shared libraries. Attached to the shared
libraries was this thing called a dynamic linker.
That was the main thing that he had introduced to me
that he felt like was problematic.
Q. Did you develop a program to license those libraries
for use with Linux?
A. Yes, we did.
As I talked through this with Mr. Terpstra, the idea
that he had, and I supported it, was this concept of saying,
1004
well, instead of going to all these people who are running
Linux and saying, you know, you can't use that, take it out,
the idea was to go to them and say, okay, you're using this.
We have a license here, and those are our materials, but we
will sell you a license and then it would be a win win.
They would be able to continue to use those libraries and we
would be able to get some royalty or some revenue from it.
Q. Could you look at Exhibit Y-11.
A. Okay.
Q. Was this a press release that you planned to issue on
December 11, 2002?
A. Yes. That is correct.
MR. SINGER: I move the admission of Y-11.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit Y-11 was
received into evidence.)
BY MR. SINGER
Q. What was this press release about?
A. This was a press release that was going to announce our
introduction of this licensing program for those shared
libraries that we just talked about.
Q. What was the date that was set for this press release?
A. That was December 11 in 2002.
Q. Was this press release issued at that time?
1005
A. No, it was not.
Q. Did you delay the announcement?
A. Yes, we did.
Q. Why is that?
A. Two days before the announcement IBM approached us and
was understanding that we were going to make this
announcement and was not happy about it, and asked us to
hold off on the announcement so that we could have time to
talk about it.
Q. What was your understanding of why IBM didn't want you
to make this announcement at this time?
MR. ACKER: Objection, calls for speculation.
THE COURT: Sustained.
BY MR. SINGER
Q. Did you subsequently issue a press release announcing
the program?
A. Yes, we did.
Q. I would like you to turn to Exhibit 174 for SCO.
Is this a press release that, in fact, was issued on
January 22, 2003?
A. Yes. That is correct.
MR. SINGER: I move the admission of Exhibit 174.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 174 was
1006
received into evidence.)
BY MR. SINGER
Q. Mr. McBride, can you take the jury through the points
which are being made here in terms of the announcement of a
SCOsource division? What was that?
A. We had gone through this now and we had been working on
this for several months, and the decision was -- we have had
this really rough run with our products getting beat up by
this free operating system called Linux, and now we're going
to come back out and put together a licensing program. We
are going to announce this library licensing deal that we
have been talking about, but we had to put them inside of a
group. We formed a new group which was different from our
products group. Our products group continued to sell to
McDonald's and other people.
The SCOsource division, on the other hand, had a
charter to take SCO's valuable intellectual property and go
out and license them in different ways to different people.
SCOsource then is the division, and later had product names
that were branded SCOsource, but it starts off SCOsource is
the division for licensing these properties.
Q. Can you move to page 2 of the release.
MR. SINGER: Mr. Calvin, if you would highlight
the first paragraph.
BY MR. SINGER
1007
Q. Read the quote that is attributed to you.
A. Sure. SCO was the developer and owner of SCO UnixWare
and SCO OpenServer, both based on UNIX System Five
technology. SCO owns much of the core UNIX intellectual
property and has full rights to license this technology and
enforce its associated patents and copyrights. SCO is
frequently approached by software and hardware vendors and
customers who want to gain access to pieces of key UNIX
technology. SCOsource will expand our licensing activities,
offering partners and customers new ways to take advantage
of these technologies.
Q. Turn to the third paragraph.
MR. SINGER: Mr. Calvin, highlight that paragraph.
BY MR. SINGER
Q. Who was Mr. Sontag?
A. Chris Sontag was the vice president over the SCOsource
division.
Q. Can you read to the jury the statement in the press
release that Mr. Sontag made.
A. Sure.
The most substantial intellectual property in UNIX
comes from S-C-O. While Linux is an open search product it
shares velocity and architecture and A.P.I.'s with UNIX.
Starting today, SCO's libraries will be available to third
party application developers, O.S. vendors, hardware
1008
providers, service vendors and end users. SCO will help
customer legitimately combine Linux and UNIX technology to
run thousands of UNIX applications. SCOsource plans to
create other new licensing programs to make our rich
inventory of UNIX system technology available to the market.
Q. Now, were you seeking to sell the SCOsource products to
your existing customers who were using UnixWare on
OpenServer?
A. No. This was primarily going out to a new set of
customers.
Q. If there were customers who had bought a Linux product
for SCO, would they have to buy this product?
A. No.
Q. Now, at the time of the actual launch of this product,
which this is January 22, 2003; is that correct?
A. That is correct.
Q. Did anything occur at that time to cause you to be
concerned about copyrights?
A. Yes.
Q. Can you explain that.
A. Let me back up just a little bit. In December IBM had
come to us and was very concerned about our announcement of
this SCOsource licensing division and the subsequent
products that came from it. We negotiated back and forth
with them a couple times and they did not want us to go
1009
launch this product.
Ultimately we came to a disagreement and said we are
going to. On the day that we launched it I was at a trade
show in New York called Linux World. I received a call from
a senior executive from IBm by the name of Karen Smith, who
was very upset and wanted to sit down and have a meeting to
talk about what happened with this announcement.
We had a breakfast meeting the next day. She again was
very upset. She was very upset that the announcement went
out. We talked for a couple of hours and there were other
discussions about their UNIX license that was becoming an
issue at the time as well. In the context of those
discussions, Karen Smith said to me, well, we are not
worried about you being able to sue us or others, because
you never got the copyrights from Novell in that transaction
in 1995.
Q. Did she say what her source of information was?
A. She implied that there were discussions going on with
Novell.
Q. Had you previously taken any steps to assure yourself
that SCO, in fact, owned the UNIX copyrights?
A. Ask that again.
Q. Had you previously taken any steps to assure yourself
that SCO did own the UNIX copyrights?
A. Yes, I had.
1010
Q. Can you explain what you did?
A. In the fall time frame of 2002 when we started putting
together this licensing program and this licensing division,
the first thing that I did was to do a lot of research and
due diligence to get an understanding of all of the
agreements and all of the intellectual property that we
owned.
I had a number of attorneys that we engaged at that
time. The first person that I called was my older brother,
Kevin, who is an attorney, one of the smartest people I
know, and he came in and did an initial analysis. He is not
an intellectual property attorney, but he connected me with
some that were. We had an intellectual property attorney
come in and start looking at the agreements. As we went
through those agreements, the word that was coming back to
us was --
MR. ACKER: I object. I think we need a sidebar
on this.
THE COURT: Okay.
(WHEREUPON a sidebar discussion was begun.)
MR. ACKER: I suspect we're going to get into some
sort of advice of counsel that he in fact was told they did
own the copyrights, and this was the subject or discussion
in Mr. McBride's deposition and the privilege was asserted
when we started to inquire into this area. So they can't on
1011
the one hand not let us get at this during the course of
discovery, and now try and present it to the jury.
MR. SINGER: It is not my intent to get into such
a statement. My point is simply getting Mr. McBride to say
why he approached Novell for clarification on this issue. I
will try and focus the questions to make that clear, and I
am not planning to get into anything Mr. -- advice of
counsel or otherwise.
MR. ACKER: The problem is is that clearly the
implication of this line of questioning is just that, and he
in fact just said that it was what my brother told me that
everything was okay, and there is no other reason to ask
that other than to --
MR. SINGER: That is not in fact what --
THE COURT: Do not ask anymore questions about
specific legal advice based upon the representations that
you raised the privilege on in the course of deposition. I
can't allow you to do that.
MR. SINGER: I understand.
THE COURT: All right.
(WHEREUPON, the bench conference was concluded.)
BY MR. SINGER
Q. Mr. McBride, in this fall 2002 period, did you look at
the A.P.A.?
A. Yes, I did.
1012
Q. Did you see the language which is pertaining to an
exclusion of copyrights?
A. Yes, I did.
Q. At that time were you aware of amendment number two?
A. No, I was not.
Q. Did you contact Novell in the fall of 2002?
A. Yes, I did.
Q. Who did you speak with?
A. I spoke with a handful of attorneys, but the one that I
spent most the time talking to was a person by the name of
Greg Jones.
Q. Tell us about your conversation with Mr. Jones.
A. I talked to Greg and I called him on the phone. He was
somebody I had known when I was working at Novell years
earlier. I talked to him about how I was now the C.E.O. of
SCO and that we had our UNIX business that we had bought
from Novell back in the nineties.
We were putting together this licensing division and we
were going to go out and license and enforce and protect our
intellectual property, but in the process of doing that my
research and diligence had shown that there was an oddity,
if you will, in the asset purchase agreement that didn't
make any sense to me, which was this excluded asset saying
that copyrights were excluded from the asset purchase
agreement.
1013
Q. If you had been aware of amendment number two, would
you have called Mr. Jones?
A. No, I would not have.
Q. What did Mr. Jones say to you?
A. Mr. Jones was as stumped as I well. He said, well,
that does not make any sense. We talked about it and he
ultimately agreed to go try and find some documentation that
would clear up the problem.
Q. Did that happen?
A. I don't know what he did on his side exactly. He
represented to me that he was going to go off and look and
then report back to me.
Q. Did he report back?
A. Yes, he did.
Q. What did he say?
A. We talked a number of times, several times over the
coming months. The first thing that he came back with was
that they had looked around the office and they didn't see
anything, and realized that their UNIX files were in
archives off site and they didn't have access to them, and
that they didn't want to take the time or energy to go look
in their archives.
Q. Did you discuss any alternative to doing that?
A. Yes. Then at Mr. Jones' request, his idea was why
don't you guys put together a clarification letter, and we
1014
all know what happened here, and rather than us going and
chasing down this language, why don't we just -- if you
could just draft a clarification letter and send it over and
I'll try and get somebody to sign it indicating that the
copyrights did in fact transfer in 1995.
Q. Did that happen?
A. The first part of it happened in that we did send him
over the proposed or requested clarification letter.
Q. Was it ever signed and returned?
A. The second part did not happen. They did not sign
that.
Q. Did Mr. Jones ever state that SCO did not own the UNIX
copyrights?
A. No, not at all.
Q. Did Mr. Jones ever state that Novell continued to own
the UNIX copyrights?
A. No.
Q. Did you at any time ask Novell to transfer the
copyrights?
A. No, not at all.
Q. To your knowledge did anyone else at SCO do so?
A. No.
Q. Now, going back to the issue of Linux and UNIX, did
there come a time when your concern expanded from the
libraries that were used with Linux to other parts of the
1015
UNIX system?
A. Yes.
Q. Explain that.
A. Well, over time we engaged a team of technology experts
to come in and evaluate what was going on inside of the
Linux code base and the UNIX code base. As those
evaluations progressed, there were additional concerns
coming back that there was more infringement going on than
just the libraries.
Q. What did you discover concerning that issue?
A. What did I discover?
Q. Yes.
A. What we discovered ultimately is that UNIX and its
technology was showing up in material ways inside of Linux.
Q. Did SCO bring a lawsuit against IBM in March of 2003?
A. Yes, we did.
Q. Why did you do so?
A. We brought that for breach of contract.
Q. Why did you do so?
A. IBM had taken material amounts of technology that was
under license to our UNIX group and our UNIX System Five
technology, and had donated and had moved it over to Linux
and had given it to Linux to help it grow up to be this more
mature operating system. That was against the contract
rights that they had with us.
1016
Q. Did you put IBM on notice that you would terminate
their license?
A. Yes, we did.
Q. Did that begin a period of discussions with IBM about
the resolution of those issues?
A. Yes. That is correct.
Q. Is that the notice that we talked about yesterday
afternoon that Novell acted to waive SCO's rights to on June
12, 2003?
A. Correct.
Q. Did there come a time, Mr. McBride, when SCO decided to
expand the SCOsource licensing program?
A. Yes.
Q. Was there more than one type of SCOsource license that
you developed?
A. Yes.
Q. Can you explain what the vendor license was?
A. Yes. The vendor license was the idea of taking our
valuable UNIX technology, UNIX the UnixWare, and going to
other large companies and selling them a source code license
where they could take UNIX and they could go develop and do
things like we had been doing with it.
Q. Was there another type of license called a right to use
license?
A. Yes. That is correct.
1017
Q. Can you explain what that is?
A. The right to use license was a little different than
the vendor license. The vendor license was where you would
go to a large company and say here is all of our technology,
develop your own products around that.
The right to use license, on the other hand, was taking
the same technology but putting it in the form of an end
user agreement, and allowing end users of Linux to run Linux
to their heart's content, and any of the intellectual
property there that mapped over to UNIX would be covered
with this right to use license.
Q. Did you send out a lot of letters to major
corporations?
A. Yes, we did.
Q. I would like you to look at SCO Exhibit 241.
Is this a letter which you sent on May 12, 2003?
A. Yes.
MR. SINGER: I move the admission of Exhibit 241.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 241 was
received into evidence.)
BY MR. SINGER
Q. Mr. McBride, is this a letter which SCO sent on May 12,
2003 or about that date to a lot of different companies?
1018
A. Yes. That is correct.
Q. What was the purpose? Well, let's walk through the
letter first.
A. Okay.
Q. Well, let's talk about the first paragraph.
MR. SINGER: If we could blow that up, Mr. Calvin.
BY MR. SINGER
Q. Why were you telling these companies about your rights
in the UNIX operating system?
A. We wanted to establish a foundation that we were the
owner of this operating system before we started talking
about the licensing plan. At this point we were not talking
licensing, we were putting them on notice that we had
concerns about the misuse of our intellectual property
inside of Linux.
Q. Was it important to you to put them on notice?
A. Yes.
Q. Can you go to the next paragraph of the letter, or the
next couple of paragraphs actually.
MR. SINGER: Mr. Calvin, can you put the balance
of those up?
BY MR. SINGER
Q. Can you explain what you meant by the statement that
the development process for Linux is different substantially
from the development process for other enterprise operating
1019
systems?
A. Yes. The Linux development environment was one where
anybody around the world could go and take things and
contribute them into this pool of code, if you will. When
people contributed into this pool of code there was not a
process to guarantee that the code going in was protected
and free of copyright material.
MR. SINGER: Mr. Calvin, can you blow up the last
two paragraphs of this page so that the jury can see those.
BY MR. SINGER
Q. Can you explain what you were seeking to tell people
about in the last couple paragraphs on page 1?
A. What we're talking about here is with this Linux
system, which was really trying to replicate what UNIX did,
it was trying to copy SCO, and there were cases we were
finding where our code was showing up inside of Linux. In
some of these cases people who were contributing this code
worked for companies that had licenses to SCO UNIX
technology.
There was a big concern about someone having access to
our code, and then going out and donating it to Linux, and
the authoring process here not being supervised and not
having the legal integrity whether that code was clear or
not was something that was going to create a liability for
the end user of Linux when it was all said and done.
1020
Q. Is that different than the way most software was
distributed?
A. Yes.
Q. Can you explain?
A. Most software or proprietary software is usually
developed inside of a company, and it is basically one
company that is putting it together and then they go to
market with it, and then they stand behind it and they
warrant that this is our material.
Q. Was that true of Linux?
A. No, it was actually the opposite. There was an end
user license agreement that goes with Linux that says
because you got this operating system for free, if there are
any problems with it, then it is your problem, is basically
what the license says, to paraphrase.
Q. What was the reaction to this letter from companies
that received it?
A. It was mixed.
Q. What was the different type of reaction that formed
that mix?
A. Of the people who received this, hundreds of people
called in and wanted to talk about the situation. Some were
interested in getting a license, which at the time we didn't
even have a license. We were just putting them on notice as
to the issue. Some people were interested in a license.
1021
Some people called and said why did you send this letter?
We don't even do Linux.
Then others, you know, were not excited about the
prospect of having to have a license or having to face the
prospect of going into a battle over this.
Q. Did any corporations ask for a way to become compliant
with your intellectual property?
A. Yes, they did.
Q. Now, was there an adverse reaction from other parts of
the technology community?
A. There was an extremely adverse reaction from the Linux
part of the community. Not all of them. There were some
that were saying, yes, I understand what you're saying, but
the hard core loyalists, if you will, had a severe negative
reaction to what we were doing.
Q. Did you enter -- let me rephrase that.
Was the quarter that ended April 30th a good quarter
for SCO?
A. Yes, it was.
Q. We're talking about April 30, 2003?
A. Correct.
Q. Turn to Exhibit 254.
That is a press release May 28, 2003. Is that what
this document is, a press release on May 28, 2003?
A. Yes.
1022
MR. SINGER: I move the admission of Exhibit 254.
THE COURT: It is already admitted.
BY MR. SINGER
Q. Mr. McBride, can you take a look at Exhibit 254, and
tell us whether that accurately reflects your understanding
of the financial performance of SCO during the quarter that
ended on April 30, 2003?
A. Yes, it does.
MR. SINGER: Again, can you blow up that first
paragraph?
BY MR. SINGER
Q. Now, Mr. McBride, we talked yesterday about what
happened in May and June with respect to you and your
conversations with Mr. Messman. I would like to ask you
about the financial performance at the end of June of 2003
and ask you to take a look at Exhibit 229.
Is this a presentation to the board of directors of SCO
on June 26, 2003?
A. Yes, it is.
Q. Was this a financial presentation?
A. Yes. That is correct.
Q. Do you know whether the financial information contained
here were taken from the books and records of SCO?
A. Yes.
Q. Does that include both the historical and forecasted
1023
financial information?
A. Yes.
Q. Was it a regular part of SCO's business to create such
documents and maintain such records?
A. Yes.
Q. Are you knowledgeable about these issues and able to
address them?
A. Yes, I am.
MR. SINGER: I move the admission of SCO Exhibit
229.
MR. ACKER: I object on a couple of grounds, Your
Honor. One, it appears that there are two documents stapled
together. The second document at the back is a review draft
and it appears to be unrelated to the power point. I don't
think this power point is a proper business record. It is
not a financial record of the company, it is simply a power
point and it is hearsay on those grounds. It does appear to
be two documents, and the back document appears to be a
draft of something.
MR. SINGER: I have no problem with removing the
back document. The first part of the document constitutes a
series of financial charts, and I can go through them one by
one, if necessary, to show that those come from the
financial records prepared in the ordinary course of SCO's
business.
1024
THE COURT: The Court will overrule the objection
and allow you to proceed, but I do want the back part taken
out.
MR. SINGER: Yes.
BY MR. SINGER
Q. Can we turn to the first page of the document?
Actually, if we look at the first document, the first page,
is that a breakdown of the revenue by product line?
A. Yes.
Q. Where it says E next to a particular bar on the graph,
does that mean estimated?
A. Yes.
Q. And in June of 2003?
A. That is correct.
Q. Can we turn to page -- look at the Bates stamp
number -- it is page 921.
Can you explain what this page is?
A. Yes. This is a breakdown of our revenue by business
line and product.
Q. And certain periods are listed as actual and others are
forecasted?
A. Yes.
Q. Can you explain and tell the jury what the numbers are
on the line which says SCOsource on the left-hand side?
A. Sure. SCOsource, again, relates to -- as you can see,
1025
up until January 31 there was no revenue coming from that.
When I joined the company and we had this revenue problem
and we came up with the SCOsource division, but the first
quarter of having any revenue in the SCOsource division
shows up in our second fiscal quarter of 2003 ending April
30th. The first quarter then you see with revenue is the
actual revenue, and that is the revenue that we reported in
our earnings report that quarter that we mentioned just a
moment ago.
Q. Are these figures in millions?
A. These figures are in millions as it mentions up above.
Q. What was the forecast for 2003, for the year?
A. The forecast for the year was 27.25 million.
Q. Did you also have a forecasted number for the SCOsource
division for 2004?
A. Yes, we did.
Q. What number was that?
A. 40 million.
Q. Did this represent your best estimates at the time of
this report?
A. Yes, it did.
Q. Did you proceed with SCOsource licensing in the summer
of 2003?
A. Yes, we did.
Q. I would like you to take a look at SCO Exhibit 748.
1026
This has your name on the front page.
A. Yes, it does.
Q. Can you explain what this document is without talking
about the contents of it?
A. I need to see the second page to see what the --
Q. It is also in your book.
A. This is an overview. This was a power point
presentation overview of the company at the time.
Q. Take a look in your book at Exhibit 748.
A. Okay.
Q. Was this presentation used with companies that were
interested in SCOsource products?
A. Yes, it was.
MR. SINGER: I move the admission of 748.
MR. ACKER: Objection. It is hearsay, Your Honor.
MR. SINGER: I am not seeking to admit it for the
truth of the matter, but rather as part of the presentation
that was made to customers showing the operation of the
program.
MR. ACKER: I don't know how it is relevant. He
wants the truth of the matter asserted in here, Your Honor.
There are allegations and assertions in here that he can't
prove and he wants to do it with this document and it is
hearsay.
THE COURT: I am going to sustain the objection.
1027
I think it is clearly being offered for what it says.
BY MR. SINGER
Q. Did you provide customers with information in the
summer of 2003 regarding the SCOsource program?
A. Yes, we did.
Q. Did you create a code room at SCO in the summer of
2003?
A. Yes, I believe it was June of 2003.
Q. Can you explain what the code room was?
A. The code room had a couple of things in it. As was
mentioned in one of our earlier documents, we had thousands
and thousands of agreements with various companies, so we
had all of these UNIX agreements in different binders.
Those were in the code room. They indicated who all of our
licensees were.
The second thing we had in the code room was sample
code of the infringement that we had found to that point
between UNIX and Linux. The code room was set up because
there was a lot of demand. Once these letters went out a
lot of companies responded and said we want to see some
code. We don't need to see the whole thing, we just need to
see a sample so that we understand what you're saying has
some legitimacy to it. The code room was set up to let
people come in and see the examples of here is the Linux
code and here is the UNIX code and here is how we are
1028
showing that they are infringing.
Q. Did you register copyrights in July of 2003?
A. Yes, we did.
Q. Did these include copyrights that you had obtained from
Novell?
A. Yes.
Q. Can you explain why it was important to you to register
copyrights at that point in 2003?
A. In order to enforce your copyrights, you actually have
to have them registered with the copyright office.
Q. Can you identify Exhibit 532? Is this a press release
that you issued on July 21, 2003?
A. Yes. That is right.
MR. SINGER: I move the admission of Exhibit 532.
MR. BRENNAN: No objection.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 532 was
received into evidence.)
BY MR. SINGER
Q. Tell us what the purpose of this press release was, Mr.
McBride.
A. It was to let the world know that we had actually
registered our copyrights with UNIX and UnixWare.
Q. Can you turn to the fourth paragraph? Well, let's turn
first to the first paragraph.
1029
Can you read this paragraph out loud for the jury,
please.
A. Sure.
The SCO Group today announced that it has received U.S.
copyright registrations for the UNIX System Five source
code, a jurisdictional prerequisite to enforcement of its
UNIX copyrights. The company also announced that it will
offer UnixWare licenses tailored to support run time binary
use of Linux for all commercial users of Linux based on
kernel version 2.4X and later. S-C-O will hold harmless
commericial Linux customers that purchase a UnixWare license
against any past copyright violations, and for any future
use of Linux in a run only binary format.
Q. If we go down to the fourth paragraph, can you read
that paragraph, please.
A. Yes.
Hundreds of files of misappropriated UNIX source code
and derivative UNIX code have been contributed to Linux in a
variety of areas, including multi processing capabilities.
The Linux 2.2X kernel was able to scale to two to four
processors. With Linux 2.4X and the 2.5X development
kernel, Linux now scales to 32 and 64 processors through the
addition of advanced symmetrical multi processing
capabilities taken from UNIX System Five and derivative
works in violation of S-C-O's contract agreements and
1030
copyrights.
Q. Did you publicly announce a SCOsource I.P license for
users in Linux?
A. Yes.
Q. Would you turn to SCO Exhibit 533.
Is this a press release dated August 5, 2003 by SCO?
A. Yes. That is correct.
MR. SINGER: I move the admission of 533.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 533 was
received into evidence.)
BY MR. SINGER
Q. What was the purpose of this press release on August 5,
2003?
A. It was to announce that we had now formally put
together the SCOsource licensing program, and to let them
know that there was this binary license to run SCO's
intellectual property in Linux.
MR. SINGER: Can you expand the first paragraph of
the press release, please.
BY MR. SINGER
Q. Now, earlier you had said that there were two different
types of licenses, a vendor license and a right to use
license.
1031
A. Right.
Q. Which one was being referred to here?
A. This was the right to use license.
Q. Did you also have deals with vendors for vendor
licenses going on during this time period?
A. Yes, we did.
Q. I would like to ask you whether or not Hewlett-Packard
was one of those companies?
A. Yes, they were.
Q. Take a look at Exhibit H-18.
Is this a letter which you wrote to Ms. Fiorina, the
chief executive officer of Hewlett-Packard on August 4th of
2003?
A. Yes.
MR. SINGER: I move the admission of H-18?
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit H-18 was
received into evidence.)
BY MR. SINGER
Q. Can you explain at this point in time what the status
was of the discussions with H.P. regarding a SCOsource
vendor license?
A. Yes. We were in discussions with them about a vendor
license, and while those discussion were going on H.P had
1032
asked us to give them an okay letter for the marketplace, to
indicate that their use of UNIX, which was a different
product that we had had with them for a long time, and they
had a UNIX license like IBM did, and they wanted a comfort
letter to go to their customers to show that they were not
suffering from the same kind of infringement -- not
infringement, but rather breach of contract problems that
IBM was. They asked us for a comfort letter to indicate
that. That is what this letter was.
Q. Did you provide that comfort letter?
A. Yes.
Q. Can you turn to the last paragraph of the letter.
Can you read that?
A. Yes.
We wish to clarify that in our code review of the
referenced Linux kernels today, SCO has not identified any
infringing Linux code attributed to Hewlett-Packard. It
appears from our review, that Hewlett-Packard has made
admirable efforts to abide by its obligations under the H.P.
agreements, including those involving Compac, Dec and
Tandem. It is our position that H.P. is in full compliance
with its obligations under the H.P. agreements. We
appreciate your diligence in these matters.
Q. Did SCO enter into a release agreement that formally
indicated that?
1033
A. Yes, we did.
Q. Is that attached to the letter?
A. Yes, it is.
Q. At the same time was there a discussion about
Hewlett-Packard purchasing a Linux vendor license?
A. Yes.
Q. Explain that.
A. Separate from this discussion then was the idea that
H.P. would come in and take a vendor license for Linux. We
went into negotiations from I think early August into the
September time frame.
Q. Were you personally involved in those discussions?
A. Yes, I was.
Q. Who did you have those discussions with?
A. With the vice president of intellectual property at
Hewlett-Packard, a gentleman by the name of Joel Byers.
Q. Can you tell us how far those negotiations went?
A. They went very deep, near conclusion.
Q. I would like you to take a look at Exhibit T-19.
I don't think this is good, the correct exhibit.
Can you tell us what T-19 is without going into the
contents at this point?
A. Yes. T-19 is a draft agreement that was put together
by Hewlett-Packard for the two of us to come together on one
of these vendor licenses.
1034
MR. SINGER: I move the admission of T-19.
MR. ACKER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit T-19 was
received into evidence.)
BY MR. SINGER
Q. Did Exhibit T-19 come from Hewlett-Packard? Let me
rephrase that.
Was this the product negotiations with Hewlett-Packard?
A. Yes.
Q. If we turn to page 2, at the bottom, Section 2.1 --
A. Yes.
Q. It starts on the bottom of this page and continues to
the next.
MR. SINGER: Perhaps Mr. Calvin can clip the next
page, and we can put both parts up on the screen for you.
BY MR. SINGER
Q. Can you explain what the covenant not to sue on other
non-contaminated Linux refers to?
A. That we would not be going after Linux users for
basically the misuse of Linux.
Q. And in return for this was Hewlett-Packard going to
make payments to SCO?
A. Yes, they were.
Q. Those payments, are they identified on page 900 of the
1035
agreement, the draft agreement?
A. Yes, they are.
MR. SINGER: Can we expand, Mr. Calvin, section
three that says payments?
THE COURT: When you say page 900, maybe you want
to tell them you are referring to the Bates number.
MR. SINGER: There is a number in the lower
right-hand corner of the pages and we call it a Bates
stamped number. It is an identification number. When I am
referring to 900, it is the last three digits of that number
which Mr. Calvin uses to retrieve these documents.
BY MR. SINGER
Q. Are these the payment terms that Hewlett-Packard and
SCO had been negotiating?
A. Yes, they were.
Q. Was this the H.P. proposal or the SCO proposal for a $5
million initial payment and subsequent payments of $5
million for every three months for a 15-month period?
A. This was H.P.'s proposal.
Q. What would the total of those payments led to in
reference to SCO?
A. $30 million.
Q. Was this transaction finalized and put into affect?
A. No, it was not.
Q. What is your understanding as to why that did not
1036
occur?
A. We went deep into the discussions here, and ultimately
Mr. Byers came back and informed me that it was difficult
for H.P. to complete the transaction as long as Novell was
out there saying that they still owned the UNIX copyrights.
Q. Did the transaction ever become consummated with SCO?
A. No, it did not.
Q. I would like you to turn, if you would, to Exhibit
T-42.
Is T-42 a company overview which you prepared in or
about September of 2003?
A. That is correct.
MR. SINGER: I move the admission of T-42.
MR. ACKER: Same objection, Your Honor. This is a
power point loaded with hearsay.
MR. SINGER: It is Novell's exhibit to which they
have listed --
MR. ACKER: That does not mean it is admissible.
THE COURT: Can you elicit any more foundation?
MR. SINGER: I will seek to.
BY MR. SINGER
Q. Can you explain the purpose for which T-42 was used,
again, without going into the content of the document?
A. T-42 was used to describe the company and what was
going on at the company.
1037
Q. I direct your attention to pages 63 and 64.
Were these pages used with customers in connection with
the marketing of SCOsource licenses?
A. That is correct.
Q. Were these used by you personally?
A. Yes.
Q. Do you know if they were used by other members of the
sales force?
A. Yes, I believe they were.
Q. Did this document come up in the course of discussions
with potential customers of SCOsource licenses?
A. Yes.
MR. SINGER: Your Honor, I believe this can be
admitted for purposes of showing part of what otherwise
would be admitted on 8033 of the intent of the customers in
doing these deals. This shows what they were being shown
that led the customers to respond and to be interested in a
SCOsource license.
MR. ACKER: Mr. McBride certainly can testify as
to what he personally said to customers, but this is a
document that is a classic hearsay document, if they are
going to use it to say what it was that was communicated,
and the document itself is speaking and that is hearsay.
MR. SINGER: I think the difference is we are not
using this to prove that the matters put forth on these
1038
pages are true, we are using it to put forth that this is
what was told to customers which led to their interest in
acquiring the vendor license.
MR. ACKER: It is still hearsay, Your Honor.
THE COURT: Was this record prepared as a part of
the regularly conducted business activity of SCO?
THE WITNESS: Yes, it was.
MR. ACKER: I don't know how to define hearsay,
other than the document is speaking and saying facts.
MR. SINGER: It is an admission under the business
records --
MR. ACKER: Well, it is not a business record.
This is a power point. It is not a business record of
regularly conducted activity.
THE COURT: The Court is out of an abundance of
caution going to not admit the document, based on the
foundation I have heard so far.
MR. SINGER: Yes.
Your Honor, we may come back to it.
BY MR. SINGER
Q. Let me ask, did you continue in the September of 2003
time frame making presentations to customers?
A. Yes, we did.
Q. Did you seek to answer questions that customers might
have as to the basis for the claims that SCO had regarding
1039
the potential infringement of its copyrights?
A. Yes. That is correct.
Q. Now, did there come a time when Novell went public with
a press release regarding its UNIX ownership claims?
A. Yes.
Q. I would like you to turn to SCO Exhibit 517. I believe
this already exhibit is in evidence. We looked at this
yesterday.
Is this a press release that you were familiar with in
December of 2003?
A. Yes, it is.
Q. Was December 22nd, 2003, again, the date of a SCO
earnings release?
A. Yes. That is correct.
Q. Did you understand that the December 22, 2003 press
release from Novell could be an assertion of its ownership
of the UNIX copyrights?
A. Yes. That is correct.
Q. Now, would you turn to Exhibit A-24.
A. Okay.
MR. SINGER: Can I ask if A-24 has been moved into
evidence?
THE COURT: A-24 is in.
BY MR. SINGER
Q. Mr. McBride, is A-24 an earnings release for SCO that
1040
was announced December 22, 2003?
A. Yes. That is correct.
MR. SINGER: Can we blow up the first paragraph of
that.
BY MR. SINGER
Q. Can you read for the jury the first paragraph of the
press release.
A. The SCO Group, Inc., the owner of the UNIX operating
system and the leading provider of UNIX based solutions
today reported revenues --
THE COURT: Mr. McBride, would you slow down when
you are reading. If you go too fast the court reporter --
THE WITNESS: I have been reading a little bit
fast. I was afraid of boring people if I went slow, but I
will read slowly, Your Honor.
The SCO Group, Inc., the 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 over revenue of 15.5 million for the
comparable quarter a year ago.
BY MR. SINGER
Q. Can you read the second paragraph.
A. Sure.
Fourth quarter revenue from UNIX products and services
1041
was 14 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.
Q. As you moved forward into December of 2003 and into
2004, did Novell's December announcement have an affect on
your SCOsource business?
MR. ACKER: Objection. That calls for
speculation, Your Honor.
THE COURT: I'll sustain the objection.
BY MR. SINGER
Q. Were there business opportunities that you continued to
engage in in December and January?
A. Yes.
Q. Was one of them Google?
A. Yes.
Q. Was Google an attractive business opportunity for SCO?
A. Yes, they were.
Q. Can you explain what the nature of that business
opportunity was?
A. Google had hundreds of thousands of servers that were
running on Linux, and at the time it was believed to be one
of the largest customers of Linux worldwide. If they would
take a license to our SCOsource material, obviously it would
1042
be very valuable to the company.
Q. Did you personally have phone conversations with
Google?
A. Yes, I did.
Q. Was Google interested in a SCOsource license?
A. Yes.
MR. ACKER: Objection, calls for speculation and
asks for hearsay.
MR. SINGER: With respect to the hearsay
objection, I would say under 8033 the statements of a
customer with respect to the reasons why it would or would
not do business are admissible. If the Court would like, we
have authorities on that point.
With respect to the form of the question, I would
be happy to rephrase it.
THE COURT: Rephrase the question, please.
BY MR. SINGER
Q. Did you have phone conversations with Google in which
the subject was Google's interest in a SCOsource license?
A. Yes.
Q. In those conversations, did Google indicate that they
were interested in negotiating for a SCOsource license?
A. Yes.
THE COURT: Mr. McBride, if you see Mr. Acker
start to respond, would you just wait before you answer?
1043
THE WITNESS: Yes, Your Honor.
MR. ACKER: Your Honor, I am just going to make a
blanket objection that he is trying to elicit statements,
out of court statements to prove the truth of the matter
when we don't have the witness here. That is exactly what
we are doing. He is talking about phone calls with people
that are not going to testify at this trial.
MR. SINGER: Your Honor, may I approach with
certain case authorities on this point?
THE COURT: Why don't we take a break and we can
discuss it during the break.
Ms. Malley.
THE CLERK: All rise for the jury.
(WHEREUPON, the jury leaves the proceedings.)
THE COURT: Mr. McBride, you don't need to sit
there, if you don't want to. If you want to take advantage
of the break, please feel free to.
THE WITNESS: I will take you up on that offer,
Your Honor.
THE COURT: Do you want some time to do this,
Mr. Singer? We can come back from the break and --
MR. SINGER: I am sorry. I missed what the Court
said.
THE COURT: Would you prefer me leaving and let
you put together that you want to, and then we can address
1044
it when we come back?
MR. SINGER: That would be preferable to us, Your
Honor.
THE COURT: Let's do that. We will take ten
minutes and then come back and deal with this.
MR. SINGER: Thank you, Your Honor.
(Recess)
***** Part 2 *****
MR. ACKER: Your Honor, I think maybe I can cut
this off. I've learned something here today.
Mr. Stewart is right. As long as it goes both ways --
THE COURT: I'm Mr. Stewart.
MR. ACKER: I'm sorry. You're always right.
MR. SINGER: I think that's Judge Stewart.
MR. ACKER: Yeah, it is Judge Stewart. He's
always right. Mr. Singer is right, and I have no
objection as long as the hearsay comes in both ways.
That is, if he wants to put in statements of customers as
to why they did or did not take SCOsource licenses, then
we will do the same.
THE COURT: The analysis we've been able to do,
based on a couple of Tenth Circuit cases, would indicate
that he may he testify as to statements made that they
were interested and, if he can prove that they would have
engaged in business and he can demonstrate that they
decided not to, but he would not be permitted to testify
as to why they decided not to.
There are a couple of cases that my law clerks
were able to find that would indicate that there is that
limitation. He can not speculate as to what was the
reason for ultimately not consummating the deal.
Now, if you two somehow or another want to
agree to violate the rule jointly, I'm not sure that
1045
that's very wise.
MR. SINGER: Your Honor, we're also learning
something because when he looked into this, we found
Second and Third Circuit authority which said that
customer motives were admissible under 8033 to the
Hearsay Rule but we didn't discover Tenth Circuit
authority. Would the Court be able to share with us
that?
THE COURT: This is from the case of United
States of America vs. Ledford. It's 443 Fed 3d 702.
It's a Tenth Circuit decision from 2006. Let me just
read the relevant part:
Under the state-of-mind exception -- which I
presume we're all operating under -- itself, a statement
is not excluded by the Hearsay Rule if it is, A, a
statement of the declarant's then existing state of mind,
etc. It then cites the rule.
Then, going on, it says: Thus the Federal
Rules of Evidence contemplate an exception to the
exception. A statement that would otherwise be
admissible under the state-of-mind exception is
inadmissible if it is a statement of memory or belief
offered to prove the fact remembered or believed. Case
law makes it clear that a witness may testify to a
declarant saying "I am scared," but not "I am scared
1046
because the defendant threatened me." The first
statement indicates a natural state of mind or admission,
while the second statement expresses belief about why the
declarant is frightened.
The phrase "because the defendant threatened
me" is expressly outside the state-of-mind exception
because the explanation for the fear expresses a belief
different from the state of mind of being afraid.
Now, admittedly, it's a criminal case, but I
don't know of any reason why it should be distinguished.
MR. SINGER: The authority that we are relying
on, Your Honor, and I'm happy to provide copies if I
may.
THE COURT: If you would, please.
MR. SINGER: This is Hydrolevel Corporation vs.
American Society of Mechanical Engineers, 635 F.2d 118.
Second Circuit.
THE COURT: Do you have the relevant portion
marked or something?
MR. SINGER: Yes. It is highlighted. It is at
page 11 as the opinion is printed.
THE COURT: Have you given copies of these to
Mr. Acker?
MR. SINGER: Yes, we have. But, you know, we
recognize these are out of different Circuits. This is
1047
the Third Circuit in Freeser vs. Serv-a-Portion, 909 F.2d
1524. I think, in light of the Court's Tenth Circuit
authority, we would be happy to be governed by the Tenth
Circuit authority if the Court is inclined to follow on
this and to proceed just within what I understand to be
the scope of this, that we can talk with Mr. McBride
about the fact that there was a business opportunity that
they were interested in, the opportunity was lost, but
not to elicit either through correspondence or through
testimony as to the reasons that he was given why that
customer was lost.
THE COURT: I believe that's what the Tenth
Circuit tells us we are allowed to do.
MR. ACKER: Well, if that's the rule we are
going to operate under, then I think we have to strike
Mr. McBride's testimony regarding why HP obtained a
license and what Mr. Buyers allegedly said to him in a
telephone call.
THE COURT: Mr. Acker, I was expecting you to
object, and you didn't. And I don't believe that, in
light of your failure to object timely, that I can now go
back and expect a jury to remember what it was that I'm
striking from.
MR. ACKER: And then I'm just alerting the
Court and counsel that I'm going into the reasons why it
1048
is that HP did or did not take a license.
THE COURT: And I think I've got to allow you
to do that certainly, but this point forward.
MR. ACKER: I understand.
THE COURT: All right. Do we understand each
other then, counsel?
MR. SINGER: I believe so, Your Honor.
THE COURT: All right.
(Jury brought into the courtroom.)
THE COURT: Okay, Mr. Singer.
Q. Mr. McBride, I think we were in the course of
discussing Google.
A. Yes.
Q. Was there an offer made by SCO to Google for
selling SCOsource licenses?
A. Yes.
Q. Do you recall what SCO's offering price was for
a SCOsource license?
A. Yes. There was a discount off from our
at-the-time list price, which was 699. It was a discount
off from that price because of their volume amount they
had, down to a hundred dollars per server.
Q. Did that deal get done?
A. No, it did not.
Q. And did you have a business opportunity with
1049
Dell?
A. Yes.
Q. Were you personally involved in those
discussions?
A. Yes, I was.
Q. What type of license was the business
opportunity that you presented to Dell consist of?
A. Dell was basically going to be a reseller of
our SCOsource product line.
Q. And what was the time frame of those
discussions?
A. That was in the early 2004, January, February,
2004 time frame.
Q. And were you able to bring that discussion to a
satisfactory conclusion?
A. No.
Q. In January, 2004, did Novell announce its own
program with respect to selling indemnification for Linux
users?
A. Yes, they did.
Q. And can you explain what -- well, actually,
let's take a look at the exhibit, Exhibit 394. Was this
an announcement by Novell of a Linux indemnification
program?
A. Yes, that's right.
1050
MR. SINGER: I move 394 into evidence.
MR. ACKER: No objection, Your Honor.
THE COURT: It will be admitted.
(SCO Exhibit 394 received in evidence.)
Q. BY MR. SINGER: And what is indemnification?
Can you explain your understanding of that?
A. Basically, they were looking to give legal
protection to people who were using Linux.
Q. Was this a program that would compete with the
SCOsource licenses that SCO was offering?
A. Yes. Absolutely.
Q. And is it your under -- what is the time frame
in which this was announced by Novell?
A. My understanding is, if I recall correctly, it
was announced and launched in January of 2004.
Q. Were there requirements, as part of the
program, that the customers buy a certain minimum amount
of Novell goods in order to be eligible for this
protection?
A. That was my understanding.
Q. Can we turn to -- and perhaps Mr. Calvin can
enlarge it -- the terms and conditions of the program
which appear on the right-hand column of this exhibit.
A. Okay.
Q. Are you referring to the statement that the
1051
Novell indemnification program is available to all
qualified Novell customers? Requirements include meeting
the $50 thousand annual minimum purchase requirement for
licenses, upgrades and updates within the year preceding
a claim against your indemnified Linux product?
A. Yes. That's right.
Q. Going forward into 2004, how did the SCOsource
program fair?
A. Very poorly.
Q. Can you elaborate?
A. So, after having a record -- a banner year
record, it was our first year, but we launched SCOsource
in 2003, had a great year. The revenues were rolling
nicely as we moved into 2004, and on the heels of
Novell's second announcement on our earnings date, that
they in fact did own UNIX, it put a severe damper --
"damper" is probably too light of a word -- on our
ability to sell SCOsource licenses.
Q. What happened to the SCOsource division? Had
you built up a sales force for SCOsource?
A. Yes. We had, I believe, four or five people
working in the sales force, in addition to some other
people on the international side.
Q. What happened to that sales force?
A. We had -- ultimately, it became too high of a
1052
hurdle for us to get over, and time after time it became
problematic to sell in light of the Novell ownership
claims and also their indemnification program, and before
2004 was over, we had to shutter the SCOsource division
and shut it down. I think the specific question was the
employees related to that were laid off.
MR. SINGER: I have nothing further at this
time. Thank you.
THE COURT: Mr. Acker.
MR. ACKER: Thank you, Your Honor.
CROSS EXAMINATION
BY MR. ACKER:
Q. Let me give you copies of your previous
testimony, Mr. McBride.
A. Thank you.
Q. You may need that, too.
A. Oh.
Q. Good morning, Mr. McBride.
A. Good morning, Mr. Acker.
Q. It's good to see you again.
A. Likewise.
Q. I want to take a step back a little bit, and
during your answers to the questions that Mr. Singer
posed, you talked about the time that you worked at
Novell. Do you recall that?
1053
A. Yes, I do.
Q. But you left Novell in February of 1996,
correct?
A. That's correct.
Q. And you were not involved in the negotiation of
the asset purchase agreement between Novell and Santa
Cruz while at Novell; is that right?
A. That's correct.
Q. Also true and you agree that you were not
involved in the details of the structure of the asset
purchase agreement in 1995, fair?
A. That's fair.
Q. And, also, it's certainly the case that you
were not present at the Novell board of directors'
meeting in September of 1995, when the directors approved
the asset purchase agreement, correct?
A. Correct.
Q. And, obviously, if you weren't in the room, you
don't know what was said, correct?
A. Correct.
Q. And you don't know what it is that the Novell
board of directors approved, correct?
A. (Witness nods.)
Q. Is that right, sir?
A. I know what was approved by the board of
1054
directors as a result of what came out of their meetings
that were later published, but, beyond that, I don't
know.
Q. Well, you weren't in the room, correct?
A. No. I was not in the room.
Q. Have you ever read the minutes of the board of
directors' meeting?
A. Yes, I have.
Q. You have read those?
A. Yes, I have.
Q. And you understand that those minutes say that
what the board of directors did is approved an asset
purchase agreement that excluded the transfer of the UNIX
copyrights, correct?
A. No.
Q. That's not correct? Is that right? Is that
your testimony?
A. Pardon?
Q. That is your testimony, that the board of
directors meetings don't say that?
A. Not the way you asked it.
Q. Isn't it true -- let me try again. Isn't it
true that the board of directors' meetings in September
of 1995, where the Novell board approved the APA, it says
the copyrights will be excluded?
1055
A. The way you asked it that time, I would agree.
I would say yes.
Q. And so the only information that you have about
what occurred at the board of directors' meeting is
reading the minutes, right?
A. No.
Q. The only documentation you've ever seen about
the board of directors' meeting is reading the minutes,
correct?
A. I don't recall if I have other documentation
that I have read.
Q. And the documents that you have said, say that
what the board did at Novell in 1995 is approved a deal
where copyrights were excluded, right?
A. I agree with you that there are board minutes
that say the copyrights were excluded. I guess we don't
agree on which copyrights.
Q. And you didn't review the APA again until 2002,
or that's actually the first time you ever laid eyes on
it, right?
A. Yes. That's correct.
Q. So, a deal is done at Novell in 1995 that
you're not part of, correct?
A. That's correct.
Q. And the board of directors at Novell approves
1056
that deal, and you're not at that meeting. Right?
A. That's correct.
Q. And you're not involved in the negotiations of
that deal, correct?
A. That's correct.
Q. And the first time that you ever actually lay
eyes on the piece of paper that embodies that deal is
seven years later, right?
A. That's correct.
Q. Now, you also testified, just a bit ago, that
to run your business at SCO before you were terminated as
CEO, you had to own the copyrights to UNIX. Did I hear
that right?
A. Yes. That's right.
Q. Well, when Santa Cruz -- before you were
involved with the company, when Santa Cruz was selling
OpenServer in 1996, 1997, and even before the APA in 1994
and 1995, they didn't own the UNIX copyrights, did
they?
A. No, they did not.
Q. And they were out in the marketplace with their
flavor of UNIX, OpenServer, selling OpenServer without
the copyrights, right?
A. Without which copyrights?
Q. Before the APA, Santa Cruz did not own the UNIX
1057
copyrights, correct?
A. They had their own copyrights for OpenServer.
Q. But what they had for OpenServer for the UNIX
portion of OpenServer was a license, right?
A. For the portion that related to that, yes, but
they did have their copyrights.
Q. And with that license, they were able to run
their business selling OpenServer, correct?
A. The license plus the copyrights to
OpenServer.
Q. Right. But they didn't have the copyrights, at
least according to you, before 1995, right?
A. No. No. No. No, I don't agree with that
statement.
Q. You also stated in your press release, when you
announced SCOsource in January of 2002, that Santa
Cruz -- SCO, the plaintiff in this case, also owned the
UNIX patents. You said that in the press release, didn't
you?
A. There was a press release that went out that
mentioned UNIX patents.
Q. And you also know that in the APA, in the
language that you looked at and the exclusion language of
the APA, excluded patents as being transferred as part of
the APA, right?
1058
A. Yes.
Q. And there is nothing in Amendment Number 2 that
says anything about patents, is there?
A. No, there is not.
Q. And so, the information that you have is that
patents were excluded in the original deal by the plain
language of the agreement, correct?
A. Yes.
Q. And there's nothing in Amendment Number 2 that
says anything about patents, correct?
A. Correct.
Q. But you, as CEO of SCO, put out a press release
to the world in January, 2002, or 2003, saying that you
owned those patents, didn't you?
A. I wouldn't quite characterize it that way.
Q. So let's go back to when you first joined the
company in 2002. This was your first job as a CEO at SCO
when you joined in June of 2002, correct?
A. Did you say it was my first job as a CEO or CEO
of SCO?
Q. First job as a CEO of a publicly traded
company?
A. That's correct.
Q. And that was a big deal, wasn't it?
A. Yes.
1059
Q. And when you joined SCO in 2002, it was not in
great financial shape, right?
A. That's what I said earlier, that's right.
Q. The company was in a turnaround, right?
A. Correct.
Q. Hadn't been profitable in the last fiscal year
that ended at the end of October of 2002, correct?
A. That's correct.
Q. It suffered a net loss of more than $24
million; isn't that right?
A. I don't have those numbers in front of me, but
they clearly were not profitable.
Q. And the shoulder equity had decreased to such
an extent that there was a possibility of you being
delisted from the NASDAQ stock exchange, correct?
A. What time frame are you talking about?
Q. December of 2002.
A. I don't think the delisting issue was in
December, if I recall correctly.
Q. And it was under these circumstances that you
went to the board with this new SCOsource program, right?
A. Yes.
Q. And you believed that that was the course of
action you had to take in order to save the company; is
that right?
1060
A. I wouldn't say it quite like that.
Q. Well, the reason you undertook SCOsource was in
order to turn around this dire financial situation at
SCO, wasn't it?
A. It was a key component of it, of turning around
the company, yes.
Q. And, in order to implement this new strategy of
SCOsource, you had to hire lawyers, right?
A. Lawyers were part of the team that we brought
together. There were others.
Q. And you hired those lawyers. You had them on
board, the Boies, Schiller firm, as of December of 2002,
right?
A. Yes.
Q. And it was your belief, in late 2002, that the
SCOsource licensing strategy would only result in
significant revenue for SCO if the company was willing to
engage in litigation or the legitimate threat of
litigation, true?
A. I believed that we needed to be able to stand
firm and enforce our property if people were not willing
to license.
Q. And so you were changing the business plan of
SCO from one of being a software company to being a
litigation company, correct?
1061
A. Incorrect.
Q. But, in order for SCOsource to work, you
believed in 2002 you had to have a law firm and you had
to either sue or be willing to sue; isn't that true?
A. We believed that we needed to be willing to sue
people who would not -- if people would misuse our
materials, we believed, yes, we would need to file
lawsuits.
Q. And then, in January of 2002, you announced the
SCOsource program at the Linux World Conference in New
York?
A. Yes.
Q. In January of 2003, you announced the SCOsource
in Linux World at New York, correct?
A. Yes. That's correct.
Q. If we could bring up Exhibit N-12, please. And
if we could highlight the first line under SCOsource.
And what you told the community, the software
community, was that you believed that you owned the UNIX
copyrights, correct?
A. Yes.
Q. And you also believed that you owned the UNIX
patents, right?
A. Yes.
Q. And we know that's not true, that you don't own
1062
the UNIX patents or SCO never did, correct?
A. Over time, we came to that understanding. We
had been trying to clarify the situation with Novell, but
at that time, that was our understanding.
Q. You came to the understanding that you didn't
own the patents, right?
A. That's correct.
Q. And you came to that understanding you didn't
own the patents because the plain language of the
exclusion in 1.(b) of the asset purchase agreement says
that, right?
A. No.
Q. And this was a big deal, wasn't it?
A. What was a big deal?
Q. Your announcement?
A. This was an important announcement for us.
Q. And it caused quite a stir in the software
community, didn't it?
A. In some parts. That would be accurate.
Q. And there was a great deal of press coverage,
correct?
A. Yes. It was reported widely.
THE COURT: Mr. Acker, are you going to ask for
admission of N-12?
MR. ACKER: Yes, Your Honor we'd move for
1063
admission of N-12.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit N-12 received in evidence.)
Q. BY MR. ACKER: Let me show you some of that
press coverage. Let me hand you a couple documents,
Mr. McBride, we have marked as Exhibit I-12 and Exhibit
P-12.
MR. SINGER: I am assuming these are not coming
in for the truth of the matter but simply press releases.
We have no objection.
MR. ACKER: I'd move for admission of both I-12
and P-12, Your Honor.
THE COURT: They will be admitted.
(Novell Exhibits I-12 and P-12 received in evidence.)
Q. Have you had a chance to look at I-12,
Mr. McBride?
A. Yes.
Q. And that's an article that was written by
somebody you know, Maureen O'Gara, right?
A. Yes. That's correct.
Q. And she's a reporter in the software industry;
is that correct?
A. That's right.
MR. ACKER: And if we could highlight the first
1064
paragraph, please, Mr. Lee.
Q. BY MR. ACKER: And this article came out just
before the announcement. There was actually a release of
the announcement on the 22nd before it actually came out;
isn't that true?
A. Say that again.
Q. There was a leak of the announcement of the
SCOsource program before it was actually announced; isn't
that true, Mr. McBride?
A. I'm not aware of that.
Q. In the first paragraph Ms. O'Gara writes:
The financially challenged SCO group, the
current avatar of pioneer Linux distributor Caldera
International has been threatening behind the scenes to
demand that the Linux users, regardless of whatever
distribution they are using, pay SCO money to ensure that
their Linux systems do not infringe on its UNIX System V
IP.
That was what the press reported around the
time of SCOsource in January of 2002; isn't that true,
Mr. McBride?
A. No.
MR. ACKER: Let's go down to the next paragraph,
below, sources, under the word "sources," Mr. Lee.
Q. BY MR. ACKER: Sources say the scheme, which
1065
pretty much sounds like a protection racket, we won't sue
if you pay, isn't engraved in stone, but an undated
weeks' old SCO press release that details the plan and
was read to us has been quietly making the rounds. At
press time, we got word that a major player, believed to
be IBM, thought it had dissuaded SCO from going through
with the idea.
Wasn't it the case, Mr. McBride, that many in
the Linux community and the software community thought
that your SCOsource program was in fact a protection
racket?
A. That wasn't my understanding.
MR. ACKER: Let's go to the next paragraph, Mr. Lee,
on the right column.
Q. BY MR. ACKER: We begin:
It is unclear whether the alleged IP is
unassailable and that valid patents or copyrights
actually exist or that UNIX libraries are actually in
Linux. Reportedly there has been a lot of patent
research going on in the Linux community lately, and
there are supposedly serious doubts SCO has much of
anything.
Wasn't it also the case, Mr. McBride, that when
you announced this SCOsource scheme in January of 2003,
that many in the software community thought, one, that it
1066
was a protection racket, and, two, you could not prove
copyright infringement?
MR. SINGER: Object to the form of the
question, using the term "scheme."
THE COURT: I'll overrule the objection.
Q. BY MR. ACKER: Isn't that true?
A. What was the question again, now?
Q. Isn't it true that many in the software
community and the Linux community, after you announced
SCOsource, thought that it was a protection racket and
that you were never going to be able to prove copyright
infringement. Isn't that true?
A. I don't know how many people had that
opinion.
Q. But you heard that, didn't you?
A. I didn't hear that at this point in time.
Q. Well, you heard it after you announced it,
didn't you?
A. No.
Q. It's your testimony that you never heard, after
announcing SCOsource at Linux World in 2003, that no one
ever said to you either in press reports or directly that
there's no way you can prove that there is any UNIX in
Linux. Is that your testimony, Mr. McBride?
A. That is a different question than the one you
1067
asked me before, Mr. Acker. The way you asked it there,
I would agree with you.
Q. So people were saying: This is crazy, you are
never going to prove there is any UNIX in Linux because
there isn't any UNIX in Linux; isn't that true?
A. There were definitely some that had that
opinion.
Q. And wasn't it a great many that had that
opinion, Mr. McBride?
A. I don't know how to count how many people had
that opinion.
Q. And isn't it fair to say that after you came
out with the SCOsource program in January of 2002, and
after you had told your board of directors this is the
way we are going to turn the company around, that you had
staked your own personal representation on being right,
that, one, you owned the UNIX copyrights, and, two, you
could prove infringement?
A. I don't know if I would answer the question --
say that exactly the way you did. There is no doubt that
my reputation was on the line here, but this, at the end
of the day, was not about my reputation. It was about a
number of people at SCO that were advising me that all of
us were coming to the conclusion that this was the path
that we were going to go down.
1068
Q. Once you launched this and went down that path,
you were committed, correct?
A. Yes. That's correct.
Q. Now, yesterday, in your testimony to the jury,
you described the Linux operating system in 2003 as an
upstart operating system, right?
A. No.
Q. Well, you did use that word. Do you want to
change that testimony?
A. When I was talking about the upstart operating
system, I was referring to the state of the operating
system in the'90's time frame. In the 2003 time frame,
it was becoming more and more robust.
Q. And you would agree with me that in 2002,
actually, you, yourself, SCO, had your own Linux product?
A. We did.
Q. And you were offering that Linux product
until -- up until April of 2003, you were out selling it
and issuing press releases regarding your Linux
product?
A. Yes. That's correct.
Q. And then, the next month, you did a flipflop,
didn't you, in May of 2003?
A. No.
Q. Wasn't it May of 2003, on May 14, you decided
1069
that, despite the fact that we were in the Linux business
and we were selling software and despite the fact that we
had been touting it in late 2002, into April of 2003, now
we're committed to SCOsource, so we're going to stop
selling Linux; isn't that right?
A. In 2002, 2003, the time frame you are talking
about, when we found there was absolutely UNIX in Linux,
we felt it disingenuous for us to be out there promoting
Linux at the same time we were trying to get our
intellectual property defended with respect to that
infringement.
Q. So you gave up selling software and were going
to focus on the licensing scheme, right?
A. That's totally wrong.
Q. You gave up selling Linux, and you were going
to focus on SCOsource; isn't that true, Mr. McBride?
A. We announced that we were going to discontinue,
as I recall, our Linux sales, and we would continue to
sell our software, UNIX, UnixWare, OpenServer, which
represented about 98 some-odd percent of our revenues,
and that we were introducing a new product line,
SCOsource, which is a licensing version that
under-stitched the product business. So we basically had
two product lines we were announcing. We've got, you
know, our product lines, and then over here we have our
1070
license materials, so that's quite a bit difference than
the way I think you characterized it.
Q. But SCOsource, when you say a product line, it
wasn't an actual software product you were selling,
right? You were selling licenses?
A. It was a license. It was a license as much as
somebody who has a music collection that decides not to
sell directly, to come back and offer a royalty if
somebody wants to come and use that music for something
that they use on a commercial. It gets commercialized.
It was a licensing business, which is very much a valid
way of selling your intellectual property.
Q. Let's go back to your review of the APA. After
1996, when you left Novell, you hadn't seen the APA until
2002 and then you picked up the document in 2002 while at
SCO, correct?
A. Yes. That's right.
Q. And you did not have Amendment Number 2, and
you hadn't seen that document until June 4 or 5 of 2003,
right?
A. Yeah. I think it was -- was it -- it was June
5. That's right.
Q. And so, when you were reading the APA before
that time and making your decisions about how to proceed,
all you had was the original document, right?
1071
A. Well, I had the original document, and then I
had a lot of advisors that had weighed in and given me
advice with respect to the strength of that document.
Q. In fact, you had been reading the APA for
months by January of 2003; isn't that right?
A. Yes. That's correct.
Q. And why don't we bring up the APA if we could
and exclusion 1.1(b), Schedule 1.1(b).
And when you read the APA, Mr. McBride, while
you were at SCO in 2002 and 2003, you saw this language
in the Excluded Assets Schedule of the APA, and
particularly the Excluded Assets Schedule Roman Numeral
V, correct?
A. Yes.
Q. And you saw what it said was that excluded from
the deal or excluded from the transfer was intellectual
property and, specifically, all copyrights and trademarks
except for the trademarks UNIX and UnixWare, right?
A. That's what it says.
Q. And those were the words you read in 2002 and
2003, correct?
A. Those were a few of the words I read. I think
it was -- the asset purchase agreement, I think, is over
60 pages, but certainly within the 60 pages I read, this
is one of the lines that was in there.
1072
Q. And when you read this section, you thought to
yourself, this is a problem. Right?
A. Yeah. It was a head scratcher. It didn't make
sense, because if you read the other parts of the asset
purchase agreement, everything indicated that the
copyrights transferred. And so when you read one part,
like if you go -- I don't know if you have schedule
1.1(a) --
THE COURT: Mr. McBride, Mr. Acker has the
opportunity to ask you questions, and I want you to
respond to them directly.
THE WITNESS: Okay.
THE COURT: If there is something else you
think will need to be brought out in regards to a
question he asks, then Mr. Singer will have another
opportunity.
THE WITNESS: Okay. Fair enough.
THE COURT: But I don't want you going beyond
the question asked by Mr. Acker.
THE WITNESS: Okay.
Q. BY MR. ACKER: When you read this section that
says the copyrights are excluded, it was a problem. You
thought it was a problem, didn't you?
A. I thought it was problematic, yes.
Q. And so it would be fair to say -- you consider
1073
yourself to be a reasonable person, don't you, sir?
A. Yes.
Q. And fair to say that a reasonable person,
reading this agreement, without Amendment Number 2, could
come to the conclusion that the copyrights, the UNIX
copyrights were not transferred under the APA?
A. If you -- you could come to that conclusion.
Q. So, a reasonable person, sitting down, picking
up the APA, without Amendment Number 2, reading it, could
reasonably come to the conclusion that the UNIX
copyrights did not transfer?
A. If they only read Amendment Number 2 and didn't
read the rest of the agreement, I think they could come
to that conclusion. I disagree with you. If they read
the entire agreement, they would come to a different
conclusion about the copyrights.
Q. You just said if they only read Amendment
Number 2. You weren't reading Amendment Number 2 --
A. I'm sorry. If you just read the asset purchase
agreement -- if you just read the asset purchase
agreement without excluded assets is what I meant to say.
I'm sorry. If you only read the excluded assets portion
of it, I agree that you could come to that conclusion,
that the assets were excluded. I think if you read the
entire agreement, it's hard to come to a conclusion that
1074
SCO didn't own the copyrights.
Q. But you'd agree with me that somebody --
differing minds could differ on this. One person could
read the asset purchase agreement and say, "Well, this
doesn't seem to make sense with the rest of the
agreement" and come to the conclusion there's something
wrong. But a reasonable person of a differing mind could
also read this and see the express language excluding the
copyrights and come to a reasonable collusion that, in
fact, the UNIX copyrights were excluded, right?
A. You could come to that conclusion, yes.
Q. And that would not be unreasonable to do that?
A. Correct.
MR. ACKER: We could go to section 4.16(a),
please.
Q. BY MR. ACKER: Now, you realized that this
section -- you also read this section, 4.16(a), correct?
A. Yes.
Q. And you realized that this section created an
agency relationship in which Santa Cruz, and subsequently
SCO, collected royalties for customers who deploy SVRX
royalties, correct?
A. Yes.
Q. And so this really was setting up an agency
relationship where, originally, Santa Cruz and then SCO
1075
were acting as an agent to collect SVRX royalties that
would flow -- 95 percent of which would flow back to
Novell, correct?
A. Yes. That's right.
Q. Let me show you a document, if I could, D-11.
And it's a large document, sir, and I know you're not
necessarily fond of these, but I'm going to point to a
specific provision of the Caldera form 10K SEC filing
for the year ended October 21, 2002.
And this has already been admitted, Your Honor.
You were the CEO of Caldera, and subsequently
SCO, at this time when this form 10K was filed, right,
Mr. McBride?
A. That's correct.
Q. And if you go to the second -- the Bates
numbered 415 near the end of the document, you see your
signature down there, sir, your electronic signature?
A. Yes.
Q. So the jury understands, as the CEO, you needed
to certify that statements in this document are true and
accurate when it goes to the Securities and Exchange
Commission, correct?
A. Yes. That's right.
Q. And you do that?
A. I'm sorry. I thought you were asking them.
1076
Q. No. No. They won't let me ask them.
A. That's the way it came across. I'm sorry. I
was waiting for them to answer.
Q. But you take that responsibility seriously,
don't you, Mr. McBride?
A. Absolutely. Of course.
Q. Yes. You read these documents, SEC filings,
carefully before you allow your electronic signature to
be affixed and to be sent to the federal government,
correct?
A. That's correct.
MR. ACKER: Now, if you take a look at -- if we
go to page 42, if we can highlight that section, Mr. Lee.
Q. BY MR. ACKER: And so, in this section,
Mr. McBride, what you're doing, as what the company SCO
is doing, is describing the agency relationship that was
created by the APA, correct?
A. Yes. It doesn't say that in here. Where does
it say it's describing the agency agreement?
Q. Well, let's read it, and then maybe we can work
through it.
A. Does it say "agency agreement" in there?
Q. It says:
The company has an arrangement with Novell in
which it acts as an administrative agent in the
1077
collection of royalties for customers who deploy SVRX
technology.
A. Okay.
Q. That's a true statement, right?
A. Okay.
Q. Is that right? That is a true statement?
A. That is correct.
Q. And that was describing the relationship in
which SCO was collecting royalties for SVRX licensees,
right?
A. That's correct.
Q. And then it continues: Under the agency
agreement, the company, SCO, collects all customer
payments and remits 95 percent of the collected funds to
Novell and retains 5 percent as an administrative fee.
Do you see that?
A. Yes, I do.
Q. And that's describing the relationship that was
created by the APA in Section 4.16(a) in which originally
Santa Cruz and then Caldera and then SCO were acting as
an agent to collect the SVRX royalties for Novell?
A. Yes. I believe that's correct.
Q. Now, you said that after you noticed this
problem with the APA, because the copyrights were in the
excluded assets section --
1078
A. Right.
Q. -- you had some communication with Novell
employees. Did I get that right?
A. That's correct.
Q. And you called Gregg Jones, who you used to
work with at Novell, correct?
A. Yes. He worked for me in the division over
there.
Q. But, to your knowledge, Mr. Jones was not
involved in the actual negotiation or execution or
drafting of the APA, correct?
A. I didn't think so.
Q. And so you simply called an old colleague out
of the blue and asked him about a document that had been
executed seven years ago that he had no involvement with
at the time?
A. I actually. That is true, but I actually
called other Novell attorneys before calling him that
were, I thought, going to be more involved.
Q. So Mr. Jones picks up the phone, gets a call
from you, hasn't talked to you in years, I assume.
Fair?
A. That's correct.
Q. And you ask him about the APA, which he never
worked on, back in '95, correct?
1079
A. That's incorrect. That's not what I called --
I didn't call to ask him about it initially. I called to
talk about my transition to SCO and then started talking
about it. I never asked him about it. I told him what
the situation was.
Q. And Mr. Jones' response was:
I need to check with the business people.
Right?
A. No. That's incorrect.
Q. Well, Mr. Jones, who had no knowledge of the
APA, didn't make any promises to you, did he?
A. Yes, he did.
Q. He said he would talk with the business people,
didn't he?
A. That's not what Mr. Jones told me.
Q. All right. Did you take notes of these
conversations?
A. I just remember what he told me. I don't
remember taking notes.
Q. Did you take any notes of these
conversations?
A. No, I didn't.
Q. Did you draft any e-mails to document the
conversations?
A. I don't recall any.
1080
Q. Was anyone with you on the phone that took
notes or drafted e-mails to document the conversations?
A. No.
Q. But you know Mr. Jones did, don't you?
A. I don't know if he did or didn't.
Q. Okay. Let's take a look at Exhibit K-11?
THE COURT: You said K-11?
MR. ACKER: K-11, Your Honor.
Q. BY MR. ACKER: Now, Exhibit K-11 is a November
20 e-mail from Gregg Jones to a Mr. Jim Lumber and Joe
LaSala inside of Novell, correct, Mr. McBride?
A. Yes. That's right.
Q. And you have seen this document before,
correct?
A. Yes, I have.
Q. And you read it during your deposition,
correct?
A. That's right.
Q. And when you read it during your deposition,
you agreed --
MR. SINGER: Object if Mr. Acker is going to
get into the substance of a document not admitted.
MR. ACKER: I'm going to lay a foundation, then
I'm going to move it in, and then I'm going to ask him
about it. Would that be okay?
1081
THE COURT: You can ask him about it but not
disclose the contents of it --
MR. ACKER: Sure.
THE COURT: -- until it has been admitted,
please.
MR. ACKER: Yes, sir.
Q. BY MR. ACKER: You saw this during your
deposition, didn't you, Mr. McBride?
A. I saw something like this. I thought it was a
longer one, but maybe this is the one. I saw some Gregg
Jones e-mails. If you want to show me my deposition
exhibit, I can tell you if I saw it or not, but, yeah.
Q. In your deposition, you read this and you
agreed --
MR. SINGER: Objection. If he's going to
confront him with testimony, that needs to be done in the
proper manner, Your Honor.
THE COURT: That does, Mr. Acker.
MR. ACKER: All right.
Q. BY MR. ACKER: Well, do you agree -- having
read this now, do you agree that this is an accurate --
Mr. Jones' e-mail is an accurate depiction of what he
said to you during your call on November 20?
A. If you're asking me to read it, I will read it,
and I will give you an answer, Mr. Acker.
1082
Q. Great.
A. Yeah. This is not.
THE COURT: All right. Go ahead. Go ahead.
THE WITNESS: All right. So, what's the
question, then?
Q. BY MR. ACKER: Mr. Jones accurately described
what he said to you during the November 20 telephone
call, correct?
A. No. That's not my recollection.
Q. Okay. During your deposition, you -- in March
27, 2007, you were under oath, correct? Yes? You were
under oath?
A. Yes.
Q. And you were asked the following questions, and
you gave the following answers.
And, Mr. Singer, it's his depo at page 64,
lines 4 to 9.
And if we can play clip 11, please.
MR. SINGER: May we see it first before it's
played?
MR. ACKER: Hang on.
THE COURT: You have copies of the written
deposition, don't you?
MR. ACKER: Yes, Your Honor.
THE COURT: Then why don't you show Mr. Singer
1083
the written deposition part?
MR. ACKER: He has a copy, and I have given him
the page and line.
MR. SINGER: You said page 64?
MR. ACKER: Yes.
MR. SINGER: Line?
MR. ACKER: Four.
MR. SINGER: Four.
MR. ACKER: To 9.
MR. SINGER: Could you show me where there's a
reference to this document?
MR. ACKER: It's above that passage,
Mr. Singer.
MR. SINGER: On which page?
MR. ACKER: The reference is the marked
exhibit.
MR. SINGER: I'm looking for that, but I don't
see it in page 64, 63, 62. Will you show me where this
document is, the document he's being questioned on?
MR. ACKER: Well, do you have any objection to
me playing the video clip and asking Mr. McBride if he
gave that testimony?
MR. SINGER: Yes because I don't understand
what the testimony pertains to.
THE COURT: Counsel, let's have a side bar.
1084
(Discussion between the Court and counsel outside of the
hearing of the jury.)
THE COURT: This is the problem. The document
that he's been asked to address here, as well as in the
deposition, has not been admitted. If you're going to
offer it, my assumption is you'll object because you will
have -- he's not laid a foundation for it because it was
not prepared by him, and for you to try to get deposition
testimony in regarding that document without the jury
knowing what the document says is either error or
worse.
MR. ACKER: Well, in the transcript, he's
looking at this exhibit.
THE COURT: Yes.
MR. ACKER: He's asked: "Did Mr. Jones
accurately recite the conversation, what he said to you?"
And he says: "Yes, he did."
THE COURT: He says that, that's fine, except
the jury will not know what this document says because it
has not been admitted.
MR. ACKER: I know. I need to do that portion
first, if he's going to agree that this says what
Mr. Jones said to him.
THE COURT: You have done that.
MR. ACKER: Then I'm going to move the exhibit
1085
in.
MR. SINGER: It's not admissible.
THE COURT: It's not admissible. It's hearsay.
MR. ACKER: He's affirming that what Mr. Jones
said in the document is what he said to Mr. McBride
during the phone call.
MR. SINGER: That's hearsay.
THE COURT: That's absolutely hearsay, so,
no.
MR. ACKER: No, it isn't. It absolutely limits
what it is that Mr. Jones said to him during the course
of the conversation.
THE COURT: I'm sorry, but this document is
hearsay.
MR. ACKER: This document is a recitation of a
phone call. He's given some testimony about what he
believes was in that phone call. This document says
exactly what it is Mr. Jones said.
THE COURT: And you will be bringing Mr. Jones
on?
MR. ACKER: And he'll come and testify.
THE COURT: We can deal with it when Mr. Jones
comes to testify. At this point in time, Mr. Acker, it's
not admitted. I will to have sustain an objection that
it is hearsay.
1086
MR. ACKER: Let me just ask this question of
Mr. McBride, just say -- ask him: Is this, Mr. Jones'
statements in this document, an accurate description of
what he said to you?
That's all I want to ask him.
THE COURT: I think you have already asked him,
and he said it is not.
MR. ACKER: Then I should be allowed to impeach
him with his testimony in which he said the exact
opposite.
MR. SINGER: You have to have an admissible
document for admissible impeachment. The document isn't
admissible. He can get Mr. Jones in to say something
different and contradict him, but the document is still
hearsay.
THE COURT: But the dilemma is, again, the jury
will never have read what this document represents or
what represents the conversation contained, and so you
will be doing this completely in the abstract. You will
be saying: In the deposition testimony, you said it did.
But the jury will never know the difference
because this will not be admissible because it is a
hearsay document.
MR. ACKER: I would respectfully disagree, and
if he's to be impeached with his deposition testimony,
1087
maybe he changes his mind when he sees his sworn
testimony, and when he says this is what he says, then I
would be allowed to admit this evidence.
MR. SINGER: It's still -- the document is
hearsay. You're asking him in the abstract about an
inadmissible document.
MR. ACKER: "So you don't disagree with the
accounting of the November 20 materials?" when he is
looking at the exhibit.
And he says: "I don't disagree."
THE COURT: Let me restate. This is the
dilemma. So far the document has not been admitted. The
jury does not know the contents of the document. You
have asked him:
Does this document, a representation by
Mr. Jones of what transpired in the telephone
conversation, is it accurate?
And he said no.
You now want to go to deposition testimony,
without the jury knowing what the document and Mr. Jones'
representations were and say: Didn't you once before say
that it did?
MR. ACKER: Uh-huh.
THE COURT: Are you going to try to do that
without ever seeking the admission of the document?
1088
MR. ACKER: Well, no. He has a choice. He can
say no, that I was wrong in my deposition when I said
that, or he can stick by this testimony.
THE COURT: You didn't answer my question. Are
you going to ultimately seek the admission of the
document?
MR. ACKER: Yes.
THE COURT: Based upon what?
MR. ACKER: Well, based upon -- if he says this
is what was said, then I'm going to seek admission.
MR. SINGER: But it's still going to be
hearsay. And it's probably not going to come in with
Mr. Jones because it's still going to be hearsay with
Mr. Jones.
MR. ACKER: Absolutely not. It's a
contemporaneous recording of what his recollection was at
the time.
THE COURT: I think it's going to be admissible
with Mr. Jones. I cannot see how it can be admissible
against Mr. McBride based upon what you've told me so
far.
MR. ACKER: Okay. I'll move on.
MR. SINGER: And can I just put on the record,
while we are on this point, on page 61, line 1, when he's
asked about this document specifically and asked is this
1089
consistent with his recollection of the phone call, the
answer is no.
MR. ACKER: When he's asked about if this is
what Mr. Jones said, he said yes.
THE COURT: Again, counsel, this is my concern.
We are talking about deposition testimony where he
apparently says yes, it did, no, it didn't. But the jury
never knows what the document says because, again, I do
not believe it is admissible.
MR. ACKER: Okay.
THE COURT: Okay.
(Proceedings continued in open court.)
Q. BY MR. ACKER: So, Mr. McBride, let me
summarize. You called Mr. Jones, who you hadn't spoken
to in years, correct?
A. That's right.
Q. And you had a conversation with him, several
conversations with him, correct?
A. That's correct.
Q. And you asked him, at some point, to obtain
some sort of document that, in your words, would clarify
what rights were transferred under the asset purchase
agreement, correct?
A. That's close enough.
Q. And, Mr. McBride -- or Mr. Jones refused to do
1090
that, right?
A. That's incorrect. That wasn't my testimony
either.
Q. You sent the document to Mr. Jones, or
Mr. Sontag did, correct?
A. Let's go back to your question. I think your
question was, I asked Mr. Jones if he would agree to go
try and find a document. The answer to that question is,
and it's in my testimony -- I just read this while we
were sitting here. He agreed to go try and find a
document to clarify the fact that the copyrights were
included in the original asset purchase agreement. He
agreed.
Q. And couldn't find such a document, correct?
A. In the first wave, that was correct. Okay.
That was the answer to that question.
Q. So he couldn't find such a document and then he
also said to you: Those documents from years ago are in
archives and we're not going to continue to do due
dilligence to try and find that document, right?
A. That is accurate.
Q. And then, in February, Mr. Sontag sent a
document to Mr. Jones that attempted to actually, in your
words, clarify the terms of the asset purchase agreement,
right?
1091
A. That was -- that's correct, per Mr. Jones'
request.
Q. And Novell refused to execute that agreement,
correct?
A. That is correct.
Q. So, you had the asset purchase agreement with
the excluded language, 1.1(b), that you believed caused a
problem, right?
A. Yes.
Q. And you weren't successful in obtaining from
Novell, between November of 2002 and May of 2003, this
written document that you wanted that, in your words,
would clarify what copyrights transferred, right?
A. The -- that's partially correct.
Q. And so you went to Novell, and they said: No,
we won't execute that clarification document.
Right?
A. That's correct.
Q. And, for all of these calls, both the calls
between February and into November, February of '02, into
February of '03, you never took any notes, right?
A. I don't recall taking notes on the topic.
Q. And Mr. Sontag never took any notes?
A. I don't know if he did or didn't.
Q. You never saw him take any notes?
1092
A. No.
Q. And Mr. Sontag, to your knowledge, never wrote
any e-mails documenting what was said in those
conversations, correct?
A. I don't know what he did with his e-mails.
Q. And you also didn't write any e-mails to
document what was said, fair?
A. I had e-mails that were going back and forth
between Gregg Jones and me and others inside the company,
but I don't recall to what extent it was documenting. I
don't remember anything documenting what was said.
Q. So, in order to -- for this jury to understand
exactly what was said in those conversations, they are
going to have to take your testimony and the testimony of
Mr. Jones and any other documents that might exist and
make up their minds what actually was said, right?
A. Yes. And I think it's important that they do
listen to Mr. Jones' testimony.
Q. And they will. Who is Mike Anderer?
A. He is a consultant in the IT industry.
Q. And he was employed in your employ at SCO in
the fall and winter of 2002 and 2003; is that right?
A. He was working as an independent contractor
with us during that time frame. That's correct.
Q. And Mr. Anderer reviewed the asset purchase
1093
agreement, didn't he?
A. That's my understanding.
Q. And he sent you an e-mail in which he
documented his understanding of the asset purchase
agreement, correct?
A. Yes, he did.
Q. And that was information that you had in your
head when you were deciding whether or not to go forth
with the SCOsource program, correct?
A. That was one input that I had, of many.
Q. Let me show you what we have marked as Exhibit
C-12. Do you recognize that document?
A. Yes, I do.
Q. And this is the e-mail to you from Mike Anderer
on Saturday, January 4, 2003, correct?
A. Yes. That's correct.
Q. And in it he puts his thoughts regarding what
the APA did or did not transfer, correct?
A. Let me take a look here and see which one we're
talking about. Yes. Roughly, that's correct
MR. ACKER: Your Honor, I move for admission of
Exhibit C-12.
MR. SINGER: Object. It's hearsay.
MR. ACKER: It goes to his state of mind of
what was in or out of the APA at the time he moved
1094
forward with SCOsource, Your Honor.
MR. SINGER: Mr. McBride's state of mind isn't
on trial here.
MR. ACKER: Well, there is a slander of title
claim against SCO, so it certainly is.
THE COURT: The Court will allow the admission
of C-12, this was an e-mail to you; is that right,
Mr. McBride?
THE WITNESS: Yes. That's correct.
(Novell Exhibit C-12 received in evidence.)
Q. BY MR. ACKER: So, again on Saturday, January
4, 2003, your consultant, Mr. Anderer, after reading the
APA writes the following to you:
Darl, if you do not have an e-mail that will
take an AMB attachment, then I will burn the Novell/SCO
agreement to a CD and a floppy.
Do you see that?
A. Yes.
Q. Is he talking about the APA there?
A. I don't know what he's talking about.
Q. And then he writes:
This agreement indicates Novell transferred
substantially less than what was transferred to USL in
the previous agreement.
Do you see that?
1095
A. Yes, I do.
Q. And then he writes:
It is an asset purchase and excludes all
patents, copyrights and just about everything else.
Do you see that?
A. Yes.
Q. And that was your paid consultant's opinion of
the APA in January of 2003, right?
A. It was. Yes. That's what he said in this
e-mail. That's correct.
Q. And then, in the next paragraph, he wrote: It
does not look like USL was purchased, just UnixWare and
some other listed assets, but Streams was not listed, and
there is a lot of other items that do not appear in this
agreement.
Do you see that?
A. Yes.
Q. And then he wrote:
It is definitely worth reading.
Do you see that?
A. Yes.
Q. And is that because you hadn't read the asset
agreement and he was actually just sending it to you for
the first time in January of 2003?
A. No. I had read it multiple times at that
1096
point. In fact, I had read it many months before this.
Q. So you had also seen the excluded assets
section of the APA that excludes copyrights by this time
as well, right?
A. Yes that's why I called Mr. Jones.
Q. In the next paragraph, continuing in that same
paragraph, it reads:
I think it also leaves Novell with practical
control of the license agreements with IBM and others
with respect to SVRX.
Do you see that?
A. Yes.
Q. And then he also wrote:
I think they might get the call on whether to
audit or pull these licenses.
Do you see that?
A. Yes.
Q. And the reason that you had hired Mr. Anderer
was to help you negotiate with Microsoft for the
Microsoft deal that you eventually did in 2003, right?
A. That's correct.
Q. And so Mr. Anderer was interested to know
exactly what rights SCO had before he went into those
negotiations, right?
A. Right. Because if we didn't have the
1097
copyrights, we wouldn't have the ability to do the deal
with Microsoft.
Q. And so, in doing his due diligence, he went and
read the agreements, and these were the conclusions that
he came to, correct?
A. At that point in time. Not later on.
Q. If we could go to Exhibit H-14, your May 12
letter to Jack Messman. This is a letter that you wrote
to Mr. Messman, as well as about a thousand other
companies in the United States in the middle of May,
2003, right?
A. Yes. We referenced this earlier.
Q. And what you're telling them in here is: We,
SCO, believe that we own the UNIX copyrights.
Right?
A. Let's see, where are you pointing to in here?
THE COURT: Mr. Acker, excuse me. Is this the
same as one of the plaintiff's exhibits?
MR. ACKER: Yes, it is, Your Honor. And if it
hasn't been admitted, I would move for its admission.
H-12, Your Honor.
THE COURT: I'm fairly confident it was
admitted. I just want to know which plaintiff's exhibit
it was. Do you know that offhand, Mr. Singer?
MR. SINGER: I don't have the plaintiff's
1098
number offhand on this. It is admitted, I believe.
THE COURT: It's always preferable to always --
MR. ACKER: I understand, Your Honor.
THE COURT: But go ahead.
Q. BY MR. ACKER: Well, you know this letter,
don't you, Mr. McBride?
A. Yeah. I can't recite it chapter and verse. If
you're going to quiz me on things, then I just need to
see what it is you're pointing to.
Q. Well, as Mr. Jacobs yesterday said: I'm not
going to go ask you any trick questions.
So, I'll raise my hand if I'm going to, okay?
A. You are going to?
Q. If I will, I'll raise my hand and let you know.
A. So the ones up to this point, you haven't?
Q. No trick questions so far.
A. Okay. These haven't been the trick ones?
Okay. I'm trying to figure out where we are in the game
here. Okay. Fire away.
Q. You know this letter, don't you? I mean, you
don't have to read it?
A. Yeah, but I don't memorize it. I don't have it
posted in my bedroom.
Q. This was a big deal, wasn't it?
A. This was an important letter to put Linux users
1099
on notice as to -- with respect to our concerns we had
with Linux infringement and how it was infringing our
intellectual property.
Q. You are sending letters to a thousand companies
across the United States, many of which are running Linux
operating systems and have it imbeded as part of their
operations and saying:
Hey, guys, sorry. You're going to have to pay
us a license fee.
Isn't that right?
A. That's incorrect. Can you point in here where
I says I was going to --
Q. Isn't that the --
THE COURT REPORTER: Excuse me, counsel. One
at a time, please.
THE WITNESS: I was asking Mr. Acker --
THE COURT: You don't get to ask him questions.
I'm sorry.
THE WITNESS: The answer to that is no.
Q. BY MR. ACKER: So the jist of the letter is
you're putting them on notice that SCO believes it owns
UNIX and there's UNIX in Linux, right?
A. That part I agree with.
Q. And you are also putting them on notice that
you have hired a law firm to enforce these rights,
1100
correct?
A. I don't remember that that's in here.
THE COURT: Can you focus him to the paragraph
where that might be said, Mr. Acker?
MR. ACKER: Sure.
If you will scroll down. Go to the next page.
Why don't we highlight the second paragraph.
Q. BY MR. ACKER: You told these thousand
companies:
We believe that Linux infringes our UNIX
intellectual property and other rights.
You used those words, right?
A. That's correct.
Q. It's a pretty strong statement, isn't it?
A. Well, it's a statement that we believed in.
Q. And you also told them:
We intend to aggressively protect and enforce
these rights.
Correct?
A. That's correct.
Q. And there was a firestorm of reaction to this
letter, wasn't there?
A. There were definitely those that didn't like
the letter.
Q. And there was an enormous amount of press about
1101
this letter and this campaign, wasn't there?
A. Yes. That's accurate.
Q. And many, many people in the software
community, and particularly the Open Source community
said: There simply is no UNIX in Linux.
Isn't that right?
A. There were those that said that.
Q. And this caused quite a stir, didn't it?
A. Depending on your definition of "stir," there
were definitely those that didn't like the letter. I
agree with that.
Q. Let's look at some of the reaction to the May
12 letter.
If we could bring up O-14, please.
So, Mr. McBride, O-14 is an article that was
written on May 14, 2003, just about a couple days after
the letters went out in e-WEEK. Do you see that?
A. Yes, I do.
MR. ACKER: And if we could highlight the first
paragraph.
We move for admission of O-14, Your Honor.
MR. SINGER: It's hearsay, Your Honor.
MR. ACKER: So was the Wall Street Journal
article. So was --
THE COURT: I will overrule the objection. It
1102
will be received.
(Novell Exhibit O-14 received in evidence.)
Q. And in the first paragraph it reads:
The SCO Group on Wednesday significantly raised
the stakes in its battle to prevent what it sees as the
illegal and unauthorized use of its UNIX technology in
the Linux operating system, warning that legal liability
for the use of Linux could extend to commercial users.
This is a turnabout for SCO, which said in
March, after announcing a $1 billion lawsuit against IBM,
that the case, quote, has nothing to do with Linux or the
Open Source community.
You were hearing comments like that, weren't
you, after you sent out your letter, Mr. McBride?
A. Yes.
MR. ACKER: If we could go to the next page,
please, and highlight the second and third paragraphs,
please?
Q. BY MR. ACKER: An IBM spokesman, on Wednesday,
declined to comment on the latest SCO allegations, citing
pending -- SCO's pending litigation against IBM, but Lee
Day, a spokeswoman for Leading Edge distributor Red Hat,
Inc., told eWEEK on Wednesday that it had yet to see any
formal complaints against it from SCO. The company also
had been contacted by SCO in this -- also had not been
1103
contacted by SCO in this regard.
In the next paragraph there's a quote:
We've heard all these allegations and rumors
and threats, but we haven't seen any specific code
referenced that we were in violation of. We have done
extensive work to make sure that we are not in violation,
and we take intellectual property very seriously. We
remain certain that we are not in violation of anyone's
intellectual property, she said.
And wasn't it true, Mr. McBride, that you also
heard comments like that after your letters went out,
that, in fact, you were not going to be able to prove
copyright infringement, and there was no infringement.
You also heard that, didn't you, sir?
A. Yes, I did.
Q. Let's take a look at another legal letter or
another article, Exhibit A-16. You see this? Now, this
uproar in the community also took on an international
flavor, didn't it, Mr. McBride?
A. Yes.
Q. And what we have here is an article in CNET
regarding a restraining order that was obtained by a
Linux group in Germany, correct?
A. Yes. That's right.
THE COURT: Mr. Acker, if you would, before you
1104
start testifying --
MR. ACKER: Yes.
THE COURT: -- just by way of your question,
what the document says, would you please lay a foundation
so we can see if it's admissible?
MR. ACKER: Sure.
Q. BY MR. ACKER: And you were aware of that
action in Germany, correct?
A. Yes, I was.
Q. And you were aware of the press reports on
that, correct?
A. Yes.
MR. ACKER: We move for A-16 to be admitted,
Your Honor.
MR. SINGER: We object, Your Honor, on 802 and
403. And may I approach?
MR. ACKER: I don't know how this is that
different than the Wall Street Journal article or all the
other articles that have been shown.
THE COURT: I don't either, Mr. Singer.
MR. SINGER: The only reason I suggested that
was because it talks about other litigation.
THE COURT: Is there something in this that's
going to cause a problem, Mr. Acker?
MR. ACKER: It has nothing related to anything
1105
other than events in Germany.
THE COURT: You are confident of that.
MR. ACKER: I am.
THE COURT: Let me look at it just a second
before you put it up.
MR. BRENNAN: Your Honor, I just offer, too,
this will be relevant, likely, to the next witness, their
damages expert.
MR. SINGER: Our argument is simply what's
happening in Germany is not irrelevant to -- is not
relevant to this case or Mr. McBride's testimony.
THE COURT: If that's your objection, the Court
will overrule it and will allow the admission.
(Novell Exhibit A-16 received in evidence.)
MR. ACKER: If we could bring up the first few
paragraphs, please, Mr. Lee.
Q. BY MR. ACKER: And here CNET is reporting on
June 3:
Legal Action Hits SCO Website. As SCO Group,
the company that has warned major companies that using
Linux could get them in legal trouble has shut down its
German website after a Linux advocacy group in the
country obtained a restraining order.
Do you see that?
A. Yes, I do.
1106
Q. And so not only was your actions on May 12 in
sending these letters out to a thousand companies across
the United States having ramifications in the United
States, but it was also having ramifications in other
countries, correct?
A. Yes.
MR. ACKER: If we could take a look at Exhibit
P-17, please.
Q. BY MR. ACKER: Exhibit P-17 is another article
regarding the SCOsource program on July 22, 2003. Do you
see that?
A. Yes.
MR. ACKER: I'd move for admission of P-17,
Your Honor.
THE COURT: Mr. Singer?
MR. SINGER: No objection, Your Honor.
THE COURT: It will be admitted.
(Novell Exhibit P-17 received in evidence.)
MR. ACKER: If we could highlight the
beginning, with the middle -- beginning with the first
paragraph:
July 22, 2003. Open Source advocates on Monday
blasted a Linux licensing scheme that the SCO Group is
proposing to address copyright violations in the Linux
operating system.
1107
If we could scroll down, Mr. Lee.
And it continued:
Linux advocates blasted the plan. Quote. They
are selling a pig in a poke, end quote, said Open Source
advocate Bruce Perens. I think they have made an error
through over confidence, and that error has made them
liable to be sued by every person who has code in the
kernel and every company. Parens and other Open Source
advocates claim that SCO's licensing program appears to
violate the Free Software Foundation's GNU, general
public license software license that governs UNIX.
Do you see that?
A. Yes.
Q. That governs Linux.
Do you see that?
A. Yes, I do.
Q. And that was also what you heard. In addition
to "there's no UNIX in Linux," you also heard an outcry
that this SCOsource plan would violate the general public
license; isn't that right, around Linux?
A. Some were saying that.
Q. If we could take a look at the next exhibit,
X-17. And here we have another article, this time in USA
Today, Mr. McBride, dated July 30, 2003, again commenting
on your SCOsource program, correct?
1108
A. Yes.
MR. ACKER: Move for admission of X-17, Your
Honor.
THE COURT: Mr. Singer?
MR. SINGER: I'm taking a moment to read it.
THE COURT: Okay.
MR. SINGER: We object on the grounds it's
cumulative with the other articles. It's, I think, in
the same vein as the other articles we've been looking
at.
MR. ACKER: This is the last one I'm going to
use, Your Honor.
THE COURT: The Court will overrule the
objection, and X-17 will be admitted.
(Novell Exhibit X-17 received in evidence.)
MR. ACKER: This is USA Today. If we could go
down to the last paragraph on the first page, please.
Q. BY MR. ACKER: This is what USA had to say on
July 30, 2003:
The whole thing is not unlike finding your
grandmother's recipe for Bundt cake, realizing it's
similar to the recipe in a number of cookbooks, suing the
biggest cookbook publisher and then sending letters to
everyone who makes a Bundt cake, saying they should send
you some money or risk legal action. Not a good way to
1109
make friends.
Do you see that, sir?
A. Yes, I do.
Q. And you heard comments like that after you sent
out your letters on May 12, 2003; isn't that right?
A. I saw this comment. It's the first one I heard
about a bundt cake.
Q. Bundt cake. In fact, you were also hearing
similar comments from your own people inside of SCO;
isn't that right?
A. No, not about Bundt cakes.
Q. Let me give you A-15. This is an e-mail from
Mr. Gasparro.
THE COURT: I'm sorry. What is --
MR. ACKER: Exhibit A-15, Your Honor.
THE COURT: A-15?
Q. BY MR. ACKER: It's an e-mail from Larry
Gasparro to you on Wednesday, May 21, 2003. Do you see
that?
A. Yes, I do.
Q. And it's referencing the SCOsource initiative,
right?
A. Yes. That's right.
MR. ACKER: I'd move for admission of A-15,
Your Honor.
1110
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit A-15 received in evidence.)
Q. And what was Mr. Gasparro's job at SCO in May
of 2003?
A. Let's see. At that time, I believe he was
vice-president of sales.
Q. And he was also working with Mr. Sontag in the
SCOsource division, right?
A. Yes. He was eventually. I'm not sure when he
switched over. Yes, he was definitely in the SCOsource
group.
Q. And he wrote to you on May 21, 2003:
After one week of talking to our customers and
reading independent articles, we need some immediate
position leverage to generate IP revenues, Q3 from end
users.
Do you see that?
A. Yes, I do.
Q. He's talking about getting anybody to sign one
of these SCOsource licenses, right?
A. The SCOsource license had not been -- the
SCOsource program didn't get launched until August, so I
don't think that's what he was talking about.
Q. Well, you launched the SCO tech license program
1111
on January 22?
A. Maybe they are talking about the libraries
program.
Q. And you also sent your letters to a thousand
companies on May 12, correct?
A. Yes, but -- yes. That's correct.
Q. And he writes in the next paragraph:
It appears that the Linux end user community
has suspected issues over IP for quite sometime. One CEO
suggested to me that there could be a long line of
unemployed CEO's from this fallout.
But then he writes:
However, the corporate position seems to be the
wait-and-see game. The audit committee person may be the
key, but until the CFO and CIO are convinced, it's,
quote, prove in court.
Do you see that?
A. Yes, I do.
Q. Now, these comments and these articles that
Mr. Gasparro is talking about, all of this occurred
before Novell's announcement on May 28, 2003, that it
owned the UNIX copyrights, right?
A. The articles we've referenced so far. Let me
just see which ones we've looked at. That's not correct.
The Kevin Maney article came out two months after
1112
Novell's statement. This one is dated July 30, 2003.
The Shanklin article is dated June 3, which would have
been five days after. So, those articles were clearly
after.
Q. All right. So both articles commented on the
SCOsource program both before and after Novell's May 28
statement. They are saying that you're not going to be
able to prove infringement, they don't think much of your
program, but none of those articles, and none of the
references that Mr. Gasparro has here say anything about
Novell, right?
A. Well, you asked two questions. Can I break
those down?
Q. Did you see any reference to Novell in any of
the articles that we have looked at?
A. In the articles we looked at, no. This is a
small subset of the articles that were out there.
Q. And Mr. Gasparro, on May 21, is telling you the
corporate position in response to your May 12 letter is
we are going to wait and see until it is proved in court.
Do you see that?
A. Yes. I do see that.
Q. And that's on May 21, 2003. Right?
A. That's correct.
Q. That's the feedback he's getting a week before
1113
Novell says anything, right?
A. This was regarding infringement. That's
right.
Q. It's a week before Novell says anything, isn't
that true, Mr. McBride?
A. Before Novell says anything regarding what?
Q. Ownership of UNIX publicly?
A. Right. This article is not about UNIX
ownership.
Q. I guess that's my point.
A. This is about the infringement.
Q. Mr. Gasparro is talking in communities, reading
articles a week before Novell says anything?
A. Right.
Q. And they are saying we have to wait and see and
you're going to have to prove it in court before you're
going to get a nickel, right?
A. That was what was said in here.
Q. And that's a week before Novell said we own the
copyrights, right?
A. This was the week before their announcement.
That's right.
Q. Now, it's your position that -- and I believe I
heard this correctly when you were answering questions
from Mr. Singer -- that the May 28 press release by
1114
Novell claiming that they still owned the UNIX
copyrights, and also asking SCO to demonstrate there
actually was any UNIX in Linux, somehow impacted your
release of your quarterly results on the same day, May
28, 2003; is that right?
A. Yes. That's right.
Q. And your earnings announcement on May 28, 2003,
was for the quarter that ended a month earlier, on
April 30, 2003, right?
A. Yes. That's right.
Q. And so the quarter had actually been closed for
a month before May 28, right?
A. Roughly, yes.
Q. And the revenue and earnings you reported on
May 28 was about 21 million in the top line revenue and
income of a little over 4 million, right?
A. Yes.
Q. But that wasn't the first time you told the
public those numbers, was it?
A. I don't recall.
Q. Let me show you Exhibit M-14.
THE COURT: M?
MR. ACKER: M. Yes, Your Honor.
Q. BY MR. ACKER: M-14 is a SCO press release
dated May 14, 2003; isn't that right?
1115
A. Yes. That's correct.
Q. And you're announcing a couple things in this
press --
I move for admission of M-14, Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit M-14 received in evidence.)
Q. And you're announcing a couple of things in
this press release. You're announcing, one, what you
expect your earnings to be at the end of the quarter,
correct?
A. Yes.
Q. And you're also saying that we did this great
deal in the SCO -- in the licensing campaign we executed
this deal with Microsoft, right?
A. Yes. That's right.
Q. You don't say "Microsoft," but that's what
we're talking about, right?
A. I'm not sure if it was Microsoft or SUN. We
had a couple of different deals going on at that point in
time. I'd have to break this down a little it. It was
either Microsoft or SUN.
Q. And the reason you put out these press releases
was to tell people: "Hey, we had a great quarter and we
did this great deal," is so that the news gets out to the
1116
market and they buy your stock, right?
A. That's not correct. That's not why we put them
out.
Q. But that's the reason for telling the market
what's going on, so that they know what's going on with
the company?
A. The reason we put this out was, as a publicly
traded company, when you have material information that's
hit your company, whether it's good or bad, you have an
obligation to publish it, so this was a material change,
so part of that was published.
Q. So you had an obligation on May 14 to tell the
investing public the following:
Lindon, Utah, May 14, 2003. The SCO Group --
and then you have a NASDAQ ticker -- announced today the
signing of another major SCOsource licensing agreement.
This agreement marks the second substantial licensing
agreement since the formation of SCOsource in January of
this year. The SCOsource division was created to manage
the substantial UNIX intellectual property owned by SCO.
And then you also told them:
SCO updated its guidance on expected results
for its second fiscal quarter ended April 30, 2003. The
company expects to report net income of approximately 4
million or 29 cents per diluted share or an estimated
1117
revenue of 21 million.
Correct?
A. Yes. That's correct.
Q. And those were the numbers that hit the street
on May 28, $4 million in net income and 21 million in
revenue, right?
A. I don't see that in front of me. It was close
to that if not that.
Q. So you told the investing public that two weeks
before Novell said anything in the press release about
the ownership of the UNIX copyrights, correct?
A. Yes.
Q. And do you know how much your stock went up
that day?
A. I don't have it in front of me.
Q. Would it surprise you to know that, based on
these numbers, your stock went up 39 cents?
A. I don't have a reason to believe one way or
another.
Q. Let me show you a document so we can take a
look at that. And this is Exhibit Q-33. And you see,
Mr. McBride, what I've handed to you? Exhibit Q-33 is a
daily report of the movement of the SCO stock price over
a period of time. And if you could take a look on the
fourth page in, there's a date, May 14, 2003 date.
1118
First I would move for admission of Q-33, Your
Honor.
MR. SINGER: Objection. There is no
foundation. I have no idea what this is.
THE COURT: I think we're going to need more
foundation, Mr. Acker.
MR. ACKER: Well, let me just ask Mr. McBride
some questions and see if he'll disagree with the
information in this document.
Q. BY MR. ACKER: You see, sir, that on May 14
this chart indicates your stock opened at $3.34, and it
finished the day at $3.55. Do you see that?
A. Yes, I do.
Q. Do you have any reason to disputes that that's
what your stock did that day?
A. I don't know without looking at it.
Q. I'm sorry, sir?
A. I don't know offhand. I just don't know.
Q. Okay. You don't know one way or another. And
that's the day that you told the market:
We did the second SCOsource license, and this
is what our numbers are going to be at the end of the
month.
Right?
A. Yes.
1119
Q. Okay. Now -- now, before the market opened on
May 28 --
If we could pull up the SCO's opening slide for
that May 28 stock drop, Mr. Lee.
THE COURT: Which is?
MR. ACKER: This is a slide used by SCO in its
opening statements, Your Honor.
THE COURT: All right.
Q. BY MR. ACKER: Now, so, on May 14 your stock is
trading a little over $3.00 and the news is out on the
street that you're going to have $21 million in revenue
and $4 million in income and you've signed the second
Microsoft deal. And your stock, at the beginning of the
day on May 28, is a little over $10 before the market
opens. Do you see that? It's on the screen,
Mr. McBride.
A. Oh. Okay. Okay. I've got it.
Q. So your stock opens at ten bucks on the 28th.
And then you make your second announcement regarding your
earnings. You recall that your conference call was about
9:00 o'clock in the morning on central mountain time?
A. We usually had them in the morning. I don't
have any reason to disagree with that.
Q. And you see what happens to your stock after
starting at $10 a share, after -- even with your
1120
announcement, your reannouncement of these earnings, it
drops down to below $9.00, just a little over $8.00. Do
you see that?
A. Okay. Yes.
Q. And that all happens before Novell says
anything about ownership of the UNIX copyrights, correct?
A. I don't know what time they --
Q. Well, your lawyers -- your lawyers claim that
the time the statement was made is a dotted line going up
and down the chart. Do you see that?
A. Okay. So let's take that one, then. Okay.
Q. And so, before that statement is made, your
stock has dropped from $10.00 to just a little over
$8.00, despite the fact that you have announced to the
street for the second time your revenue for the second
quarter, right?
A. Yes.
Q. So, before Novell said anything about ownership
of the UNIX copyrights on May 28, 2003, your stock was
dropping, despite the fact that you made your second
announcement about your revenue the second quarter,
right?
A. It had gone down a little bit.
Q. But even after the end of the day when -- after
SCO makes its announcements, the stock is still trading
1121
at $6.00, a little over $6.00 a share, right?
A. Yes.
Q. And so it's $3.00 higher than it actually
closed when you made your first announcement of your
revenue two weeks earlier on May 14, right?
A. Give or take some pennies. It's in that
range.
THE COURT: Mr. Acker, how much more do you
have?
MR. ACKER: A bit, Your Honor.
THE COURT: Okay. Would you find an
appropriate time for us to break.
MR. ACKER: This would be an appropriate time,
Your Honor.
THE COURT: Are you sure?
MR. ACKER: Yes.
THE COURT: All right. We'll take a recess.
Ms. Malley.
MS. MALLEY: All rise for the jury, please.
(Jury leaves the courtroom.)
THE COURT: Mr. Acker, I have to tell you that
the Court is not pleased with the fact that once the
document was offered and it was objected to and the Court
did not admit it, you went ahead and asked questions
about it and basically got the information from it you
1122
wanted. And I would ask you to please show more respect
for the Court's rulings.
MR. ACKER: Yeah. I apologize, Your Honor. I
certainly will not do that in the future.
MR. SINGER: May we ask how long Mr. Acker
plans to continue because we have other witnesses. We
are trying to plan the rest of the day.
MR. ACKER: An hour, Your Honor.
THE COURT: All right.
MR. SINGER: Okay.
THE COURT: We'll take 20 minutes, counsel.
(Short break.)
1123
***** Part 3 *****
1124
THE COURT: Are we ready, counsel?
MR. ACKER: Yes, Your Honor.
MR. SINGER: Yes. Well --
THE COURT: Does that mean no?
MR. SINGER: I was thinking whether it made sense
to raise one evidentiary issue that's going to come up in
redirect, in light of the cross, now before the jury is
here --
THE COURT: Go ahead.
MR. SINGER: -- so we can openly discuss that.
I had moved Exhibit 748, which was the July
presentation, into evidence and the Court at that time had
not accepted it. Now we have had all these other articles
which were presented as statements to Mr. McBride, were you
aware of this, were you aware of that. And I would like to
put in, through Exhibit 748, the response which they
provided, which Mr. McBride was aware of, as well as what
they used to respond to those criticisms by the Linux
community. So I intend to try to get back into this on
redirect. And I think now I certainly have a basis to do so
given the issues that have been raised in cross-examination.
MR. ACKER: I wouldn't object as to that one page.
It's just the whole PowerPoint, Your Honor.
THE COURT: I would tell you that I will not
permit the whole Power Point to come in, Mr. Singer, because
1125
there is no foundation.
MR. SINGER: There are two pages that I would like
to have come in that relate to --
THE COURT: Show Mr. Acker, and if he's willing to
agree.
MR. SINGER: One is this page from articles, and
the other is this page which talks about the Linux
development.
MR. ACKER: I wouldn't have a problem with the
articles. The other is their theory on infringement, and I
would object to that.
MR. SINGER: I will just go with the articles,
then.
THE COURT: Your 748 will consist of one page,
which is the articles, all right?
MR. SINGER: That's correct, Your Honor.
THE COURT: All right. Good.
Ms. Malley, would you please bring the jury in.
If, in fact, we have another hour on cross, I am
presuming that we probably will only finish with this
witness today. Is that likely?
MR. SINGER: If we have an hour and only an hour,
I think my redirect might be completed within the half hour
that we would have, roughly speaking.
THE COURT: So the answer to my question is this
1126
is probably the only witness we'll finish today?
MR. SINGER: I think that's quite certain, Your
Honor.
THE COURT: What does that, then, do to our
schedule?
MR. SINGER: I think we're looking at putting Mr.
Pisano on now instead of Ms. Botosan because Mr. Pisano, he
is the professor from the Harvard business school, he has to
leave at the end of the day tomorrow. So we can't risk not
completing his testimony. So instead of going --
(Jury present)
THE COURT: Go ahead, Mr. Acker.
MR. ACKER: Thank you, Your Honor.
BY MR. ACKER:
Q Mr. McBride, I've handed you what have been marked and
admitted I believe as N-13 and T-13, the Microsoft and Sun
agreements. Do see those, sir?
A Yes, I do.
Q You are familiar with these license agreements,
correct?
A Yes, I am.
MR. ACKER: Your Honor, I would move for admission
of N-13 and T-13, if they have not already been admitted.
MR. SINGER: I don't think they have been, but I
have no objection.
1127
THE COURT: N-13 and T-13 will be admitted.
(Defendant's Exhibit N-13 and T-13 were received
into evidence.)
BY MR. ACKER:
Q In talking to the jury this morning about license
agreements that SCO was able to obtain in the first part of
2003, these are the two agreements you are talking about,
this Sun agreement and the Microsoft agreement?
A That's right, Mr. Acker.
Q And those are the only agreements under the SCOsource
division that were obtained between the announcement of the
SCOsource program in January of 2003 and May 28th of 2003,
right?
A Yes, that's correct.
Q And those two licenses, the Sun license and the
Microsoft licenses, those are UnixWare licenses, correct?
A Those are UnixWare IP licenses in the SCOsource
division.
Q But you agree with me they are UnixWare licenses?
A They are based on UnixWare.
Q Now let me turn to this conversation that you testified
you had with Mr. Messman on June 5th. You said that at some
point, either on the 4th or the 5th, your assistant found
Amendment No. 2, correct?
A Yes.
1128
Q And she let you know that, and you were in New York,
right?
A Yes.
Q And did you come back to Utah to call Mr. Messman or
did you stay in New York?
A No, I was actually flying home from New York. I
believe when I landed there was a voice mail from my
assistant -- I had just landed in New York. And then I went
down to the office in Lindon after receiving -- well, I
called her, but I received her voice mail. I called her and
then I went to Lindon.
Q Then you called Mr. Messman; is that right?
A Not initially. When I found out about it, it was in
the afternoon time frame. From three o'clock until around
four or five o'clock, I don't remember exactly, we spent a
couple of hours going through and figuring out what we
wanted to do. One of the first things, once we found it,
was to call him. So, yes, I placed a call in to him, I
recall, in the late afternoon on June 5th of 2003.
Q Then after the first call, you faxed him a copy of
Amendment No. 2, correct?
A That's correct.
Q It was during the second call that you claim -- and I
wrote it down yesterday, you claim he said, okay, Darl, you
got the copyrights. Do I have that right?
1129
A Yes.
Q That was a big deal, wasn't it?
A Yeah.
Q I mean, that was a huge admission, the CEO of Novell,
according to you, told you on the phone, okay, Darl, you
have the copyrights, right?
A Yes.
Q So you've won this dispute, right?
A I felt like we had.
Q Did you take any notes of that call?
A No.
Q Did you send an e-mail to anybody to document that
call?
A No -- well, I had somebody there in the room with me
that overheard the call, so I didn't feel like I needed to.
Q Did Mr. Sontag take any notes?
A I don't know.
Q Did Mr. Sontag send any e-mails?
A I don't know.
Q So this happens in the evening -- late afternoon,
evening on June 5th, right?
A Yes.
Q And then the very next morning you send a letter to
Mr. Messman, right?
A Yes.
1130
MR. ACKER: Can we bring up SCO 95, please.
BY MR. ACKER:
Q This is your letter to Mr. Messman on June 6th, 2003,
maybe within 12 hours of this phone call in which you
claimed that Mr. Messman essentially confessed to you,
right?
A Yes, that's right.
Q And in this letter that you wrote within 12 hours of
this conversation, you referenced the conversation, correct?
A Yes, that's correct.
Q Why don't we take a look at that portion of the letter.
In the second sentence of this paragraph, you wrote, I am
also concerned that IBM may have possibly been involved in
your decision to issue this groundless press release based
upon statements you made in our telephone conversation on
June 5th, right?
A Yes.
Q And what you said yesterday about what Mr. Messman said
about IBM is he wouldn't answer your questions, right?
A He was evasive, that's what I said.
Q So within 12 hours of the CEO of Novell confessing to
you that you own the copyrights, you write him a letter, you
reference the phone call, you don't say anything about that
alleged statement. Do I have that right?
A About which alleged statement?
1131
Q Do I have it right that within 12 hours you wrote a
letter to Mr. Messman that you referenced a telephone
conversation and said nothing about this alleged confession?
Do I have that correct?
A Well, I think we've got to read the rest of this
letter.
Q Take your time.
A How do I pull it up?
Q I'll give you a hard copy.
A Great.
Right. So if you go to the latter part of the letter,
there's a good three points in there that talk about the
concerns that I have about the intercommunications between
IBM and Novell.
Q Nowhere in that letter do you say, Mr. Messman, you
confessed to me last night on the phone, or words to that
effect?
A Well I said, regarding our call last night, based on
the conversations we had. I didn't say a lot of other
things that he said either.
Q But wasn't the most important part of that call that
Mr. Messman allegedly told you you owned the copyrights?
Wasn't that the real essence of it?
A There were a lot of things that were important. The
fact that he had admitted, okay, you've got the copyrights,
1132
that was very important. His hesitance and unwillingness
and evasiveness around whether they were, in fact,
coordinating with IBM was an important part. And then the
fact that, you know, he didn't want to talk about damages
either. There were a lot of things that were important
about the call.
Q But nowhere in the letter that you wrote to him within
12 hours did you say, by the way, you admitted last night
that we own the copyrights, right?
A The letter is what it is.
Q So the answer to my question is yes, correct?
A What was the question again?
Q You never said in the letter that you confessed to me
last night --
A I didn't say confessed because he knew -- he
confessed -- here's the issue, Mr. Acker. He confessed --
THE WITNESS: Can I talk about this or am I going
too far? I don't want to get in trouble with.
THE COURT: He's your witness. What do you want
to do?
MR. ACKER: I would like an answer to the
question.
THE WITNESS: Try again. I can talk to Mr.
Singer. Try again.
//
1133
BY MR. ACKER:
Q Within 12 hours of having this conversation with
Mr. Messman where he allegedly told you you own the
copyrights, you wrote him a letter, you referenced the phone
call, you didn't say anything about this statement, right?
A About which statement?
Q To him saying, allegedly, to you that you, SCO, owns
the copyrights?
A Right, because he had already made that statement. He
hadn't admitted to the IBM statements.
Q You wrote another letter to him five days later on
June 16th, correct? Let me show J-16.
I'm sorry, June 11th.
A Okay.
Q J-16 is a letter that you wrote to Mr. Messman on
June 11th, 2005, correct?
A Yes, that's right.
MR. ACKER: I move for admission of J-16, Your
Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit J-16 was received into
evidence.)
BY MR. ACKER:
Q If you would take a look at the fourth page, 4 of 5 of
1134
the letter, paragraph 4, you again wrote to Mr. Messman and
you again referenced your June 5th call with him, right?
A Yes.
Q You wrote, the fact that Mr. Lauderdale was directly
involved in your decision to issue the June 9, 2003 letter
further confirms your reluctant admission to me on June 5th,
2003 that IBM may have been involved in your press release
of May 28th, 2003, with the resulting adverse impact on SCO
and its shareholders, correct?
A Yes, that's right.
Q So six days -- in your second letter to him six days
later about the same telephone conversation, you
characterized his statements about IBM as being a reluctant
admission, right?
A Yes.
Q Nowhere in this letter do you say anything about
Mr. Messman allegedly saying to you, Darl, you own the
copyrights, correct?
A He had already admitted that.
Q Nowhere in this letter do you say that, correct?
A No, I haven't.
Q Nowhere do you reference this, correct?
A No, he'd already given us --
Q You have no notes --
THE COURT: Just a second. Let the witness finish
1135
the answer before you ask the next question.
THE WITNESS: No. He had already given us a
retraction letter stating that the copyrights were with SCO.
There was no reason to pursue it.
BY MR. ACKER:
Q You have no notes of that conversation, correct?
A I didn't need notes of the retraction letter. It was a
public press release.
Q Let's go back to the first page of this letter, J-16.
If we could highlight the first paragraph. You wrote, this
letter is in response to yours of June 9th, 2003. In your
June 9 letter, you attempt to assert claims on behalf of IBM
with respect to its SVRX license with SCO. Do you see that?
A Yes.
Q That statement is true, right?
A Yes.
Q So you believed as of June 11th, 2003, that IBM's
license with SCO was an SVRX license, correct?
A Yes.
Q No doubt about that, right?
A No doubt about which part?
Q That IBM's license was an SVRX license.
A Let me read this again. This sounds like a trick one.
Let me just see here.
So IBM had an -- IBM has an SVRX license with SCO and
1136
Novell was asserting claims on behalf of IBM. I agree with
that statement.
Q You agree that the license was an SVRX license?
A It was a license with respect to their AIX license.
Q Which is an SVRX license, according to you?
A Yes.
Q So it was your testimony yesterday, and you've just
referred to it a minute ago, that Mr. Messman's letter -- or
Mr. LaSala's letter to you and the Novell press release on
June 6th was some sort of admission that SCO owned the
copyrights; is that your testimony?
A The June 6th -- say that again. The June 6th letter
was an admission?
Q The June 6th press release, you believe -- you
testified a number of times that you believed it was
essentially --
A Yes, it was a retraction letter --
THE COURT: Mr. McBride, please, while Mr. Acker
is speaking, do not speak over him.
THE WITNESS: Sorry, Your Honor.
BY MR. ACKER:
Q That, in your mind, Novell is telling the world on June
6th that, in fact, SCO owns the copyrights, that is your
interpretation of that press release, correct?
A Yes.
1137
Q And so for this period of time between June 6th and
until Novell makes another public statement, December 22nd,
2003, in your mind, SCO has told the world we don't own the
copyrights -- excuse me, Novell has told the world we don't
own the copyrights, SCO does, correct?
A Incorrect.
Q Well, there was no other press release between that
period of time, between June 6th, 2003 and December 22nd,
2003, correct?
A That's correct.
Q Novell didn't say in any public press release during
that period of time anything about the copyrights, right?
A Not that I'm aware of in a press release.
Q Now did you have conversations with the investing
public during that period of time?
A Yes, I did.
Q And it's true, isn't it, that during that period of
time you told the investing public, that is between June 6th
of 2003 and December 22nd of 2003, you told the investing
public Novell has given up, they say we own the copyrights,
correct?
A That's not correct. Not exactly the way you said it.
Q But that was the gist of what you told the investing
public?
A Initially. It changed in the fall time frame.
1138
Q Why don't we take a look at Exhibit L-17. I hand you
what you we've marked as Exhibit L-17.
Mr. McBride, this is a transcript of an interview that
you gave on July 21st, 2005, correct?
A Yes, that's right, Mr. Acker.
Q If you turn to page 3 of the document --
MR. ACKER: I move for admission of L-17, Your
Honor.
MR. SINGER: First of all, this is July 2003, not
2005.
MR. ACKER: 2003. I move for admission of L-17.
MR. SINGER: I have no objection.
THE COURT: Admitted.
(Defendant's Exhibit L-17 was received into
evidence.)
BY MR. ACKER:
Q So on the third page do you see the interviewer asks
you a question and you give an answer that begins at the
top, it begins with the word well? Do you see that?
A Yes, I see that.
Q The questioner asks you, well, Novell would say you
actually don't own those copyrights fully. You responded
yeah, well, the Novell thing, they came out and made a claim
that held up for about four days and then we put that one to
bed. If you go talk to Novell today, I will guarantee you
1139
that they will say -- what they will say, which is they
don't have a claim on those copyrights, correct?
A Yes, that's right.
Q That's what you said in a press interview on or about
July 21st, 2003, right?
A Yes, that's correct.
Q Let me show you J-19.
Mr. McBride, J-19 is an e-mail to you and a number of
others at SCO dated August 18th, 2003, correct?
A Yes.
Q It's attaching a number of articles quoting yourself
and others, correct?
A Yes.
MR. ACKER: We would move for admission of Exhibit
J-19, Your Honor.
MR. SINGER: This is a composite of about eight
different articles. If there is a particular one that
relates to Mr. McBride's testimony, perhaps Mr. Acker could
point to that.
MR. ACKER: Certainly. Page 6 of 18, article date
is August 19th, 2003. Also on page 16 of 18, an article
dated August 18th, 2003.
MR. SINGER: What part on page 6?
We have no objection to the two passages which
have been mentioned by Mr. Acker being admitted as part of a
1140
redacted document.
MR. ACKER: That's fine, Your Honor. I'll just
show him those passages.
THE COURT: More importantly, I don't see the need
for a long document like this going to the jury as an
exhibit. If you can somehow clean it up, Mr. Acker, before
it goes to the jury, I would appreciate it.
MR. ACKER: Absolutely, Your Honor.
THE COURT: It will be admitted, presuming there
will be an appropriate redaction of unnecessary material
between now and the time it goes to the jury.
MR. ACKER: Absolutely.
(Defendant's Exhibit J-19 was received into
evidence.)
BY MR. ACKER:
Q So, Mr. McBride, take a look at the -- can you see the
page numbers at the top -- 15 of 18 of that document?
A Yes.
Q Go down to the bottom, you see there is an article
there dated August 18th, 2003? Do you see that?
A Yes.
THE COURT: Which item is it, again?
MR. ACKER: I'm sorry, Your Honor?
THE COURT: Which item is it?
MR. ACKER: It's number 12.
1141
BY MR. ACKER:
Q If you go to the next page, you see there is a quote in
the middle the page attributed to you from an address you
gave, correct?
A Yes, that's right.
Q The paragraph that begins with in regard?
A I see it.
Q As of August 18th of 2003, you were still telling
people in the public, in regard to Novell's recent claim
that it still owns the copyright to UNIX, McBride said it
took SCO just four days to press the eject button on that
claim, right?
A Yes, that's right.
Q That's a statement you made on or around August 18th,
2003, right?
A That's correct.
BY MR. ACKER:
Q Let me show you one more, Exhibit P-45.
THE COURT: This is one of your new exhibits
today?
MR. ACKER: It is, Your Honor. And subject to the
discussion we had, I only offer a limited portion of this
document subject to the discussion we had earlier today.
MR. SINGER: Perhaps Mr. Acker could point me to
the portion that he is using.
1142
I have no objection to that portion.
THE COURT: It will be admitted.
(Defendant's Exhibit P-45 was received into
evidence.)
BY MR. ACKER:
Q Mr. McBride, just so the jury has some context, P-45 is
a transcript of a conference call that you and other
executives at SCO provided in November of 2003 to the
investing public, right?
A Yes, that's correct.
Q And what this document is is a transcript of what was
actually said by yourself and other Novell executives during
the course of that conference call?
A Yes, that's right.
THE COURT: Mr. Singer.
MR. SINGER: I thought Mr. Acker was focusing on a
particular passage in the document.
MR. ACKER: I'm going to get to that right now.
THE COURT: What page will it be found on?
BY MR. ACKER:
Q And I misspoke a minute ago. It wasn't Novell
executives, it was SCO executives in this conference call,
correct?
A I misspoke on, I guess, my answer. It was SCO
executives on a conference call.
1143
Q You were all speaking so that one another could hear
one another, correct?
A Yes.
Q And so you heard what Mr. Bench -- was he your CFO at
the time?
A Yes, that's right.
Q You heard what Mr. Bench said to the investing public
in November of 2003, correct?
A Yes, that's right.
Q He said the following, along the way over the last
several months, once we had the copyright issue resolved
where fully we had clarity around the copyright ownership on
UNIX and System V source code, we've gone in and done a deep
dive into Linux. Do you see that?
A Yes.
Q That's what Mr. Bench said to the investing public,
while you could hear, in November of 2003, right?
A That's correct.
Q When he's referring to the copyright issue resolved,
he's talking about who owns the copyrights, right?
A That's right.
Q Wasn't it the case, though, actually, despite the fact
that in July and August in 2003 SCO was telling the
investing public that Novell has given up and has denied
ownership of the copyright, you were actually receiving
1144
correspondence -- non-public correspondence from Novell
saying just the opposite?
A I wouldn't characterize it the way you said it.
Q Well, didn't you receive a letter from Mr. LaSala on
August 4th, 2003 saying in no uncertain terms that Novell
owns the copyrights?
A That was the portion we talked about yesterday where
they had come back and flip-flopped, so yes.
Q So as of August 4th, 2003, it's your testimony that
Novell has told you in a private letter from Mr. LaSala that
your interpretation of the contract is wrong and Novell
still owns the copyrights, correct?
A That's not the way I would say it.
MR. ACKER: Why don't we bring up SCO Exhibit 105.
BY MR. ACKER:
Q This is a letter to you from Mr. LaSala dated August
4th, 2003, correct?
A Yes.
MR. ACKER: And highlight the third paragraph,
please.
BY MR. ACKER:
Q Mr. LaSala said -- this in a private letter to you on
August 4th, 2003, in other words, under the asset purchase
agreement and Amendment No. 2, copyrights were not
transferred to Santa Cruz, correct?
1145
A That's what it says.
Q And you also characterized an earlier letter of Mr.
LaSala?
MR. ACKER: If we could go to SCO Exhibit 678, and
if we could take a look at the middle paragraph, please.
BY MR. ACKER:
Q Mr. LaSala, on June 26th, said this to you, SCO's
statements are simply wrong. We acknowledge, as noted in
our June 6th public statement, that Amendment No. 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. Then he continued, upon closer
scrutiny, however, Amendment No. 2 raises as many questions
about copyrights transferred as it answers. Indeed, what is
most certainly not the case is that any question of the UNIX
copyrights -- of whether UNIX copyrights were transferred to
SCO as part of the asset purchase agreement was clarified in
Amendment No. 2.
This is what you characterized in your testimony
yesterday as a flip-flop, right?
A Part of the flip-flopping. This is a few of the
letters that were flip-flopping.
Q So what you've told this jury is that on June 6th you
believed Novell agreed with your position, but then on
June 26th they had flip-flopped, right?
1146
A I viewed that this was a flip-flop. I viewed that
other parts of Novell, Jack Messman specifically had told me
you got the copyrights.
Q Then on August 4th Mr. LaSala wrote you another letter
and told you in no uncertain terms Novell's position was it
still owned the copyrights, right?
A Which was a different position than this letter.
Q But you and your executives at SCO are still out in the
marketplace until November of 2003 saying that Novell has
agreed with your position and that Novell has agreed that
SCO owns the copyrights, correct?
A That's not how we characterized it.
Q So Novell, in private, was telling you you are wrong
about your interpretation of the APA, correct?
A The Novell attorney was, not Jack Messman.
Q But you, in public, are telling the world Novell has
given up, right?
A I was relying on Messman's comments.
Q Then what happens on November 22nd is that Novell on
its Web site puts all the correspondence up, correct?
A That's correct.
Q So they tell the world, that has a keen interest in
this, here's Novell's position and here is SCO's position,
and here is the asset purchase agreement, and here's
Amendment 1 and here's Amendment 2. All that went up on the
1147
Web site, right?
A There were a number of things. That sounds roughly as
I remember it.
Q And Novell left it to the public to decide who was
right, correct?
A I don't know what Novell left it to.
Q Did you have a conversation with Chris Sontag in the
last three months?
A I've talked to Chris a few times since I left SCO. I
don't know exactly what point in time. I probably talked to
him in that period of time, yes.
Q It's true, isn't it, within this year actually, in
2010, that you called Mr. Stone, who is a venture
capitalist, and asked him to invest in one of your new
ventures related to a protective covering for a cell phone?
Isn't that right?
A That was the call that was made, yes.
Q And you asked him to invest money in your company
because you trust Mr. Stone, correct?
A I don't recall saying that.
Q You called him and asked him for money, right?
A We were rounding up capital. We called and talked to
him regarding his firm to see if they would be interested in
investing. It was at the request of one of the other people
of the cell phone company that asked that I place a call
1148
into Stone.
Q Isn't it also true that during that conversation that
you said to Mr. Stone, Chris, don't worry about these
Maureen O'Gara allegations, those won't be part of the
trial? Didn't you say that to him?
A No, I didn't say that.
Q Just a few more questions, Mr. McBride.
Now you told the jury yesterday and today that the
reason that you believe that the SCOsource initiative failed
after December 22nd, 2003 and going into 2004 was because of
Novell's actions, right?
A Say that again. What failed, the SCOsource?
Q Yes.
A Yes. They were the major problem for the SCOsource
program failing.
Q Let me show you what we've marked as Exhibit Q-22.
Mr. McBride, Exhibit Q-22 is a form 10-K filing that
SCO made with the SEC for the fiscal year ending
October 31st, 2003, correct?
A Yes.
Q So this document would have been filed sometime in
early 2004, correct?
A Yes, that's right.
Q Again, as with your other SEC filings, if you go to the
second to the last page of the document, you'll see your
1149
electronic signature there.
A Okay.
MR. ACKER: I move for admission of Exhibit Q-22,
Your Honor.
THE COURT: It's already been admitted.
MR. ACKER: Thank you, Your Honor.
BY MR. ACKER:
Q Do you see that, sir?
A Yes, I do.
Q You signed it on or about or your electronic signature
was affixed with your permission on January 28th, 2004?
A Yes.
Q You would have reviewed the statements in Q-22 before
agreeing to have that happen?
A Yes, that's right.
MR. ACKER: If we go to page 36 of 87, please. If
we could highlight the paragraph that begins with our future
SCOsource licensing revenue.
BY MR. ACKER:
Q What SCO, with your permission, told the SEC and the
investing public was this in January of 2004: We initiated
the SCOsource licensing effort in January of 2003 to review
the status of UNIX licensing and sublicensing agreements.
This effort resulted in the execution of two significant
vendor license agreements during fiscal year 2003 and
1150
generated $25,846,000 in revenue. Do you see that?
A Yes.
Q That's a reference to the Sun and Microsoft deals plus
several other smaller licenses, correct?
A Yes, that's right.
Q Due to a lack of historical experience and the
uncertainties related to SCOsource licensing revenue, we are
unable to estimate the amount and timing of future SCOsource
licensing revenue, if any. That statement was also true,
right?
A Yes.
Q If we do receive revenue from this source, it may be
sporadic and fluctuate from quarter to quarter, correct?
A Yes.
Q True statement?
A Yes.
Q Our SCOsource initiatives are unlikely to produce a
stable or predictable revenue stream for the foreseeable
future. Also true, correct?
A That's right.
Q Then you told the government, additionally, the success
of this initiative may depend on the strength of our
intellectual property rights and contractual claims
regarding UNIX. Then you finished, including, the strength
of our claim that unauthorized UNIX source code and
1151
derivative works are prevalent in Linux, correct?
A Yes, that's correct.
Q So the success of SCOsource, in your mind, in January
of 2004 would depend, in part, on the strength of your claim
that there actually was unauthorized UNIX source code and
derivative works prevalent in Linux, right?
A That was one of the risk factors we mentioned, that's
correct.
Q Mr. McBride, you were hired as CEO of SCO on June 27th,
2002, correct?
A Yes, that's correct.
Q This was a significant development in your professional
career as your first job as a CEO of a publicly traded
company, right?
A Yes.
Q Over time you acquired a significant number of stock
options to purchase SCO stock, correct?
A Yes, that's correct.
Q Today you have over a million such options, correct?
A That's correct.
Q In fact, of that million, 600,000 of those options are
fully vested, right?
A I don't know exactly how many are vested. I think it
would be more than that, but yes.
Q Of those 600,000 that you initially received upon
1152
becoming CEO in 2002, your strike price is 76 cents, isn't
it?
A That's correct.
Q So what that means is that if SCO is successful in this
lawsuit and the SCO stock goes to $1.76, you stand to make
$600,000, right?
A I think the way you did the math, that's correct.
Q If the SCO stock price goes to $2.76, you stand to make
$1.2 million, correct?
A Correct.
Q If the SCO stock price goes to $5.76, you stand to make
$3 million, correct?
A Correct.
Q It's a lot of money, isn't it, Mr. McBride?
A Yes, it is.
Q That is not considering additional stock options you
have and stock ownership, correct?
A That's correct.
Q So you have a significant financial stake in the
outcome of this case, don't you, sir?
A I have a material -- what should I say -- interest in
the outcome of this case here, there is no doubt about that.
Q Not only do you have a financial interest, you have a
reputation interest in the outcome of this case, don't you,
sir?
1153
A I would say that's accurate as well.
Q You were fired as CEO last year, correct?
A That's correct.
Q You believe that Novell has harmed your reputation,
correct?
A I believe that is accurate, yes.
Q You want to be vindicated, don't you, sir?
A I believe that's correct as well.
MR. ACKER: I don't have anything else, Your
Honor.
THE COURT: Mr. Singer.
MR. SINGER: I have some questions, Your Honor.
REDIRECT EXAMINATION
BY MR. SINGER:
Q Mr. McBride, are you out of a job right now?
A Yes, I am.
Q And were you terminated in October 2009 as part of a
series of cost cutting lay-offs --
A Yes, I was.
Q -- that were pursued?
A Yes, I was.
Q And let me go back to your employment with Novell. How
many years were you employed with Novell?
A I was there eight years.
Q Were you able to obtain positions of responsibility
1154
while you were at Novell?
A Yes, I was.
Q What was the highest position that you reached in
Novell?
A I was vice president, general manager of the extended
networks division.
Q Was that an important division to the company?
A It was a startup group, had new emerging exciting
technology. So, yes, I guess you would say it was
important.
Q When you left Novell, did you leave voluntarily?
A Yes, I did.
Q That was after, you said, eight years?
A Yes.
Q Now let's turn back to some of the points that were
raised in cross-examination. There was some questioning
earlier today about the fact there was initially made -- I
think the first press release is a statement about patents
and copyrights. Do you remember that line of
cross-examination?
A Yes, I do.
Q Did the company, that is SCO, determine after that that
there were no patents which were owned?
A Yes, we did.
Q Did the company ever bring a patent infringement claim
1155
against anyone?
A No, we did not.
Q Did the company ever seek to sell a SCOsource license
at that point based on patents as opposed to copyrights?
A No, we did not.
Q In subsequent press releases, did you refer to
copyrights?
A No -- yes, we referred to copyrights. We didn't refer
to patents after those January press releases were issued.
Q Now you were asked about whether you could reach
certain reasonable conclusions in looking at the asset
purchase agreement. Do you recall that line of questioning?
A Yes.
MR. SINGER: Mr. Calvin, can you put up on the
screen Exhibit SCO 1 again. Can you go to the excluded
asset schedule in the original agreement. Turn to the
second page, please.
BY MR. SINGER:
Q When you were talking about being able to reach
reasonable conclusions, you were being asked about the
language which appears in the original APA that had this
reference to all copyrights; is that correct?
A Yes, that's correct.
Q Was that language removed by an amendment?
A Yes, it was.
1156
MR. SINGER: Can you turn, Mr. Calvin, to the
Amendment No. 2. Can you highlight paragraph A.
BY MR. SINGER:
Q Is this the language that replaced the language that we
just were looking at?
A Yes, it is.
Q Did you believe anyone could have a reasonable
conclusion in light of this language as to whether or not
SCO owned the copyrights?
Let me rephrase the question.
Could you believe anyone in light of this language
could have any reasonable conclusion that Novell had
retained the copyrights?
A No.
Q Now with respect to reasonable conclusions, do you have
a belief as to whether the seller, Novell, if it had
possession of Amendment No. 2, would be in a position to
know what it had sold to Santa Cruz?
MR. ACKER: Calls for speculation, Your Honor.
MR. SINGER: It think it just follows his line of
examination about reasonable conclusions.
THE COURT: I'll overrule the objection.
THE WITNESS: I believe that if Amendment 2 had
been there from day one, we wouldn't be sitting here today.
I think reasonable minds on both sides of the table would
1157
look at it and conclude that Amendment 2 fully squared the
problem of the excluded assets. I would have never made the
first call in to Greg Jones and there wouldn't have been the
issues that went from there.
BY MR. SINGER:
Q After June 6th, did Novell, even at the level of the
CEO, have Amendment 2 right in front of him?
A Yes, he did.
Q Now let's talk about SVRX royalties. There were some
questions about the agency relationship. I wanted to ask
you, during the time that you are CEO, how significant was
the revenue stream that was being generated by these old
legacy SVRX royalties that had been in place in 1995?
A It was something that had been going down. It was
some -- are you talking about revenue stream to SCO or to
Novell?
Q Well, total revenue stream.
A Total revenue stream was roughly eight million, as I
recall it, for the year, and we were collecting only about
five percent of that.
Q Now you were asked some questions about the memorandum
that Mike Anderer had sent to you?
A Yes, right.
MR. SINGER: That is Exhibit C-12. Mr. Calvin,
can you put that on the screen.
1158
BY MR. SINGER:
Q This was in January 4th of 2003, correct?
A Yes, that's right.
Q Had SCO at this time identified Amendment No. 2?
A No, we had not.
Q Was Mr. Anderer given Amendment No. 2?
A Eventually. Not at this time, but eventually he was.
Q So is his statement here, with respect to his view of
the agreement, based on the APA without the benefit of
Amendment No. 2?
A That's correct.
Q And can you read what he said in the last statement --
next to last statement?
Go ahead.
A I need to read this 20 more times to get it straight.
So understand this is just a first read.
Q Did there come to be a later time when Mr. Anderer was
presented with Amendment No. 2?
A Yes.
Q Did that affect his opinion as to whether or not there
was clarity on the issue?
A Yes.
Q And in what way did it clarify the situation?
A Well, I remember him sending me e-mails saying, this is
awesome news.
1159
Q What was your understanding of what was meant by that?
A It was awesome news that Amendment 2 had been found
which cleared up the copyright concerned he raised earlier.
Q Now you have been shown a lot of press articles that
were presented and reflected criticism of SCO engaging in
its SCOsource licensing program; is that correct?
A That's correct.
Q Now did SCO seek to respond to those critics by -- or
at least to its corporate clients or potential clients by
showing code that was allegedly infringing?
A Yes, we did.
Q Was that what was in the code room that you testified
about earlier today?
A Yes, that's right.
Q In addition, were there articles which were presented,
after looking at that code, that supported SCO's position?
A Yes.
MR. SINGER: I would like to go to Exhibit 748.
BY MR. SINGER:
Q This is one page of Exhibit 748. Do you recognize that
this is part of what you used in dealing with customers who
had raised concerns?
A Yes, it is.
MR. SINGER: I move the admission of 748.
MR. ACKER: Subject to just this page, that's no
1160
problem.
THE COURT: 748 is just this one page and it will
be admitted.
(Plaintiff's Exhibit 748 was received into
evidence.)
BY MR. SINGER:
Q Can you tell us about each of these statements and,
first of all, whether they were used with potential
customers for SCOsource licenses?
A Yes, they were.
Q And how did you present these to SCOsource customers?
A Well, we had a PowerPoint presentation that we put
together that outlined where we were with our SCOsource
program, where we were with our different programs and
products that we had inside of there, and then we laid out
our claims that we had, our licensing programs. And then on
top of that, we had some comments that third parties had
made regarding our program. So this was an example of that.
Q One of those was Information Week which said that, my
impression is that SCO's claim is credible, says Laura
DiDio, a Yankee Group analyst who was shown the evidence by
SCO Group earlier this week. It appears to be the same
code?
A Yes, that's right.
Q There is another one. What is EE Times?
1161
A Electronic Engineering Times, I believe.
Q And Mr. Claybrook is a research director for Linux and
open-source software at Aberdeen Group in Boston. Is it
your understanding that he stated that, if everything SCO
showed me today is true, then the Linux community should be
very concerned?
A Yes, he did.
Q Computer Weekly quoted a George Weiss, vice president
of the Gartner Group. What is Gartner?
A Gartner is a research analyst group.
Q And did he state, from what I have seen, I think people
should be taking the SCO accusations seriously?
A Yes, he did.
Q Did you believe that there was a division, then, in the
technology community with respect to how strong a case of
infringement there was with respect to the amount of UNIX
that was in Linux?
A Yes, there were varying opinions.
Q And was this the state of affairs when Novell came
forward in May of 2003 with its initial claim that you
didn't own UNIX, UNIX copyrights?
A Yes.
Q Now let's look at another one of Novell's exhibits,
A-15, Mr. Gasparro's e-mail.
A Okay.
1162
Q I think you were shown part of this e-mail, but I would
like to look at another part.
A Okay.
Q Let's focus on -- and Mr. Gasparro was a person who
worked at SCO; is that right?
A Yes, that's correct.
MR. SINGER: Mr. Calvin, can you blow up the
second paragraph and the third paragraph.
BY MR. SINGER:
Q Did Mr. Gasparro tell you that, it appears that the
Linux end-user community had suspected issues over IP for
quite some time? Do you see that?
A Yes, I see that.
Q Did you view that as consistent or inconsistent with
their being issues of copyright infringement based on Linux?
A Say that again.
Q Did you view that the fact that the Linux end-user
community had suspected issues over IP -- does IP to you
mean intellectual property?
A Yes.
Q -- for quite some time, did that reflect that there
was -- in your view, was that consistent with the articles
we just looked at or was it inconsistent?
A That was consistent with those articles.
Q In the second paragraph there is a statement -- or a
1163
question that asked, should we consider publishing the
results of three independent auditors without divulging
actual code. Do you know what that refers to?
A That refers to the fact that we had independent
technology teams that had come in and had given us, as a
management team, advice and opinions that, in fact, Linux
was infringing on our copyrights.
Q Now there was a reference -- or a question by Mr. Acker
about the fact that the company decided not to contest a
certain action brought in Germany; is that correct?
A Yes.
Q Why did your company not contest that action?
A Because it didn't want to try its claims in Germany.
Q Did you prefer to try those in a United States
courtroom?
A Yes, that's correct.
Q There was an article which you were asked about --
before we turn to those articles, in your view, was there a
difference between people who questioned whether Linux
infringed UNIX and Novell's challenge to copyright
ownership? Were those two different things or the same type
of thing to you?
A They were two different things.
Q Can you explain that?
A Right. There were really two issues here. Where the
1164
discussion typically started was is there infringement in
Linux. Then before you could move to getting it licensed,
it came down to, well, if you don't even own the copyrights,
even if there is infringement, how can we go there. So
there were two different issues, sometimes dealt with by the
same customer. Sometimes they would bring up one or not the
other. Those were the two big issues that we faced.
Q And did you view them to be the same or did one, in
your view, create a more serious difficulty to overcome than
the other?
A The copyright ownership problem was by far the biggest
because -- that's the answer to that.
Q And the reason is?
A The reason is because if you don't have the ownership,
then it doesn't matter if there is ten lines of infringement
or hundreds of thousands of lines or millions of lines, it
doesn't matter if you don't own the copyrights and you can't
enforce it.
Q Now I would like to turn to the forecast of earnings
that you were asked about by Mr. Acker in M-14. Perhaps we
can look at that document.
A Okay.
Q Now, first of all, in this press release, did SCO
publicly announce that there would be a formal earnings
release on May 28th, 2003?
1165
A Yes, we did.
Q Is that in the fourth paragraph?
A Yes, it is.
MR. SINGER: Mr. Calvin, can you highlight that.
BY MR. SINGER:
Q So would this mean that everyone, including Novell,
would know that's when you are releasing your actual
results?
MR. ACKER: Objection, leading, Your Honor, and
speculation too.
THE COURT: Overruled.
THE WITNESS: Yes.
BY MR. SINGER:
Q Now on May 14th, 2003, do you recall Mr. Acker pointing
out to you that the stock price had closed at $3.55?
A Yes, I recall.
MR. SINGER: And can we put up this slide. I
think we have some other slide that deals with the price
movement on May 28th, 2003, Mr. Calvin.
BY MR. SINGER:
Q While he's looking for that, is there a difference
between projected results and having actual results
announced?
A Yes.
Q After your projected results were announced on May
1166
14th, when the stock was $3 and something, had the stock
increased to about $10?
A Yes. Over the next week or two, it continually trended
up until it got up to that nine, $10 mark.
Q And Mr. Acker made a point that early in the morning
before Novell's press release there appeared to be some
downward trending in the stock. Do you see that?
A Yes.
Q Do you know whether, in fact, Novell had put out word
earlier that day in advance of their press release that
would have indicated that they were going to make a
statement that asserted ownership to the copyrights?
MR. ACKER: Calls for speculation, Your Honor.
THE COURT: Sustained.
MR. SINGER: Can we look at Plaintiff's 172.
BY MR. SINGER:
Q And this is a news flash article on May 28th, 2003, and
I am going to ask the witness if you have a basis, in
looking at this, to say whether or not there was early
morning announcements regarding this stock?
Let me reframe that.
Do you know, as you sit here today without looking at
this document, exactly when the first public word came out
about Novell's May 28th press statement?
A No, I don't know exactly.
1167
Q I would like you to look at this document for a moment
and see if that refreshes your recollection, this article,
that there was a news flash on May 28th, 2003.
MR. ACKER: Well, Your Honor, I'm just going to
object. If he has any refreshing recollection, it's based
on hearsay. As to what his knowledge was at the time, that
would be based on hearsay.
MR. SINGER: I think these are matters of public
record as to the timing. It doesn't go to the truth of
anything. It's the timing of certain announcements.
MR. ACKER: Exactly, and what --
THE WITNESS: I thought he meant what time of the
day.
MR. ACKER: I think he did too.
THE COURT: Why don't we start over again.
Mr. Singer, why don't you ask the question.
BY MR. SINGER:
Q Looking at the May 28th, 2003 news flash, is your
memory refreshed as to what time of the day there was any
news about Novell's announcement?
A My recollection of their announcement -- we're talking
about May 28th?
Q Yes.
A -- is that it came later in the day.
Q Does this refresh your recollection as to whether there
1168
was some advance word put out into the market about what
Novell was going to do?
A Yes.
MR. ACKER: Your Honor, he's going to testify
based on hearsay. He's testified twice he didn't have a
memory other than it was later in the day. Now he's shown
hearsay to try to change the answer.
MR. SINGER: This is the purpose of a document, to
refresh recollection as to something which one would
ordinarily not remember so precisely.
MR. ACKER: There is a difference between
refreshing recollection and parroting hearsay. We're in the
later category.
THE COURT: I think this has some kinship to the
document that you wanted the witness to testify to and then
asked questions about the stock price. I think I have got
to let it proceed to this point, but no further, okay.
MR. SINGER: Yes.
Let's take down the document. So whatever
refreshing it has or has not provided you have.
BY MR. SINGER:
Q Do you know, based on your recollection, having been
refreshed, whether there was some advance knowledge into the
market that Novell was going to come out later in the day
and say on May 28th SCO doesn't own the copyrights?
1169
A Yes.
Q What is your understanding?
A Well, my understanding was that Maureen O'Gara had
understood the night before --
MR. ACKER: Your Honor, this is just hearsay.
BY MR. SINGER:
Q I'm not asking you to talk about what someone else
said. It's simply -- and I will move on from this point if
you don't have a recollection, Mr. McBride, but do you --
THE COURT: Do you have an independent
recollection of this?
THE WITNESS: Of this being what is the exact
recollection?
BY MR. SINGER:
Q This being what time in the day, whether there was any
advance knowledge that Novell was going to put out a press
release on May 28th, 2003?
A Yes, I did.
Q Was that early in the day, late in the day that word
began to circulate about the press release that was going to
be forthcoming?
A Early in the day.
Q If you then go back to the stock chart that we were
looking at, the movement -- the initial movement down, then,
that Mr. Acker was talking about occurred early in the day
1170
on May 28th, 2003?
A That's correct.
Q Then when the actual press release came out is when you
see the decline that indicated it is going down from $8 and
some cents down to $6 and some cents?
MR. ACKER: Objection, leading, Your Honor, the
last three questions.
THE COURT: Sustained.
BY MR. SINGER:
Q Can you tell the jury what the nature of the decline
was from the point in the day when Novell published its
ownership claim down to the end of the day?
A Yes. It drops from eight something -- it looks like
about 8.30 or so per share, down to six something. So eight
something down to six something. I don't see the exact
pennies.
Q I would like to turn to another subject, which was the
June 11th letter. This is J-16.
Actually, before we go to that, let's go to your June
6th letter, which shall SCO 95.
Do you recall some questions, Mr. McBride, about the
fact that you didn't put in the letter the fact that
Mr. Messman had said to you, okay, Darl, you have got the
copyrights. Do you recall that line of questions?
A Yes, I do.
1171
Q Would you read the first sentence of the second
paragraph in the June 6th letter?
A Importantly, and contrary to SCO's assertions, SCO is
not the owner of the UNIX copyrights.
Q I was referring to the second paragraph, the one after
you talk about the press release.
A As you know, your accusation that SCO does not own the
UNIX copyrights was false and was without a good faith basis
or belief.
Q And did you make -- seem to make any case in the June
6th, 2003 letter to persuade them of the ownership of the
copyrights or were you talking about consequences?
MR. ACKER: Objection, leading, Your Honor.
MR. SINGER: I'll reframe that question.
THE COURT: Please.
BY MR. SINGER:
Q Let's go down later in the letter to the part where you
ask him what you want him to do. Do you see the three
items?
A Yes.
Q Do you see, number one, is you wanted Novell to affirm
publicly that Novell has not retained any rights in and to
the UNIX copyrights?
A Correct.
Q And Mr. Messman as of this time affirmed privately in
1172
his conversation to you that he didn't believe that Novell
had an ownership interest in the copyrights?
A That's when he said, okay, Darl, you've got the
copyrights, yes.
Q And then later this day did you receive Exhibit 96?
Can we look at the -- this is Mr. LaSala's letter?
A Okay.
Q Can we turn to the second page. This is one day after
your call on June 5th with Mr. Messman?
A Yes, that's right.
Q Do you see the language which says, Amendment No. 2 to
the 1995 SCO-Novell asset purchase agreement was sent to
Novell last night by SCO. To Novell's knowledge, this
amendment is not present in Novell's files. The amendment
appears to support SCO's claim that ownership of certain
copyrights for UNIX did transfer to SCO in 1996.
After Novell publicly stated this, did you feel there
was any need to put into your letters with Mr. Messman the
fact that the amendment supports SCO's claim that ownership
of the UNIX copyrights transferred?
A No, not at all.
Q So when we turn to the letter that you were asked about
by Mr. Acker, the June 11th letter, J-16, did you feel any
need to put into the June 11th letter, five days after this
press release by Novell, by the way, Jack, this confirms
1173
what you told me on the phone, that Novell isn't claiming
the copyrights any longer?
A No.
Q Now you were asked some questions about this letter
with respect to SVRX licenses. Do you recall that?
A Yes.
Q And what I would like to do is ask you to take a look
at the asset purchase agreement?
A Okay.
Q By the way, before we go there, if you look at the
June 11th letter, had Mr. Messman put into his letter the
term SVRX licenses? Do you see that, which quotes part of
his letter --
A Yes.
Q -- in the first paragraph there?
A Yes.
Q Now can we turn to Exhibit 1 again, the asset purchase
agreement?
A Okay.
Q Let's look at section 4.16(a).
Now, Mr. McBride, were you involved in drafting this
agreement?
A No.
Q Or negotiating this agreement?
A No, I was not.
1174
Q But if we look at SVRX licenses as used for purposes of
this section, does it have a particular defined meaning?
A Yes, it does.
Q And does that require you to look at item VI of
schedule 1.1(a)?
A Yes, it does.
Q Let's look at that.
A Okay.
Q Is this the schedule?
A Yes, it is.
Q Let's turn to item VI. Do you see where it says, all
contracts relating to the SVRX licenses listed below?
A Yes.
Q And in the SVRX licenses listed below, do you see IBM's
software development agreement? And we can put the second
page on right after this.
A I don't see it on this page.
Q Can we turn to item three of the APA -- item III of
this schedule.
Now item III, can you read what falls within item III
out loud, please, just the heading part.
A All of seller's rights pertaining to UNIX and UnixWare
under any software development contracts, licenses and any
other contract to which seller is a party or by which it is
bound and which pertain to the business, to the extent that
1175
such contracts are assignable, including without limitation.
Q Now can we go down to -- I think it's on the next page.
It's item L under this provision. Can you read what it says
there under III L?
A Software and sublicensing agreements, this includes the
source code and sublicensing agreements that seller has with
its OEM, end user and educational customers. The total
number of these agreements is approximately 30,000.
Q Is the IBM software development agreement one of the
agreements that SCO had under section III of the APA?
A Yes.
Q Now did Mr. Acker show you this particular schedule
which defines what an SVRX license is when he was asking you
those questions?
A No.
Q Should he have held up his hand when he was asking you
that question?
Let's go on to another topic.
A Okay.
Q In your cross-examination you were asked about vendor
licenses such as Microsoft and Sun. Do you recall that?
A That's right.
Q And at that time -- I think the question was were these
SCOsource licenses. At that time had you announced a right
to use -- license to the public in the first quarter or
1176
second quarter of 2003?
A No, we had not.
Q So in April 2003, was that yet on the market?
A No, it was not.
Q And with respect to Microsoft and Sun, would you have
considered those vendor agreements or would you have
considered those right to use agreements?
A Clearly vendor agreements.
Q You were shown a number of articles about the fact that
in the summer of 2003 you thought the issue over copyright
ownership was over. Do you recall that questioning?
A Yes, I do.
Q Did you think that Novell, after publicly making its
statement on June 6th, was going to do an about-face later
in August and in subsequent months?
A No.
Q In fact, if we turn to one of those articles that you
were asked about in August 19th, J-19 -- can we go to
page -- I think it's page 16 of 18 that you were being asked
about.
MR. SINGER: Page 16, I believe. One more page,
please. It's the next page.
BY MR. SINGER:
Q In regard -- I'm just going to read you the language.
Why don't we -- here we go. In regard to Novell's recent
1177
claim that it owns the copyright to UNIX, McBride said it
took SCO just four days to press the eject button on that
claim. What were you referring to?
A I was referring to the -- first of all, Messman's
letter to me and the press release. Then the finding of
Amendment 2. And then the calling of Jack and informing him
that we found Amendment 2. And then finally him saying,
okay, Darl, you have the copyrights.
Q If we go to the next paragraph, can you read that to
yourself?
A Sure.
Q The after attacking us.
A After attacking us, Novell's CEO, Jack Messman, was
then irate that we had not told them there was an amendment
to the contract between us that clarified our copyright
ownership of UNIX. He seemed to believe -- he seemed to
believe that we knew about it but weren't telling them so
they could attack us and look foolish. Go figure.
Q Mr. McBride, is this consistent with your recollection
of that conversation with Mr. Messman on June 5th?
A Yes, it is.
THE COURT: Mr. Singer, how much more do you have?
MR. SINGER: Just a couple more minutes.
THE COURT: Mr. Acker, how much recross will you
have?
1178
MR. ACKER: Not a great deal, Your Honor.
THE COURT: Can you be more specific?
MR. ACKER: Five, ten minutes.
THE COURT: Okay. Counsel, I'm inclined to go
ahead and break now and let you finish with your redirect
tomorrow, then recross. I don't think we ought to try to
finish this witness today. So we are going to recess now,
all right.
MR. SINGER: Thank you, Your Honor.
THE COURT: Ladies and gentlemen, let me, first of
all, thank you for the way you have been conducting
yourselves. This has been a long week, plus, and you have
heard a lot of testimony, but you have been paying
attention. You have remained alert and have tried to be
attentive throughout. That is very important. And I hope
you will continue to do so.
Again, I will remind you that though you have
heard a lot of testimony, you still have a lot to hear, and
it would not be appropriate for any of you to be making up
your mind in regards to any of the issues in this case
because you really don't know what those issues are until
you've been instructed on the law and until you've heard
closing arguments, which you've heard before.
I would just gently remind you again about the
importance of you not discussing this with anyone or
1179
allowing anyone to discuss it with you, that you not do any
research on your own, you not listen to anything or watch
anything or do anything on the Internet, on any of those
social network sites that have been read to you several
times already. It's very, very important that you be
confining yourselves to this case, only what you hear in
this courtroom and absolutely nothing else.
We'll be in recess until 8:30 tomorrow morning.
(Jury excused)
THE COURT: Mr. Singer, I asked you a question
before the jury came in which was really just a short -- and
hoping for a short answer, and that was are we on schedule
or have we fallen behind?
MR. SINGER: We are behind schedule. We are
seeking to address that by trimming some of what we plan to
put in. Obviously we don't have control over the
cross-examination length of witnesses. Our plan is, after
Mr. McBride finishes his testimony, to have Mr. Pisano
testify. There is a possibility that, before the two of
them, we would present a deposition of Ms. O'Gara. We're
either going to use that then or later in the day, or
possibly the beginning of Thursday. The lineup is generally
finishing Mr. McBride, then we would go to Professor Pisano
and Professor Botosan. We think that's going to take the
balance of the day.
1180
We're hopeful, if we finish all of that, then we
have Mr. Stone, we've asked to be called adverse, on
Thursday to appear. And I'm hopeful we can finish our case
on Thursday with the balance of some very short witnesses,
Mr. Maciaszek, Mr. Nagle, and Mr. Tibbitts, on Thursday.
That's our game plan.
THE COURT: If they finish by, roughly, noon on
Thursday, Mr. Brennan, how does that play out as far as you
and meeting the three-week schedule?
MR. BRENNAN: May I confer with my colleagues?
THE COURT: Yes, please.
MR. SINGER: Again, we're assuming the
cross-examination?
THE COURT: Yes. I'm not holding you to that
commitment.
MR. JACOBS: Your Honor, I will field this. I
think we are -- I think we can get the case done on the
original schedule. We're keeping time. We're trading time
with SCO. So far we seem to be very closely in sync in
terms of the clock.
What would make that more assured is if we could
work out some mechanism so we don't have to spend a lengthy
amount of time on the covenant of good faith and fair
dealing issue, but would rather have the opportunity to
augment the record for the Court's determination of that
1181
issue. I have not ventilated this with SCO's counsel yet,
so we haven't worked out what that might look like.
But it would be something like, if there is
something we didn't get in now, we would get it in through
deposition testimony that's been taken on that topic and
through exhibits and argument to the Court. That would
constrain what we really have to do in this courtroom to the
ownership and slander related topic, and I think we would
feel a little more comfortable with trimming our case, if
that were true.
THE COURT: Would that also include the unclean
hands issue?
MR. JACOBS: I would have to consider that, Your
Honor. Let me think about that and get back to you.
THE COURT: Okay. If you would think about it,
discuss it with Mr. Singer, then try to make a united
presentation to the Court as to what you would like to do.
The Court certainly has no objection to dealing with that
issue and perhaps even unclean hands by way of non-live
testimony.
MR. SINGER: We're happy to discuss it with
Mr. Jacobs and see where we go with that.
I just wanted to be complete in setting forth the
schedule, and Novell already is aware of this. There are
two witnesses, essentially, in our case that would be
1182
presented next week. One is Mr. Keller, he's a short
witness. The other, of course, is Mr. Messman, who's
supposed to appear on the 24th.
THE COURT: All right, counsel.
We do have hearings this afternoon. If you would
please clear the desks.
We'll be in recess until 8:30 in the morning.
(Whereupon, the trial was continued to Wednesday,
March 17, 2010 at 8:30 a.m.)
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