This is the text transcript of day eight of the second SCO v. Novell trial. The trial began on Monday, March 8, 2010 and ran for 15 days, Monday through Friday, for three weeks, with the Hon. Ted Stewart presiding.
This day, then, is Wednesday, March 17, and the witnesses that day were Darl McBride, back on the witness stand for the third day, and then SCO's two experts, Dr. Gary Pisano and then Dr. Christine Botosan with some very funny math. Here's Dr. Pisano's expert report, if you are curious. Dr. Botosan's you will find here.
Here is Groklaw's eyewitness report from the trial for that day. This is the day McBride was confronted with
the 8K SCO filed, telling the SEC, SCO's partners, and the public that SCO didn't need the copyrights to run its business. To my mind, that was the single most significant moment of the trial, the day that SCO lost, for sure.
If you'd like to jump directly to the transcript, you certainly can. And if
you'd like to jump to a transcript of any other day of the trial, here you go:
Before the jury enters:
The housekeeping today was mainly about the upcoming testimony of SCO's expert, Christine Botosan:
THE COURT: All right. Three issues were raised about
the Botosan testimony. First of all, the argument is that she cannot rely on -- rely on Dr. Pisano's testimony. I believe for the underlying reason that the court just addressed that the court will have to deal with that after Dr. Pisano has testified.
Secondly, it is asserted that she ought not to be allowed to testify beyond the dates of her report because there has been no supplement. And third, the defendants have argued that she ought not to be permitted to testify regarding prejudgment interest.
The court has looked at the prejudgment interest and is convinced that that is a correct statement and she should not be allowed to provide testimony as to an amount of prejudgment interest.
As to the second issue, how do you wish to respond to that, Mr. Hatch?
MR. HATCH: First, on the interest, we agree with Your Honor that she was not going to testify as to that. I think that to the extent interest is available, that would be a legal question for Your Honor at a later time.
As to the issues regarding the event study, we have contemplated your ruling of yesterday overnight and this morning and have decided that we will not elicit testimony on the event study today. So that issue is moot. So SCO either lost or gave up on two of the three issues, leaving just letting her rely on Dr. Pisano's testimony, but provisionally, meaning the judge would decide the Pisano issue after the testimony, something he'd ruled on earlier at a hearing, at which Novell's lawyer, Sterling Brennan, called her report "junk science" and utterly unreliable:
MR. BRENNAN: Your Honor, I think really, cutting through the arguments, there are probably two to three critical issues that we believe would suggest that the Court ought to grant the motion. And the first that I wish to focus on is the so-called event study that is really the linchpin of Dr. Botosan's analysis. We believe, as we have described, there are at least two fundamental problems with the event study.
The first is the lack of relevance to the event study to the lost profits claim. This Court has already
ruled that a drop in stock price is not going to be a subject of the claims in this case. It's already ruled on that. The event study and the analysis that goes with it is really intended to focus on a track or an attempted correlation between NASDAQ and SCO's stock performance. That's not at issue here. That's not a relevant inquiry for purposes of lost profits.
What Dr. Botosan does attempt to do is to draw some correlation between SCO's stock price and NASDAQ and then adhere to that some sort of event study to suggest that individuals who otherwise might have taken licenses under the SCOsource programs chose not to do so because of statements or events involving Novell's claim of ownership in the UNIX copyrights.
So the event study analysis is fatally flawed, not merely irrelevant but fatally flawed because it doesn't focus on the real issue in a lost profits analysis, and that is the question of whether or not SCO lost revenues and thus profits from the sale of SCOsource licenses because of any conduct by Novell. Instead, it's all attempted to track or correlate to NASDAQ and the performance. And the problem there, Your Honor, is there simply is not a correlation, as we demonstrated in the papers.
The regression analysis shows that there simply is not a predictability factor that would allow this Court to
allow this analysis to get past the gatekeeper function that this Court performs.
Now we did not and our expert for Novell did not have a chance, until very recently, to see really what the output was by Dr. Botosan. Our expert did attempt to do some sort of reverse engineering, as it were, to find out really even what the so-called R2 measurement was, which is the predictor of a correlation. And that reverse analysis suggested that the correlation was so low as to have absolutely no meaning.
In the declaration that was just submitted to this Court, I believe this past Monday, it was suggested that the predictability factor was a mere 14 percent. And so that demonstrates by the authorities that we've cited that there really is not a sustainable, reliable predictability factor that's even built into the progression analysis that Dr. Botosan did.
We've also referenced to the Court case law that suggests that even a correlation factor as high as .45, or 45 percent, is not sustainable and should not be accepted for purposes of statistical analysis to demonstrate a purported correlation between the events at issue and the claim.
So here we face a situation where not only is the event study irrelevant to the issue of lost profits, but
even the regression analysis that was performed itself demonstrates that there is no correlation between the events that are being presented to the Court. And in Dr. Botosan's late filed submission, she suggests that the correlation factor, as I said, is a mere 14 percent, which is well below the threshold that's been accepted by courts.
THE COURT: Mr. Brennan, isn't that simply your expert's view of Dr. Botosan's conclusions? I mean isn't that best dealt with by those two experts going toe to toe and you, on your best behavior, cross-examining the expert of plaintiff and so on? I just don't know whether or not -- I mean I'm not disputing your expert's calculation, but it is something that the jury ultimately gets to decide, doesn't it?
MR. BRENNAN: Well, I certainly do agree that would and could be a battle between experts and we would be able to, through cross-examination, demonstrate the failure of Dr. Botosan to make any correlation that has any meaning. No question about that. The issue here I believe, however, is whether or not we should even get to that point because the presentation and the analysis that's done is not limited merely because of a weight issue but because it doesn't even meet an acceptable standard. We were, in fact, dealing with so-called junk science here.
As we demonstrated, the authorities show that in a
correlation factor as low as Dr. Botosan states, and I'm going to rely upon her number in her declaration rather than our expert's calculation of a much lower coefficient, with an R2 as low as .14, it doesn't even get close to the threshold that courts already have rejected as being too low to allow the issue to even get to the jury for purposes of weight analysis.
So I certainly do agree with the Court that the experts could, in essence, battle it out and we could diminish the weight of the argument by cross-examination, but I'm suggesting to the Court that we need not and should not get there because of the gatekeeper function. This jury should not be required to, in essence, endure what I call is junk science.
Your Honor, the other points that we raised I do believe also could suggest to the Court that Dr. Botosan's testimony ought not be allowed and we have the problem where she is relying upon not mere inadmissible hearsay on its own, but is being used as a conduit to pass through information that is inappropriate. We've cited some of the examples to the Court. For example, some of the projection analysis, we've had no ability to analyze whether it's reliable, nor does Dr. Botosan in her report suggest that there has been any independent analysis by her on the projections that she's relying upon.
Instead, her testimony is being offered, again, as a mere conduit to pass through information where she's not independently analyzed it. She has not independently verified that it's reliable. Nor does she know or does she purport to know whether or not those projects meet any sort of rigor of reliability. That's another problem, Your Honor. And I believe under the gatekeeper function, that would be a basis for you to reject Dr. Botosan and her analysis and it ought not to go to the jury.
She was allowed to testify, to an extent, anyway, but that testimony was absurd, to me, which is maybe why in the end the jury and the judge didn't credit either of them. I know I didn't. Here's Pisano's expert report for SCO, if you wish to decide for yourself, or go here to read his and Dr. Botosan's. The first link, though, is where I listed some errors, as I viewed them, in his report. When we first got to see their reports in February, I wrote this:
I don't know if I should describe the reports as absurdly fascinating or fascinatingly absurd. Their version of UNIX history and the history of SCO's litigation is an alternate universe far from any I know or think of as reality. Novell accused her of being "a mere conduit for opinion testimony" -- meaning Pisano's opinion, which was as follows: after interviewing Darl McBride and Chris Sontag and reading the laughable Yankee Group report, whose methodology I wrote about here, he concluded that if Novell hadn't spoken up, SCO would have sold millions and millions of SCOsource licenses:49. I conservatively estimate the total potential market for the SCOsource Right to Use license during the damages period at 7.4 million servers. That's his conservative estimate just for North America. Not that Dr. Pisano seems to have known as much about the methodology of that study as I did. He said he assumed they were reliable, because that is what they do for a living.
Considering that it turned out SCO didn't own the copyrights in the first place, that would have been fraud on a fairly large scale, wouldn't it, had SCO sold millions and millions of SCOsource licenses? When you add in that the SCOsource license conflicts with the GPL, which is Linux's license, that would have made it bad, even if SCO owned the copyrights. Anyway, you can't force people to license your copyrighted materials. They can just say no. It's not like patents, which SCO pretended to own and then acknowledged it didn't.
Here's another survey from 2003, which found that half of the companies surveyed said that after they'd checked with their company's lawyers, they were not interested in a SCOsource license, because their lawyers told them the GPL was all the protection they needed. Pisano seems not to have read that one or factored it in.
So I'm quite sure SCO wouldn't have sold millions and millions in any case. How many did it sell between the first announcement of SCOsource in either late December of 2002 or January of 2003 and May 28, 2003, when Novell spoke out? Two, right? So when, and why, were the millions of licenses supposed to start to kick in? Here are some reasons why folks didn't want a SCOsource license in 2003, not one on the list being Novell. Most everyone I know realized very early that SCO was not going to prevail in court on the copyright issue or the infringement, even if it got the copyrights.
As you will see when Dr. Botosan takes the stand, all of this matters, because SCO is appealing their loss, and one prong of their appeal has to do with Novell being given permission to raise the prior legal rulings against SCO on cross examination of Dr. Botosan. Maybe it would have been better for SCO if Botosan had never taken the stand at all, frankly. Her damages report was so fanciful, absent all real-life events that would have made people not buy a SCOsource license, that it opened the door, as I'll show you in detail when we get to that day's events. Essentially, the court allowed the jury to hear at least one thing that she left out, namely that no one was going to buy a license when the court had already ruled SCO didn't own the copyrights, and even much earlier that it didn't look like they owned them. So, this is the buildup to that element of SCO's appeal, so that is why I'm highlighting it for you.
Next, they move on to discussing some things related to Darl McBride. The day before, his second day on the witness stand, he had testified that SCO needed the copyrights to conduct business. Novell immediately served SCO notice that it was going to add an exhibit, one it intended to use to impeach his testimony, namely his SEC filing in which he said SCO didn't need the copyrights. SCO tries to stop Novell from being able to use this exhibit, but the judge lets it in. The reason I believe this was the single most important moment in the trial is because if you can prove a witness wasn't telling the truth, the whole truth and nothing but the truth in one area, the jury tends to discount everything else he said on the stand. And so would you, likely, even in real life. The judge does tell Novell to be careful to avoid mentioning to the jury prior court rulings against SCO, though:
MR. SINGER: Well, I was just going to note that the exact statement pertaining to the UnixWare and the OpenServer Business and there is no contention that those businesses couldn't be run in light of the summary judgment ruling. The issue is, of course, the SCO source and the effect of copyright enforcement.
MR. ACKER: The issue is that Mr. McBride said the exact opposite thing on the stand yesterday.
THE COURT: Well, I am aware of this document and I will allow you to use it. But I will have to tell you, Mr. Acker, that if either advertently or inadvertently that it comes out that Judge Kimball's summary judgment ruling, then as I have stated before, the court will be required to inform the jury that as to the issues before it that was reversed by the Tenth Circuit which I frankly think is
something you ought to be very cautious about. And so I will allow it, as I do believe it is important for your purposes on impeachment, but I would caution you to try to avoid violating the court's prior ruling on not permitting reference to prior court rulings coming before this jury.
MR. ACKER: Very well, Your Honor. I understand….
MR. HATCH: The same thing would apply to Dr. Botosan. And largely what she will be doing is the event study won't be spoken about, just doing a calculation of damages in the same manner that Mr. Singer just talked about.
THE COURT: All right. Everyone has had their say, including the court. All right. And I just want you to remember that the court feels very strongly about this because of its prior ruling, number one.
But number two, again I believe that any reference to prior court rulings by Judge Kimball must result in the Tenth Circuit reversal being made known to the jury. And I have got to believe that if a jury hears that, it is probably going to consider that a more rigor matter than the preliminary summary judgment rulings.
So anything else, counsel?
MR. SINGER: No, Your Honor. May we have a minute to discuss this issue with Mr. McBride?
THE COURT: Yes, go ahead. Again, this ended up in SCO's appeal, the issue of the jury eventually getting to know about those rulings. But how do you like this "but for" world, where it is assumed as true that SCO owned the copyrights? And SCO wanted not only to present it that way, and calculate damages that way, but also to prevent Novell from bursting that bubble with real events that made it, frankly, impossible to make such assumptions, even if Novell had never said a word? Darl McBride, back in the saddle again:
His testimony today begins with SCO's lawyer Stuart Singer asking the questions on redirect. He walks McBride through some material about how much he believes in the company, how he manifested that by not selling any stock, and then he asks him about the "important business opportunity for SCO" in 2003, with Google. Darl was personally involved in discussions with Google, "the largest Linux customer in the world", as he describes them, with over 500,000 servers. But in the end, Darl says, sadly the millions and millions he hoped to get didn't come through, because Google decided to wait and see who actually owned the copyrights, Novell or SCO. Darl personally talked to Michael Dell, also, by phone, who then turned it over to Dell's general counsel, Tom Green. Darl claims they wanted to resell SCOsource licenses: Q. What was the nature of the business opportunity involving SCO source licensing that you were discussing with Dell?
A. Um, Dell's idea was they wanted to be able to go to market with a SCO source license to be able to provide indemnification for Linux users. And specifically, they wanted something that would allow them to position themselves stronger than what HP's program was.
Q. Would Dell have been reselling SCO source licenses?
A. Yes, that is correct. Now, this is Darl talking, and this isn't my first rodeo, so I take what he says as something to look into to see if it's so. But considering that Dell did resell those loathsome Microsoft-Novell chits, maybe it is true. Anyway, Dell dropped out, again, according to Darl, because of the Novell claim.
And then we have Novell's attorney, Eric Acker, who begins recross of Mr. McBride with some pleasantries, but then gets to the meat of the day, the SEC filing. But first he gets Darl to say that it was Novell posting its ownership claim on its website on December 22, 2003 that scuttled the Google and Dell interest. That's odd. On his second day on the stand, McBride indicated interest died on May 28th, 2003. Yet here he is, negotiating with Google and Dell, and to hear him tell it, almost succeeding. So was the May 28th announcement not so bad after all, or what?
I know. I jest. But it's because I take all this testimony as being absolutely ridiculous. Is it any wonder the jury didn't credit it either? Here's Darl's answer to my question: it was like dropping napalm on somebody, he says. "It didn't kill people immediately, but over time it did."
Um. Napalm often kills people if you drop it on them in war. Someone should probably pay me for all the helpful corrections of SCO facts. Next, there's some info about HP and SCO. If you recall, HP was a sponsor of SCOforums, and here's the backstory, from an email from a Mr. Joe Beyers at HP: Q. (By Mr. Acker) Why don't we take a look at what
Mr. Beyers said on August 15th, 2003….
Mr. Beyers wrote to his colleagues at HP, "Today I threatened SCO that HP would not attend the SCO forum next week if they did not sign the HP UNIX release today." Do you see that?
A. Yes.
Q. "They responded by signing the release and they also provided a letter that we can show our UNIX customers." Do you see that?
A. Yes, I see that.
Q. So wasn't it the case that after the SCO source program was announced, um, you were in negotiations with HP and HP was going to participate in your SCO source forum in Las Vegas; correct?
A. Yes, that is correct.
Q. And a week before the forum, SCO is demanding, I believe, a certain number of millions of dollars from HP; correct?
A. We were in negotiations over something that they were -- had initiated. We were talking about millions of dollars, yes.
Q. And what HP said to you, we're not going to pay you millions of dollars, and if you don't give us a release for free, we're not going to come to your SCO forum; right?
A. That is part of what they said.
Q. Why don't we highlight the number of points below, if we could. And this is the release that HP wanted. "SCO releases/forgives any past actions by HP (and its future direct consequences) which may have been in violation of its UNIX licenses."
A. Right.
Q. Two, "The HP UNIX license now becomes "unconditionally irrevocable", even for future "bad" acts." Three, "HP has no restrictions on what it does or says about the IBM case or the Linux case." Do you see that?
A. Yes.
Q. And four, "Publicity: SCO has provided us a letter to Carly," who is the CEO, Ms. Fiorina, CEO of HP at the time, "that we can show to our customers that states that SCO believes that HP is in compliance with its UNIX license." That is what they wanted, correct?
A. Yes.
Q. And then the financial terms are also there at number four, right?
A. Yes.
Q. And the financial terms are zero, right?
A. For that release.
I remember at one of the earliest hearings in the SCO v. IBM litigation, IBM's David Marriott mentioned the HP release. And now we know the rest of the story. But actually, there's more. Here's why Darl claims HP didn't take a license:A. So the big issue then was the reason that they broke down. And the reason that they broke down was they were pointing to the copyright problem. And when they brought it up, I said whoa, Joe, we put that to bed months ago. That -- I was -- I wasn't thinking when he first said Novell copyright issue that they hadn't even been following what happened after Messman had announced they owned it and that we had come back and put that to bed. So I went through that story with him and he said no, no, no, no, we got all of that. What you don't understand, Darl, is that Novell is gearing up for another run and you will eventually see them come out public again and they will say that they own the copyrights. That was the first time that I had heard that, in fact, Novell was going to take this public position and it was from Hewlett Packard in the context of not doing this deal.
Q. So you knew that information in September of 2003
that Novell was going to claim ownership of the UNIX copyrights?
A. That was the first time I had heard about it.
Q. But you had that in your mind as the CEO of SCO in September of 2003 that Novell was going to reassert its ownership of the UNIX copyrights?
A. Based on that we started watching.
Q. And despite having that knowledge in September of 2003, you and your CFO continued to tell the market that that issue was put to bed, right?
A. The things that you pointed to yesterday were predating that.
Q. There was a -- you had a conference call in November of 2003 where Mr. Bench your CFO said this issue is put to bed, and you were sitting right next to him. And now you have told the jury that you had that knowledge in your head in September of 2003 that Novell was going to reassert its ownership to the UNIX copyrights?
A. We had a lot of things in our heads. And every time we would turn around from May, June, July, August we were hearing something different. And what happens with these SEC filings is you have to state things based on material changes. And until they went public, we did not view that as a material change. The fact that they were behind the scenes saying this or saying that, is not a
materiality threshold by which you would adjust your 10-K filings for the investing public. They had a lot of things in their heads. He goes on and on trying to justify not telling the public that Novell was continuing to contest the ownership, but it just makes your stomach queasy:Q. So let me get it clear. It is your testimony that when the general counsel of Novell wrote you a letter on August 4th, 2003 and said Amendment Number 2 did not transfer the copyrights, you as the CEO of SCO did not believe that was a material event that needed to be reported to the marketplace?
A. I believe I have answered that question, Mr. Acker.
Q. You haven't answered that question, Mr. McBride.
THE COURT: Answer the question if you please, Mr. McBride.
THE WITNESS: I did not believe that to be material at that point in time.
Q. (By Mr. Acker) So as the CEO of SCO, the fact that Novell was claiming ownership of the UNIX copyrights was not a material fact to you?
A. Not at that point in time. I believe it was Groklaw that first pointed out SCO's failure to tell the public that Novell was continuing to contest the point about copyright ownership, as soon as I saw the Novell letters and I asked why it wasn't listed as a risk factor, and I made a list of all the opportunities SCO had to tell the public about the Novell letters prior to Novell putting them on their website in December of 2003 -- 12 separate events, so it is very gratifying to me to see this matter brought up at the trial. SCO not only didn't mention the Novell letters and the dispute, it went further and claimed Novell had backed down, three times, which I culled from Groklaw's Quote Database:"We stopped our battle with IBM for basically four days; we stamped out the Novell attack and put that one behind us. Now we're back on what our original focus was, which is resolving the issues we have with IBM."-- Darl McBride, CNET News, 2003-06-16
"It threw Novell out in front of the bus a couple of weeks ago and Novell got run over. It's a unique situation when a company as powerful as IBM has somebody coming at it with such strong claims as we have in a very public forum."-- Darl McBride, V3.co.uk interview, 2003-06-30
"Yeah well, the Novell thing. They came out and made a claim that held up for maybe four days and then we put that to bed. If you go back and talk to Novell I guarantee what they'll say, which is they don't have a claim on those copyrights anymore."-- Darl McBride, ZDNet interview by Dan Farber, video, 2003-07-21 SCO all the time was getting the Novell letters, saying that it continued to contest. So Darl's explanation would maybe fly for a few feet if he had stayed silent during the debate with Novell behind the scenes, but that isn't what he did. He affirmed at least three times that there was no debate going on, because Novell had backed off.
Singer tries to rehabilitate Darl, but what can anyone do? It's a job for Superman. And I'm pretty sure Superman wouldn't touch this with a ten-foot pole. But there is one interesting detail: Q. And when you saw that public assertion which you were just asked about, where you said that you would be able to operate the UNIX and UnixWare business?
A. Yes.
Q. Would you have been able to do licensing deals such as you did with Microsoft and Sun?
A. No.
Q. If you didn't own the copyrights?
A. No, not at all.
Q. Would you have been able to take any action to enforce your intellectual property if you didn't own the copyrights?
A. No. The copyrights were a prerequisite to enforcing the intellectual property.
Q. What you would have -- so were you referring to just the ability to sell product, the UNIX and UnixWare products?
A. Yes. Would that not indicate that both companies bought a SCOsource license? If he couldn't do the deal at all with those two without copyrights, as he testifies, but he could sell products without copyrights, then what were those two companies buying if not a SCOsource license as opposed to a product? Or was Darl just kissing the Blarney Stone again? And what about Sun and Microsoft? Sun told us it was mainly about drivers. And Microsoft said they were licensing code for their Unix-related products. Doesn't anybody in corporate America tell the truth any more? If so, where exactly on this map is it?
[Update: I noticed how Darl described the deals with Sun and Microsoft at the May 28, 2003 teleconference. Let's see if it matches what he said at this trial: McBride: Yeah. The deals that have been done on SCOsource side relate more, not too much to our direct lines under SCOx product line, but more to taking our core thread of Unix that we own and giving access to portions of that to these other companies to be able to integrate their product lines better from a Unix operability standpoint. That sounds to me like SCO could do those deals, subject to Novell's approval in some instances, without the copyrights. It was about licensing them code. SCO could do that without owning the copyrights. Doesn't it sound that way to you? One of the more disturbing elements of the SCO side of the story is how it continually morphs.]
The other thing I couldn't help noticing was that HP's Martin Fink wrote a memo listing all the pros and cons of getting a SCOsource license. He was against it, but he says this in the internal email, and remember this is the primary Linux person at HP at the time, the one that got sent to LinuxWorld and such venues to talk about Linux:
As you know, I oppose moving forward, although I will do my best to support the larger HP position if we decide to move forward. I guess one can look at the larger picture of the email's contents, and one can see that HP didn't go forward, although Darl claims they were going to until Novell posted the letters in December of 2003, and no doubt this memo had something to do with HP not going forward in the end, so that's on the plus side. But if this is the best Linux advocates can do inside a corporation, and it may be, then it highlights precisely why Andy Updegrove of the Linux Foundation wrote the other day that FOSS projects can't be owned by corporate entities. It just doesn't work out. They sooner or later have "larger positions" that can really do damage to the community's interests, which are not always aligned.
Dr. Gary Pisano Testifies:
Pisano now takes the stand. He gives his credentials. He is a professor at Harvard University, with a PhD, which I trust means that the University is thoroughly mortified about this testimony. It also makes me wonder about Harvard inviting Darl to speak there. Remember how we puzzled? Pisano says he doesn't often act as an expert in litigation. This is his first time testifying at trial, but you'll remember he was also used by SCO in the IBM litigation, which hasn't reached trial yet. He charged SCO $600 per hour. Normally he charges up to $1,250 an hour. So… he is doing a favor for SCO? Why would he? Anyway, he is there to describe in glowing terms what life for SCO would have been like, had Novell not claimed it owned the copyrights. And here is what this expert tells the court about Unixware:
A. UnixWare was an important product because UnixWare was an operating system for servers that could run on types of a computer servers that were called Intel architecture. That is, they had Intel chips in them. And that was a very fast growing part of the computer server market. And until that time, there was no -- there had been no other UNIX products that could run on an Intel based machine. That, of course, is not true. There were others. Here's a list of the Intel players.
Xenix, which later became OpenServer, sort of, ran on Intel and it was Unix System III. Xenix was the first Unix on Intel. SCO did that, but I'm just saying UnixWare was not the first. And just for historical clarity, UnixWare was originally released by Univel, not SCO, and that was in 1991. At around that time, a year before, Dell System V Release 4 came out, on Intel. It was announced in October of 1990 and available in December.
Sun had SunOS, for another example, that ran on Intel, and SunSoft, the Sun subsidiary, announced Solaris in 1991 which ran on Intel too. BSD ran on Intel, too. Here's a press release from 2000 with a quotation from a company running BSDi's BSD/OS on Intel. So did Sequent, which released Intel 80386-based Symmetry in 1987, and Unisys did too, I think, and IBM, but I didn't check all that. My point is just that this expert didn't do research as deeply as one could have. And he got paid $600 an hour. I just took a half hour for free to show you that he wasn't correct on his facts.
His descriptions of Linux are equally absurd. He says it's written by anonymous users. That is hilariously wrong, and easily checkable. The credits file lists all the folks whose code is in the product, after all. It's on the Internet. He also claims no one used Linux in the enterprise except for simple tasks until 2.4 in 2001. That's not true either. Here's an article from 1999, just for one example, Will commercialism help or hurt Linux?. Even in 1998, there was a lot of buzz about Linux at Comdex.
$600/hour might be a little too high, I'm thinking, for what SCO got. And may I ask how you can teach business at Harvard and not know these things? I mean, does Microsoft give them contributions or something? I found that in about five minutes. And for sure, if I had been sitting on the jury, and we know some with computer skill did, I'd have been zoning out, realizing what I was hearing wasn't accurate. In fact, I am zoning out. He's at the part where he compares SCOsource to indemnification, and he measured how many folks want indemnification, instead of how many want SCOsource. Lordy. One study found 19% interested in indemnification, and Yankee Group did a separate study and found the same 19% deeply worried about it and 26% kind of concerned, and instead of concluding that they were sort of comparable and that about 19% might buy SCOsource, he adds 19 and 26 and says 45% of the market would be interested in SCOsource. Here's what he says about the second study, which was asking how people felt about indemnification: And what they found is that 19 percent of their respondents said that it was either a top priority or they were very concerned about indemnification. And then another 26 percent said somewhat concerned. And that is a harder one to interpret.
So again, my view was at a minimum 19 percent, and
then sort of think on that continuum of the 26 percent we don't know which of those are concerned enough to be buying, but a maximum it would be 45 percent. We add the 26 to the 19, there is 45 percent. Huh? My brain is rejecting those numbers and refusing to listen to another word. Being interested in indemnification or even very worried about it doesn't mean any of them were interested in SCOsource. Nobody asked them. For all we know, they'd rather die than give SCO money. I know I would. Let's jump ahead to Dr. Botosan.Kidding. I'd love to, but I'm nothing if not thorough. So, slogging on, we find him applying his numbers to the number of servers out there, another fanciful figure, if you consider that you can make as many copies of Linux as you please without having to tell a soul.
With the Pisano higher math, we get, therefore, 3.3 million licenses. That figure alone would have informed me that something was wrong. If SCO only got two from January of 2003 to December of 2003, what might one conclude about that 3.3 million projection? Class? Anyone? His "expert opinion", elicited by Singer, is that the only reason that we didn't see such numbers is because of Novell. I guess this means he doesn't teach logic at Harvard. That's OK. We can't all be geeks. Although I must add that if the whole world were geeks, it'd be a more logical and a nicer world.
Mr. Acker then stands up to do cross examination. By now, he's probably salivating. For sure, he wants to discredit this man, but not in an obviously nasty way. So he asks him how many hours he spent on this. Hundreds, is the answer. As of 2007, he'd been paid $120,000, and he admits that now it's over the $200,000 mark. Man, you'd think he'd at least have looked up how much a SCOsource license cost. He testified it cost $695, but that's not quite right either. It was $699.
Acker reads to him from one of the reports Pisano wrote:
Based on my knowledge of the industry, in my research and analysis in this case, I am not aware of any causes for SCO's loss of those SCOsource license sales other than Novell's conduct during the relevant time period. The time frame is 2003 to 2007. No other reason. He clarifies that he means no other reason why the 45% group would not take a license. Then the report isn't accurate in this one statement, is it, Acker inquires. It is, Pisano says, offering, "I think we are violently agreeing." Acker: "I don't think we are, Doctor." And he takes him to another part of the report, and Pisano admits that the Yankee study he relied on was actually done over the web, and you know if it's on the Internet, it must be true. Snort. And nobody was asked in the Yankee Group study about whether they'd want a SCOsource license or about the Novell statement. By that time, 2004, Pisano says, SCOsource was pretty much dead.To which my logical brain asks, how then is the Yankee Group study relevant to SCOsource? Whatever the responders said, they were not thinking about SCO. Acker mentions to Pisano that Darl said in public that other indemnification programs hurt SCOsource. Yet Pisano just said that in his opinion, they were all inadequate compared to SCOsource. So…
Q. And my question was really pretty simple. Were you aware that Mr. McBride believed that other indemnification programs were harming the SCOsource licensing program? Were you aware of that fact?
A. I was not aware of that.
Q. And now, if you assume that fact, that, in fact, Mr. McBride himself thinks that the SCOsource licensing program was harmed by other indemnification programs, does that change your opinion at all?
A. No. Not one bit. Not one bit.
Q. But it is your opinion that your proxy, and that is, the basis for your opinion, is that there is an analogy between an indemnification program and the SCOsource licensing program. Do I have that right?
A. Absolutely. You know, they were potential -- you know, potential substitutes. I actually interpret his statement there, as I'm looking at it --
THE COURT: Dr. Pisano, there is no question.
THE WITNESS: Okay. I'm sorry.
THE COURT: Thank you.
A flustered doctor on the stand. Acker shows an internal email where a SCO employee, Janet Sullivan, tells Brent, probably Stowell, that SCO can't really indemnify, because they can only indemnify against SCO going after someone, but there's lots of code in Linux that comes from third parties. Acker is letting the jury know that Pisano's opinion of the superiority of SCOsource over other indemnification offerings isn't shared with the world, not even inside SCO, where Janet Sullivan wrote, "That's the whole problem with Linux. Because of the GPL, no one can in indemnify. We know that SCO IP found its way into Linux, but we have no way of knowing if there is other code in there that belongs to someone else. Therefore we can't indemnify. We can't indemnify against the others". So, Acker asks, did anyone ask in their studies if people would want a SCOsource license if all it indemnified was against SCO, or might they want another actual indemnification, like Red Hat's? No, Pisano says. Then he's shown the HP document, listing the reasons not to take a SCOsource license, which, incredibly enough, SCO lawyers never showed him. No doubt that illuminates as to why he couldn't find any reason people wouldn't take a SCOsource license other than Novell's statements. Acker goes down the list, asking if respondents in the studies were asked about all the negative reasons on that list. Of course, no, they were not asked. Nobody was asked, for example, if they'd worry about taking a SCOsource license due to fears that the Open Source community would respond negatively to their company. Big oversight there. HP had written that paying SCO would be like supporting terrorism. Anybody asked about that? No. Acker asks him if he's seen any of the letters SCO got from folks refusing to take a license. 8 out of 32 mentioned Novell, but notice this brilliant exchange:
A. Those were the 32 letters I had, right.
Q. And of those 32 letters, only eight gave any mention of Novell, correct?
A. That's correct.
Q. And how many of those eight that made mention of Novell also made mention of other reasons why they weren't willing to take a SCOsource license?
A. I don't recall off the top of my head.
Q. And you can't tell this jury that, in those eight letters of the 32, that, in fact, those eight that did mention Novell said Novell was the only reason that they wouldn't take a license from the SCOsource program, correct?
A. Just a sec. Can you repeat the question?
Q. Sure. The eight that mentioned Novell, all you can recall is it simply mentioned Novell, right?
A. Yes.
Q. And you can't tell this jury that, in fact, those eight that did mention Novell actually said Novell was the reason why they weren't taking a license, correct?
A. Sure. Now, again, as I mentioned in my report, you know, that's right. These are just pieces of data, the letters, what they write, what companies write back. The same with their internal documentation. And if they are writing a letter to a company like SCO, they have to be very careful in how they -- in how they couch it, particularly if there is a legal issue at stake. So you
can imagine they could couch that letter very carefully. So it's very hard to interpret those customer -- those customer letters.
Q. So, are you trying to tell the jury that you believe that when companies wrote letters back to SCO, they didn't provide the real reason why it was that they weren't taking a SCOsource license?
He says no, but he did kind of say that, as I read his testimony, and likely the jury saw it that way too. He's shown a letter from GE, which he doesn't think he's seen before:Q. So, of the 32 letters that counsel provided to you, this was not one of those?
A. Again, I want to be careful that counsel provided me letters. In this research, I was free to ask for whatever I wanted to get in terms of documents and
letters, so it wasn't like they were just providing it. And I can't recall the specifies around the 32 when they came out. I think those were the ones cited in your expert's report and therefore I looked at the analysis around those.
Q. Did you ask for all the letters that customers wrote indicating why it is they weren't taking a SCOsource license?
A. I did not.
Q. You didn't think that was something that you should have?
A. No. I had plenty of other data and plenty of other information. And, again, those would be reflected -- the customers -- think of it. You have these customer responses. You know, in the survey methodology, we pick up all these issues that we are talking about. If they didn't think there was infringement, they are showing up in the survey as not being interested. They are in that other group.
So the customer letters gave us a very small and potentially biased sample. For example, if SCO sent those letters to the ones they thought were most likely to be concerned, there could have been a very high response rate. That would have biased my level upward, and I didn't want to do that. I wanted to give the
fairest view. The survey, I thought, gives the fairest view of this. And these kinds of issues that are being raised in these letters, concerns like in the HP document, those are -- those are concerns lots of companies had. That wasn't unique to HP. That wasn't unique to GE.
And that's why I don't estimate the market at a hundred percent. Nineteen to 45 percent is a small percentage, small percentage. A lot of people had these concerns.
Q. Doctor, so -- so the jury understands, you were relying more on a survey of anonymous companies, you don't know who they are, as opposed to actual letters from companies telling you the reasons they are not taking a SCOsource license. Do I have that right?
A. I think that's a more objective way to do it, absolutely. That's exactly the way I would do it in my academic research.
Q. So, in your academic research, you would rely on an anonymous survey, as opposed to what happened in the real world?
A. I wouldn't make that as a generalization, but for this kind of problem, for understanding this kind of issue, that's what I would do, absolutely.
Q. Anonymous survey, as opposed to what happened
in the real world? Eek. Really? That's how academics do research? And people give them awards for such as this? When lawyers ask the same question twice, they are signaling to the jury that the answer is incredible.
Acker is really impressive here. First, he gets Pisano to admit he never saw the letter, but Pisano volunteers that it's not SCO's fault, as they gave him whatever he asked for. So that opens another door, and Acker's next questions imply that Pisano must not have been very eager for information, then, which undermines his testimony. How can you trust the conclusions he reached, if he only saw some information, but not the complete picture? Pisano then tries to say that he based his opinion on the number of potential licensees on people not directly asked about SCO instead of people actually nudged by SCO to take a license because the former would be less biased.
I am rolling my eyes. Probably the jury was too, by then. One of our reporters said the jury seemed to be paying less attention one day during Acker's questioning. I see now why. I think they had heard enough to adequately evaluate the worth of the testimony and didn't care any more what the witness said further. Would you like to know what Sprint said in its letter to SCO, refusing to take a license? Here you go:
I take comfort that SCO has been a Linux distributor, with the associated GNU license rights the public has come to rely on. Sprint will continue to depend on SCO's public statements and past actions.
And that's the most important reason in the real world that no one wanted that stupid license. It's the same reason that I knew FROM THE VERY FIRST DAY that SCO would lose in the end. The GPL. Acker then introduces the Gartner Group report from 2003, telling companies not to take a license. SCO's Singer tries to block it, but the judge allows it, after Acker points out that SCO opened this door by asking Darl McBride why people were not taking a SCOsource license. Here's what Gartner suggested:
Customers with large Linux commitments should avoid paying SCO server license fees, since they appear arbitrarily high, representing concession to SCO's claims and will expose them to ever larger fees. Moreover, SCO's claims challenge the foundation of GPL. And yet, in Pisano's report, the only reason he could find for his group not taking a license was Novell. And it's brought out that to do a study that would have asked all the unasked questions could have been done for between $10-$20,000. But nobody bothered to do it. Pisano testifies that no one could have done the study after Novell's statement, because by then everyone knew the license was worthless, because Novell was credible. But there were only two takers prior, so what are we looking at here? A but-for world that never existed and never could, in my opinion.
Judge Stewart tells Dr. Pisano he is free to leave:
THE COURT: That means you may return to Harvard, if you want to. After this experience, you may want to charge more next time, at least what you have to do in the
courtroom, all right.
Thank you, Dr. Pisano. We do appreciate it. In other words, the judge knew he was chopped into hamburger by Acker.
Dr. Christine Botosan:
Dr. Christine Botosan is now called to the stand, but of course we already know she relied on Dr. Pisano, which undermines her credibility with me, right there. But she gives her credentials at the University of Utah, mentions her articles and awards and such. By the way, we've now switched from SCO's Stuart Singer to Brent Hatch asking the questions. She's an accounting professor. She specializes in "financial accounting and financial statement analysis," teaching students how to read them. Well, someone has to. And I'm sure you and I don't want to. She's been used as an expert in litigation around seven times in the last ten years. That's almost one a year. She doesn't think that's a lot, but I do. She's been working on this case since 2007, asked to compute the amount of damages to SCO from "Novell's harmful acts." She came up with these numbers: between $114 million and $215 million.
How did she get there? By figuring the amount of sales SCO lost, a "lost profits analysis", then subtracting what it would have cost to generate those sales. As to SCOsource, she calculated both vendor SCOsource licenses lost and end user "right to use" licenses under SCOsource. On the first, she says: SCO's management and external analysts projected that there would be up to 15 -- potentially 15 of these types of deals,
and that they would generate $10 million per deal on average. So, I think that means IBM was not intended to be the only victim. As for end users: …external analysts predicted there would be hundreds of thousands of those sorts of licenses and that they would sell for between $100 and $300. That's not what SCO told us, of course. And which analysts predicted that? And I had two sources of forecasts. Internal SCO forecasts, so these would be forecasts that management generated themselves, and then also external forecasts that were prepared by financial analysts that worked for investment banks. Now given the opportunity to use both of those, if I had forecasts from both sources, my preference would be to use an external analyst forecast because they are going to be more objective. Management tends to be optimistic about things. And if you think about an analyst who's external to the company, they don't have any dog in the fight. They want to try to do the best job they can to forecast because they are providing information to their clients that are making investment decisions. The way an analyst is going to build their own reputation in the market is to do a good job of forecasting. So my preference would be to use a pre-litigation forecast from an external source when it's available.
And which noble firm is she talking about? A And those beliefs were confirmed in an external forecast that I had available from Deutsche Bank. The Deutsche Bank analyst also said in his analysis that he agreed that there were 15 potential deals and that the amount of revenue that would be generated by each of these deals might range between five million and $20 million. So he gave quite a broad range between five and 20 million. So at the end of the day, in doing his own forecasts, he also said I think $10 million is the most likely amount.
Q Tell us for a second, if you would -- you say you
relied on Deutsche Bank. What is Deutsche Bank?
A Deutsche Bank is a very large investment bank. They have an excellent reputation. They've been around since 1870, so they are a very well established firm. They have over 80,000 employees. They operate in 70 countries. So they are well known for providing this sort of information to their clients.
Q Were they independent or are they related to SCO in any way?
A Totally independent. Did SCO keep their experts in some hermetically sealed off room, where they read nothing but the funny papers? Deutsche Bank? Independent? Brian Skiba of Deutsche Bank independent? In what sense? Deutsche Bank invested in SCO, at the same time BayStar did. As Botosan is shown on her second day on the stand, Deutsche Bank was a market-maker for SCO stock. By the way, she didn't have to choose Deutsche Bank. There were plenty of other analysts predicting things regarding SCO. Like Doom. Here's a nonexclusive list from July 2003. And let me repeat what I wrote that day:
Why Deutsche Bank, you may ask? For the moment, I'll just list a few links you can go to and see how Canopy Group companies and Deutsche Bank have been holding hands for some time. Make of it what you will. You might want to start here, where in August DB was fined by the SEC for improprieties in the HP-Compaq merger, failing to disclose a conflict of interest. Then check out the history of Deutsche and Canopy companies here and here and here and here (where we learn that Deutsche Bank migrated to Linux itself after SCO's warning, oddly enough), and here (Altiris was another Canopy company), and here and here. The only other analyst tracking SCO said that DB has "made a mistake": The only other analyst who covers SCO is Dion Cornett of Decatur Jones Equity Partners, according to Thomson First Call. He has an underperform rating on the stock. "Investing in SCO is like buying a 'lottery ticket'," Cornett said Wednesday. "I think at the end of the day, the lottery ticket is not a winner," he added. "They will not prevail in their lawsuit against IBM." ... Cornett believes that IBM fights to the death when it believes it's right, as it clearly does here, and therefore a settlement is unlikely. Hmm. Linux. Lottery ticket. That reminds me of something.... Even if SCO could convince a jury it was right, IBM would win on appeal, this analyst says: "I think it's a stretch to think that an appellate court is going to overturn 100 years of copyright law," he said. Cornett has a $6 price target on SCO, based on a discounted cash flow analysis. Oh, that. The old-fashioned kind of analysis. Discounted cash flow, indeed. Of course, whoever made out like a bandit today doesn't care what Mr. Cornett thinks. The folks selling today did just fine, thanks. And as for making a mistake, well, maybe they're just playing a different game. And as for Skiba's "analysis" that SCO could hit the jackpot, it's based in part, according to the document, on his belief that SCO, if it wins, will be able to sue millions of Linux users. Dream on. If, in some upside-down crazed legal world SCO won, nobody would use Linux any more rather than pay a dime to SCO, I'm certain. We'd all switch to BSD or the HURD or whatever new stuff those wonderful programmers come up with like magic. And SCO would be left with a legacy version of software nobody would ever touch or fix for them to time indefinite, even forever. Then they'd have two old legacy operating systems nobody wants. Funny. None of SCO's experts read these other analysts? And I gather SCO didn't give them any information and evidence from Groklaw. Hardy har. By the way, Skiba was
saying this in August of 2003:
But so far, most CIOs have not really changed their plans, Skiba said.
"At this point it hasn't really hit the radar," he said. "They're aware of the suit but it hasn't materially changed their plans at this point. Ninety percent of the people say 'IBM is a bunch of smart guys, they're a credible company. If they say it's okay, then it's okay, despite the fact that they won't indemnify us.' IBM lends credibility to Linux, clearly, as well as legal credibility."
That's born out in a survey recently completed by Evans Data Corp. The survey found that few Linux developers are troubled by SCO's assault on Linux.
"SCO has not done its job in making its case," Nicholas Petreley, Linux analyst with Evans Data, noting that recently released Summer 2003 Linux Development Survey showed that Linux adoption has accelerated, not declined, since SCO began its crusade against IBM. By the way, when Skiba was advising hedge funds to invest in SCO stock, he was also telling widows not to, because of the risk:Although his buy rating was triggered by the legal case, Skiba calculated his $45 price target by forecasting earnings and revenue based on licensing agreements for Unix and other licensing opportunities....Skiba acknowledges that his call on SCO may be taken as heresy in the Linux community, but said it's important to separate the stock from the company....The largest risk is SCO Group's legal claims being without merit, Skiba wrote. "A lawsuit against a large and rich company such as IBM is a dangerous undertaking, and it could cause SCO to overextend its legal reach and budget," he wrote....
"This is not for widows and orphans," Skiba said of an investment in SCO. "Hedge funds would be a more appropriate market to buy this stock."
Hedge funds, however, may be on the other side. Currently, almost 12% of the stock's float is short, and the days to cover short interest went up to 5.13 on Sept. 15 from 4.51 on Aug. 15.
Where is that risk factored in to the experts' calculations? Did you notice that the risk related to IBM, not Novell? And may I ask these business and financial reporting experts a question: what does it usually mean when a company's stock is heavily shorted?
Hatch has her use Dr. Pisano's higher math to do some mathematical figuring on a whiteboard, showing the highest and lowest figures on what SCO lost overall. It's dizzying numbers, but then so is the underpinning. And then they must break for the day, and Dr. Botosan will return the following day. As the judge and the lawyers talk about who will be on the stand that day also, he asks the Novell side if there is any estimate on how long Mr. Brennan's cross exam of Botosan will be. Brennan's pithy answer: "Longer than the direct."
The transcript of this day is in three parts: part 1
[PDF] [Text], part 2
[PDF] [Text] and part 3
[PDF] [Text].
********************************************
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
In re: | ) | |
| ) | |
THE SCO GROUP, INC., a | ) | |
Delaware corporation, | ) | |
| ) | |
| ) | |
Plaintiff, | ) | |
| ) | |
vs. | ) | Case No. 2:04-CV-00139TS |
| ) | |
NOVELL, INC., a Delaware | ) | |
corporation, | ) | |
| ) | |
| ) | |
Defendant. | ) | |
| ) | |
________________________ | ) | |
BEFORE THE HONORABLE TED STEWART
March 17, 2010
Jury Trial
REPORTED BY:
Laura W. Robinson
Rebecca Janke
Patti Walker
[Address]
U.S. Courthouse
Salt Lake City, Utah [Zip]
1183
A P P E A R A N C E S
For the Plaintiff: Brent Hatch
Attorney at Law
HATCH JAMES & DODGE
[Address]
Salt Lake City, Utah [Zip]
Stuart Singer
Attorney at Law
BOIES SCHILLER & FLEXNER
[Address]
Fort Lauderdale, Florida [Zip]
Edward Normand
Attorney at Law
BOIS SCHILLER & FLEXNER
[Address]
Armonk, New York [Zip]
For the Defendant: Sterling Brennan
Attorney at Law
WORKMAN NYDEGGER
[Address]
Salt Lake City, Utah [Zip]
Eric Acker
Michael Jacobs
Attorneys at Law
MORRISON & FOERSTER
[Address]
San Francisco, California [Zip]
1184
I N D E X
Witness | Examination | Page |
Darl McBride | Redirect Mr. Singer | 1200 |
| Recross Mr. Acker | 1208 |
| Further Direct Mr. Singer | 1226 |
|
Gary Pisano | Direct Mr. Singer | 1233 |
| Cross Mr. Acker | 1271 |
| Redirect Mr. Singer | 1340 |
|
Christine Botosan | Direct Mr. Hatch | 1346 |
|
EXHIBITS RECEIVED INTO EVIDENCE | |
Defendant's Q45 | | 1211 |
Defendant's D20 | | 1222 |
Defendant's R45 | | 1224 |
Plaintiff's 750 | | 1235 |
Defendant's M18 | | 1292 |
Defendant's D16 | | 1302 |
Defendant's V15 | | 1306 |
Defendant's Z18 | | 1309 |
Defendant's X22 | | 1312 |
Defendant's W24 | | 1314 |
Defendant's T25 | | 1315 |
Defendant's F26 | | 1317 |
Defendant's F27 | | 1319 |
Plaintiff's 188 | | 1343 |
Plaintiff's 187 and 227 | | 1343 |
Plaintiff's 749 | | 1347 |
Defendant's M27 | | 1328 |
1185
Salt Lake City, Utah, March 17, 2010
(8:30 a.m.)
THE COURT: Next time I am tempted to give you ten
minutes off at the end of the day, remind me not to do it
because doing so resulted in a flood of papers from both
sides. Let me deal with some of these issues before we go
to some argument on others.
On the question of the plaintiff's proposed use of
certain deposition testimony taken in the case of SCO versus
IBM, specifically plaintiff's desire to use the deposition
testimony of three former SCO employees, Lawrence Gasparro,
Phillip Langer and Gregory Pettit, the court would note that
in the Tenth Circuit, the Bedrock rule is, quoting, that
testimony adduced in a prior suit may be admissible in a
subsequent suit even if the parties are not identical so
long as the issues are so similar that the party opponent in
a prior case have the same interests and motives in his
cross-examination that the present opponent has, end of
quote. That comes from the case of Minyen versus American
Home Assurance Company, 443 F.2d 788, Tenth Circuit decision
from 1971.
The court would rule that in this case there is a
substantial identity of the issues. The defendant's own
filing in this case requesting that either the IBM case and
this case be consolidated, or that both cases be handled by
1186
a single judge supports this finding. In that filing,
defendant stated quoting, the heart of both case is SCO's
claim that IBM and Novell have infringed SCO's alleged right
related to the Linux Computer Operating System, end of
quote. Defendant further stated that the claims and
defenses in the two cases overlap in numerous respects.
Defendant went on to detail those areas where the claims and
defenses are similar including SCO's contention that it
acquired ownership of the UNIX copyrights through the APA,
and Novell and IBM's contentions that SCO does not own UNIX
copyrights.
Defendant further stated that, quoting, because this
case presents so many of the same issues as SCO versus IBM,
judicial economy and efficiency would be best served by
ensuring the same judges decide both cases, end of quote.
In essence, the court will find that based on the
cited Minyen case that there is the similarity of issues,
and that the interest and motives of cross-examination were
similar enough that the depositions will be permitted. It
will be up to the plaintiffs and defendants, however, to
agree to the designation of the testimony from those
depositions.
This morning SCO filed a -- well, I don't know when it
was filed, the court received it this morning, a request
that the court re-examine its ruling not allowing
1187
Mr. McBride to testify as to the intent of those entities
that had originally discussed going to SCO source and
ultimately decided not to and the court precluded testimony
as to what was stated to Mr. McBride as to why they made
that decision. It was my understanding yesterday that both
sides had agreed to allow that testimony. It was the
court's ruling that precluded it.
Mr. Acker, are you still willing to agree to allowing
that testimony?
MR. ACKER: I'll allow that testimony as long as
Mr. McBride is subject to cross-examination on 15 or 16
customer letters in which there is no mention of Novell. So
it will take about 45 minutes to an hour to go through that,
I would imagine.
MR. SINGER: We accept that position. If it is good
for the goose, it is good for the gander. We believe that
the evidence ruling should apply both ways.
THE COURT: The court will do so not just because you
have agreed to it, but I believe that this finding this
morning and reference to cases indicated that the court's
narrow ruling yesterday based on the criminal case was not
appropriate. So the court will permit that. Again, I do
have to say, and I think that this is obvious to you, that
the court will allow what would otherwise be hearsay
testimony as to the intent of those parties who decided not
1188
to go with SCO source but it cannot be used in any way to
try to establish the proof of Novell's claims to the
copyrights or SCO's claims of the copyrights.
MR. SINGER: We understand that, Your Honor.
THE COURT: All right. As to Mr. Pisano's expert
testimony, is Mr. Pisano going to be called, first of all?
MR. SINGER: Yes. I don't know why -- perhaps the
reason there was confusion is we initially were going to
call Ms. Botosan before Professor Pisano, but given that
Mr. Pisano needs to leave town today, we switched the order.
But it was always our intent and we do intend to call him.
THE COURT: The court will note that the defense had
argued this in a motion in limine, the court had denied it.
And what the defendant has now done is come up with a case
which the court has reviewed. The court is going to allow
Mr. or Dr. Pisano to testify, but the court will state that
if his ignorance of the underlying studies is established by
cross-examination, that the court will entertain a motion to
strike the testimony of Dr. Pisano.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: And finally --
MR. BRENNAN: Your Honor, can I just make one point of
inquiry on that?
THE COURT: You may.
MR. BRENNAN: Would the court permit voir dire of the
1189
expert at the outset before he goes into the substance of
his opinions so that determination can be made at the
outset?
MR. SINGER: Your Honor, we would object to that. The
issue of voir dire goes to qualifications of the expert. We
think that was raised, properly disposed of on Daubert
motions, and it would not be appropriate to have a separate
voir dire on the predicate for particular opinions. Because
if that was true, every cross-examination -- every
examination of expert witness would be broken up into a
series of direct and crosses on that.
THE COURT: Mr. Brennan, I think it is going to be
better to let this be played out in a normal fashion so that
I would not permit a voir dire in that narrow way. You will
have to deal with it on cross-examination.
MR. BRENNAN: I understand. Just so I'm clear, Your
Honor, understanding the court's preference and ruling, if
in fact through cross-examination it is demonstrated that
Dr. Pisano does not have the requisite information, if you
will, regarding the survey, then his testimony will be
subject of being stricken.
THE COURT: That is what I just said, I thought.
MR. BRENNAN: That is what I understood, Your Honor.
Thank you.
THE COURT: All right. Three issues were raised about
1190
the Botosan testimony. First of all, the argument is that
she cannot rely on -- rely on Dr. Pisano's testimony. I
believe for the underlying reason that the court just
addressed that the court will have to deal with that after
Dr. Pisano has testified.
Secondly, it is asserted that she ought not to be
allowed to testify beyond the dates of her report because
there has been no supplement. And third, the defendants
have argued that she ought not to be permitted to testify
regarding prejudgment interest.
The court has looked at the prejudgment interest and
is convinced that that is a correct statement and she should
not be allowed to provide testimony as to an amount of
prejudgment interest.
As to the second issue, how do you wish to respond to
that, Mr. Hatch?
MR. HATCH: First, on the interest, we agree with Your
Honor that she was not going to testify as to that. I think
that to the extent interest is available, that would be a
legal question for Your Honor at a later time.
As to the issues regarding the event study, we have
contemplated your ruling of yesterday overnight and this
morning and have decided that we will not elicit testimony
on the event study today. So that issue is moot.
THE COURT: All right. Thank you. Counsel, is there
1191
anything else before we -- Mr. Singer?
MR. SINGER: Yes. Your Honor, early this morning we
received notice that Novell is adding or seeking to add an
additional exhibit to their list to use with Mr. McBride.
That is a statement in a SCO filing pertaining to the effect
of the summary judgment ruling in 2007 that since has been
reversed.
This is yet another attempt to introduce, through one
way or another, what the court has already recognized
repeatedly would be irrelevant, prejudicial, confusing to
this jury, would be a decision reversed by the court of
appeals. And we don't think that should be allowed. Aside
from that, it is being raised at the last moment and wasn't
something I covered in redirect and so it wouldn't be proper
on re-cross in any event. But our basic -- our principal
objection is that this is right in the face of the court's
prior rulings.
MR. ACKER: Your Honor, the evidence that we're
talking about is a form 8-K that Mr. McBride filed -- SCO
filed with the SEC following Judge Kimball's ruling on the
summary judgment motion. In the 8-K statement, Mr. McBride
said explicitly that SCO did not need to own the copyright
in order to run its software business which is directly
contrary to the sworn testimony that he has given in this
court. And we think that given that, clearly this is
1192
something that impeaches his testimony. It is extremely
probative. And if the court is still concerned given the
court's ruling with respect to damages experts on whether
they truly have opened the door to this issue, we would be
willing to redact those portions of the 8-K and my
questioning would not directly refer to Judge Kimball's
ruling but would ask Mr. McBride if, in fact, he submitted a
statement to the federal government saying that he could run
his business without the copyrights.
THE COURT: Okay. Go ahead, Mr. Singer.
MR. SINGER: Well, I was just going to note that the
exact statement pertaining to the UnixWare and the
OpenServer Business and there is no contention that those
businesses couldn't be run in light of the summary judgment
ruling. The issue is, of course, the SCO source and the
effect of copyright enforcement.
MR. ACKER: The issue is that Mr. McBride said the
exact opposite thing on the stand yesterday.
THE COURT: Well, I am aware of this document and I
will allow you to use it. But I will have to tell you,
Mr. Acker, that if either advertently or inadvertently that
it comes out that Judge Kimball's summary judgment ruling,
then as I have stated before, the court will be required to
inform the jury that as to the issues before it that was
reversed by the Tenth Circuit which I frankly think is
1193
something you ought to be very cautious about. And so I
will allow it, as I do believe it is important for your
purposes on impeachment, but I would caution you to try to
avoid violating the court's prior ruling on not permitting
reference to prior court rulings coming before this jury.
MR. ACKER: Very well, Your Honor. I understand.
MR. SINGER: Your Honor, in connection with that
issue, might I note first that I don't think there was
anything in redirect that would raise that issue and we're
now on re-cross.
THE COURT: Well, the dilemma is that redirect is
going to be opened up substantially by the court's ruling
allowing you to get in with Mr. McBride the issue about the
customs. And I think it is purely for impeachment purposes,
Mr. Singer, so I have got to allow it.
MR. SINGER: Your Honor, in light of the court's
ruling on that, may we speak to Mr. McBride so he doesn't
inadvertently refer to the 2007 ruling or the court of
appeals ruling because when he sees this he might assume
that somehow that has changed.
MR. ACKER: I was actually going to suggest that that
be done.
THE COURT: Yes. I would request that you do so.
Okay. Is there anything else?
MR. BRENNAN: Yes, Your Honor. Thank you. I do
1194
appreciate the determination announced in court this morning
by SCO that it will not be proffering the event study. And
I am also mindful of the court's comments regarding the
possible impacts of raising these court decisions. Just so
that at least we're clear from our side of the courtroom,
there are aspects of Dr. Pisano's testimony and
Dr. Botosan's testimony unrelated to the event study that
still could implicate, in essence, the opening of the door
on these court decisions.
In particular, both experts, even in the portions of
their testimony that is expected that do not result to an
event study, are focusing their opinions on reactions of the
marketplace and potential licensees through the period of
2007. Dr. Botosan, in particular, through October 31st,
2007. The significance of that, of course, is that there is
an analysis done of certain so-called risk factors. What is
it that the -- either the marketplace or in particular
potential licensees may or may not have reacted to in making
decisions regarding the taking of licenses. So we will be
mindful of the court's comments, but I also wanted to
indicate that the mere removal of the event study does not
avoid this opening of the door issue. So that is more just
to inform the court.
THE COURT: Mr. Singer?
MR. SINGER: Your Honor, I will address this with
1195
respect to Mr. -- to Dr. Pisano and Mr. Hatch will address
Dr. Botosan.
With respect to Dr. Pisano, his is examining the "but
for world" and what would have happened to this business
line if there had been no slander of title, if copyright
ownership is assumed, and if slander of title had not
occurred. But that type of testimony there is no reason in
the world that any court decision that occurred in a real
world and was reversed in the real world needs to come in.
And I haven't heard anything that would suggest otherwise.
MR. HATCH: The same thing would apply to Dr. Botosan.
And largely what she will be doing is the event study won't
be spoken about, just doing a calculation of damages in the
same manner that Mr. Singer just talked about.
THE COURT: All right. Everyone has had their say,
including the court. All right. And I just want you to
remember that the court feels very strongly about this
because of its prior ruling, number one.
But number two, again I believe that any reference to
prior court rulings by Judge Kimball must result in the
Tenth Circuit reversal being made known to the jury. And I
have got to believe that if a jury hears that, it is
probably going to consider that a more rigor matter than the
preliminary summary judgment rulings.
So anything else, counsel?
1196
MR. SINGER: No, Your Honor. May we have a minute to
discuss this issue with Mr. McBride?
THE COURT: Yes, go ahead.
MR. BRENNAN: Your Honor, in light of the comments
perhaps we could have just a minute ourselves to caucus
relative to the court's suggestions this morning.
THE COURT: Yes. Yes, go ahead.
MR. BRENNAN: Your Honor, we're just going to step
outside for a moment.
THE COURT: Sure.
(Whereupon, there was a brief pause
in the proceedings.)
MR. HATCH: Your Honor, when Dr. Botosan gets up, I
need to set some easels and things.
THE COURT: I will try to remember that.
MR. HATCH: I don't know whether we will be near the
break at that point. Maybe that will be a good point to
break, if we can.
THE COURT: Okay.
MR. HATCH: Your Honor, we will put up two boards. Do
you have any preference where they go?
THE COURT: No. As long as the jury can see them
and --
MR. HATCH: I'm not sure where I can put them where
you can see them, too.
1197
THE COURT: Probably right over here is probably the
safest for all purposes.
MR. HATCH: I'm going to ask her to get up and to do
some teaching.
THE COURT: That is fine. It either has to be right
there (indicating) or back there (indicating) or the people
in the courtroom can't see it.
MR. SINGER: Your Honor, before the jury comes in, I
think there is one point that we wish to clarify lest there
be any confusion among either side. It is our understanding
that the court's ruling is that the reference to prior
decisions of Judge Kimball should not come in. It is not
that Novell has an option that if they want that to come in
there is a --
THE COURT: That is correct. The court has ruled on
the motion in limine that they're not to come in. If,
however, it does come in inadvertently, then the court will
be compelled to make reference to the Tenth Circuit in jury
instructions or some other special instruction.
MR. SINGER: We just wanted to make clear that this
was not an option that the defendant could exercise one way
or the other.
THE COURT: Counsel, let me ask you about jury
instructions. Mr. Normand?
MR. NORMAND: Yes, Your Honor.
1198
THE COURT: Where are we?
MR. NORMAND: We are going to submit to the court by
the end of the day today a joint filing reflecting agreement
on, I would say, half of the instructions, and another half
on which we would, for Your Honor's and clerk's convenience,
set forth the party's respective arguments in favor of their
version of the instruction after having identified the
disagreements in the instructions. So we met again last
night, spoke on the phone for a couple of hours, and got
even closer, and that is the filing that is going to happen.
MR. JACOBS: That is correct, Your Honor. It will be
as -- the filings will clearly show what the point of
disagreement is, and then have both sides arguments about
that point of disagreement so that the court can call it and
then what the resulting instruction should follow from the
legal determination of the court.
THE COURT: All right.
MR. NORMAND: We did all of that work, Your Honor,
with the assumption, I think as Your Honor had said, that
you would then send to us in a few days time your proposed
instructions and we would offer our comments, for what
they're worth, on those.
THE COURT: Yes. And hopefully we'll get those to you
no later than Monday morning so you will have next week to
prepare your responses as well as your final arguments.
1199
MR. NORMAND: Thank you.
THE COURT: Are we ready now, counsel?
MR. SINGER: Yes, Your Honor.
MR. BRENNAN: Your Honor, I just had one last inquiry,
I make my apologies as I cross the courtroom. Back to
Dr. Botosan, as I understand, by eliminating inquiry
regarding the event study, I assume that means that
Dr. Botosan will not be offering an opinion regarding
causation?
MR. HATCH: Yeah, that is correct.
THE COURT: Okay. All right.
MR. BRENNAN: Thank you.
THE COURT: Let's bring the jury in. Please be sure
and tell them that we have been working. We didn't have a
mass sleep in this morning.
THE CLERK: All rise for the jury.
(Whereupon, the jury returned to the courtroom.)
THE COURT: Good morning, ladies and gentlemen. We
will continue with the redirect examination by Mr. Singer of
Mr. McBride.
Mr. Singer?
MR. SINGER: Thank you, Your Honor.
REDIRECT EXAMINATION
BY MR. SINGER:
Q. Good morning, Mr. McBride.
1200
A. Good morning, Mr. Singer.
Q. Do you recall there was some testimony or some
questions yesterday regarding your stock options; is that
correct?
A. Yes, that is correct.
Q. Is it typical, to your knowledge, for the chief
executive officers of public companies for a significant
part of their compensation to be in the form of stock
options?
A. Yes, that is very typical.
Q. Now, if you had wanted to do so, could you have
exercised those stock options you held and at certain points
sold the stock and made a substantial profit?
A. Yes, for sure.
Q. Did you do that?
A. No, I did not.
Q. Did you sell any of your SCO stock?
A. Since I have joined the company, I have only
bought stock. I have yet to sell any, whether as options or
as stock.
Q. Did you believe in this company?
A. Yes, I did.
Q. I would like to ask you about a couple of
business opportunities that we alluded to yesterday. One of
those was with Google?
1201
A. Yes.
Q. Just to set the foundation for that, can you tell
us what the time frame was that you had discussions with
Google regarding a potential SCO source type business
arrangement?
A. Yes. It was initiated in late 2003 and it ended
in early 2004.
Q. Was Google an important business opportunity for
SCO?
A. Yes, for sure.
Q. Can you explain why?
A. Because they were apparently the largest Linux
customer in the world. They reportedly, in their own words,
had over 500,000 servers running Linux.
Q. Were you personally involved in the discussions
with Google?
A. Yes, I was.
Q. And can you discuss how far the discussions went
with respect to potential pricing of a SCO source license
with Google?
A. Yes. We entered into discussions, we had a
number of discussions with them, and we got to a point where
they wanted a severe volume discount. We agreed to discount
the -- on a volume basis from our 699 per server price down
to $100 per server, but that was where it stopped.
1202
Q. At $100 per server, if there were 500,000 servers
running Linux, how much in revenue would that have meant for
SCO Group?
A. Um, I don't have my calculator. I think that
comes up to about 50,000,000.
Q. And can you tell us whether or not the issue of
Novell's assertions to own the copyrights to UNIX came up in
the course of your discussions with Google?
A. Yes, it came up in the end. When we were trying
to get them to the $100 per number of servers, that was the
point in time that they came up, they brought it up as an
issue, and that is when the discussions broke down.
Q. Do you have an understanding as to whether in
your judgment a deal would have been able to have been
reached if it had not been for the assertions of copyright
ownership by Novell?
MR. ACKER: Objection, calls no speculation, Your
Honor.
MR. SINGER: It goes based on his conversations, he is
in negotiations, he is able to express that view.
MR. ACKER: He is asking for Mr. McBride to divine the
thinking of Novell or Google executives, Your Honor.
THE COURT: I think if you would like to elicit more
foundation for the conclusion the court will allow that.
MR. SINGER: Yes, Your Honor.
1203
Q. (By Mr. Singer) Were the discussions that you
had with Novell, excuse me, with Google over a number of
months?
A. Yes, they were.
Q. Did it involve senior people at Google?
A. Yes, it did.
Q. Were there face-to-face meetings?
A. I wasn't involved in the face-to-face, I was
involved in some phone calls, but yes, it is my
understanding that there were face-to-face calls.
Q. For the meetings that you weren't present, did
you receive reports from people who were?
A. Yes, I did.
Q. With respect to the opportunity, did this occur
during the -- during the time frame of the Google
discussions, did Novell come forward with its December 22,
2003 public announcement that they were asserting a claim to
ownership?
A. Yes. Yes, it was in that same time frame.
Q. Before that occurred, was the last public
statement that Novell had made the retraction on June 6,
2003?
A. Yes, that is correct.
Q. Did Google, after Novell's December 22, 2003
statement, make specific reference to Novell having asserted
1204
copyright ownership?
A. Yes, they did.
Q. And on the basis of that, were you able to move
the discussions forward?
A. No, we were not. Basically the discussions died
off at that point.
Q. Given that course of dealing, in your view, was
the assertion of a claim to copyright ownership a
substantial factor in Google's decision not to go forward
and take a SCO source license?
MR. ACKER: Same objection. Calls for speculation,
Your Honor.
MR. SINGER: I think there is sufficient foundation
for this witness.
THE COURT: I will overrule the objection.
THE WITNESS: Yes, there was.
Q. (By Mr. Singer) Okay. Mr. McBride, I would like
to talk a little bit about Dell. Can you again set the time
frame as to when you were in discussions with Dell?
A. Yes. It was roughly the same time frame as the
Google discussions. And, again, the late 2003 first couple
of months of 2004 is when we were talking to Dell.
Q. Did you have personal conversations with
representatives of Dell?
A. Yes. The first conversation was a phone call
1205
between myself and Michael Dell who is the CEO of Dell.
Q. Did you also have conversations with anyone else
at Dell?
A. Yes, I did.
Q. Who was that?
A. There was -- Michael handed it over to their
general counsel, a gentleman by the name of Tom Green. He
is general counsel and also over their licensing group.
Talked to him. Mr. Green had some other people on the calls
that we had. I don't recall their names offhand. And then
there were some other people inside of Dell as well.
Q. What was the nature of the business opportunity
involving SCO source licensing that you were discussing with
Dell?
A. Um, Dell's idea was they wanted to be able to go
to market with a SCO source license to be able to provide
indemnification for Linux users. And specifically, they
wanted something that would allow them to position
themselves stronger than what HP's program was.
Q. Would Dell have been reselling SCO source
licenses?
A. Yes, that is correct.
Q. Can you explain whether or not the issue of
Novell's claims or ownership of the UNIX copyrights came out
in the course of your discussions with Dell?
1206
A. Yes, they did.
Q. How was it raised?
A. It was raised by their general counsel.
Q. And was this a positive or a negative issue from
the perspective of being able to do business with Dell?
A. It was definitely a negative.
Q. Um, was this raised in the aftermath of the
December 22, 2003 assertion of ownership that Novell made?
A. Yes.
Q. And were you able to conclude a transaction with
Dell after that assertion of ownership was made?
A. No.
Q. And in your view, based on the course of dealing
you had with Dell, was there a -- what role did the Novell
assertion of ownership have in that transaction not
occurring?
MR. ACKER: Calls for speculation, Your Honor.
MR. SINGER: It is the same issue.
THE COURT: I will overrule the objection.
THE WITNESS: I viewed it as the primary role in the
Dell deal not going through.
Q. (By Mr. Singer) Now, there were a number of
business opportunities and many businesses out there which
use Linux; is that correct?
A. Yes, that is correct.
1207
Q. Now, would you agree, in your view are there
certain businesses that might have decided not to take a SCO
source license for a variety of different reasons?
A. Yes, that is correct.
Q. Based on what was happening to SCO's business,
after the December 22, 2003 assertion of copyright ownership
and reactions in the market to that, were you able to
continue successfully with the SCO source licensing
business?
A. No, we were not.
MR. SINGER: I have nothing further, Your Honor.
MR. ACKER: One second, Your Honor.
RECROSS-EXAMINATION
BY MR. ACKER:
Q. Good morning, Mr. McBride.
A. Good morning, Mr. Acker.
Q. Happy Saint Patrick's Day.
A. Thank you. Same to you. Where is your green?
Q. I left it at home. Let me ask you about these --
the Dell and the Google negotiations. True is it, and let's
start with Google?
A. Okay.
Q. You were not involved in any face-to-face
negotiations with anyone from Google; correct?
A. I never flew out to their campus, no.
1208
Q. And the negotiations began sometime before Novell
put up on its website both its position and SCO's position
regarding this dispute over the ownership of the UNIX
copyrights; correct?
A. That is my recollection.
Q. And even after those materials went up on
Novell's website on December 22nd, 2003, the negotiations
with Google continued for several months beyond that;
correct?
A. I think they went into the January, February time
frame.
Q. And so on December 22nd, Novell puts up on its
website its position regarding a copyright ownership, it
puts up on its website your position regarding copyright
ownership, it puts up on its website the APA, it puts up on
the website Amendment 1, it puts up on its website Amendment
Number 2 so anybody can see it, everybody's position on all
of the documents, and then Google continues to talk with you
for another two months; correct?
A. Yes, that is correct.
Q. With respect to Dell, similarly negotiations with
Dell began before December 22, correct?
A. Yes.
Q. And on December 22nd, everything went up on
Novell's website, correct?
1209
A. Yes.
Q. Including your position, right?
A. It was whatever they put up.
Q. Your letters regarding your position regarding
copyright ownership went up on the website, correct?
A. That is not totally correct. If you go look at
the letters that Novell put up on their website, they
conveniently omitted some of the letters that were very
strongly in our position and that was an oddity to us. If
you're going to put up the whole story, put it up. But they
put up some of our position, but they didn't put up all of
it. I remember that for certain.
Q. They put up the contract, the APA; correct?
A. Yes.
Q. They put up Amendment Number 1, correct?
A. Yes.
Q. They put up Amendment Number 2; correct?
A. Yes.
Q. The whole world could see that, correct?
A. Yes. But they didn't put up some of the other
ones.
Q. The executives of Dell could see that, correct,
right?
A. I don't know when the executives at Dell looked
at it. I know that three days before Christmas a lot of
1210
people were not looking at Novell's website. Um, I don't
know that. I do know that over time these statements that
Novell put up on it's website was a little bit like dropping
Napalm gas. It didn't kill people immediately, but over
time, it did.
Q. And over time, you continued to negotiate with
Dell for weeks, even months after December 22nd, correct?
A. Yes.
Q. Let me show you what we have marked as Exhibit
Q45. Now, the gentleman that you said that you spoke with
on the phone from Hewlett Packard was a man by the name of
Joe Beyers; correct?
A. Yes, that is correct.
Q. And what you have in front of you, Exhibit Q45,
is an e-mail from Joe Beyers discussing whether or not he
will enter into -- HP will enter into a licensing agreement
with SCO in the August 2003 time frame; correct?
A. Yes.
MR. ACKER: Move for admission of Exhibit Q45, Your
Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Whereupon, Defendant's Exhibit Q45 was received
into evidence.)
Q. (By Mr. Acker) Why don't we take a look at what
1211
Mr. Beyers said on August 15th, 2003. Mr. Lee, if we could
bring up the first paragraph beginning with the word today.
Mr. Beyers wrote to his colleagues at HP, "Today I
threatened SCO that HP would not attend the SCO forum next
week if they did not sign the HP UNIX release today." Do
you see that?
A. Yes.
Q. "They responded by signing the release and they
also provided a letter that we can show our UNIX customers."
Do you see that?
A. Yes, I see that.
Q. So wasn't it the case that after the SCO source
program was announced, um, you were in negotiations with HP
and HP was going to participate in your SCO source forum in
Las Vegas; correct?
A. Yes, that is correct.
Q. And a week before the forum, SCO is demanding, I
believe, a certain number of millions of dollars from HP;
correct?
A. We were in negotiations over something that they
were -- had initiated. We were talking about millions of
dollars, yes.
Q. And what HP said to you, we're not going to pay
you millions of dollars, and if you don't give us a release
for free, we're not going to come to your SCO forum; right?
1212
A. That is part of what they said.
Q. Why don't we highlight the number of points
below, if we could. And this is the release that HP wanted.
"SCO releases/forgives any past actions by HP (and its
future direct consequences) which may have been in violation
of its UNIX licenses."
A. Right.
Q. Two, "The HP UNIX license now becomes
"unconditionally irrevocable", even for future "bad" acts."
Three, "HP has no restrictions on what it does or says about
the IBM case or the Linux case." Do you see that?
A. Yes.
Q. And four, "Publicity: SCO has provided us a
letter to Carly," who is the CEO, Ms. Fiorina, CEO of HP at
the time, "that we can show to our customers that states
that SCO believes that HP is in compliance with its UNIX
license." That is what they wanted, correct?
A. Yes.
Q. And then the financial terms are also there at
number four, right?
A. Yes.
Q. And the financial terms are zero, right?
A. For that release.
Q. And you originally wanted $100,000,000, right?
A. In the original instance of this, we had
1213
$100,000,000 tied to the release and to the other SCO source
agreement. What they ended up doing was separating the two.
So as you recall yesterday, we had two deals going with HP.
One was the release that their CEO Carly had asked for, and
then the other one was this SCO source licensing deal. We
had put those two together for a $100,000,000 deal. They
wanted to bifurcate them and so we did. So the release
ended up being for zero. The other one was the $30,000,000
that HP proposed back.
Q. All right. And we'll talk about that in a
second. So as I understand it, you want -- you originally
go to HP and you ask Ms. Fiorina pay me 100 million bucks,
right, for both for the release and the other part of the
license, right?
A. No.
Q. And then they come back to you and say, we're not
going to go to your forum in Las Vegas unless you give us
this release for free, right?
A. That part, yes.
Q. And you guys gave them the release for free,
right?
A. We gave them the release for free, correct.
Q. This happened in August of 2003, right?
A. Yes, that is correct.
Q. And so that was a couple of months after you
1214
believe that Novell had retracted its claim to ownership on
June 6, 2003, right?
A. That is correct.
Q. And so in your mind, there is no taint out there
by Novell's position in this period of time; correct?
A. I didn't believe that -- well, yeah, I believe
that we had resolved that at that point, at this point.
Q. So you buckled to HP and give them a license, a
release, for no money?
A. For the UNIX business.
Q. Despite the fact that according to you, there is
no suggestion by Novell in the marketplace in this period of
time that they own the UNIX copyrights, right?
A. Let me -- no, that is not correct. Let me
explain to you the difference. What you just said -- you
said two things there. I think you crossed metaphors. I
think that might have been a trick question. If you look at
the copyright issue, that was one that was tied to the
$30,000,000 that we were discussing still with HP.
If you look at the UNIX business issue, now if you
remember we read through it yesterday, we stated in there,
and I think I read it out loud before the court, we hereby
certify that Hewlett Packard has done nothing wrong with
their UNIX business, like IBM had done, and that is what we
were giving them a release on. So that release, excuse me,
1215
that release for their UNIX business was fundamentally and
totally independent from the copyright issue that related to
the $30,000,000 deal that HP was proposing back to us.
Q. You gave them the release for free, correct?
A. For the UNIX business.
Q. And you did that in August of 2003; correct?
A. That is correct.
Q. And that was a period of time, according to you,
when Novell was taking the position that you owned the
copyrights, right?
A. Yes.
Q. Now, the negotiations between HP and you, you
testified yesterday, they broke down in August and they were
over by September of 2003, correct?
A. I don't recall testifying to that.
Q. Well, the jury knows what you said or what you
didn't say?
A. I recall testifying that they broke down in
September.
Q. All right. September of 2003?
A. Right.
Q. Done with HP, right?
A. Yes.
Q. But Novell didn't, according to you, say that
they owned their -- owned the copyrights until December 22nd
1216
after the June 6th, what you believed to be, the
recantation; correct?
A. Incorrect.
Q. So it is during this period of time between
June 6th, 2003 when you claim that Novell has said you own
the copyrights, and before December 22nd, 2003 when you say
they slander you again because they put everything up on the
website that negotiations with HP broke down?
A. So the big issue then was the reason that they
broke down. And the reason that they broke down was they
were pointing to the copyright problem. And when they
brought it up, I said whoa, Joe, we put that to bed months
ago. That -- I was -- I wasn't thinking when he first said
Novell copyright issue that they hadn't even been following
what happened after Messman had announced they owned it and
that we had come back and put that to bed. So I went
through that story with him and he said no, no, no, no, we
got all of that. What you don't understand, Darl, is that
Novell is gearing up for another run and you will eventually
see them come out public again and they will say that they
own the copyrights. That was the first time that I had
heard that, in fact, Novell was going to take this public
position and it was from Hewlett Packard in the context of
not doing this deal.
Q. So you knew that information in September of 2003
1217
that Novell was going to claim ownership of the UNIX
copyrights?
A. That was the first time I had heard about it.
Q. But you had that in your mind as the CEO of SCO
in September of 2003 that Novell was going to reassert its
ownership of the UNIX copyrights?
A. Based on that we started watching.
Q. And despite having that knowledge in September of
2003, you and your CFO continued to tell the market that
that issue was put to bed, right?
A. The things that you pointed to yesterday were
predating that.
Q. There was a -- you had a conference call in
November of 2003 where Mr. Bench your CFO said this issue is
put to bed, and you were sitting right next to him. And now
you have told the jury that you had that knowledge in your
head in September of 2003 that Novell was going to reassert
its ownership to the UNIX copyrights?
A. We had a lot of things in our heads. And every
time we would turn around from May, June, July, August we
were hearing something different. And what happens with
these SEC filings is you have to state things based on
material changes. And until they went public, we did not
view that as a material change. The fact that they were
behind the scenes saying this or saying that, is not a
1218
materiality threshold by which you would adjust your 10-K
filings for the investing public.
Q. Let me ask you this. Do you believe that when
the general counsel of Novell sent you a letter on
August 4th, 2003 and said Novell still owns the copyrights,
do you believe that was a material fact that you were
obligated to take to the market?
A. First of all, he didn't say we still own the
copyrights. Secondly, I didn't believe that his statement
trumped what Mr. Messman had told me.
Q. So it is your testimony that when the general
counsel of Novell said that Amendment Number 2 did not
transfer the copyrights to SCO, when he said that to you in
no uncertain terms on August 4th, 2003, that was not
material to you?
A. I didn't believe that it trumped Messman's
statement.
Q. My question was, was it or was it not a material
fact?
A. At that point in time.
Q. Let me finish my question. Was it or was it not
a material fact that you were obligated to take to the
market?
A. At that point in time, no. And because their
letters kept changing. If you read the June 6th letter, it
1219
says one thing. If you read the June 26th letter, it says
another thing. If you read the August 4th letter it says
another thing. We can't go to the investing public every
time that Novell changes, and every time they sneeze we
can't go out and say Novell sneezed. Once they came out
publically, then we did address it.
Q. So let me get it clear. It is your testimony
that when the general counsel of Novell wrote you a letter
on August 4th, 2003 and said Amendment Number 2 did not
transfer the copyrights, you as the CEO of SCO did not
believe that was a material event that needed to be reported
to the marketplace?
A. I believe I have answered that question,
Mr. Acker.
Q. You haven't answered that question, Mr. McBride.
THE COURT: Answer the question if you please,
Mr. McBride.
THE WITNESS: I did not believe that to be material at
that point in time.
Q. (By Mr. Acker) So as the CEO of SCO, the fact
that Novell was claiming ownership of the UNIX copyrights
was not a material fact to you?
A. Not at that point in time.
MR. ACKER: Show you D20.
THE COURT: D20?
1220
MR. ACKER: D20, D as in dog, yes, Your Honor.
Q. (By Mr. Acker) Do you see, Mr. McBride, on
Exhibit D20 is the internal e-mail at Hewlett Packard in
which Hewlett Packard employees are discussing the reasons
to move ahead with the SCO source deal and also reasons not
to do the deal and it is dated September 3rd, 2003. Do you
see that?
A. Yes.
MR. ACKER: I move for admission of Exhibit D20, Your
Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Whereupon, Defendant's Exhibit D20 was
received into evidence.)
Q. (By Mr. Acker) Why don't we highlight, if we
could, Mr. Lee, the first paragraph.
"There have been a bunch of messages floating about --
floating around regarding SCO. I thought it would be useful
to summarize the situation, and present both sides of the
argument. As you know, I oppose moving forward, although I
will do my best to support the larger HP position if we
decide to move forward. I would like to emphasize that
there are not -- that there are open source nuances here
that are not typical of normal software licensing deals.
For this reason, this is "not" a licensing deal, but rather
1221
an non-asset deal, paren, (SCO -- non-assert -- non-assert
deal, paren, (SCO agree to not assert rights against our
customers.)"
Now Mr. Lee, if we could go down to the bottom of the
e-mail which says Reasons Not to Do the Deal. "Reasons not
to do the deal. One, RedHat has counter-sued SCO and will
view HP as partnering with SCO and will potentially refuse
to deal with HP, paren, (HP Linux biz rapidly moves to
zero). B, we have strong indications that the Open Source
community will revolt against HP and will block any future
HP enhancements to open source projects. C, while SCO has
shown Joe some code, there is still no clear evidence that
IBM, paren, (or anyone else) end paren, has actually done
anything wrong. D, all legal experts in the field believe
SCO's case is fundamentally flawed and have published white
papers to support their position and (attached). E, while
we may have a quote, "most favored nation" end quote clause
in the deal, our competitive advantage could evaporate in a
day. The deal is not exclusive."
And then the e-mail continues onto the next page. "F,
this is, in effect, support of terrorism. Rewarding SCO for
this behavior opens us up to other claims. We can't predict
from who/where. G, doing a deal with SCO does not provide
customers with full indemnification. Customers want full
indemnification, so a deal with SCO is likely not enough.
1222
H, SCO has shown a pattern of unpredictable and "bad"
behavior. We can't predict future behavior from SCO which
could negatively impact HP. I, amusingly enough, doing the
deal would negatively impact our relationship with
Microsoft. J, SCO is perceived very negatively in the
industry at large. HP will suffer a negative image as a
result."
And then he concludes, "there is obviously no easy
answer here. I believe that the risks associated with
points "a" and "b" are large enough that we should not do
the deal."
Did you understand that that was why HP didn't do a
licensing deal with SCO in September of 19 -- 2003,
Mr. McBride?
A. No, I did not.
Q. Mr. McBride, yesterday you told this court and
jury that you believed that you needed the UNIX copyrights
in order to run your business, correct?
A. That is correct.
Q. Let me show you what we have marked as R45.
Mr. McBride, R45 is a form 8-K that SCO Group filed on
behalf of -- that SCO Group filed on August 14th, 2007;
correct?
A. Yes, that is correct.
Q. And a form 8-K is a form where SCO is advising
1223
the SEC and the market at large of material facts that
affect its business, right?
A. Pardon me, I didn't get the last question. I was
looking here.
Q. Form 8-K is a form by which a company advises the
Security and Exchange Commission and the market at large
regarding material?
A. Yes, that is right.
Q. And you reviewed this document before it was
filed with the SEC; correct?
A. Yes, I did.
Q. And you wouldn't have filed it with the SEC if
you didn't think it was accurate, correct?
A. Correct.
Q. Now, I want you to listen carefully to my
question, if you could, sir. It is true, isn't it, that if
you turn to the last page of the document, in the one, two,
three, four, fifth paragraph --
THE COURT: Why don't you offer it before we go any
further, please.
MR. ACKER: I would move for admission of R45 with
redactions, Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Whereupon, Defendant's Exhibit R45 was
1224
received into evidence.)
Q. (By Mr. Acker) If we could go to the last page
in the one, two, three, four, fifth paragraph. Mr. McBride,
isn't it true that although we have redacted portions of
this document that what you told the SEC and the investing
public, contrary to what you have told this court, is that
even without ownership of the UNIX copyrights, that SCO's
"ability to continue to develop and support all versions of
UnixWare and OpenServer as well as the recently announced
OpenServer 6M and UnixWare 7M as well as our new mobility
products will not be impacted." Didn't you tell the market
that?
A. This is part of what I told them. There is more
nuances in other parts of this document that, um, come into
play on this.
Q. Didn't you tell them that you could run that part
of your business without ownership of the UNIX copyrights?
A. I told them that we could run this part which
relates to the products. That as we talked yesterday, there
is the -- it is like a tree analogy of the source code
coming up through the tree that was the IP licensing part.
We had a licensing group and we had a products group. Yes,
we believed that the branchs off this tree, UnixWare and
OpenServer, we could run our business with -- without the
copyrights, just like HP, IBM, all of the other licensees of
1225
UNIX can run their businesses as well. The part that we
differ on here is we were unable to run our business for the
licensing side without the copyrights. And the licensing
side was really the future of the company.
Q. So let me get it straight so the jury
understands. You could operate as a software company
without the UNIX copyrights, but you couldn't run your SCO
source campaign without the UNIX copyrights. Do I have that
correct?
A. Mostly.
MR. ACKER: That is all I have, Your Honor.
THE COURT: Mr. Singer, I normally would not give you
a third time around, but I think in light of this I will.
But don't either of you think that this somehow opens the
door to a third course, all right?
MR. SINGER: Thank you, Your Honor.
FURTHER DIRECT EXAMINATION
BY MR. SINGER:
Q. I just have a few questions. First of all, with
respect to the press, well, the first area of examination by
Mr. Acker was about Novell putting up both sides of the
picture on its website. Do you recall those questions?
A. Yes, I do.
Q. I would like you to look at the press release
that was issued December 22, 2003, Exhibit 517. Would you
1226
put that on the screen, please. Can you read this out loud?
A. Sure. Novell Statement on UNIX Copyright
Registrations.
THE COURT: Not too fast.
THE WITNESS: Sorry, Your Honor. "Novell believes it
owns the copyrights in UNIX, and has applied for and
received copyright registrations pertaining to UNIX
consistent with that position. Novell detailed the basis
for its ownership position in correspondence with SCO.
Copies of our correspondence, and SCO's reply, are available
here. Contrary to SCO's public statements, as demonstrated
by this correspondence, SCO has been well aware that Novell
continues to assert ownership of the UNIX copyrights."
Q. (By Mr. Singer) Mr. McBride, did you understand
this press release as simply telling people go look at our
website and make up your mind?
A. No.
Q. Now, with respect to the continuation to
negotiate with parties such as Google and Dell, did you try
your best to dissuade them from listening to Novell's
assertion of ownership?
A. Yes.
Q. Were you able to do that?
A. No, we were unsuccessful.
Q. With respect to Q45, could we put that on the
1227
screen, that is one of the defendant's documents relating to
HP?
A. Yes.
Q. Who is Joe Beyers?
A. Joe Beyers was the vice president of Intellectual
Property and Licensing at Hewlett Packard.
Q. Did you understand that he would be the
decision-maker here?
A. Yes.
Q. Was Mr. Fink the decision-maker?
A. No. Mr. Fink was a Linux general manager who was
-- had a very strong interest in Linux being the show within
inside of HP.
Q. Was Mr. Fink, who wrote the D20 document that we
looked at a few minutes ago, a vocal advocate of Linux?
A. Yes, very much so.
Q. You were negotiating with Mr. Beyers; is that
correct?
A. Yes. We never had one discussion with Mr. Fink.
Q. Now, if you look at item number two where it
says, um, excuse me, item number three, I don't believe this
part was highlighted in the recent examination, which says,
"HP has no restrictions on what it does or says about the
IBM case or the Linux case." And the footnote says, and
this is what wasn't highlighted, any restrictions of this
1228
type will only be in a Linux release, if executed. What is
the Linux release pertaining to?
A. That pertains to the deal that we were working on
that did not go through.
Q. And did that get to a point where a contract
which we saw yesterday was presented to you from HP that
could have been signed by SCO?
A. Yes.
Q. And what was the amount of the payments on that
contract if you had signed it?
A. $30,000,000.
Q. Now after the -- did you have understandings as
to whether or not that could have been done after Novell's
statements were made to Mr. Beyers?
A. I'm sorry?
Q. You had referred that they had heard from Novell
that they were going to go public with another round of
comments?
A. Yes, okay. Once those statements were there, it
really did kill the deal.
Q. Now, you were asked about the August 4, 2003
letter and whether or not that was viewed as an outright
assertion of copyright ownership. Can we put that up on the
screen. This is Exhibit 105?
A. Okay.
1229
Q. Can we -- this is Mr. LaSala's letter of
August 4, 2003. Do you understand this is what Mr. Acker
was asking you about in the cross-examination?
A. Yes.
Q. If we come down to the last paragraph, can you
read that out loud?
A. "Unless and until SCO is able to establish that
some particular copyright right is "required" for SCO to
exercise its rights under the APA, SCO's claim to ownership
of any copyrights in UNIX technologies must be rejected, and
ownership of such rights instead remains with Novell."
Q. Did you believe that copyright ownership was
required for SCO to exercise its rights under the APA to
enforce its intellectual property?
A. Yes, absolutely.
Q. So at this point was this letter publically
announced by Novell?
A. No, it was not.
Q. Did you view this as the same as when they made
public announcements in May and then later in December 2003
to the effect of we own the copyrights?
A. No.
Q. Is that why this was not reported in your public
securities filings until they publically made such an
assertion again?
1230
A. That is correct.
Q. And when you saw that public assertion which you
were just asked about, where you said that you would be able
to operate the UNIX and UnixWare business?
A. Yes.
Q. Would you have been able to do licensing deals
such as you did with Microsoft and Sun?
A. No.
Q. If you didn't own the copyrights?
A. No, not at all.
Q. Would you have been able to take any action to
enforce your intellectual property if you didn't own the
copyrights?
A. No. The copyrights were a prerequisite to
enforcing the intellectual property.
Q. What you would have -- so were you referring to
just the ability to sell product, the UNIX and UnixWare
products?
A. Yes.
MR. SINGER: Thank you very much.
THE WITNESS: Thank you.
THE COURT: Mr. Acker?
MR. ACKER: I don't have anything else, Your Honor.
THE COURT: May this witness be excused?
MR. SINGER: Your Honor, it is possible he will need
1231
to be recalled.
THE COURT: All right. Mr. McBride, that means that
you need to keep yourself available in that event. But I
would again inform you please do not discuss your testimony
with any other witness or in the presence of any other
witness in the case or communicate in any way to them what
the nature of your testimony is.
THE WITNESS: I understand, Your Honor.
THE COURT: Thank you, Mr. McBride.
THE WITNESS: Thank you.
THE COURT: Mr. Singer, your next witness.
MR. SINGER: Our next witness is Gary Pisano.
THE CLERK: Please raise your right hand.
GARY PISANO,
called as a witness at the request of the Plaintiff,
having been first duly sworn, was examined
and testified as follows:
THE WITNESS: I do.
THE CLERK: Thank you. Please be seated. And if you
would please state and spell your name for the court.
THE WITNESS: My name is Gary Pisano, G-A-R-Y
P-I-S-A-N-O.
THE CLERK: Thank you.
//
//
1232
DIRECT EXAMINATION
BY MR. SINGER:
Q. Do you need some water?
A. Yes.
THE COURT: There should be some in there.
MR. SINGER: Why don't we provide you some of ours.
THE WITNESS: It is empty.
Q. (By Mr. Singer) Good morning. Professor Pisano,
how are you employed?
A. I am a professor at Harvard Business School.
Q. And do you hold a particular position at the
Harvard Business School?
A. Yes. I am the Harry E. Figgie, Junior Professor
of Business Administration.
Q. What does it mean to be a chaired professor?
A. That is the highest rank you can have in
academia.
Q. How long have you been a professor at Harvard?
A. I have been on the faculty for 22 years.
Q. Can you briefly summarize your educational
background?
A. Yes. I have a PhD in Business Administration
from the University of California Berkeley, and a BA in
economics with distinction from Yale.
Q. What is your area of specialty?
1233
A. I specialize in economics and management of
technological innovations.
THE COURT: Dr. Pisano, would you please speak into
the microphone and please do not speak so quickly that the
court reporter cannot get what you have to say or that
others cannot understand what you are saying, all right?
THE WITNESS: Thank you sir, yes. I should repeat my
last answer.
Q. (By Mr. Singer) Yes. Can you explain what you
mean by economics of management innovation?
A. Economics of management innovation I study a
range of topics concerning how firms develop innovations,
the strategies and approaches they use, and how they try to
commercialize those through various mechanisms including
licensing strategies.
Q. I would like you to look at Exhibit 750 on the
screen. Is this a true and correct copy of your CV setting
forth your expert qualifications?
A. Yes, it is.
Q. And does this set forth your various honors and
awards and your publications?
A. Yes, it does.
MR. SINGER: I move the admission of Exhibit 750.
MR. ACKER: No objection, Your Honor.
THE COURT: It will be admitted.
1234
(Whereupon, Plaintiff's Exhibit 750 was
received into evidence.)
Q. (By Mr. Singer) I would like to talk just a
little bit about some of that, and recognizing that when
you're qualifying an expert witness, it is not a time for
modesty so I'm going to ask you to disclose the full extent
of your honors and recognition in the field.
Has any of your work been published?
A. Yes, it has.
Q. And approximately how many articles have you
published?
A. I have published 30 articles.
Q. And presentations?
A. Presentations, case studies, other materials, we
do develop a lot of course material at Harvard, another 50
or 60 on top of that.
Q. Have you written books?
A. Yes, I have. I'm the author of six books.
Q. Are you on the editorial board of any journals?
A. Yes. I am an editor of a journal called
Industrial and Corporate Change and I was, until a couple of
years ago, the main editor, one of the main editors for the
top journal in the innovation field called Research Policy.
Q. Has your work won any awards?
A. Yes, it has.
1235
Q. Can you explain?
A. Yes. The most recent award was a paper for an
article published in the Harvard Business Review this past
year in 2009 and it won an award called the McKenzie Award
which is an award given to the best publication in the
journal that year.
Q. Has your work been cited widely by other
academics?
A. Yes. It has been widely cited and one of my
papers, in particular, called Dynamic Capabilities in
Strategic Management was among the most cited papers in the
entire fields of business finance and economics from 2000 to
2005.
Q. Have you done any case studies in the information
technology field?
A. Yes, I have done a number. I have written a case
study on Amazon web services as well as case studies on
Intel and IBM.
Q. And can you explain to the jury what a case study
is?
A. Sure. Case studies are something that we write
and describe an actual business situation that we then use
in our classroom and they're used in other business schools
around the world to help students come to an understanding
of how to analyze certain kinds of business situations.
1236
Q. And other than your position at Harvard, what
else do you do professionally?
A. I do consulting.
Q. And what type of consulting do you?
A. Um, I advise companies of a range of sizes and in
a range of industries on strategies for innovation, how to
develop innovation, how to introduce new products to the
market, licensing strategy, development of business models,
those sort of issues.
Q. Now, are you limited to a certain number of days
of consulting?
A. Yes. By Harvard rules I can do up to 52 days per
year of consulting.
Q. Does your work here count against that?
A. It does.
Q. Now, do you act often as an expert witness in
litigation?
A. No, I don't.
Q. In fact, is this the first time you have
testified in court?
A. This is the first time I have testified at a
trial, yes.
Q. And have you been deposed as an expert before?
A. Yes. I was deposed in this case and in one other
case which was the SCO/IBM case. I was deposed in that
1237
case.
Q. And is there any other litigation or arbitration
that you have ever been involved in as an expert witness?
A. I did one small arbitration case back in 1996,
1997, around that time frame.
Q. Professor Pisano, are you being compensated for
your work on this case?
A. Yes, I am.
Q. And do you bill by the hour?
A. Yes, I do.
Q. What is your hourly rate in this case?
A. $600 per hour.
Q. Now, what do you -- what are you able to charge
for the companies that you consult with?
A. For my corporate clients, um, I can charge up to
$1,250 per hour.
Q. And do you have a lot of customers at that rate?
A. Yes, I do.
Q. Now, what were you asked to do for this case?
What was the scope of your engagement?
A. I was asked to conduct research on the question
of how many right to use licenses SCO would have been able
to sell had the slander not occurred.
Q. And why are you qualified -- do you believe
you're qualified to offer an opinion on that issue?
1238
A. Yes, I do.
Q. Why is that?
A. For the past 22 years, you know, my research, my
consulting, my teaching, has focused on exactly these kind
of issues of a company with a -- with a new product and
trying to think about the ways it can be commercialized.
And in particular, I have spent quite a bit of my time
thinking about licensing, which this is a license, a
licensed product, and how markets for licenses work.
Q. How does that relate to this case?
A. Well, this is a -- this is a product, the right
to use license, it is a license, um, and it is exactly the
kind of, you know, selling it into that market it is a
market for licensing as opposed to a market for a physical
product.
Q. What assumptions have you made about this case
for the purpose of your opinion work?
A. I have made just two assumptions. The first
assumption is I assume that SCO does indeed own the
copyrights at issue. The second assumption I make is that
there had not been any slander. So no statements by Novell,
nothing like that. So that is the second assumption.
Q. Now, is there something in your field of work
called "the but for world"?
A. Yes, yeah. Yes, I mean we don't describe it
1239
exactly that way, I think that is more legal terminology,
but it is a form of analysis and --
Q. Can you explain what that form of analysis is?
A. In essence what you're doing in a "but for world"
you're trying to describe what would have happened "but for"
or in the case something else didn't happen. So in this
case, but for Novell's slanders, we assume that slander
never occurred.
THE COURT: Dr. Pisano, will you please slow down.
THE WITNESS: Sorry, yeah.
THE COURT: I realize this is your first trial.
THE WITNESS: Yes. I think I --
THE COURT: If you're not familiar with it, when the
judge suggests something, it is probably a good idea to do
it.
THE WITNESS: Okay. It is advice I have gotten many
times before, sir. I really work hard at it. Um, so, in
this case, a but for analysis you assume there hadn't been
slander. And then you ask but for that slander had not
occurred, um, what would the market for RTU's have looked
like? How many right to use licenses could SCO have sold?
Q. (By Mr. Singer) Now, are you aware that in 1995
Santa Cruz purchased the UNIX business from Novell?
A. Yes.
Q. Did Santa Cruz have a UNIX product?
1240
A. Yes.
Q. What was that called?
A. UnixWare.
Q. What was the significance of UnixWare?
A. UnixWare was an important product because
UnixWare was an operating system for servers that could run
on types of a computer servers that were called Intel
architecture. That is, they had Intel chips in them. And
that was a very fast growing part of the computer server
market. And until that time, there was no -- there had been
no other UNIX products that could run on an Intel based
machine.
Q. How did Santa Cruz UNIX on Intel products do in
the marketplace?
A. They did very well. By 1999, they had 80 percent
of the market for UNIX that ran on Intel architectures.
Q. Did the evolution of Linux have an impact on that
business?
A. Yes, it did. It had a significant impact.
Q. Can you explain?
A. Yes. Um, Linux is very similar to UNIX. It has
a lot of the same functionality and, in fact, over time,
Linux began to develop a lot of the same enterprise
capabilities. That is, you could use it for computers that
businesses were using for critical functions.
1241
As Linux got better, it was doing essentially the same
things UNIX could do, but it was free, or at a much lower
cost. So it just ate right into the market share of the
UNIX on Intel products.
Q. If it was free, why would companies like IBM or
Novell be interested in it?
A. There is still a way to make money on it. If
you, for example, some companies like Novell take it and
they can -- not everyone gets it for free. Some want a
packaged version that comes with support, comes with
instructions.
Q. Dr. Pisano, a little slower, please.
A. Gosh, I'm really sorry. Some companies want the
version -- want a lot of support. They want instructions on
how to use it. And companies like Novell can provide that.
And, of course, you have to pay for that. If you just got
the downloaded version, you don't get that. For companies
like IBM, they can use it to enhance their hardware
business.
Q. Was Linux always able to compete with UNIX?
A. No.
Q. Can you explain?
A. Yes. Initially, Linux was actually developed by
a graduate student in Finland, Linus Torvalds, and initially
it was really a bit of a hobbyist's toy. A few computer
1242
aficionados played with it and made contributions. Over
time, however, it began to get used in businesses.
Initially, just for very simple business applications. So
in -- for a computer server, web serving, just serving up
web pages, it is a very simple function. But over time, as
it got more capability, it could -- it could take on more
difficult tasks and more complex tasks for the businesses
such as transaction processing.
Q. Is there something called enterprise hardening?
A. Yes.
Q. Can you explain what that is?
A. Yes. That again refers to building in capability
and functionality into the operating system to make it
reliable, more available, and more scalable. That is you
can use it at -- for lots of -- lots of users and use many
of them.
Q. Did there come a time when Linux became
enterprise hardened?
A. The first point at which that really happens is
with the introduction of Linux version 2.4 which is
introduced to the market in January of 2001 or February
of 2000 -- announced in January 2001, available in February
of 2001. That really began to include some elements that
made it enterprise hardened.
Q. And how did that affect Santa Cruz?
1243
A. This had a very significant impact on them
because, again, as I explained before, you have this
operating system, Linux, which could do a lot of the same
things that UNIX could do and it just ate right into the
market share.
Q. Do you have an understanding of how Santa Cruz
responded to this competitive challenge from Linux?
A. Yes. At a point in time Santa Cruz discovered
that their intellectual property associated with System Five
of the -- of their UNIX product had been incorporated into
Linux without their permission. And they decided to launch
a licensing program and the one that I study for the
purposes here today is the right to use license as a way to
capture some of the value of their intellectual property
which had gotten out into the market.
Q. What was a SCO source right to use license,
Professor?
A. A SCO source -- SCO source right to use license
is essentially an agreement, a contract, between SCO and a
user of Linux that gives them permission to use it and says
if you buy this license, we're not going to sue you. You
have got our permission to use the product.
Q. Now, can you explain whether a right to use
license is comparable to insurance?
A. It is in many ways, yes. Because a computer user
1244
might not know if there really was infringement. That is,
they don't really know there was a dispute and debate as to
whether SCO's intellectual property really was in Linux.
And so you would buy the license as insurance in case -- you
bought it in case there was infringement you were fine, you
weren't going to be sued.
Q. Is that like homeowner's insurance?
A. Yeah. A great analogy would be homeowner's
insurance. We buy homeowner's insurance against the
possibility that something bad might happen to our homes.
We hope it doesn't, right, and there is a probability
something bad will happen like a fire or a flood and we hope
it doesn't, but in case it does happen, we have insurance
and that insurance protects us. So the right to use is very
similar to a form of insurance for the user.
Q. Is there a difference between Linux and
proprietary operating systems in the type of indemnification
that they offer to people who would use their products?
A. Yes. A very big difference. So when we go out
and buy say Microsoft Windows, or Microsoft Office, or
another computer program from a company like that, they have
controlled the development of the code. So they offer
indemnification. They say to us, we buy that and you can
actually read that, there is a little -- a little tab often
inside of the package which will explain it to you, or
1245
sometimes it is right on the screen, that indemnifies you.
It says look, if there is some intellectual property of
someone else inside this system or your program, and we get
sued for it, you can't get sued for it. We will protect
you. Even though you're using something that you shouldn't
be using, we'll kind of take care of it for you. We will
protect you legally.
Linux didn't have that. Linux never had
indemnification because it was being developed by users
around the world, anonymous using contributing code. So no
one was in a position to essentially guarantee the origins
of that code. No one could say gosh, you know, we have
checked and we have made really sure that there is no
infringing code in here. So there was no indemnification
for Linux.
Q. Now, I would like to turn to Novell's statements.
Are you familiar with Novell's statements claiming copyright
ownership?
A. Yes, I am.
Q. In completing your assignment, what was the first
thing that you did?
A. The first thing that I did was I looked at those
statements to see if there is any economically plausible way
those statements could have an effect.
Q. An effect on what?
1246
A. On SCO's sales of right to use licenses.
Q. What did you conclude?
A. I concluded they would have an effect. And I
looked at three things in that, um, or I looked at a few
things.
First, one has to look at who is making the
statements. Um, Novell. Novell was a credible player in
the market. They were the first party to the transaction
that sold the rights to SCO. So for them to challenge it,
it would have to be taken seriously. It is not like some
third party somebody came out of the, you know, from left
field and said hey, by the way, I don't think SCO owns the
rights. This was the first party.
Um, second they were -- they were public statements.
Um, they made them publically so the market and potential
computer users and companies who were using Linux could hear
-- would hear them. And so I think those two things
together convinced me that there would be an effect. And if
you just go back to, again, basic economic logic, it is very
hard to sell an asset that you can't claim you own.
When you go to sell your home, one of the first things
that happens is a title search. If you can't prove you own
the home, you're not going to be able to sell the home. And
you wouldn't want to buy a home where the person selling it
to you can't guarantee they actually own the home.
1247
Q. Now, I would like to ask you about -- did you
take any steps to determine the size of the potential market
for Linux?
A. Yes, I did.
Q. What did you try to do?
A. So the first step was to try to understand what
is the magnitude in trying to do -- in doing one of these
analysis what you do is you start out with what is the
target market. What is the population of potential
customers. And so I started out by looking at the total
market for servers that were running Linux 2.4 and 2.6.
Linux version 2.4 was the first version of Linux that SCO
says its intellectual property was in. That was launched,
as I mentioned before, in February 2001. So my first step
was to say how many of these versions of Linux that were
either sold or downloaded for free were out in the market
between 2001 and 2007.
Q. Did you look at particular Linux versions?
A. Yes. Linux 2.4 and then there was another
version that came out in 2003 called 2.6 and that also --
SCO also claims its code was in 2.6.
Q. What was the geographical scope of the market
that you looked at?
A. I restricted my analysis to just the North
American market. That is a conservative approach because
1248
Linux is used around the world. And as far as I understand
legally, SCO would have had a right to press its copyright
claims against anyone around the world.
However, there is higher costs of doing that. It is
more difficult. It is easier to do it in your own market,
the North American market. And, um, while IDC, the source
of data I used IDC which is an extremely reliable source of
data, they track it worldwide, I felt that their data would
be more complete for the North American market. So I
restricted my analysis to just the North American market.
Q. Did you look at all computers using Linux or just
a certain type of computer?
A. So Linux can be used on both a desktop like we
might have at work or at home, or it can be used on a server
which is a computer that supports multiple users. And, in
fact, Linux is used on both. However, SCO was targeting the
right to use license to business users. And for the vast
majority of business users, the relevant market is going to
be the server market. And so I restricted my analysis just
to looking at servers that were running Linux.
Q. How did you quantify the size of that market?
A. So I used the source of data from an organization
that tracks trends in the computer and IT industries. It is
called IDC and they -- they report for each year from 2001
to 2007 every year the number of both the paid shipments, so
1249
for instance versions of Linux that a company bought from
RedHat or Novell, and the unpaid ones, that is ones that
those companies downloaded for free. Many companies will
buy a copy, download a few copies for free. So we really
need to look at both.
Q. Are there different types of Linux shipments?
A. Yes, those are the two types. The two types are
the paid and the -- what are called the non paid. Those are
the ones that are downloaded for free.
Q. What years did you focus on again?
A. Again 2001 to 2007.
Q. So based on the IDC data for that time frame,
what did you conclude the size of the market was?
A. There were 7.4 million Linux -- versions of Linux
out there, cumulatively, between 2001 and 2007.
Q. Is that just looking at the servers in the North
American --
A. Yes, just in the North American market.
Q. Did you view that to be a -- how did that relate
to what the universe of potential buyers were for these
right to use licenses?
A. So that starts -- that is kind of, if you will,
that is the outer bounds, right. That is if you could sell
100 percent, you could penetrate 100 percent of the market,
you would get all 7.4. But there are lots of reasons to
1250
believe they couldn't sell to 100 percent of the market
because in many situations you don't. So then the next step
for me was to try to assess what percentage of that total
7.4 million could they have sold to.
Q. Before we turn to that step, let me ask you,
Dr. Pisano, do companies typically have multiple servers?
A. Yes, they do.
Q. What would be a range that might be useful to
know?
A. It is a dramatic range. I mean a small company
might have a dozen or, you know, a handful. The largest
companies could have tens of thousands, hundreds of
thousands. There are some reports that Google has over a
million servers. So that really -- really ranges.
Q. What was the next step in your analysis?
A. So the next step was to try to assess what is the
likely market penetration of the SCO right to use license in
this universe of 7.4 million users.
Q. How did you go about that?
A. Well, the first step was to kind of conceptualize
the problem this way. Imagine in that universe of users
there is a spectrum of users. And at one extreme we have
computer users or businesses that they don't think there is
infringement, they don't think SCO has got any chance to
prove infringement. Maybe they have looked at the data
1251
themselves, or they have listened to others, or they don't
think they'll be caught, all right. They think they'll
never find us. Or, regardless of that, they think you know
what, we'll just take the risk. Some organizations are
willing to take that kind of risk. That is one extreme.
They're never going to buy a SCO right to use license, ever.
Imagine at the other end of the extreme we have
computer users, businesses, with a very different set of
preferences. They're concerned about infringement. They
think there could be infringement. They're afraid they'll
get caught. Well, regardless of how they view that, they
just don't want to take the risk. They are conservative.
They don't want to take the risk. So we have a continuum.
This end of the spectrum (indicating) are the ideal
customers for SCO RTU, the conservative side. This group
out here, (indicating), they're not going to buy. So we
want to try to then assess and think about where is the
market on this continuum.
Q. How do you go about determining that then?
A. So a useful technique to try to do this in a
market to estimate how much of a product might sell is to
use a proxy, right. A proxy is another product that looks
very similar or is almost a substitute for the product
you're trying to analyze. So let me give a simple example.
If you are a book publisher and you are trying to estimate
1252
how many -- you have got a young author who writes about
courtroom dramas, right, a novelist, and you're trying to
say how do they even sell a particular market, you know, say
Salt Lake. How many are they going to sell here? How many
of those books should we send to this market? They might
use as a proxy how many sells of other books that looked
very similar. They might pick John Grisham novels. They
might say how many John Grisham novels sell. Because that
is close to what this product, this author's book, is doing.
This is very common for companies to do is to look at
similar products and use that as a benchmark to decide how
many might our products sell.
Q. Did you find such a proxy with respect to the SCO
source right to use license?
A. The best proxy you can use here are businesses,
preferences, or demands for indemnification. As I mentioned
before, indemnification is something that protects you in
the event of a lawsuit. So the SCO right to use license is
very similar to indemnification. So if we can assess the
percentage of the market that wants indemnification, that
should give us a very good idea of the percentage of the
market that would have bought the SCO right to use licenses.
Q. Did you find such surveys?
A. There were three such surveys. Excuse me, may I
get some more water? I'm really dry.
1253
THE COURT: Certainly.
THE WITNESS: Dryer mountain air, I guess. Thank you.
Thank you for that. Let me answer your question.
Q. (By Mr. Singer) Yes.
A. I found three surveys. One was a survey
conducted by a business intelligence and analyst firm called
Forrester Group. They have been around for a couple of
decades and they conducted a survey. This particular survey
had 36 large -- 36 large North American companies with sells
greater than one billion dollars. And they asked them two
questions. They asked them if they were concerned about the
intellectual property issues as concerning Linux, and they
specifically made reference in their question to SCO/IBM.
36 percent yes they were concerned. Um, they then asked
about their interest in buying into an indemnification plan
and 22 percent said they would be interested in buying into
a plan.
Q. In your view was the Forrester Group a reputable
source?
A. Yes. And when I look at the sources of data,
when I use surveys, what I did in this research here is
exactly what I do in my own academic research. It is the
same standard I use when I judge other people's work in
academia. There is a few things you look at.
So first you have to look at the organization. Who is
1254
doing the survey. And the first question is do they have
any reason to be biased? That is, for example, if they have
a political agenda and is there a certain issue that you
would expect them to be biased on. Thank you. Or do they
have an incentive to be unbiased. An organization like
Forrester, their reputation hinges on doing unbiased
surveys. CIO's, chief information officers, executives,
other analysts use their reports, buy their work, they want
unbiased information.
The second is, um, is this organization experienced at
doing this. To put it in simple terms, are they amateurs or
are they professionals at it. Is this the first time
they're doing a survey, or is this something that they do as
a matter of course. And for, um, Forrester, as I mentioned,
they have been around a couple of decades. They're one of
the oldest firms to do this kind of work. They do these as
a matter of course. They do -- they do dozens of these
things a year. So they are -- they definitely meet that
criteria. And the third criteria is to look at the basic
parameters of the survey design to see is there any reason
to believe the result would be biased in one direction or
the other.
And here they had 36 companies, larger companies. It
is not a very large sample, but it is large enough, by the
way, to get reliable findings. You don't need samples of
1255
thousands to get a reliable, you know, indicator. And there
was nothing in the design that would suggest to me a strong
bias in either direction.
Q. And tell us again what were the results of this
first study?
A. It was 36 percent said they were -- had concerns
over the intellectual property issues in Linux, and 22
percent planned or were interested in buying
indemnification.
Q. Can you tell the jury about the second study that
you looked at?
A. The second study was conducted by an organization
called Yankee Group. Yankee is actually -- so Forrester was
one of the oldest. Yankee is actually the oldest company to
do business intelligence analysis for the IT sector.
And they did a survey of 1,000 organizations, and they
asked about -- they asked companies about their concerns,
whether indemnification was a concern, a top priority, high
concern, somewhat concerned, unconcerned were the
categories. And what they found is that 19 percent of their
respondents said that it was either a top priority or they
were very concerned about indemnification. And then another
26 percent said somewhat concerned. And that is a harder
one to interpret.
So again, my view was at a minimum 19 percent, and
1256
then sort of think on that continuum of the 26 percent we
don't know which of those are concerned enough to be buying,
but a maximum it would be 45 percent. We add the 26 to the
19, there is 45 percent.
Q. And in connection with this survey, did you look
at and have cited in your report Exhibit K28 which is the
2004 Windows, UNIX and Linux Comparison Survey by the Yankee
Group?
A. Yes.
Q. And did this provide the methodological
information regarding how this survey was conducted?
A. Yes.
Q. Did this provide you with information about how
many people were surveyed?
A. Yes.
Q. The exact questions used?
A. Yes.
Q. Did it include the demographics of the different
people?
A. Of the different kinds of organizations, the
sectors they were, yes.
THE COURT: Mr. Singer, would you keep in mind we need
to break in the next couple of minutes so when it is a good
time for you.
MR. SINGER: I think after one more question.
1257
Q. (By Mr. Singer) In your judgment was this second
survey a reliable survey for you to consider?
A. Yes. And it meets all of the same three criteria
I laid out before for the first survey.
MR. SINGER: I think this would be a good time, Your
Honor.
THE COURT: We'll take a 15 minute recess.
Ms. Malley.
THE CLERK: All rise for the jury.
(Whereupon, the jury left the courtroom.)
THE COURT: Let's take 15 minutes, counsel.
(Recess.)
1258
***** Part 2 *****
THE COURT: Counsel, I want to ask Dr. Pisano a
couple of questions before the jury comes back.
MR. SINGER: Yes.
THE COURT: Dr. Pisano, did you look at the
methodology of the underlying Yankee Group study in order
to determine whether or not it was reliable?
THE WITNESS: Yes.
THE COURT: Is the Yankee Group study the type
of study that is reasonably relied upon by other experts
in your field in forming similar opinions?
THE WITNESS: Yes.
THE COURT: All right. Thank you.
Anything before we bring in the jury?
MR. SINGER: No, Your Honor.
MR. ACKER: No, Your Honor.
THE COURT: Dr. Pisano, I have to warn you that
we have a court reporter here who is more inclined than
some to get after you if you start staking too fast.
THE WITNESS: I apologize.
THE COURT: I just want you to be aware.
THE WITNESS: I apologize. It's a bad habit.
I mentioned to her, being the youngest in a large family,
speaking fast --
THE COURT: You were doing well after the third
or fourth suggestions. I'm just trying to warn you.
1259
THE WITNESS: Thank you. I appreciate it,
sir.
MR. SINGER: Dr. Pisano would have been a very
good college debater.
MS. MALLEY: All rise for the jury, please.
(Jury brought into the courtroom.)
Q. BY MR. SINGER: Dr. Pisano, a few more
questions regarding the second Yankee -- well, the second
of the studies, the Yankee study which you were talking
about.
First of all, I'd move the admission of K-28.
MR. ACKER: I object, Your Honor. He can rely
on it, but it doesn't come into evidence.
THE COURT: I'll sustain the objection.
Q. BY MR. SINGER: Are you aware of the number of
respondents to the overall survey?
A. The overall survey was 1,000.
Q. Was the question regarding indemnification
directed at a particular type of respondent?
A. Yes. It was directed at respondents. They
asked: If your company is mid-size or greater than 5,000
employees, what is your -- what is your attitude toward
or concern over indemnification?
Q. So a small company wouldn't necessarily have
responded to that?
1260
A. No.
Q. Are you comfortable with the methodology, even
though you don't know how many small companies might not
have responded to that question?
A. Yes. I'm very comfortable.
Q. And, can you explain?
A. Yes. Again, this is a survey with a -- the
biggest survey is a thousand. Now, there's a subset in
there. We don't know the exact number, okay, but, again,
let's go back to who this organization is and what they
are about. They don't have an incentive to publish a
study with, you know, an absurdly low response rate that
would, in any way, bias the results.
And if we also just think demographically about
businesses, it leaves out small businesses, and there's
quite a few small businesses, but mid-to-large companies
is also likely to be a very big chunk of their total
survey. So if we are starting with a thousand, they
might have a few hundred responses in there, and that
certainly is sufficient to get a reliable response.
Q. I'd like to ask you about the third survey that
you relied upon.
A. Yes.
Q. Can you tell us about that study?
A. Yes. That was also done by Yankee Group. That
1261
was 550 North American companies of all seizes, similar,
similar methodology, similar -- directed at similar kind
of decision-makers, chief information officers or systems
administrators in these organizations and across a broad
range of industries; banking, government, academia,
manufacturing, professional services, etc.
Q. Can we put A-30 up on the screen for you to
see? Is this the study that you're referring to is the
2005 Yankee Study?
A. Yes.
Q. And did you review the methodology of this
study?
A. Yes, I did.
Q. Did you believe it was an appropriate
methodology?
A. Yes.
Q. Was it a methodology of the type that people in
your field would rely on for your work?
A. Yes. Absolutely.
Q. Is that true of all three of the studies?
A. Absolutely. Yes.
Q. And how many respondents did you say this
particular study had?
A. This study had 550 respondents.
Q. And what did this study indicate?
1262
A. This study indicated that 20 percent of
organizations that use Linux or are planning to use Linux
were planning on buying indemnification.
Q. So, what conclusions did you reach about the
reliability of these three surveys as a whole?
A. So, in one of the principles that I use, when I
do my academic research, is, if you have multiple sources
of data, is triangulation. Do they all point in the same
direction? And there is a high degree of overlap between
these. At minimum, it seems to be 19 percent
penetration; at maximum, 45 percent.
But, again what I think about here with the
three studies in evaluating together, is, do they
triangulate? Do they point in the same direction? And,
in this case, they did
MR. SINGER: Can we put up a demonstrative,
which is -- Mr. Calvin.
I'd like the jury to be able to see -- this is
a demonstrative exhibit, Your Honor.
THE COURT: Any objection?
MR. ACKER: No, Your Honor, none.
THE COURT: Go ahead.
Q. BY MR. SINGER: With this demonstrative
exhibit, can you explain how the 19, 26 and 55 percent
numbers relate to one another?
1263
A. Sure. So we can think about that pie as the
total size of the market. That's all the Linux 2.4, 2.6.
That had 7.4 million users. The 19 percent is the lower
bound, the minimum estimate of what I would think the
market penetration for the the SCO right-to-use license
would have been. There is this other 26 that was
potential. And, depending on how we would interpret the
somewhat concern, we get a maximum of 45 percent. So no
more than 45 percent, no less than 19 percent. It's just
the range that I calculate.
Q. Were all three studies showing interest at 19
percent or higher?
A. Yes. One was showing -- yes, all three, 19
percent of higher. The minimum was 19, and the other two
were -- their minimums were 20 and 22 percent.
Q. So, what was your -- did you draw a conclusion
from these three surveys with respect to the purchasers
for SCOsource licenses and what you've described is this
but-for world if the slander of title had not occurred?
A. So, if we take the lower bound estimate of 19
percent and we apply that to the 7.4 million total
potential market, we get 1.4 million SCOsource
right-to-use licenses. If we go to the other extreme,
the 45 percent, we get 3.3 million. So we think it's
between that range, 1.4 and 3.3.
1264
Q. Did you view these as buyers that were likely
to purchase SCO right-to-use licenses?
A. Yes.
Q. Can you explain?
A. Yes because, again, if we go back to the proxy,
and the demand for indemnification, these users appear to
be asking for a product that does exactly what the SCO
right-to-use license does. It relieves them of the risk,
of the legal risks of infringement and also the
operational risks; the need to shut down your systems if
you have to change things, down time, which can be
extremely costly. So, again, this segment, it seems to
me, really almost perfectly aligned with what the SCO
right-to-use license was offering.
Q. Did you reach any conclusion about why, in the
real world, not the hypothetical world, those 19 to 45
percent did not buy a SCOsource license?
A. In my opinion, it's the lack of clear ownership
over the copyrights. The SCO right-to-use license,
without clear ownership, is a worthless product, so it
doesn't solve their problem. You know, had the ownership
been clear, it solves their problem. Without that
ownership being clear, it's not solving their problem.
They are not going to be interested in it.
Q. Did you consider other possible reasons that
1265
users of Linux would not purchase a SCOsource license?
A. Yes. Absolutely. And that's the beauty of
this methodology. So, for example, if there are users
who say: I'm not going to buy a license. I'm not
concerned about the ownership issue, but I don't think
SCO has an infringement claim. They are never going to
win infringement.
Well, in the survey, they are not going to show
up in that 19 to 45 percent. You know, why would you be
worried about indemnification if you think there is no --
there is no legal risk there? So, yeah, the infringement
issue, different companies, different users have
different views on the infringement. And that's okay.
That's reality, and that's reflected in the answers.
Q. Did you consider whether the 19 to 45 percent
of the respondents were concerned about an infringement
risk other than SCO?
A. That's a great question because there was the
potential for other infringement risk, other companies.
Now, at the time, as we looked through the record, the
historical record of what's happening, SCO is, by far --
is the most visible one. In fact, at that time, they are
the only ones pressing claims for their intellectual
property. There were some things out there in the press
and in the literature saying that, gosh, there are 283
1266
patents out there and a bunch of them belong to IBM, and
what happens if IBM decides to start suing people.
My view is the probability of that was very low
since IBM had a very huge stake in the success of Linux.
Another thought was, gosh, Microsoft might start to exert
their intellectual property rights. They hadn't been
doing that either. But, you know, let's just assume that
that was also on people's mind.
If you were concerned -- if you were a user and
you were, say, concerned with, say, IBM and the remote
possibility that IBM or some third party which hadn't
even expressed any issue around intellectual property was
going to come after you, if you weren't concerned enough
to say you wanted indemnification, you know, compared to
SCO, you had to have been concerned about SCO because SCO
was out there saying: We intend to press, you know, our
rights for -- to claim, to make our claims, to sue people
for infringement. So SCO was a real credible threat.
So, my view is if this 19 -- this certainly
doesn't exclude the possibility that, in this 19 to 45
percent, there are users who are also concerned with
other, unspecified intellectual property risks. That's
fine.
Q. Did you consider the issue of pricing?
A. Yes. The surveys don't speak directly to
1267
price. But, let's, again, remember what's going on out
here. First of all, SCO had already announced a price
for their product. It was initially 695, and they had
made various deals at lower prices, and, in fact,
Deutsche Bank was forecasting that their price would be
$200. So, the users certainly knew the price from SCO.
They also knew the price of other indemnification out
there. There were other plans out there, and they had
various prices. And these are companies who are used to
paying a premium for indemnification.
And in fact, in the third Yankee Group survey,
they asked users.
How much are you intending to spend extra on
indemnification?
And there's, again, as you would expect, a
range of responses, but the median was about 150 to 200,
the bracket, 150 -- I'm sorry -- 100,000 to $250 thousand
per year extra on indemnification. So these users have a
range of prices in their mind at which indemnification
makes sense, and that's affecting their responses.
Q. Were there competitors who were also offering a
similar type product?
A. Yes.
Q. How did you consider that?
A. After -- after Novell's statements, a number of
1268
companies, including Novell, decided to enter this market
to offer indemnification, to tell users: No need to
worry. We can offer you indemnification.
So there are potential substitutes. I looked
at them very carefully. But if you look at the different
programs that were being offered, they were very poor
substitutes, very poor substitutes. So, for example,
Novell's program -- Novell had a program. It capped the
legal liability at $1.5 million. It required you to buy
$50 thousand worth of services in the year before. It
was restrictive. It didn't compensate you for down time.
And several others had very significant flaws,
restrictions that would make them very imperfect
substitutes for a SCO RTU, right-to-use license.
Q. Did you also consider whether, if SCO's UNIX
copyright ownership was decided now, in its favor, would
SCO be able to go into the market and recoup those sales
by going back into a SCOsource business?
A. Absolutely not. And I thought about that
question as if I had never been asked to be involved in
this case, but the case was over, SCO won the case, and
they called me as a consultant and said: You know, Gary,
can you help us figure out our strategy for the SCO
right-to-use licenses? We want to go back and try to
recoup those sales. What's your opinion? What's your
1269
advice?
And there's no way. I mean, there's just no
way they could do it. The market has moved on. Time has
moved on. You'd have to go back and find those people,
find the number of servers. Some have changed servers.
Some have outsourced their servers. Any of the possible
momentum they could have had in the market -- momentum
matters a lot in markets. If you can get something
going, you build -- you build momentum. That's dead.
The momentum is gone.
And then we also have to look at the resources
available to the company today. They had a sales force
in place then who could sell these. They had contacts in
the market. They had relationships with people. Both
some of the buyers, some of those people move on, and, as
I understand it, the sales force is not here anymore, so
they are just not in a position now to go back and recoup
those sales.
Q. So, finally, Professor Pisano, what Is your
opinion regarding how many SCOsource licenses SCO could
have sold 2003 to 2007 if the ownership of its copyrights
had not been called into question by Novell?
A. In my opinion, it would range between 1.4
million and 3.3 million.
Q. And does that refer to the 19 to 26 percent --
1270
A. Yes.
Q. -- 19 to 45 percent range?
A. Yes, sir.
MR. SINGER: Thank you.
THE COURT: Mr. Acker.
MR. ACKER: Thank you, Your Honor.
CROSS EXAMINATION
BY MR. ACKER
Q. Good morning, Dr. Pisano.
A. Good morning.
Q. Glad to see see you're a Cal Bear.
THE COURT REPORTER: Glad to see what?
MR. ACKER: A Cal Bear. We both attended the
University of California, Berkeley.
Q. BY MR. ACKER: Let me ask you, first, how many
hours have you spent working on this matter?
A. Oh, that's a great -- going back to the
beginning? Oh, I believe hundreds. Just in the last,
you know, weeks or two, 60 hours or so just in the last
few weeks, just kind of refamiliarizing myself with
things and the original report. I don't have that number
off the top of my head, but a lot. I go back to the
original, you know, creation of the report, to the
original expert report written in 2000 -- 2007.
Q. And you were paid $600 for each one of those
1271
hours?
A. Yes.
Q. And so, would you say that it's more than a
hundred hours?
A. Well, I mean, I'd really have to go back and
look. Going back to 2007 -- I have the total figure off
the top of my head of what I was paid. I believe it was
$120 thousand total. So I'd just have to do the math,
the 600, and divide it in to get that but I. --
Q. $120 thousand before -- as of when were you
paid that much money?
A. As of 2007.
Q. And, since that time, have you spent another
hundred hours or more on this?
A. Approximately.
Q. So, is it fair to say you have been paid over
$200,000 thousand for your opinion?
A. Again, I'd want to go back and look at it, but
I think it would be below 200 thousand. I'd have to go
back, but it's a number like that.
Q. It's a lot of money, isn't it?
A. Yes, sir, it is.
Q. And so you have been paid a lot of money to
give the opinion that you have given today, right?
A. No. I would say I have been paid a lot of
1272
money to do the research that I have done. The opinion
was up to me to draw. I don't think I was paid for my
opinion, at least I never viewed it that way.
Q. Now, you mentioned you prepared some reports.
Did you actually write those reports, or did the lawyers
write those reports for you?
A. I wrote those reports.
Q. So you were careful in writing those reports,
correct?
A. Yes, I was.
Q. And you, a smart guy, and you spent a lot of
time, and you made sure they were accurate, right?
A. That's true.
Q. Let me hand you, Dr. Pisano, your first expert
report in this matter. Take a look, Doctor, and make
sure I've given you the right report.
A. You have.
Q. And this is your -- the expert report and
declaration of Gary Pisano, correct?
A. That is correct.
Q. And you signed it at the back, right?
A. That is correct.
Q. And I see your signature dated May 25, 2007.
It looks like you signed it in Boston or in Cambridge,
correct?
1273
A. That is correct.
Q. And you also said that -- there's a line at 97
above your signature you say: I declare, under penalty
of perjury, that the foregoing is true and correct.
Right?
A. That is correct.
Q. And that's essentially the same oath that you
took when you walked into this courtroom today?
A. Yes.
Q. And you read it, I assume, before you put your
signature under that declaration under penalty of
perjury, right?
A. Yes.
Q. If you could take a look at page 3 of your
report, if you would, Doctor.
A. Yes, sir.
Q. And you see the second -- or fourth sentence
down that begins with "in my professional" on the right
side?
A. "In my professional opinion," yeah.
Q. You wrote: In my professional opinion, the
relevant damage period extends from the date of first
slander, May 28, 2003, to the end of of trial in
approximately 2007.
Do you see that?
1274
A. Yes, I do.
Q. So that's your damages period, 2003 to 2007,
right?
A. That's correct.
Q. And then if you could turn to page 5. You see
paragraph 12C?
A. Yes, sir.
Q. And you wrote: Based on my knowledge of the
industry, in my research and analysis in this case, I am
not aware of any causes for SCO's loss of those SCOsource
license sales other than Novell's conduct during the
relevant time period.
Do you see that?
A. That's correct.
Q. That's a true statement?
A. Yes.
Q. And so your opinion is based on your opinion
that the only thing that caused SCO to lose a license
between 2003 and 2007 was statements by Novell; is that
right?
A. Again, taking into account that the relevant
market for them and the fact that the market they could
have had was 19 to 45 percent. As I mentioned before, in
my direct testimony, there were other factors that led
people to not be interested, the folks on this end of the
1275
spectrum.
Q. But your opinion in your report is based on
your knowledge of the industry and your research and
analysis, which includes your analysis of these reports
you have identified, correct?
A. Yes.
Q. And your conclusion was that, after doing that
analysis, you were not aware of any causes for SCO's loss
of the SCOsource license sales other than Novell's
conduct. That's your opinion?
A. Yes.
Q. And your numbers that you gave this jury at the
end is based on that opinion, that the only thing that
caused SCO to lose a SCOsource license was statements by
Novell?
A. You're framing it in a way that I'm not quite
comfortable with. I just want to be clear and go back to
the analysis which says, there were actually a bunch of
players in the market who were not going to buy that had
nothing to do with Novell.
They could have been players who said: I don't
think there is infringement, they are out of it.
But, among the players who would have bought
it -- that's the subset of the market, the 19 to 45
percent -- that's my opinion, that the statements of
1276
Novell take away the sales from that segment, the 19 to
45 percent.
Q. Okay. So what you actually said in your report
is not exactly accurate. What you say in your report is
you are not aware of them losing any sales, SCOsource
losing any sales other than Novell's statement. That's
what you say here.
A. I don't agree with the way you're
characterizing it. Again, the lost sales were the ones
they could have had. There's a whole bunch of ones they
couldn't have, and so I wasn't saying they were -- Novell
was taking away those sales.
Q. Well, let me just ask this. Is this statement
true or false: Based on my knowledge of the industry and
my research and analysis in this case, I am not aware of
any causes for SCO's loss of those SCOsource license
sales other than Novell's conduct during the relevant
time period.
Is that statement accurate?
A. Yeah. That's an accurate statement, and it's
completely consistent with my analysis.
Q. And so it's accurate, and your opinion is based
on the fact that you believe the only thing that caused
SCO to lose a loss of a SCOsource license was Novell's
statements?
1277
A. Yes. Of the segment identified.
Q. Okay.
A. I think we are violently agreeing.
Q. I don't think we are, Doctor. And, again, if
you take a look at page 21 of your report. Do you see
that?
A. Yes, sir.
Q. And that is where you come up with your 7. -- a
little over 7 million total sales of Linux between 2001
and 2007, right?
A. Sir, the table 1. That's actually -- that's
the -- that's the 14.99 million, the world market. Is
that the one you're referring to?
Q. Table 1 on page 21.
A. Okay. But that's not the 7.4.
Q. Well, my question is, that's the time period,
2001 to 2007?
A. Absolutely.
Q. Right? And so, in order for this jury to
understand whether your analysis is accurate or not, they
are going to have to understand exactly what all the
factors were that may have influenced the potential
licensee's decision to buy a SCOsource license between
2001 and 2007?
A. No. You'd be buying the license. Remember,
1278
the license is not available until August of 2003.
Q. All right. So I can change my question. So,
in order for this jury to determine whether or not your
analysis is correct or not, they are going to have to
know all the potential factors that would influence a
potential licensee between the periods 2003 to 2007?
A. Yes.
Q. And they would have to be aware of all the
things that occurred in the marketplace during 2003 and
2007 to understand whether or not your analysis holds
water, right?
A. They would have to be aware? I think that
would be very helpful, to be aware of what's happening in
the market.
Q. And the reason it would be helpful to be aware
of what's happening in the market during that period is
to know what factors were influencing potential SCOsource
licensing and their decision whether to take a license,
right?
A. Yes.
Q. Now, this Yankee survey that you relied on,
true, is it that part of the reason that you believed
that -- well, let me back up. You relied on three
surveys. There's one Yankee survey. The third one is an
IDC survey. The first one, your 19 to 49 (sic) percent,
1279
that really comes from the first Yankee survey, right?
A. I'm really confused. I did not use the IDC
surveys to calculate the percentage. They were used for
a different purpose.
Q. Okay.
A. I just want to make sure I am clear with your
question.
Q. You're right. So, you've got two Yankee
surveys, and you've got a Forester survey, right?
A. Yes, sir.
Q. And the one Yankee survey that you really
focused on, that gave you the percentages that you relied
on in the table that Mr. Singer just showed to you, that
was the first Yankee survey that you talked about,
correct?
A. That's correct, sir.
Q. And part of the reason that you relied on that
survey was because you think Yankee is a reputable outfit
that does surveys all the time, correct?
A. Yes. That's one of the factors I took into
account.
Q. And, again, it would be true, isn't it, that a
company like Yankee, that does this kind of stuff all the
time would really -- you know, it would be like Toyota
makes cars, Yankee does surveys, correct?
1280
A. Absolutely. I think I said that in my
deposition.
Q. So you're relying on the Yankee survey because
of its reputation, and you do an analogy of that to
Toyota's reputation building cars; is that right?
A. Correct. I was using it as an analogy that,
if a company is in a certain business, when we go to buy
a car, we don't look at everything of how it was -- as a
car owner, there are certain -- as a buyer, there are
certain things you expect the company is doing right.
And I used the analogy of Yankee is like Toyota. It was
a metaphor for the fact that they -- this is a company
that's in the business of collecting this kind of
information. This is what they do. This is their bread
and butter. If they don't do it well, they go out of
business.
Q. Well, as we know, simply because somebody is in
the business doesn't mean they always do it right,
correct?
A. Absolutely.
Q. And, for instance, Toyota makes cars, and they
don't always do it right, correct?
A. Absolutely.
Q. And you weren't involved directly in any of
these surveys, correct?
1281
A. No.
Q. And you weren't -- you don't even have any
connection with the Yankee -- you don't know what exact
questions were asked of the respondents, correct?
A. That's not true. I do know the questions that
were asked.
Q. And do you know the exact words that were used
to every respondent that was called in that survey?
A. Yeah. They listed them in the -- in the
report. They said these are the questions, and they had
a series of charts. Here's the questions and here's the
answers.
Q. And you know the exact words that each person
communicated to the respondent during every phone
conversations?
A. Well, they were web-based. So there is a
standard one they were getting. I don't think they were
relying on people calling. As a matter of course, they
will do some followup by phone, but these were web-based.
You are getting it on there. There's a standard
question, and that's the question that the users are
getting.
Q. Do you know how many phone conversations
actually took place?
A. No. But I don't think I need to.
1282
Q. Do you know exactly what companies were part of
the survey?
A. No. We don't know the names of the specific
companies. We don't know whether it's, you know, Company
X, the Hilton Hotel. We don't know the names of the
companies.
Q. Do you know what exact businesses any of the
companies were in?
A. Yes. There's a demographic, a report across
the sectors. I don't have the numbers off the top of my
head. It was like 14 percent retail, 27 percent
professional services.
THE COURT REPORTER: Whoa. Please slow down.
"I don't know have the numbers --"
THE WITNESS: I don't know the exact
percentages here now off the top of my head, but it was
something like 14 percent were retail, 27 percent were
professional service, 10 percent were, I think,
manufacturing. Anyway, the demographic was laid out, so
we know that the distribution.
Q. BY MR. ACKER: But you don't know exactly what
companies were involved or what specific industries each
one of those companies was in, correct?
A. Yeah. We never know in surveys the identities.
Identities are always kept secret of either individuals
1283
or companies in surveys. That's standard survey
practice.
Q. And you also don't know exactly what the
infrastructure or computer needs were of these
respondents, correct?
A. No. That's not true. I mean, it describes --
the surveys describe what their infrastructures were like
and what systems they were using, so I had a pretty good
idea of that, too.
Q. Did you look, in your analysis, at all the
other factors that were involved or all the other
influences that were involved in influencing whether or
not a potential licensee would take a SCOsource license
between 2003 and 2007?
A. I looked at as many factors as I could think
of.
Q. And, after looking at all those factors, it's
your opinion that none of those factors had any bearing
other than the statements of Novell?
A. Again, just to be clear, on the 19 to 45
percent, right. That's the target group.
Q. Okay. Let me ask you about some of those
factors. By the way, you didn't have any direct
conversations with any potential licensees to determine
whether or not -- or what reasons they used or what
1284
reasons they justified for not taking a license from SCO,
correct?
A. No.
Q. And, in the surveys that you relied on, the
name of SCO, there wasn't any question that asked: Would
you take a SCOsource license, and, if not, what the
reasons were why you wouldn't take that SCOsource
license?
That wasn't asked?
A. No. The SCOsource license was, in some sense,
by that time in the market, dead.
Q. Well when you say in the market dead, what was
the time frame of these surveys?
A. Well, it was not going anywhere. I mean, it
wasn't going to go anywhere. It didn't have -- it wasn't
making sales. But there was one survey, by the way, that
did ask: Are you concerned with the intellectual
property issues?
And they put in parentheses in the question,
such as IBM/SCO.
Q. And my question was, what were the dates of the
surveys, sir?
A. April 2000 -- I'm sorry -- May, 2004. The
Yankee survey is done in April, 2004 and published in
November, 2004, and then March, 2005.
1285
Q. And, again, in none of those surveys, were the
respondents asked about any statements by Novell,
correct?
A. That's correct, sir.
Q. And, in none of those surveys, were any of the
respondents asked: Would you not take a SCOsource
license because of something Novell may have said, or are
you not taking a SCOsource license because of some other
factor?
A. Right. They are not asked that question.
Q. And so none of this survey information can help
this jury understand why it is a potential licensee may
or may have not purchased a SCOsource license, correct?
A. That I disagree with completely.
Q. Well, those questions weren't asked of any of
the respondents, correct?
A. But you don't need to. That's the beauty of
the methodology. You have got a wonderful proxy here for
something that would have been a great substitute for the
SCO RTU.
Q. And that proxy, according to you, is
indemnification, correct?
A. Yes.
Q. So, let me show you what we have marked as
G-29.
1286
A. So this is what is just appearing on the
screen?
Q. Yeah. It's going to come up on the screen.
A. Yeah.
Q. And you see Exhibit G-29 is an article, and I
want you to focus your attention on Roman Numeral X, the
article, SCO CEO. No Need To Sue More Customers.
A. Sure.
Q. Do you see that?
A. Yes.
Q. And if you take a look at the next page, you
see the reference to IG -- IDG news --
THE COURT: Mr. Acker, before you start reading
from it --
MR. ACKER: Yes.
THE COURT: I would like to you ask for its
admission.
MR. ACKER: I just want to get him to a point
and ask him a question, but I won't disclose the
substance of it.
THE COURT: Try not to disclose the substance
in the course of it.
Q. BY MR. ACKER: Well, let me hand you this.
Were you aware, Professor, that Darl McBride, the CEO of
SCO actually told in an interview that the SCO --
1287
MR. SINGER: I object, Your Honor. This is a
hearsay statement that isn't in evidence.
MR. ACKER: I'm able to probe his knowledge or
lack of knowledge underlying his opinion.
THE COURT: Well, by disclosing the contents of
the document in the course of doing so, without the
document being admitted, it's problematic.
MR. ACKER: Well, let me lay a foundation, Your
Honor.
THE COURT: Go ahead.
Q. BY MR. ACKER: It's your opinion that these
other indemnification programs out there, Doctor, didn't
have any impact on the SCOsource licensing program
because they were bad substitutes for it, right?
A. In a but-for world, okay, they would not have
been good substitutes. But, remember, the SCO RTU is not
out there at that point. It's not doing well on the
market. These things emerge, and they are -- some people
are definitely buying them. They are better than
nothing. If --
Q. Well --
A. -- you don't have a SCO RTU --
Q. But so the jury understands --
THE COURT REPORTER: One at a time, please.
Q. BY MR. ACKER: So the jury understands, it's
1288
your opinion that indemnification programs offered by Red
Hat, offered by HP, offered by Novell, that those were
poor substitutes for the SCOsource program. That's your
opinion?
A. Absolutely. They came with very significant
restrictions. For example, if you changed on any of
those programs, if you changed any of the source code --
and one of the real values of Linux is it's open source.
You can do stuff with the source code. You do that, and,
boom, your inindemnification is done. You are not
covered. That's a huge --
Q. And would your --
A. -- restriction.
THE COURT: Just a second, counsel. Let him
finish.
THE WITNESS: That's a huge restriction.
Q. BY MR. ACKER: And would that opinion change if
you knew that Darl McBride indicated that, in fact --
MR. SINGER: I object, Your Honor, if he's
going to read from a document --
MR. ACKER: I'm not reading from a document.
MR. SINGER: -- or proffer testimony that is
not in the record.
THE COURT: You a may ask the question.
Q. BY MR. ACKER: Would that opinion, that the
1289
indemnification programs were poor substitutes for
SCOsource change, Doctor, if you knew that Darl McBride
indicated that, in fact, the SCOsource program was being
harmed by other indemnification programs?
A. But, again, we have to keep in mind the
analysis. This is in the real world, with the SCOsource
product severely impaired, competing against real
indemnification programs. You can understand it. But
in a but-for world, the SCO RTU -- sorry -- the SCO
right-to-use license is not impaired, so the balance
shifts dramatically.
Q. And my question was really pretty simple. Were
you aware that Mr. McBride believed that other
indemnification programs were harming the SCOsource
licensing program? Were you aware of that fact?
A. I was not aware of that.
Q. And now, if you assume that fact, that, in
fact, Mr. McBride himself thinks that the SCOsource
licensing program was harmed by other indemnification
programs, does that change your opinion at all?
A. No. Not one bit. Not one bit.
Q. But it is your opinion that your proxy, and
that is, the basis for your opinion, is that there is an
analogy between an indemnification program and the
SCOsource licensing program. Do I have that right?
1290
A. Absolutely. You know, they were potential --
you know, potential substitutes. I actually interpret
his statement there, as I'm looking at it --
THE COURT: Dr. Pisano, there is no question.
THE WITNESS: Okay. I'm sorry.
THE COURT: Thank you.
Q. BY MR. ACKER: Let me hand you another
document, M-18. You see, Dr. Pisano, M-18, it is an
internal e-mail inside of SCO dated August 8 -- August 6,
2003, talking about ability of the SCOsource program to
provide indemnification.
A. I'll have to look at it. There's a string of
messages here. I'm having a little trouble in
interpreting that. It's the classic kind of e-mail with
the little one-line blurbs. It's actually hard for me to
really figure out what they are talking about here. They
are snippets, so I don't quite know how to interpret
this.
Q. Well, let's take a look at the e-mail beginning
down at the bottom dated 6/6/03 from Janet Sullivan. Do
you see that?
A. To Blake -- I'm sorry. Is that the one that
says: Folks, what would you say to this argument?
Q. Yes.
A. Okay: Folks, what would you say to this
1291
argument?
Yes. I mean, I've read it.
Q. And you see on the next page, on the back page,
Janet writes to Blake at SCO, and he actually talks
expressly about the inability of the SCOsource licensing
program to indemnify. Do you see that?
A. Sorry. Could you repeat your question. I
didn't get the last part of it.
Q. There is a direct reference to the SCOsource
licensing program being unable to provide full
indemnification. Do you see that?
A. Right. Yeah. So there --
Q. Let me just stop you there.
MR. ACKER: Your Honor, I'd move for admission
of M-16 -- or M-18.
MR. SINGER: No objection to this document.
THE COURT: M-18 will be admitted.
(Novell Exhibit M-18 received in evidence.)
Q. BY MR. ACKER: And so let's start the the back,
Doctor, and work our way forward. You see Joe Barr
writes to Blake Stowell inside of SCO and says:
Blake, your new Linux license apparently
expressly disclaims any indemnification for third-party
intellectual property rights.
Do you see that?
1292
A. Yes. Now, again, just to make sure I'm
following this. The "your new Linux license," are they
referring to the right-to-use license?
Q. I don't know. Is this a document you have ever
seen before, Doctor?
A. I have not seen this document.
Q. So this is news to you, this document,
correct?
A. Yeah. I have not seen the document before.
Q. And you see that Blake writes -- someone writes
from inside into SCO:
Your new Linux license apparently expressly
disclaims any indemnification for third-party
intellectual property rights. Is that an oversight or is
this the sort of thing -- something you feel Red Hat
should do but not you?
Do you see that?
A. Yes. I see that.
Q. And did you understand that that was the case,
that Red Hat was able to provide indemnification that was
broader than the indemnification that SCOsource was
willing to provide?
A. Again, I don't agree with that. There were
significant restrictions on the Red Hat program, very
significant. It wouldn't cover you for down time. There
1293
were limits. In fact, initially, they didn't cover even
legal costs. They promised to remove the code. So you
get sued, and they will say: But, okay, if we can't fix
it, we will remove it.
Well, that may not be an easy thing to do.
Then you've got down time. You're shut down. So, again,
I don't think this implies what you're saying. The Red
Hat program was very restrictive. Early on, it didn't
even cover you for legal -- if you got sued, and had
legal damages, you had to pay for them.
Q. So why don't we move on the next response at
the bottom of the first page. And Blake Stowell, public
relations at SCO says: Folks, what would you say to this
argument?
And you see there's the response above from
Janet Sullivan: That's the whole problem with Linux.
Because of the GPL, no one can in indemnify. We know
that SCO IP found its way into Linux, but we have no way
of knowing if there is other code in there that belongs
to someone else. Therefore we can't indemnify.
Do you see that?
A. We can't indemnify against the others.
Of course, SCO could not indemnify if there was
another party that had put something in. SCO couldn't
protect them from these other parties. They could
1294
clearly indem -- SCO could indemnify them, again, from
SCO. It wouldn't be indemnification. They would just
give them a license.
THE COURT: Dr. Pisano, slow down.
THE WITNESS: Okay.
Q. BY MR. ACKER: And so, SCO would only be able to
indemnify if there actually was any SCO-owned UNIX in
Linux, right? That's the only protection they could
provide?
A. The SCO right-to-use license, yes.
Q. Now, in your survey, were the respondents
asked: Would you be willing to take a license if the
only protection that you got was indemnification against
SCO-owned UNIX?
A. No.
Q. Let me show you another document. Let me show
you what has previously been admitted as Exhibit D-20.
Can you take a minute, Doctor, and I'm going to ask
you -- this is an internal e-mail inside of
Hewlett-Packard regarding their decision not to take a
SCOsource license. Have you ever seen this document
before?
A. I don't recall seeing it, but I'm --
Q. So this wasn't something that the lawyers for
SCO provided to you; is that right?
1295
A. No.
Q. And you see, in this document, a Martin Fink
lists a number of reasons why -- in the top, why he might
move ahead with a SCOsource license. And then, below,
those are the numbers, 1, 2, 3, 4, 5, 6, but in the
letters below, he provides reasons not to move forward.
Do you see that?
A. Yes, I see that.
Q. And if we turn to those --
If we could highlight, Mr. Lee, those items, A,
B, C, D and E.
And you see the first one says: Red Hat has
counter-sued SCO and will view HP as partnering with SCO
potentially refuse to deal with HP.
Were any of the respondents in your survey
asked about whether they had a problem with alienating
Red Hat?
A. No. But, again, they could take these licenses
in confidential -- in confidential ways. I don't think
that --
Q. You also see in B: We have strong indicatiions
that the Open Source community will revolt against HP and
block any future HP enhancements to Open Source SCO
products.
Were any of your respondents in your survey
1296
said: How do you feel about the potential that the Open
Source community will revolt against your enterprise
organization if you take a SCOsource license?
Was that question asked?
A. No.
Q. And then you see in C, below:
While SCO has shown Joe some code, there is
still no clear evidence that IBM or anyone else has
actually done anything wrong.
Were the respondents in your survey asked about
their understanding of whether or not SCO could actually
prove there was any protected UNIX code in Linux?
A. No. No.
Q. And then you see under D, below, Mr. Fink
wrote: All legal experts in the field believe SCO's case
is extremely fundamentally flawed and have published
white papers to support their positions attached.
Were there any questions of any respondents in
the survey about the fact that SCO's case was believed to
be, by legal experts in the field, fundamentally flawed?
A. It's actually picked up in the surveys. I
mean, it is. I mean, this is all taken into account in
the surveys. It affects the attitudes.
Q. Let's go to the next page. If we could look at
item F, it says:
1297
This is, in effect, support of terrorism.
Rewarding SCO for this behavior opens us up to other
claims. We can't predict from who or where.
Were any of the respondents in your surveys
asked about whether or not they were afraid that, if they
took a SCOsource license, they would be essentially
supporting terrorism?
A. No. I don't think they were asked the question
that way.
Q. Look under G. It says: Doing a deal with SCO
does not provide customers with full indemnification.
Customers want full indemnification, so a deal with SCO
is likely not enough.
Do you see that?
A. I see that.
Q. And you've also already told us that no one was
told in this survey: How would you feel if you only
received partial indemnification, as opposed to full
indemnification?
Correct?
A. That's correct.
Q. H. One of the concerns of Mr. Fink is: SCO
has shown a pattern of unpredictable and bad behavior.
We can't predict future behavior from SCO which could
negatively impact HP.
1298
Were the respondents asked about their concerns
about the unpredictable and bad behavior of SCO?
A. Nope.
Q. First time you've seen this document, right,
Doctor?
A. That's my recollection.
Q. In your work in rendering your opinion did
you -- were you provided with any letters from customers
of SCOsource, that those of any of the thousand company's
that received one of these 15 hundred letters Mr. McBride
sent out on May 12, were you given access to any of those
to see how they responded and what reasons they gave for
not taking a SCOsource license?
A. In my rebuttal report, I outlined those
responses, and 8 out of 32 mentioned Novell lack of
ownership for a reason for not taking the license, which
is within my --
Q. And so --
A. Which is 25 percent, which fell within my
boundary.
Q. And so, you were only given access to 32
letters; is that right?
A. Those were the 32 letters I had, right.
Q. And of those 32 letters, only eight gave any
mention of Novell, correct?
1299
A. That's correct.
Q. And how many of those eight that made mention
of Novell also made mention of other reasons why they
weren't willing to take a SCOsource license?
A. I don't recall off the top of my head.
Q. And you can't tell this jury that, in those
eight letters of the 32, that, in fact, those eight that
did mention Novell said Novell was the only reason that
they wouldn't take a license from the SCOsource program,
correct?
A. Just a sec. Can you repeat the question?
Q. Sure. The eight that mentioned Novell, all you
can recall is it simply mentioned Novell, right?
A. Yes.
Q. And you can't tell this jury that, in fact,
those eight that did mention Novell actually said Novell
was the reason why they weren't taking a license,
correct?
A. Sure. Now, again, as I mentioned in my report,
you know, that's right. These are just pieces of data,
the letters, what they write, what companies write back.
The same with their internal documentation. And if they
are writing a letter to a company like SCO, they have to
be very careful in how they -- in how they couch it,
particularly if there is a legal issue at stake. So you
1300
can imagine they could couch that letter very carefully.
So it's very hard to interpret those customer -- those
customer letters.
Q. So, are you trying to tell the jury that you
believe that when companies wrote letters back to SCO,
they didn't provide the real reason why it was that they
weren't taking a SCOsource license?
A. No. I used those letters -- actually, it was
in response to your expert's opinion and brought them
into the analysis and the discussion, and then I looked
at the letters, and I made that point in my rebuttal
report, if I recall, and then I also pointed out that,
oh, by the way, they do mention -- eight out of the 32 --
and I did say that you have to be a little careful, as we
always to have to be, in interpreting these kinds of
letters. It's just good standard practice to be
careful.
Q. So, being careful and being cautious about
interpreting the letters, you would also have to be
careful and cautious as to whether Novell is simply
mentioned is what the letters -- is actually the reason
why they are not taking a SCOsource license, correct?
A. Correct. And I drew no conclusions from the
letters.
Q. Let me show you one of those.
1301
THE COURT: Which is?
MR. ACKER: D-16, Your Honor.
Q. BY MR. ACKER: Have you had a chance, Doctor,
to look at D-16?
A. Yes, I have.
Q. You see it's a letter to Mr. McBride, dated
June 6, 2003, from General Electric regarding the
SCOsource program, correct?
A. Yes.
MR. ACKER: I'd move for admission of D-16,
Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit D-16 received in evidence.)
Q. BY MR. ACKER: General Electric is a
sophisticated and large company, correct?
A. That's correct.
Q. And in this letter on June 6, 2000 -- first of
all, have you ever seen this letter before?
A. I don't recall. I don't believe so.
Q. So, of the 32 letters that counsel provided to
you, this was not one of those?
A. Again, I want to be careful that counsel
provided me letters. In this research, I was free to ask
for whatever I wanted to get in terms of documents and
1302
letters, so it wasn't like they were just providing it.
And I can't recall the specifies around the 32 when they
came out. I think those were the ones cited in your
expert's report and therefore I looked at the analysis
around those.
Q. Did you ask for all the letters that customers
wrote indicating why it is they weren't taking a
SCOsource license?
A. I did not.
Q. You didn't think that was something that you
should have?
A. No. I had plenty of other data and plenty of
other information. And, again, those would be
reflected -- the customers -- think of it. You have
these customer responses. You know, in the survey
methodology, we pick up all these issues that we are
talking about. If they didn't think there was
infringement, they are showing up in the survey as not
being interested. They are in that other group.
So the customer letters gave us a very small
and potentially biased sample. For example, if SCO sent
those letters to the ones they thought were most likely
to be concerned, there could have been a very high
response rate. That would have biased my level upward,
and I didn't want to do that. I wanted to give the
1303
fairest view. The survey, I thought, gives the fairest
view of this. And these kinds of issues that are being
raised in these letters, concerns like in the HP
document, those are -- those are concerns lots of
companies had. That wasn't unique to HP. That wasn't
unique to GE.
And that's why I don't estimate the market at a
hundred percent. Nineteen to 45 percent is a small
percentage, small percentage. A lot of people had these
concerns.
Q. Doctor, so -- so the jury understands, you were
relying more on a survey of anonymous companies, you
don't know who they are, as opposed to actual letters
from companies telling you the reasons they are not
taking a SCOsource license. Do I have that right?
A. I think that's a more objective way to do it,
absoultely. That's exactly the way I would do it in my
academic research.
Q. So, in your academic research, you would rely
on an anonymous survey, as opposed to what happened in
the real world?
A. I wouldn't make that as a generalization, but
for this kind of problem, for understanding this kind of
issue, that's what I would do, absolutely.
Q. Anonymous survey, as opposed to what happened
1304
in the real world?
A. Not as opposed to, but for this particular one,
I did look at what's happening in the real world.
There's lots of data that I looked at that was happening
in the real world, real action, what was going on,
historical events. There's a lot of historical analysis
in my -- in my report.
Q. So let's take a look at what GE said on June 6,
2003, in writing to Mr. McBride:
Dear Mr. McBride, I am responding to your May
12, 2003 -- letter of May 12, 2003, to Jeffrey Immelt.
In that letter, you accused Linux of infringing UNIX
intellectual property rights that belong to SCO. Your
letter also states that legal liability may arise from
the Linux development process and may also rest with the
end user. We assume this statement and your purpose in
sending Mr. Immelt this letter is to notify GE of your
belief that GE has infringed your IP rights.
We take such an assertion very seriously
because GE respects the intellectual property rights of
others.
If you take a look at the next paragraph, GE
wrote to Mr. McBride:
However, we cannot begin to review the claims
you make until you provide us with more information. We
1305
request that you tell us what IP rights you are alleging
have been infringed, if they involve patents or copyright
registrations. Please provide the specifics. In
addition, please provide us the particular GE goods or
services that you believe infringe your rights. Without
these details, it is not possible for us to evaluate your
claims.
Do you see that?
A. Yes, I do.
Q. Do you know if Mr. McBride ever responded to
General Electric and told them exactly what products or
what software General Electric had that Mr. McBride felt
infringed any SCO protected intellectual property?
A. No, I don't.
Q. Let me show you another letter we have marked
as V, as in victor, 15. Have you seen this letter
before, Doctor?
A. No.
Q. And in this letter, this is a response of the
Sprint Corporation to Mr. McBride dated June 4, 2003,
regarding the SCOsource program, correct?
A. That's true.
MR. ACKER: And I'd move for admission of V-15,
Your Honor.
MR. SINGER: No objection.
1306
THE COURT: It will be admitted.
(Novell Exhibit V-15 received in evidence.)
Q. BY MR. ACKER: And you see in this letter,
Sprint responds to Mr. McBride's May 12 letter and
writes:
Your letter does not identify a specific
purpose for the letter. It does not make any request of
Sprint. I understand that SCO is currently involved in a
dispute with IBM. SCO's public statements are that,
quote, this case is not about the Linux community or us
going against them. Your letter provides no specific
allegations of infringement or any information that can
provide the basis of any investigation.
I understand, from other SCO public statements,
that your dispute with IBM is generally a contractual
matter. I take comfort that SCO has been a Linux
distributor, with the associated GNU license rights the
public has come to rely on. Sprint will continue to
depend on SCO's public statements and past actions.
Do you see that?
A. Yes.
Q. In the survey, were any of the respondents
asked about if their responses would be different if they
knew that GNU license rights were at issue?
A. No. They weren't asked that.
1307
Q. Let me show you what we have marked as Z-18.
Do you see, Doctor, Z-18 is a letter to Mr. McBride,
Mr. Sontag, Kevin McBride, from Blake Stowell inside SCO
on August 12, 2003, regarding Gardner's recommendation
regarding whether to take a SCOsource license or not.
Do you see that?
A. Yes.
MR. ACKER: I move for admission of Exhibit
Z-18, Your Honor.
MR. SINGER: Objection, Your Honor. Could we
approach on this one?
THE COURT: You may.
(Discussion between counsel and the Court outside the
hearing of the jury.)
MR. SINGER: Your Honor, in addition to this
being hearsay, which is an article by someone that's
being presented here, by some other source, it is also
entirely prejudicial under 403 because it talks about
claims in the IBM lawsuit by IBM, which is, I think, a
subject of one of the motions in limine is not to go into
other lawsuits. It talks about SCO's false -- these are
IBM's claims SCO falsely gave Sequence the uniform memory
access -- SCO deliberately concealed the specific code
alleged to have been appropriated and other allegations
related to the IBM litigation.
1308
In addition to hearsay, there is a strong
litigation value that doesn't belong in this case.
MR. ACKER: It was their opening the door on
hearsay why people weren't taking licenses. This is a
respected industry group saying don't take a license and
here's the reasons why. They wanted to get the evidence
in. They opened the door with Mr. McBride, and I am
perfectly entitled to ask this witness about these
letters.
MR. SINGER: This doesn't mean that everything
comes in.
THE COURT: Excuse me. Can the information,
specific information about the IBM lawsuit, be redacted?
MR. ACKER: Yes.
THE COURT: Let's redact that. And then, if
that's the case, I see nothing different about this and
many other articles that have been permitted in this
case, so I'm going to have to allow it to come in.
(Proceedings continued in open court.)
MR. ACKER: So, with the discussion at side
bar, I would move for admission of Z-18, Your Honor.
THE COURT: There was an objection to it, but
the Court will admit it over the objection.
(Novell Exhibit Z-18 received in evidence.)
Q. Do you see in this -- you know what the Gardner
1309
Group is, correct?
A. Yes.
Q. What is the Gardner Group?
A. They are a research business intelligence firm.
Q. And what is a research business intelligence
firm?
A. They collect data. They track industry trends.
They provide advisory services. They do consulting.
Q. And they make recommendations, correct?
A. Yes.
Q. And you see in this e-mail, Z-18, that they are
making the recommendation that potential SCOsource
licensees should not take a SCOsource license, correct?
A. Sure. Yep. I think others made the same
recommendation.
Q. I'm sorry?
A. Yeah. They made it. I think there were others
out there saying the same thing. There were lots of
other players out there saying these things.
Q. And, if you take a look at the second page. Go
down to the bottom. Hang on just a sec.
I gave Mr. Lee a complex task, Your Honor.
THE COURT: Okay.
MR. ACKER: Would you bring up just that
portion, please.
1310
Q. BY MR. ACKER: And you see that what the
Gardner Group is saying in their recommendation in August
of 2003 --
A. Sorry. This is not very visible on this
screen. Is there a part on here you could direct me? Is
there a part I can read on the paper?
THE COURT: I can see why it is hard to read on
the screen.
Q. BY MR. ACKER: Sure, I can do that.
A. If you just want to highlight it for me or mark
it.
Q. I can trade you.
A. Yeah. You've got it marked here.
Q. You see what the Gardner Group is saying is:
Customers with large Linux commitments should
avoid paying SCO server license fees, since they appear
arbitrarily high, representing concession to SCO's claims
and will expose them to ever larger fees. Moreover,
SCO's claims challenge the foundation of GPL.
Do you see that?
A. Yes.
Q. And that was what the Gardner Group was saying
about the SCOsource licensing campaign in August of 2003,
correct?
A. That's correct.
1311
Q. Let me show you another document we have marked
as X-22. Do you see X-22 is an e-mail from Larry
Gasparro inside of SCO, to Reg Broughton inside of SCO,
on November 13, 2003, and the subject line being RTU
followup. Do you see that?
A. Yes.
MR. ACKER: I'd move for the admission of X-22,
Your Honor.
MR. SINGER: May I have a moment, Your Honor?
THE COURT: You may.
MR. SINGER: No objection, Your Honor.
THE COURT: X-22 will be admitted.
(Novell Exhibit X-22 received in evidence.)
MR. ACKER: And if we could highlight the
second paragraph, please, Mr. Lee.
Q. BY MR. ACKER: And, Doctor, you see, beginning
in the middle of that paragraph the word "I proceeded."
A. Yes.
Q. And what Larry Gasparro is saying to
Mr. Broughton regarding his presentation of SCOsource --
Well, actually, let's start the the top of the
paragraph. I'm sorry:
I traveled to Knoxville, Tennessee for a
meeting with the Regal Entertainment Group. The Regal
Group is one of the America's largest movie theaters,
1312
with over 5,000 screens in the U.S. I met with the CIO,
director of IT, and senior counsel at Regal. I, again,
had the impression that the CIO was putting the Linux
decisionmaker, director of IT, in front of SCO to learn
of the potential consequences of his decision. This is
not a fact but an impression.
I proceeded to give the one-hour presentation
and many questions came up. SCO sold/distributed Linux.
Isn't this all about SCO and IBM, etc.? Very common
questions. As I presented the example of literal
copying, the director of IT noted that the example was
prehistoric and ultimately SCO, suggesting that we are
attempting to claim copyright -- you would have a hard
time proving ownership. He claimed that the example is
suggesting that we are attempting to claim copyright
infringement for the words, quote, "and" or "the."
I hinted that SCO is obviously not presenting
evidence to the general public that we are preparing for
our $3 billion lawsuit.
Do you see that?
A. Yes.
Q. Have you ever seen that e-mail before today,
Doctor?
A. I don't recall, no. I don't think so.
Q. Let me show you another e-mail that we marked
1313
as W-24, another letter. Do you see this is a letter
from a MASCO Corporation to Mr. Philip Langer at SCO on
January 15, 2004, regarding the RTU license or the
SCOsource program? Correct?
A. That's correct.
MR. ACKER: I'd move for admission of W-24,
Your Honor.
MR. SINGER: No objection, Your Honor.
THE COURT: W-24 will be admitted.
(Novell Exhibit W-24 received in evidence.)
MR. ACKER: Why don't we highlight the second
paragraph, if we could, Mr. Lee.
Q. BY MR. ACKER: In response to SCO's letter,
MASCO wrote:
Given that we have only had a short period of
time to investigate your latest assertions, your letter
of January 13, 2004, is premature. Each of SCO's letters
have been a generalized statement of its alleged rights
in the Linux operating system with no specific
information concerning MASCO'S use of the operating
system. If you have specific knowledge of our use of
Linux, we suggest that you provide such information. If
not, we suggest that you allow us to continue with our
investigation without repeated inquiries. We
respect our -- we will report our findings once we have
1314
concluded our investigation related to SCO's December 19,
2003, letter.
Now, Doctor, were you -- do you know whether or
not SCO ever provided any specific information regarding
alleged infringement by MASCO?
A. No. I don't know.
Q. Let me show you another letter, Exhibit T-25.
Do you see Exhibit T-25 is a letter from Verizon to SCO
regarding the SCOsource licensing program, dated January
30, 2004? Do you see that?
A. Yes.
MR. ACKER: I'd move for admission of T-25,
Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit T-25 received in evidence.)
MR. ACKER: And if we could highlight the
entire letter, Mr. Lee.
Q. BY MR. ACKER: In the second paragraph, Verizon
wrote:
While Verizon respects the intellectual
property rights of third parties, including those of its
suppliers, we do not believe that we are violating any
SCO intellectual property rights with respect to Linux,
UNIX or any other intellectual property. We are
1315
following closely SCO's efforts to document and sustain
its intellectual property claim with respect to Linux.
In this event, we believe that is necessary -- it is
necessary -- or -- in this event, we believe that it is
necessary and appropriate for us to discuss this matter
further. We will arrange for such a meeting.
Are you aware if Verizon ever had any meeting
with SCO?
A. No.
Q. Are you aware if Verizon ever felt it was
necessary to have a meeting with SCO?
A. No. I'm not aware.
Q. Are you aware of the reasons why Verizon
decided that it was not necessary to have a meeting with
SCO?
A. No. I'm not aware.
Q. Exhibit F-26. Do you see Exhibit F-26 is a
letter from the Oracle Corporation to Ryan Tibbitts,
general counsel of SCO, dated February 6, 2004?
A. Uh-huh.
Q. Do you see that?
A. Yes.
Q. Do you see it's written in response to a letter
that SCO wrote to its chairman, Oracle's chairman,
Mr. Larry Ellison? Do you see that?
1316
A. That's correct. Yep.
MR. ACKER: I'd move for admission of F-26,
Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit F-26 received in evidence.)
Q. BY MR. ACKER: Oracle is a pretty sophisticated
company in the software and computer industry, isn't it?
A. Yes.
Q. And it's chairman, Mr. Ellison, is a pretty
sophisticated guy, isn't he?
A. I would say so.
Q. And this was his response to SCOsource's demand
for a license: Dear Mr. Tibbitts, I write in response to
your letter dated December 19, 2003, to Larry Ellison.
It is difficult to respond substantively to your letter,
given the lack of any specific information for Oracle to
analyze. Oracle certainly respects the intellectual
property rights of others. However, based on the
information provided in your letter, it is impossible for
Oracle to determine whether any code in the 71 identified
files may be infringing. Although it would appear in
your letter that the -- that SCO alleges that portions of
the 71 identified files infringe SCO's copyrights, there
is no identification of any specific code with any --
1317
within any one of the 71 files.
Oracle can hardly analyze SCO's claims without
such information. Moreover, Oracle would not be able to
complete any such analysis, given that SCO's own
investigation is ongoing. Oracle would be happy to
analyze any claims SCO may have had, once SCO's
investigation is complete and all of the specific code
alleged to have infringed has been identified.
Do you see that?
A. Uh-huh.
Q. Doctor, do you know whether or not anyone at
SCO ever identified any specific code that it believed
Oracle had in its Linux operating system that was
infringing any SCO UNIX copyrights?
A. I know that SCO has done its own investigations
as to which code is infringing.
Q. Do you know if there -- if any specific
information was ever provided to Oracle?
A. I don't know, no.
Q. Is it fair to say that the fact that no
specific information regarding whether or not a potential
licensee's products infringe might be a reason why
someone would decide not to take a SCOsource license?
A. Absolutely. Again, I would agree with that
completely. That's why my method is what it is. It
1318
picks it up, as is true for the other comments from the
other letters. It's all picked up in the method.
MR. ACKER: Let me show you what we have marked
as F-27. Do you see that F-27 is a letter dated March
19, 2004, from the Google Corporation to SCO, regarding
SCO's SCOsource licensing program?
A. I see that.
Q. I'm sorry?
A. I do see that, yes.
MR. ACKER: Your Honor, I'd move for admission
of F-27.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Novell Exhibit F-27 received in evidence.)
MR. ACKER: And if we could highlight the
second, third and fourth paragraphs, Mr. Lee.
Q. BY MR. ACKER: Were you aware, Doctor, that on
March 19, 2004 -- well, first of all, you know what
Google is, correct?
A. Absolutely.
Q. It's a pretty sophisticated company, correct?
A. Yes.
Q. In fact, would you disagree with the statement
that Google may have more servers than many other
companies in the United States?
1319
A. Absolutely.
Q. So, this would be a potentially large customer
for the SCOsource licensing program, correct?
A. Absolutely.
Q. And sophisticated about software. You would
agree with that, correct?
A. I would agree.
Q. And you see what Google wrote back to SCO on
March 10, 2004. And, again, March 10, 2004, do you
believe, by that point in time, Novell had made some sort
of slanderous statements in the marketplace?
A. Yes.
Q. And what is your understanding of when it is
that Novell made any slanderous statements in the
marketplace?
A. So, the first statements are made in May, 2003,
and then again in December of 2003, and then again in
January and February of 2004.
Q. Well, let's start with March -- or May of 2003.
Do you know what date the statement was allegedly made?
A. May 28, 2003.
Q. And are you aware of any statement by Novell on
June 6, 2003?
A. Yes.
Q. And what's your understanding of that
1320
statement?
A. That was the statement that retracted their
ownership claim.
Q. That's your understanding of what that
statement was?
A. That's my understanding what the public
statement was, yes.
Q. Okay. And then, the next public statement by
Novell was not until December 22, 2003?
A. That's correct.
Q. So there's this gap between June 6, 2003, when
it's your understanding that Novell retracted its claim
to ownership of the UNIX copyrights, and December 22,
2003, correct?
A. That's correct.
Q. Did your study factor that gap in, in any way?
A. Sure. I mean, the -- first let's keep in mind
the SCO RTU, as a product, wasn't even available until
August. In fact, even some of these letters are previous
to that time. So that's clearly an issue that has to be
considered. The RTU is available in August officially.
And, yes, there is a gap, but once the statement is made,
there is doubt. Doubt. Then it clearly corrects the
doubt to some degree. But then, in December, again, it
all kind of comes out.
1321
So, whatever doubt might have been removed by
December, it's -- that doubt is there big time. And
there's no way you're going to be able to sell RTU's at
that point.
Q. So, is your analysis and your -- in your
numbers based only on when the RTU license was first
available?
A. No. The RTU license becomes available. But,
remember, it would apply to servers going back to 2001.
Any server with 2.4, Linux 2.4, would have SCO's code in
it.
Q. And do you know how many of those servers that
were first sold in 2001 were still operating in 2003?
A. The IDC data would -- no. You wouldn't know if
somebody had pulled a server off. So, if they had a
server and they took it off line, you wouldn't know
that.
Q. But you're counting servers back to 2001, even
though you don't know how many of those servers that went
online in 2001 were no longer online in 2003?
A. Because they'd still be liable.
Q. Even though the licensing program didn't even
come into place until 2003?
A. Yeah.
Q. Isn't it true that the best evidence of how
1322
successful the SCOsource licensing program may or may not
be is what happens in the real world?
A. No. No. Because that's affected by factors
like the slander, and, you know, we have to look at --
that's why we have to do these kind of analyses, to see
what's a good -- what's a good proxy.
Q. And so, wouldn't the best information about how
successful the SCOsource licensing program would be,
would be what happened in the real world before you
believe there was any slanderous statement on May 28,
2003?
A. Again, you know, as you say, "what happened in
the real world." And there's lots of data, lots of
historical records. And we have letters here from
lawyers. Now, again, I think when -- you know, when
lawyers write to lawyers, they couch things. They write
in a certain way. I'm not sure how I would even, you
know, weigh these. They are certainly a factor, but
clearly, in the context of potential litigation, letters
are going to be couched, I sense, in very careful ways
and may not disclose all the reasons.
Q. But isn't it true that the best evidence of how
successful the SCOsource program would be is what
happened between SCOsource being announced, in January of
2003, and this alleged statement May 28, 2003?
1323
A. Let's remember. The SCOsource right-to-use
license, which is the product I analyzed, was not
introduced until August of 2003, not January.
Q. So, does your analysis not depend on any
program that was announced prior to August of 2003?
A. Yeah. I don't look at any -- yes. I'm looking
at a product that was launched in August of 2003.
Q. And so your analysis in no way factors in what
happened between January of 2003 and May 28 of 2003?
A. I think it considers it as part of the
historical context. I think I cover a pretty broad patch
of the industry.
Q. And my question was: Does your numerical
numbers -- in coming up with those numbers, did you
consider what actually happened in the real world between
January of 2003 and May 28 of 2003?
A. Sure. Absolutely.
Q. And you know what happened in the real world is
there was an announcement of the SCOsource program in
January of 2003, correct?
A. There was an announcement that SCO was forming
a division to pursue its intellectual property claims,
and there's different licenses. And the right-to-use
license was not announced until August of 2003, August
6.
1324
Q. And the only licenses that were signed between
January of 2003 and May, 2003, were one license to SUN,
correct?
A. Yes.
Q. And one license to Microsoft?
A. Right.
Q. Correct?
A. And those were not right-to-use licenses.
Q. And those licenses were UnixWare licenses,
correct?
A. That's correct.
Q. And that's what happened in the real world,
right?
A. Yes.
Q. Let's go back to the Google letter and see how
Google responded to this SCOsource licensing program:
In our January 28 letter, we noted that your
prior letters appear to have been form letters, and it
was, therefore, difficult to assess your position as it
relates to our particular business. We asked that you
provide us with further information, including the
precise portions of the files at issue, what you believe
were copied from copyrighted UNIX code, what versions of
the kernel you believe contain proprietary code and so
on.
1325
Instead of addressing the issues we raised, it
appears that you have chosen to simply to send us another
form letter. Indeed, the closing paragraph of your
letter begins, quote, "please contact me by (one week
from date of letter-specific date) -- and there's a
(sic) -- so that we may schedule a meeting."
Presumably, you intended to replace the
parenthetical with a specific date but inadvertently
failed to do so. We do not believe it will be productive
to engage in further discussions until you have addressed
the issues raised in our January 28, 2004, letter, a copy
of which is enclosed for your convenience. Once we have
received a response for the issues noted in the letter,
we reiterate that we will be happy to investigate the
matter further and get back to you.
Do you see that?
A. I see that. Yeah.
Q. Did you -- in the survey that you relied on,
were any of the respondents asked how willing they would
be to accept indemnification from a company that sends
them repeated form letters and forgets to fill in the
dates?
A. No.
THE COURT: Mr. Acker, would this be a good
time for a break?
1326
MR. ACKER: Yes, Your Honor.
THE COURT: Ms. Malley.
MS. MALLEY: All rise for the jury, please.
(Jury leaves the courtroom.)
THE COURT: How much more do you have,
Mr. Acker?
MR. ACKER: Not that much, Your Honor, ten to
15 minutes.
THE COURT: We'll take a 20-minute recess.
MR. ACKER: Thank you.
(Short break.)
1327
***** Part 3 *****
1328
THE COURT: Anything, counsel, before we bring the
jury in?
MR. ACKER: No, Your Honor.
MR. SINGER: Not from us, Your Honor.
(Jury present)
THE COURT: Go ahead, Mr. Acker.
BY MR. ACKER:
Q Let me show you one more letter, Dr. Pisano.
Sir, you see this is a letter from Morgan Stanley to
SCO on March 24th, 2004, again, regarding the SCOsource
licensing program? Do you see that?
A Yes.
MR. ACKER: I move for admission M-27, Your Honor.
MR. SINGER: No objection.
THE COURT: It will be admitted.
(Defendant's Exhibit M-27 was received into
evidence.)
MR. ACKER: Mr. Lee, go to the second paragraph,
please.
BY MR. ACKER:
Q Morgan Stanley wrote to SCO in March of 2004, in our
December 19th, 2003 and January 22nd, 2004 letters to you,
we requested information to enable us to assess the
intellectual property and other rights referred to in SCO's
letters. To date, we have not received the information we
1329
requested. Although your earlier correspondence referenced
ABI code that had allegedly been copied into Lunix, you did
not respond to our request, contained in our January 22nd
letter, for more details relating to that allegation.
Moreover, the AutoZone complaint does not provide us with
the information we requested; it simply lists copyright
registrations for items allegedly owned by SCO, the
complaint does not identify any of the specific instances of
SCO's code allegedly contained within Linux.
Do you see that?
A Yes, sir.
Q Have you ever seen this letter before?
A No.
Q Let me show you one more document, what has been
admitted as Q-22. It is a large document, sir, but I'll be
pointing you to a specific portion. Feel free to look at
any portion you like.
You are familiar with what a form 10-K is, correct,
sir?
A Yes.
Q What is your understanding of what that document is?
A This is a detailed annual disclosure of financial
information a company makes to the SEC every year.
Q What is the purpose for such disclosures to the
Securities and Exchange Commission?
1330
A It's for -- really for investors to make sure that the
material information about the company is out there in
public hands.
Q When you say the material information about the
company, what is material information?
A Information about the company's business, how it's
doing, its financial state, so income statements and pending
litigation, other things that could affect the fortunes of
the company.
Q Do you believe that Novell's allegedly slanderous
statements regarding ownership of the UNIX copyrights would
have been material statements to SCO in 2003?
A In 2003. You know, again, depends on the timing
because -- sorry. You stood up.
MR. SINGER: That's okay. I don't have an
objection.
MR. ACKER: Do you want to say something to Mr.
Singer?
THE WITNESS: He stood up. I thought there was an
objection.
THE COURT: You did the right thing.
THE WITNESS: I slowed down for once.
You know, it's potentially material at that point.
Again, it's tricky because there are statements on May 28th
and then there are retractions. This document is for the
1331
fiscal year ended October 31st, 2003, so unclear at that
point.
BY MR. ACKER:
Q Well, you are aware of a letter written August 4th,
2003 by general counsel, Mr. Joseph LaSala, of Novell to Mr.
McBride saying that Novell owns the UNIX copyrights? You
were provided that document, weren't you?
A Yes.
Q Do you believe that that is a material fact to SCO?
MR. SINGER: Way outside the scope, and
irrelevant.
THE COURT: Overruled.
THE WITNESS: Again, I am not so -- again, my
background is an economist. I don't do accounting. That's
a whole separate area about what goes into the SEC, what's
appropriate. There's a whole body of regulation. But what
is considered material, I gave you kind of a general, in
some sense, layman's term of material. There is a whole
series of rules and regulations around that about what goes
in, et cetera. So I really don't feel comfortable answering
that.
BY MR. ACKER:
Q Let me ask you as an economist. In your expert opinion
that you've offered here today, do you believe the fact that
Mr. LaSala had told Mr. McBride on August the 4th, 2003 that
1332
Novell still owned the copyrights, do you believe that's
material, from an economic standpoint?
A I think it's -- material to what?
Q To SCO's business.
A I think at that point it's hard to say. You know,
again, use of the term material as it's used for statements
is how the business is going to be from a very specific
regulatory point of view. Was that important? I'm sure it
was something important for them. But when they got the
letter, I'm sure it raised potentially to certainly
important.
Q As an economist offering an opinion about the effect of
allegedly slanderous statements by Novell, do you believe
that Mr. LaSala's August 4th, 2003 letter to Mr. McBride
saying Novell still owns the copyrights, do you believe that
was a material fact?
MR. SINGER: Your Honor, I object. This has
nothing to do with his testimony.
THE COURT: Well, I allowed the first question
because I thought that perhaps you might be able to lay a
foundation that he had unique qualifications to testify as
to this. But you have not laid that foundation, so I'm
going to sustain this objection.
MR. ACKER: Okay.
//
1333
BY MR. ACKER:
Q Sir, if you could take a look at what you have in front
of you, page 36 of 87. The numbers I'm referring to are on
bottom left of the document.
A Yes, I see them.
MR. ACKER: And if we could highlight the last
sentence of the paragraph, Mr. Lee, that is headed our
future SCOsource licensing revenue is uncertain. The
sentence begins with additionally.
THE WITNESS: I'm going to take a sec to read the
paragraph, if I may?
MR. ACKER: Sure.
THE WITNESS: Again, you wanted me to focus on the
sentence additionally, the success, that sentence, sir?
BY MR. ACKER:
Q I'm going to ask you a question, and I want you to be
fully prepared for it.
A Okay.
Q Now in the phone survey that you -- let's first start
with the sentence. You see the sentence -- the last
sentence reads, additionally, the success of this initiative
may depend on the strength of our intellectual property
rights and contractual claims regarding UNIX, including the
strength of our claim that unauthorized UNIX source code and
derivative works are prevalent in Linux. Do you see that?
1334
A Yes.
Q So this is SCO telling the federal government that the
success of SCOsource may depend on whether or not we can
prove there actually is protected UNIX source code that is
prevalent in Linux?
A Yes. Absolutely.
Q During the phone survey that you relied on, were any of
the respondents told, in deciding whether or not they would
take a license or request indemnification, that the person
offering the indemnification didn't know whether or not they
could prove any infringement?
A Sir, I just want to clarify, it was not a phone survey.
It was a Web-based survey. But within the follow-up,
they -- again, if a party is looking -- thinking about --
somebody is thinking about do I want indemnification, they
are thinking about the risk. If they think there is a low
chance of infringement ever being claimed, they are not
going to be interested in indemnification. If they think --
or they are just willing to take the risk. They are just
willing to take the risk. Let's see what happens. It may
be possibly later, but let's just take the risk. They are
not going to be interested.
Q My question was were any of the respondents, either by
phone or by electronic methods, told that the person
offering indemnification or the person that poses the threat
1335
of which you would want indemnification doesn't think they
can prove infringement? Were they told that?
A No, they didn't need to be.
Q Let me ask about that. How much would it cost to do a
survey on your own that you believe would be something that
you could rely upon? What would be the dollar amount?
A If I were to do the survey?
Q You or somebody you hired.
A Ten to $20,000, depending on the size and method.
Q And so you think a survey could be completed for ten to
$20,000 that you would find acceptable?
A Yes.
Q So that's about one-twentieth of what you have been
paid to offer your opinion in this case, correct?
A Yes.
Q And so SCO and its lawyers could have had you for
$20,000 actually conduct a phone survey and ask -- or online
survey, and ask respondents are you interested, what is your
interest in taking the SCOsource license? That could have
been done?
A That would have been absolutely flawed methodology.
I'm doing this study in 2007. To try to go back and ask
people about their demands during a previous time frame
would be -- you would get all sorts of what we call
retrospective bias. You're asking people what would you
1336
have done then. It would have been a very, very flawed
methodology. That would not have passed scrutiny in peer
review journals.
Q This lawsuit was filed in 2004, wasn't it, sir?
A That's true, but I was doing my study in 2007.
Q So you weren't asked to do it in 2007, but this lawsuit
has been pending since 2004, correct?
A Yes, that's true.
Q So a survey could have been conducted by SCO and its
lawyers at the same time as these Yankee studies that you've
relied on, correct?
A Then they would presumably -- I mean, ethically
disclose who they are, what they are representing. Now you
have the first -- remember the first criteria I cited for
trusting a survey, does the party have an incentive to be
unbiased. If you have a survey sponsored by SCO or SCO's
lawyers asking them questions that pertain to this case,
personally, if I were just looking at that survey from the
outside, that does not meet my first criteria. So I don't
think they were in a good position to do that.
Q They certainly could have obtained somebody that they
considered to be unbiased, somebody like yourself, correct?
A Actually, if you look at the Yankee and Forrester, they
make a big deal about the fact they are unsponsored surveys.
Q Do you think you are biased here today being paid by
1337
SCO?
A Nope.
Q Do you think you could have conducted an unbiased
survey if you had been asked to that in 2004 and actually
told people on the phone or via e-mail I want to know your
interest in taking a SCOsource license?
A But then you have to disclose to those people the
purpose you are doing it, and they may have their own biases
about SCO and opinions about SCO, et cetera. You could get
very biased answers because actually respondents are
affected by the outcome of the case. If somebody is
planning on, you know, not taking the license and they are
taking the risk of infringing, gosh, they have a real
incentive to see things come out in a different direction.
I think that methodology would be very problematic.
Q So is it your opinion that it would have been
impossible for a survey to be conducted to actually ask the
question how interested you are in taking a SCOsource
license in 2004?
A At that point, remember, that's post slander. So
that's post the fact that people knew the product was
worthless because the ownership claims are not there.
There's too much -- you can do that survey, but I don't know
what you would get out of it.
Q You're saying the survey would be worthless because
1338
it's post slander?
A It would be problematic because the product, post
slander -- the product was ruined by the slander. And,
therefore, if you were to ask people what is your interest
in taking a SCO RTU post slander, they are going to tell you
exactly what the market is, I don't want this, it's
worthless. These guys, I don't know if they own the
copyrights, so why would I pay them. That's what you would
learn. You would learn exactly what the market told you,
not much interest.
MR. ACKER: Let's put up X-23.
BY MR. ACKER:
Q You've seen this document before, correct?
A Yes.
Q You realize that on December 22nd, because Mr. McBride
was still in the marketplace saying that SCO owned the UNIX
copyrights, Novell decided to put onto its Web site the
correspondence that had been going back and forth between
the companies as well as the actual contractual documents,
the APA, Amendment 1 and Amendment 2. Are you aware of
that?
THE COURT: Mr. Singer.
MR. SINGER: I object. This is counsel testifying
about why Novell did it. The form of the question is
objectionable.
1339
THE COURT: I will sustain the objection.
BY MR. ACKER:
Q You are aware that placed onto Novell's Web site was
all of the correspondence back and forth between the parties
as well as the contracts that were at issue, right?
A Yes.
Q And you would agree with me that once that material was
out in the marketplace, those in the market could make up
their own mind regarding the contract dispute, correct?
A Well, yes. I mean, they could make up their own mind.
Again, as I mentioned earlier, Novell's statement are pretty
powerful and quite credible. And if there is uncertainty
over ownership, it's just -- the license is a non-starter.
Q And the reason that you would have trouble with that is
because, as you just said, Novell's statements are very
powerful and quite credible, correct?
A Yeah. Because, as I mentioned before, they were first
party to the transaction. That's what makes them powerful.
They weren't some third party saying, hey, wait a minute
here, it's looks like the one who sold the assets in the
first place.
Q The surveys that you relied on, did they, in any way,
tell the respondents in the surveys, here is the contract at
issue, here's the APA, here's Amendment 1, here's Amendment
2, here are the different arguments, and then ask them how
1340
likely or how interested they would be in asking for
indemnification?
A No, certainly didn't ask that specifically.
MR. ACKER: Nothing else, Your Honor.
THE COURT: Mr. Singer.
REDIRECT EXAMINATION
BY MR. SINGER:
Q Mr. Pisano -- Professor Pisano, are surveys generally
more reliable if conducted specifically for litigation or if
they are designed and conducted for a non-litigation
purpose?
A For a non-litigation purpose.
Q Were the surveys that you relied on here conducted for
a litigation purpose?
A No.
Q If Novell thought that a survey was the right way to
measure the effect of the slander at issue in this case,
could they have conducted their own survey?
A Sure.
Q Now you have been shown a lot of letters -- a number of
letters, and are they taking into account people who might
write those letters, in your methodology?
A Sure, absolutely.
Q Would those be in the 55 percent who if in fact they
weren't interested in the product?
1341
A Yeah. The residual group, the 55 to 81 percent, they
would be in that group.
Q Now you mentioned at one point in your testimony that
you looked at a series of letters that Novell's expert,
Mr. Musika, had identified?
A That's correct.
Q Were you shown all of those letters here in
cross-examination?
A No.
Q Did you determine whether a certain amount of those 32
letters, in fact, referenced Novell's copyright allegations
as a reason for not buying the license?
A Yes. As I mentioned before, eight out of 32 referenced
it.
Q That would be almost 25 percent of a group of letters
that Novell's expert identified?
A That's correct.
Q Now, in addition, in your rebuttal report, did you
identify letters from a variety of customers which Novell
has not shown you here today?
A I believe so, yes.
MR. SINGER: Could we put on the screen SCO
Exhibit 227, a letter from Ford. Let Professor Pisano see
the next page of that.
1342
BY MR. SINGER:
Q Are you aware of this letter from Ford?
A Yes.
MR. SINGER: Can we look at Sherwin Williams, SCO
Exhibit 187.
THE COURT: Are you going to ask for the admission
of any of these?
MR. SINGER: I was going to ask for them after the
witness was seeing all four of them.
THE COURT: All right.
BY MR. SINGER:
Q Could we look at SCO Exhibit 187, the letter from
Sherwin Williams; is that correct?
A Yes.
Q And can we look at Exhibit 188, and this is a letter
from Morgan Stanley?
A Yes.
MR. SINGER: I would like to move into evidence
Exhibit 188.
MR. ACKER: No objection, Your Honor.
THE COURT: 188 --
MR. ACKER: May already be in.
MR. SINGER: If you go, Mr. Calvin, to the third
paragraph of the letter.
//
1343
BY MR. SINGER:
Q And in this, is this a situation where, in addition to
other information, Morgan Stanley was asking, in January of
2004, for documents or information that disproved press
reports that questioned SCO's claim of ownership of relevant
UNIX code?
A Yes.
THE COURT: Do you move for 188?
MR. SINGER: Yes.
THE COURT: There is no objection, correct?
MR. ACKER: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 188 was received into
evidence.)
MR. SINGER: I would like to move for 227 and 187
as well.
MR. ACKER: That's fine.
THE COURT: They will both be admitted.
(Plaintiff's Exhibits 187 and 227 were received
into evidence.)
BY MR. SINGER:
Q Now in connection with these letters that you were
shown in cross-examination, is it surprising that companies
who are asked to buy a license for something which they
thought they were getting for free might push back?
1344
A Absolutely. It's no different than my office coffee
used to be free and now you have to start paying 25 cents.
Wait a minute, it used to be free. So there is a little bit
of psychology here that comes into play. It's like this was
ours, we assumed it was ours to use, how dare you. And I
think there is a little bit of that.
Q Did it surprise you that IT directors and lawyers at
some of these companies would push back an allegation that
they owe a license fee rather than just write a check?
A It's not surprising at all.
Q And in your "but for world", Professor Pisano, where no
slander has occurred, you wouldn't have statements then made
by Novell calling into the question of copyrights; is that
right?
A That's correct.
MR. ACKER: Objection, leading, Your Honor.
THE COURT: Sustained.
BY MR. SINGER:
Q In your but for world of no slander, would there have
been any statements by Novell questioning copyrights?
A No.
Q And do you think when the prior seller of UNIX, Novell,
says SCO doesn't even own the copyrights, do you think that
may have an effect on the substance and the tone of the
letters which are then being written back to SCO that you've
1345
seen here?
A Yes.
MR. ACKER: Objection, calls for speculation, Your
Honor.
THE COURT: Overruled.
THE WITNESS: Yes, it would have a big impact.
BY MR. SINGER:
Q Now do any of those letters matter in your analysis of
the "but for world" which occurs if the slander hadn't taken
place at all?
A No, because the letters I think would look very
different.
Q Has anything that you've seen here today in the
cross-examination changed any of your conclusions as to the
effect of the slander on SCO's business?
A No, not at all.
MR. SINGER: Thank you very much.
THE COURT: Mr. Acker.
MR. ACKER: Nothing further for Dr. Pisano.
THE COURT: May this witness, then, be excused?
MR. ACKER: Yes, Your Honor.
MR. SINGER: Yes.
THE COURT: That means you may return to Harvard,
if you want to. After this experience, you may want to
charge more next time, at least what you have to do in the
1346
courtroom, all right.
Thank you, Dr. Pisano. We do appreciate it.
MR. HATCH: Your Honor, we call Dr. Christine
Botosan.
CHRISTINE A. BOTOSAN,
Having been duly sworn, was examined
and testified as follows:
THE CLERK: If you would please state and spell
your name for the Court.
THE WITNESS: Christine A. Botosan, spelled
C-h-r-i-s-t-i-n-e, Botosan is B-o-t-o-s-a-n.
DIRECT EXAMINATION
BY MR. HATCH:
Q Good afternoon, Dr. Botosan.
A Good afternoon.
Q I was hoping we would say good morning.
Where do you work presently?
A I work at the University of Utah.
Q How did you come to be at the University of Utah?
A I started my career in public accounting. And after a
few years in public accounting decided to pursue my dream of
becoming a professor. So I went to the University of
Michigan and I earned a Ph.D. in accounting. Then I took my
first job as a faculty member at Washington University in
St. Louis. I was there for five years.
1347
Then the opportunity came along to move to the
University of Utah. At the time I thought it looked like a
great opportunity, rewarding career, but also the
opportunity to have some balance in my life and have a happy
family life. At that point in my life I had been married 17
years, I wanted to make 18, and also had two children, so we
decided to come to the University of Utah. I have been here
11 years and happy to report I will soon be celebrating my
29th wedding anniversary, so that worked out okay.
Q Let me give you what we've marked as SCO Exhibit 749.
A Thank you.
Q Is this a copy of your current resume?
A It is.
MR. HATCH: Your Honor, I move that Exhibit 749 be
admitted.
MR. BRENNAN: I have no objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 749 was received into
evidence.)
BY MR. HATCH:
Q On top of the resume it gives -- is that your current
position at the university?
A It is.
Q It says the George S. and Dolores Dore Eccles
presidential endowed chair in ethical financial reporting,
1348
correct?
A That's correct.
Q How did you get that position?
A So that is a chaired position. I think, as Dr. Pisano
mentioned earlier, that's the highest rank of a faculty
member, so you have to move up through the ranks from
assistant professor to associate professor with tenure to
full professor, finally to chair professor. It's based on,
you know, your accomplishments.
Q Great. Do you have an area of particular specialty?
A I do. My areas of specialty are in financial
accounting and financial statement analysis.
Q How much of your professional life is devoted to giving
expert testimony in litigation?
A Very little really. As I said before, I'm employed
full-time as an accounting professor, and I have a demanding
family life. I've got three boys to take care of. I
include my husband in that. And so the time that I do have
to devote to work is really committed to service to my
institution, research, and I'm teaching my students how to
read and analyze financial statements. So I spend more time
teaching others to apply the skills and techniques that I've
learned to bear when I do chose to do an expert witness
engagement than actually doing them.
MR. HATCH: Mr. Calvin, if you would show us pages
1349
2 and 3. Start with page 2. At the top it says
publications and accepted papers.
BY MR. HATCH:
Q So I take it you have written extensively in your area
of expertise?
A I have.
MR. HATCH: If you go through the second page, Mr.
Calvin.
BY MR. HATCH:
Q It looks like -- I have 23 articles or papers that
you're written?
A That's correct.
Q Then the next page you have working papers. How are
those different from the other papers we saw?
A Those are projects that I'm currently working on. So
they have not yet been published, but hopefully some day
will be published.
Q Have you received any awards or honors other than, of
course, your chair?
A I have. So I've received teaching awards. I have also
received research awards. So one of my papers won what's
referred to as competitive manuscript award, which is a
competitive award from my national -- from the American
Academy Association, which is an organization of academics,
accounting academics. We have about 8,000 members. That
1350
paper also won the notable contributions to accounting
literature award because it was deemed to open up an entire
area of research.
Q Do you have any experience in evaluating and analyzing
corporate profits?
A I do. Quite a bit. As I said before, I started my
career in public accounting, so it was a regular part of my
job to prepare corporate financial statements, including
income statements that report corporate profits. And since
then, for the last 20 plus years, I've been teaching
financial accounting courses that focus on the measurement
and assessment and analysis of corporate profits.
Q Have you served as a financial expert in any other
matters?
A I have served on probably about seven expert witness
cases over the last ten years.
Q Do you do any consulting work outside of serving as an
expert witness in litigation?
A I do. I also will sometimes work with financial
analysts. So these are individuals that work for investment
banks that are going to be forecasting future profits for
the firm or perhaps providing a buy, sell or hold
recommendation on the stock, and they want to make their
recommendations or their forecasts based on the maximum
amount of information that they can gather.
1351
So sometimes they will come to someone such as myself
and they will say, can you go through and do an in-depth
analysis of the financial statements of this company that
I'm interested in and flag -- hence, the name red flag
report -- any of the issues that I need to be aware of that
I might need to ask management about or that I should take
into consideration in preparing my forecast of corporate
profits and assess what the effect of that issue would be.
So I write that up in a report and then that goes back to
the analysts and they use it in their assessments.
Q In addition to your teaching and your research and
consulting work, are you involved in any other academic
pursuits?
A So another big part of an academic's job is service,
service to the academic community at large as well as
service to their home institution. And so as part of my
service commitments to the academic community, I am
currently the associate editor of Accounting Horizons, which
is one of our premier practitioner oriented journals in my
field. I'm an incoming associate editor of Contemporary
Accounting Research, which is one of our top academic
journals. And then I was just recently elected the vice
president of publications for the American Accounting
Association. Again, that organization I mentioned a moment
ago. And my primary role as the vice president of
1352
publications for that organization will be to chair the
committee that will choose the editors for several of our
top academic journals.
Also for the American Accounting Association, I, in the
past, served as the chair of the Financial Accounting
Standards Committee, and that was a committee that I really
enjoyed working on because it had potentially a lot of
impact. That is the committee that would respond to
standard setters when they want to change the standards. So
what we did is we wrote a response to the standard setters
to say, well, based on the research, we think this is a good
or a not so good proposal. While I chaired and worked on
that committee, I co-authored -- I think it was eight
responses to the Securities and Exchange Commission, the
Financial Accounting Standards Board, and also the
International Accounting Standards Board.
From a more sort of local perspective, my service to
the University of Utah, I have served on a large number of
different committees over the years. But currently the two
things that are taking up most of my time are chairing the
Strategic Planning Committee for the business school, and
I'm also the director of our Ph.D. program for the school of
accounting. So I work very close with my Ph.D. students.
Q When did you first begin to work on this case?
A January of 2007.
1353
Q What were you asked to do?
A I was asked to compute the amount of damages, if any,
that SCO sustained as a result of Novell's harmful acts.
Q Were you asked to make any assumptions?
A I was asked to assume that SCO did, in deed, own the
copyrights. But I was also asked to assume that we were in
a "but for world" where Novell did not claim ownership of
those copyrights.
Q In your work, were you able to determine damages to a
reasonable degree of certainty?
A Yes, I was.
Q What did you consider in doing your work?
A I considered -- I considered external analyst forecasts
of sales revenues. I considered internal forecasts as well.
I also considered evidence that was available of what
Novell's actions had been.
Q What is your estimate of the damages SCO suffered as a
result of Novell?
A I have a range. So at the low end, the number that I
computed was $114 million, and at the high end it's $215
million.
Q Now how did you arrive at your damages estimate?
A I did what is referred to as a lost profits analysis.
Q What does that involve?
A It involves, first of all, determining the amount of
1354
sales that the plaintiff, in this case SCO, suffered as a
result of the defendant Novell's harmful acts. And then
deducting from those lost revenues or lost sales, the costs
that they would have incurred in generating those sales to
arrive at lost profits or the amount of profit that the
company lost as a result of the bad behavior.
Q You said the first prong of that is to determine the
lost revenues. What types of revenues did you consider that
SCO lost as a result of Novell's actions?
A The revenues that I considered were all under the
SCOsource division and there were two streams of revenue
within that division, the vendor license revenues and also
the right to use, or RTU, license revenues.
Q The jury has been here for a week and a half. Let's
make sure we are on the same page. Can you tell us what you
understand vendor licenses to be?
A Certainly. So vendor license revenues were revenues
that were derived from licenses that were signed with
large -- the UNIX vendors. And in return for an up-front
fee, what SCO provided to the vendor was the right to use
their UNIX and UnixWare intellectual property in the
development of their own products.
And at the time that all of this was being discussed,
SCO's management and external analysts projected that there
would be up to 15 -- potentially 15 of these types of deals,
1355
and that they would generate $10 million per deal on
average.
The other type of revenue I think was --
Q There were two. What was the second one?
A Right. The second one was the right to use licenses.
And the right to use licenses were licenses that would be
signed with Linux end users. So, in that case, the up-front
fee was being received in return for SCO's giving a right to
use their intellectual property embedded in Linux to the end
user.
And at the time that all of this was being discussed,
external analysts predicted there would be hundreds of
thousands of those sorts of licenses and that they would
sell for between $100 and $300.
Q Now did you consider how successful SCO had been in the
vendor license program before Novell's acts complained of
here?
A I did, yes.
Q What did you find?
A I found that the program was announced in January of
2003, and by February of 2003 they had negotiated an
agreement with Sun which ultimately generated about $9
million in revenue for SCO. And then several months later,
in April of 2003, they negotiated another agreement with
Microsoft, and that agreement generated about $16 million in
1356
revenue.
Q Your understanding was that was from the SCOsource
division?
A Yes.
Q How did you determine, going forward, the amount of
losses to SCO from vendor license revenues?
A So I had to try to re-create how much revenue SCO would
have earned if Novell had not claimed ownership of the
copyrights. And so a well accepted methodology for doing
that is to look at pre-litigation forecasts of what the
revenues were expected to be. And so that's what I did in
the case of the vendor license revenues.
Q Are you able to show those calculations?
A I am.
MR. HATCH: Your Honor, I would like to put up
some boards. I promised the jury in the opening that we
would calculate this for them. If you would give us a
second?
THE COURT: Go ahead.
MR. HATCH: Thanks.
BY MR. HATCH:
Q Dr. Botosan, I'm going to put up a couple boards for
you. I provided some erase dry markers here for you to use.
THE COURT: Mr. Brennan, if you need to move,
don't hesitate.
1357
MR. BRENNAN: Thank you. I appreciate that, Your
Honor. With the Court's permission, I think I will go to
the other side of the courtroom?
THE COURT: Yes.
Mr. Brennan, we can move a chair up here for you
if that's better for you.
MR. BRENNAN: I think I'm fine here, if it's
acceptable to Your Honor. Thank you.
BY MR. HATCH:
Q Dr. Botosan, I think right now we're talking about
vendor licenses, right?
A Uh-huh. (Affirmative)
Q If you could show us how you came to do your
calculations for us.
A Sure. So for the vendor license revenues -- what I'll
do first is I'll just write down the numbers by year that I
determined and then I will explain where the numbers are
coming from.
So for 2003, the amount of revenue that I determined
that SCO would have earned but for Novell's harmful acts was
27,250,000. And for 2004 -- this is in millions -- was
30 million. For 2005, was ten million. And 2006, ten
million. And 2007, was ten million. For a total of
87,250,000.
Now, as I said a moment ago, to come up with these
1358
numbers, I relied on pre-litigation forecasts. And I had
two sources of forecasts. Internal SCO forecasts, so these
would be forecasts that management generated themselves, and
then also external forecasts that were prepared by financial
analysts that worked for investment banks.
Now given the opportunity to use both of those, if I
had forecasts from both sources, my preference would be to
use an external analyst forecast because they are going to
be more objective. Management tends to be optimistic about
things. And if you think about an analyst who's external to
the company, they don't have any dog in the fight. They
want to try to do the best job they can to forecast because
they are providing information to their clients that are
making investment decisions. The way an analyst is going to
build their own reputation in the market is to do a good job
of forecasting.
So my preference would be to use a pre-litigation
forecast from an external source when it's available. The
only year that I didn't have an external forecast available
was for 2003. So, in 2003, this number came from an
internal forecast from SCO's management. But it just so
happens that in 2003, almost all of these revenues were
actually realized. So as we'll see in a moment, 2003
ultimately contributes very little to my lost profits
analysis. It only contributes about one percent of the
1359
total because most of these sales were, in fact, not lost.
Most of these were, in fact, earned by SCO.
Q So you are just estimating the revenues?
A I'm estimating the revenues.
Q Do you consider -- you used the word optimistic in a
certain circumstance. Are these optimistic or are these
conservative estimates?
A These are conservative estimates of what the
revenues -- what the revenues would be.
Q Well, tell the jury why you view them as conservative.
A Okay. So I said a little while ago that at the time
that they were discussing the program, SCO had projected
that they thought there were going to do 15 of these $10
million deals that would be available. So, in total, they
were anticipating 15 deals at $10 million a piece.
And those beliefs were confirmed in an external
forecast that I had available from Deutsche Bank. The
Deutsche Bank analyst also said in his analysis that he
agreed that there were 15 potential deals and that the
amount of revenue that would be generated by each of these
deals might range between five million and $20 million. So
he gave quite a broad range between five and 20 million. So
at the end of the day, in doing his own forecasts, he also
said I think $10 million is the most likely amount.
Q Tell us for a second, if you would -- you say you
1360
relied on Deutsche Bank. What is Deutsche Bank?
A Deutsche Bank is a very large investment bank. They
have an excellent reputation. They've been around since
1870, so they are a very well established firm. They have
over 80,000 employees. They operate in 70 countries. So
they are well known for providing this sort of information
to their clients.
Q Were they independent or are they related to SCO in any
way?
A Totally independent. So they also confirmed that they
felt these numbers were reasonable.
So if you take 15 contracts at $10 million a piece,
that would imply there was a potential for up to
$180 million in vendor license revenues if I had taken into
consideration all 15 of the deals at $10 million a piece.
So it's on that basis that I would say 87,250,000 is not
conservative. It was close to half. It's a little more
than half, or it could have been if I used the 15.
Q So when the jury is considering the damages to SCO is
87,250,000, the number they should use for the losses is
vendor licenses?
A No. No. That is a measure of how much revenue in
total I would have expected SCO to be able to generate in
the "but for world". So that number represents -- I'm going
to have to squeeze it in here -- expected revenue. From
1361
that number, I have to subtract off the actual revenue
because, obviously, if they sold it, they didn't lose it.
So from that 87,250,000, I deducted their actual revenue
that they didn't lose, which was 25,846,000. And that
brought me down to a lost revenue on the vendor license
revenue side of 61 million for '04. That's the lost revenue
for that stream.
Q So that's the lost revenues. Before we go any further
with that, did you determine what the lost revenues would be
for the RTU, the right to use license stream?
A I did.
Q Can you show us how you calculated that?
A I can. I'm going to go over to that board. It's going
to get too crowded.
There were two different ways that I went about
calculating the lost revenues for the RTU stream. One of
the approaches that I took was the same as what I did for
the vendor license revenue. Once again, I went and looked
at pre-litigation forecasts to see what people believed SCO
was going to do in that market before the litigation, and
that is my best estimate of what their revenues would have
been in the "but for world". So that was one approach.
The second approach that I used was relying on the
analysis that Dr. Pisano described to you earlier today, the
size of the market and the market penetration to come up
1362
with numbers of licenses that they would have been able to
sell. So I did the analysis for right to use using both
approaches, and then said, well, you know, I do get kind of
the same answer using those approaches.
Q So could you show us how you did that for the first
approach you did?
A Sure. So for the right to use licenses, this is based
on the forecasts. Again, I'll just put down the numbers and
then I will explain where they are coming from. So for
2003, there was no amount of RTU revenues really expected
for 2003 because the program was announced so late in the
year that nobody really anticipated there were going to be
substantial amounts of RTU licenses sold in 2003. The
program was expected to really get off the ground and
substantial revenues start to be generated in 2004. So for
2004, the revenues were 23 million; 2005, 42 million; 2006,
42 million; 2007, 42,000,000. For a total of 149 million.
Q I notice that you have the exact same numbers for 2005
and 2007. Why is that?
A So in this case, I have access to forecasts for 2004
and 2005, and those are the only years that anybody
forecasted RTU license revenues for. So I had those two
numbers from an external source, but I didn't have any
forecasts for 2006 and 2007. So, instead, what I did was
make the assumption that there was going to be zero-percent
1363
growth in the sales over those two time periods, which I
considered to be a conservative assumption, so I was
comfortable.
Q Why is that?
A For a couple of reasons. First of all, if you can just
look at these two numbers, the analysts that did the
forecasts for '04 and '05 assumed that there was going to be
83-percent growth in sales between those two years. So one
of the ways that we sort of try to project forward is to
look at the past. And it would be atypical -- it would be
possible, but it would be atypical for a company to generate
83-percent growth in one year and zero percent for the next.
Normally you might expect some stepping down in the growth
rate.
The other reason why I could have supported a positive
growth rate here instead of zero percent was based on Dr.
Pisano's analysis of what was going on with Linux. And what
he found in his analysis was that more and more people were
using Linux. And so over this time period, SCO's market,
the size of the market to SCO was getting bigger each year.
So on the basis of the fact that more people are using
Linux, you could make the argument that they are going to
sell more SCOsource licenses as the market grows.
Q So over here you indicated you relied on an independent
analyst, Deutsche Bank. Is that who you relied upon here?
1364
A So here I relied on Deutsche Bank for those two
numbers, and then my growth assumption of zero percent.
Q All right. So the ultimate number you got there was
how much? What was that?
A 149 million.
Q Did you consider that, like on the vendor licenses, to
be a conservative or an aggressive, optimistic number?
A So I considered that number to be conservative as well.
I've already indicated that I felt that the growth rate that
I was assuming was conservative. But I had other evidence
that provided me with comfort that this was -- this was a
reasonable number as well.
In the Deutsche Bank forecast, what sort of underlies
these two numbers, because these two numbers came from the
Deutsche Bank forecast, is an assumption that what SCO was
going to be able to do was sell 650,000 licenses at $100 a
piece. So that is where -- that is where this $65 million
worth of revenues is coming from.
In that same forecast, what the analysts did was they
said, you know -- and they state in their report -- we think
this is conservative. We think there are some scenarios in
which SCO would do better than that. And so they described
what they refer to as a best case scenario. You know, if
they are firing on all cylinders, how well could they do.
So they said if under the best case scenario, we think they
1365
could sell two million of these licenses at $200 a piece,
that would have generated $400 million worth of revenues in
those two years. So that was the best case scenario.
Q You say that's just for two years?
A That would be for those two years.
Q Which two years?
A 2004 and 2005.
Q So that would be -- all right. Go ahead.
A Okay. Then in between sort of this best case scenario
and the scenario that they described as reasonable but
conservative was another scenario where they said, well, you
know, it's also possible in between there that they would
sell 900,000 licenses at $100 a piece, in which case we
would end up with $90 million worth of revenues in 2004 and
2005.
So while those numbers were out there, I felt that it
was more appropriate for me to be prudent and use the number
that the analyst described as conservative and also the
number that the analyst himself placed the most reliance
upon. And so I used the 650,000 times 100, relying on this
here, to get the $65 million worth of revenue there.
And then by virtue of applying a zero-percent growth
rate, what is really happening, I'm sort of building
conservatism on top of conservatism. I'm starting with a
low base and I'm not letting it grow. So there are two
1366
levels of conservatism kind of buried in those numbers. So
at the end of the day I felt quite comfortable with that
number.
Q I'm trying to ask what would happen if you had used,
you know, kind of the best case scenario where the
percentage of growth would have been increased each year?
A So if I used a positive rate of growth, then this
number would be bigger obviously. If I had used, let's say,
a $200 price, which the analyst actually described as the
most likely price -- they thought out of the range of one to
$300, $200 was the most likely price, so I could have said,
well, the analyst says that's the most likely price, so I'm
going to do the calculations using 200. If I had done that,
that alone would double that number, right, because embedded
in that is an assumption $100, which would have gotten us to
close to $300 million.
Q Dr. Botosan, do you recall I asked you if the
87 million was the final number you took out of actual
sales. Did you do a similar analysis with the 149 million?
A I did. So in this case, the actual sales -- so this is
the amount that I would expect them to be able to generate
over this time period, and then from that I took the actual
sales, which was $1,214,000, which gave me lost revenues,
then, of 147,786,000. So that was my loss, 147,786,000.
Q It's thousand or millions?
1367
A 147,786,000.
Q My apologies. Now you said you used a two-prong
approach. Did you look at it from using different
information?
A I did. So the other analysis that I did was based on
the market analysis approach, and both of these are well
accepted methods, the forecast approach and using a market
analysis. So in this case, since I am not an expert in the
same field that Dr. Pisano is an expert in, I'm an
accountant, so I'm good at accounting, I'm not going to be
the type of person that would go out and analyze the market.
But, luckily, I had access to Dr. Pisano's analysis. And so
he used his expertise and, as you've heard earlier, came to
the conclusion that at a lower bound -- so he had a range,
lower number, and at a lower bound, Dr. Pisano estimated
that SCO lost -- so these were lost RTU licenses, so this is
in units, at a lower bound, one million --
Q Dr. Botosan, when you say units, I want to make it
clear, this is dollars up here?
A Yeah, this is in dollars.
Q Put dollars on that.
Then when you say the analysis you are now doing is
units, tell the jury what that means.
A That these are actual licenses. This is the number of
licenses that Dr. Pisano estimated SCO lost as a result of
1368
Novell's conduct.
So at the lower bound, it was 1,478,000 licenses, where
at the upper bound it was 3,325,000 licenses.
So I took his estimate of how many licenses they lost
and then I multiplied that. So, again, to be conservative,
I looked at the range that the analysts were talking about,
$100 to $300, and said, okay, I'm going to choose the bottom
of that range, $100. I took that price of $100 per license,
multiplied it by the number of licenses that Dr. Pisano
estimated SCO lost, and came up with another way of
estimating the lost RTU revenues. And that gave me
147,800,000 at the lower bound, and 332,500,000 at the upper
bound.
Q So using Dr. Pisano's numbers, that would be the range
of damages using a market analysis study?
A That would be the range of lost revenues.
Q Lost revenues.
A For damages we still need to take off cost.
Q So when you compare the two forecasts, the forecast way
of coming at the lost revenues and market analysis, what are
the differences?
A So I took a lot of comfort from this analysis because
his lower bound number gave a lot of support to the number
that I had come to using entirely different methodology.
Remember, I'm using the analysts' forecasts where they are
1369
projecting what the revenues are going to be. Dr. Pisano is
looking at surveys of, you know, how many people are willing
to buy indemnification and how many Linux deployments there
were. So he's doing an entirely different analysis. Yet,
we came back to very similar numbers at the lower bound.
So I felt a lot of comfort in that because it told me
that what I would expect the analysts to be doing up here
when they were projecting things out repeated exactly the
kind of analysis that Dr. Pisano ultimately did except they
should do it in real time. They should also be asking the
question how big is the market and how much do we think SCO
could sell. That provided me with a lot of comfort.
Q When you talked about the range of prices, 100 to $300,
you picked 100 because that was very conservative, right?
A Yes.
MR. BRENNAN: Objection, leading the witness, Your
Honor.
THE COURT: Sustained.
BY MR. HATCH:
Q Why did you pick $100?
A I picked it because it was the lower bound of the range
100 to 300, because I wanted to be conservative.
Q When the independent analysts were talking about the
price per unit, what did they say the best number to use
was?
1370
A They said that the range would be 100 to 300, but they
felt 200 would be the most likely price.
Q So you picked a more conservative. If you use the
number the independent analysts would have used, what would
the numbers be on both of those -- what would the numbers
be?
A The answer to that question, I want to be a little
careful, because they said 200 was the most likely price,
but in forming their forecasts up here, remember, they
themselves used 100, so they also were being conservative.
And so if I had, instead of using 100 like the analysts
did and been conservative like the analysts did, instead
said I'm going to go with what the most likely price is,
then I would have used 200, and that would have doubled both
of those numbers. So roughly 300 million to 600 million
would have been the numbers if I used 200.
Q Now we've identified two different streams of revenue,
correct?
A Correct.
Q Can you combine those two for us?
A So what I did on my next step --
Q Do I need a third chart?
A No. I think I'm going to be able to squeeze it in
here, depending on how many more questions you have.
So what I did next is I took the lost revenue for the
1371
vendor license -- I'm going to say VL for now, short for
vendor license, lost revenue, so that number was 61,404,000.
And then I took the RTU lost revenue, based on my forecast
analysis was 147,786,000. And I added those together, and
it came up to $209,190,000 as total lost SCOsource revenues
because, you remember, SCOsource has both components
comprising it.
Q So is that the damages then?
A No.
Q What do we have to do -- what do you have to do to -- I
mean, what's next?
A Okay. So that is revenue --
Q I guess I should ask, why wouldn't that be your
damages?
A Because they are going to incur costs. So, you know,
like any business, it takes -- you incur costs in generating
revenue. So if you think about the kind of product that SCO
was selling here, marketing costs are going to be probably
one of the biggest components of costs they are going to
incur. So I had to deduct from this number an estimate of
costs.
Q Why did you pick those types of costs?
A Well, actually, I ended up going with three different
big categories of costs, cost of goods sold, marketing
costs, and selling general administrative costs. I picked
1372
those categories because those are the three categories of
costs that SCO traditionally incurred in selling their
products. So I used -- I just looked at, you know, what
types of costs do they have, and I stuck with kind of what
costs they had incurred traditionally in their business.
Q So you took these there types of costs, how did you
work that into your calculations?
A So what I needed to do next was I needed to figure out
for every dollar of revenue that SCO generated, how much
cost would they have incurred in the "but for world" again.
And so I used a very standard technique. It's a technique
that we see used in expert witness engagements. It's also a
technique that a company might use internal to their own
operations if they are trying to figure out, you know, how
much cost am I going to incur for an incremental dollar of
revenue that I'm going to generate. For every dollar of
revenue, how much cost am I going to have.
So the technique that I used was a regression analysis.
I won't go into the boring details of that. Basically what
it does is it just relates costs to sales. And based on
that analysis, I determined that SCO would incur 46 cents in
costs for every dollar of sales.
Q And is that a conservative number?
A Again, I felt that was a very conservative -- a very
conservative estimate of their costs.
1373
Q Can you explain to us why?
A One reason why is because if you think about the nature
of the product that SCO was selling, there wasn't
development that was going to be associated with this
product, which is kind of different from, you know, their
typical cost structure where they might have had some
development. I came to that number by virtue of looking at
SCO's kind of existing cost structure development costs.
And then there is not going to be delivery costs
associated with this product because you are just providing
them with the right to use. So that is one reason why I
feel this is a conservative number.
I also went back working with those independent
analysts reports because they talked a lot about the
SCOsource business and how they -- you know, how it was
going to work. And the analysts inferred frequently in
their discussions that one of the great things about this
SCOsource product for SCO was that it was going to generate
revenues at a very low cost. In fact, some of them even
implied in their discussion there might be close to no cost
associated with generating SCOsource revenues. One of the
analyst's quotes was to the effect of and the revenue will
go directly to the bottom line.
So I've got 46 cents, which is basically taking 46
percent of this number away, which was pretty generous.
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Q So did you use that number in the calculation to
determine the actual cost that you needed to reduce the
revenues by?
A So I took 209,190,000 times 46 cents to get the costs,
which was 95,211,000, and I subtracted those off to arrive
at the lost profits number of 113,979,000, which was that
lower bound number that I referenced at the beginning of our
discussion when I said at a lower bound their damages were
114 million. That's where that number is coming from.
Q All right. So is that the number or do we have to go
another step?
A No. We're done.
Q Well, I'm not going to let you down yet -- or up yet.
I think you indicated -- at the beginning of the
testimony you indicated an upper bound of your estimates. I
think you said that was the lower bound. You said an upper
bound was 215 million. Where does that number come from?
A Where that number came from was using Dr. Pisano's --
the number implied by Dr. Pisano's upper bound of the lost
units. So if I take the $332,500,000 of lost revenues on
the RTUs, so instead of using 147,786,000, using that upper
bound number of 332, and then adding in these vendor license
revenues -- of course they are not incorporated into Dr.
Pisano's numbers. He was just focused on RTU.
Q Is there room you can write this down?
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A I don't think I can squeeze it all in. But, basically,
if I take those two numbers, add them together, subtract off
the costs, which is going to be a higher amount of costs
obviously, then I came down to -- I will just write this
number down here in red, 214,000 -- well, actually closer to
215 million. Sorry. So that was my upper bound number.
Q Okay. Just so we're clear, you have taken that revenue
number, you reduced it by costs, and what did we get?
MR. BRENNAN: Your Honor, I'm not sure we have a
question here at this juncture.
THE COURT: We don't.
MR. HATCH: You don't have a problem if she writes
it down, do you, Your Honor?
THE COURT: What?
MR. HATCH: I wanted her to write down so she had
this here, so they could see how the numbers came out.
MR. BRENNAN: Your Honor, again, I'm not sure we
have a question.
THE COURT: I'm not sure of the question.
BY MR. HATCH:
Q Do you have the ability to make the same calculation
for the upper bound as you did the lower bound?
A I do.
Q Could you do that for us?
A 61,404,000, and then adding in the 332,500,000, which
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will give me the total lost revenues. And off the top of my
head, I actually can't remember what that number was.
Subtract off the cost, then that comes to $215 million.
Q All right. I think you can go back to your seat.
A Thank you.
Q I think we've run out of board.
THE COURT: Mr. Hatch, how much more do you have?
MR. HATCH: I'm just about done, Your Honor.
THE COURT: All right. Go ahead.
BY MR. HATCH:
Q All right. So are your numbers -- your numbers are all
based on conservative numbers?
MR. BRENNAN: Objection, that's leading the
witness.
MR. HATCH: It is leading, Your Honor. I will be
happy to ask it again.
BY MR. HATCH:
Q Tell us the level of confidence you have in these
numbers after having done your study?
A I'm extremely confident in the numbers, the
conservative nature of the numbers.
MR. HATCH: That's all I have, Your Honor.
THE COURT: All right. We'll recess for the
afternoon. When we start tomorrow, we'll go to the
cross-examination of Dr. Botosan.
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(Jury excused)
THE COURT: Mr. Singer, what do we have tomorrow?
MR. SINGER: Your Honor, this is the lineup which
will take us through the conclusion of our case except for
the witnesses who will be appearing the following week. We
have the continuation of Ms. Botosan, cross-examination and
redirect.
THE COURT: Dr. Botosan, you don't need to wait
here unless you want to. This may take a minute.
THE WITNESS: That sounds great. Thank you.
MR. SINGER: We would then put on the deposition
of the salespeople whose depositions the Court has ruled can
be used. Those are very short. I think collectively about
15 to 20 minutes, not long.
THE COURT: Are there any issues with the
designation?
MR. SINGER: I would have to defer to Mr. Normand
on that issue.
MR. NORMAND: I missed the question, Your Honor.
THE COURT: Are there any issues over the
designation of the deposition testimony of the three --
MR. NORMAND: Nothing comes to mind. We'll speak
about that and we'll get them to the Court in the next few
hours. If there are issues, I think they will be very
limited.
1378
MR. SINGER: We did plan to call Mr. Maciaszek and
Mr. Nagle. Those should not be lengthy testimonies. They
cover certain points. We would then call Mr. Stone,
adverse, as a witness. I don't expect that to be too long
either. We would then play Ms. O'Gara's deposition
testimony, and then we wind up with Mr. Tibbitts.
I am hopeful we can get that all in. It depends a
lot on the cross-examination.
MR. ACKER: If I just might inquire, Mr. Stone has
some scheduling issues in the morning, it's a board meeting
he would like to attend. If there is a time certain we
could have his testimony, that would be helpful.
MR. SINGER: Is there an estimate on how long Mr.
Brennan's cross-examination of Ms. Botosan might take?
MR. BRENNAN: Longer than the direct.
MR. SINGER: I would say probably 11:30 might be a
good estimate.
THE COURT: Counsel, let me make you aware that
tomorrow I have a meeting I have to attend during the lunch
hour. So we'll recess about five minutes to 12:00 and it
will be at least a half hour lunch tomorrow.
MR. ACKER: Same schedule, to 1:30, Your Honor?
THE COURT: Yes.
MR. SINGER: I believe 11:30 is an estimate. We
could take him after the -- I take it we would be resuming
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at 12:30 to 1:30?
THE COURT: Yes.
MR. ACKER: Have him come at 12:30?
MR. SINGER: I think that would probably work out.
THE COURT: Let's plan on that, even if we have to
interrupt the middle of another witness at that time.
MR. ACKER: I appreciate that, Your Honor.
THE COURT: Anything else, counsel, before we
recess?
MR. BRENNAN: Just a housekeeping measure. I
assume that the demonstratives will be maintained without
disturbance?
THE COURT: Yes. We do not have hearings this
afternoon, so you don't have to move everything.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: If there is nothing else, we'll be in
recess.
(Whereupon, the trial was continued to Thursday,
March 18, 2010 at 8:30 a.m.)
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