This is the text transcript of day fourteen of the SCO v. Novell trial that 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 is Thursday, March 25, and the witnesses that day were Tor Braham, David Bradford, Terry Musika, Robert Frankenberg and Christine Botosan.
Here is Groklaw's eyewitness report from the trial for that day.
Jump to actual transcript start, Part 2,
Part 3.
The transcript of this day is in three parts: part 1
[PDF] [Text], part 2
[PDF] [Text] and part 3
[PDF] [Text].
2384
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware | ) | |
corporation, | ) | |
Plaintiff, | ) | |
vs. | ) | Case No. 2:04-CV-139TS |
NOVELL, INC., a Delaware | ) | |
corporation, | ) | |
Defendant. | ) | |
_________________________________ | ) | |
AND RELATED COUNTERCLAIMS. | ) | |
_________________________________ | ) | |
BEFORE THE HONORABLE TED STEWART
---------------------------------
March 25, 2010
Jury Trial
REPORTED BY: Patti Walker, CSR, RPR, CP
[address]
2385
A P P E A R A N C E S
For Plaintiff: Brent Hatch
HATCH JAMES & DODGE
[address]
Stuart Singer
BOIES SCHILLER & FLEXNER
[address]
Edward Normand
BOIES SCHILLER & FLEXNER
[address]
For Defendant: Sterling Brennan
WORKMAN NYDEGGER
[address]
Eric Acker
Michael Jacobs
MORRISON & FOERSTER
[address]
2386
I N D E X
Witness | Examination By | PAGE |
Tor Braham | Mr. Singer Cross (Cont) | 2395 |
| Mr. Jacobs (Redirect) | 2414 |
| Mr. Singer (Recross) | 2427 |
David Bradford | Mr. Brennan (Direct) | 2433 |
| Mr. Singer (Cross) | 2446 |
| Mr. Brennan (Redirect) | 2466 |
| Mr. Singer (Recross) | 2468 |
Terry Musika | Mr. Brennan (Direct) | 2473 |
| Mr. Hatch (Cross) | 2511 |
| Mr. Brennan (Redirect) | 2533 |
| Mr. Hatch (Recross) | 2536 |
Robert Frankenberg | Mr. Singer (Direct) | 2540 |
| Mr. Brennan (Cross) | 2547 |
| Mr. Singer (Redirect) | 2556 |
| Mr. Brennan (Recross) | 2559 |
Christine Botosan | Mr. Hatch (Direct) | 2560 |
| Mr. Brennan (Cross) | 2577 |
| Mr. Hatch (Redirect) | 2586 |
2387
EXHIBITS RECEIVED INTO EVIDENCE: | |
Plaintiff's: |
9 to SCO 639, pages 39783 through 39801 | 2400 |
89 | 2411 |
88 | 2412 |
123 | 2545 |
|
Defendant's: |
C-33 | 2478 |
2388
SALT LAKE CITY, UTAH; THURSDAY, MARCH 25, 2010; 8:30 A.M.
PROCEEDINGS
THE COURT: Good morning.
Counsel, let me make you aware that rulings on the
Rule 50 motion and the motion to strike have been issued,
meaning whatever we do with them in the system. Copies will
be available at the break.
You have been given a copy of a packet that shows
the latest changes based upon your filings yesterday to the
jury instructions with a list of those changes that have
been made, those that were not made. Perhaps of greatest
significance is the fact that as of this point the Court is
not going to issue an instruction to the jury on privileges.
A brief explanation as to why was given to you as well. The
reason we did that was so that those who were working on the
jury instructions independently from those of you at the
table might be able to take a look at that so we can have
that addressed thoroughly at the three o'clock jury
instruction conference.
As to that conference, counsel, understand that
the Court believes you have been able to make a proper
record by all of your filings. I don't expect you to come
in here at three o'clock and to restate everything that you
have argued in those written memorandum to the Court.
Rather, I would ask you to please focus just on the changes
2389
that have been made or not made, and those that you believe
you have not yet been able to make a record, please plan to
state your objections.
Before the day is up, I would presume by the first
break, we will be able to give you a complete packet of the
jury instructions as the Court intends to give them as of
this morning.
Are there any questions about the jury instruction
conference or the instructions?
MR. JACOBS: Your Honor, I think it would be
useful if both parties would state on the record their
assent to the Court's understanding of whether that proper
record has been made, and assuming that SCO would do so, we
would assent as well.
THE COURT: All right. Thank you, Mr. Jacobs.
MR. SINGER: We would do so.
THE COURT: Thank you, Mr. Singer.
Is there anything else, counsel, before we bring
the jury in?
MR. BRENNAN: Your Honor, just a couple of
housekeeping matters, several pertain to the closing
argument tomorrow and one pertains to an issue that arose
yesterday. First of all, I do want to report to the Court
that based on my consultation with Mr. Singer, we've agreed
that each side would have one hour and 15 minutes on closing
2390
and we anticipate that we would be held to that time.
THE COURT: You will. If that's what you agreed
to, I will keep track of that time. Okay.
MR. BRENNAN: Yes. Thank you.
The second item, Your Honor, has to do with the
use of the video clip segments of deposition testimony that
was presented during the course of the trial. Novell's view
is that to allow the use of video clip testimony during the
course of closing would unfairly accentuate testimony over
that which was live testimony in court, it would give it a
disproportionate weight and it shouldn't be given that
weight. Instead, we recommend the use of trial testimony,
whether presented through live witnesses or through
videotapes, should be presented in closing argument by use
of the transcript rather than videotaping.
THE COURT: Mr. Singer.
MR. SINGER: Your Honor, on that point, we
disagree. Obviously now we know what's in evidence, so
obviously the only thing that we would use would be
videotape that's been admitted into evidence. The jury is
supposed to give that equal weight to what live witnesses
said in court. They have had a chance to see the live
witnesses, spend time in their presence, which the videotape
just appears on the monitor and then it's gone. We don't
think it elevates the video testimony above the live
2391
testimony by playing a few seconds really, which is all we
could do, of a witness's videotaped deposition testimony.
It allows us to give it a more proper -- not even probably
up to the weight of live testimony, but at least where the
jury can recall, yes, that was a videotape, I remember who
that was, this is what Jim Wilt looks like or Doug Michels
looks like, and relate back to that testimony they heard for
only a few minutes. We don't think it is unfair and we
don't think it elevates that testimony above the witnesses
who they spent a great deal of time listening to in court.
THE COURT: I agree with Mr. Brennan on this one.
I will not allow the use of videotape portions of the
deposition. You may read the depositions, but you will be
permitted -- both sides -- to show pictures -- a picture,
not moving pictures, but a picture of the witness as they
are being referred to. I think that would be helpful, but
not anything more beyond that.
MR. BRENNAN: Thank you, Your Honor.
The third item is just a practical matter. When
we left court yesterday, Mr. Tor Braham was on the stand. I
understand that his cross-examination will continue and then
likely redirect. Because we're on a tight clock today, I
would ask for just this one indulgence. Before we call our
next witness, who we anticipate being David Bradford, I
would like to step out of the room for 30 seconds because I
2392
need to make a very quick calculation about time. I don't
think the jury -- maybe it will be at a break, but I just
need that indulgence.
THE COURT: That should be no problem at all. If
I should forget, don't hesitate to remind me.
MR. BRENNAN: The last item I have, Your Honor, is
this is really in the nature of a report to the Court. Just
so we can be clear, there was a discussion yesterday about
reference during Mr. Jones' cross-examination to trial
testimony. We do have the transcript. And if I could just
make the Court aware of what the transcript states.
THE COURT: Go ahead.
MR. BRENNAN: I think we can have it before, Your
Honor, if you would like. This is taken from page 2245.
And this is the cross-examination being conducted by
Mr. Normand. And at line 13, Mr. Normand says, Mr. Jones,
while counsel looks at this, I wanted to show you, and read
to yourself lines 16 through 20. That is from the 2008
trial testimony. Answer yes.
THE COURT: So your point is he was the one who
raised it?
MR. BRENNAN: He was the one who raised it.
THE COURT: In that respect, I was in error.
MR. BRENNAN: I didn't mean to point out any
error.
2393
THE COURT: No, that's fine. But, Mr. Brennan,
even with that, I don't believe that the instruction beyond
that which the Court gave the jury yesterday is necessary.
Are you requesting something more?
MR. BRENNAN: Here's the reason I raise it, and
perhaps the proper way to handle this is at the charging
conference we might at least make some suggestion to Your
Honor, if we feel appropriate, about an instruction that
might pertain to that.
THE COURT: You certainly may.
MR. BRENNAN: That's all I have, Your Honor.
Thank you.
THE COURT: Go ahead, Mr. Singer.
MR. SINGER: I want to note for the Court that our
understanding, I think we're in agreement with Novell, is
that Novell has an hour and 45 minutes to use today and SCO
has an hour and 55.
MR. JACOBS: That is ours as well.
THE COURT: All right.
Counsel, one other thing. As of right now my
assumption is that as far as an alternate juror, it will be
juror number 13. Unless one of you wants to argue
otherwise, and if I don't hear something from one of you
between now and the time we finish tomorrow, that will be my
intention, to dismiss juror number 13.
2394
MR. BRENNAN: That had been our understanding from
the start, Your Honor, that's the Court's intention.
MR. SINGER: Can we address that later if we have
any issues raised?
THE COURT: You may. Again, what this is giving
you the opportunity to do is if there is a juror that you
think has not been observant, has not paid attention or
something else, that I would require both of you to agree to
it before I would do it. But it will be juror 13, unless
both of you agree for some other legitimate reason, should
be the alternate.
MR. SINGER: We understand.
THE COURT: Are we now ready, then?
MR. JACOBS: Yes. Thank you.
THE COURT: Mr. Singer.
MR. SINGER: Yes, we're ready.
THE COURT: Will someone be getting Mr. Braham.
(Jury present)
THE COURT: Good morning, ladies and gentlemen.
For your information, it is clear that the parties
will be able to finish the presentation of witnesses today.
I anticipate that it will take the full day, meaning through
1:30. But that means that tomorrow we then will begin with
you being instructed by the Court on the law that you will
apply and then you will hear closing arguments. So I just
2395
thought you may be interested to know we are at that point.
You probably didn't believe that the end is near.
Mr. Braham, if you would please come forward, and
I will remind you that you are still under oath.
Mr. Singer, if you would, please, as well.
CROSS-EXAMINATION (Cont.)
BY MR. SINGER:
Q Good morning, Mr. Braham.
A Good morning.
Q Am I correct that while you were at Wilson Sonsini,
Novell was your major client?
A Not my only -- I had several large clients. It was one
of the two that I did the most work with.
Q Would you say it's your largest client?
A No. I think my -- I had another one that was a little
bit larger.
Q Novell was also a principal client of the firm?
A Yes, it was.
Q Now several years after that you left Wilson Sonsini to
become an investment banker, correct?
A That's correct.
Q You currently work with Deutsche Bank; is that right?
A Yes.
Q And you work in the technology sector of Deutsche
Bank's practice?
2396
A Yes.
Q Thus, you do business deals with companies that are in
the technology business?
A I do.
Q And IBM is one of your clients at Deutsche Bank?
A It is.
Q Now I would like to turn back to the time in 1995 when
you were brought into this transaction. Am I correct that
you and others who were working with you at the firm did the
legal drafting of the asset purchase agreement during the
last two weeks before the September 19th, 1995 signing of
that agreement?
A Yes.
Q And the business people negotiated the essential
business terms of that transaction beforehand and your job
was to document it, correct?
A That is not correct.
Q You believed that you could disregard what the business
people had negotiated beforehand?
A No. I had to listen to the feedback coming from my
client. But the deal that was done, as in every
transaction, is embodied in the contract. There are
discussions before a transaction, but the deal is done when
you have lawyers on both sides in the contract.
Q Are there any business terms that you regarded as
2397
inviolate that you couldn't revisit during these last two
weeks while you were working with documents?
A If instructed by my client and negotiated, the terms
are not inviolate until you negotiate the deal. There's the
talk and then there's the walk. The contract and the
negotiation of the contract is the walk.
Q So in this particular case your approach was in those
last two weeks you could try to change any term that you
might be able to get into the document and the other side
wouldn't object?
A I had to listen to my client and the directions that
were given by the authorized people in my client to advance
their interests. But there were a lot of people with a lot
of feedback many of whom were not properly speaking and
looking after the interests of the client, and I had to look
at the right people and watch the ball, not the crap.
Q Well, before beginning the drafting process, did you
have any conversations with Ed Chatlos?
A Yes.
Q Did you understand that he was out there negotiating on
a day-to-day basis with representatives from Santa Cruz?
A I understood that he was in discussions about a
potential transaction. Ed was part of the UNIX business
within Novell and I needed to listen to him for information.
But in terms of actually protecting Novell, I was looking
2398
primarily to people who were not part of the business unit
that were going to be moving over. So yes, I had
discussions with him, but listening to him for direction,
that's where I quibble with what you're asking.
Q You just regard what Mr. Chatlos was doing out there
for weeks if not months was just having discussions, not
negotiating the deal?
A Preliminary negotiations, but the negotiations changed
all the way to the end. And I think a lot of what he was
doing was negotiating for himself and for the business unit
that was moving over. I mean, he participated in
preliminary discussions and negotiations, but the
fundamental negotiations of the deal, like every
transaction, happen when you get to the contract.
Q Did you ever speak to Mr. Chatlos about withholding the
copyrights?
A I don't recall.
Q With respect to Mr. Ty Mattingly, did you ever speak to
Mr. Mattingly about withholding the copyrights?
A I don't believe so, but I don't recall.
Q Prior to your work and prior to the board meeting
considering the asset purchase agreement, did you have any
discussion with Robert Frankenberg with respect to
withholding the copyrights?
A I may have been on prior board meetings where this was
2399
discussed, but I don't recall specifically. I don't believe
I had any direct one-on-one discussions with
Mr. Frankenberg.
Q I would like you to look at your declaration, which is
put before you as Exhibit 639, and in particular look at
Exhibit 9 to your declaration.
Is this a term sheet which was generated in connection
with this transaction?
A I believe it's a draft of an unsigned term sheet.
Whether it was done in connection with the transaction -- it
was done as part of communications prior to the transaction,
but in connection with the transaction, it's a little
confusing to me. I don't know --
Q This is part of the file that you attached to your
declaration that was submitted to the Court as coming from
Wilson Sonsini on the case, correct?
A Yes.
MR. SINGER: I move the admission of what is
Exhibit 9 to SCO Exhibit 639.
THE COURT: Can you help me by giving me the Bates
number, please?
MR. SINGER: Yes. This is Bates number 39783
through 39801.
MR. JACOBS: No objection, Your Honor.
MR. SINGER: Let's take a look at this.
2400
THE COURT: All right. Just a second.
The number again is what?
MR. SINGER: Your Honor, it is 39783 through
39801.
THE COURT: All right. That is to exhibit --
MR. SINGER: To SCO Exhibit 639.
THE COURT: It will be admitted, those specific
Bates number pages.
(Plaintiff's Exhibit 9 to SCO Exhibit 639, pages
39783 through 39801, were received into evidence.)
BY MR. SINGER:
Q Mr. Braham, did you understand that this was generated
somewhere around September 10th, 1995, if you see the date
which appears on the bottom of the page?
A I can presume that's true based on -- I don't remember
what the date of this document was based on my independent
recollection.
Q Did you understand that this represented terms which
the parties had been negotiating prior to the draft of an
actual asset purchase agreement?
A I understand that this reflected somebody's viewpoint
of terms that they were discussing, maybe that they wanted.
But when a term sheet is drafted, a particular document is
drafted by an individual person. So to talk about it
referring to something that people on both sides are even
2401
discussing, put aside agreeing, you then have to say, well,
did they discuss this. And the document might reflect one
person's proposal or idea. What actually happened in terms
of discussing or the state it played in a negotiation, I
can't tell from looking at just the one page.
Q Did you make any reliance on this during your work on
the APA?
A Not that I recall.
Q Just so we're clear about the business negotiations, if
businessmen out in the period before you got involved,
before the last two weeks, had sat across the table and said
to each other, in this case Novell to Santa Cruz, you're
buying the whole business lock, stock and barrel, and then
got to a point of bringing in the lawyers to document the
deal, you felt yourself free to revisit buying the business
lock, stock and barrel?
A With input from my client. It happens all the time in
deals, and even varying material points of deals are
revisited at the end once you're in final negotiations.
Price changes sometimes in the last possible minutes. Deals
I do, fundamental terms move at the end.
Q Was the answer yes or no?
A I was not free to revisit independent of direction from
my client.
Q With respect to the copyright exclusion, when did the
2402
copyright exclusion first appear in the draft schedule?
A I don't recall specifically, but sometime in the last
ten days or week of the negotiation.
Q You don't recall more specifically than that?
A I saw a document that I think you showed me yesterday
that had the copyrights in the transferred assets. Then I
saw -- we have the exhibits that had it taken out. If I
looked at those two documents, I could probably look at
those dates and make a judgment as to when it occurred.
Q Do you recall it was sometime after September 12th,
1995 the schedules were even prepared?
A I have trouble picking particular dates of something 15
years ago. It was during this period of negotiation, but
exactly whether it was the 12th or the 11th or the 9th, I
really have trouble with.
Q Is it fair to say you don't recall drafting that
schedule of excluded assets yourself?
A That's correct.
Q And you do recall sending it to Burt Levine, an
in-house lawyer at Novell, correct?
A I had seen a transmittal from me -- or from my team
showing that that happened. Do I have an independent
recollection of sending it to him? No. It's in the chain
of documents that I looked at. You look at a document and
you see what's happened, and it's hard to figure out exactly
2403
do I remember that happening or do I just look at that and
see that that happened. It's somewhere in there.
Q You don't recall any conversation with Mr. Levine about
it; is that right?
A I do not.
Q With respect to presenting this to Santa Cruz, it's
your testimony that somewhere in the last week before the
agreement was signed, this schedule was presented to Santa
Cruz, correct?
A Yes.
Q They didn't push back hard, right?
A We had a discussion about it that I remember. Whether
you call it pushing back hard or pushing back a little, I
remember a discussion about the topic.
Q Well, the discussion which you remember is at one point
Mr. Higgins, who was a lawyer for Santa Cruz, asked you
about the entire schedule of excluded assets and asked is
this a requirement of Novell? That's what you recall?
A Yes.
Q And you don't know whether he was referring
specifically to copyrights as opposed to the schedule as a
whole?
A I remember that it was my belief that what he was
talking about is is it really required that we're not going
to transfer the copyrights. So he didn't use those words.
2404
He said the schedule, is this really required, but I
understood the issue -- I mean, the issue of the copyrights
was the biggest issue on that schedule, and I understood his
question about that as referring to the copyrights, but his
words, I don't believe, said copyrights.
Q Now I would like to ask you a few things about the
agreement. You discussed yesterday Santa Cruz being an
agent. Under section 1.2 of the asset purchase agreement,
didn't Santa Cruz obtain legal title to the UNIX licenses?
I think that's a yes or no question, sir.
A That language refers to legal title passing to the
licenses, not to the IP, but to the licenses.
Q When you hire an agent to sell your house, do they get
legal title to your house?
A Normally not in a real estate transaction. In other
agencies, they do, they can.
Q Now you indicated you were concerned about protecting
these royalties in the event that Santa Cruz were to wind up
in a bankruptcy proceeding in the future, correct?
A One of the reasons, yes.
Q And you did so by including language that protected
Novell's royalties by providing that Novell would be the
equitable owner of the SVRX royalties, correct?
A Yes.
Q So you could still transfer the copyrights to Santa
2405
Cruz and still protect the royalties in that way, right?
A Hypothetically could we have transferred the copyrights
instead along with the licenses if we had chose --
Q My question is simple. You already had separately from
anything involving the copyrights protected your interest in
the royalties by saying you are the equitable owner of those
royalties and reference to whatever appropriate sections to
the bankruptcy code were necessary right in the agreement,
correct?
A We wouldn't have had the same flexibility we got by
virtue of owning the copyrights. Royalties are just simply
a financial cash flow item. So we would have had a whole
set of different issues if we had transferred copyrights as
opposed to simply transferring royalty rights.
Q But you would have protected your financial interest in
the royalties, correct?
A I'm confused.
Q Well, if you had did as you in fact did do and say that
the equitable interest in the royalties belongs to Novell
under that provision of the bankruptcy code, you viewed that
as protecting the royalties?
A In the case of the royalties, it was an acceptable
methodology. In the case of copyrights, it would have
created a can of worms.
Q What kind of -- just so we're clear about this point,
2406
the rights to the revenue would follow the specific language
on ownership of the SVRX royalties, correct?
A The rights to the revenue --
Q Yes, the revenue stream.
A Well, the fundamentals of the deal and reflected in
many places is that we were -- Novell was retaining the
rights to the revenue other than the five-percent collection
fee, if you will, that we were allowing.
Q Maybe my question wasn't clear, Mr. Braham. I'm
talking specifically about the language which says that you
have equitable ownership of the royalties. The rights to
the revenue would follow, in the event of some bankruptcy or
any other proceeding, that specific language on the
ownership of the equitable interest in the royalties,
correct?
A Hopefully.
Q Now yesterday you discussed these waiver rights that
you wrote into the agreement that had all sorts of
handwriting, section 4.16 of the agreement?
A Yes.
Q Now that was in reference to a term called SVRX
licenses.
MR. SINGER: Mr. Calvin, put 4.16 of SCO Exhibit 1
on the screen.
//
2407
BY MR. SINGER:
Q We turn to 4.16, it has capitalized SVRX license. That
means it is a defined term, correct?
A I do not agree. When we do a defined term, we
typically -- in fact, in my experience we've always put a
quotation mark around it and then defined the term. There
is no -- while it's capitalized, you can have multiple
different reasons why you might capitalize a term in an
agreement. So without it actually being defined with
quotation marks -- I mean, we can look at other places in
the document that does that. I don't agree that it is a
defined term.
Q Let's see if I understand what you're saying. Up above
in 4.16(a) it uses the same term SVRX licenses as listed in
detail under item VI of schedule 1.1(a) hereof and referred
to herein as SVRX royalties. Are you saying -- let me
finish my question, please. Are you saying when it says
SVRX license in 4.16(b), are you saying that doesn't mean
what you said SVRX licenses were in 4.16(a)?
A It's not a defined term. If you look at the quotation
on SVRX royalties, that is a defined term, because you can
see the quotations. That's what lawyers do to define a
term. When something is capitalized, it may or may not be a
defined term.
Q In your view, any decision by SCO regarding a UNIX
2408
transaction could be countermanded by Novell in its
discretion, correct?
A I think there is some constraints on what it could
countermand within its own discretion under 4.16.
Q Well, if Novell wanted to allow a company as party to a
source code development license to release intellectual
property that would otherwise be protected by those
agreements, is that something under, in your view, 4.16(b)
that Novell could do?
A It could if it was part of the -- it certainly could if
it was part of the UNIX business, but not the specific
UnixWare flavor of UNIX.
Q Are you aware of Amendment 2 a year later restricting
the rights of Novell to act unilaterally even in a buyout of
these royalties?
A I'm aware of Amendment No. 2. I would have to look at
it to talk to you about what it actually does.
Q Let's look at the manner in September 15th to 18th that
this transaction is presented to the Novell board. Let's
look at Exhibit 754. This is a memorandum that Mr. Bradford
presented to the board. Did you have any involvement in
this preparation?
A Not that I recall.
Q If we look at the term sheet that's attached to this
document, you agree that under the heading Novell retains
2409
there is no reference to copyrights?
A On this document, that's correct.
Q Now this was the Friday before the board vote on
September 18th, 1995, correct?
A I would need to get a calendar and look at these dates
and match them up. If you've done that, I'll accept that.
Q The board call was a teleconference?
A That's what I remember.
Q I think you have before you Exhibit V-3, which is one
of the documents which you were shown by Novell's counsel
yesterday, Mr. Jacobs. Can you take a look at that?
A Yes.
Q And I think you testified this was your handwriting?
A Yes.
Q Are these comments where it says board call that you
were writing on this draft of the APA during the board call
on September 18th, 1995?
A Yes, I believe so.
Q And refers to Mr. Frankenberg, correct?
A Yes.
Q Up on the upper right-hand corner, is that your
handwriting that says license back?
A Yes.
Q Now you are using a draft agreement that was before you
at the time of this call, correct?
2410
A Yeah, it would be --
Q I just asked a simple question.
A Yes. This document was before me. That's how I got my
handwriting on it.
Q Would you look at the back of the agreement that's been
marked as B-3 and tell me if there are any schedules at all
on this draft of the agreement that you used to write down
comments during the board call?
A This is the first time that we're flipping through
this. I can tell you about my practice --
Q I'm not asking about your practice.
THE COURT: Why don't you let him look at a hard
copy.
BY MR. SINGER:
Q There is a hard copy before you that's marked as
Exhibit V-3. It's one of the documents that is on your
desk.
Do you see any schedules attached to that draft of the
APA?
A No.
Q Now after the board meeting, did you file a
Hart-Scott-Rodino filing with the United States government?
A I did not.
Q Novell did, correct?
A I don't recall specifically, but I would certainly
2411
expect that they did.
Q Let's take a look at Exhibit 89. This has your name on
it, Tor Braham, correct?
A Yes.
Q You understand this to be a draft of a submission to
the United States government under the Hart-Scott-Rodino
Antitrust Improvements Act?
A Looking at it now, I think that makes sense.
Q This was an act which requires big companies to file
certain papers in connection with the sale or disposition of
parts or whole of the business, correct, in general terms?
A If they meet certain thresholds, yes.
MR. SINGER: I would like to move at this time
admission of 89.
MR. JACOBS: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 89 was received into
evidence.)
BY MR. SINGER:
Q This was a draft that you prepared -- you were involved
in the preparation of this draft, correct?
A I don't recall.
Q But it has your name on it, correct?
A It's not my handwriting. I don't remember.
Q Let's turn to Exhibit 88 for a moment. Do you see this
2412
is a final version which was submitted?
A I don't know what the final version was. If you tell
me it was, I have no reason to doubt that, but I really
don't remember.
Q Do you see Mr. Bradford's signature on the second page?
A Yes.
Q Do you have any reason to doubt that this is the actual
Hart-Scott-Rodino filing that was submitted?
A No reason. Without going and looking at the filing,
no.
MR. SINGER: I move admission of Exhibit 88.
MR. JACOBS: Do you have a copy, sir?
MR. SINGER: Yes, we do.
BY MR. SINGER:
Q Mr. Braham --
THE COURT: Just one second.
MR. JACOBS: No objection, Your Honor.
THE COURT: Exhibit 88 will be admitted.
(Plaintiff's Exhibit 88 was received into
evidence.)
BY MR. SINGER:
Q Mr. Braham, looking at Exhibit 88, you understand this
is an important document, something being submitted to the
federal government, right?
A Documents to the federal government are important.
2413
Q And if you turn to page 5, Bates stamp 41355 of SCO
Exhibit 88, this identifies the assets to be acquired by
Santa Cruz in this transaction, correct? It says the assets
to be acquired by SCO are described with particularity in
schedule 1.1(a) of the agreement. The general categories
described therein are. Do you see that?
A Yes.
Q Item one is all rights and ownership of UNIX and
UnixWare, correct?
A Yes.
Q If we turn back to schedule -- to Exhibit 89 for a
moment, the draft that has your name on it, you see the same
thing appears on page 5 of that version, the assets to be
acquired, all rights and ownership of UNIX and UnixWare. Do
you see that?
A Yes.
Q So you didn't tell the United States government in this
filing that what was being transferred to Santa Cruz was all
rights and ownership except for the copyrights?
A As far as I know the agreement would have been publicly
filed.
Q Do you see anything on what was the actual form which
says in the list here, the categories of assets, it says,
all rights and ownership of UNIX and UnixWare, comma, except
Novell retained the copyrights? You don't see that, do you?
2414
A Not on this particular piece of paper, but you have to
look at the whole filing. If you want me to look at the
whole filing, I could tell you what was submitted.
Q I'm asking you about what was presented in the summary
as to the assets to be acquired and how it was characterized
to the government?
A If you're asking me whether the copyrights exclusion is
on this page, I agree that it isn't expressly called out on
this page. But when you submit a document to the
government, you incorporate by reference the whole document.
Any individual page doesn't speak for the entire submission.
MR. SINGER: I have nothing further. Thank you.
THE COURT: Mr. Jacobs.
REDIRECT EXAMINATION
BY MR. JACOBS:
Q Let's rewind, Mr. Braham, with where Mr. Singer left
off.
MR. JACOBS: Could we have SCO Exhibit 88 on the
screen, please. Then could we turn to page 4.
BY MR. JACOBS:
Q Do you have that in front of you, Mr. Braham, also?
A I have it on the screen. If you want me to find it.
MR. JACOBS: Mr. Lee, could we blow up the first
full paragraph, Novell, Inc., a Delaware corporation.
//
2415
BY MR. JACOBS:
Q Mr. Braham, what is this paragraph of this
Hart-Scott-Rodino filing doing?
A This is referencing that the entire agreement has been
submitted and incorporated by reference that full sum
agreement.
Q When Mr. Singer was asking you whether the
Hart-Scott-Rodino filing revealed to the government the
exclusion of copyrights, did he point you to this provision
where the asset purchase agreement is attached as a
documentary attachment?
A No, he didn't.
Q What is this reference to the documentary attachment
here? What is that referencing?
A The document is the definitive agreement, the APA.
Q Now when Mr. Singer was asking you about actual
negotiations and you're referring to the client, direction
from the client, Mr. Singer was distinguishing various
individuals of the client and you were referring to the
client. Can you explain to the jury again how this works in
terms of your representation of Novell in this transaction?
A In all deals, but certainly in this, you have different
constituencies within a corporation. People have different
interests, different agendas, different motivations,
different incentives. As a business adviser, whether it be
2416
an investment banker or a corporate lawyer, you have to
figure out who is really speaking for the company, in the
best interest of the company as opposed to maybe being
important to a transaction and having important information
that they are funneling through but might not be in the line
of fire as to who was actually most empowered to look after
the company and to give you direction.
In the case of Novell, it was David Bradford and the
board of directors of Novell who were speaking for Novell.
In the negotiation of this transaction, there were numerous
people who were involved in preliminary discussions and were
important to those discussions. But at the end of the day
and when the transaction was really negotiated, I had to
listen to David Bradford, who was communicating with the
board of directors and communicating to me the interests of
the company, which is similar to all the other transactions
I worked on with Novell and in other deals, you have to find
who -- figure out who the mouthpiece is as opposed to people
who are around it but not speaking for the company.
Q During the negotiations of the asset purchase
agreement, did you get specific direction from Mr. Bradford
as to individuals that he was concerned about that might be
providing you input and that he felt you should be careful
about listening to?
A Yes.
2417
Q Who?
A Well, one in particular was Duff Thompson.
MR. SINGER: This is outside the scope of cross.
MR. JACOBS: It can't be, Your Honor.
THE COURT: Overruled.
THE WITNESS: One in particular was Duff Thompson.
BY MR. JACOBS:
Q What was the concern that Mr. Bradford expressed to you
about Mr. Thompson?
A David told me that Duff had -- that the tentative
plan --
MR. SINGER: It's also hearsay.
THE COURT: I will sustain the hearsay objection.
BY MR. JACOBS:
Q Did you gain an understanding in the course of your
interactions with Mr. Bradford as to particular individuals
who you should be cautious about in taking input from?
A Yes.
Q Who was that individual?
A Duff Thompson.
MR. SINGER: He's just calling for hearsay in a
different fashion, Your Honor.
MR. JACOBS: Asking for his understanding as the
representative of Novell.
MR. SINGER: His understanding of something like
2418
that is not relevant.
MR. JACOBS: Mr. Singer made it relevant by asking
him if he spoke with the business people.
THE COURT: I will overrule the objection, but do
not elicit hearsay.
BY MR. JACOBS:
Q Did you form an understanding as to whether
Mr. Thompson might, in particular, have some conflicts that
might render his input of less weight than the input of
other executives?
A Yes.
Q What was the concern that underlay the understanding
you formed?
A The concern was that Duff Thompson was expected to go
on the board of directors of SCO.
Q And therefore?
A Was looking after the interests of SCO, at least in
part, as compared to the interests of Novell.
Q So ultimately this transaction was presented to the
board of directors of Novell for approval?
A Yes, it was.
Q And in a public company like this are there typically
rules governing what kind of transactions can be approved by
executives without the board and what kind of transactions
require board approval?
2419
A Typically companies have thresholds that certainly
enable day-to-day transactions to occur without the board.
No company can operate with having the board involved in all
the day-to-day matters. When it comes to mergers and
acquisitions and dispositions, many companies require all of
those to go to the board, and other companies have
thresholds where very small mergers and acquisitions could
be done, immaterial deals done without board approval. But
above a certain threshold or in transactions that would be
visible and might be interesting to the investing public,
those transactions require board approval.
Q So if we're trying to understand the process by which
board approval was actually given for this transaction, what
document would one look to?
A The minutes.
MR. JACOBS: Let's take another look at Z-3, Mr.
Lee.
BY MR. JACOBS:
Q Z-3 is the minutes of the board meeting -- the minutes
of the meeting of the board of directors of Novell, Monday
September 18th, 1995.
MR. JACOBS: If we go to the second page, Mr. Lee,
and the resolution where copyrights are mentioned.
BY MR. JACOBS:
Q So, Mr. Braham, in terms of whether the negotiating
2420
team representing Novell had authority to exclude the
copyrights from the asset purchase agreement transaction,
what does this board of directors resolution signify to you
as someone experienced in representing Novell in
transactions?
A Well, it expressly states that the company would retain
the patents, copyrights and trademarks, other than the
trademark UNIX and UnixWare, which combined with the fact
that the asset purchase agreement is incorporated by
reference into the minutes makes it completely clear that
the board approved and directed that the transaction be done
with these terms.
Q What about all the input from somebody like Ed Chatlos
or Ty Mattingly, how would that relate as a matter of
corporate governance to the board approval that was
obtained?
A It would not be relevant.
Q Even the CEO, Mr. Braham, let's assume that Mr.
Frankenberg had it in his head at some point that the
copyrights would transfer, would what was in his head be
superior or inferior to what the board actually approved?
A It would be inferior. It would not matter. The board
approval speaks for the company in actions where a
transaction that is submitted, required to be submitted and
evaluated by a board.
2421
Q At the beginning of your cross-examination yesterday
Mr. Singer asked you about Amendment No. 2. Do you recall
that?
A Yes.
MR. JACOBS: Could we have N-8 up, please.
BY MR. JACOBS:
Q Now he asked you whether you understood that Amendment
No. 2 -- I forget his exact words -- replaced the language
in the excluded assets at subsection A. Do you recall that
question and answer?
A Yes.
Q If you look at the as of date in the first paragraph of
Amendment No. 2, do you see that?
A Yes.
Q It reads, as of the 16th day of October, 1996. Do you
see that?
A Yes.
Q So what does that signify to you in terms of the
effective date of the replacing effect of Amendment No. 2
and the language of the asset purchase agreement?
A This would be effective as of the 16th of October,
1996.
Q Now as a transactional lawyer, if one wanted to draft
an amendment like this --
THE COURT: Mr. Singer.
2422
MR. SINGER: There is no foundation. They
objected yesterday and, in fact, this witness wasn't
involved in this amendment.
THE COURT: I am going to sustain the objection.
You are, in effect, eliciting expert testimony from this
witness.
MR. SINGER: I move to strike the testimony that
he just elicited on that.
MR. JACOBS: Your Honor, Mr. Singer asked the
witness whether he understood that this language replaced
the language of the asset purchase agreement.
THE COURT: Mr. Jacobs, I have been quite
concerned about two or three of your questions now because,
again, you are having Mr. Braham act as an expert, in
effect. I would discourage you from doing that again.
BY MR. JACOBS:
Q Mr. Braham, in the asset purchase agreement that was
negotiated in September 19th and signed September 19th,
1995, did it anticipate that the actual assets would
transfer on execution of that agreement on September 19th,
1995?
MR. SINGER: Those are issues of law that the
Court can direct the jury on to the extent it's relevant.
MR. JACOBS: He's the negotiator of the agreement.
THE COURT: I'll allow you to answer the question.
2423
THE WITNESS: It anticipated that the assets would
transfer upon the close and the execution of closing
documents.
BY MR. JACOBS:
Q What kind of closing documents did you contemplate in
negotiating the asset purchase agreement?
A A bill of sale.
Q What did you contemplate by way of a bill of sale?
What would that document look like.
A It would be a piece of paper --
MR. SINGER: Outside the scope of my cross. This
is just more direct that he wishes he had done yesterday.
MR. JACOBS: As you wish, Your Honor.
THE COURT: I will sustain that objection.
BY MR. JACOBS:
Q Mr. Singer asked you some questions about the back and
forth with Santa Cruz about the copyright exclusion. Do you
recall that?
A Yeah. With Mr. Higgins, yes.
Q And as you were exchanging the drafts with Mr. Higgins
and with the Brobeck team, the Santa Cruz team, what was
your understanding of the copyrights that would be retained
pursuant to the excluded asset schedule?
A All of them.
Q All of them then extant, all of them into the future?
2424
A All of them that existed at the time of the signing and
the closing of the transaction. In the future, they would
build on -- the expectation is that SCO would build on top
of that base of technology and build their own substantial
improvements and develop a very successful commercial
product with their own R and D investments and innovations
and they would own the copyrights exclusively to those.
Q Let's explain that to the jury because it seems
intuitive to a transactional lawyer, but let's explain how
that works.
So your anticipation when you proposed that language
was that Novell would retain the then existing copyrights to
the then existing code; is that right?
A Yes.
Q Then what would happen?
A Then SCO would go off and improve it, add to it, build
a better mousetrap out of the base mousetrap, would have the
ownership all of those improvements, which would give it a
competitive advantage in the marketplace. And they were
expected -- they were allowed to and under the agreement
expected to go off and market and succeed with that flavor.
Q Mr. Singer asked you whether under 4.16(b) if Novell
could waive licensees' rights as to the old UNIX licenses,
whether you had a concern that that might somehow allow
Novell to destroy Santa Cruz's business.
2425
A I was not concerned that it would allow them to because
if they did a good enough job as they were expected to, to
build a -- to take vanilla ice cream and make a strawberry
sundae out of it, they could succeed with it.
Q If they succeeded with that and they build a sundae,
what ownership rights would they have in the sundae?
A They would own the sundae and they would own the cherry
on top and the strawberry sundae, and all the elements that
made it attractive for people to go in and buy the
strawberry sundae other than the basic vanilla ice cream,
which the other licensees could go make a banana split out
of.
Q To use your analogy, who would own the vanilla ice
cream in the asset purchase agreement?
A Novell.
Q Now you seem to have a recollection of this copyright
back and forth -- or the copyright exclusion. It is a long
time ago. Why do you remember it so well?
A You have periods in your life that are important and
that you recognize at the time are important. And from a
business standpoint, this was one of those for me.
Q Why was that, Mr. Braham?
A Because I knew I was dealing with fundamental industry,
important technology. Sometimes you do a lot of deals where
you are dealing with very small pieces of technology,
2426
semiconductor software, what have you, but I was dealing
with the fundamental UNIX operating system, which was
critically important to the balance of power in the
technology industry. And at the time the concerns that
Microsoft was monopolizing -- had the chance to
monopolize -- essentially monopolize the whole IT
infrastructure stack. And UNIX was extremely valuable. We
paid $300 million for it.
But from a strategic standpoint, it was even more
important. And I knew that then, this was not something
that was -- I think it was well known that UNIX was a
fundamental underpinning, and I was dealing with the rights
to UNIX, and I knew that this was something that, you know,
I might not have that many times in my career that I was
going to be touching something as significant.
Q How about the copyright exclusion, why do you remember
that so well?
A Because it was critically important to having
flexibility not only for Novell but for the industry to
continue to grow in ways that might not have been completely
predictable at the time, and it was important that not one
company could clamp down on it, and Novell had the ability
to retain that. We negotiated for it and I was proud of the
defense that we did, David and I, that was supported by the
board of defending Novell's interest. It was work that I
2427
thought was important. You know, this was important work in
my career.
Q Mr. Singer asked you about your role at Deutsche Bank.
You joined Deutsche Bank in what year?
A 2004.
Q At this time have you had any involvement in any report
that Deutsche Bank has released relating to SCO or the SCO
litigation?
A No.
Q The people who write those reports with projections,
are you involved with them on a day-to-day basis, in
general?
A Not involved with them at all. In fact, I'm not
allowed to speak with them without a chaperon lawyer in
between, the way the information barriers that are enforced
in an investment bank.
Q Do you have a financial interest in the outcome of this
litigation?
A I do not.
MR. JACOBS: Thank you, Mr. Braham.
THE COURT: Mr. Singer.
RECROSS-EXAMINATION
BY MR. SINGER:
Q The business is dealing with technology companies like
Novell, correct?
2428
A It is.
Q One of your clients is IBM, correct?
A It is.
Q Now you had testified near the end of the redirect
examination that this was critical intellectual property to
the industry, the copyrights and the UNIX operating system,
and that's why this is vivid in your mind, correct?
A At the time I perceived it to be very important
technology. Primarily it was technology owned by Novell and
I'm defending a client. Yes, I knew this was important
technology.
Q So it's your testimony that this critical element, the
copyrights controlling UNIX technology that is so important
to the computer industry, is something which was dealt with
in this transaction on the last week of the transaction by
simply putting it into a schedule of excluded assets, there
was not substantial discussion about it across the
negotiating table? That is your position?
A I do not agree there was not substantial discussion
about it over the negotiating table. We discussed it, and
on both sides I think both parties must have spent a
tremendous amount of time absorbing the implications.
Q I think if we recall from a few minutes ago what you
recall, the actual discussion was a reference to the
excluded asset schedule and you thought the other side was
2429
talking about the copyright solution, but you don't even
recall Mr. Higgins mentioning that specifically, correct?
A In terms of my actual discussion in the room with the
other side, that's correct.
Q And this is such an important part of the transaction
that the United States government, if they wanted to learn
that Novell had withheld the copyrights while otherwise
selling all the UNIX and UnixWare business, would have to go
look at a schedule to an attachment rather than seeing it in
your summary of what the key elements of the deal were,
correct?
A It's four pages that define what assets were
transferred and what assets were withheld. Those are the
key elements of the agreement. And, yeah, if the government
wanted to evaluate it, it would need to look at the core
document that defined what moved and what didn't as opposed
to a summary that may have been put in by a paralegal, for
all I know, what the agreement was.
Q A paralegal decided what was submitted by Novell to the
United States government?
A The definitive agreement is what they would need to
look at, and particularly the specific schedules, which are
only four pages, of what moved and what didn't. So I don't
think the government would be confused. That would be very
common.
2430
Q When we talk about the board and you are talking in
response to Mr. Jacobs' questions about board resolutions --
you are a transactional lawyer, correct?
A Correct.
Q You know that what we're dealing with here is the
interpretation of a contract, right, not a board resolution,
the interpretation of a contract?
A Yes, the contract controls.
Q There are two parties to the contract, right?
A Maybe more.
Q That's not a difficult question. There are two or more
parties to the contract?
A There may be more than two parties. I think you have
subsidiaries. That's why I'm tripping up on it a little
bit.
Q In this deal there were two parties?
A I think there are parents and subsidiaries. I actually
would need to look at the signature page to make sure.
Basically, yes.
Q And the issue that is before the jury is determining
the intent of the parties in that deal where they had
language in the agreement and they negotiated with each
other. The issue isn't what a board of Novell internally
may have done in a corporate resolution. You know that,
don't you?
2431
A What I know is when an agreement is clear on a point --
if you're asking my legal viewpoint about how a contract
should be interpreted, I'm prepared to do that. But when a
contract is clear, I don't know that you look beyond the
four corners of the agreement. I mean, this gets to what
the rules of construction are, which I could get into, but
--
Q Mr. Braham, am I right or wrong that in a contract case
where if it's determined by a Court that the parties' intent
is important, you look at what the parties said to one
another, how the parties acted towards one another, and you
don't look at what one party unilaterally did in a board
meeting? Is that true or not?
A You look at the plain language of the agreement, unless
it's ambiguous.
Q And if it's ambiguous, you look at the intent of the
parties as expressed to each other --
MR. JACOBS: Same objection Mr. Singer was
raising.
THE COURT: I will sustain the objection.
BY MR. SINGER:
Q One final area that was covered yesterday. You were
not involved in Amendment 2, correct?
A I was not involved in Amendment 2.
MR. SINGER: Thank you.
2432
THE COURT: May this witness be excused, counsel?
MR. SINGER: He may be excused by us.
MR. JACOBS: Yes, Your Honor.
THE COURT: Mr. Braham, that means you do not need
to worry about being re-called, but I would request that you
not discuss your testimony with any other witness in this
case or in the presence of any other witness or communicate
in any way your testimony.
Thank you, Mr. Braham.
THE WITNESS: Thank you.
THE COURT: We have to take a little recess here,
ladies and gentlemen. If you want to stand up and stretch
your legs, you may do so.
Ready to proceed?
MR. BRENNAN: Novell wishes to call as its next
witness Mr. David Bradford.
THE COURT: Mr. Bradford, if you would pause for
one second and raise your right hand and Ms. Malley will
administer the oath to you.
DAVID BRADFORD,
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: David Bradford. D-a-v-i-d, last
2433
name Bradford, B-r-a-d-f-o-r-d.
DIRECT EXAMINATION
BY MR. BRENNAN:
Q Good morning, Mr. Bradford.
Could you please tell us what your current business
position is?
A I'm chairman of the board of a company called
Fusion-io.
Q Where is that company located?
A Based here in Salt Lake City, Utah.
Q Could you summarize your educational background for us?
A Sure. Going back many years ago, I graduated from high
school in 1969 in a little town in Red Lodge, Montana. And
then I came down to Brigham University. Served an LDS
mission. After that, I came back to BYU, finished my
undergraduate degree in political science in 1974 at BYU.
They just started a new law school at BYU, so I dove into
that and became a graduate of the BYU law school in the
second class, and that was in 1977. I then went and
practiced law for some years in southern California. I also
got a master's in business administration in the early '80s
from Pepperdine University.
Q That's in Malibu, California?
A Yeah.
Q Have you ever worked for Novell?
2434
A Yes.
Q For what period of time did you work for Novell?
A That was a long time, 1985 to 2000, almost 15 years.
Q What positions did you hold while you were at Novell?
A When I first joined Novell, my position was corporate
counsel. Shortly thereafter, probably six months in, I
became the general counsel for the company. And I held the
position of general counsel the entire rest of the period I
was at Novell into July of 2000 when I left. Over the
years, I had varying assignments and other responsibilities,
corporate security for the company, corporate business
development, government relations, those sorts of things
reported to me as well.
Q In general, what were your duties and responsibilities
as general counsel and corporate secretary?
A Well, certainly as the chief legal officer of this
corporation, I had a responsibility to review contracts,
negotiate contracts, be involved on a day-to-day basis to
ensure that the legal aspects of Novell were protected and
so forth. I was also secretary to the board of directors,
and in that capacity I recorded and wrote essentially the
board minutes and attended all the board meetings for Novell
for those 15 years.
Q I would like to have you focus your attention on a
period 15 years ago, 1995. Do you recall playing any role
2435
in the preparation of the asset purchase agreement between
Novell on the one hand and Santa Cruz Operation on the other
hand?
A Yes.
Q Has it been necessary for you to, in essence, look at
some documents to try to remember what happened 15 years
ago?
A It's been a busy time, and I stay busy in my day-to-day
life. So yes, I have gone back and looked at the asset
purchase agreement and the board minutes, and so forth and
so on, that I prepared and was involved with at the time.
Q Do you think without reviewing some of those documents
you would have as clear a recollection without that review?
A No. I'm appreciative of the fact that I did document
things at the time.
Q What were your general duties with respect to this
asset purchase agreement we made reference to?
A Well, in many ways over the years whenever we would do
a transaction at Novell, I kind of acted as a point person
for the company to involve the technology people, to involve
the financial people, and to kind of bring the team together
as we would negotiate these deals. We did hundreds of deals
over the years at Novell. And, you know, this was, you
know, an important one, but certainly not as big or broad as
some of the other transactions that we did in terms of
2436
mergers and acquisitions and so forth.
Q In connection with these business transactions, did
you, as Novell's general counsel, look to outside legal
firms to assist in that work?
A Sure.
Q Was there a primary outside counsel that you looked to?
A Yes. Wilson Sonsini Goodrich & Rosati was the primary
outside counsel for Novell during many of its years,
corporate existence, and worked closely with guys like Larry
Sonsini, who was on the Novell board, as well as Tor Braham
and others at the Wilson Sonsini firm. It's an outstanding
law firm and probably the best law firm that we could find.
Q What was your relationship with Tor Braham in the 1995
time period?
A I began working with Tor probably -- I want to say in
the early '90s. As we did various transactions together, I
looked at Tor as kind of chief outside drafter of contracts
assisting with negotiation of agreements. And so I deferred
a lot over the years to Tor and relied on him a great deal
to help protect our legal positions as a company.
Q In connection with your work with Mr. Braham, did you
trust him?
A Absolutely.
Q Did you find that he would follow your instructions as
you gave them to him?
2437
A Yes. There was a trusting relationship. Whenever
trust exists, things accelerate and you get deals done more
quickly and so forth. So there was definitely a
relationship of trust between Tor and me.
Q Again, I recognize it's been 15 years ago now, but
thinking for a moment about the Santa Cruz Operation
transaction, do you recall any other Novell senior
executives that had any role in reviewing documents or
writing input on that transaction?
A Certainly Jim Tolonen. Jim was the chief financial
officer at Novell, was intimately involved in these sorts of
transactions. I relied on Jim's financial expertise a lot
as we would work through these deals.
You know, going back in time, gosh, Bob Frankenberg was
the CEO of the company at the time, so Bob would have been
involved to some degree.
Duff Thompson, when we acquired WordPerfect in July, I
think mid 1994, Duff was the general counsel at WordPerfect
corporation. And when Novell and WordPerfect corporation
came together, I retained the legal function for the
combined entity Novell-WordPerfect, and Duff did business
development. And Duff was with the company actively for
about a six-month period of time following the
Novell-WordPerfect acquisition. So Duff would have been
involved peripherally in the deal.
2438
Ed Chatlos, as I've gone back and looked at some of the
memoranda and so forth, Ed was involved. He was based out
in New Jersey. So I didn't see a lot of Ed, but he
certainly would have been involved.
Q Focusing on the transaction itself and based upon your
recent review of some of the documents, do you recall there
being any particular points of issue regarding this
transaction in terms of special deal points that came to
mind?
A Well, certainly as you look through the documentation,
you look through the contract itself, you look through what
was stated in the board minutes that were drafted
contemporaneously with the close of this deal, absolutely
that, you know, it was very clear that Novell had retained
the patents, the copyrights, et cetera, associated with the
UNIX rating system.
Q You mentioned the board meeting minutes. Do you recall
whether the Santa Cruz transaction was approved by Novell's
board of directors?
A Yes.
Q How is it that you are able to remember that now 15
years later?
A Going back and looking at my board minutes.
Q You say your board minutes. Who actually prepared
those minutes?
2439
A I prepared the minutes.
Q Was that because you were the secretary to the board of
directors?
A That's correct.
Q What is the purpose of minutes of meetings of the board
of directors? I ask this in a generic sense.
A Sure. It's certainly to document particular
transactions and so forth. And it should be emphasized
that, you know, not everything that happens in a board
meeting gets documented, you know, to the nth degree. I
think it's important to note that material aspects of any
transaction -- a large transaction get voted through the
board of directors, but --
Q Again, we're in this transaction talking about a
meeting that was held almost 15 years ago, what are the
benefits of board meetings looking back in time?
A Well, fortunately, I've got those things and the
company has those things as a corporate -- permanent
corporate record to accurately reflect what occurred at that
point in time. That's why the board minutes are kept.
Q What was your habit and practice, say in 1995, with
respect to preparing the board meeting minutes relative to
the actual holding of the meeting itself?
A Well, I would, prior to the meeting, give deep thought
to -- I would prepare the agenda to the meeting, outline
2440
what was going on. I would typically sit down with the CEO
and kind of review -- at that time it would have been Bob
Frankenberg, to say, Bob, here's kind of what we're going
through, these are the things we've been working on, et
cetera. Here's, you know, eight things that we need to
cover for the board. We typically meet every two months,
every three months, something like that. So I would prepare
a draft of the minutes prior to the meeting, just for my own
use.
Then once the meeting was held, then I would again
memorialize those minutes and keep them and then place them
in a binder as a permanent record for the corporation.
Q Were the meeting minutes that you prepared approved by
the board at a subsequent meeting?
A Yes.
Q Now if I could direct your attention -- you probably
see this on the screen.
MR. BRENNAN: I would like to show the witness
Exhibit Z-3.
BY MR. BRENNAN:
Q And these are the minutes of the meeting of the board
of directors of Novell, Inc., Monday, September 18th, 1995.
A Okay.
Q Do you recognize this document?
A Sure. This looks like something that I would have
2441
prepared at the time.
MR. BRENNAN: If we could go down to page 3 of
Exhibit Z-3 and highlight the signature.
BY MR. BRENNAN:
Q Is that your signature that you recognize?
A Yes.
Q Now that you've looked back 15 years later, do these
minutes appear to reflect the boards' consideration and
approval of the Santa Cruz Operation transaction?
A Sure. I've had a chance to look through those.
Q What I would like to do is focus for a moment on page 2
of Exhibit Z-3. Just by word of explanation, this jury,
over this three-week trial, has seen this document several
times. You've not been here before today, so I won't spend
too much time, but I do want to ask you a few questions
about what appears to be in the middle of the document under
the heading resolved, there are three paragraphs.
A Sure.
Q And in the first paragraph under resolved reads that
the board of directors of this corporation, Novell, hereby
determine that is it in the best interests of this
corporation and its shareholders to enter into an asset
purchase agreement with the Santa Cruz Operation, or SCO.
Do you see that?
A Yes.
2442
Q Did you understand that what was before the board at
that time was the asset purchase agreement that was
ultimately signed by the parties?
A Yes.
Q And if we could then skip down to the third paragraph
that reads, quote, Novell will retain all of its patents,
copyrights and trademarks, except for the trademarks UNIX
and UnixWare, royalty-free, perpetual, worldwide license
back to UNIX and UnixWare for internal use and resale in
bundled products, Tuxedo and other miscellaneous, unrelated
technology. Do you see that?
A Yes.
Q Was it your understanding, based now upon your review
of these minutes 15 years after the actual meeting, that the
board of directors of Novell agreed that the asset purchase
agreement would be such that it would retain all of its
patents, copyrights and trademarks, except for the
trademarks UNIX and UnixWare?
A Absolutely.
Q Now there has been reference made in this case to an
Amendment No. 2 to the asset purchase agreement. Did you
have any direct involvement in Amendment No. 2 to the asset
purchase agreement?
A You know, not on a day-to-day basis. We had an
attorney out in California, Allison, that worked in our
2443
legal department. Because she was based in California, as
was our CFO, Jim Tolonen, they handled that Amendment No. 2.
Q To your knowledge, was Amendment No. 2 ever brought
before the Novell board of directors?
A Not to my recollection.
Q Do you have any understanding as to why Amendment No. 2
was not brought to the attention of the board of directors
of Novell?
MR. SINGER: Objection, no foundation. He wasn't
involved in Amendment No. 2.
MR. BRENNAN: Your Honor, he testified that he
attended virtually every board meeting. He probably would
have a sense --
THE COURT: I will allow the witness to answer the
question.
THE WITNESS: I'm sorry. I didn't hear that.
MR. BRENNAN: I'll restate the question.
BY MR. BRENNAN:
Q Do you have any understanding as to why Amendment No. 2
was not brought before the board of directors of Novell?
A Not precisely, but, you know, typically things that are
of a material nature to the corporation, important aspects
of our day-to-day operation, those things that are material
get brought to the board of directors for approval.
Q Were you ever asked to review and approve and sign a
2444
declaration that was submitted to the court in this case?
A Yes.
Q Did you do that about three years ago in 2007?
A Yes.
Q In order to prepare and approve that declaration, was
it necessary for you at that time to review documents to
help you remember what had transpired back in 1995?
A Sure, absolutely essential.
Q Did you, in fact, review documents so you could try to
remember what had happened before?
A Yes.
Q Have you ever told anyone that you didn't remember the
details about the asset purchase agreement?
A From time to time over the years I get asked about
agreements and documents and so forth, and I frequently, you
know, because I was involved in so many aspects of Novell's
business, I can't remember everything that we did and the
precise nature of every transaction that we did. Every deal
that we did had a different nuance and a different aspect to
it. There was not one document that was consistent across
the board.
Q I would like to have you focus, if you're able, on two
individuals, one by the name of Ty Mattingly and another by
the name of Lee Johnson. Are those associates or friends or
colleagues of yours?
2445
A Yes, friends, colleagues.
Q After you submitted -- let me back up.
Do you suspect that you ever told either Mr. Mattingly
or Mr. Johnson you didn't remember all the deals about the
asset purchase agreement?
A Yeah, I suspect I did.
Q After you signed your declaration in 2007, did either
Mr. Mattingly or Mr. Johnson contact you about that
declaration?
A Yes.
Q Do you recall what they said?
A It was kind of an odd call. They joined in on a
conference call and said something to the effect, David, we
read your declaration in the case and so forth, we want to
make sure that is what you really believe.
Q Do you really believe what you put in your declaration?
A Absolutely.
Q Do you have any financial stake in the outcome of this
case?
A Absolutely not.
Q Are you being compensated in any way for appearing here
today and offering the testimony that you have offered?
A Not that I am aware of.
Q I'm going to represent to you that during the course of
this trial various witnesses have been asked questions about
2446
relationships they might have with IBM. I think you told us
at the outset that you are the chairman of the board of
Fusion-io, which is a Utah-based technology company. Does
Fusion-io have any business relationship with IBM?
A Yes. They are an original equipment manufacturer.
They take Fusion-io technology and invent it into their
systems and then resell it. So they are essentially a
reseller of our products.
Q Does the fact that Fusion-io has this business
relationship with IBM, does that play any role in the
testimony you've offered today?
A Absolutely not. I mean, my declaration was provided
three years ago, and that was well before I ever heard of
Fusion-io and any relationship with IBM.
MR. BRENNAN: Thank you.
No further questions at this time, Your Honor.
THE COURT: Mr. Singer.
CROSS-EXAMINATION
BY MR. SINGER:
Q Good morning, Mr. Bradford.
A Hello.
Q Until you reviewed these documents, isn't it true that
you didn't have any recollection of the transaction's
details, specifically on issues, for example, if the
copyrights were included or not included in the transaction?
2447
A Specific details of the document I wouldn't have
remembered. I remember certainly in great understanding
that we did a deal with SCO and so forth.
Q So what happened, then, is when you were working on
your declaration, you reviewed certain documents, correct?
A Yes.
Q And those you were reviewing together with Novell's
counsel, correct?
A Yes.
Q And as a result of that, that led to the position that
you set forth in a declaration at the time, correct?
A Yes.
Q And you mentioned Mr. Lee Johnson. Do you know whether
you ever told Mr. Johnson that you didn't remember these
issues, but you had gone back over the agreements and you
concluded from that review that this must have been what had
happened?
A Yeah, probably. Yes.
Q Now let's talk about what isn't in writing at the time
that this transaction came before the board. Can you look
at Exhibit 754?
A Okay.
Q Do you recognize this?
And why don't we -- I would like to give you a hard
copy of that document as well.
2448
A Sure.
Q This is a memorandum that you presented to the board of
directors on September 15th, 1995, correct?
A Correct. That's my mother's birthday.
Q A day you would remember, then?
A Yeah, well --
Q And you would also remember this was then the Friday
before the Monday on which the board of directors of Novell
met to consider the transaction with Santa Cruz?
A That would be very typical.
Q This was a memorandum that you would have prepared for
the purpose of getting the board informed as to what was
going to come before them with respect to the transaction?
A Certainly.
Q And you would attach a number of items here, in this
case it included some historical financial information and a
term sheet for the proposed transaction, correct?
A Let's see, attached, two-year SCO stock trading chart,
historical financial, guide, SCO slide information, term
sheet, yeah.
Q And take a look at Exhibit 754. Is this, then, what
you sent to the board? This has some historical financial
information. It doesn't have the slides here. That would
have been sent along with this?
A Typically, yes.
2449
Q You see the term sheet attached?
A I don't see it attached. Maybe I'm --
Q If you will look at the hard copy.
A Okay. Okay. So here's some, project sleigh, market
trading information on SCO, project sleigh ride, and
Novell-SCO term sheet, yeah.
Q This is a term sheet that would have been attached to
the memorandum that went to the board on September 15th,
1995, correct?
A It appears. I can't say, sitting here today, that this
was absolutely attached, but it appears to be one that was
attached.
Q You have no reason to believe it wasn't?
A Right.
Q You're not aware of any other term sheet, are you?
A No.
Q So if we look at the term sheet, you see that it
indicates under one, Novell transfers to SCO UNIX technology
assets, correct?
A Yes.
Q UnixWare technology assets, correct?
A Right. Right.
Q And then under two, Novell retains, there is a mention
of patents?
A Uh-huh. (Affirmative)
2450
Q There's a mention of licensing back to UNIX and
UnixWare for internal use and resale in bundled products,
there is a mention of Tuxedo and other miscellaneous,
unrelated technology, correct?
A Right.
Q There is no mention of Novell retaining copyrights?
A Well, understand the rhythm of a business
transaction --
Q Well, that's not my question, sir. Discussion about
the rhythm of a business transaction Mr. Brennan will be
able to ask you about.
A Sure.
Q There is no mention of copyrights, correct?
A Not in this document.
Q This is an important document. This was sent to the
board of directors for their consideration of the
transaction that was coming before them the following
Monday, right?
A It was part of a package that was sent to them, if this
was, in fact, the term sheet that was sent to them.
Q Now I would like to show you --
A But, again, it says Mattingly on the bottom right-hand
corner here, so it doesn't look like a document I prepared.
Q All right. We just covered the fact, you are not aware
of any other term sheet?
2451
A Right.
Q And I would like you to look at Exhibit 638, which is a
declaration that you submitted to the district court.
Mr. Bradford, do you recognize Exhibit 638? This is
your declaration submitted --
A Yes.
Q -- April 20th, 2007?
A Right.
Q That's your signature?
A Okay. Yeah.
Q You attached as Exhibit 2 the memorandum to the board
that we've seen, September 15th, 2005. You see the first
page, correct?
A Yes.
Q You see the second page?
A Right.
Q You see the two pages on project sleigh ride with
financial information?
A Yes.
Q However, we don't see the term sheet?
A Right.
Q Why is that?
A I don't recall.
Q You were counting on -- you didn't have these documents
in your possession, correct?
2452
A The term sheet?
Q Right.
A Right. I mean, I didn't -- right.
Q So you didn't -- these are attached to your
declaration, but these are not documents that you had, when
your declaration was made, in your own possession?
A Right, that is correct.
Q You agree with me that the term sheet that we see here
as part of Exhibit 754 which talks about the terms of the
transaction is not attached to the copy that was part of the
documents you reviewed in putting together your declaration?
MR. JACOBS: Your Honor, we might wish to have a
side-bar on this issue.
THE COURT: All right.
(Side-bar conference held)
THE COURT: How much more do you have?
MR. SINGER: Ten minutes.
MR. BRENNAN: Your Honor, here's the issue. The
term sheet has been consistently put before the witnesses
and represented was part of this package. It is not a
Novell document. That was a Mattingly document. The Court
may recall he came to court with some documents that had not
previously been disclosed. We didn't have them.
I'll represent to the Court, because we do have
the official Novell book, that that term sheet that's
2453
consistently being represented as part of the board package
is not part of the board package. That's being thrusted
upon the Court and the witness as if it were part of the
board package. It is a collection of documents that Ty
Mattingly brought to court.
MR. SINGER: First of all, we have the original of
that document which Mr. Mattingly testified to was the
actual one which was used with the board. We have the
original here.
Number two, we also have had earlier testimony
from Mr. Mattingly these were produced by Novell. The only
term sheet we have in all the production. They were
produced separately. Mr. Mattingly then testified they
really belonged together when they were first introduced in
evidence when bringing together those two documents.
If there is an issue here, the issue relates to
the fact that Novell didn't produce this document in this
form. They had an opportunity, if they wanted, to bring in
any other documents. There's been testimony that this is
what was sent to the board. Mr. Bradford said at the time
he's not aware of any other term sheet. I don't think there
is anything in the sheet that's improper about my use of the
document.
MR. BRENNAN: The representation being, I take it,
that this term sheet was part of the package that was sent
2454
to the board. We do not have testimony that supports that.
I do not believe it has so been testified.
MR. SINGER: I think it has.
MR. BRENNAN: This is a production that was made
during the course of trial.
THE COURT: Let's take a recess now. If you can
find evidence from the transcript Mattingly testifying that
this was, in fact, part of the packet sent to the board,
then we can deal with that.
MR. BRENNAN: I'll stand corrected if that's the
case. Thank you, Your Honor.
(Side-bar concluded.)
THE COURT: Ladies and gentlemen, we're going to
go ahead and take a 15-minute recess now.
(Jury excused)
THE COURT: Let's go ahead and take 15 minutes.
Counsel, you should be able to find it in that
time, shouldn't you?
MR. SINGER: Yes.
MR. BRENNAN: If they could simply, if they find
it, let me see it. If I'm wrong, I'll stand up and say I'm
wrong.
THE COURT: Well, you won't need to do that.
MR. BRENNAN: It will be evident.
(Recess)
***** Part 2 *****
2455
(Recess)
THE COURT: What did you determine?
MR. SINGER: Well, I think Mr. Brennan should be
here, but --
THE COURT: Let's wait. Here he is. Okay.
MR. SINGER: Perhaps we should do it outside the
presence of the witness, Your Honor.
MR. BRENNAN: I thought you asked me to go get
him.
MR. SINGER: My apologies. Just a moment.
My understanding is that Mr. Brennan agrees with
what we indicated about Mr. Mattingly's testimony.
MR. BRENNAN: I concede the point, Your Honor.
MR. SINGER: Just so the record is clear, I would
like to take one moment just to indicate --
THE COURT: Go ahead.
MR. SINGER: -- that at page 678 of the trial
transcript Mr. Mattingly was shown Exhibit 570, and he
identified Exhibit 570 as a memorandum sent to the Novell
board of directors from Mr. Bradford on September 15, 1995.
He said he received a copy of it himself. On page 679, line
18, he was asked, now, was this provided to the board on
Friday, September 15th? His answer was yes.
On page 680 he was asked, do you see the reference
on the first page to a term sheet for the proposed
2456
transaction? Answer, yes. I would like to show you Exhibit
83. Can you identify Exhibit 83? His answer was yes, this
is a Novell-SCO term sheet that is referenced as letter E
under the memo form Dave Bradford. On page 681, was this
term sheet -- did you receive this term sheet along with the
memorandum to the board that is marked as Exhibit 570?
Answer, I did. Question, these documents were together at
that time? Answer, correct.
Exhibit 570 is the memo to the board and Exhibit
83 is the term sheet, which together form the original
document which we have separately marked as SCO Exhibit 754
in evidence.
THE COURT: The record has been made, Mr. Singer,
but I do want to caution you, however, that you can ask the
witness questions about the term sheet, but I want you to
avoid an implication that somehow or other there was
ill-will on the part of Novell in supplying Mr. Bradford the
documents, because I don't think that is relevant to
anything in this case.
All right?
MR. SINGER: Yes.
THE COURT: All right.
MR. BRENNAN: Your Honor, thank you, and just so
that we are clear, when I say that I concede the point, I do
concede that that is what the testimony says. I stand
2457
corrected in that regard.
I do not make the concession that that particular
term sheet was in fact E, the reference to E in Exhibit 754.
I don't know the answer to that, frankly. I have made
inquiry and there is no indication that it was, but that is
for a witness to testify to.
THE COURT: And you'll be able to examine him
again.
MR. BRENNAN: Thank you.
THE COURT: All right. Can someone please bring
Mr. Bradford in.
Mr. Bradford, if you would retake the witness
chair.
Ms. Malley, if you would please get the jury.
MR. BRENNAN: Your Honor, while we are waiting for
the jury, our text witness is Terry Musika, our expert, and
we're going to need to set up a couple of easels. I was
hoping to do, so that I don't look like I am intruding,
would the Court mind if I stood at one side and asked the
questions? I think I have a loud enough voice that I can be
heard.
THE COURT: As long as you can be heard, that will
be fine.
MR. BRENNAN: Thank you.
(WHEREUPON, the jury enters the proceedings.)
2458
THE COURT: Go ahead, Mr. Singer.
MR. SINGER: Thank you, Your Honor.
BY MR. SINGER
Q. I think, Mr. Bradford, we were looking at Exhibit 754.
I would like you to turn again to the term sheet as part of
Exhibit 754.
A. All right.
Q. Now, what I would like to do is basically compare this
for a moment to the minutes of the board meeting which I
believe are Exhibit Z-3.
A. Yes.
Q. If you turn to the first page on the proposed sale of
UnixWare business and equity investment in SCO, this says
Mr. Bradford and Mr. Frankenberg first confirmed that the
directors were present, and Mr. Frankenberg then provided an
overview of several business transactions.
Do you see any reference to copyrights on that first
page of the minutes?
A. Well, if you will give me a minute -- no.
Q. Turn to the second page at the very top. There is then
a discussion and it says the directors next discussed
various competitive alternatives and concluded that the
transaction as structured was justifiable. Mr. Bradford and
Mr. Sonsini then reviewed the terms of the asset purchase
agreement between SCO and Novell.
2459
In that summary you don't see any reference to
copyrights being mentioned there, correct?
A. No. That is correct.
Q. The only reference, if we go down further in the
resolution, and then if we compare the resolution to the
term sheet we have been looking at, on the term sheet the
first item was that Novell transfers UNIX technology assets
and UnixWare technology assets.
Can you see in the resolution it says that pursuant to
the asset purchase agreement Novell will transfer to SCO its
UNIX and UnixWare technology assets?
A. Yes.
Q. Do you see that?
A. Uh-huh.
Q. On the term sheet then it talked about certain
employees being transferred and equipment being transferred
and the employee base and the equipment is referenced next.
Do you see that?
A. Correct.
Q. Then on the next paragraph it says Novell will retain
all of its patents, and patents are mentioned in the term
sheet, and then you have copyrights, which is not mentioned
on the term sheet.
A. Right.
Q. And then there is a reference to a royalty free
2460
perpetual worldwide license back to UNIX and UnixWare.
Do you see that?
A. Yes.
Q. That is what is referenced on your term sheet as item
2-B, the license back to UNIX and UnixWare for internal use
and resale in bundled products, correct?
A. I would have to go back and look at the term sheet.
Q. Please do so for a moment.
A. Okay. Yes, I see that.
Q. In connection with your review of the documents, did
you ever review the technology licensing agreement? Do you
recall that?
A. Are you referring to the asset purchase agreement?
Q. I'm referring to the documents that you reviewed in
either the preparation of your declaration or for your
testimony here today. Did you review the technology
licensing agreement?
A. If it is part and parcel to the asset purchase
agreement, I did.
Q. It is a separate document, although it is referenced in
the asset purchase agreement.
A. I didn't review that in preparation for today's --
Q. I didn't hear you.
A. I did not review that technology licensing agreement, I
think you referred to it as for today, right.
2461
Q. Did you understand that as part of the asset purchase
agreement that Novell through the technology licensing
agreement was getting a license back from Santa Cruz for the
assets and the technology that was being transferred through
the A.P.A.?
A. To some degree I'm sure that was true, yes.
Q. And if Novell had retained the copyrights they wouldn't
need a license back to that technology, correct?
A. If we had licensed, or if we had given the copyrights
to the UNIX operating system to Santa Cruz Operation -- what
is your question?
Q. Well, in fact, if you had transferred the copyrights
that is when you would want a license back to make use of
that technology for internal use and resale in bundled
products?
A. I have not looked at the license back, the technology
licence back, et cetera, so I can't say exactly what was in
that document.
Q. Did you review amendment two to the asset purchase
agreement?
A. Not for today.
Q. And that was not part of what you reviewed for your
declaration?
A. I don't believe it was.
Q. Now, just a few more things on Exhibit 754, if we
2462
could.
Part of 754 deals with the financial circumstances of
Santa Cruz, correct?
A. Let's see. Document 754 is what document again?
Q. It is the board memo that you sent on September the
15th.
A. Okay.
Q. Project Sleigh Ride.
A. Can they bring that up?
Q. Yes.
MR. SINGER: Mr. Calvin, I think that is the page
that has the historical financial performance analysis.
BY MR. SINGER
Q. If we look at this, would you agree with me that Santa
Cruz is a company which had in the last year before this,
1994, $184 million in revenue?
A. Boy, I would have to go back and look at it. It is a
very small document and I have not looked at this document
for years.
MR. SINGER: Well, can you expand that part of the
document, Mr. Calvin?
MR. BRENNAN: Your Honor, if the exercise here is
to ask the witness whether the document says something, the
document speaks for itself, and particularly a spreadsheet.
THE COURT: I would agree. Let's keep this
2463
simple.
BY MR. SINGER
Q. While Santa Cruz was not perhaps the size of Novell,
you did understand Santa Cruz had a several million dollar
business at the time of the transaction?
A. I don't recall the size of the revenues at this point
in time --
Q. Do you recall --
A. -- 15 years ago. I remember it was an ongoing business
based in California. You know, the size and their scope, I
don't recall exactly.
Q. You don't remember any of that?
A. It is hard to recall.
Q. Fair enough.
If we do turn to the third part of the term sheet,
though, which is I think the next page, what Novell receives
from SCO, did you recall that what Novell was receiving from
SCO in the transaction consisted of these four different
revenue streams?
A. Again, in a very general recollection I recall that we
were receiving a portion of the UNIX licensing revenues to
Novell.
Q. Do you have any reason to quarrel with the accuracy of
what appears on the term sheet attached to your memorandum
of September 15th, 1995 as to what Novell would receive from
2464
Santa Cruz in the transaction?
MR. BRENNAN: Objection, Your Honor. The best
evidence of what Novell received is under the terms of the
asset purchase agreement. The witness is being asked to
confirm whether or not this term sheet coincides with the
asset purchase agreement, and that is the best evidence, the
asset purchase agreement.
MR. SINGER: This quantifies what --
THE COURT: I will overrule the objection.
BY MR. SINGER
Q. Mr. Bradford, do you recall my question?
A. Well, if you want to restate it, that is fine, but,
again, just to be clear, this being attached to the board of
directors -- a memorandum that went to them -- term sheets
are a fluid thing. They change on a day-to-day basis and
over time as negotiations move forward. So an initial term
sheet you might sign two months before the transaction is
done.
Q. Are you aware of any change from these terms that were
presented to the board on September 15th, 1995 and the terms
that were ultimately signed on September 19th, 1995?
A. Well, again, absolutely the best evidence of that is
actually what was contained in the agreement. I would have
to go through that point by point to kind of understand and
refresh my recollection as to whether or not this
2465
coincided -- I certainly see that one thing in this term
sheet already does not coincide with the actual agreement.
Q. Mr. Bradford, are you aware as you sit here today of
whether or not Novell received through the asset purchase
agreement the four revenue streams which are identified on
item three here of your memorandum of September 15th?
A. I have no specific recollection of that, right.
Q. Let's talk about some of what you said regarding the
people who were involved in the transaction.
A. Sure.
Q. You said that Duff Thompson was involved peripherally.
A. Right.
Q. Do you know whether Mr. Frankenberg, in fact, ever told
Duff Thompson that he was in charge of the transaction?
A. No, I don't know that.
Q. You don't know.
Mr. Chatlos you said you didn't see a lot. Do you know
whether that was because Mr. Chatlos was out in Santa Cruz
negotiating the transaction on a daily basis with the
parties on the other side?
A. I don't know that.
Q. Do you know whether Mr. Mattingly was out there with
him?
A. No.
MR. SINGER: Nothing further.
2466
THE COURT: Mr. Brennan.
MR. BRENNAN: Just a few questions.
Thank you, Your Honor.
REDIRECT EXAMINATION
BY MR. BRENNAN
Q. Mr. Bradford, you were asked a question about term
sheets and I sensed you wanted to explain what a term sheet.
I am going to give you that chance now.
A. Well, when the parties begin to contemplate a
transaction, the first written documentation is typically a
draft term sheet that the parties kind of bounce back and
forth one to another, this is what we would like to see,
this is what they would like to see, et cetera, et cetera.
So during the course of any negotiation the term sheet gets
updated, you know, frequently, you know, as much as on a
daily basis as you drive toward finalizing the agreement.
The final document that was actually signed and
negotiated and executed by both parties is the final
document. So while term sheets are interesting and helpful
to understand what led up to the transaction, it is not the
definitive document.
Q. Also in response or in attempting to respond to a
question by Mr. Singer you mentioned the rhythm of the deal.
A. Yes.
Q. Could you explain what you were starting to explain
2467
regarding what the rhythm of the deal was in connection with
this transaction and working with Wilson Sonsini?
A. Sure. In very general terms, you know, whenever we
would do a transaction such as this I would associate
outside counsel to assist in the effort. In this particular
case it was Wilson Sonsini, Tor Braham, and so I would give
a very general overview of what we wanted to see and the
protections that we would like to have in a given document,
and then the legal team would go out and negotiate with the
legal term at the other end. We would get daily updates,
weekly updates, et cetera.
Q. With the asset purchase agreement that is at issue in
this case, did you review it and recommend that it be
approved by Mr. Frankenberg?
A. Yes. As I look back at my memorandum to the board, and
e-mails to Bob, et cetera, yeah, I recommended that the
asset purchase agreement be signed and executed.
Q. Just a couple more questions.
This has to do with decisions by the board of
directors.
A. Uh-huh.
Q. If we could pull back up Exhibit Z-3, and I would like
you to look at page 2. Again, as we are looking at page 2
of Exhibit Z-3, the minutes that were prepared of the
September 18th, 1995 board of directors meeting. There are
2468
sections that are called resolved or resolved further.
A. Uh-huh.
Q. These sections are called, what, the resolutions of the
board?
A. That is correct.
Q. What in essence is a resolution of the board?
A. Well, you can have all sorts of preparatory language or
language that precedes the actual resolution, but the core
of any document, the core of any set of board minutes are
the specific resolutions associated with that.
I might add that at the time Novell was a highly
visible publicly traded company, and as secretary to the
board of directors it was really important for me to get it
right, and to really explain and express in the meeting
precisely the transaction that was entered into.
Q. So the resolutions themselves, is that the most
important thing that the board does, that is because the
resolutions capture the decision of the board?
A. Sure.
MR. BRENNAN: Thank you.
No further questions.
THE COURT: Mr. Singer.
RECROSS-EXAMINATION
MR. SINGER: I have a couple of questions.
BY MR. SINGER
2469
Q. You're talking about term sheets in general when you're
saying that you could have term sheets at the outset of the
transaction, correct?
A. Sure.
Q. But the term sheet that is attached to your September
15th board memo is not a term sheet at the beginning of the
transaction, this is after the transaction has been
negotiated and the asset purchase agreement has been drafted
and it is ready for board approval, correct?
THE COURT: Mr. Brennan.
MR. BRENNAN: I have an objection that that
question assumes facts not in evidence, that the term sheet
that was part of Exhibit 754 is a term sheet that this
witness agreed is part of what was sent to the board. I
know we have had contrary testimony, but the question
presupposes that and thus lacks foundation.
MR. SINGER: We have already covered --
THE COURT: I will overrule the objection.
Go ahead. Restate the question.
BY MR. SINGER
Q. Yes. The term sheet that we have been looking at as
part of your September 15th memorandum to the board, that is
not something at the beginning of the transaction, that is
after the transaction has been negotiated and the asset
purchase agreement exists, and it is being summarized for
2470
the board of directors for their upcoming meeting?
A. Well, let's be clear. I don't know that this term
sheet was the exact term sheet that I attached to the board
of directors minutes at that meeting or was sent in advance
of the meeting. It may have been a term sheet that Ty
Mattingly or that some of the other people that were
involved in the transaction said here are some of the data
points associated with where we are at on the deal. It is
not the definitive document.
Q. Well, sir, I think we covered earlier in your
cross-examination that you're not aware of any reason that
this was not the term sheet that was attached to your memo,
and you're not aware of any other term sheet; is that
correct?
A. I am not aware of any other term sheet and I have no
reason to believe that it wasn't -- other than it is not
accurately reflective of what was contained in the actual
board minutes, neither in the asset purchase agreement.
Q. So if one of those is wrong, but in terms of what the
board would have reviewed prior to their meeting, this is
something that they would have seen prior to their meeting?
A. I don't know that they saw this term sheet. I keep
explaining that.
Q. And you don't have any specific recollection one way or
the other?
2471
A. That is correct.
Q. You do identify this as a memo that you sent to the
board, correct? This is your memo?
A. Well, the cover memo certainly references a term sheet.
Whether this term sheet that you're referring to is the
actual term sheet that was referenced in the cover memo,
that is a different question.
Q. You're not aware of any other term sheet, correct?
A. I have nothing in my possession.
Q. It is reasonable for the board members to instead of
reading through the schedules to a long asset purchase
agreement, to rely on a memo that they would receive from
you in accurately summarizing the transaction, correct?
A. Sure.
Q. Just as it would have been reasonable for Mr.
Frankenberg, who received a copy of the A.P.A. that you said
accurately reflected the business terms of the deal, to rely
on that being the case, correct?
A. Right. That is what I said.
Q. With respect to that, you have never, as I just
clarified, you have never looked at amendment number two,
correct?
MR. BRENNAN: Your Honor, that has both been asked
and answered and beyond the scope of my redirect.
THE COURT: Sustained.
2472
MR. SINGER: Nothing further. Thank you.
THE COURT: May this witness be excused, counsel?
MR. BRENNAN: Yes. Thank you, Your Honor.
THE COURT: Mr. Singer?
MR. SINGER: Yes.
THE COURT: That means that you do not need to
worry about being re-called. I need to instruct you that to
please not discuss your testimony with any other witness or
potential witness in this case or in the presence of any
other witness, nor communicate the content of your testimony
to any other witness.
THE WITNESS: I will not, Your Honor.
THE COURT: Thank you.
Mr. Brennan, you have some things you need to take
care of?
MR. BRENNAN: We are ready to go, if it is
agreeable to Your Honor.
THE COURT: I thought you had to set some things
up.
MR. BRENNAN: I do.
As I do that, we do wish to indicate to the Court
that our next witness will be Mr. Terry Musika.
THE COURT: Yes.
MR. BRENNAN: With the Court's permission, and to
aid in Mr. Musika's testimony, he is going to use a couple
2473
of boards. Our hope was that we could position them in such
a way that the jury could see them and hopefully Your Honor
could as well. I hope we succeed in that endeavor.
May I ask of the witness whether we are putting
them where he wants them?
THE COURT: Certainly.
MR. BRENNAN: Mr. Musika, just step to where you
need to be sworn, and we want to make sure that we can do
this in a way that is convenient for you. I am going to
fulfil my highest and best use and move the boards.
TERRY MUSIKA
Having been duly sworn, was examined
and testified as follows:
THE WITNESS: It is Terry Musika, M-u-s-i-k-a.
MR. HATCH: Your Honor, may I?
THE COURT: Yes, you may.
MR. BRENNAN: With the Court's permission I will
try to raise my voice, but if I could step to the side?
THE COURT: You may. Go ahead.
MR. BRENNAN: Thank you.
DIRECT EXAMINATION
BY MR. BRENNAN
Q. Good morning, Mr. Musika.
Could you please tell the jury a little bit about your
background and your educational and work experience, please.
2474
A. Yes.
Good morning, first. My background -- educationally I
have an undergraduate degree and a graduate degree from
Indiana University. The undergraduate degree is in history
and my master's degree is in public finance. I took two
years off in between undergraduate and graduate school to
move to Los Angeles and attempt to make the U.S. olympic
team. While I did that I was a school teacher. I taught
history in the L.A. School District, junior high school. I
met my wife at that time, 38 years ago.
Then I went directly from graduate school to work for
one of the large international accounting firms. Today it
is called K.P.M.G. In those days Peat Marwick & Mitchell.
I spent 12 years in public accounting as an independent
certified public accountant. I was recruited to go to work
for what is today the largest accounting firm in the world,
Price Waterhouse Coopers. I became a partner at that
auditing firm, which is the highest rank that you can
achieve within the accounting world. I did that and I did a
lot of research and I did it for Price Waterhouse Coopers.
As I mentioned, I was an audit partner. I audited public
companies, some of the largest companies in the world.
THE COURT: Mr. Musika, I have to ask you to
please slow down. The court reporter has to get everything
that you say and the jury has to understand what you're
2475
saying. I would request that you just speak a little bit
slower in your testimony.
THE WITNESS: Thank you, Your Honor, and I will.
BY MR. BRENNAN
Q. In other words, don't rush past all these great nuggets
about yourself.
A. Right. After Price Waterhouse Coopers I left and
started to form a series of my own companies. I have over
the last 20, 30 years formed and operated four separate
companies. One company was a merger and acquisition
company. Another company was a proprietary database
company, where the company went into the bankruptcy courts
around the country and loaded proprietary economic data
concerning individual companies, and every company within 48
courts that was filing for bankruptcy. The purpose of that
was to try and create a picture for banks and for the court
system, and the U.S. Bankruptcy Court system actually came
to us and used our data at one point to determine when and
where additional bankruptcy judges were needed given the
volume of cases.
We would predict the outcome of bankruptcy cases. We
would predict the state, the economic state of individual
industries or individual regions. We licensed that data to
banks. We licensed that data to credit bureaus. I
eventually sold that company to M.I.T. for research
2476
purposes. The merger and acquisition company still exists
today under a different name.
I then formed a consulting, an economic consulting firm
which I built up from literally the ground as a start-up
company all the way through to where I sold that company to
a New York stock exchange company called Navigant Consulting
for $28 million. The company today I no longer own, but I
formed it and it is comprised of two companies. One is a
company I formed called Intellectual Property -- excuse me.
I have to take a drink -- Intellectual Property Management
and Finance.
That company values intellectual property of all forms,
patents, copyrights, trademarks, and it negotiates licenses
for that. For example, one of our largest and best clients
is the University of Utah. He have worked with the
University of Utah and the medical school for the last four
years and helped them generate over $20 million in royalty
fees with the medical technology that the University of Utah
has developed.
Then we take a direct investment interest of our own.
So my company that I now work for and previously owned, will
actually invest in inventors and new technology and attempt
to monetize that and commercialize that in one form or
another.
In addition to those items, I have got one other side
2477
of my 35, 40 years of business, and that is from time to
time I do serve as an expert witness. It is not only in
intellectual property cases or contract disputes. I have
done a lot of work requested directly by the courts. I have
served as an examiner in certain cases where the court has
asked me to come in and look at complex financial
transactions and figure out what has happened and help the
court understand what has gone on.
I have served as an operating trustee, where there are
actual businesses that have experienced financial
difficulty, and the court has asked me to come in and take
over and actually function as the C.E.O. of that company. I
have run multi-state grocery store chains and sold that to a
Fortune 500 company. I have run a charter bus company. I
have run an educational tape company. I have run a
multi-state shipyard. Actually during the first gulf war I
completed the construction of four ships for the Army,
landing vessels for the Army.
I have made a lot of payrolls, both on my own accounts
and for the purpose of the courts and for creditors, et
cetera, over the 35 or 40 years.
That is a quick summary.
Q. Thank you.
MR. BRENNAN: Your Honor, we have as Exhibit C-33,
if I have that right, which is the curriculum vitae of Mr.
2478
Musika. I do wish to tender that into evidence, Your Honor.
MR. HATCH: Your Honor, I don't have an objection,
but I am not sure it is a complete resume.
THE COURT: If it is what they are offering --
MR. BRENNAN: That is what we are offering.
THE COURT: C-33 will be admitted.
(Defendant's Exhibit C-33 was
received into evidence.)
MR. BRENNAN: Thank you.
BY MR. BRENNAN
Q. Mr. Musika, what have you been asked to do in
connection with this litigation that brings us to court
today?
A. Yes. I was contacted probably three or four years ago
and asked if I would be capable and willing to serve as an
objective expert witness to review the opinions and evidence
that both sides put in, the Novell position that they put in
and the SCO position that they put in, and evaluate both
positions and assist the court in understanding that complex
transaction, and reach an opinion concerning any damages
that may have resulted from the claim that Novell has
engaged in a slander of title.
Q. In that connection and with that assignment that you
were given, what did you do first?
A. At this point, if the Court would permit me, I would
2479
like to come down and use the easel as a basis for about the
next ten or 15 minutes.
THE COURT: Go ahead.
One thing, Mr. Musika, is please try to keep your
voice up and speak slow, and as often as possible try to
direct yourself to the court reporter and to the jury so
that everyone can hear you.
THE WITNESS: Yes, Your Honor. Thank you.
If I could have a marker --
BY MR. BRENNAN
Q. I think there are a number of highlighters, Mr. Musika,
that you might be able to use.
A. That is fine.
At this point I think what would be helpful -- my first
approach was is I considered what SCO and, as I said, Novell
has presented to the Court and has presented over the course
of this entire litigation. We have heard the SCO witnesses
talk about a but-for scenario. I am in agreement with that,
but --
THE COURT: Just a moment.
Mr. Hatch?
MR. HATCH: Is there a question pending?
MR. BRENNAN: Yes. The question is what did you
do?
THE COURT: I believe that is correct, Mr. Hatch.
2480
MR. HATCH: Okay.
THE WITNESS: What I did was I considered this
but-for scenario, which I agree with, but I explained it a
little bit differently. Again, my role in some ways is to
explain these transactions and help the Court understand
these complex transactions. I view the but-for world that
the SCO experts talk about as a scenario where on the eve of
what Novell is accused of doing, slandering the title, on
the eve of that, roughly May 28th, 2003, the SCO witnesses
come to the Court and ask you to accept that but for that
one transaction or that one event, the Novell slander, take
that away, and we want you to buy our investment, our
investment that we would have made, we, SCO, would have made
over $200 million in revenue and we would have made over
$100 million in profits.
But for that single event or that single Novell
act, we, SCO, would have done this. We know in the real
world that has not happened, and what SCO wants us all to
understand and accept is the only reason that has not
happened is because of Novell.
My role that I do for banks and that I do for
creditors and that I do for Fortune 100 companies, is to
look at this transaction and provide to you, the buyers of
this position, an explanation. Let's consider other
potential events and understandings, and that is what I have
2481
done. What I have done is I have looked at this, and I am
going to present it to you, and you're going to make your
own decision, do I buy or do I not buy?
THE COURT: Mr. Hatch?
MR. HATCH: Your Honor, I object to the narrative
nature of this. He should be answering questions.
MR. BRENNAN: The question was broad, explain what
you have done, and that is the question at this juncture.
I'm asking the witness to explain what he has done.
THE COURT: Mr. Brennan, I think it is going to be
more efficient if you were to ask questions and try to
direct the testimony a little bit.
MR. BRENNAN: I would be happy to do that.
BY MR. BRENNAN
Q. Show the jury, in connection with trying to make a
determination as to this decision, what your analysis is as
to the decision.
A. Yes. What I do is when I advise investors I explain
the entire transaction. Before we buy anything I look at
the entire transaction. The first thing I did was I wanted
to have a better understanding of who Novell and SCO are and
what is it that is really involved here.
So the first thing I did was I looked at the industry
as a whole. What I understood about the industry as a whole
was that the industry involved a server. Excuse my drawing
2482
as being somewhat crude. This is intended to represent a
computer server. Connected to the computer servers are -- I
will draw two laptops here that are connected via a network,
a local area network or wiring network. They connect to the
server.
As we have heard, this half of the industry down here
is a computer client operating environment involving these
laptops. That is not what we're about here. It is
connected and Microsoft, you heard from the last witness,
has actually been adjudicated as a monopolist here and
controls this and the operating systems that go into here.
We are up here in this server operating environment at the
top half of this entire market.
There are two components to this. One is the hardware
and one is the software. So, again, focusing just on the
top here, how is the hardware sold? Is SCO claiming that
they are going to make money in selling the hardware? No.
The hardware is sold by hardware vendors. Who are those
hardware vendors? Just as examples, I.B.M., you have heard
about them, Hewlett-Packard, and you have heard a lot about
them, and Sun. Those are the hardware vendors and they make
the hardware. Remember that this operating system that goes
in there, where does that come from? That comes from three
possible choices. The total market is three possible
choices. It is Windows, it is UNIX, or it is Linux. There
2483
is a small other component, but it is so small just as to be
really not part of this overall market.
How does one of the three systems that provide this
software, how does it get in there? Well, Windows, which is
own and controlled by, again, Microsoft, and UNIX, get into
the hardware not directly through a sale but through a paid
license. They license to one or more of these hardware
vendors. So the hardware vendors pay Microsoft, pay someone
like UNIX and they put it in here and they sell it to the
end user.
Linux you have heard is open source. It gets into the
computer through three different ways. One way is through a
G.P.L. license. It is a free license. That is important.
It is called a government public license. That is one way.
BY MR. BRENNAN
Q. What are other ways in addition to the general public
license, what would be the other mechanisms that users could
get Linux?
MR. HATCH: Your Honor, I know that standing up
elicited a question finally, but I do have another issue if
we could have a sidebar.
THE COURT: Yes.
(WHEREUPON, a side bar was begun.)
MR. HATCH: Your Honor, my objections are the
following: One is Mr. Brennan has not laid a foundation for
2484
this type of testimony. Mr. Musika talked about that he is
a C.P.A. and he has worked for accounting firms and auditing
firms, but he doesn't have any ability to be able to look at
financial auditing and other financial things, and he has
not laid a foundation other than he is the owner of
companies. He has not laid the foundation that he
personally has any expertise at the time of this to be able
to estimate or explain markets or businesses of this type.
In fact, the type of stuff he is doing here is not
in his report and it is beyond the scope of his report. I
don't know the basis for this. I bring this up also because
I don't know what the intention of Mr. Brennan is, but at
some point Mr. Brennan has to lay the foundation to be able
to do the type of things like we laid the foundation with
Dr. Pisano, like if he has written journals and done things,
the type of estimation of markets like Dr. Pisano. We have
not gotten any of that from this witness, and he is --
THE COURT: You say that none of this basic
framework is contained in his expert report?
MR. BRENNAN: That is certainly inaccurate.
MR. HATCH: It might be addressed peripherally
certainly, but we don't have these kinds of graphs and he is
explaining the, you know, all of this --
MR. BRENNAN: None of what Dr. Botosan -- that was
not in her report. None of the demonstratives were in her
2485
report.
THE COURT: Just a second. Let me --
MR. BRENNAN: None of that was in her report.
This is all a prelude to both Dr. Pisano's testimony and to
Dr. Botosan's testimony regarding their market analysis. He
is explaining what a general public license is, and a
general public license was referenced in the reports that
Dr. Botosan relied on and --
THE COURT: This is the only question I have for
you, and that is whether or not this type of information is
contained within his expert report.
MR. BRENNAN: The description of a general public
license is not articulated in his report. It is background.
He has run a number of companies that have been identified,
and this is information that is publicly gleanable by
clicking on Wikipedia, and it is gleanable by looking at the
expert reports, and Dr. Botosan relied on --
THE COURT: That is not the question.
Mr. Brennan, the question is whether or not this witness is
testifying beyond what the plaintiffs understood he would be
testifying about, because it is not contained in his expert
report.
MR. BRENNAN: I don't think this is going to
become an issue, because he is criticizing, as he did in his
report, the methodology employed by Dr. Pisano and he is
2486
criticizing the methodologies employed by Deutsche Bank.
THE COURT: I think that is certainly appropriate,
especially if it is all contained in the report. But I
don't know that there is any foundation for him being the
kind of expert to go into this very broad general area right
now. In essence, if it is contained in the report and it
was not challenged by them, then I think you probably ought
to have him cut to that content of his expert report.
MR. BRENNAN: I can do that. He is explaining
what the market is. They never explained what the market is
and that is the basic problem.
THE COURT: I don't think that is a fair
characterization. I think that testimony has been brought
out, not necessarily by their experts, but in the course of
the trial and I think the jury has a pretty good idea of
what he is talking about.
MR. BRENNAN: Let me state that the basic
criticism of Dr. Pisano that will be tendered here today is
that he did not include in his survey the vendor license
market.
THE COURT: Does he talk about that in his report?
MR. BRENNAN: Yes.
THE COURT: Then let's get to that.
MR. BRENNAN: Well, that is what he is describing
here, the vendor market. That is exactly what he just wrote
2487
on the board that gave rise to this criticism.
THE COURT: Yes.
MR. HATCH: That goes to the second part of my
objection. That is that he has not laid that foundation
either in his report or today, other than I own a company,
and the fact you own a company does not give you that
expertise, or I am a person in the company, and he has not
laid that type of foundation like we did with Dr. Pisano,
that he has experience in estimating the markets and
understanding the markets, writing about the markets and how
they react and what they do. They can't, just because this
guy has an accounting degree and is a glib guy, just have
him testify about everything in the industry.
MR. BRENNAN: You have cross-examination.
THE COURT: I would agree, to the extent that can
be explored on cross-examination. To the extent that this
is underlying the rest of his expert testimony and it is
fundamental, and it was certainly implied to in his expert
report, then I will allow you to continue. You'll have to
deal with these objections by cross-examination.
MR. BRENNAN: The place I will pick up will be him
explaining the vendor licenses and --
MR. HATCH: I understand the Court is giving them
some leeway as far as giving narrative answers, and I
understand that, and you did the same for us, but at some
2488
point there ought to be a question once and awhile.
MR. BRENNAN: In fairness, and in reference to Dr.
Botosan's examination, there were a few -- I don't want to
characterize them as gratuitous questions --
THE COURT: We are wasting time.
MR. BRENNAN: With your permission, I would like
to lean over and ask him to pick up the pace, but I don't
want to be accused of ex parte communications.
THE COURT: Go ahead.
(WHEREUPON, the bench conference was concluded.)
MR. BRENNAN: Thank you.
BY MR. BRENNAN
Q. You were explaining a little bit about the vendors.
A. Yes. I was just saying that there are three ways,
really three ways that Linux and the open source software
gets into the product. One is through this. There are two
other ways. The second way is through a paid subscription,
that the owner of the server will purchase directly from a
company like Red Hat, and the third way is free. It is just
a free download from the Internet. Any of us could go home
tonight and download Linux and load it. Those are three key
ways.
That was the first thing that I did was to understand
this industry, and that is before I would suggest to
something that they make an investment in SCO.
2489
Q. Having described the industry, what did you do next?
A. The next thing I did was I wanted to focus on SCO
itself. Did they have a business plan? Where do they
expect to go? We know that this market is really defined by
these three -- we know who the competitors are. We know
their competitors are Windows and UNIX, but we know that
this is where they are going to sell. This $200 million
that they generate comes from here. I look next at the
actual participation of these three competitors.
There is a slide that we can bring up.
MR. BRENNAN: We have some demonstratives we would
like to display to the jury.
THE COURT: Have these been made available to
Mr. Hatch?
MR. HATCH: No, I have never seen them.
MR. BRENNAN: I am happy to show them, Your Honor.
Again, as with Dr. Botosan's examination, she was allowed to
draw -- I am happy to show them to them.
MR. HATCH: Your Honor --
MR. BRENNAN: Your Honor, the proposed
demonstrative shows market share between Windows and UNIX
and Linux during the periods of 1995 to 2005.
MR. HATCH: Your Honor, these are materials that I
think are beyond the Court's previous order. I object to
them, and particularly that I have never seen them before.
2490
THE COURT: Were they contained in the expert
report?
MR. BRENNAN: This exact format was not, but the
subject matter was, Your Honor.
THE COURT: If not in the exact format, was the
data in the expert report?
MR. BRENNAN: This market analysis and the terms
of what the market share was not, Your Honor.
THE COURT: Then I can't allow it, Mr. Brennan.
MR. BRENNAN: We'll move on.
BY MR. BRENNAN
Q. What I would like you to do, and we are standing behind
the board, Mr. Musika, but is if you could explain to the
jury in particular reference to Dr. Pisano and his analysis,
what your observations or criticisms were with what Dr.
Pisano presented to the jury.
A. Yes. What I focussed in on then were these three
possible ways of actually selling the --
MR. HATCH: Your Honor, I object to the
qualifications of this particular witness, that he does not
have the same qualifications --
THE COURT: You can talk about this on
cross-examination, Mr. Hatch. I will note that you have a
standing objection.
MR. HATCH: That is what I wanted.
2491
THE COURT: Okay.
THE WITNESS: I looked at the three ways. The
first thing I looked at is I wanted to understand what the
history has been certainly of SCO in actually selling these
three things, the history in the marketplace. What I
understood from looking at SCO's historical financial
statements is that for the years 1998 to 2002 SCO had
generated something like $112 million of revenue, but that
they had lost $211 million. That is million. So this
company leading up to 2002, during that five year period,
had not made any money.
What I looked at next in terms of Dr. Pisano, was
what was Dr. Pisano's approach? How did he approach
determining and supporting that SCO was actually going to
actually make sales in one, two and three. What I
determined was that Dr. Pisano's approach to this neglected
certainly number one.
As you will see, and you have heard from Dr.
Botosan, this was a vendor license. Dr. Pisano's work only
dealt with the R.T.U. licenses. He did not look at and he
ignored totally the G.P.L. On this whole side of the
business, Dr. Pisano ignored that.
BY MR. BRENNAN
Q. I'm sorry to interrupt. In addition to ignoring the
vendor license market, what other defects did you observe in
2492
Dr. Pisano's work?
A. I identified a number of defects. One, and if we could
pull up the next slide that is on the --
MR. BRENNAN: Your Honor, this is a demonstrative
that is the result of trial testimony offered by Dr. Pisano,
and Mr. Musika was in court to observe that.
THE COURT: All right.
THE WITNESS: What Dr. Pisano did, as you can see
here, is he identified the total market. He identified that
total market that is in here in one and in two and three as
7,388,000 potential servers. That is the total of two and
three. He ignored this. He didn't look at this at all. It
is still going to come into the damages, and it still comes
in to want they want you to buy, but not in there.
What he then did was he said, oh, this $7,388,000,
what he is going to do is he says I'm going to divide that
into two and three. He separates that out.
If we could have the next slide.
MR. HATCH: Your Honor, I thought we had an
objection to these slides.
MR. BRENNAN: Your Honor, this is taken from Dr.
Pisano's report. It is an excerpt from that very report.
THE WITNESS: This is actually a slide directly
from Dr. Pisano's report. He divides the market into the
two and the three. Basically he shows that the free market
2493
is about 54 percent of the total, of his total 7.38, and the
paid market is about 46 percent. This is the total, 100
percent. What he does is he lumps those two together. He
ignores this and he lumps these two together, even though
these are two distinct markets, a free market and a paid
market.
If I could draw one more board explaining what Dr.
Pisano did, then I think I can probably return to my seat.
What Dr. Pisano did was he didn't say that they
are going to generate this $200 million in revenue and 100
million in profits from all of this 7,388,000, he said we're
only going to get 19 percent of it. Do you see that in that
slide? The 1,404,000, that is the total number of servers.
The question is, where did he get that 19 percent?
How did he actually get to that 19 percent?
BY MR. BRENNAN
Q. Where did he, to your understanding, get this 19
percent figure that he identified in his testimony?
A. He got it from a separate web survey that was
performed, as you may recall, by a group called the Yankee
Group. He said that I'm going to use that, and I'm not
going to do my own survey, I'm going to use it because he
felt that it was a good proxy, he called it, or a good means
to determine the reliability of the 19 percent.
I have certain questions or issues concerning that 19
2494
percent.
Q. What are your criticisms, not criticisms but
observations regarding the 19 percent that Dr. Pisano relied
on based on the Yankee Group study?
A. I think I have four basic concerns about that Yankee
Group Survey. What the Yankee Group survey did, and it was
done for a different purpose, but what it did is it took
these three markets. It took the Windows market, which is
not at issue here, and this $200 million and 100 million in
profits is not coming from the Windows market.
It took the UNIX market, which is not at issue here and
it is not in our box here, and Windows and UNIX are outside,
and what SCO is going to sell to ultimately is Linux. Then
what the survey did was take the Linux market, and that is
the Yankee Group survey, and he told you was about 1,000
samples, and within each of these operating system markets
there are large companies and small companies. Large and
small. Large and small. What the sample did was it took
only large companies, and only a sample of large companies
from each of these. Again, it took that 1,000 and asked
those 1,000 users of these three how concerned are you about
the indemnification and warranty for the open source market?
Q. So are you suggesting that he used the wrong
population?
A. I am, because only this represents the 7,388,000
2495
servers, not this, and not this.
It would be like if I was trying to determine in this
courtroom what the average height of everyone in this
courtroom was, and I selected the three tallest people in
the courtroom, and I averaged their heights and then I said,
well, that represents the average height in this total
courtroom.
It would be worse if I went across the street to the
hotel and selected people. These are not the population.
When he got an answer from asking only the large companies
with Windows and in UNIX and Linux that 19 percent were
concerned, that is 19 percent that relates to only the large
companies in Windows, and only the large companies in UNIX,
and only the large companies in Linux. He took that 19
percent and multiplied it times the total number of servers
in Linux to get the 1,404,000.
Q. In addition then to selecting the wrong population, did
he ask the wrong question?
A. He did.
May I take my seat?
MR. BRENNAN: Your Honor, may he return to his
seat?
THE COURT: Yes.
BY MR. BRENNAN
Q. We have talked a little bit about the wrong population
2496
being sampled in the survey, what was wrong with the
question that was asked?
A. The question, if I could have the next slide, the
question -- well, actually we have gone over this. That is
the 54 percent. Let's go to the next slide.
The question that was asked -- here we can see at the
top, and this is directly from the Yankee Group report that
he used, so this is not my document, but I have highlighted
it and put these boxes out to the side, but this is the
actual group. We can see there the Yankee Group, 2004,
Windows, UNIX and Linux comparison survey. Well, SCO is not
selling UNIX and Windows. There is that point.
The second point is if your firm is a mid size large
organization with 5,000 employees, rate the importance.
Well, that survey then only tells us what large companies
with 5,000 employees, what their feeling is about the
importance of indemnification. It does not tell us about
this 7,388,000, it only applies to a subset of that. This
is an unrepresentative sample.
Last, it asks about indemnification and product
warranty. They are concerned about indemnification and
product warranty. Even Dr. Pisano told us that
indemnification is different than the SCO product. The SCO
product, he said, was superior in his mind, but it certainly
was different. I would agree, again, not necessarily that
2497
the SCO product was superior, but I'll agree with Dr. Pisano
that it is different. Because if you get indemnification
you're covered for whatever events might occur. What SCO
was saying was this is a specific event and you're using my
UNIX and you need to pay me. They are two very different
things.
Q. You have told us that there was an incorrect population
and the wrong question, was there another important factor
that was left out of the survey?
A. Yes, another very key factor. If we can go to the next
slide we see that this is a question and answer to Dr.
Pisano during his deposition. He was asked this again in
trial. What prices did the survey respondents base their
answers on? His answer was there was no specific price that
the were asked to consider. Well, this is fundamental.
Even his Dr. Botosan, his co-expert agrees, that this is
basic economics.
Everything we buy in this life is relative to price.
The best example of that is the turmoil or confusion or
controversy that exits today in America over health care.
If I were to ask everyone in this courtroom are you
concerned about health care? Do you want good health care?
Of course, and we would all raise our hands and say, well,
sure, I am concerned about health care. Then where the
division comes is how much. How much are you willing to pay
2498
for it? We all have different views and we all have
different abilities.
What happened here in this survey is this survey was
not conducted for the purposes of determining price. It
asked, as Dr. Pisano states, no question concerning price.
So these respondents and this 19 percent, not only is it the
wrong question, not only is it the wrong sample, but we have
no idea if their concern is relative to price. As price
goes up, we all buy less. As price goes down, we buy more.
That is the fundamental law of demand.
Q. In addition to the failure to take into account the
proper population and the right question and this basic
tenant of economics, that is price sensitivity, can you
briefly tell us whether you think there are any other
reasons that SCO through Dr. Pisano or others has failed to
show that Novell was the sole cause of the inability to sell
these SCO licenses?
A. Right.
If we could have the next slide.
Just as a brief introduction to this slide, again, we
go back to my analogy in this but-for world and --
THE COURT: Excuse me. Mr. Hatch.
MR. HATCH: This is another slide we have never
seen.
MR. BRENNAN: This is a simple summary, a
2499
demonstrative summary of each of the opinions expressed by
Mr. Musika. It is a summary.
THE COURT: It summarizes his expert report?
MR. BRENNAN: That is right.
THE COURT: All right.
Do you have a copy of it, Mr. Hatch?
MR. BRENNAN: Yes, they are in the binder.
MR. HATCH: Yes.
THE COURT: Go ahead.
BY MR. BRENNAN
Q. We are doing this simply to expedite what would be
otherwise much longer testimony.
Knowing that this is a summary, go quickly through the
points for the benefit of the jury.
A. Yes. These are questions that I asked myself, and as a
financial adviser explaining a complex transaction I say to
you, would SCO have made $200 million of revenue with only
one exception, the Novell act? Let's look at each one of
these.
First, SCO does not know who their customers are. I'm
going to explain these in a little more detail. I'm just
going to mention them now, and we'll come back to them.
There is no established demand for the SCO product. SCO has
no profitable business structure. SCO has alienated their
target customer. Again, these are things that you would
2500
want to see before you put your money in a business. SCO
lacks support of the industry experts. SCO's marketing plan
was poorly conceived and implemented. SCO failed to
consider the significance of product pricing, and that the
infringing code could be removed from Linux. SCO
contributed to Linux under the G.P.L., and identifications
are available to consumers, and there are acceptable
alternatives to SCOsource licenses.
Q. So with the limited time that we have, if you could
briefly touch upon each of those factors as you have
identified them.
A. Yes. We will go through it slide by slide.
Go to the next slide, if you could, please.
I would say to you that getting this 200 million, and I
don't want to repeat this each time, and I will say it now
and then I won't repeat it for each slide, they didn't
receive the 200 million in revenue and the 100 million in
profits, irrespective of Novell's act, because, and that is
the premise to each one of these slides, because they have
an inability to identify their customers. People are
downloading from the Internet, they can't even identify who
they are. How do you sell to someone if you don't know who
they are?
Here is an example. SCO's own statement, the second
one, is how does one track the payers from the non-payers
2501
that they don't know?
Let's go to the next slide.
Well, again, in the interest of being brief, these
three points are the actual customers that are coming back
and saying, look, you sent us a blind mailing -- SCO sent
out 1,000 letters and sent it to customers and here is Ace
Hardware, Burger King and Dream Works, three well known
companies that came back and said we don't even use Linux.
It is a fishing mission. It is a blind mailing on SCO's
part. Is that a basis in which they're going to make $200
million of revenue?
Next slide.
SCO's failure or inability to show that UNIX was in
Linux. This has been an ongoing point of contention. The
users or the alleged users, the customers that they are
going to sell to, those servers over there, it has never
been proven that it is actually in the Linux software. That
is a proof that is still waiting. That is the whole other
set of law suits, the primary one being the I.B.M. lawsuit.
Prove to me that UNIX is actually in Linux. We don't
know that today. SCO does not know that today. They are
asking you to put your money up to buy their position
without knowing whether it is actually in the Linux product.
Q. The next factor?
A. We can go to the next slide.
2502
SCO's inability to reach that 200 million in revenue
and 100 million in profit is expressed in their own 10-K
filing. While they are here in court asking you to buy into
the 200 million in revenue, what they have said to the real
investing public is the following. I want to focus on
these, because these are very important.
These come right from SCO's own 10-K. We do not have a
history of a profitable operation. They are asking you to
buy into their 200 million even though they have never made
a profit in the last -- I will say five years leading up to
this.
Secondly, our future SCOsource licensing revenue is
uncertain. They are telling you, the buyer, that we are
uncertain as to whether we can do this. Our experts have
told you we can, but we are uncertain.
Three, due to the lack of historical experience and the
uncertainties related to the SCOsource licensing revenue, we
are unable to estimate the amount and the timing of future
licensing revenue. So SCO themselves are saying we don't
know how much we can generate.
Fourth, SCOsource licensing revenue is unlikely to
produce stable predictable revenue for the foreseeable
future. Okay.
Q. Then what about public image, did that have an impact?
A. Yes.
2503
Next slide.
The customers, once they find them, and we don't know
who they are yet, and they don't know if they can actually
project them, but the customers we do know are --
MR. HATCH: Your Honor, he is now showing things
that are not in evidence.
MR. BRENNAN: Your Honor, he is an expert witness
and is entitled to rely on hearsay, which he did in his
report, and these are references that were included --
MR. HATCH: But he is not allowed to publish them.
MR. BRENNAN: This is a demonstrative. If you
want him to read the reference and not use the
demonstrative --
THE COURT: I'm going to allow him to use them.
THE WITNESS: I didn't hear you, Your Honor?
THE COURT: You may go ahead.
THE WITNESS: This focus group, these customers
that they are looking for we know are open source. They are
the people who download it for free, they are the people who
purchase through a third party like Red Hat. So what we see
is that the public has reacted adversely. This as a
litigation scenario, a business plan that is founded on
litigation, and it is founded on the ability to go in and
identify a Linux user and sue them or threaten to sue them
to receive a payment in the form of a royalty payment.
2504
What Business Week says is this is the most hated
company in tech. These other remarks are SCO's own remarks,
can SCO afford bad press and legal costs that may become
associated with this program? SCO knew that they were going
to alienate and that they were going to have difficulty with
this open source community, the very customers that they
hope to bring in. In fact, it did happen.
BY MR. BRENNAN
Q. Then were there also industry analysts who commented on
this poor image that SCO held?
A. Yes. As stated here, customers with large future Linux
commitments should avoid paying SCO's server license fees
since they appear arbitrarily high or represent a concession
to SCO's claims and will expose them to even larger fees.
So the Gartner group that was mentioned by Dr. Pisano and
Dr. Botosan, are telling the focus customers again that you
shouldn't pay this. He is saying certainly not pay it now,
because it is a claim that is unfounded at this point and it
is arbitrary.
Q. Then was there also a factor regarding a lack of a
marketing plan by SCO?
A. Yes.
These are two SCO remarks that talk about the weakness
on SCO's part of actually pursuing or developing a well
thought out plan. I have not seen, nor did I see during the
2505
weeks of trial, where if we were investors and we were going
to put our money into a company that said we're going to
have 200 million in revenue and 100 million of profits, we
would expect to see a business plan. We would expect to see
a discussion of the size of the market, and how it is they
are going to attract these customers, and what price they
are going to sell at, et cetera. I didn't see that.
What I have seen that SCO is concerned about are
marketing plans. SCO is not aggressively marketing or
selling the license proactively.
Then this remark is by a SCO employee, that I thought
this idea was a bad idea when we discussed it in the days
when we ran SCO, and I think it is a bad idea. New SCO has
few enough friends anyway without pulling this stunt. This
is their own remark concerning the proposed business plan.
Q. Let's turn to the issue of this general public license
issue. What is the factor there, the risk factor, if you
will?
A. Without getting --
THE COURT: Mr. Hatch?
MR. HATCH: Your Honor, we would request a
sidebar.
(WHEREUPON, a side bar was begun.)
MR. SINGER: This I was a party to. It was our
understanding and agreement that demonstrative exhibits that
2506
would be used during trial would be shared the day before.
This book was not. That is one problem. This should not be
used.
Secondly, a lot of the material in this book is
not evidence in the case. Certainly a Business Week article
is not evidence in the case. As I look at the slides that
are to come in they are filled with things that are not
evidence in the case. Now, he can rely on this in rendering
his opinions and what he tells the jury, but he cannot show
these statements from those reports and quotes from people,
like e-mails that may not be in evidence, anymore than any
other document not in evidence can be shown to the jury.
Just because he is an expert, he can't show that to the jury
and this is highly improper.
MR. BRENNAN: Your Honor, these are demonstratives
and they are based largely on SCO documents. I don't
purport that these will go to the jury. They are being
shown like their expert, Dr. Botosan, where she wrote
figures and numbers and calculations on the board. This is
simply illustrating and the basis for his opinion. It is
premised both on his report and the documents that are
marked.
THE COURT: The question is whether or not all of
this information is contained in his expert report?
MR. BRENNAN: I believe that they are
2507
representative of --
THE COURT: If it was included then you could have
brought this up in a motion before trial, because if they
are in his expert report, and if he relied on them, you had
the opportunity to explain why --
MR. SINGER: I think the opportunity to -- he is
now saying he relied upon this, but that is different than
simply showing the jury what is on a board and --
MR. BRENNAN: They showed demonstrative exhibits
and they were not --
THE COURT: I would agree. This should have been
done before and I'm going to allow you to proceed.
MR. BRENNAN: Thank you.
(WHEREUPON, the bench conference was concluded.)
BY MR. BRENNAN
Q. Thank you.
In the interest of time, Mr. Musika, you have
highlighted some of the concerns that one would have
regarding this investment decision, as you put it, and I
think I will conclude by asking you a bit about Dr.
Botosan's report and the projections that she relied upon.
I would like to have you jump forward, if we could, to
the Deutsche Bank analysis, if we could do that.
A. Yes.
Q. Thank you.
2508
A. You want me to comment on her reliance on Deutsche
Bank?
Q. Please.
A. Yes.
Deutsche Bank is an investment bank. Deutsche Bank and
investment banks are in the business to sell stock or to
represent companies that sell stock. The purpose of that
Deutsche Bank report, once again, like the Yankee Group
report, was not for the purpose of litigation, it was for
the purpose of rating the SCO stock and getting individuals
to buy that SCO stock.
Now, Dr. Botosan used certain numbers out of that
report, but didn't consider or look at the entire purpose
and comments that were made by Deutsche Bank. On the screen
here are the cautionary comments by Deutsche Bank with
respect to that particular projection. It says that this
company and its forecasts and its prospects, the risks are
huge. These are all direct quotes from Deutsche Bank.
Next it says we consider this investment to be risky
and speculative. Again, they are asking you to put your
money in this, but, as they say, a caveat, buyer beware.
They are telling you that up front.
Number three, it is an extremely high risk investment.
Number four, once again, it is speculative.
Five, if it does not succeed in its lawsuit against
2509
I.B.M., if it does not succeed ultimately in proving
infringement, these shares will be worthless. It says it
may collapse in value.
So you have to take everything that is in that report,
certainly with all of the comments that are made and with
the cautionary comments that are made about the likelihood
of success.
Q. As you understand, this Deutsche report was the basis
for Dr. Botosan's analysis and opinion, correct?
A. I do, yes.
Q. So summing up your observations and criticisms of Dr.
Pisano's methodology, and the deficiencies in Dr. Botosan's
analysis and reliance upon the Deutsche Bank report, what is
your ultimate conclusion regarding damages that one might
suffer as a result of the facts that have been presented
during this case?
A. Can I come down and draw my last and final exhibit?
MR. BRENNAN: With the Court's permission?
THE COURT: You may.
THE WITNESS: I need a clean board, if we have
one, or I will flip one over. Here is one.
Ultimately the approach is to try to explain to
everyone is that SCO has a plan to sell, and it is going to
sell based on a business plan that says we demand or we sue.
They want payment from the open source community. The open
2510
source community has to consider, do I infringe or do I not?
If they infringe, then they make a payment to SCO. If they
don't infringe, then there is no payment. We don't know
this and this is an uncertainty. No one knows whether or
not there is actual infringement. That is an event that
will be determined ultimately, but it is not determined yet.
What does the Deutsche Bank report say? If there
is no infringement, what is the amount and what is the
outcome of the revenue and what the shares will be worth?
Zero. Because of this major uncertainty I'm in the same
position. I would not advise you as investors to buy what
SCO has been offering, which is $200 million in revenue and
$100 million in profit, unless and until this major
uncertainty occurs.
In addition, of course, I believe there are many,
many, many other obstacles as to why SCO has not and could
not reach that $200 million of revenue.
Q. One last question. The analysis that has been
presented by Dr. Botosan and Dr. Pisano assumes that Novell
is found liable for slandering title. If that decision is
not made, what would the damages figure be?
A. I think they agree with that as well that that is zero,
yes.
MR. BRENNAN: That's all that I have of this
witness, Your Honor.
2511
THE COURT: Thank you, Mr. Brennan.
Mr. Hatch, do you want these charts to remain up?
MR. HATCH: No, Your Honor.
MR. BRENNAN: I would be happy to pull them down.
THE COURT: Set them down in front of the jury
box, and he can pull them up if he needs to.
CROSS-EXAMINATION
BY MR. HATCH
Q. Good morning, Mr. Pisano. Excuse me, Mr. Musika. I
have Dr. Pisano on my mind.
I just want to spend a couple minutes on your
qualifications to be here. You're obviously a very
qualified guy and you have done a lot of things in your
life. As I understood it from what you were talking about
here, the bulk of your initial training is in accounting; is
that right?
A. Work experience or academic?
Q. Academic and in your initial work.
A. No. I was a history major as undergraduate, and then
graduate school was the master's in public finance. So
there was some accounting there. I am really sort of -- my
training came as a result of working in the accounting
profession and owning and operating businesses.
Q. Okay. And at some point --
A. I am a C.P.A. I'm sorry.
2512
Q. I think you did mention that.
You indicated a number of companies and things that you
had been with. The last company you mentioned where you did
your expert work, that is this Invotex company; is that
right?
A. Yes.
Q. Now, that is the company under which you're here
appearing today, correct?
A. That is my current employment, yes. That is the last
company I formed, right.
Q. You're charging what rate to be here?
A. $525 an hour.
Q. Do you know how many hours you have worked on this
case?
A. No. I am sorry, I don't.
Q. Do you have any idea?
A. I don't. I'm sorry. It spans, as most witnesses have
said, it goes all the way back four or five years. I don't
remember.
Q. Do you have any idea? Can you tell the jury how much
you have been paid?
A. Well, that goes to the company. That does not go to
me. I get a salary. I don't receive the --
Q. You don't have an equity interest in the company?
A. No, I do not. I sold my equity two years ago. In 2007
2513
I liquidated and sold all my ownership and I am just an
employee.
Q. At the time you did the bulk of your work and your
reports, you had an equity interest in the company, didn't
you?
A. Again, the bulk of the work -- I have done a lot of
work here in the last --
Q. The last few weeks?
A. Yes. I think I have done more work in the last month
than I probably did in the entire time prior to that.
Q. Your report was in '07?
A. I'm sorry?
Q. Your report was sometime in 2007?
A. I think that is right, yes.
Q. At that time, the time of your report you were still
involved in the company and had an equity interest, correct?
A. December -- the end of 2007 I sold my interest. We
could look at the reports and see what the date of the
report and the signing. I don't remember. It could have
been, yes.
Q. I can give you a copy, but your opposition report is
July 3rd, 2007?
A. Yes. I was still an equity owner of Invotex at that
point, yes.
Q. You would expect that your billings would be over
2514
$200,000, correct? You and your firm's billings for this
matter --
A. The total amount of all of the people working on it
over the course of the -- I would say that is probably a
fair estimate, yes.
Q. Now, at the time that you prepared your opinions for
this case, you were spending between 75 and 85 percent of
your time providing expert opinion, slash, consultations for
litigation, correct?
A. I'm sorry. I'm having a little -- you're trailing off.
Q. I'll try to lean over. At the time that you prepared
your reports, and I'm talking about going back to July of
2007 --
A. Yes.
Q. You were spending about 75 to 85 percent of your time,
your professional time providing expert, slash, consulting
work for litigation, correct?
A. I think that is right, yes.
Q. And you have been deposed in over 200 cases, correct?
A. Yes.
Q. You have testified in 50 to 100 trials?
A. At least.
Q. So would it be fair to say that during this period of
time, you and your company during this period of time were
spending 75 to 85 percent of your time on litigation related
2515
matters, and the bulk of our livelihood was providing expert
opinions to your clients?
A. No, that wouldn't be true, because certain
transactions, like the transaction with the University of
Utah, can pay a much larger investment. Direct investments
can pay much -- there are only 24 hours in the day and you
can only charge so much per hour and you are limited and
your time is capped. Our investments have over time paid us
more than our hourly rate.
Q. From the money that you were making from your time,
that is largely from expert opinions? 75, 85 percent of
your time is doing expert work?
A. As you said, that was back at that point in time. It
varies from time to time. As of the date of this report,
yes, that would be right.
Q. Just to be real clear with the jury, you were hired to
do a report and to make an analysis of damages and to
evaluate Dr. Botosan's and Dr. Pisano's reports, right?
A. Yes. That was part of what I was asked to do.
Q. At that time the bulk of your time and the way you made
your living was by, 75, 80 percent of your time, by
providing expert reports for clients in litigation?
A. Again, you said two things. You said the amount of
time you spent and the bulk of how you made a living. I
will say yes to the first part, the bulk of my time, but, no
2516
to the second part, because investments are paying us a
better return than our rate per hour.
Q. I think I was clear earlier, and I probably was less
clear there, but the money you make from your billing of
your time, that was from expert reports, right? The
investments are something that you have already got out
there, I mean like if I an getting interest from my bank
account, right?
A. I don't understand the question.
Q. Let's move on. I think that is probably obvious.
You have never written any papers on technology
licensing, have you?
A. I have taught courses to the patent bar and to judges,
and I have produced some papers in connection with -- I
taught a course on how to calculate lost profits to the
American Bar Association in two separate years, and I
produced papers in connection with that work, yes.
Q. But that is calculating profits. Here you're
explaining the market to the jury. You have not published
any technology licensing papers in the tech industry that go
to the business aspects of it, other than profits and
looking at accounting stuff, have you?
A. I don't understand that question.
Q. You have put up this board and explained what you
viewed as the industry and what was the market for this
2517
business, but you have not written in this area, have you?
A. I have probably produced -- I don't know how many
business plans for companies of my own, for reorganization
plans for trouble companies, business plans for start-up
companies and representing it to venture capitalists, so I
have written many, many, many -- hundreds of business plans.
Q. Not my question, sir.
Let me put it in context for you. Dr. Pisano came here
and you were here for his testimony, correct?
A. I was, yes.
Q. He holds a chair at the Harvard Business School,
correct?
A. He does.
Q. You understood that he is an expert in the technology
industry?
A. I do.
Q. He presented to this jury a number, which are on his
resume, of articles and other things that he has written,
and he has devoted his professional career to this
particular industry, correct?
A. Yes.
Q. And your resume, and you will recall I objected that it
was incomplete, but on it there were no publications. There
was nothing in a peer review journal like Dr. Pisano has
done, right?
2518
A. I certainly agree with you, and I feel for the people
in academia because, as they say, it is publish or perish.
That is what their job is. They have to publish. My job is
to run companies. My job is to make payroll. My job is
to --
THE COURT: Mr. Musika, if you would please answer
the question posed.
THE WITNESS: Yes.
BY MR. HATCH
Q. Do you know what a peer reviewed journal is?
A. Yes.
Q. What is that?
A. It is a journal that is usually in a particular field
in which the professionals are peers within that field and
they will edit it and scrutinize it and will agree to an
participate in its publishing and creation and distribution.
Q. For an academic his livelihood rises or falls based on
other people being able to see it and be able to criticize
it if he does not have it right, correct?
A. Yes.
Q. Okay. You have not published in those areas like Dr.
Pisano?
A. That is not my job.
Q. You have not published in those areas like Dr. Botosan
has, have you?
2519
A. Again, that is not my job, no.
Q. Now, I want to be very clear, because there was some
criticism of Dr. Botosan. If I heard you right you agree
that using a but-for world analysis is the proper way to
look at damages, correct?
A. I think that is a proper construct, yes, within the
calculation of damages. I clarified what I understood the
but-for world to be, but I think that is the proper
construct, yes.
Q. Well, you argued with what Dr. Botosan had used in the
construct for the but-for world, but you did not argue with
the fact that a but-for world analysis is proper, correct?
A. I think that is a part of what damage experts do, yes.
I agree with that.
Q. And a large part of what you did here is you were
criticizing Dr. Botosan, correct, and what she put into her
analysis?
A. No.
Q. So you agree with her numbers?
A. No.
Q. You agree with the inputs that she relied on?
A. No.
Q. Okay. As I understand it, those are the types of
things that you went into, and in particular you talked
about a Deutsche Bank report, correct?
2520
A. Yes.
Q. Now, let me give you a copy of your report.
MR. HATCH: Mr. Calvin, bring up R-21.
I believe this has been admitted.
THE CLERK: It has.
BY MR. HATCH
Q. Mr. Musika, I have put in front of you an exhibit that
is the Deutsche Bank report from October 14, 2003.
Do you see that?
A. Yes, I do.
Q. You spoke about that during your direct examination,
correct?
A. Yes, I did.
Q. Now, one of the things that you criticize, I think, if
I heard your right, is you talked to the jury about your
conclusion that these shares would be worth zero and you
recommended that they don't buy?
A. That they don't buy the decision and the position that
Dr. Pisano and Dr. Botosan are offering, that there would
have been $200 million of revenue and $10 million of profits
except for Novell's slander.
Q. You specifically said the stock was worth nothing?
A. That is what the Deutsche Bank report says, yes.
Q. Well, let's look at the Deutsche Bank report.
We went through this with Dr. Botosan I think the other
2521
day with Mr. Brennan. As of the date of this report, and as
you can see under buy --
MR. HATCH: Mr. Calvin, pull that up. It is up in
the right-hand corner.
BY MR. HATCH
Q. The price of the stock at that point was what price?
A. $16 and one cent a share.
Q. Let's go back to the beginning.
I think as we pointed out before, if you were just
looking at the stock -- now, the Deutsche Bank report talked
about some of the limitations that you talked about here
with the jury, right, the risk factors including the risk of
litigation and infringement and other things?
A. Yes.
Q. It took those into account, right?
A. It took the risk factors into account to do what?
Q. It told the people who were reading this report and
deciding how they wanted to view the SCO Group, it gave
those as risk factors to them, didn't it?
A. It said if you choose to buy this stock you should be
aware that you could lose everything you're putting into
this. This could be worthless. This is a binary
investment.
Q. Exactly. Just to be clear, the date of this is before
any of the alleged Novell slander, correct?
2522
A. No.
Q. It is after this, right?
A. Yes.
Q. Even with all of those things in play, what is the
price that they say the stock is going to be, they think?
A. They identify -- well, we should be careful here, too,
because it is not they, it is Brian Skiba. Deutsche Bank,
as it says in the report, this is not their report. This is
Brian Skiba's report. That is a very important point.
Secondly, what Brian Skiba says is $45 a share is the
target price. Not Deutsche Bank, Brian Skiba.
MR. HATCH: Mr. Calvin, go to page 17, I think it
was. Page 19. Excuse me. Page 18 is what I want.
BY MR. SINGER
Q. Deutsche Bank, they don't have a relationship with SCO,
do they?
A. Yes, I think they do.
Q. What do you believe that relationship is?
A. There is a disclosure, and I think Dr. Botosan was
shown, that they make a market in the stock.
Q. Okay. Were they doing that at this time?
A. Which time?
Q. The time of this report?
A. No.
Q. So they were not making a market, so is there any
2523
relationship between Deutsche Bank and SCO at this time?
A. On October 14th, 2003?
Q. Right.
A. Well, again, are you talking about Deutsche Bank or
Brian Skiba specifically?
Q. I am talking about Deutsche Bank.
A. Deutsche Bank, I don't know. Brian Skiba, there may
have been.
Q. In here they do talk about what you call vendor
licenses, don't they?
A. They do include vendor licenses, yes, in their
projections. Yes, that is correct.
Q. The date of this report is prior to the litigation with
Novell, correct?
A. Yes.
Q. So we're talking about here an independent group who is
saying what these vendor licenses might be, and what they
say here, do they not, is they are estimating $10 million
recognized over three quarters, correct, from a large
license agreement that was already signed?
A. Well, you're reading from that second paragraph and it
says the source license deals which enable licensees to work
with the System V code in their own products are typically
large deals where timing is difficult to predict. There are
two things there. One is they are telling us, again, that
2524
it is difficult to predict and, number two, they are talking
about System V. They are not talking about vendor licenses
that relate to SCO.
Again, this is an attempt to take one set of
projections that were prepared for one reason and force feed
them or force fit them into a SCO license which deals with
Linux. That does not say that at all.
Q. Dr. Botosan relied on this, right?
A. She did, indeed.
Q. And you criticized her for relaying on this, right?
A. Yes.
Q. In the Deutsche Bank report, so we can move this on,
they put a price at what they thought the SCO licenses would
sell for, a range, didn't they?
A. Which licenses are you talking about?
Q. The R.T.U. license.
A. Okay.
Q. Deutsche Bank said between $100 and $300, correct?
A. Yes.
Q. You are aware that SCO had priced them as high as
$1,400 and at $695, but Deutsche Bank was taking the
conservative range of $100 to $300, correct?
A. I don't think that is conservative.
Q. Well, that is not the question I asked.
MR. BRENNAN: That is the question that he asked.
2525
THE COURT: No, it is not.
MR. HATCH: That was not the question I asked.
THE COURT: He asked whether or not that is what
the bank did.
MR. BRENNAN: Just so we are clear, Your Honor, he
said conservative in his question.
THE COURT: He did, but he said did the bank take
the conservative view. It was the bank.
We're going to take a recess here. 15 minutes.
(WHEREUPON, the jury leaves the proceedings.)
THE COURT: Counsel, when we return I want you to
be able to tell me exactly how much time there is left for
each of you and how you intend to allocate it. All right.
MR. BRENNAN: Thank you.
(Recess)
***** Part 3 *****
THE COURT: Mr. Jacobs, Mr. Singer, where are we?
MR. SINGER: Your Honor, first with respect to
time, I think the parties have agreed that SCO has 52 minutes
and Novell has 22 minutes.
MR. JACOBS: That's correct, Your Honor.
MR. SINGER: I assume there's no further witnesses
from Novell?
MR. JACOBS: That's correct.
MR. SINGER: We would with the Court's approval
like to reserve the issue of Rule 50 motions that we have with
respect to their case. And we would have two rebuttal
witnesses, the first of whom would be Robert Frankenberg and
the second witness would be Christine Botosan.
THE COURT: All right.
Anything to respond to that, Mr. Jacobs?
MR. JACOBS: We're ready, Your Honor.
THE COURT: All right.
Again, Mr. Singer, the times were?
MR. SINGER: To be exact, 52 for SCO and 22 for
Novell.
THE COURT: All right.
Now, I have to ask those of you in the audience,
when we put on the white noise, is that deafening to you? Has
anyone suffered physical damage? Well, some have said yes and
some have said no. I need to know. Is it too loud so that
2526
it's harmful?
THE AUDIENCE: No.
THE COURT: Anyone who wants to say otherwise? All
right.
(Whereupon, the jury returned to the court
proceedings.)
THE COURT: Go ahead, Mr. Hatch.
Q. BY MR. HATCH: Mr. Musika, just so we can get to
the bottom line, you never actually calculated a number other
than zero for damages; correct?
A. I calculated the number as zero, yes, that's
correct.
Q. And you never did an actual survey of consumers,
did you?
A. I did not survey consumers, no.
Q. Okay. Now, you were here in the Court when
Dr. Botosan stood in front of the jury and calculated damages;
correct?
A. Yes, I was.
Q. And in response to questions from your counsel
today, you indicated that her analysis was somehow deficient;
right?
A. Was somehow?
Q. Deficient.
A. I don't agree that it takes into consideration all
2527
of the factors that should be considered, yes.
Q. Okay. Fair enough. You and Dr. Botosan both did
reports, expert reports during the course of this litigation;
correct?
A. That's correct.
Q. All right. And you understood that Dr. Botosan
also did -- you reviewed her initial damages report; correct?
A. I did.
Q. All right. And then she had the opportunity to
review your report and criticize that; correct?
A. Yes, that's correct.
Q. All right. And she filed also a rebuttal report
that took issue with your report, as well; correct?
A. Yes.
Q. And you read that one, didn't you?
A. Yes, I did.
Q. And that report was in July of 2007?
A. I don't recall exactly when it was.
Q. You understand it was just shortly after your
report; correct?
A. I think that's right, yes.
Q. And you attended her deposition in this matter in
August of 2007; correct?
A. Twice. She was deposed in 2007, and I attended
both times, and then again in 2010.
2528
Q. Okay. And you were impressed with her, weren't
you?
A. I'm sorry?
Q. You were impressed with her work?
A. No.
Q. Okay.
A. I'm sorry to say.
Q. Well, in fact, weren't you so impressed that only a
few months after her first deposition and after she had issued
a report criticizing your work, didn't you contact Dr. Botosan
regarding your interest in hiring her to work for your expert
consulting business?
A. No. I can explain.
Q. Well, that's a yes or no. Did you or didn't you?
A. I contacted Dr. Botosan and had a discussion with
her concerning accounting. The federal government had
contacted me and asked me to be involved with specific --
there's a new PCAOB board --
MR. HATCH: Your Honor, it's not responsive.
THE COURT: He said no.
MR. HATCH: I agree.
Q. BY MR. HATCH: Didn't you tell her, urge her to
look at your firm's website and let you know if she would have
an interest in discussing your firm's interest in her?
A. Exactly, for the PCAOB work that the federal
2529
government had contacted us about, because she is an
accounting professor, and we did not have an accounting
professor, so to respond to the federal government's request,
to assist with the -- basically it's the federal government's
review of accountants. And so I contacted her about that to
see if she would be interested in joining us to look at the
accounting side, yes.
Q. Well, you didn't say any of that when you
communicated with her that you wanted to hire her shortly
after she had criticized your report?
A. I disagree with that.
Q. You disagree with that?
Your Honor, can we have a side bar?
THE COURT: You may.
(Whereupon, the following proceedings were
held at the bench:)
MR. HATCH: In the interest of time, I think I have
a right I think under the rules to do impeachment. And I have
handed you a copy, the Court a copy that directly contradicts
his testimony here today. I think in the case law and
certainly in the rules that evidence offered solely for
impeachment, it doesn't need to be disclosed prior to trial.
And plus we just became aware of this. And I would ask to be
able to show it at this point. It doesn't mention anything
about accounting, and he specifically said, no, he didn't do
2530
this.
MR. BRENNAN: And I don't think (inaudible.)
Were you waiting for me, Your Honor?
THE COURT: No, Mr. Brennan. I'm waiting for
myself.
MR. BRENNAN: That's what I thought. I'll wait.
(Time lapse.)
THE COURT: I believe it is a close call as to
whether or not this is impeachment, what this witness just
said.
MR. HATCH: He said --
THE COURT: He did not deny that he talked to her
about having her do some specific work. And that is not --
there's nothing in this that would indicate he's asking her to
come to work for him full-time. And that's the way to impeach
him because that seems to me the difference you're trying to
make here.
MR. BRENNAN: I would say if he says contrary to
what's here then perhaps he could, but he hasn't done that.
THE COURT: He hasn't done that.
If you truly could impeach, it would be permitted.
It would not have to be disclosed, it would be allowed. But I
don't see that it's really impeachment. And I think we
probably ought to move on.
MR. HATCH: I'm talking about firm -- I'll ask him
2531
about it.
THE COURT: If you want to go ahead, go ahead.
(Whereupon, the following proceedings were
held in open court:)
Q. BY MR. HATCH: When you talked, you had this
communication with Dr. Botosan, did you tell her that your
firm's greatest challenge is finding qualified experts to
handle the volumes of referrals that you receive?
A. Concerning the accounting literature, yes. And I
put this in the context, too. This was after the summary
judgment motion --
Q. I don't have a question pending.
I want to know if you said a specific thing.
Didn't you tell her that your firm's greatest challenge is
finding qualified experts to handle the volumes of referrals
that you receive?
A. That has always been a challenge for us. I don't
remember. I know the reason I called her again was because of
the Public Accounting Oversight Board contacted me and asked
for accounting experts. And I contacted her since this matter
had been concluded under summary judgment after I talked to
counsel. And I don't know what else I said about the firm. I
don't remember.
Q. So what we do know is shortly after your seeing her
report criticizing her, you made this offer to hire her?
2532
A. No, that is absolutely wrong. It was after the
summary judgment motion was decided in this motion, and SCO
had filed for bankruptcy.
MR. HATCH: Your Honor, he's not responsive. He's
testifying to things I haven't asked him.
THE COURT: I will agree, and first of all,
instruct the jury to disregard what Mr. Musika just said and
instruct the witness to answer the question as directly as
possible.
MR. BRENNAN: Your Honor --
THE COURT: If Mr. Hatch has not represented the
timeline, then you may say no.
THE WITNESS: No.
Q. BY MR. HATCH: But you were interested in hiring
her; correct?
A. At some point I contacted her about interest
because of the special nature of the request from the
government, yes.
Q. Yes. Thank you.
That's all I have, Your Honor.
MR. BRENNAN: Just a few questions, Your Honor.
THE COURT: Go ahead.
REDIRECT EXAMINATION
BY MR. BRENNAN:
Q. Mr. Hatch asked you a series of questions regarding
2533
a possible relationship between Deutsche Bank and SCO, and you
indicated that there was some reason to believe that there was
a relationship between the authors of the Deutsche Bank report
including Brian Skiba and Darl McBride?
A. Yes, that's correct.
Q. And what I'd like to do is have displayed to the
jury a demonstrative, Your Honor, and this indicates both
Deutsche Bank disclosure and also an e-mail from Ms. Bingham
of SCO. And I'd like to ask the witness a question or two
about that.
Mr. Musika, what is your understanding or suspicion
regarding personal relationships between the authors of the
Deutsche Bank forecast and Mr. McBride?
THE COURT: Mr. Hatch?
MR. HATCH: Your Honor, I think, one, it's beyond,
beyond the scope, and I think also there's no foundation to
talk about this.
MR. BRENNAN: This is directly within the scope of
what he was asked about, the relationship issue.
THE COURT: Has this e-mail been admitted as
evidence?
MR. BRENNAN: It's not been admitted as evidence,
but it is one that was relied upon in his report and cited in
his report.
MR. HATCH: And, Your Honor, it was -- there was a
2534
lot of things that Mr. Musika put in his answers, a lot that
was not responsive to my questions, and I don't think he gets
to get anything in that he just chooses, just throws in.
THE COURT: Did you ask him any questions about the
relationship between Brian Skiba and --
MR. HATCH: I asked about the relationship with
Deutsche Bank.
MR. BRENNAN: That's what opened the door, Your
Honor.
THE COURT: All right. You may go ahead.
MR. BRENNAN: Thank you.
Q. BY MR. BRENNAN: So what do you understand or
suspect may be the relationship between SCO and Mr. McBride
and Brian Skiba and Deutsche Bank?
A. As an auditor we are taught to exercise
professional skepticism or healthy skepticism when we're
auditing or examining companies. In examining the record of
these two companies, Novell and SCO, I came upon two things
that are presented here. One is that Deutsche Bank disclosed
in their 2004 report that they were not independent, that they
actually make a market in the SCO stock.
And then secondly, I found in SCO's records an
e-mail correspondence that says:
Please book a car in Rome for Darl -- that's
Darl McBride -- for now. Also I'm going to pdf a
2535
hotel reservation for Darl in Cannes, Nice, at
Hotel Martinez. Please finalize and book for us
in as much as there is a good chance that Darl
and Andrea may be staying with Brian Skiba in
his place Oceanfront.
Now, that is a serious red flag to me as an
auditor. I don't come here to represent that there was a
social relationship. I don't come here to represent that
Darl McBride ultimately stayed there, but this is in the
corporate records of SCO certainly indicating that there was
some potential contact between the two. And that's a serious
red flag for me as an auditor that warrants further
investigation and concern about the lack of independence of
Brian Skiba in preparing that report SKIBA.
MR. BRENNAN: Thank you. No further questions.
THE COURT: Mr. Hatch?
MR. HATCH: Just quickly, Your Honor.
RECROSS-EXAMINATION
BY MR. HATCH:
Q. Mr. Musika, I notice -- if you notice what's on the
first page, there are two authors to this report; correct?
A. Can you high- -- highlight that for me, please?
Yes. There's Brian Skiba and Matthew Kelly, yes. So there's
the same Brian Skiba that was in the e-mail.
Q. Okay. But -- and as to Matthew Kelly, do you have
2536
anything to say about him?
A. No, I don't.
Q. And he has qualifications and certification here,
do you see that? CFA? What does that stand for?
A. Certified financial analyst.
Q. And that shows he's a professional in the financial
industry; correct?
A. You're speaking way fast.
Q. Tell me what certified financial analysts do.
A. It's a certain certification like a CPA. It's just
a different certification. It's -- you need to take a test
and qualify and pass the test.
Q. You don't have anything bad to say about Mr. Kelly?
A. I don't have anything good or bad to say about
Mr. Kelly. I don't have anything to say about him.
Q. Now, you said professional skepticism would have
looked into this relationship with Mr. Skiba. Is that the
summary of your testimony?
A. Yes.
Q. What's the date of this report?
A. I got it. It's October 14, 2003.
Q. Okay. And this conference that you're talking
about, you weren't there, you weren't at the conference that
you say Mr. Skiba provided some housing for Mr. McBride?
A. Well, I didn't say that. That's incorrect.
2537
Q. I didn't ask you that. You weren't there, were
you?
A. Weren't where?
Q. I'll tell you what. Give me the date of that
conference. Wasn't that a year after this report of 2004?
A. What conference are you talking about?
Q. You just testified about Mr. Skiba and
Mr. McBride --
MR. BRENNAN: Your Honor, if it would help, we can
put it back up.
THE COURT: Put it back up, please.
MR. HATCH: That would be helpful.
Q. BY MR. HATCH: You're talking here about a contact
between Mr. Skiba and Mr. McBride. What's the date on that?
A. The date is September 20, 2004.
Q. Okay. Take that down and put up the other.
That's about a year later; right?
A. Yes, it is.
Q. So your skepticism that a report in '03 is not
accurate because something that happened in '04? Is that what
you're saying?
A. Yes. That raises a red flag to me that there was
potentially a relationship that needs investigation before you
could accept the representations of Brian Skiba as being --
Q. You have no evidence of any relationship as of the
2538
date of this particular report, do you?
A. No.
Q. Okay. Thank you.
THE COURT: May this witness be excused, counsel?
MR. BRENNAN: Yes. Thank you, Your Honor.
THE COURT: Mr. Hatch?
MR. HATCH: Thank you, Your Honor. Yes.
THE COURT: Mr. Musika, that means you do not need
to worry about being recalled. I would ask, however, that you
not discuss your testimony in the presence of any other
witness or with a witness in this case.
THE WITNESS: Yes, Your Honor.
THE COURT: Thank you very much.
THE WITNESS: Thank you.
THE COURT: Let me ask, Mr. Brennan, do you have
any additional witnesses?
MR. BRENNAN: We don't have. That was our last
witness, Your Honor.
THE COURT: You rest your case?
MR. BRENNAN: We do.
THE COURT: All right.
MR. SINGER: Your Honor, we have two rebuttal
witnesses, the first of which is Robert Frankenberg.
THE COURT: Mr. Frankenberg, you were already sworn
in this case, so you do not need to be sworn again. So if you
2539
would take a seat.
ROBERT FRANKENBERG,
called as a witness at the request of Plaintiff,
having been previously duly sworn, was examined
and testified further as follows:
THE COURT: Go ahead, Mr. Singer.
MR. SINGER: Thank you, Your Honor.
DIRECT EXAMINATION
BY MR. SINGER:
Q. Thank you, Mr. Frankenberg, for coming back to
provide a little more information in connection with this
matter.
First of all, was Jim Tolonen the chief financial
officer of Novell at the time that Novell and Santa Cruz
entered into an asset purchase agreement?
A. Yes, he was.
Q. Did Mr. Tolonen have responsibilities relative to
the asset purchase agreement?
A. He did, yes.
Q. What were they?
A. Largely to make sure that financially this made
sense, that the revenue could be recognized, that we were
appropriately taking into account any implications from
shareholder -- from shareholder viewpoint, and any elements of
taxation that might take place as a result of the sale.
2540
Q. Was Mr. Tolonen a key executive assigned by the
company to be the business executive on that transaction?
A. No, he was not.
Q. Whose responsibility at Novell was it to make the
decision on what technology assets and intellectual property
would be transferred to Santa Cruz as part of that deal?
A. Ultimately it would be mine with the approval of
the board.
Q. And did Jim Tolonen have that responsibility?
A. No, he did not; although he certainly could
influence it.
Q. And what about David Bradford, did he have that
responsibility?
A. No, he did not.
Q. Did Tor Braham have that responsibility?
A. No. Tor Braham was an attorney in an outside legal
firm. No, he did not have that responsibility.
Q. Did any of these three people, Messrs. Tolonen,
Bradford or Braham, have the authority or responsibility to
decide whether copyrights would stay with Novell or be
transferred to Santa Cruz?
A. None.
Q. Who was the person that you put in charge of the
initial deal negotiations?
A. Excuse me. That was Duff Thompson, and with him
2541
Ed Chatlos.
Q. Were the copyrights a critical part of selling a
software business?
A. Yes, they were.
Q. And, Mr. Frankenberg, I'd like you to take a look
at Exhibit 754, which has been put into evidence.
Do you recognize this to be a memo that
Mr. Bradford sent to the Novell board of directors on
September 15, 1995, a few days before the board meeting?
A. Yes, I do.
Q. And I have a copy here. I think there may be a
copy already up there. If not, here's one.
A. On the screen there is.
Q. One of the items attached here is a term sheet for
a proposed transaction. Mr. Calvin will move to that page of
this.
Do you see on this term sheet a discussion of what
Novell transfers to SCO, what Novell retains and what Novell
receives from SCO?
A. Yes.
Q. Do you see anywhere on the section of what Novell
retains any copyrights mentioned?
A. No, I do not.
Q. Now, did you rely on this information in a board
meeting on September 18, 1995, to provide an accurate summary
2542
of what was in the transaction documents as of that time?
A. I'm sure we would have, yes.
Q. And did it inform your view that the copyrights
that were mentioned in the board resolution that you looked at
a couple weeks ago when you were here that Novell would retain
referring to something other than the UNIX copyrights?
A. Yes.
Q. And I think, did we discuss before that there was a
company, there was a business called NetWare which had
copyrights that were owned by Novell?
A. Yes.
Q. To your best recollection, was an exclusion of any
of the UNIX copyrights discussed at the board meeting on
September 18, 1995?
A. No.
Q. Is that something you would have remembered if that
had come up?
A. I might have. There would have been a lot
discussed on a sale of this nature, but I do not recall any
discussion of copyrights.
Q. Well, if someone had said to you that, well, we're
trying to sell the software business but we're going to retain
the copyrights, would that have been something you think would
have gotten your attention?
A. That definitely would have gotten my attention,
2543
because it's ludicrous to think about selling software without
selling the copyrights. If you don't have the copyrights, you
don't have the ability to freely use what you bought.
Q. Did the intent to transfer the UNIX and UnixWare
copyrights ever change according to your understanding?
A. No.
Q. And when you were here in trial earlier, we
discussed briefly a dispute that arose a year later between
Novell, IBM and SCO about a royalty buyout. Do you recall
that?
A. I do, yes.
Q. And was Mr. Tolonen involved in that issue?
A. Yes, he was.
Q. Do you recall what his involvement was?
A. Again, this was a significant transaction, so
Mr. Tolonen would have been involved in the financial aspects,
any tax implications, the ability to recognize the revenue
that would be derived from such a sale.
Q. I'd like you to look at Exhibit 123.
A. Thank you.
Q. At some point was a term sheet prepared to address
these issues?
A. Yes.
Q. And do you recognize this document?
A. I do, yes.
2544
Q. What is it?
A. It's a proposed IBM term sheet for IBM's buyout of
their license to UNIX.
Q. Do you recall seeing this sometime during the time
of that dispute when you were still chief executive officer of
Novell?
A. I'm sure I did, yes.
Q. And do you recall who drafted this IBM term sheet?
A. I do not. I'm sure Jim Sullivan was involved in
it, also potentially Mr. Tolonen, but I'm not sure who did the
actual drafting.
Q. And Mr. Sullivan is also a Novell executive?
A. Yes, he was.
Q. As was Mr. Tolonen; is that correct?
A. Correct.
MR. SINGER: I move for the admission of
Exhibit 123.
MR. BRENNAN: Your Honor, I don't think this has
been properly authenticated, nor has there been a foundation
laid regarding this document.
THE COURT: I will overrule the objection and admit
Exhibit 123.
(Whereupon, Plaintiff's Exhibit 123 was received.)
Q. BY MR. SINGER: Exhibit 123 is now in evidence, and
the jury will be able to see the document on the screen. This
2545
was the term sheet. Can you explain what this document is?
A. This would have been a term sheet or the iteration
of a term sheet for dealing with the key provisions offered to
and hopefully agreed on with IBM to allow them to purchase,
one-time purchase their royalty -- pay off their royalties in
a one-time purchase for UNIX.
Q. I'd like to point you to a specific provision in
the term sheet. Would you look at the last paragraph?
Perhaps Mr. Calvin can highlight that. This is Item 6.
Could you read that into the record, if you would,
please, Mr. Frankenberg?
A. IBM agrees to residual rights language to be
defined. SCO demands to limit IBM from studying
UNIX code while programming a non-AIX platform.
IBM insists SCO is protected by copyright.
Q. Where it says, IBM insists SCO is protected by
copyright, what did you understand that to mean?
A. Well, what I understand it to mean is that SCO has
copyright protection.
Q. Would that be referring to the UNIX copyrights?
A. Yes.
Q. Did you understand that whether SCO -- excuse me --
whether IBM wanted to limit what they could look at relative
to SCO's UNIX code because they thought that SCO was protected
by the UNIX copyrights?
2546
A. I'm sorry, Mr. Singer. Could you try that again?
Q. Yes. Right.
Do you understand that IBM did not want to limit
what they could look at relative to SCO's UNIX code?
A. Yes.
Q. And what relationship did that have to the issue of
whether SCO was protected by UNIX copyrights?
A. Well, if SCO were protected by UNIX copyrights,
then IBM could not use it without gaining permission of using
the copyright.
Q. Even if they had taken a look at it?
A. Yes.
Q. Did anyone at Novell including Mr. Tolonen tell you
that IBM's position was not correct because Novell had kept
the UNIX copyrights?
A. No, not to my recollection.
Q. And to your knowledge, during this dispute with SCO
and IBM, did anyone at Novell ever tell SCO or IBM that Novell
owned the UNIX copyrights?
A. Not that I heard, no.
Q. Thank you, Mr. Frankenberg.
CROSS-EXAMINATION
BY MR. BRENNAN:
Q. Good afternoon, Mr. Frankenberg.
A. Good afternoon.
2547
Q. We meet again.
A. We do, indeed. Good to see you again.
Q. Nice to see you, as well.
Is it your position that Novell would never sell
assets of a business involving software and retain copyrights
with respect to that software?
A. No. But it would be highly unusual, and I would
think it would require licenses back to the purchaser for the
copyrights.
Q. You're aware of what's called the TUXEDO
transaction; right?
A. Yes.
Q. And Novell sold certain assets relating to the
TUXEDO business to BEA; right?
A. Yes. And license and the technology.
Q. And Novell retained ownership of the copyrights of
that software; right?
A. That's what I've been informed of, yes.
Q. And that transaction happened within a year of the
transaction involving Santa Cruz; right?
A. I believe so, yes. I don't know. I don't remember
the exact time.
Q. So within your experience at Novell, you'd be aware
that within a one-year period or less of the Santa Cruz
transaction Novell did another transaction involving the
2548
TUXEDO software, transferred assets relative to that software
to the buyer BEA, but Novell retained the copyright ownership
to that software; correct?
A. I believe that was a licensing transaction as
opposed to an asset sale, but I'm not sure.
Q. You're not sure?
A. I'm not sure.
Q. Now, I'd like to ask you a bit about, once again,
the board of directors meeting.
A. Okay.
Q. And if we could pull up Exhibit Z3.
Now, you'll agree that at the September 18th, 1995,
board meeting that both Mr. Bradford and Larry Sonsini, the
senior partner at Wilson Sonsini, reviewed the terms of the
asset purchase agreement with the board; right?
A. Yes.
Q. You had chance to follow that discussion; right?
A. Yes, I did.
Q. You had a chance to look at what the terms and
conditions were of the asset purchase agreement; correct?
A. Correct.
Q. And the asset purchase agreement that was entered
into included the exclusions that we looked at when you were
here last time of, all copyrights and trademarks except for
the trademarks UNIX and UnixWare; correct?
2549
A. That's what it said, yes.
Q. So the very document that was before the board, the
very document that was discussed by two attorneys, one inhouse
counsel Mr. Bradford, the other member of the board and senior
partner Wilson Sonsini, that document had that expressed
exclusion of copyrights; correct?
A. Correct.
Q. And you followed that discussion, didn't you?
A. Yes.
Q. And with respect to the minutes, let's focus again,
just so we can leave this trial without any question in
anyone's mind, let's look at Page 2. And you will see in the
resolution once again the language, quote:
Novell will retain all of its patents,
copyrights, and trademarks except for the
trademarks UNIX and UnixWare.
Right?
A. That's what it says.
Q. And that was the resolution approved by the board
of directors; right?
A. Yes.
Q. You were the chairman of that board; right?
A. Yes.
Q. You recall this very resolution being approved at
the board meeting; right?
2550
A. Yes.
Q. And after the board meeting you had a chance to
review the minutes that included this specific resolution;
correct?
A. Yes, I did.
Q. And you believe that the board minutes are
accurate; right?
A. I believe that they are accurate to the extent
that -- well, as I testified before, we were very concerned
about copyrights on NetWare. And I'm sure that when I looked
at this and saw the provision, what I read was, NetWare
copyrights, even though it doesn't say that.
Q. So you read something that didn't appear in the
minutes?
A. Yes.
Q. But --
A. That happens to all of us.
Q. It certainly might.
So let me just see if I understand what you're
saying. Is it your contention that although what was
discussed with the board was an expressed exclusion of
copyrights and although the words that were in the asset
purchase agreement expressly excluded the transfer of
copyrights and the minutes of the board of directors meeting
excluded all copyrights, somehow in your mind you either saw
2551
or thought you heard something different than the expressed
provisions; is that essentially what you're telling us?
A. Yes, it is.
Q. So is it correct, then, that somehow in your mind
you thought or pictured something different than was written
in the words of the asset purchase agreement?
A. Yes.
Q. And is it possible in your mind you thought
something different than the words spoken at the board
meeting?
A. I don't recall the discussion of copyrights at the
board meeting.
Q. Is it possible --
A. I do recall a discussion of the deal and a review
by Mr. Bradford and Mr. Sonsini. I don't recall a discussion
specifically about copyrights.
Q. You do recall this resolution being discussed?
A. I do, yes.
Q. And the resolution was actually presented to the
board; right?
A. It was, yes.
Q. And the words that we see in the resolution were
presented to the board as set forth in the minutes; right?
A. Yes.
Q. So is it possible, then, that although the words of
2552
the resolution were spoken, somehow in your mind you didn't
hear the words the same way that they're recorded in the
minutes?
A. Yes.
Q. And you do acknowledge the possibility that, in
fact, what happened is that just as we've heard during the
course of the trial that Novell expressly made a determination
not to transfer the copyrights; correct? You leave that
allowance open, don't you?
A. Well, I wasn't here for the trial, and I wasn't
supposed to be listening in on anything, so I can't say --
Q. Fair enough.
A. -- what happened during the trial.
Q. I appreciate that.
A. Could you repeat your question?
Q. I'd be happy to.
A. So that I can focus on it, please.
Q. You leave open the possibility that what happened
when the asset purchase agreement was signed by you in behalf
of Novell and signed by Mr. Mohan in behalf of Santa Cruz
Operation that the words that were used in the asset purchase
agreement did, in fact, reflect the intent of both those
parties. You leave open that possibility, don't you?
A. No, I don't. It was not my intent. It could have
been somebody else's intent. It was not my intent, nor what
2553
we agreed on between Alok Mohan and myself.
MR. BRENNAN: Your Honor, I would like to read from
the deposition of the witness taken on February 10, 2007. And
for the benefit of counsel, I'd like to read from Pages 84 and
85. And I can present it.
THE COURT: Which line on Page 84?
MR. BRENNAN: I think I'll start at Line 9, Your
Honor.
THE COURT: All right.
Q. BY MR. BRENNAN: So if you can see that. Is that
before you?
A. It is.
Q. Wonderful. Thank you, Mr. Lee.
Question. So setting aside your personal intent,
is it your testimony that the negotiating team acted outside
of its authority in drafting an exclusion to the asset
purchase agreement that was broader than just network
copyrights?
Answer. That's possible.
Question. It's a possibility?
Answer. It's a possibility.
Question. What other possibilities are there?
Answer. A drafting error is another possibility.
Question. And does the fact that there was the
three-month period in which Amendment Number 1 had a chance to
2554
be prepared in the wake of the signature of the asset purchase
agreement and before the closing, does that affect your
estimate of the probability that it was a drafting error?
Answer. I only said that both of those things were
possible. I still think it's -- excuse me -- I think it's
still possible it was a drafting error or that they acted
outside of their scope. I think either of those are possible.
Question. Are there any other possibilities?
Answer. Not that I can think of.
Question. Well, we discussed one, which was that
you gave them direction to try to make sure that they could
protect their right to do buyouts; correct?
Answer. Correct.
Question. Is it possible that they effectuated
that direction by obtaining the UNIX copyrights?
Answer. I guess that's possible, as well, yes.
And do you recall when your deposition was taken at
least at that point in time your mind was open with the
possibility that the asset purchase agreement as signed and
executed by both parties and which had an expressed exclusion
of copyrights was, in fact, done purposely so as to protect
Novell's interests?
A. That was a possibility, yes.
Q. And you would acknowledge even today that that's a
possibility?
2555
A. And as I just testified, though, it remained my
intent through the entire process to sell UNIX including the
copyrights.
Q. Would you agree that the very best measure of one's
intent in negotiating a contract is to look at the report?
A. Is what?
Q. Is to look at the report?
A. I'm sorry. Look at the what?
Q. The written words.
A. If it's drafted properly, yes.
MR. BRENNAN: No further questions, Your Honor.
THE COURT: Okay.
REDIRECT EXAMINATION
BY MR. SINGER:
Q. Mr. Frankenberg, just a few additional questions.
You were asked some questions about the TUXEDO
transaction. And I think you said you believed that was a
license, you weren't sure. Would you look at SCO Exhibit 757.
THE COURT: You said 757?
MR. SINGER: Yes.
MR. BRENNAN: Your Honor, this is an exhibit that
has not been on the witness list, never presented before.
MR. SINGER: I'd like to refresh the witness'
recollection.
THE COURT: He may use it to refresh, but it will
2556
not be admitted, you're right.
MR. BRENNAN: Thank you, Your Honor.
MR. SINGER: Yes.
Q. BY MR. SINGER: Will you take a moment to look the
at document?
A. Which part of it? It may take more than a moment.
Q. Yes. Just the title.
Have you done that?
A. Yes.
Q. Does this refresh your recollection of whether the
transaction with TUXEDO was a licensing agreement?
A. Yes. Can I say what it says?
Q. No. If you could put it aside.
A. Yes.
Q. And I can now ask you if your recollection having
been refreshed, are you now able to say whether or not the
TUXEDO deal was a licensing agreement as opposed to a sale of
assets?
A. It was a licensing agreement as opposed to a sale
of assets.
Q. Now, with respect to the transaction that we've all
been spending a lot of time talking about, the asset purchase
agreement in this case, are you aware of the license back of
assets from SCO to Novell to use after the transaction?
A. Yes, I am.
2557
Q. Would that have made any sense if the UNIX
copyrights weren't being transferred to Santa Cruz?
A. I don't think so, no.
Q. And when you were saying that it's a possibility
that some people were trying to act zealously to protect
Novell's interest, there are a lot of things that are possible
in this world; right?
MR. BRENNAN: Your Honor, that's a leading
question.
THE COURT: Correct, it is.
Q. BY MR. SINGER: Are there a lot of things which are
possible?
A. Yes.
Q. Having established that --
A. You guys were having fun there, so I didn't want to
interrupt.
Q. Having established that, does it remain it was
always your intent, though, as the chief executive officer of
Novell at the beginning of the transaction with Santa Cruz
that the copyrights be transferred?
A. Yes.
Q. UNIX. Was it your intent throughout that
transaction that the copyrights be transferred?
A. Yes.
Q. Was it your intent at the end of that transaction
2558
that the copyrights be transferred?
A. Yes.
Q. And if someone was whether zealously and well
intentioned or not acting otherwise to put that in the
document, would that be outside of the scope of authority in
your view?
A. Yes.
MR. SINGER: I have nothing further.
MR. BRENNAN: Just one question, if might from
here, Your Honor?
THE COURT: You may.
RECROSS-EXAMINATION
BY MR. BRENNAN:
Q. Was the board of directors of Novell acting outside
of the scope of its authority in approving the asset purchase
agreement?
A. No, they were not.
MR. BRENNAN: Thank you.
THE COURT: Mr. Frankenberg, thank you. You may
again be excused, except this time I think finally you're
done.
THE WITNESS: Finally.
THE COURT: The same caution about discussing your
testimony, however, not discussing your testimony, to be more
specific, apply until the case is over.
2559
THE WITNESS: Okay.
THE COURT: Thank you, Mr. Frankenberg.
THE WITNESS: Thank you, Your Honor.
Thank you, ladies and gentlemen.
MR. SINGER: Your Honor, our next witness will be
Christine Botosan. I should say our next witness and final
witness will be Christine Botosan.
THE COURT: Dr. Botosan, if you would just come
back up. You remain under oath, so you do not need to be
sworn again. If you would just take a chair, please.
THE WITNESS: Thank you.
CHRISTINE BOTOSAN,
called as a witness at the request of Plaintiff,
having been previously duly sworn, was examined
and testified further as follows:
DIRECT EXAMINATION
BY MR. HATCH:
Q. Welcome back, Dr. Sonsini.
A. Thank you.
Q. You think.
A. Yeah. You said it, not me.
Q. I'll let you get your water.
You had the opportunity to be here while Mr. Musika
gave his testimony; correct?
A. I did, yes.
2560
Q. Okay. And you were able to hear it okay?
A. I did.
Q. All right. Mr. Musika had made some statements
about the riskiness of an investment in SCO, SCO's stock. Do
you remember that?
A. I do.
Q. Is SCO's stock price relevant to its loss -- the
calculation of its lost customer sales?
A. No. My damages analysis is based on lost revenues.
And so the risks that Mr. Musika was referring to when he
talked about the riskiness of the stock are completely
separate from the risks that exist in SCO's product market.
Those risks are very relevant. The risks, some of which he
mentioned, that there was hostility against SCO, that
infringement hadn't been proven in the marketplace, all of
those product market risks that are very relevant to my damage
analysis and are incorporated in my damage analysis.
Q. Did the Deutsche Bank forecast that you relied on
take market risk into consideration?
A. Yes. It talked about -- it talked about all of
those risks. Every one of the risks that Mr. Musika referred
to in his testimony are discussed in the Deutsche Bank report.
They were just market factors that existed at the time that
were commonly known and impacted the amount of revenues that
the analysts forecasted for SCOsource.
2561
Q. Now, you considered Dr. Pisano's report, as well;
correct?
A. Yes.
Q. Did he take into account those same factors in his
analysis?
A. He did. I was here when Dr. Pisano testified, and
I can still picture him talking about purchasers of SCOsource,
and that there were some people at one point that wouldn't
purchase all of the sorts of factors that we've been hearing
about this morning, and that was why he didn't assume market
penetration of anywhere close to 100 percent. In fact, at the
low end his calculations assumed that SCO would only sell to
about 1 in 5 Linux users.
And given that his numbers, as I testified before,
are very similar to the numbers that I came up independently
using analysts forecasts, they provide support for each other.
They're all consistent with both Dr. Pisano based on his
expertise and the analysts at the time being aware of the fact
that these market factors existed, and that as a result, only
a fraction of the Linux users would purchase the SCOsource
license.
Q. Okay. Now, Mr. Musika talked about Dr. Pisano
using a survey that he used. Did he use more than one survey?
A. That's my understanding, is that he looked at
multiple surveys and had percentages from those multiple
2562
surveys, and then I believe used the most conservative one.
But he looked at multiple surveys, three.
Q. Dr. Pisano used more than one survey?
A. That was my understanding.
Q. And you didn't hear Mr. Musika speak about the
other surveys; correct?
A. No, I did not.
Q. What is the significance in using three surveys?
A. Just again, you want to try to get data from
multiple sources because it just provides you with comfort
that the information you're using is reliable.
Q. Now, you indicated you relied on Dr. Pisano. Did
you work directly with Dr. Pisano in doing his work?
A. No. We worked totally independently.
Q. Why did you work independently?
A. Because Dr. Pisano is an expert in the technology
market, in assessing the size of the market, in assessing
penetration rates. That's not my expertise. I'm an
accounting expert. I'm an expert that knows how to look at
financial information, analyst reports and do damages analysis
based on that type of input, and that was the type of analysis
I did. So Dr. Pisano stayed out of my -- out of my area, and
I stayed out of his because we have different types of
expertise.
Q. But Doctor -- but Mr. Musika did both; right?
2563
MR. BRENNAN: Objection, Your Honor; leading the
witness.
THE COURT: Sustained.
Q. BY MR. HATCH: Did Mr. Musika in doing his
analysis, did he do more than just accounting?
A. He provided a response to both Dr. Pisano's and
mine.
Q. Now, you heard about price. Does Deutsche Bank
forecast take price into account?
A. Yes, it does.
Q. And what was the importance of that?
A. So in the Deutsche Bank forecast, they not only
looked at the number of RTE licenses that they thought SCO
could sale under various scenarios, but they also talked about
what the possible price range was going to be. And they
provided a range from 100 to $300. They stated in the report
that they thought $200 would be the most likely price. But
then in computing the forecast, they said, but we're going to
be conservative because there's some uncertainties in the
marketplace. We're going to go with $100. So that's the
price that they used.
Q. So you had a choice on what you could use; right?
MR. BRENNAN: Objection; leading the witness again.
THE COURT: Sustained.
MR. HATCH: Let me re-ask it.
2564
Q. BY MR. HATCH: Did you have a choice?
A. I did, yes. Throughout the Deutsche Bank report
there were a number of choices I had to make in which numbers
I relied upon. And in making those choices, as I testified
before, I tried very hard to be conservative.
Q. Okay. Now, Mr. Musika testified about statements
in SCO's 10K. Do you know what a 10K is? Right?
A. I do.
Q. And he said particularly regarding forecasting
SCO's SCOsource. Did you hear that testimony?
A. I did.
Q. Forecasting SCOsource profits. Was that a concern
to you, the statement in the 10K?
A. It's not. So one of my main areas of expertise is
in corporate reporting strategy. That's one of the things
that I've studied a lot as a Ph.D. And I spent a lot of time
reading 10Ks and annual reports. I've read thousands. My
husband kind of thinks I'm kind of weird. I think they're
kind of neat.
But anyway, I spend a lot of time reading annual
reports. And that type of boilerplate language that was in
their 10K was also repeated in their 10Q is used by companies
for a variety of reasons. One reason that they would use that
type of boilerplate language back away from providing the
forecast in their 10K is that they're worried about litigation
2565
risk. So they're concerned that they're going to get sued if
they provide forecast information. And so they will use that
type of language to say, look, we can't provide a forecast
because we're concerned about litigation risk.
Another reason they might use that type of
boilerplate language is if they don't want to communicate a
forecast because they don't want their competitors to know
what it is that they think they can generate from this
business. Or maybe they didn't want to sort of add fuel to
the fire for the Linux community by going publicly and saying,
we think we're going to generate 100,000 -- you know,
$100 million worth of revenues.
So they'll put that type of language in their
public reports to give them an excuse not to provide a
forecast. But clearly it was a possible forecast for
SCOsource. Deutsche Bank did it. Other analysts at the time
did it. Internals from SCO, they were doing it, and
Dr. Pisano did it ex-post.
Q. So you -- did you look at more than one source?
A. For forecasts?
Q. Yes.
A. Yes, I did.
Q. Now, Mr. Musika also testified about the history of
profits of SCO, the SCOsource program. Do you recall that
testimony?
2566
A. No. But I recall him saying that the company had
not had a history of profits.
Q. So when he was talking, he was talking about the
company and not exactly the SCOsource program?
MR. BRENNAN: Objection; leading again, Your Honor.
THE COURT: It is.
MR. HATCH: Sorry, Your Honor.
Q. BY MR. HATCH: What's the distinction he was making
as you understood it?
A. Oh, okay. So my understanding was that he was
talking about historically SCO had not been a profitable
company and that that had implications for the forecasts.
Q. Was that important to you?
A. No, it wasn't; because the SCOsource program that
is the crux of the damages calculation was a new -- it was an
extension of an existing line of business that they were in,
but it was a new opportunity, and they were very excited about
it. The external analysts were very excited about it for SCO,
as well. The analysts talked about how SCO was well
positioned to take advantage of this new opportunity that they
were pursuing.
And so even just if you look at sort of what was
happening to SCO over that time period, the SCOsource program
was generating quite a bit of profitability for SCO prior to
Novell's slanderous statements. So there was no reason to
2567
expect at that point in time that SCO was not going to do
quite well with the SCOsource program regardless of its past
history.
Q. When you looked at the profitability of the
SCOsource program, how would you characterize the way you made
your calculations?
A. So in doing my calculations, I made a number of
decisions. So if we go back to the vendor license revenues
that we talked about, that was one stream of revenue, I
testified before that both internal to SCO and the independent
external analysts felt they were up to 15 of those deals that
SCO could do at $10 million a piece. So that's $150 million
was the total potential market vendor license revenues.
The revenues that I picked up were a little more
than half of that, 87,250,000. So I tried -- that was just
one example of how I tried to be conservative in doing the
calculations.
With the RTU license revenues, there were a number
of decisions that I had to make. Did I go with the
Deutsche Bank forecast of 65 million or the 90 million or the
400 million? And I went with what they described as the
number that was reasonable but most conservative, and that was
65 million.
Q. So there was a higher number or a lower number, you
took somewhere in the middle?
2568
A. I did.
Q. Okay. Now, Mr. Musika, did you hear his testimony
regarding attitudes of the OpenSource community? Do you
recall that?
A. I do.
Q. Was the OpenSource community SCO's customer base?
A. No. SCO was targeting corporate customers.
Q. So what was the relevance of the OpenSource
community?
A. I'm not sure. It wasn't relevant to my analysis.
Q. Okay. And why not?
A. Because that was not the customer base that they
would have been selling to. They were selling to corporate
users of Linux.
Q. Now, Mr. Musika suggested there might be a
connection between Deutsche Bank and SCO. Do you recall that?
A. I do.
Q. Mr. Calvin, would you bring up, R21.
Does the report in any place indicate whether there
was a connection or not?
A. They have a disclosure statement at the back of the
report that talks about any potential sources of relationship
between SCO and Deutsche Bank.
Q. Okay. In reviewing Dr. Musika's report, did he
address that at all?
2569
A. He did. So I think this is where some of the
confusion comes in on Mr. Musika's part about a lack of
independence of SCO and Deutsche Bank. If we could go to that
document.
THE COURT: What page?
MR. HATCH: Right there.
THE COURT: What page is this?
MR. HATCH: 24.
THE WITNESS: It's still very tiny.
So what this is is a disclosure statement that
Deutsche Bank attaches to the back of its -- to the back of
the forecast which outlines where there might be potential
conflicts of interest between the -- because of a relationship
between the bank and its analysts and the company.
THE COURT: Excuse me. Can you read this?
MR. HATCH: I'll try to blow up parts of it as we
get through it.
THE COURT: All right. Thank you.
Q. BY MR. HATCH: Before we do that, just so we
understand, this is something -- this is something that
Mr. Musika raised today in trial and in his report; correct?
A. That's correct. So --
Q. And to give us some context, what did he say about
the lack of independence?
A. So in his report he expressed some concern that I
2570
had relied on the Deutsche Bank report because he said that
all 11 of these sources of conflict existed between
Deutsche Bank and SCO. But that was just factually incorrect.
If you'll notice right at the top of the disclosure check list
where it says, SCO Group Inc., ticker symbol --
Q. Can you bring up the top part, Mr. Calvin?
A. Recent price, and then disclosures, it says none.
So what Deutsche Bank was stating on this document was that
there were 11 potential sources of conflicts, but none of them
applied with respect to the relationship between Deutsche Bank
and SCO.
Q. Just so we're clear, Mr. Musika said how many of
the 11 applied?
A. All of them.
Q. And how many applied?
A. None of them.
Q. He got it completely wrong?
A. Right.
Q. Okay. Now, how do you know that?
A. Well, a couple of --
Q. Other than the none?
A. Right. So first of all, when I was looking at the
disclosure statement, there were a few in here that were real
red flags that it was clear that they couldn't have applied in
this case. So, for example, I think it might be Number 5,
2571
yeah:
An employee of Deutsche Bank and/or its
affiliate serves on the board of the directors
of the company.
It was obvious that that one couldn't apply because
if you go back a few pages in this document it lists the board
of directors, none of whom are affiliated.
Q. Let's do that.
I think it's Page 17. There it is.
A. There it is.
Q. Could you expand the board of directors?
A. So it listed the board of directors, and none of
those were either Mr. Skiba or Mr. Kelly or anyone else that
was affiliated with Deutsche Bank.
Q. So how far is Mr. Musika -- how far -- how much
work would he have had to have done to determine whether that
was an actual conflict that Deutsche Bank had with SCO?
A. So he would have had to flip back a few pages in
the report.
Q. Okay. Let's go back. Do you have more to say
about that?
A. And the other thing I did because I just wanted to
make sure that I hadn't, you know --
Q. Let's go back.
A. Back to the disclosure.
2572
Because when I received Mr. Musika's report that
had so, you know, completely differently interpreted this
document the way that I had interpreted it, I called
Deutsche Bank, and I asked them, I said, when you say none, do
you mean none? And they said, yes, we mean none. So I said,
okay. None means none. And so that was the other piece of
evidence that I gathered.
Q. Okay. And did you have trouble doing that?
A. It was a little embarrassing. But other than that,
because they kind of treated me like I was -- anyway.
Q. We heard some testimony at the end of Mr. Musika's
testimony. Did Mr. Musika ever contact you during this case?
A. He contacted me -- he e-mailed me after my
deposition. I think it was in November of 2007.
Q. So it wasn't a phone call?
A. No.
Q. And how did you respond to his e-mail?
A. So I received an e-mail that I interpreted based on
what he stated in the e-mail that they were --
Q. Maybe I should put this in context. When was this?
A. November of 2007. So after my deposition.
Q. Okay. Go ahead.
A. And so the e-mail just indicated that they were
always interested in finding qualified experts, that they had
a big caseload, international caseload, and that he would like
2573
to speak to me about it. I was flattered, but I wrote back
and just said that I was not interested in pursuing any other
opportunity at that time.
Q. Okay. You were here for his testimony and his
characterization of that e-mail. Was that accurate?
A. No.
Q. Okay.
A. It was not.
Q. In what way?
A. I mean, maybe it was in his head, PCAOB, but it was
never communicated to me in that fashion.
Q. What was your response?
A. Just I responded respectfully that I was not
interested.
Q. Okay. Now, we talked about all of -- we went
through all of these risk factors. Were there any of the risk
factors that Mr. Musika spoke with during the day that were
not included in the report?
A. No. All of the risk factors that he identified,
the product risks that are relevant to the profit analysis,
every single one of them he raised is discussed in the
Deutsche Bank report. It was known at the time. And I feel
very comfortable it was incorporated into those forecasts for
a number of reasons. One is because you can look at the
number of RTU licenses that the Deutsche Bank analysts were
2574
forecasting would be sold. And again it was nowhere close to,
you know, a large portion of the market. It was again about
1 in 5 Linux customers. So clearly they, you know, took into
consideration that not everybody would buy a SCOsource
license.
They were also -- those factors were taken into
consideration explicitly by Dr. Pisano in his analysis. And
as I said before, his numbers and my numbers are consistent
with one another.
Q. Okay. And let's by you --
THE COURT: Mr. Hatch, so you know, you've got
about four minutes left.
MR. HATCH: I think that's all I need, Your Honor.
Q. BY MR. HATCH: You were asked to calculate damages
in this case; correct?
A. I was.
MR. BRENNAN: Objection; leading the witness again,
Your Honor.
MR. HATCH: Background question.
Q. BY MR. HATCH: What were you asked to do in this
case?
A. I was asked to calculate damages.
Q. And were you given any direction on that, how to do
that?
A. No. The only direction that I was given was that I
2575
was to assume that SCO owned the copyrights, and that for
purposes of calculating damages that Novell did not slander of
title, because I have to be in a but-for world and say that
didn't happen, but for there to be damages in the first place
I have to assume that they did. And I know that seems kind of
weird to think about it that way, but that's just the way that
we have to do a damages analysis. We have to assume the bad
thing happened, but then when it comes to calculating the
damages number say, what would the world have looked like if
the bad thing hadn't happened?
Q. And in doing that, that was the same assignment you
understood that Mr. Musika was to do as well; right?
MR. BRENNAN: Objection; leading once again, Your
Honor.
Q. BY MR. HATCH: What was your understanding that
Mr. Musika was to do?
A. My understanding was he was to do the same thing.
Q. Now, in making your damage analysis, would it have
been possible for you to come to a larger number?
A. Yes, quite possible.
Q. And what number did you come to?
A. At the bottom end 137 million, and at the top end
215 million.
Q. And if you were to describe those numbers in one
word, what would that word be?
2576
A. Conservative.
Q. Now, you heard Mr. Musika here indicate that his
number was what?
A. Zero, is my understanding.
Q. Did you hear him do any calculations?
A. No.
Q. Do you consider zero to be a reasonable number?
A. Absolutely not.
MR. HATCH: That's all I have, Your Honor.
THE COURT: Mr. Brennan?
MR. BRENNAN: Thank you, Your Honor.
THE COURT: So that you know, according to my
calculations you have nine minutes.
MR. BRENNAN: Thank you. That's the same number I
have.
THE COURT: Thank you.
CROSS-EXAMINATION
BY MR. BRENNAN:
Q. Good afternoon, Dr. Botosan.
A. Good afternoon.
Q. I'd like to ask you about your assumptions. I'd
like you to assume that SCO does not prevail in litigation
against IBM. What does that do to the number that you
presented to the jury?
A. Well, that's not relevant because that's not in the
2577
but-for world. So in the but-for world, the only thing that
changes from the real world is whether SCO slandered the title
or not.
MR. BRENNAN: Your Honor, I'd ask the witness to
directly respond to the question.
MR. HATCH: I think she did.
THE COURT: I believe she just did.
MR. BRENNAN: Well, my apologies. I'll try it
again.
Q. BY MR. BRENNAN: Assume that SCO does not prevail
in its litigation against IBM. Does that change any
assumption or projection that you've given whatsoever?
A. No.
Q. Okay. Your analysis is premised upon projections
by Deutsche Bank; right?
A. That's one of the inputs that I used.
Q. And the other inputs are internal projections by
SCO; right?
A. I also used internal projections by SCO plus
another forecast, as well.
Q. Now, you understand that Deutsche Bank's analysis
is premised upon SCO being able to establish that a UNIX is
infringed by Linux; correct?
A. No.
Q. You don't read the Deutsche Bank report as being
2578
premised upon prevailing in the litigation?
A. No. In fact, they talk specifically about the fact
that SCO had not proven infringement at the time that they
were making the forecasts.
Q. And what does Deutsche Bank say if SCO is not able
to prevail in that litigation? What is their prognostication
regarding the future of SCO?
A. I'm not sure what litigation you're talking about.
Q. The IBM case.
A. So in terms of the company as a whole, they talked
about it being a binary investment, that there was the
potential that SCO could be worth a ton of money or it could
be worth nothing, depending on what happened not only in the
IBM case, but also with respect to their SCOsource program.
So they identified both of those.
Q. So you understand that at least Deutsche Bank
suggests that if SCO does not prevail in its IBM litigation it
will be a worthless company?
A. But that's not relevant again to the but-for case.
THE COURT: That was not the question to you,
Dr. Botosan.
THE WITNESS: Sorry. Could you repeat the
question?
Q. BY MR. BRENNAN: I'd be happy to.
Do you understand that Deutsche Bank in its
2579
prognostication indicated that if SCO does not prevail in the
IBM litigation SCO will be worthless?
A. That's what they said, yes.
Q. Now, I'd like to ask you a question about this 10K
report. I'd like to -- excuse me -- the 10Q report. I
believe it's Exhibit Q22.
First of all, I want to ask you a quick question
about securities and exchange filings. Do you believe that a
party is free to make misrepresentations to the government in
a filing such as a Form 10K?
A. No.
Q. Do you believe that a company has a legal
obligation both to the federal government, securities exchange
commission and the investing public to make truthful, honest
statements in its filings?
A. I would hope so, yeah.
Q. So let's look at Exhibit 19, if we might, of the
Form 10K. And we'll highlight the language that I believe
Mr. Hatch had you focus on without actually showing it to you.
THE COURT: Page 19, you said?
MR. BRENNAN: I misspoke, Your Honor. I believe
it's actually Page 39.
THE COURT: 30 what?
MR. BRENNAN: 39.
THE COURT: 39. Thank you.
2580
MR. BRENNAN: My mistake, Your Honor.
Q. BY MR. BRENNAN: So this is the statement. Do you
consider what's highlighted here to be boilerplate?
A. The general flavor of it, yes.
Q. And you consider boilerplate to be meaningless
language?
A. No. What I'm saying is that I've seen any number
of companies provide similar statements when it comes to
forecasting the future.
Q. So let's look at what SCO did say in its public
filings. And you understand that this document is
electronically signed by the officers of SCO; right?
A. Correct.
Q. Including Mr. McBride; right?
A. Correct.
Q. It states:
We initiated the SCOsource licensing efforts
in January of 2003 to review the status of UNIX
licensing and sublicensing agreements. This
effort resulted in the execution of two
significant vendor license agreements during the
fiscal year 2003 and generated $25,846,000 in
revenue.
Now, I'd like you to focus on this.
Due to the lack of historical experience and
2581
the uncertainties related to SCOsource licensing
revenue, we are unable to estimate the amount and
timing of future SCOsource licensing revenue, if
any.
Now, you're aware that this public filing was made
after what you -- I think your term was, Novell made
slanderous statements; right?
A. This was -- what's the date on this document? It
was January?
Q. This is the 10K of 2003; right?
A. That was filed in January of 2004?
Q. Right.
A. Yes.
Q. So you understood that even, and again your words,
Novell slanderous statements, that even after that here we
have a public filing by SCO saying that because of
uncertainties SCO would not be able to estimate the amount and
timing of the SCOsource licensing revenue; right?
A. That's what it says there.
Q. But you think you can?
A. I think that there were a number of people that did
that I relied upon. Deutsche Bank did. REG did. Internal
SCO did, and Dr. Pisano did via his market analysis.
Q. SCO continues, quote:
If we do receive revenue through this source,
2582
it may be sporadic and fluctuate from quarter to
quarter. Our SCOsource initiatives are unlikely
to produce a stable or predictable revenue stream
for the foreseeable future. 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?
A. I do.
Q. So would you acknowledge at the least that SCO
itself believed that the success of its SCOsource licensing
program was a function of whether it would be able to
establish that UNIX was infringed by Linux?
A. I think I've acknowledged that several times, that
that was one of the market risks that existed at the time the
forecasts were produced. That is why nobody, not myself, not
Dr. Pisano, not Deutsche Bank, not REG, not any of the other
forecasts that we examined, ever assumed that 100 percent of
the people that owned Linux were going to purchase a SCOsource
license.
Q. And if SCO were not to prevail in establishing that
Linux infringes UNIX, there would be no one that would buy a
2583
SCOsource license; right?
A. If we had gotten to that point. But that has never
happened. That is not in the but-for world that I'm
examining.
Q. Outside of your but-for world, in the real world
had SCO been able to establish that Linux infringes UNIX?
A. Again, my analysis, I'm sorry, but --
MR. BRENNAN: Your Honor, if I could ask the
question and get an answer.
THE COURT: I agree.
I believe it's either a yes or no, Dr. Botosan.
THE WITNESS: My understanding is at this point
there has not been any proof of that.
Q. BY MR. BRENNAN: Now, I'd like to ask you just a
few questions about Deutsche Bank since you relied upon it.
I'd like to turn to Page 19 of the demonstratives that we
used. These are accurate comments on the Deutsche report;
right? These are accurate quotes?
A. Taken out of context, but accurate.
Q. Yes. And are you also aware of the e-mail that was
sent regarding Mr. McBride's potential trip to meet with the
author of the Deutsche Bank report in Cannes, France?
A. My understanding of the context of that was
different than what you've purported, but I'm aware of the
e-mail.
2584
Q. And when did you first become aware of the e-mail?
A. It was during my deposition.
Q. When?
A. I can't remember when we did it. It was recently.
Q. In the last four weeks?
A. Uh-huh (affirmative).
Q. And so prior to four weeks ago, you were not aware
that SCO was having communications regarding Mr. McBride, the
then chief executive officer of SCO, meeting with the author
of the Deutsche Bank report at the Deutsche Bank report
author's home in France?
A. Again, this did not happen at the time that the
reports that I used were prepared. In 2003 --
MR. BRENNAN: Your Honor, I hate to interrupt, but
my time is limited and she's not responding to my questions.
THE COURT: Yes or no?
THE WITNESS: No.
Q. BY MR. BRENNAN: Do you think it would be important
in your analysis to know whether or not there was a personal
relationship between Darl McBride at SCO and the author of the
Deutsche Bank report?
A. Based on my analysis on what they presented, I was
comfortable with the numbers and the fact that -- so no, I
would not be concerned about it.
Q. You completely discount any connection between
2585
Deutsche Bank and SCO?
A. It didn't exist in 2003, so, no. If one existed I
would have looked into it.
Q. Now, also there was questions asked about
Deutsche Bank's relationship on the stockbroker's side with
SCO. You're aware that Deutsche Bank was a market maker for
the SCO stock, aren't you?
A. Not in 2003.
Q. It was as of January 21st; 2004; right?
A. In 2004, but not in 2003.
Q. So you're aware that at least as early as
January of 2004, Deutsche had already announced that it was a
market maker for SCO stock; right?
A. That's correct.
MR. BRENNAN: Your Honor, I'm mindful of the clock.
I have no further questions.
THE COURT: Thank you, Mr. Brennan.
Two minutes, Mr. Hatch.
REDIRECT EXAMINATION
BY MR. HATCH:
Q. We keep hearing talk about real and but-for world.
Let's talk real for just a second.
A. Okay.
Q. When talking about infringement, I think you gave
an answer, there was no proof of that; do you remember that?
2586
A. Yes.
Q. What -- has there been -- in your knowledge and
understanding, has there been any determination in the real
world yet that infringement does not exist?
A. No.
Q. Okay. No court's ruled on that?
A. No.
MR. HATCH: Thank you, Your Honor. That's all I
have.
THE COURT: Dr. Botosan, thank you.
THE WITNESS: Thank you.
THE COURT: Excuse me, Mr. Brennan. I need to give
you --
MR. BRENNAN: You're very kind. I will not press
the clock. I'm concluded. Thank you.
THE COURT: Thank you. You are then finished.
Thank you very much.
Mr. Singer?
MR. SINGER: Your Honor, at this time that
concludes our presentation of our rebuttal case.
THE COURT: You rest on your entire case?
MR. SINGER: We do.
THE COURT: Mr. Brennan?
MR. BRENNAN: Yes, we do. Thank you, Your Honor.
THE COURT: You rest, as well, on your entire case.
2587
Ladies and gentlemen of the jury, that means that
all the evidence has now been provided. Tomorrow morning, as
I indicated earlier, we will begin with you being instructed
by the Court on the law that you are to apply in this case,
and then you'll hear closing arguments, and then you finally
get to begin the process of making up your minds. Now, I
realize there may be a temptation having heard everything you
may think that you have what you need to decide this case, but
you have not. The law to be applied is a critical part of
this process. So I would again encourage you to not be
thinking about it in that way.
All the other instructions that you have been given
as far as your conduct applies even though the evidentiary
part of the trial is now over. And we will begin as promptly
as we can at 8:30 in the morning. And you have a pleasant
evening.
Ms. Malley?
(Whereupon, the jury left the court proceedings.)
THE COURT: Mr. Singer?
MR. SINGER: Your Honor, there were two points that
we need to raise with the Court. The first is that Mr. Musika
in response to a question that didn't call for it decided to
volunteer that there's a bankruptcy proceeding involving SCO,
which up to this point in time I think with the possible
exception of a passing reference to reorganization that the
2588
jury probably didn't get the parties had not raised pursuant
to the understanding that that would not be relevant in this
proceeding. Given that it has come in now in the way that the
jury clearly heard, I believe I need to be able to address
that in closing and indicate that there is a reorganization
proceeding and that the opportunity for the company to emerge
from that is something which will be influenced by the ability
of them to pursue this case. And I think that there needs to
be some ability on my part to appropriately put this case in
the context that just because the company is in bankruptcy
these things don't matter. That can't be in the jury's mind.
THE COURT: Mr. Brennan?
MR. BRENNAN: First of all, we need to visit the
context in which Mr. Musika made the limited statement. He
was confronted by Mr. Hatch with the suggestion that somehow
he had done something untoward in contacting Dr. Botosan.
Your Honor was presented with the e-mail which did not impeach
the witness but made specific reference to the conclusion of
the work in the case at that time. Mr. Hatch continued to
press on the matter. Frankly, I withheld my tongue at the
time thinking that Mr. Hatch by his question was opening the
door into a whole range of matters. And so I think whatever
issue is now being identified was elicited by the questioning
of Mr. Hatch on an entirely extraneous matter.
Second of all, there was a passing reference, but
2589
just yesterday in this courtroom in the expressed phraseology
of the question by Mr. Normand, Mr. Jones, there was reference
to prior trial testimony. That was again a reference made
through the questioning.
So in the light of previous issues that have been
faced by this Court would have been passing references and the
way that the Court has dealt with that I think it would be
highly inappropriate for SCO's attorney to make the suggested
argument they would like in their closing.
THE COURT: I don't think it would be appropriate
to be done in closing, but I will allow and will request that
the two of you work on a specific jury instruction that will
deal with the issue of reference to prior trial in contrast to
the prior hearing -- or rulings. It would also encompass
reference to the bankruptcy.
MR. SINGER: Your Honor, there is a second issue
which I would like SCO to have the opportunity to present an
instruction on for the Court to give. And that is the fact
that this morning Novell made repeated efforts to try to
suggest to the jury that the appropriate legal issues here
concern essentially board resolution matters, whether the
board of Novell properly approved some action or other, even
to the extent of having a witness who is here as a fact
witness try to tell the jury what they should do as a matter
of law. That shouldn't have happened.
2590
And there should be an instruction that makes clear
that they're not here to judge whether or not a particular
measure was passed in a way which is --
THE COURT: If you want to supply the Court with an
instruction at 3 o'clock you can do so.
MR. SINGER: We will do so. Thank you, Your Honor.
THE COURT: What about your Rule 50 motion?
MR. SINGER: Our Rule 50 motion, I'm prepared to
make oral argument now or we can submit something later today.
THE COURT: No; because this is what I wanted to
tell you. The Court has paid strict attention to the
testimony in this case, and I have heard absolutely nothing
regarding damages on a slandered title for -- on Novell's
counterclaim. And if that's the fact, if there are no special
damages referenced to them, that slander of title must be
dropped. And that's something we have to deal with rather
quickly because it requires completely the rewriting of the
jury instructions.
MR. SINGER: Can I make two points in connection
with that? I think that that claim is deficient for two
reasons. One of those is the lack of special damages. The
only reference that conceivably bears on it is the fact that
they decided to apply for copyright registrations on our
copyright. I don't think that constitutes any damages from
any slander of title that SCO could be held liable for. So I
2591
don't think there's any damages, any special damages, as the
term is understood, that would relate to any slander.
But there's a second even more fundemental problem
with that. They haven't proven any basis to get across the
level that you have to for malice in the first place to get to
any slander of title on liability. Here there's nothing as
opposed to all the evidence that has been elicited regarding
Novell's action in this case.
THE COURT: Mr. Jacobs?
MR. JACOBS: Your Honor, we will deliberate on the
topic of whether we wish to proceed on this claim this
afternoon. As a technical matter Mr. Singer is wrong. First
of all, Mr. Jones testified to the expenses of registering the
copyrights on Novell's behalf, and that is precisely the kind
of special damages that are contemplated by the slander of
title cause of action. It was an expense that the company
bore to cure the claim of ownership of title that SCO had
placed by registering the copyrights. They were as a fact --
Mr. Singer's characterization is incorrect. They were really
parallel registrations. They did their registrations, Novell
did their registrations. In so far as the registrations
themselves are concerned, Mr. Singer is factually wrong.
They were a calculable amount. Right there on the
side of the cover of the registration the fee is, and that's
Novell's claim for special damages.
2592
As for the question of intent, you know, we're all
jockeying on this topic. It is a fact that before this issue
of ownership was a matter of public concern, Mr. McBride,
relying only on the asset purchase agreement and Amendment
Number 1, not Amendment Number 2, they didn't have it,
asserted that SCO owned the UNIX copyrights. He did that in
the face of an e-mail from one of his advisors that said, you
don't own what you think you own. And he did that in the face
of his own repeated requests for Novell viewing the evidence
in the light most favorable to us to transfer the copyrights
to SCO.
So in terms of reckless disregard for the truth,
Your Honor ultimately is going to have to call where that
standard lies. But I don't think their Rule 50 motion should
be granted at this time.
THE COURT: Counsel, my reading of what a special
damage is does not include a business expense.
Special damages are ordinarily proved in
a slander of title action by evidence of a lost
sale or the loss of some other pecuniary advantage.
Absent a specific monetary loss flowing from a slander
affecting the salability or use of the property there is
no damage.
I'm just reading from statements of the case law
that we have all I think relied on as we come up with our
2593
special damage jury instruction in this case.
But the Court understands the framework of your
motion and response to it, and we'll be looking at it again.
But again, the dilemma is if the Court grants the motion, then
we have to redo the jury instructions in a significant way, so
I can't wait too long to make that decision. In other words,
I can't wait until you supply me with a written memorandum.
MR. SINGER: We don't believe we need a written
memorandum on this. We think the Court is well apprised of
the evidence that it's heard. We don't think any of it shows
any intent on behalf of SCO. The reference that they were
making with respect to Mr. McBride I think refers to private
e-mails. And in any event, they bought the company. Their
understanding was they owned the company from all the evidence
that has been presented here.
Second point on damages is exactly the one that the
Court raised. We don't believe that the decision to register
their copyrights and incur that business expense is under the
law damages that are recoverable in a slander of title claim.
So for both of those reasons, without need for further
briefing, we would rest on that, Your Honor.
THE COURT: Anything else, Mr. Jacobs?
MR. JACOBS: No, Your Honor.
THE COURT: All right. The Court will be looking
at it. And if you consult and decide that perhaps the Court
2594
ought to decide it in one way, if you'll let me know.
Otherwise, we'll be analyzing it between now and 3 o'clock,
and deal with it then.
We'll be in recess until 3 o'clock.
(Whereupon, the court proceedings were concluded.)
* * * * *
2595
STATE OF UTAH | ) | |
| ) | ss. |
COUNTY OF SALT LAKE | ) | |
I, KELLY BROWN HICKEN, do hereby certify that I am
a certified court reporter for the State of Utah;
That as such reporter, I attended the hearing of
the foregoing matter on March 25, 2010, and thereat reported
in Stenotype all of the testimony and proceedings had, and
caused said notes to be transcribed into typewriting; and the
foregoing pages number from 2526 through 2595 constitute a
full, true and correct report of the same.
That I am not of kin to any of the parties and have
no interest in the outcome of the matter;
And hereby set my hand and seal, this ____ day of
_________ 2010.
______________________________________
KELLY BROWN HICKEN, CSR, RPR, RMR
2596
|