2596
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 26, 2010
Jury Trial
REPORTED BY: Patti Walker, CSR, RPR, CP
[address]
2597
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]
2598
SALT LAKE CITY, UTAH; FRIDAY, MARCH 26, 2010; 8:30 A.M.
PROCEEDINGS
THE COURT: Good morning.
Let me ask, first of all, whether or not you have
any disputes over closing argument demonstratives or slides,
or whatever else?
MR. BRENNAN: Your Honor, we had a chance to look
at one another's. I think with some modifications that were
just made, we should be in agreement, at least in terms of
presentation of the material.
THE COURT: I'm not sure that I understand what
you mean at least in regards to the presentation of
materials.
MR. BRENNAN: We don't have an objection to the
use of the demonstratives.
THE COURT: Do you have an objection to any of Mr.
Brennan's?
MR. SINGER: No, Your Honor.
THE COURT: SCO today filed a motion regarding
three issues about closing, and I would agree with their
request. I am going to assume the first one is no longer
relevant because the parties have agreed as to the
demonstratives.
MR. SINGER: That's correct.
THE COURT: The second is SCO objects to any
2599
attempt by Novell to argue to the jury that Novell's
assertion to ownership applied only to UNIX and not to
UnixWare copyrights. Do you wish to address that, Mr.
Jacobs?
MR. JACOBS: We do not quarrel with that in the
context of the closings, Your Honor, but we will be making
clear the delineation between the pre-APA UnixWare and
post-APA UnixWare.
THE COURT: I think the jury instruction now
reflects that better than it did before as well.
The third has to do with an attempt, frankly, by
either side to argue something contrary to law. My
assumption is that neither of you will have done that in any
event; is that correct?
MR. JACOBS: That is correct. Just to avoid
confusion during the openings themselves, SCO's motion is
drawn to section 204(a) of the Copyright Act, which was the
subject of the Tenth Circuit ruling. The Tenth Circuit
ruling was that there is no per say requirement under 204(a)
of the Copyright Act for something that represents
specifically or in substance a bill of sale. We're not
arguing that issue under the Copyright Act. We will be
arguing that the asset purchase agreement was a promise to a
assign, not an assignment, that Amendment No. 2 is dated
October 26th, I think, 1996, and that as a matter of
2600
contract law, just as in the purchase and sale of a house,
there was no subsequent evidence of an actual transfer. So
we'll be arguing it as a matter of contract law, which the
Tenth Circuit did not address.
MR. SINGER: Your Honor, this is exactly the type
of argument that we filed this motion because we were
concerned they might make. The Tenth Circuit specifically
held they didn't see anything to this date issue. I think
it's expressly in one of the footnotes on this section when
this argument was made. There is no difference between
making this argument in the context of the Copyright Act or
making it in the contract section. The Court of Appeals
specifically ruled that Amendment 2 would be sufficient to
transfer title, that that was the intent of the parties.
So I think, with all due respect, Mr. Jacobs is in
the teeth of that decision.
THE COURT: Mr. Jacobs.
MR. JACOBS: Your Honor, footnote 2 is the
footnote I think Mr. Singer is referring to and it's a
footnote in the context of the discussion of section 204(a),
it is not a holding that the contract could not be
interpreted in the way that we're proposing to interpret it.
There was no such briefing or argument before the Tenth
Circuit. The footnote itself is not definitive at all on
the question that we propose to argue as a matter of
2601
contract interpretation. I could hand it to Your Honor if
it would be convenient, you could look yourself.
THE COURT: I probably need to look at it.
MR. SINGER: We would also submit that this would
just be confusing to the jury because there's been no
evidence here that they would be drawing any conclusions
from that.
THE COURT: Mr. Singer, I think that is probably
your best argument, that this ought to be handled by you in
your reply. But I do want to look at the footnote.
MR. JACOBS: Sure. Just for the avoidance of
doubt, Ms. Amadia did say had she intended to transfer,
there would have been additional documents that would have
been required.
May I, Your Honor?
THE COURT: Yes.
If you are not arguing a pure legal issue about
the bill of sale or something akin to it but rather the
intent of the parties, I believe that footnote would not
preclude you from doing so.
MR. JACOBS: Thank you, Your Honor.
THE COURT: Counsel, let me again remind you, it
would be my intent to dismiss juror 13 as the alternate.
MR. SINGER: We understand, Your Honor.
THE COURT: I am going to hold you to your one
2602
hour and 15 minutes. My intent will be to instruct the jury
and then to have your initial presentation and closing.
Will that be by you, Mr. Singer, or Mr. Hatch, or
will you be splitting it?
MR. SINGER: We will be splitting it, but I plan
to reserve 15 minutes for rebuttal.
THE COURT: Who will go first.
MR. SINGER: I will be going first, Mr. Hatch will
be taking over at about the 45-minute mark.
THE COURT: All right.
Mr. Brennan, will you making the closing?
MR. BRENNAN: Yes, I will, Your Honor.
THE COURT: Again, after your initial hour, then
we'll take a break and come back to Mr. Brennan, and then
your rebuttal.
MR. SINGER: Would it be possible to have a few
minutes break after the reading of the instructions just to
set up?
THE COURT: Certainly.
MR. SINGER: One final question, given that the
Court has granted SCO's 50(a) motion and dismissed Novell's
counterclaim, and that's been raised in opening and
otherwise, will the Court make some mention of that?
THE COURT: There is a specific jury instruction
that will state, and I'll read it to you, if you've not seen
2603
it, the claim of Novell that SCO slandered Novell's title is
no longer before you and will not be decided by you. Do not
concern yourselves with this development and do not
speculate about it.
MR. SINGER: Thank you.
THE COURT: Counsel, let me remind you that the
Court will expect proposed findings of facts and conclusions
of law as to those issues reserved for the Court on the 16th
of April, which is 20 days plus. Okay.
All right. Is there anything else before we bring
the jury in?
MR. BRENNAN: Not from Novell, Your Honor.
MR. SINGER: Not from SCO.
THE COURT: Ms. Malley.
(Jury present)
THE COURT: Good morning, ladies and gentlemen.
Let me begin by reassuring you that a copy of the
instructions that I'm about to read to you will go with you
into the jury room, so I do not expect you to memorize this
as I go through it. All right.
Members of the jury, now that you have heard the
evidence, it becomes my duty to give you the instructions of
the Court as to the law applicable to this case.
It is your duty as jurors to follow the law as
stated in the instructions of the Court, and to apply the
2604
rules of law to the facts as you find them from the evidence
in the case.
You are not to single out one instruction alone as
stating the law, but must consider the instructions as a
whole.
Neither are you to be concerned with the wisdom of
any rule of law stated by the Court. Regardless of any
opinion you may have as to what the law ought to be, it
would be a violation of your sworn duty to base a verdict
upon any other view of the law than that given in the
instructions of the Court; just as it would be a violation
of your sworn duty, as judges of the facts, to base a
verdict upon anything but the evidence of the case.
You are to disregard any evidence offered at trial
and rejected by the Court. You are not to consider
questions of counsel as evidence. You are not to consider
the opening statements and the arguments of counsel as
evidence. Their purpose is merely to assist you in
analyzing and considering the evidence presented at trial.
The Court did not by any words uttered during the
trial or in these instructions give or intimate, or wish to
be understood by you as giving or intimating, any opinions
as to what has or has not been proven in the case or as to
what are or are not the facts of the case.
The claim of Novell that SCO slandered Novell's
2605
title is no longer before you and will not be decided by
you. Do not concern yourselves with this development and do
not speculate about it.
SCO has the burden of proving its claim by a
preponderance of the evidence.
To prove by a preponderance of the evidence means
to prove something is more likely so than not so. It does
not mean the greater number of witnesses or exhibits. It
means the evidence that has the more convincing force when
taken on a whole compared to the evidence opposed to it. It
means the evidence that leads you the jury to find that the
existence of the disputed fact is more likely true than not
true.
Any finding of fact you make must be based on
probabilities, not possibilities. A finding of fact must
not be based on speculation or conjecture.
When I say in these instructions that the party
has the burden of proof on any proposition or use the
expression if you find or if you determine, I mean that you
must be persuaded, considering all the evidence in the case,
that the proposition is more probably true than not true.
In determining whether any disputed fact has been
proven by a preponderance of the evidence you may, unless
otherwise instructed, consider the testimony of all
witnesses, regardless of who may have called them, and all
2606
exhibits.
If a party fails to meet this burden of proof, or
if the evidence weighs so evenly that you are unable to say
that there is a preponderance on either side, you must
resolve the question against the party who has the burden of
proof on that issue and in favor of the opposing party.
In this particular civil case, one of the elements
of the claim made by SCO, the showing of constitutional
malice, has a different burden of proof called clear and
convincing evidence. That means that SCO has a higher
burden than preponderance of the evidence, but it does not
require proof beyond a reasonable doubt. Clear and
convincing evidence is evidence that shows it is highly
probable that what is claimed is true. It is evidence that
produces in your mind a firm belief as to the fact at issue.
For such evidence to be clear and convincing, it must at
least have reached a point where there remains no
substantial doubt as to the truth or correctness of the
claim based upon the evidence.
You have been chosen and sworn as jurors in this
case to try the issues of fact presented by the allegations
of the complaint of SCO, and the answer thereto of Novell.
You are to perform this duty without bias or prejudice as to
any party. Our system of law does not permit jurors to be
governed by sympathy, prejudice, or public opinion. Both
2607
the parties and the public expect that you will carefully
and impartially consider all the evidence in the case,
follow the law stated by the Court, and reach a just
verdict, regardless of the consequences.
During the trial I have permitted you to take
notes. Many courts do not permit note-taking by jurors.
And as instructed at the beginning of trial, a word of
caution is in order. There is always a tendency to attach
undue importance to matters which one has written down.
Some testimony which is considered unimportant at the time
presented, and thus not written down, takes on greater
importance later in the trial in light of all the evidence
presented. Therefore, you are instructed that your notes
are only a tool to aid your own individual memory and you
should not compare your notes with other jurors in
determining the content of any testimony or in evaluating
the importance of any evidence. Your notes are not
evidence, and are by no means a complete outline of the
proceeding or list of the highlights of the trial. Above
all, your memory should be your greatest asset when it comes
to deliberating and rendering a decision in this case.
Both SCO and Novell are corporations and, as such,
can act only through their officers and employees, and
others designated by them as their agents.
Any act or omission of any officer, employee or
2608
agent of a corporation, in the performance of the duties or
within the scope of the authority of the officer, employee
or agent, is the act or omission of the corporation.
Unless you are otherwise instructed, the evidence
in this case consists of the sworn testimony of the
witnesses, regardless of who may have called them; and all
exhibits received in evidence, regardless of who may have
produced them; and all facts which may have been admitted or
stipulated; and all facts and events which may have been
judicially noticed.
Any evidence as to which an objection was
sustained by the Court, and any evidence ordered stricken by
the Court, must be entirely disregarded.
Unless you are otherwise instructed, anything you
may have seen or heard outside of the courtroom is not
evidence and must be entirely disregarded.
There are, generally speaking, two types of
evidence from which a jury may properly find the truth as to
the facts of a case. One is direct evidence, such as the
testimony of an eyewitness. The other is indirect or
circumstantial evidence, the proof of a chain of
circumstances pointing to the existence or nonexistence of
certain facts.
As a general rule, the law makes no distinction
between direct and circumstantial evidence, but simply
2609
requires that the jury find the facts in accordance with the
burden of proof in the case, both direct and circumstantial.
You, as jurors, are the sole judges of the
credibility of witnesses and the weight their testimony
deserves. You may be guided by the appearance and conduct
of the witnesses, or by the manner in which the witness
testifies, or by the character of the testimony given, or by
evidence to the contrary of the testimony given.
You should carefully scrutinize all the testimony
given, the circumstances under which each witness has
testified, and every matter in evidence which tends to show
whether a witness is worthy of belief. Consider each
witness's intelligence, motive and state of mind, and
demeanor and manner while on the stand. Consider the
witness's ability to observe matters as to which he or she
has testified, and whether he or she impresses you as having
an accurate recollection of these matters. Consider also
any relation each witness may bear to either side of the
case; the manner in which each witness might be affected by
the verdict; and the extent to which, if at all, each
witness is either supported or contradicted by other
evidence in the case.
Inconsistencies or discrepancies in the testimony
of a witness, or between the testimony of different
witnesses, may or may not cause you to discredit such
2610
testimony. Two or more persons witnessing an incident or a
transaction may simply see or hear it differently and
innocent misrecollection, like failure of recollection, is
not an uncommon experience. In weighing the effect of a
discrepancy, always consider whether it pertains to a matter
of importance or an unimportant detail, and whether the
discrepancy results from innocent error or intentional
falsehood.
After making your own judgment, you will give the
testimony of each witness such weight, if any, as you may
think it deserves.
Witnesses who, by education, study and experience,
have become expert in some art, science, profession or
calling, may state opinions as to any such matter in which
that witness is qualified as an expert, so long as it is
material and relevant to the case. You should consider such
expert opinion and the reasons, if any, given for it. You
are not bound by such an opinion. Give it the weight you
think it deserves. If you should decide that the opinions
of an expert witness are not based upon sufficient education
and experience, or if you should conclude that the reasons
given in support of the opinions are not sound, or that such
opinions are outweighed by other evidence, you may disregard
the opinion entirely.
In resolving any conflict that may exist in the
2611
testimony of experts, you may compare and weigh the opinion
of one against that of another. In doing this, you may
consider the qualifications and credibility of each, as well
as the reasons for each opinion and the facts on which the
opinions are based.
In determining the weight to be given to an
opinion expressed by any witness who did not testify as an
expert witness, you should consider his or her credibility,
the extent of his other her opportunity to perceive the
matters upon which his or her opinion is based and the
reasons, if any, given for it. You are not required to
accept such an opinion but should give it the weight to
which you find it entitled.
During the trial of this case, certain testimony
has been presented to you by way of a deposition, consisting
of sworn recorded answers to questions asked of the witness
in advance of the trial by one or more of the attorneys for
the parties to the case. The testimony of a witness who,
for some reason, cannot be present to testify from the
witness stand may be presented in writing under oath or on a
videotape. Such testimony is entitled the same
consideration, and is to be judged as to credibility, and
weighed, and otherwise considered by the jury, insofar as
possible, in the same way as if the witness had been present
and had testified from the witness stand.
2612
Certain charts, graphs and illustrations have been
shown to you. Those charts, graphs and illustrations are
used for convenience and to help explain the facts of the
case. They are not themselves evidence or proof of any
facts.
You have heard evidence that there were earlier
rulings by this Court concerning the ownership of the UNIX
and the UNIX copyrights existent as of the date of the asset
purchase agreement. In making these rulings, the Court did
not have the benefit of the evidence that you have now
heard. These prior rulings have been reversed in a
unanimous ruling by the Court of Appeals, which is why these
issues are being presented to you in this trial. You must
decide this case solely on the evidence presented to you in
this trial. The earlier rulings should have no bearing on
your determination of which party owns the copyrights at
issue in this case. However, the existence of these prior
rulings may be considered by you in your determination of
special damages and punitive damages, if any.
You heard reference to a SCO Group bankruptcy.
That is a reorganization proceeding which is pending in
another court. SCO continues to operate its business in
reorganization and the existence of that proceeding should
have no bearing on your consideration of this case.
You have also heard reference to a trial involving
2613
SCO and Novell in 2008. That trial concerned other issues
that are not before you.
In this case, SCO has alleged that Novell has
slandered its title regarding ownership of copyrights over
the UNIX and UnixWare computer operating systems.
Slander of title requires you to find that:
First, there was a publication of a statement disparaging
SCO's title; second, the statement was false; third, the
statement was made with constitutional malice; and, fourth,
the statement caused special damages. I will now explain
these four elements in more detail.
The first element requires SCO to prove that
Novell published a statement that disparaged SCO's title or
ownership of the UNIX or UnixWare copyrights existent as of
the date of the asset purchase agreement. SCO alleges that
Novell made several slanderous statements in 2003 and 2004.
The allegedly slanderous statements do not include
statements made in pleadings and filings made by Novell in
connection with this litigation, which began in January
2004. Novell may not be held liable for making such
statements made in pleadings and filings.
For the statement to have been published, it must
have been communicated to someone other than SCO.
A statement is not slanderous if the context makes
clear that the speaker is expressing a subjective view or an
2614
interpretation or theory, rather than an objectively
verifiable fact. You may determine, however, that the
speaker intended to convey a statement of fact even if the
speaker has couched its statements in the form of an opinion
or belief.
In deciding whether a publication disparaged SCO's
title, you should not view individual words or sentences in
isolation. Rather, each statement must be considered in the
context in which it was made, giving the words their most
common and accepted meaning. You should also consider the
surrounding circumstances of the statement and how the
intended audience would have understood the statement in
view of those circumstances.
The second element of a claim for slander of title
is falsity of the statement that disparages title. False
means that the statement is either directly untrue or that
an untrue inference can be drawn from the statement. You
are to determine the truth or falsity of the statement
according to the facts as they existed at the time the
statement was made.
The statement, to be true, need not be absolutely,
totally, or literally true, but must be substantially true.
A statement is considered to be true if it is substantially
true or the gist of the statement is true.
In order to determine whether the statements at
2615
issue were true or false, you must determine which party
owned the UNIX and UnixWare copyrights, existent as of the
date of the asset purchase agreement, at the time the
statements were made.
To determine which party owned the UNIX and
UnixWare copyrights, existent as of the date of the asset
purchase agreement, you should consider the asset purchase
agreement and the amendments thereto. I will now provide
you instructions on how you should interpret these
agreements.
Several contracts relating to the same matters,
between the same parties, and made as parts of substantially
one transaction, are to be taken together. The contracts
need not have been executed on the same day to be parts of
substantially one transaction.
Where contracts are made at different times, but
where the later contract is not intended to entirely
supersede the first, but only modify it in certain
particulars, the two are to be construed as parts of one
contract, the later superseding the earlier one where it is
inconsistent with the earlier.
Here, the amendments, including Amendment No. 2,
must be considered together with the asset purchase
agreement as a single document. The language of the
amendments, including Amendment No. 2, controls whenever its
2616
language contradicts the asset purchase agreement.
In deciding what the terms of a contract mean, you
must decide what the parties intended at the time the
contract was created. You may consider the usual and
ordinary meaning of the language used in the contract as
well as the circumstances surrounding the making of the
contract.
With respect to your consideration of the
agreements at issue here, where contract terms are clear,
they should be given their plain and ordinary meanings.
In deciding what the words of a contract meant to
the parties, you should consider the whole contract, not
just isolated parts. You should use each part to help you
interpret the others, so that all the parts makes sense when
taken together.
You should assume that the parties intended the
words in their contract to have their usual and ordinary
meaning unless you decide that the parties intended the
words to have a special meaning.
With respect to who owns the copyrights at issue,
you may consider what is called the extrinsic evidence of
the intent of the parties to the amended asset purchase
agreement. Extrinsic evidence is the evidence of what
parties to a contract intended apart from the language they
used in the contract.
2617
One type of extrinsic evidence is testimony or
documents showing what the people who were negotiating the
contract said or did or understood at the time of the
transaction.
Another type of extrinsic evidence is called the
parties course of performance. Course of performance is how
the parties interpreted and applied the terms of the
contract after the contract was created but before any
disagreement between the parties arose.
In determining which party owns the property at
issue, and your consideration of the amended asset purchase
agreement, you may consider the nature of a copyright.
Copyright is the exclusive right to copy. The
owner of a copyright has the exclusive right to do and to
authorize the following: One, to reproduce the copyrighted
work in copies; two, to prepare derivative works based upon
the copyrighted work; three, to distribute copies of the
copyrighted work to the public by sale or other transfer of
ownership, or by rental, lease or lending.
The term owner includes the author of the work, an
assignee, or an exclusive licensee. In general, copyright
law protects against production, adaptation, distribution,
performance, or display of substantially similar copies of
the owner's copyrighted work without the owner's permission.
A copyright owner may enforce these rights to
2618
exclude others in an action for copyright infringement.
Even though one may acquire a copy of a copyrighted work,
the copyright owner retains rights and control of that copy,
including uses that may result in additional copies or
alterations of the work.
Possession of certificates of copyright
registrations is immaterial to ownership of the copyrights,
but may be considered for other purposes, such as the intent
of the parties.
A copyright owner may transfer, sell, or convey to
another person all or part of the copyright owner's property
interest in the copyright. A property interest in a
copyright includes the right to exclude others from
reproducing, preparing a derivative work, distributing,
performing, displaying, or using the copyrighted work.
To be valid, the transfer, sell, or conveyance
must be in writing. The person to whom a right is
transferred is called the assignee. The assignee may
enforce this right to exclude others in an action for a
copyright infringement.
The copyright owner may also transfer, sell, or
convey to another person any of the exclusive rights
included in the copyright. To be valid, the transfer, sell,
or conveyance must be in writing. The person to whom this
right is transferred is called an exclusive licensee. An
2619
exclusive licensee has the right to exclude others from
copying the work to the extent of the rights granted in the
license and may bring an action for damages for copyright
infringement.
Nonexclusive licenses, on the other hand, do not
transfer copyright ownership and can be granted orally or
implied from conduct. An implied license can only be
nonexclusive. A nonexclusive licensee cannot bring suit to
enforce a copyright.
An implied nonexclusive license may arise when,
one, a person, the licensee, requests the creation of the
work, two, the creator, the licensor, makes the particular
work and delivers it to the licensee who requested it, and,
three, the licensor intends that the licensee-requestor copy
or distribute his work.
The third element of slander of title requires SCO
to prove by clear and convincing evidence that Novell's
statement disparaging the ownership of the UNIX and UnixWare
copyrights, existent as of the date of the asset purchase
agreement, was made with constitutional malice. That is,
SCO must prove that the statement was published with: One,
knowledge that it was false; or, two, reckless disregard of
whether it was true or false, which means that Novell made
the statement with a high degree of awareness of the
probable falsity of the statement, or that, at the time the
2620
statement was transmitted Novell had serious doubts that the
statement was true. Clear and convincing evidence leaves no
substantial doubt in your mind that the constitutional
malice is highly probable, as previously explained in
Instruction No. 13.
In determining whether Novell published the
statement knowing the statement to be false or with reckless
disregard for the truth, you should take into account all
the facts and circumstances. You should consider whether
the statement was fabricated or the product of the party's
imagination. You may also consider whether the party knew
about the source of the information and whether there were
reasons for the party to doubt the informant's veracity,
whether the information was inherently improbable, or if
there were other reasons for the party to doubt the accuracy
of the information.
In determining whether there was knowing falsehood
or reckless disregard for the truth, however, it is not
enough for you to find that the party acted negligently,
carelessly, sloppily or did not exercise good judgment in
researching, writing, editing, or publishing the statement.
An extreme departure from the standards of investigating and
reporting ordinarily adhered to by responsible publishers
does not, standing alone, constitute knowledge of falsity or
reckless disregard for the truth. The reliance on one
2621
source standing alone does not constitute knowing falsehood
or reckless disregard for the truth, even if other sources
would be readily available, and even if, in applying
reasonable reporting of care, you believe those other
sources should have been contacted.
Spite, ill will, hatred, bad faith, evil purpose
or intent to harm does not alone support a finding of
constitutional malice.
The mere fact that a mistake may occur is not
evidence of knowing falsehood or reckless disregard for the
truth. Reckless disregard for the truth or falsity requires
a finding that the person making the statement had a high
degree of awareness that the statement was probably false,
but went ahead and published the statement anyway. The test
is not whether the person acted as a responsible publisher
under the circumstances. While exceptional caution and
skill are to be admired and encouraged, the law does not
demand them as a standard of conduct in this matter.
Unless you find by clear and convincing evidence,
under all the circumstances, that Novell acted knowing the
statement to be false or with a high degree of awareness of
its probable falsity, there can be no liability.
The final element of a claim for slander of title
requires a showing that the statement disparaging SCO's
ownership of the UNIX of UnixWare copyrights, existent as of
2622
the date of the asset purchase agreement, caused special
damages to SCO.
This requires SCO to establish an economic loss
that has been realized or liquidated, as in the case of lost
sales. Special damages are ordinarily proved in a slander
of title action by evidence of a lost sale or the loss of
some other economic advantage. Absent a specific monetary
loss flowing from a slander affecting the salability or use
of the property, there is no damage. It is not sufficient
to show that the property's value has dropped on the market,
as this is not a realized or liquidated loss. The law does
not presume special damages.
Special damages in the form of lost sales may be
shown in two ways: A, proof of the conduct of specific
persons or, b, proof that the loss has resulted from the
conduct of a number of persons whom it is impossible to
identify. There is a separate test you must apply for each.
First, when the loss of a specific sale is relied
on to establish special damages, SCO must prove that the
publication of the disparaging statement was a substantial
factor influencing the specific, identified purchaser in his
decision not to buy.
In order for the disparaging statement to be a
substantial factor in determining the conduct of an
intending or potential purchaser, it is not necessary that
2623
the conduct should be determined exclusively or even
predominantly by the publication of the statement. It is
enough that the disparagement is a factor in determining his
decision, even though he is influenced by other factors
without which he would not decide to act as he does. Thus
many considerations may combine to make an intending
purchaser decide to break a contract or to withdraw or
refrain from making an offer. If, however, the publication
of the disparaging matter is one of the considerations that
has substantial weight, the publication of the disparaging
matter is a substantial factor in preventing the sale and
thus bringing financial loss upon the owner of the thing in
question.
The extent of the loss caused by the prevention of
a sale is determined by the difference between the price
that would have been realized by it and the salable value of
the thing in question after there has been a sufficient time
following the frustration of the sale to permit its
marketing.
Second, in the case of a widely disseminated
disparaging statement, SCO need not identify a specific
purchaser and recovery is permitted for loss of the market.
This may be proved by circumstantial evidence showing that
the loss has in fact occurred and eliminating other causes.
A decline in stock price is not an appropriate
2624
claim for special damages.
You are entitled to award punitive damages if you
deem them to be appropriate.
Before any award of punitive damages can be
considered, SCO must prove by clear and convincing evidence
that Novell published a false statement knowing it was false
or in reckless disregard whether it was true or false, and
that Novell acted with hatred or ill will towards SCO, or
with an intent to injure SCO, or acted willfully or
maliciously towards SCO.
If you find that SCO has presented such proof, you
may award, if you deem it proper to do so, such sum as in
your judgment would be reasonable and proper as a punishment
to Novell for such wrongs, and as a wholesome warning to
others not to offend in a like manner. If such punitive
damages are given, you should award them with caution and
you should keep in mind they are only for the purpose just
mentioned and are not the measure of actual damage.
The fact that I have instructed you on damages
does not mean that I am indicating that you should award
any. That is entirely for you, the jury, to decide.
Any damages you award must have a reasonable basis
in the evidence. They need not be mathematically exact, but
there must be enough evidence for you to make a reasonable
estimate of damages without speculation or guess work.
2625
The burden is upon the party seeking damages to
prove the existence and amount of its damages and that its
damages were caused by the acts of the opposing party. You
are not permitted to award speculative damages.
You have heard evidence concerning specifics about
the parties' rights and obligations under section 4.16 of
the amended asset purchase agreement. You are instructed
that those issues of specific rights and obligations under
section 4.16 are for the Court to decide and you are not to
concern yourself with them. You may consider section 4.16,
as well as all other provisions, in interpreting the amended
asset purchase agreement.
It is the duty of the attorney on each side of the
case to object when the other side offers testimony or other
evidence which the attorney believes is not properly
admissible. You should not show prejudice against any
attorney or his or her client because the attorney has made
an objection.
Upon allowing testimony or other evidence to be
introduced over the objection of any attorney, the Court
does not, unless expressly stated, indicate any opinion as
to the weight or effect of any such evidence. As stated
before, the jurors are the sole judges of the credibility of
all witnesses and the weight and effect of all evidence.
When the Court has sustained an objection to a
2626
question addressed to a witness, the jury must disregard the
question entirely, and may draw no inference from the
wording of it or speculate as to what the witness would have
said if he or she had been permitted to answer any question.
During the course of the trial, I may have
occasionally asked questions of a witness, in order to bring
out facts not then fully covered in the testimony. Do not
assume that I hold any opinion on the matters to which my
questions may have related.
A copy of these instructions will also accompany
you to the jury room. Do not write on the instructions.
You will notice during are deliberations that
there may be gaps in the numbering of the instructions. The
instruction numbers are for the convenience of the Court and
the parties, and you are not to be concerned by them.
Upon retiring to the jury room, you must select
one of your members to act as your foreperson. The
foreperson will preside over your deliberations and will be
your spokesperson here in court.
The verdict must represent the collective judgment
of the jury. In order to return a verdict, it is necessary
that each juror agree to it. Your verdict must be
unanimous.
It is your duty, as jurors, to consult with one
another and to deliberate with a view to reaching an
2627
agreement if you can do so without violence to individual
judgment. Each of you must decide the case for yourself,
but do so only after an impartial consideration of the
evidence in the case with your fellow jurors. In the course
of your deliberations, do not hesitate to reexamine your own
views and change your opinion if convinced it is erroneous.
But do not surrender your honest conviction as to the weight
or effect of evidence solely because of the opinion of your
fellow jurors for the mere purpose of returning a unanimous
verdict.
Remember at all times, you are not partisans. You
are judges, judges of the facts. Your sole interest is to
seek the truth from the evidence in the case.
Your verdict must be based solely upon the
evidence received in the case. Nothing you have seen or
heard outside of court may be considered. Nothing that I
have said or done during the course of this trial is
intended in any way to somehow suggest to you what I think
your verdict should be. Nothing said in these instructions
and nothing in any form of verdict prepared for your
convenience is to suggest or convey to you in any way or
manner any intimation as to what verdict I think you should
return. What the verdict shall be is the exclusive duty and
responsibility of the jury. As I have told you many times,
you are the sole judges of the facts.
2628
The Court has prepared a verdict form for your
convenience. You are instructed that your answers to the
interrogatories on the verdict form must be consistent with
the instructions I have given you and with each other.
When you have reached a unanimous agreement as to
your verdict, your foreperson will fill in, date and sign
the verdict form upon which you have unanimously agreed.
When you have reached unanimous agreement as to your
verdict, the foreperson shall inform the bailiff and you
shall return to the courtroom.
If it becomes necessary during your deliberations
to communicate with the Court, you may send a note by the
bailiff. But bear in mind that you are not to reveal to the
Court or to any person how the jury stands, numerically or
otherwise, on the question before you, until after you have
reached a unanimous verdict or agreement.
The attitude and conduct of jurors at the outset
of their deliberations are matters of considerable
importance. It is rarely productive or good for a juror,
upon entering the jury room, to make an emphatic expression
of his or her opinion on the case or to announce a
determination to stand for a certain verdict. When one does
that at the outset, his or her sense of pride may be
aroused, and he or she may hesitate to recede from an
announced position if shown that it is wrong.
2629
During your deliberations, you are able as a group
to set your own schedule for deliberations. You may
deliberate as late as you wish or recess at an appropriate
time set by yourselves. You may set your own schedule for
lunch and dinner breaks.
However, I do ask that you notify the Court by a
note when you plan to recess for the evening.
You have now been instructed on the law, ladies
and gentlemen. Again, a copy of the instructions, what I
just read to you, will accompany you to the jury room.
It is now time for closing statements, and we'll
begin with SCO. And because SCO is the plaintiff in the
case and, as I just instructed you, has certain burdens to
carry by way of the weight of evidence and such, the
plaintiffs have the opportunity to go both first and last in
their closing statements, meaning that SCO will go ahead now
with part of its closing. We'll then hear from Novell, and
then SCO will be given the last word.
Mr. Singer, if you would like to proceed.
MR. SINGER: Thank you, Your Honor.
Ladies and gentlemen, it's been a long three weeks
and we appreciate your close attention to this case. I know
it's not been the most exciting case at times, but I assure
you it's a very important case. It's very important to SCO,
it very important to individuals like Bill Broderick, John
2630
Maciaszek, and Andy Nagle, men who have been with the
company for 20 years, going all the way back to AT&T, and
they are still there at SCO turning out UnixWare, providing
products for companies all over the country and the world,
and trying in a difficult situation to have the company
proceed.
These individuals and the customers, and some of
these have been long time or current customers, McDonald's,
NASDAQ, BMW, that business depends on the copyrights,
depends on having ownership of intellectual property that is
at the heart of their business.
You are going to be asked in this case two basic
important questions. It will be your responsibility to
decide, first, to declare that the UNIX, UnixWare copyrights
that existed back at the time of this transaction went with
the rest of the business, except for this royalty stream,
and belonged to SCO. That is very important and critical on
its own. And, second, you will be asked to determine, if
you agree with us, that there's been a slander on SCO's
title, to determine that and award a reasonable amount of
damages to compensate SCO in connection with that slander.
Now as the Court has instructed you, you are the
judges of the facts and, in doing so, you must determine
credibility. And credibility is, in part, a question of the
consistency of witnesses with one another. And I would like
2631
to give you an example of one of the things you can look at.
You'll recall Mr. Stone when he was testifying
here about whether or not when they waived rights of SCO
that benefited IMB, whether that was done unilaterally or
whether it was done at IBM's request. Mr. Stone answered
no, it wasn't at IBM's request. We acted on our own. No
input from IBM at all.
Then a few days later you heard from Mr. LaSala,
the former general counsel of Novell who admitted on the
stand that, in fact, Mr. Marriot, a lawyer for IBM,
specifically asked Novell to assert those rights to waive
SCO's claims; in fact, said it was urgent. You also learned
that even internally, with Mr. LaSala's testimony, there was
an inconsistency because when he was first asked about that
in February 2007, he denied it. Only later in May, when we
pursued the issue, he admitted it. That's credibility.
That's an issue you can consider in determining who to
believe in this case.
Another example, Mr. Stone again, on a basic
point. This is not something people can be confused about.
Were you asked to leave the company. Yes, I was. I asked
Mr. Messman the same question, was Mr. Stone asked to leave
Novell. Answer, no. Someone is not telling the truth.
Now the questions that you will need to answer in
this case will be set out in the verdict form that you will
2632
receive along with a copy of the instructions and the
evidence, and the very first question will be did the
amended asset purchase agreement transfer to UNIX and
UnixWare copyrights from Novell to SCO. I would like to
address that question at the outset.
Amendment No. 2, we submit, is the key to
answering that question. Amendment No. 2 replaced the
language that was inconsistent with what was the intent of
the transaction, the intent of the parties who put this deal
together that those copyrights would be transferred with the
UNIX and the UnixWare business. Amendment 2 replaces the
old language, which is gone, and that is the operative
language.
Now Judge Stewart read you an important
instruction that makes that clear, which is the instruction
I have on the screen, and it makes clear that it is the
language of the amendments, including Amendment No. 2,
controls wherever its language contradicts the asset
purchase agreement.
Of course you knew that from the face of it, that
it says it replaces the old language. It took out this
copyright exclusion and put in language that, we submit to
you, is consistent with what the parties intended, that the
copyrights required for the business were now part of what
were the included assets.
2633
Now you might remember about three weeks ago
Novell's counsel telling you that it was important to listen
for the rest of the story. I think he invoked Paul Harvey.
I was thinking about that statement all during the first
week of this trial, and I was doing that because it seemed
that all during that week Novell was focused on this
language in the schedule of excluded assets, excluding
copyrights, when the rest of the story was that language
didn't exist anymore. That language was replaced by
Amendment No. 2. So the language that they have spent more
hours in this trial on than anything else is simply not in
the agreement and hasn't been in there since 1996. That's
really the rest of the story on this because under the plain
language of the asset purchase agreement with Amendment 2,
it is very clear that the assets, the copyrights
transferred.
You have a schedule of included assets, which
you've seen many times and you will be able to look at when
you deliberate, it says, all rights and ownership of UNIX
and UnixWare on all these products, including the UnixWare
products, and you haven't heard any evidence there are any
products on there that -- products missing from that list.
This includes what we're talking about, that all rights and
ownership of UNIX and UnixWare are transferred.
And then you had the old language that excluded
2634
copyrights and trademarks. Now you have the current
language replaced by Amendment 2 which says that Novell gets
to keep copyrights, except for the copyrights and trademarks
owned by Novell as of the date of the agreement required for
SCO to exercise its rights with respect to the acquisition
of UNIX and UnixWare technologies. That really is the heart
of this case. With Amendment No. 2, it is clear that those
copyrights were transferred.
Now I would submit to you that Novell has admitted
the fact that SCO, in light of Amendment No. 2, owns those
copyrights, and they did that on two occasions. The first
occasion that that was admitted goes back to June 6th of
2003 when Novell issued the press release, when they -- of
course, you've heard about Amendment No. 2 when they said
they didn't have it and it turns out they did have it. They
didn't know it was signed. They claimed they had a signed
copy in the files. But the important point here on
copyright ownership is their recognition that it appears to
support SCO's claim that ownership for certain copyrights of
UNIX did transfer to SCO in 1996. So that's the first time.
The second time that that was admitted was in
front of you a few days ago on March 23rd, and that was when
Allison Amadia admitted -- and certainly she started out in
her testimony being adverse to SCO and in favor of Novell.
Then under Mr. Normand's cross-examination, listen to what
2635
she said. She was asked, now you agree that under the plain
language of Amendment 2 Novell has included in the transfer
of assets the copyrights required for SCO to exercise its
rights in UNIX and UnixWare. Her answer was, the way I
wrote and intended Amendment No. 2 to be read is that this
language was saying that whatever copyright rights Santa
Cruz needed in order to exercise the rights it was given,
then they would have those rights.
Then a little bit later near the end of her
cross-examination she was asked, so if there are copyrights
that are required for SCO to exercise its rights, like the
UNIX and UnixWare trademarks, they were transferred,
correct. Her answer was yes.
Now there is no real dispute, ladies and
gentlemen, that the copyrights are required for the UNIX and
UnixWare business. You have heard a lot of evidence on
that. It has included Bob Frankenberg, the Novell president
and CEO, who said it was ludicrous to think about selling
software without selling the copyrights.
Doug Michels, the SCO founder and vice president,
equated it to breathing oxygen, that it's so essential.
There is no way this deal would have happened without
getting the copyrights.
Jim Wilt, who was the lead negotiator for Santa
Cruz, says that, you know, when you walk out the door, I
2636
assume your head goes with you. That's how he equated it.
And, of course, the copyrights have to go with the company.
Steve Sabbath was asked, if you didn't own the
copyrights, how could you go after somebody that's pirating
your software, how could you enforce your rights to the
technology.
Bill Broderick said, if we couldn't protect our
software, we'd be out of business. This is how you protect
your software.
Now with Amendment No. 2, the APA makes sense.
Without it, the agreement doesn't make sense. The software
business without the copyrights, well, I would suggest to
you that's like a car without an engine, or maybe a house
without a roof, or maybe even suggest that it's an ice cream
sundae where you only get the cherry and not the ice cream,
as Mr. Braham suggested a couple days ago. It doesn't make
any sense.
Now with Amendment No. 2 all of the things fit
together and makes sense, beginning with the very recital at
the beginning of the document that says that this is the
sale of a business, the UNIX and UnixWare business, the
support of those products, all of that is what it being
sold. It is the intent that all of the business relating to
that be transferred. So it's consistent with the overall
intent of the deal.
2637
There's been some discussion about the
consideration received. I suggest to you that it makes
sense because of the amount of money which Novell received.
Back in the opening you might remember seeing this slide
from Novell, the first one on the left-hand side, where it
suggests the purchase price was just the stock. The stock
itself was worth a lot of money, 40, $50 million. You
wouldn't even receive that if you weren't transferring the
copyrights. But if you look at the entirety of that section
of the asset purchase agreement, you see that there was
another part to the payments which included the royalty
stream that would occur in the future, both from the
existing UNIX products and the UnixWare products.
If you look at Mr. Bradford's memo to the board
right before Novell approved this transaction, he identified
those four royalty streams, which turn into a lot of money.
The stock is worth about 40, $50 million, $50 million a year
in the UNIX royalties, the estimated present value of
$60 million or so in the UnixWare royalties. So this was a
sale of a business. This wasn't simply serving as an agent,
as Mr. Braham suggested, to collect for someone else.
For instance, you've got here all the title to the
UNIX licenses. If you have a real estate agent handle your
house, you don't give them title to sell it. I don't know
of any real estate agents who would pay me something like
2638
$100 million to handle a transaction. This agency was very
limited to the collection of royalties that Novell was going
to keep, and the rest of this was the sale of a business.
Now Amendment 2 also is needed to make sense of
something you've heard me refer to and my colleagues refer
to throughout the trial, the license back provision, and
that's because -- and Novell has never been able to explain
this, it makes no sense for Novell to have kept the
copyrights and then the license back right to use them. If
they kept them, they wouldn't need the license back. That
is clear evidence that this was intended to be a sale of the
copyrights.
The license back of assets appears right in the
asset purchase agreement in section 1.6. Now Novell tries
to say, well, it only applied to the new products, so that's
why you had the license back. But the plain language of the
license back says, all of the technology included in the
assets, which means they are getting a license back to the
assets being sold. They wouldn't need a license to use that
if it wasn't for the fact they were selling the copyrights.
And, in fact, if you look at the technology
license agreement, it says specifically, as between Novell
and SCO, ownership of licensed technology shall reside in
SCO. We think that makes it very clear, and you have heard
a lot of witnesses say when I asked them or Mr. Normand
2639
asked them that does it make any sense to have a license
back if you retained the copyrights, and everyone agreed
with that.
Now Amendment 2 -- with Amendment 2, the agreement
also makes sense in light of -- let's see, there we are.
With Amendment 2, the agreement also makes sense in light of
the testimony of the witnesses that you've heard. Now I
told you a few weeks ago in the opening, pointing to this
chart, that you would hear from ten witnesses drawn from
both the Santa Cruz and the Novell side of the transaction
who would agree that it was intended that the copyrights
were sold. All ten of those witnesses, either through video
deposition or through live testimony here, have so
testified.
I would like to start with the Santa Cruz side
because there's been a lot of attention here paid to what
Novell intended and what was going on at Novell's board
meeting. That's really not the issue before you. The issue
before you is what the two parties to a contract intended.
So you have to look at both parties' intent and how they
expressed that to each other. And there is no confusion at
all on the Santa Cruz side there. All of these executives
and negotiators testified consistently that this deal
required the transfer of the copyrights.
You remember Doug Michels. I think that was
2640
pretty memorable videotaped testimony, wasn't it? He was
perplexed that anyone could even raise the issue.
Copyrights are like breathing oxygen. I'm going to read you
a little bit of his testimony. He says, I guarantee you, we
put copyright notices in every document we wrote. How could
we do that if we didn't own the copyrights? We put
copyright notices in every module of source code we wrote.
They all said we own the copyrights. We own the
intellectual property, and every action we took represents
that. I don't do a very good imitation of him.
THE COURT: Mr. Singer, remember, if you read too
fast, the court reporter will have difficulty.
MR. SINGER: I will try to read slower as well.
Michels also said, we took over the business. We
were in the business of selling intellectual property. We
were in the business of supporting the intellectual
property. We were in the business of providing marketing
materials. We couldn't do any of that without owning the
copyrights.
He was asked if any attorney from Santa Cruz ever
told him that Novell was asking for -- that he had to go to
Novell and ask them for the copyrights. He said, I think I
would have laughed them out my office.
Now you recall that you also heard testimony from
Steve Sabbath who said, when we bought the UNIX business
2641
from Novell, all copyrights came with the product and
Amendment No. 2 was meant to confirm that, and he testified
to that.
In addition, you had Kimberlee Madsen. Ms. Madsen
has no interest in this litigation. She works for Apple.
She came here and testified clearly to you that the
copyrights were going with the assets. She was asked, do
you have a view, as you sit here, as to whether the parties
intended that the copyrights would be retained by Novell.
Answer, no. The intent was clearly to be that the
copyrights for the UNIX and UnixWare were to be transferred
to The Santa Cruz Operation.
And you heard Mr. Mohan, Mr. Wilt also. So there
is no question on the Santa Cruz side of the equation that
everyone agrees that the copyrights were part of the deal.
Now in a typical case you would expect to see the
Santa Cruz executives and attorneys saying one thing and the
Novell executives and lawyers saying something completely
different. The incredible thing about this case is that you
have numerous senior executives and lawyers who were with
Novell at the time who agree with Santa Cruz, who agree that
the copyrights were intended to be sold.
Now you have heard from Robert Frankenberg, the
chief executive officer at the time, on the first day and
again on the last day of testimony. I think he's probably
2642
the most important witness in this trial. Ladies and
gentlemen, in the future, when I think of a stand-up guy,
I'm going to be thinking of Bob Frankenberg. He has no
financial or other interest in this. A lot of CEOs would
simply duck something like this and say they don't remember,
it's a long time ago. He didn't do that. He has given you
forthright testimony, both on the first day of trial and
yesterday, that this was a deal to sell the copyrights along
with the rest of the business.
He acknowledged that he missed that line item in
one part -- one word in a board resolution that he thought
was probably referring to the NetWare copyrights, but that
it was clear, because he was the guy at the top, that this
was a sale of the business, including the copyrights.
That's why the error had to be fixed a year later with
Amendment No. 2.
His testimony is consistent with the testimony of
Duff Thompson, of Ty Mattingly and Ed Chatlos, the people
most involved in the negotiation of the deal. They were the
people out there in California for months negotiating this.
These were the people who looked at Alok Mohan and the other
Santa Cruz people across the table and said, you are getting
the business lock, stock and barrel, except, of course, for
those royalties which were going to help pay for it. These
were the people who came here and testified that there had
2643
never been any suggestion made in that process of Novell
holding back the copyrights.
Now Novell suggests some of these witnesses, who,
remember, are their own executives, should be discredited
because some of them later went to the business and
therefore had a financial interest in SCO. What I would
submit to you, though, is their testimony is consistent with
individuals who have no such interest, Mr. Levine,
Mr. Frankenberg. I think they insulted Mr. Chatlos, their
senior director, by suggesting because his wife had a little
stock that somehow he isn't telling the truth when he said
this was the deal he negotiated. And Mr. Thompson, who you
can judge, was a forthright witness.
Basically, what Novell is telling you is that you
would have to believe that all ten of these witnesses, all
ten, half of whom are former senior executives, were either
mistaken or lying in order to agree with what Novell would
have you believe in this case.
Now how did this happen? How did the problem
happen that required Amendment 2? I think we have gotten a
little more insight into that over the last several days. I
think you see what happens when you have a set of lawyers
rushing to document a deal under a lot of time pressure.
This is Tor Braham's forced march. Mr. Braham ignored
months of negotiations between the parties that preceded the
2644
last two weeks, which is when he got involved, as simply
discussions about a potential transaction that he didn't
really have to pay attention to.
He also ignored the term sheet which I asked him
about, a term sheet which, if you look at it when you look
at all the evidence, he had, which, before he got to work on
9-11-95, or within that period he got to work, said what the
business people had negotiated, and it says, UnixWare and
SVRX, the intent is to provide all rights to SCO including
rights to modify, rights to sublicense binary copies, rights
to distribute source code. And, ladies and gentlemen, if
you compare that to the instruction that Judge Stewart read
and you'll have with you, you'll see that lines up very
closely to what the rights are that an owner of a copyright
has.
Now going back to Mr. Braham's forced march, what
are the other things that indicate how this problem
happened? The excluded assets schedule, which has
originally had this exclusion of copyrights, it wasn't even
provided until the week before the signing. The fact that
he testified to you that on a big issue like this there was
no push back from Santa Cruz shows that this wasn't
discussed, it was missed. Can you believe a situation where
Novell pops up a few days before the closing and says, we're
going to sell you the business, but we're going to hold the
2645
copyrights, and Santa Cruz says, yeah, that's fine, it
doesn't push back? It doesn't make any sense. This was
just missed in a schedule.
Mr. Bradford's September 18th, 1995 board memo
didn't mention that either, which explains why
Mr. Frankenberg and other people on the board who aren't
looking at the minutia of the resolution but are looking
what their general counsel sent to them in advance of the
meeting, it didn't mention anything about retaining the
copyrights.
And then there was one more piece of evidence that
was interesting. When Mr. Braham testified, I asked him
about this copy he made notes on during the board conference
call and, interestingly enough, as you'll see, because
that's in evidence as Exhibit V-3, even that copy that their
lawyer was making notes on during the call, supposedly
supporting the exclusion of copyrights, had no copies of the
schedules at all attached to them. So if that's the same
copy people were looking at at the time, they wouldn't have
even had the schedule that had this erroneous copyright
exclusion on it.
Now you do have someone who says I remember
exactly that at the board meeting they said the copyrights
were excluded. You will have to determine the credibility
of that, because that was Jack Messman, the chef executive
2646
officer who approved the slanderous statements.
I put his testimony up here to draw attention to
the fact that while he remembers that clearly when I asked
him about that in his deposition, he didn't even know which
decade this meeting occurred in. He says I think in the
board presentation they made to us in, whenever it was, '81
or '83. But yet he has a distinct recollection of this one
point, which, by the way, isn't reflected in the board
minutes as having been discussed, and he recalls nothing
else, the same Mr. Messman who you could judge his
credibility for when he was here before you.
So I think this is how the error was made, and I
think you can see that in the rush of those last few days,
excluded asset schedule had a term that was inconsistent
with the intent of the deal, either by mistake or perhaps
even accepting you have some overzealous lawyers who acceded
that, and then it was fixed with Amendment No. 2. And not
only does that bring everything in the asset purchase
agreement together and make sense, it also makes the deal
sensible in light of what was told to the public.
Novell's version of the events can't be squared
with the official press release it issued jointly with Santa
Cruz. And while it says it's a SCO press release, Mr.
Frankenberg said and was quoted in there that this was the
approved joint release. They are the acquiring party. They
2647
said, SCO will acquire the UnixWare business and UNIX
intellectual property. That's the core intellectual
property.
The Wall Street Journal, which said, the deal
includes the purchase by Santa Cruz Operation of most
trademarks and intellectual property associated with UNIX
software. A lot of people read The Wall Street Journal at
Novell. No one popped up, never heard anyone say The Wall
Street Journal has this wrong. That didn't happen either.
Novell's version can't be squared with the report
to the United States government in Novell's
Hart-Scott-Rodino filing. True, they put the schedules in
the APA attached to the back of the document, but they were
summarizing the deal for the United States government in the
text. When they summarized it, they said, the assets to be
acquired by Santa Cruz were all rights and ownership of UNIX
and UnixWare. This is a big thing, the copyrights. If that
was excluded, don't you think they would have put in the
text we keep the copyrights, except the copyrights. Mr.
Braham had no explanation for that whatsoever.
Even IBM recognized that SCO had the copyrights,
an irony there. The documents that you've seen in the last
few days, including yesterday, are documents where IBM, in
certain positions it was taking in this dispute that came up
a year later, said, SCO is protected by copyrights. You can
2648
show us the source code because you have copyright
protection. So none of what the outside world was looking
at would be consistent with what Novell would have you
believe.
Now, ladies and gentlemen, you have also been
instructed by the Court that you should consider the course
of performance. How a party acts is sometimes more
important than anything else. It's an indication of their
intent. And the instructions said that the course of
performance is something that you can look at to determine
by their actions whether the copyrights were intended to
stay with Novell or to go Santa Cruz.
And what have we heard about that? This has
virtually been undisputed testimony from three different
individuals, three individuals who have been with the UNIX
business all the way back to the 1990s. Bill Broderick,
Andy Nagle and John Maciaszek. You've heard Bill Broderick
say, we sent letters out to all these customers. This is an
example of the Prentice-Hall letter. Novell sent it out, a
lot of different people signed them, and it said, as you may
know, Novell transferred to SCO its existing ownership in
the UNIX System-based offerings, that included all releases
of UNIX and all the UnixWare releases at the time. It
doesn't make sense if it wasn't true you tell the customers
that.
2649
You heard Mr. Nagle talk about how during the
transition period they actually changed the code on the
software, not just on the outside of the box but in the
software itself, the code that reflects who owns those
programs, and they did that for the UnixWare program that
was being built at the time at Novell. They didn't have any
new code after the sale in it. That only makes sense if you
are transferring the ownership of that old code as of the
time of the deal. There's no refutation of that.
Of course, you can also look for intent at what
happened with the copyright registrations. You'd think that
Novell would have kept them. That's sort of important.
They were with Santa Cruz. They have been sitting on that
desk during the trial. You saw them in the testimony
through Mr. Maciaszek.
Now all of this testimony shows that the answer to
question number one should be yes, that under the amended
asset purchase agreement, the transfer of the UNIX and
UnixWare copyrights from Novell to SCO occurred.
The next question you will need to answer -- and
let me, before I move onto the next question, say that first
question is very important because it will mean if you
answer that yes, that SCO can go about rebuilding its
business with the ownership of the copyrights it needs for
that business.
2650
The next question you'll need to answer is whether
Novell slandered SCO's ownership of the UNIX and UnixWare
copyrights. Now if you agree that SCO owned the copyrights,
there is not much question here that a slander occurred. In
fact, you have multiple slanders. You have what could be
characterized as a campaign of slander.
It started on May 28th, 2003 with the statement
that SCO is not the owner. There is the one moment of truth
on June 6th, and then a resumption in letters in August of
obtaining copyright registrations by filing with the United
States Copyright Office they own the copyrights. Other
statements in December and January. Mr. Stone's statement
on March 16th publicly that we still own UNIX. There is no
question those statements are false. They are definitive
statements by Novell.
So the question, then, is whether or not these
statements were made with what is called constitutional
malice. You've been instructed on that. We submit that you
will find that they were made with reckless disregard for
the truth and, after June 6th, with actual knowledge of
their falsity.
Now we call this constitutional malice because
this is what takes into account the concerns of the First
Amendment. There is a right to engage in free speech. But
there is not a right to make statements that are false, that
2651
are made recklessly or with knowledge that they are false.
That's the difference. That is the balance of the free
speech that we hold dear in our constitutional system with
the protection against slander, defamation and falsehoods.
Now the instruction shows that we have to prove,
and we believe we have, that the statement was made with
knowledge that it was false or with reckless disregard of
whether it was true, which means that there was a high
degree of awareness of the probable falsity or that at the
time the statement was made Novell had serious doubts that
the statement was true.
And we think that fits to a T what happened with
the May 28th slander, because let's think about the
statement that went out in the press release. You heard
testimony that they knew there was an unsigned Amendment 2
in their possession, but in a rush to get this out on May
28th, they didn't do their checking to see whether or not
that Amendment No. 2 had, in fact, been signed. They went
ahead. They could have easily determined that it was
signed. Do you think they could have called Wilson Sonsini,
the lawyers who negotiated the deal, to determine if it was
signed? Do you think Mr. Messman could have called Bob
Frankenberg, his predecessor? There are a lot of ways they
could have determined that was signed. Could they have
checked their files a little more clearly? We submit that
2652
that constitutes recklessness, making the statement on May
28th, 2003.
However, the statements after May 28th, 2003 were
not just reckless, and one more point about that. Mr.
LaSala said he turned the company upside down for a signed
version. I suggest that submits they knew this was a very
important document. This would determine the issue.
So they get the document from SCO on June 5th, and
all during this period they never ask SCO -- they're about
to put out a statement, they are talking to them for months,
did they ever say we have this unsigned copy of Amendment
No. 2, do you happen to have a signed version? No word of
it. They just go public on May 28th.
June 5th they receive from SCO a copy of the
signed Amendment No. 2. Mr. McBride testified before you,
and I think you will find it credible when he says
Mr. Messman, when confronted with the signed version,
admitted that SCO owned the copyrights. It's credible, we
believe, because the very next day he said that publicly in
this press release where, on June 6th, the amendment appears
to support SCO's claim that ownership of the copyrights did
transfer in 1996.
Now they want you to believe they didn't mean what
they said on June 6th. Ladies and gentlemen, the June 6th
statement was not just a casual statement. You heard it was
2653
reviewed by Joe LaSala, general counsel. It was written by
him. This is not a complicated amendment. It's about one
paragraph long. They had the unsigned version for some
time. It didn't take Novell months to figure out what it
meant. It took Novell months to try to turn it around to
figure out a way to suggest that it doesn't mean anything so
they could go back to a campaign of slander, which was
launched later in 2003. And this is then done, because of
the June 6th, 2003 press release, with knowledge of falsity.
They were cautious at first with the internal
letters on June 26th and August 4th. And then later, for
reasons that you can conclude were coincidental or
otherwise, they went public again on December 22nd. And, in
fact, the claim that they made in March, we still own UNIX,
an outrageous claim, not even limited to the copyrights, but
we still own UNIX, was echoed by Mr. Messman on that witness
stand. We still own UNIX, when the company had been sold,
the business had been sold eight years earlier. So these
statements were false, knowingly false, and we submit to you
were made with constitutional malice.
Indeed, the falsity of the claim, which includes
the copyrights that they registered with the United States
Copyright Office saying they owned them and which includes
Mr. Stone's statement on March 14th sarcastically saying,
sorry, Darl, we still own UNIX, all of these are knowingly
2654
false because we know what they thought. We know on June
6th they recognized the ownership of these copyrights were
with SCO.
But the falsity of this is proven by another piece
of evidence that I think is very important. There are
Novell witnesses, people who work for Novell, who have
stated that it is so absurd to claim to own the copyrights
while having sold the business that it would be unethical to
take that position.
Ed Chatlos in his testimony when he was asked did
you ever get the lawyers' authority to hold back the
copyrights, absolutely not, no. And he said, the deal I
negotiated with SCO included the copyrights, so we modeled
it to include the copyrights. From a personal standpoint,
it would have been unethical to exclude them.
Burt Levine, an in-house counsel involved in
drafting of the operative agreements, he said, well, I
believe that being an ethical company, you couldn't resort
to withholding something that the transferee in this case
would be entitled to. If it is that clear that it causes
internal Novell lawyers and negotiators to say it would be
unethical to suggest that you're holding back the copyrights
while selling the business, then these types of allegations
made by Novell have to be concluded to be knowingly false.
Now if you find a false statement and you find
2655
constitutional malice, we submit that you will have found,
then, that Novell is liable for slander of title and you
should then consider whether we have proven damages. And
there are two types of damages that you need to be concerned
with, special damages and punitive damages.
Special damages are the damages that are intended
to compensate SCO. Here, the damage done to SCO is damage
to SCO's SCOsource program. It was started by Darl McBride
after he was told by Linux supporters within his own company
that certain UNIX libraries were being used to run Linux and
that some companies had call him and wanted to see if they
could get a license to do that. As time progressed, SCO
found more of its intellectual property in Linux.
They decided, rather than trying to stop people
from using Linux, they would want to obtain a license, a fee
in the marketplace, that they had the right to do, for their
intellectual property. Now how much UNIX is in Linux will
be decided in the courts. That is not an issue that you
will need to decide in this case.
A lot of companies, as Professor Pisano told you,
have expressed that they wanted protection against
infringement, at least the risk of infringement. You'll
recall Mr. Tibbitts told you that when they were selling the
SCOsource program, that they had a code room that people
could come to and see the code. And after looking at that,
2656
a number of those individuals and companies decided to take
a license.
We're not talking about unsophisticated companies
here. You had licenses entered into with Microsoft and Sun
and Computer Associates, actually demanded a license as part
of another deal. If there was nothing to those claims, they
wouldn't be out there doing that.
After looking at that proof -- and some of that
SCO presented to customers. An example of what SCO
presented to customers was shown early in the trial. These
were comments from industry analysts who had visited the
code room. One of them, Information Week, stated that, my
impression is that SCO's claim is credible, says Laura
DiDio, a Yankee Group analyst who was shown the evidence by
SCO Group earlier this week. It appears to be the same
code. According to EE Times in June 2003, if everything SCO
showed me today is true, then the Linux community should be
very concerned, said Bill Claybrook, research director for
Linux and open-source software at Aberdeen Group in Boston.
Computer Weekly, from what I've seen, I think people should
be taking the SCO accusations seriously.
Now there is also evidence that Mr. Tibbitts
testified to that he obtained from IBM's Web site which
indicated that Linux was derived from UNIX, which is no
surprise and just sort of the start of the issue, and he
2657
sent letters in December of 2003 with examples of code. And
some of that code you've heard, the Malloc code from Silicon
Graphics, essentially admitted had been infringed.
So the important point here is this isn't an issue
that's going to be decided in this trial. The marketplace
can decide that issue of whether or not individual companies
want to obtain a license from SCO or whether they want to
wait further and see how that issue is resolved, or simply
decide never to do that. You heard Mr. Pisano, based on the
surveys, indicate what percentage of people fell into which
buckets. That's the way a licensing program works.
Now you've also seen, however, that members of the
open source community have viciously attacked SCO for trying
to protect its intellectual property. I would submit to you
that Novell has brought some of those attacks into this very
court proceeding here. It remains that SCO has valuable
business relationships with business partners, big companies
like McDonald's, NASDAQ. It entered into, as I mentioned,
agreements in 2003 with Microsoft, Sun, Computer Associates.
And so while there are elements in the community that really
hated SCO for saying that Linux, which they thought was
free, incorporates intellectual property of UNIX, that would
not have prevented the SCOsource program from making sales.
Indeed, I would suggest to you, ladies and gentlemen, if
there wasn't any real competitive threat to Novell's Linux
2658
activities, this campaign of slander would never have been
embarked upon.
There is a difference -- you heard Professor
Pisano testify about this, there is an important difference
between a slander that goes to ownership and simply
expressing views that there is or is not infringement or how
much infringement exists. One is opinion. The other is
fact. If someone says that I sold you this business and you
didn't get the copyrights, that is just as much a slander on
title if the person who sold you your house says you didn't
get title to the house when you bought it. That, when it
comes from such a credible source, the former owner of the
business, is deadly. That type of slander killed the
SCOsource business.
Now Mr. Hatch will talk to you in a few minutes
about the customers that were lost and the amount of damages
that were inflicted, but I would like to say a few words
first about punitive damages, because there's another type
of malice called personal malice that's important for
punitive damages, and that is the intent to injure. The
intent here to injure SCO. Unfortunately, there is no
shortage of evidence of that type of intent. Unfortunate
for SCO in the sense this is what they were dealing with
back in 2003.
The defendants, we submit, issued two of these
2659
slanders on the same day as SCO's earnings reports. Now
Novell and its witnesses suggest to you that this is a
coincidence. They are entitled to argue that. And you're
entitled to reject that and to say it is not a coincidence
when there are only four days during the entire year that
SCO announces its earnings and Novell makes two public
announcements of its assertion that it owns the UNIX and
UnixWare copyrights, and both of those public announcements
occur on two of the four days when SCO was announcing its
earnings. I would submit to you that that is not
coincidence, that that is an intent to injure. That is
malice.
That is before you even get to Maureen O'Gara's
testimony that Chris Stone admitted to her that the press
release was timed for May 28th to damage SCO's stock price.
Sure, the PR people at SCO, they had one journalist who was
willing to take on some of this community hate, said why
don't you take a jab at PJ and things like that, but there
is no reason to believe she invented this. It's
consistent -- it's consistent with what actually happened on
May 28th the same day as the earnings release, they issued
this slander, and they did it to, quote, confound SCO's
stock positions. And Chris Stone did it while he was
chortling, I think was the word. That's malice, ladies and
gentlemen.
2660
There's also Jack Messman's admission that they
tried to publicize this press release in May as widely as
possible. That exhibited intent to harm SCO. It's not
enough to say, well, we wanted to make money, we wanted to
get our story out there. That's not a defense for spreading
a falsehood as widely as possible. There is evidence that
these acts were made to injure SCO because of SCO's taking
on of IBM.
Novell's attempted waivers of SCO's legal rights,
while they are an issue that the Court will deal with in
terms of whether those were proper, you can consider the
fact that they made those waivers as elements of intent,
that those were made in the same year, at the same time that
a $50 million investment in Novell's Linux purchase was made
by IBM. You can consider the attempt by Mr. Stone and
Mr. LaSala to cover up the fact that these were done at
IBM's request by not telling the truth about it the first
time around. And that is also evidence of malice and effort
to hurt SCO in order to help a third party.
So thank you for your attention, ladies and
gentlemen. I'll have the opportunity to address you for a
little bit at the end of the closing arguments, but at this
time I would like to turn the podium over to Mr. Hatch.
MR. HATCH: As Mr. Singer just talked about, the
SCOsource licensing program began to have sales. There was
2661
testimony of sales to Sun, Microsoft and other companies.
These were real sales, tens of millions of dollars.
SCOsource was off to a strong start. Now I would like to
talk about what happened next.
Now you heard Mr. McBride testify about the
Hewlett Packard deal. You were shown the contract, which is
here on your screen, and this deal was near completion. Now
you were shown a red line here, markings, because Mr. Byers
of Hewlett Packard, he personally had typed in these
changes, and this was his offer on behalf of Hewlett Packard
to contract with SCO for $30 million. You will notice here
it's six separate payments of $5 million each.
Now Novell showed you some e-mails that said that
Hewlett Packard was weighing the pros and cons of doing this
deal. They were looking at the risk factors that were out
in the community. But the bottom line, even with all those
risks, they were still considering this deal, and they made
a $30 million offer. The negotiations continued, and then
all of a sudden that changed.
Mr. McBride told you that Novell had inserted
itself into this deal. Why? They told HP that they were
going to reassert copyrights ownership, and with that this
$30 million contract was gone.
Mr. McBride testified, we went deep into the
discussions here, and ultimately Mr. Byers came back and
2662
informed me that it was difficult for Hewlett Packard to
complete the transaction as long as Novell was out there
saying they still owned the UNIX copyrights.
Likewise, SCO had begun negotiations with Google.
You heard that testimony. Google was the largest Linux user
in the world with over 500,000 servers. That would have
been a significant contract as well. Google pulled out of
that deal referencing that Novell's slander was a
substantial factor in not doing that deal.
Mr. McBride also testified that he personally met
with Michael Dell. Michael Dell is the CEO of Dell
Computers, another large company. After being excited about
that partnership, the deal died shortly after Novell's
December 22nd, 2003 reassertion of its ownership rights in
these copyrights. Now that was the primary reason that that
deal died.
You also heard testimony from three of Novell's --
excuse me, SCO's salesforce, Mr. Later Gasparro, Mr. Phil
Langer, and Gregory Pettit. You may remember that was the
day that Mr. Normand got to play two of those individuals
for us. Mr. Gasparro, you will recall, he had testified
that he had actually made earlier SCOsource sales. He
actually had concrete sales of product. He talked about EBI
Web hosting and others. He testified that he had somewhere
between 50 and $60 million of licensing opportunities in the
2663
first six months of the program, Ford Motor, Google, Cisco.
But after Novell's claims of ownership, the salespeople
started getting negative feedback, as he described it, and
the results of the SCOsource program after Novell's claim of
ownership was dramatically affected in a negative way.
Mr. Gasparro told you that he visited with a large
number of corporate Linux users. He said that in calls,
letters and e-mails, he would be told that Novell's claim of
ownership was a major factor why customers didn't sign deals
with SCO.
Mr. Phil Langer, he is another SCO salesman, he
testified that he had over $3 million in the sales pipeline.
After the Novell slander, there was a strong negative impact
on sales and sales dried up. He specifically talked about
one deal with Regal Entertainment who wanted to do a deal
between 300 and $350,000, but then told SCO, we can't go
forward, we can't buy your intellectual property because
there is not clear title on it like we do when we buy movies
that we have clear copyright title to.
The third salesman was a man named Gregory Pettit.
He was a regional salesman. He said he had the exact same
problems as all the other salesmen. You may recall that he
was -- he said he was negotiating deals with other major
companies like Raytheon and Cisco. He specifically
testified as to Merrill Lynch, but that deal couldn't be
2664
done while SCO was being faced with Novell's claim of
ownership.
Now the judge has instructed you that evidence --
that specific customers didn't do deals with SCO is one of
two ways that SCO can prove special damages in this case.
Consistent with the Judge's instructions, we have shown
through these three salesmen, Mr. McBride and others, that
Novell's conduct was a substantial factor in these
customers' decisions not to go forward with the deals.
Now Novell's conduct doesn't have to be the only
reason, as the Judge has talked about. There can be other
reasons. There are always lots of reasons a customer
doesn't do things. Novell's conduct must simply be a
substantial factor for the customer's decision not to do a
deal with SCO. That was certainly true here.
Now the second way the Judge instructed you that
you could find damages is by proving -- using the type of
analysis that Dr. Pisano and Dr. Botosan used. I'm going to
discuss their calculations in just a minute. But just for a
moment, I want to talk to you about the things you heard
from Mr. Musika. He recited pretty much every nasty
remark -- Mr. Singer talked about that, almost every nasty
remark that people were out making about SCO in an effort to
say that sales were lost for some reason other than Novell.
Now we've acknowledged from day one that people
2665
dislike SCO. It was a small Utah company that was standing
up for itself with property rights. It was trying to
protect its business from larger, more powerful competitors.
That's it's right. But here's what you need to remember
about the bad things other people claimed about SCO.
Dr. Pisano and Dr. Botosan both took all of those
factors into consideration. They never said, ever, that
100 percent of the people who were potential customers would
buy SCOsource products. That would be unreasonable. That
wouldn't be conservative. You heard them testify that the
numbers were somewhat less than that, taking all of these
factors into consideration.
Now what Mr. Musika didn't want to admit, because
it didn't clearly fit his zero damages model, is that
despite some of these factors, some of the largest companies
in technology, Sun, Microsystems, Microsoft and others, had
actually done deals knowing all these things that Mr. Musika
talked about. Of course, these companies understood the
risks, that they took a license. That speaks volumes about
what other companies would have done if Novell hadn't
slandered the title.
Now that's exactly what Dr. Pisano found. You
remember his chart. He's taking all things into
consideration. He said there would be between 19 and
45 percent of the total potential market of likely buyers of
2666
SCOsource products. That was him taking into account, as
you can see here, not just one independent study, but three
of them. You will notice that all of them came in this 19
to 45 percent range.
Now you heard Dr. Pisano's testimony. He was
here. He listed in his discussion in a pretty dramatic
fashion that he had taken into account every one of the risk
factors that Mr. Musika claimed, and he showed clearly
through hard scientific data that this 19 to 45 percent of
potential customers were there. His number wasn't zero.
Now as Mr. Singer pointed out, you will be given
this jury verdict form. In question number three you will
be asked what is the amount of special damages, if any, that
you award SCO as a result of Novell's slander of SCO's title
to the UNIX and UnixWare copyrights. You'll be asked to put
a number on that line. So what is the best and proper
measure of those damages?
Dr. Botosan and Dr. Pisano came here to help you
with that, to help distill some complex business economic
concepts into real numbers. Now Dr. Pisano -- excuse me,
Dr. Botosan did her calculations in front of you. I told
you at the beginning I would have her come here and show you
exactly how she made her calculations. She did that for
you. She calculated two streams of revenue, vendor
licenses -- and you'll recall, those were the larger
2667
licenses that even independent analysts said there were
probably a sale of at least 15 of those in the time period
we're talking about, at $10 million each. That would have
been $150 million, just that. But you recall that
Dr. Botosan said, I want to be conservative and I'm going
to -- consistent with the internal forecasts, I'm going to
estimate somewhat less than that. And you'll recall that
her number was just a little bit more than half of what the
independent analysts are saying.
For right to use licenses, she used several
internal, independent forecasts to reach her conclusions.
And then she showed you that she double-checked her work
with Dr. Pisano's numbers, remember, using one of the
independent forecasts, and then she went back and she used
Dr. Pisano's numbers of potential sales to double-check her
work. She did the calculations in front of you, and her
number was not zero, but her numbers were consistent when
she double-checked it.
Now Dr. Botosan's estimates were conservative.
Growth, remember she chose a flat growth number. She used a
number of licenses that was much lower than even the
independent analyst was going to use. You'll recall that on
price, she could have used higher prices. We've heard
testimony that there were sales as high as $1399 for some of
these, $695. Deutsche Bank said going forward prices would
2668
come down, they would be selling somewhere between 100 and
$300. They said $200 per unit would be the most likely
price. Dr. Botosan said I'm going to be very conservative.
I'm not here to give some giant number. She picked the
lower of those numbers.
So to the extent she cherry-picked, she
cherry-picked conservative. That's why she said I'm
building conservatism on top of conservatism. I'm starting
with a low base and I'm not letting it grow. So there are
two levels of conservatism buried in those numbers, and her
numbers reflect that.
Well, when Novell's turn came to talk about
damages, Mr. Musika did not do any calculations for you.
Even though his task was the same as Dr. Botosan, to show if
Novell had slandered what would the damages be to SCO, he
just highlighted the risk factors that Dr. Pisano had
already told you that he had taken fully into account.
Now you heard Musika admit that Dr. Botosan used
the correct "but for" analysis. There was a lot of issue
about that. But when he finally came to her, he admitted
not only that it was correct, but he personally had used it
in other cases, used the "but for" analysis. But then in
this case he didn't use it. He didn't make a single
calculation. He refused to admit that even $1 was lost.
You will have to decide whether that was really likely,
2669
whether that's reasonable or whether that's fair.
He rejected Dr. Pisano's analysis of the market
completely and found zero lost licenses. Is that
reasonable? Is that fair?
Now Dr. Botosan put her numbers up, and this is
the same as on the board. She had a lower range, as you'll
recall, just short of $114 million, and an upper range of
$215 million.
If you will go to the next slide.
We ask you to award our client somewhere in that
range, that would be fair, and that would be the number you
would put here in number three on the verdict form.
Now you are going to have one more task. Mr.
Singer, you heard him talk about malice, you heard him talk
about the bad acts of Novell, and consistent with what the
judge has instructed you, you are allowed to award punitive
damages.
Now punitive damages are an additional and special
type of damages that are intended to keep a party from doing
bad acts again, to teach them a lesson. So let Novell, in
this instance, know that it can't conduct business this way
in the future.
You are going to see -- and these are pages from
Novell's most recent filing with the United States
government, their 10-K, and this exhibit has been admitted
2670
during trial, you will have access to that, you can see
Novell has a worth of about a billion dollars. And you are
allowed to consider that when you make a decision to make an
appropriate award.
Mr. Singer has discussed in detail the evidence
that Novell recklessly and knowingly asserted its ownership
on that May 28th day, the time that SCO was going to issue
its earnings statement, and they announced it in that way to
maximize the damages to SCO.
Now Novell later knew for a certainty, as Mr.
Singer pointed out, that it didn't own the copyrights, that
SCO did, and yet it reasserted to the world through a press
release, with malice, its false claim of ownership on
December 22nd, 2003. That was the second time. It was the
second time designed to maximize the hurt to SCO, on the day
of their annual earnings report.
You are able to send a message through an award of
punitive damages, and the message and the amount are up to
you.
Could you go back to the verdict form.
Number four is where you do that, it says, what is
the amount of punitive damages, if any, that you award SCO
as a result of Novell's slander of SCO's title to the UNIX
and UnixWare copyrights. We leave you to take into account
Novell's worth. We leave that number to you.
2671
Thank you very much.
THE COURT: Ladies and gentlemen, we'll now take
our recess and we'll return and have Mr. Brennan.
Ms. Malley.
(Jury excused)
THE COURT: Mr. Singer, you'll have 12 minutes in
your rebuttal.
MR. SINGER: Thank you.
THE COURT: We'll take 15 minutes.
(Recess)
2672
(Recess)
(WHEREUPON, a sidebar conference was begun.)
MR. BRENNAN: Your Honor, just two items. We
observed during the opening closing argument that there were
a number of sounds coming from the gallery, and we could
hear a specific individual laughing and making certain
comments. I wonder if it is appropriate to perhaps
encourage the gallery not --
THE COURT: Absolutely. I did not hear that or I
probably would have stopped it. Thank you for bringing that
up.
MR. BRENNAN: The second is, and we probably
should have brought this up before, but particularly with
the fact that we're near the end and we will have the
alternate excused, what are the rules of engagement that
ought to be observed by the parties in terms of contact with
jurors?
THE COURT: I always tell the jury that they are
permitted to discuss the case with counsel, but they are not
required to. I leave it up to them.
MR. BRENNAN: We just wanted to make sure that we
were both operating on the same --
THE COURT: That is what I will tell them.
MR. BRENNAN: That is agreeable.
THE COURT: Thank you.
2673
(WHEREUPON, the sidebar was concluded.)
THE COURT: Ladies and gentlemen, and this is
addressed to those of you in the courtroom, not counsel, it
was just brought to my attention that during the closing
argument thus far that there has been some response, audible
and otherwise, to the arguments that have been made. I need
to tell you that that is very inappropriate. If I had heard
that I probably would have stopped the argument and I would
have instructed the court security officer to remove you
from the courtroom.
So just by way of a caution, do not react in any
way to especially anything that might be observed or heard
by the jury. That is totally inappropriate. Okay.
Ms. Malley, if you would please bring the jury in.
(WHEREUPON, the jury enters the proceedings.)
THE COURT: Go ahead, Mr. Brennan.
MR. BRENNAN: Thank you, Your Honor.
Ladies and gentlemen, I also wish to thank you for
your attention during this three-week period. No doubt
there has been sacrifice and difficulty in arranging your
schedules to be here. On behalf of Novell we appreciate it,
and we comment that this system of justice that we have in
this great land is entirely dependent upon people like you
who are willing to make the sacrifice, to endorse an
inconvenience, to hear a dispute and hear it fully and then
2674
to make a decision.
It is true at the outset that I asked you to wait
for the rest of the story, and I do hope to sum up today
what the rest of that story is.
I should also indicate, that as the judge has
shared with you, because the burden of proof falls squarely
and heavily on the plaintiffs, SCO in this case, I will not
have a chance to address you a second time, and so I'll have
to simply ask you if there is any further argument that is
made by SCO's counsel, at least to anticipate what you think
Novell might say in response, since I won't have that
opportunity.
I am the first and I may be the last lawyer in my
family. We'll see how that turns out. But when I grew up
there was often a statement that was used, and sometimes I
used it myself, something like don't make a federal case out
of it. The suggestion was was that if there was a minor or
trivial disturbance, that that paled in comparison to a
federal case.
Well, here we are in federal court, this is a
federal case, and unlike some of those minor annoyances or
disturbances that I saw as a child, this really is a big
deal. It is a big deal for a couple of reasons. I would
like to suggest a few of those to you.
First of all, what you have heard during the
2675
course of this trial is that was something known as the
SCOsource license program. What that program was intended
to do was to reach out to users of the Linux operating
system and extract from them a payment. And that SCOsource
program has threatened many, many, many Linux users across
the world, and because of that a huge uproar has resulted.
It has been highly publicized. There have been
many comments made about it. This case has been closely
followed. This is of great significance to people beyond
Novell. The threat to the open source community is
presented by this case. And for that reason Novell, as I
will share with you, has felt compelled to respond in the
public marketplace with its view and opinion and position
regarding this case.
Now, secondly, this case is frankly a gateway to
other litigation. You heard and saw in the presentation of
some of the evidence that there are other cases out there
awaiting to be heard. If SCO is successful in this case,
and there is some determination of ownership of copyrights,
contrary to what we believe the evidence is, then there will
be other suits filed. At least of threat of suit hangs over
all Linux users, particularly in the marketplace. So this
is the entree to many, many other cases if there is an
adverse determination made here in this one.
The third point is this case presents a very
2676
important fundamental question regarding the meaning and
sanctity and reliability of contracts. When I mentioned it
the first day I held up for you the contract at issue in
this case, carefully drafted, meticulously written, lawyers
on both sides representing their clients to the best of
their ability. But if we're going to disregard the words of
the contract, and we're going to look to some other source
other than that which the parties wrote, and, in particular,
if we're going to try to devine what people might have
thought or hoped or wished in hindsight that they had put in
the agreement but didn't, to gain an advantage now 15 years
later, then the whole reliability of contracts it
threatened.
It does not a take a broad imagination to consider
the chaos that would result if two parties, ably
represented, were to reach an agreement and express their
agreement in writing and then later, much later, have that
written agreement challenged by outside thoughts or
improvications. This case represents the fundamental
question as to whether a party can rely upon the written
contract.
Now, there is also a fourth issue here. This
case, and it is a unique one, and in some ways it is a
thrill to be a lawyer in this case, because although this
case has come to you in a commercial transaction it involves
2677
a fundamental constitutional right, and that is the right of
free speech guaranteed to all citizens, including
corporations, to speak freely their position on a matter of
public interest.
The First Amendment guarantees the right that
individuals and businesses and, of course, as the
instruction suggests, that businesses are comprised of
individuals, and a corporation is a collection of many who
work for it, and its shareholders, and so these really are
individuals, and whether or not an individual, whether
through a corporation or acting on his or her own, has the
freedom in the marketplace when there is a matter of public
controversy to stand and state their position without fear
of reprisal or monumental damage claims because of speaking
what one believes. This case presents that question.
Now, with that in mind, and in the limited time
that I have, I am going to try to walk through and distill
three weeks of evidence as briskly as I can and highlight
some of the important points that I think will help and
guide and assist you in making these very important weighty
decisions. I recognize I cannot compress three weeks of
evidence into the hour that I have. I'll do my best. I'll
rely upon your ability to recall some of the evidence that
you have heard and witnesses that I am not able to touch
upon.
2678
At the conclusion I too will turn to the verdict
form that you will receive, and suggest to you what I would
recommend on behalf of Novell would be the appropriate
result for you to consider and make as you deliberate.
Now, the first question that is presented is this
fundamental point of whether or not the amended asset
purchase agreement, this contract, transferred the UNIX and
UnixWare copyrights as of the date of the asset purchase
agreement from Novell to SCO. The answer is it did not.
How do we know that? Well, first of all, we do need to look
at the parties' intent. There are two parties to this
contract.
You saw time and time again, and I apologize for
the repetition, but you saw the minutes of the board of
director meeting where Novell, governed by its board of
directors, met and considered the asset purchase agreement
before it was signed, and very clearly presentations were
made to the board, and there is a resolution which states
without equivocation that Novell will retain all of its
patents and copyrights and trademarks. That very language,
and you'll see it in Exhibit Z-3 when you have a chance to
retire to the jury room and look at it, that very language
is what actually appears in the contract.
I hold this book up again, and you'll have a
chance to look at Schedule 1.1-A which sets forth in four
2679
short pages the list of assets that were sold. The contract
speaks very clearly that only the assets listed in that
schedule were the ones being sold. This was not the sale of
an entire business, it was the sale of specified assets, and
that is what the contract tells us.
You'll also have a chance to then turn to Schedule
1.1-B, which is the express list of excluded assets. Over
and again you have heard that all copyrights and trademarks
except for the trademarks UNIX and UnixWare were excluded.
Now, one of the things that was passed by us
quickly in the early presentation, but I trust it didn't get
past you, is that this asset purchase agreement signed on
September 19, 1995 did not go without review. There was
almost three months from the time it was signed until the
time that the deal closed on December 6, 1995 where everyone
involved had a chance to review it. If somebody somehow
thought the wool had been pulled over their eyes, or they
didn't understand or there was a mistake or a
misrepresentation or an omission, both sides had full
opportunity to review it.
In fact, they did. You'll see when you retire to
the jury room and you can look at Exhibit T-5 which is the
amendment number one to the asset purchase agreement. It
covers in a span of some ten or 12 pages modifications made
to the initial asset purchase agreement. Importantly,
2680
Schedule 1.1-A which identified the assets was not modified
to include copyrights, and significantly Schedule 1.1-B,
which expressly excluded copyrights, was not changed either.
There can be no suggestion, no credible suggestion
that somehow the wool was pulled over somebody's eyes. Both
sides had a full chance to review it and both sides had a
chance to make suggested revisions, and there was not even a
suggestion, let alone an agreement, that the excluded
copyrights ought to be modified.
Now, in addition, on December 6, 1995 there was a
document that was entered into that actually transferred the
assets. The asset purchase agreement itself transfers
nothing. Instead, it is a promise that Novell would
transfer assets, but the actual document that accomplishes
that was the bill of sale. The bill of sale that you saw,
Exhibit W-5, references the transfer only of the assets.
The assets are, again, described in the asset purchase
agreement, so to really understand what was sold one would
have to look to the bill of sale and say what does the bill
of sale say? The bill of sale tells us that to understand
what was sold we look to the asset purchase agreement, the
assets, Schedule 1.1-A. So that is straightforward and
clear.
Now, there is also something that was passed by,
and you'll recall that Novell acquired the entire UNIX
2681
business from AT&T, not an asset purchase agreement, but a
full merger, and Novell held those assets for about two
years and then there was a limited transfer of some of the
assets in 1995. Then a couple years after Novell sold some
of the assets to the Santa Cruz Operation, and Santa Cruz
Operation turned around and decided to sell whatever it
acquired from Novell to a company called Caldera, now known
as SCO.
Well, if we were to look at the agreement that
Santa Cruz Operation entered into with Caldera or SCO, we
would see in Exhibit 010 that the seller, Santa Cruz
Operation, could not represent to SCO that it had a chain of
title with respect to all of the intellectual property.
That includes the copyrights. So when Santa Cruz Operation
sold what it had to its buyer, SCO, Santa Cruz Operation
realized it could not make an entire sale.
Now, was this a mystery? Was this something
unknown to SCO? Absolutely not. Let's fast forward to
January 4th, 2003. You may recall this. Mr. McBride, who
was not involved in any way with the asset purchase
agreement or either of the amendments, does join SCO in
2002. One of the first things that he does is he wants to
see whether he can change the business. The business that
SCO had been engaged in up to that date was it was selling
UNIX and UnixWare in particular, and it was even servicing
2682
the Linux world and helping Linux users and customers.
The business was not going well, and so Mr.
McBride said is there something different that we can do?
Is there another business we can pursue contrary to the one
we have been engaged in? The idea came to him, well, maybe
we can try to turn on our customers, our Linux users, and
we'll go after them and try to extract payments. We'll go
after the open source community rather than aid them. So he
employed consultants, and one of them was Mike Anderer, who
advised Mr. McBride in no uncertain terms in January of
2003, that there was far less that had been transferred to
SCO than Mr. McBride would have hoped. In fact, it is an
asset purchase that excludes all patents, copyrights and
just about everything else. We need to be really clear on
what we can license. It may be a lot less than we think.
Well, SCO relies on the wrong documents. Let's
take a quick look at some of the things that SCO has
suggested to you. First of all, what was presented was the
so-called term sheet. First of all, where did that term
sheet come from? It was presented first in court when
Mr. Ty Mattingly came, and you'll recall that he found some
documents in his garage, not previously presented during the
course of the trial, and one of the documents in his garage
was this term sheet. The term sheet wasn't the final
agreement. The term sheet didn't represent what the parties
2683
signed off on. If anything, it was a preliminary sketch of
a possible agreement, but it has been suggested to you that
the term sheet was the final agreement. Not so. The final
agreement was what the parties agreement to and signed.
Well, also suggested to you as evidence that the
parties, contrary to what they said in their agreement
signed, was that there was a press release, a joint press
release. Well, of course, it was not a joint press release,
it was one issued by SCO and it has its logo and Novell is
not even a party to it.
And then it was suggested to you that, well, maybe
what indicates a transfer of the copyrights is the
technology license agreement, which is one of the exhibits
to the asset purchase agreement. This slight of hand was
performed. The suggestion was that, well, maybe what Novell
was doing was it was taking a license back of the assets
that it sold, and that means certainly the copyrights might
have transferred because otherwise why would Novell take
back that which it retained? That was the argument. The
fact of the matter is that when you look at the technology
license agreement, which you'll have a chance to do in the
jury room, the license back provision related to assets that
had been transferred. Clearly Novell and SCO agreed that
when Novell transferred assets, Novell would have a license
back to those assets. But the assets that were transferred
2684
didn't include the copyrights. That is what Schedule 1.1-B
clearly said. So that was a slight of hand. I think you'll
see past that quickly.
Now, in terms of the witnesses that were
presented, there was a board put up in front of you about
various witnesses, but if one looks carefully and listens
carefully one will quickly devine as well that the witnesses
that were presented to you either were not involved in the
final negotiations, had not even read the asset purchase
agreement, or were misinformed.
Well, let's look at who the actual witnesses were
who were involved in the asset purchase agreement. You
heard no mention of Jim Tolonen. He came here in court. He
supervised the preparation of the asset purchase agreement
as the chief financial officer of Novell. He testified that
Novell had purposefully excluded the copyrights from the
transfer. It wasn't a mistake. It wasn't a slight of hand.
It wasn't an omission. He was present at the two board
meetings held after the asset purchase agreement was entered
into and at those board meetings reported on it. He is
actually the one who signed amendment number two to the
agreement, and he has no financial interest in the outcome
of this case. He left Novell in 2000.
Well, should we rely upon Mr. Tolonen? Mr.
Frankenberg said he did. In his testimony he indicated that
2685
he relied upon Mr. Tolonen's recommendation and advice. Mr.
Frankenberg even said that he would expect that Mr. Tolonen
would be in a position to accurately state what the position
of Novell was relative to the asset purchase agreement.
Well, you heard from David Bradford, the general
counsel of Novell. He came to court and he testified, and
he is no longer with Novell, he has no financial interest in
this case, but he told you that he had supervised the
drafting of the asset purchase agreement, that he gave
specific instruction to Novell's outside counsel to preserve
the copyrights, and that he prepared the board meeting
minutes and was at the board meeting when that very
presentation was made, and that the board minutes were
accurate. Mr. Frankenberg, of course, confirmed all of that
as well. Mr. Bradford was deeply involved and he knew what
happened.
You had the benefit of hearing from the lawyer who
actually wrote the asset purchase agreement. He came here
to court and testified extensively. If anyone would have
known the language that was used and whether it was done
perfectly, Mr. Braham would have been the one to do that.
He testified that there was a specific strategy employed by
Novell to protect its interests in this license stream,
these SVRX license streams, and so the asset purchase
agreement was carefully crafted in a particular way to
2686
protect that. Mr. Braham has no financial interest in the
outcome.
Less there be any question as to whether Mr.
Braham actually was involved, you saw the drafts. Now, it
is hard to read the writing, and I feel badly for my own
secretary who has to read some of my writing, but Mr. Braham
wrote from start to finish and commented on the very
specific terms of the asset purchase agreement.
This is important. Mr. Braham made it clear who
his client was, not a single individual at Novell, but the
client was the board of directors. The board of directors
of the company makes the decisions and is the ultimate
governing body. Mr. Braham shared with us that the board is
the one that approved the asset purchase agreement. And
then in terms of others who came that were not directly
involved, you heard him identify the fact that Mr. Thompson
was more involved in looking after the interests of SCO than
Novell, and that others who had been involved certainly in
the process, Ed Chatlos and Ty Mattingly, that they had not
been as deeply involved when the agreement came to the final
negotiations, and whatever views they had were not relevant
to the board's decision.
Mr. Chatlos wasn't even at the board meeting. Mr.
Mattingly was present, but as you have heard and we will
highlight in a moment, does not remember things that were
2687
said. The board minutes speaks as to what really did
happen.
Now, we also had a chance to hear from Allison
Amadia. She is the one who drafted amendment number two.
She is the one who commented on the initial language
suggested by SCO's attorney. She is the one who knew best
what the intent of Novell is along with Mr. Tolonen, and she
has no financial interest in the outcome of the case.
Now, let's compare that to the witnesses that were
presented to you on SCO's behalf. Duff Thompson was made
reference to. You'll recall that Mr. Thompson had not been
with Novell for very long. He had been previously at Word
Perfect and when he came over there wasn't a place for him
as general counsel at the company, because Mr. Bradford was
the general counsel while this deal was being negotiated.
He had already, as he testified, decided to leave the
company. You heard the testimony that he had checked out.
In fact, he was already planning to go to SCO and to be on
its board of directors. You heard the testimony that Mr.
Thompson was on SCO's litigation committee which approved
the filing of this lawsuit against Novell. Mr. Thompson
owns at least 110,000 shares of SCO stock.
We did get some good entertainment out of
Mr. Michaels. The important thing is what did he actually
say? Here is a portion of what Mr. Michaels actually
2688
testified to. He had no specific memory as to any specific
agreement. He didn't even know what amendment number two
was. He had not read the asset purchase agreement when it
was prepared. He had never read it. And he had no comment
on the asset purchase agreement. What we're going to do is
look to the parties' agreement here, and we need to look to
witnesses who actually read it and knew it and understood it
and negotiated it. Whatever wishes or hopes or dreams
Mr. Michaels may have had, he was not involved in the
preparation of the asset purchase agreement.
We did hear from Mr. Mattingly formerly with
Novell. You heard that he owns SCO stock. You heard that
he was not involved by his own testimony in the details or
the crafting of the asset purchase agreement. You heard
that he had no involvement in the preparation of either
amendment number one or amendment number two. You heard
that he has no memory of what even happened at the September
18th, 1995 board meeting.
Well, let's look at some of the other witnesses.
Steve Sabbath did not appear in court but you did have a
chance to hear a portion of his testimony through videotape
deposition. Now, it is very critical that we look at what
Mr. Sabbath actually said. I would like to share with you a
couple of snippets. As you recall his testimony, Mr.
Sabbath had signed a declaration under penalty of perjury
2689
regarding what his views were. He had signed that in
connection with the previously filed litigation involving
I.B.M.
When asked about this he said, question, do you
recall executing this declaration? Answer, I do, yes.
Question, referring to that sworn declaration, you say in
paragraph 11 of the declaration, quote, under the asset
purchase agreement Novell retains significant UNIX related
assets following the sale. For example, Schedule 1.1-B of
the asset purchase agreement provided that much of the UNIX
System V intellectual property would not be transferred.
That was his sworn statement. It didn't end with that.
In that same declaration that was referred to in
his videotaped testimony the following quote was elicited
from his sworn statement. Quote, as described above in
relation to the related agreements and amendment number two,
Novell retained certain rights under the UNIX System V
licensing agreements as well as certain UNIX System V
intellectual property. This is the very lawyer at SCO who
prepared the initial draft of amendment number two and
signed it. So when he was first asked to make a statement
under penalty of perjury, he confirmed, just as Novell has
presented it to you in this courtroom, that Novell retained
its intellectual property rights relative to UNIX.
Let's go back to Mr. Frankenberg. We were told by
2690
SCO's counsel that in their view he is the most important
witness in the case. Well, if they believe that let's look
at bit at what Mr. Frankenberg said. You'll recall both the
first day he appeared and even here yesterday that I had the
chance repeatedly to ask him about what the board had done
and what it had approved. I asked him straight on whether
the language in the asset purchase agreement signed by the
parties, signed by him, was consistent with what the board
of directors had approved. He said yes. And then there was
some suggestion maybe that, bizarrely, even somehow that the
board of directors of Novell was acting beyond its
authority. To make sure that that was not the claim, I
asked him and he said, no, of course not, they were not
acting beyond their authority.
This is the testimony that you heard just
yesterday. I apologize for the length of the question.
Here is what he said. I asked him in this courtroom 24
hours ago this. 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 express 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 or thought you heard something different than the
2691
express provisions? Is that essentially what you're telling
us? Yes, it is.
Here is the problem. Imagine the difficulty any
one of us would face if we were to make some sort of
purchase or enter into some transaction, and we wrote it
down and both parties signed it, and we thought we could
rely on it, and then later someone were to suggest, well, I
know that is what it says, and I heard the words telling me
that that is what was agreed to, but I had something else in
mind, and now I want to step away from it and not honor it.
That is what is going on. That is the mischief in this
case, from the most important witness, according to the
plaintiff.
Now, Mr. Chatlos, and we don't want to place this
out of proportion, but it must be known, as was elicited in
testimony, that Mr. Chatlos's wife does work for SCO. He
and his wife will make money if they win this case.
Importantly, when we look to what was actually agreed to,
and we look to the intent of Novell, he was not present at
the board of directors meeting. He was not involved at that
level. So his view or belief or suggestion has to be
wondered a bit about.
We also did hear from Kim Madsen, who was an
assistant to Mr. Sabbath at SCO. She had no specific memory
or intent of the negotiation of amendment number two. She
2692
did not remember what was felt or believed or thought by
that, and she testified that she had no specific
recollection of discussing with Mr. Sabbath what he might
have thought about amendment number two.
Now, there are others who came to court and
testified. We heard from SCO's former chief executive
officer, the one who we were told was in essence the sponsor
of this SCOsource license program, what his interest is, and
he told you how many millions of dollars he would make if
SCO were to prevail. He acknowledged that he had a
financial interest in the outcome of this case. Unlike
other witnesses, it is not ending with that.
Mr. McBride, by his own admission, had no
involvement in the preparation of the asset purchase
agreement or any of the two amendments to it. He simply was
not a party to it. He can't be looked to to understand what
the intent of the parties was at any time.
Now, we also had a chance to hear from Mr.
Tibbitts, who is the general counsel of SCO. He too has a
financial interest in the outcome of this litigation. He
too stands to gain if SCO prevails, but he too, like Mr.
McBride, having joined SCO not until 2003, had no
involvement whatsoever in the preparation of this agreement.
So, again, who we heard from was a parade of
witnesses who either weren't there, far removed from the
2693
activities, not directly involved, not present at the board
of directors meeting, or have a personal financial interest
in the outcome of the case.
Now, you may ask the question, why would Novell
have decided to exclude the transfer of copyrights when it
entered into this agreement? Even posing the question
sounds one sided. Keep in mind there were two parties to
this transaction. The question might as easily be asked why
did SCO agree not to transfer the copyrights? Because they
did agree to that. Well, I think you'll find and you'll
recall that there are significant, valid business reasons.
Let's first turn to Mike DeFazio. He was not on
the list of witnesses that SCO's attorneys put up, but he
was a critically important witness. You'll recall that he
appeared by videotape deposition as well. Mr. DeFazio, as
he testified, was the general manager of the UNIX business
unit at Novell at the time that this transfer took place.
He previously had worked for AT&T and he then came to Novell
with that acquisition and he was asked, was it your
understanding that the A.P.A. at the time was intended to
transfer the copyrights for UNIX to Santa Cruz? His answer
was no. The A.P.A. as it was written retained it and it was
my understanding that the retention was the way that the
team crafted the words to implement the goal of
bulletproofing this financial asset stream, to protect it.
2694
Now, that is exactly what Mr. Braham told you.
What was the rationale for excluding the copyrights? He
testified that it was to protect Novell's interests, it was
a concern that SCO might move into bankruptcy, and if it did
there would be real entanglement and difficulty for Novell
to protect its interests in those SVRX licenses, and there
was also concerns about Microsoft.
One of the other things that was passed by is this
important fact. The suggestion has somehow been made that
Novell must have sold the entire business. Well, that is
contrary to what the words say. It is also contrary to the
practical economic realities. Novell paid over $300 million
to acquire the business and what it got in return was about
$50 million in stock. It retained what it already held, and
that was rights to license fees, and then the other portion
of possible consideration was if SCO actually succeeded in
what it bought, and that was the right to develop the
UnixWare, and if SCO had succeeded and it developed this
merged product, as you'll see reference to in the asset
purchase agreement, and made a profit, then Novell would
have at a certain level been able to participate in that.
SCO did not succeed and Novell did not receive any of those
funds.
Well, back to Mr. Frankenberg, apparently the
most important witness in the case. He was asked, despite
2695
his testimony, whether it was possible that in fact the
asset purchase agreement purposefully had excluded the
copyrights and he finally was able to acknowledge, yes, that
is a possibility. We asked him several times about the
asset purchase agreement exclusion and whether that is what
the board had agreed to. He acknowledged, yes, that is what
the board had agreed to.
Now, there were some people that you did not hear
from in this trial. I wonder if you were curious about
them. You heard that Novell's in-house counsel, David
Bradford, working with Jim Tolonen, the chief financial
officer, worked with outside counsel of Novell to prepare
this asset purchase agreement. Santa Cruz Operation was not
without its representatives. In fact, they hired a very
talented set of lawyers from a very large law firm, a
prominent law firm at the time, the Brobeck Phleger firm.
You heard about Ed Leonard, this very experienced senior
partner, Jeff Higgins and Scott Lester who worked with them,
and none of them appeared in this case. None of them
appeared by deposition testimony. Those are empty chairs.
That must tell you something about it if SCO was
not able or willing to present any witnesses to suggest
anything contrary to Novell's presentation. There was a
complete failure or lack of evidence by SCO with respect to
the actual negotiations on the asset purchase agreement.
2696
They have the burden of proof. They should have been
required to present witnesses. They should have come
forward with those who are on the other side of the table if
they actually were going to try to substantiate this rumor
or innuendo that there was a mistake or that Novell slid
something passed them. Those very talented lawyers were not
here. Nor did they go and ask the questions so that they
could present it to you.
We do agree that amendment number two is of
critical importance. Let's look at what amendment number
two says and what it does not say. You may recall that the
very first draft of this agreement resulted when Steve
Sabbath, Santa Cruz's in-house counsel, contacted Ms. Amadia
and said words to the effect, according to her testimony,
there has been some clerical error. We need to fix that
now, more than almost a year after the agreement was signed,
and he sent over some language.
Well, what was the language that he proposed?
This compares the language that he proposed with what
actually was agreed to. You'll see in red the language that
Novell struck out and which it rejected, and the language
that was struck out was this very broad terminology about
this amendment number two which pertained to the UNIX and
UnixWare technologies. Mr. Sabbath also suggested and which
SCO has acquired hereunder.
2697
Mr. Sabbath by the words he used wanted to have a
document signed to suggest that in fact there had been a
transfer of copyrights, but that was not the case and the
language we have rejected that. So the final language of
the asset purchase agreement very clearly contradicts the
claim that SCO has been making in this case that there was a
transfer of the UNIX and UnixWare copyrights.
Instead, the language is all copyrights and
trademarks except for the copyrights and trademarks owned by
Novell as of the date of the agreement required for SCO to
exercise its rights with respect to the UNIX and UnixWare
technologies.
Well, what was required? First of all, what was
meant? We turn again to Mr. Tolonen. If we were to compare
the people involved, Mr. Tolonen, the business
representative, the chief financial officer who signed the
asset purchase agreement, and Novell's legal representative,
Ms. Amadia. On the other side of the transaction, Mr.
Sabbath. What testimony did you hear on either side?
Very clearly Mr. Tolonen said we did not intend to
transfer ownership of the copyrights to Santa Cruz. He made
reference to the fact that when the suggestion was made by
Santa Cruz that such a transaction be entered into that it
was rejected. Then he testified that amendment number two
so clearly was not intended to transfer ownership of the
2698
copyrights, that he did not go back to the board of
directors to get approval for it, and he testified that to
change the asset purchase agreement, to undo that which the
parties had agreed to, to actually include the transfer of
copyrights would have been such a material change, a big
deal, that Novell's board of directors would have had to
have been involved and they were not.
Let's go back to Ms. Amadia, the one who wrote the
agreement. In your mind are you positive that Novell did
not intend to transfer the copyrights? I am. How can you
be so sure? Because I negotiated it, I drafted it, and that
was not my intent. I didn't have the authority to do
otherwise.
Well, so we have looked at the two people at
Novell involved, the senior executive, Mr. Tolonen, the
lawyer, Ms. Amadia, and who is on the other side? Back to
Mr. Sabbath. What did he tell you about the intent and
meaning of the second amendment? Question, and to the best
of your recollection who at Santa Cruz would have been
involved in negotiating the language of paragraph A of
amendment number two? I don't know. Question, can you
recall prior to signing amendment number two focusing on
paragraph A to any extent? I don't.
A complete absence of anyone from Santa Cruz or
SCO coming into this courtroom and suggesting what the
2699
intent or meaning was of amendment number two. Once, again,
we have a clear contrast. You heard the evidence from
Novell's representatives, and they testified without
equivocation that there was no intent to transfer the
copyrights, and then we have a complete absence by SCO.
Now, that then prompts this question. Were
copyrights required for SCO to exercise its rights with
respect to the acquisition of UNIX and UnixWare
technologies? Well, we need to get an answer to that
question, and so the first place we ought to look to is SCO
itself. We heard this testimony from Mr. McBride. He was
asked this very question. You may recall this. Question,
didn't you tell them that you could run that part of your
business without ownership of the UNIX copyrights? Answer,
we could run our business without the copyrights just like
H.P., I.B.M., and all of the other licensees of UNIX can run
their businesses as well.
Let me pause right there. I will come back and
finish this.
What is the significance of his open admission in
this courtroom on this point? First of all, you'll recall
that companies like Hewlett-Packard and I.B.M. and others,
Sun Micro Systems, a number of other companies, they have a
license to use the UNIX software. They then would take the
license that they had to UNIX and build on top of it their
2700
own flavor, their own amendments and derivatives and
additions. None of those companies owns the UNIX
copyrights, but are perfectly capable of running their
business by working on their derivatives and marketing and
selling and profiting in some respects handsomely. That was
the business that SCO said it was going to be in when this
asset purchase agreement was entered into.
The SCO business was to take the UNIX operating
system and then to build on to it, to amend it, to create
derivative works, their own flavor, and they were left free
to sell that and to derive royalties and payments for that
additional work. They did not need ownership of the UNIX
copyrights to do that. That is precisely what Mr. McBride
acknowledged was the case.
Here is part two. The business that was involved
in this sale of assets wasn't the business that Mr. McBride
wanted to get into in 2003. He wanted to start a new and
different business, a business that is not the subject of
this agreement. He wanted to turn on his customers, and
instead of helping them with UNIX or with Linux, he wanted
to claim on SCO's behalf that these many customers who have
been using this free open source software now were
infringing UNIX. That is a new and different business. It
is not the business that was the subject of the asset
purchase agreement.
2701
This is why Mr. McBride says the part that we
differ on here is we were unable to run our business for the
licensing side without the copyrights, and the licensing
side was really the future of the company. What he was
talking about was the litigation shop that he wanted to turn
SCO into.
So there will be no question, and you may recall
this, Mr. Acker asked so let me get it straight so the jury
understands. You could operate as a software company
without the UNIX copyrights? You couldn't run your
SCOsource campaign without the UNIX copyrights? Do I have
that correct? Mostly.
Now we need to understand precisely what it is
that SCO is doing. You'll recall that in May of 2003 it
sent out letters to some 1,000 or more companies claiming
that it owned the UNIX copyrights and licenses and it wanted
to extract payments out of these various companies. What
was it supposed to be doing? What was it prohibited from
doing? If we look at the asset purchase agreement, Section
4.16-B as amended, you'll see in the highlighted portion
that SCO shall not and shall have no right to enter into new
SVRX licenses except in the situation specified in small i
of the preceding sentence or as otherwise approved in
writing in advance by seller. What SCO was doing was
directly violating its contractual obligation by turning on
2702
people that it previously was designed to service and help.
Now, the suggestion has been, oh, it would be
ludicrous and impossible and how could a software company
possibly operate without holding the copyrights? And then
you heard in open court from the general counsel, Mr.
Tibbitts, and I asked him this question. You're aware of a
proposed transaction just in the last year whereby SCO would
have sold its business and retained solely the UNIX
copyrights, correct? Correct. So although you have been
told it would be ludicrous, that is precisely what SCO has
given contemplation to. I didn't want there to be any
confusion so I asked him to clear it up. What SCO has
proposed to do is sell the UNIX business, product business,
but retain the UNIX copyrights? Yes, and the rights to
enforce those copyrights. SCO is interested in being a
litigation shop.
Now, others were asked about whether or not
copyrights were required. Mr. Messman told you that in his
view as of 2003 that SCO didn't need the ownership of
copyrights to run its legitimate UNIX and UnixWare
technologies.
Let's make sure that we have a very clear
understand again of what is at issue. These are Legos.
Maybe some of you have seen these in your home and stepped
on them and tripped on them. A Lego represents a building
2703
block. What initially Novell had and owned, and that the
part it had acquired from AT&T, is represented by the small
block on the left, the UNIX and the UnixWare copyrights that
pertain to Versions 1.0 and 2.0. Under the asset purchase
agreement certainly SCO had the right to use that
intellectual property without ownership to develop its
building block on top, the UnixWare copyrights. Whatever
SCO has developed on its own, its derivative work, it owns
the copyrights to. There has never been a challenge to
that. Novell does not dispute that. SCO has every right
and has and did for eight years before this litigation was
commenced operate that business. It was not until Mr.
McBride and SCO came up with its new litigation strategy,
that the suggestion has been made that copyrights were
needed.
Again, you heard the suggestion that somehow Mr.
Braham or Mr. Bradford snuck the copyright exclusion into
the A.P.A., that it was done in a corner, no one saw it, and
no one had time to think about it. That is belied by the
actual evidence. Mr. Levine, he is the one who was an AT&T
lawyer who came over to Novell, and he is the one who
actually then moved on to SCO after the transaction. He is
the one who provided comments on Schedules 1.1-A and B. You
heard and saw what he said. This is his very draft that
supposedly was snuck by or snuck in. You will see that in
2704
his draft of Schedule 1.1-B, the excluded assets, very
clearly all copyrights and trademarks except for the
trademarks UNIX and UnixWare. That wasn't a last second
invention. Mr. Levine, who, again, SCO purports as its
witness, actually wrote that language.
Now, was Mr. Frankenberg duped? Here is the
question. Now, do you recall whether or not you ever
reviewed this excluded asset schedule in connection with the
transaction? I am sure that I did, yes.
Mr. Mattingly, he also came to court. Sir, to
your knowledge did the lawyers and business people at Santa
Cruz have the opportunity to read the included and excluded
asset schedule before they agreed to the A.P.A.? Yes. No
question that those people had a chance to do that.
Here is an interesting document. You may have
seen it from two sources. The first time you saw it was
when Mr. Mattingly came into court and had that folder that
none of us had seen before, said that he had it in his
garage, he had given the documents or showed them to SCO's
lawyers without ever notifying Novell, and I hadn't seem
them before and I asked him for them. This is one of them.
On it is a draft, a handwritten notation of September 16th,
1995, before the transaction closed, and it includes the
exclusion of all copyrights and trademarks. It was not a
secret. People knew about it.
2705
Now, the suggestion has been made that somehow if
we disregard the language of the agreement, if we forget
that it is there, or we want to act and believe contrary to
it, let's see how people behaved and that should inform us
as to whether or not Novell transferred the copyrights. You
were told about three individuals that SCO brought forth,
all SCO employees that suggested that somehow Novell acted
inconsistently with the retention of copyrights. The first
example was that somehow on the copyright notices, the marks
that are put on the physical, tangible medium, that there
was a copyright notice suggesting that SCO held the
copyrights.
In his testimony he indicated that we didn't go
back and change prior versions. We only put the SCO
copyright notice on current or go-forward versions. Of
course, that makes perfect sense. I showed you before that
if you in essence inherent or have rights to use a product
and you build your own on top of it, you can claim copyright
protection and rights for the new work that you have
performed. That doesn't mean the previous work you own
copyright protection to. Mr. Broderick acknowledged that.
Then you heard from Mr. Nagle. The suggestion was
that, well, maybe there is a copyright notice on the box in
which the SCO C.D. is sold. He acknowledged that what is
written on the box does not tell you what the ownership
2706
resolution is, you have to look to the legal agreements to
establish copyright ownership. Fortunately, we have the
legal agreements.
Then we had Mr. Maciaszek. The suggestion was
made that Novell sent these letters out to customers after
it entered into the asset purchase agreement, and somehow
there was some concession by Novell in those letters that it
had transferred ownership of the copyrights. You'll have a
chance to look at examples of those letters. You'll see
that they do not say that Novell transferred ownership of
the copyrights. Mr. Masiaszek was good enough to confirm is
that these letters were simplifications, and that what
customers actually were being told is after the transition
that if they had questions they should contact Santa Cruz.
Why? Because Santa Cruz was acting as the administrative
agent and was being paid five percent to administer the
collection of royalties, that they should do something for
the work they were asked to do and that is one of the items.
Now we get the important question. Did Novell
have a First Amendment right to state its position? This is
probably something you are familiar with. The First
Amendment is incorporated and is the very first and is the
most preeminent of the Bill of Rights. It protects a number
of things. I'll take you back to a civics class. Congress
shall make no law respecting an establishment of religion or
2707
prohibiting the free exercise thereof or abridging the
freedom of speech or of the press or the right of the people
peaceably to assemble and to petition the government for the
redress of grievances. This is the fundamental foundation
of our union and is the fundamental protection for our
individual liberties. Novell does have a constitutionally
protected right to comment on matters of public interest.
The Court has given you an instruction, and some
of this was covered in part, but not in its entirety with
you with Mr. Singer, and it bears some repetition. The
instruction that you received states the following: The
third element requires the party claiming slander of title
to prove by clear and convincing evidence, not a
preponderance, just a little bit more than a tip of the
scales, but clear and convincing evidence, that the
statement disparaging the ownership of the UNIX and UnixWare
copyrights existed as of the date of the asset purchase
agreement was made with constitutional malice.
Let's pause. Why is this very high and heavy
burden placed on SCO? To protect constitutional rights, to
avoid the chilling of speak, to avoid reprisal for those who
choose to speak out on a matter of controversy. Imagine the
difficulty that would occur to any one of us, to any
citizens, individual or corporate, if they could not speak
their mind because of a fear that they would be hailed into
2708
Court and held accountable for monumental damages. That is
why this heavy burden exists. It is a constitutional right.
The instruction continues. That is, the party
claiming slander of title must prove that the statement was
published with knowledge that it was false or reckless
disregard of whether it was true or false. What does that
mean? The instruction is clear. Which means that the party
making the statement acted with a high degree of awareness
of the probable falsity of the statement, or that at the
time the statement was transmitted, the party making the
statement had serious doubts that the statement was true.
So as we examine the statements that are at issue
in this case, that is the standard that has to apply. In
order to hold Novell liable for slander, you must be
convinced to the heightened degree of clear and convincing
evidence that at the time the statement was made it was
known to be false, or that it was made with reckless
disregard that all of these other factors are satisfied.
What is clear and convincing evidence? The Court
has instructed us. Clear and convincing evidence leaves no
substantial doubt in your mind that the constitutional
malice is highly probable. That is a very high standard.
It protects all of us. Spite, ill will, hatred, bad faith,
evil purpose or intent to harm does not alone support a
finding of constitutional malice.
2709
So with that in mind, let's make sure that we
understand what was going on in the marketplace and what
Novell was facing when it made its alleged and accused
statements. First of all, and you'll have a chance to look
at this, Exhibit I-11. Not long prior to the announcement
of the SCOsource licensing program SCO itself was in the
business of licensing Linux and selling Linux to users,
encouraging Linux users to use that open source product. It
reached out and developed a clientele of Linux users. Those
are among the very type of customers that SCO then turned on
when it figured it wanted to make a bit more money.
What was the motivation for that dramatic turn, a
new and different business? Well, Mr. McBride told us that
it was because of the financial condition of the company.
Things were not in good shape. Asked about this same
licensing extraction program, Mr. Thompson was asked about
whether it was a hail mary and he said, well, like every
other company there are good times and bad times and we were
looking for ways to improve our business.
What did Santa Cruz Operation think of what SCO was
doing? Keep in mind Santa Cruz Operation ran the UnixWare
business and sold it to SCO. When they themselves were
asked what they felt about SCO's license extraction and
litigation shop we got this answer. Guys who run protection
rackets occasionally make a short-term profit, but never
2710
build a long-term business. That is what Santa Cruz
Operation itself thought SCO was doing. There was an uproar
in the market. There was tremendous publicity. There was a
backlash of significance among Linux users and those who
serviced Linux.
Well, what is it that SCO sought to do? You'll
recall this, that in February of 2003, recognizing
apparently that it did not own the copyrights, and that its
licensing program would be dependent on actually owning the
copyrights, SCO came to Novell through various means, one of
which was senior executives to in-house counsel. One of the
things that SCO sent over to Novell was a proposed agreement
to clarify that, in fact, SCO owned the copyrights. If,
indeed, SCO owned the copyrights as it claimed, so it could
carry out its licensing extraction program, why on earth in
2003 was SCO asking for written confirmation? It is a
little hard to see, but you'll have a chance to look at
Exhibit I-31, and there was even a signature block put on
that. What did Novell do in response? It rejected and did
not sign that agreement.
Well, there were threats that went out. This is
a threat that went everywhere. It even went to Novell. The
claim was made that Linux infringes our UNIX intellectual
property and other rights. That is the claim that was made.
It was not made in isolation. It was made broadly and
2711
throughout the marketplace. You have heard that this demand
was made to at least the Fortune 1000. Novell was faced not
only with a public uproar, but it itself was challenged, it
itself was the recipient of one of these letters.
This is only a small sample, and time does not
permit more, but what was in fact the response? Linux
advocates doubt the validity of the SCO licensing scheme.
Advocates claim scheme violates the general public license
or G.P.L. software license.
There are other examples. SCO irks about
everyone in tech except Microsoft. Time does not permit,
but if one were to think about the implications, Linux was a
challenge to Microsoft. The Linux market was growing and
developing, and it presented a market challenge to
Microsoft's operating system. Who would be a chief
beneficiary of the failure of Linux? Microsoft.
Well, ultimately Novell had to respond. In the
midst of this adverse publicity, these claims and threats to
Linux users, yes, on May 28, 2003 Novell did respond. And
Novell did at that time report to Mr. McBride that Novell
owned the UNIX copyrights.
Well, you heard this testimony. We need to put
ourselves in the time and place of May 28th. Where is
Novell? What is it thinking? What is available to it? It
has the asset purchase agreement. Mr. Messman, as you
2712
recall, testified that he was present at the board meeting
in which it was approved, and despite efforts to embarrass
him because at one point he said in the 1980s instead of the
1990s, but you saw the board meeting minutes and you saw
that he was present, and he recalled that the asset purchase
agreement did not convey copyrights.
Mr. McBride was asked whether he thought that it
would be reasonable for a person reading the asset purchase
agreement, without the benefit of amendment number two, to
conclude that there was no transfer of copyrights. Mr.
McBride acknowledged that that would be a reasonable reading
of this document. That is where Mr. Messman was in May of
2003.
Now, the suggestion has been made somehow that
Novell must have known about amendment number two or it was
creating or fabricating. Well, why did Novell respond as it
did on May 28th? We heard from Mr. LaSala, the then general
counsel of Novell, and he indicated that it was imperative
to Novell's business interest to respond formally and
publicly, although he did not know anything about SCO's
earnings announcement. Mr. Stone testified that the issue
was of wide interest. I don't think there is any dispute
about that. He had no idea of the earnings timing. Mr.
Messman told us that Novell had to put out its side of the
story, and he wanted the world to know what Novell's
2713
position was.
Now, the suggestion has been made that there was
some sort of malice. I think the sole witness actually that
was presented to you was a journalist, this Maureen O'Gara.
You heard her testimony by videotape. It was skimmed by in
the argument by SCO's counsel. In fact, she confirmed to
the public relations director of SCO that she wanted war pay
for the articles and promotion that she was making for SCO.
Excuse me. She was asked by SCO to send a jab P.J.'s way.
You heard the testimony. P.J. is a woman who writes and
comments on interests of the open source community, and SCO
wanted Maureen O'Gara to write something negative about her.
That hardly is evidence of a detached, objective journalist.
The other thing if you listened carefully, and you
had a chance to see it again today, was the attempt by Ms.
O'Gara to create words of Mr. Stone that he never said. If
you listen carefully to the testimony, she was pressed
several times, tell me what were the words that Mr. Stone
used. She never answered that question squarely. Instead,
she talked about, well, maybe he was laughing. These are my
impressions. Pressed repeatedly, it is important to know
what he said, she could not do that.
I would like to take a pause right now and have
us focus on what was going on and why Novell responded the
way it did. There are a number of things that are
2714
represented on this time line. I'm going to run across them
and I hope they will be of help to you in summarizing and
understanding.
The first event that we have here is the May
12th, 2003 threat letter sent by SCO to Fortune 1000
companies and others. SCO's gone public with its SCOsource
licensing program and has made demands on many companies
including Novell. Here is an interesting thing. Two days
later on May 14th, SCO pre-announces publicly its earnings
for that quarter. Now, you have heard a big deal made about
Novell must have conspired and planned to release its
response on the earnings date. Those earnings were
announced two weeks before. Anyone knew that the earnings
had been out there if they did careful research. What
Novell did do on May 28th is respond and you have seen that
response.
What happened a few days later on June 5th is Mr.
McBride, having discovered himself a signed copy of
amendment number two, sends if over to Mr. Messman. I will
pause just for a minute on this. You heard in Mr. Singer's
argument that what Novell should have done is reached out to
its law firm, Wilson Sonsini, to get a copy of amendment
number two. But you also know, if you had a chance to
carefully listen, Wilson Sonsini was not involved in
amendment number two. That was done by Ms. Amadia in-house.
2715
Then the suggestion was made that, oh, Novell
should have reached out to its former chief executive
officer, Bob Frankenberg, and got a signed copy of amendment
number two. Well, that is an interesting proposition. Mr.
Frankenberg had left the company well before amendment
number two had been signed and had nothing to do with it.
Novell did not discover amendment number two, the signed
copy, until Mr. Messman received it, and then Novell, trying
to act responsibly, did release the statement that you have
seen suggesting that amendment number two appears to support
the position articulated by SCO.
However, Novell then with some time undertook to
review matters more carefully. Why did Novell respond the
way it did on June 6th? You heard that it was because SCO
was claiming that it was going to go public with an
announcement, it was going to call a press conference on
June 6th and go public, and Novell wanted to be responsible
in its response and thus gave the muted response that it did
on June 6th, because of the public pressure being exerted on
it by SCO.
On June 6th, 2003, Novell did send a private
letter to SCO indicating that now that it had a chance to
look more closely at amendment number two, that it did not
agree with the position that amendment number two effected a
transfer of ownership. So as of June 6th, 2003, in a
2716
private non-published communication, Mr. McBride and SCO
knew that there was no claim or concession of ownership.
Let's take just a quick look at then what SCO does
on July 21st, if we could highlight that.
In the face of Novell's private letter that it did
not agree that ownership transferred, Mr. McBride in an
interview, a public interview said if you go talk to Novell
today I'll guarantee you what they will say, which is they
don't have a claim on those copyrights. That was a direct
contradiction of a private communication. In the face of
what Novell said privately, Mr. McBride and SCO went public
suggesting something directly to the contrary.
Let's go back to the time line, please.
The next development is Novell again on August
4th sent another letter and said we dispute SCO's claimed
ownership of these copyrights. So now here are two letters
by Novell, private ones, not published, disputing the claim.
What does SCO do in the face of those private
communications? Mr. McBride in a public address said this.
If we could look at the development on August 18th. In a
keynote address, a public address, Mr. McBride said in
regard to Novell's recent claim that it still owns the
copyright to UNIX, McBride said it took SCO just four days
to press the eject button on that claim. What Mr. McBride
is doing, having received private letters from Novell where
2717
Novell said we did not transfer ownership, Mr. McBride is
going public and claiming that Novell has conceded the
point.
Back to the time line, please.
On October 14th Novell registers the copyrights
and this happens on November 18th, if we could highlight the
development on November the 18th.
This was a transcript of an interview with SCO's
C.F.O., Mr. Bench. In that transcript, publicly made
available, SCO said once we have the copyright issue
resolved, where we fully had clarity around the copyright
ownership on UNIX.
So what is happening, one more time back to the
time line, is Novell is acting privately and Novell is not
going public, but is repeatedly telling SCO we retain
ownership of the copyrights, and what Mr. McBride and others
at SCO are doing publicly is saying, no, you don't, and
suggesting that Novell was conceded the point.
With all of that brewing Novell then on December
22nd, if we could highlight December 22nd, did make a public
release. What was the form of the public release? Copies
of our correspondence and SCO's reply are available here.
Contrary to SCO's public statements, as demonstrated by this
correspondence, SCO has been well aware that Novell
continues to assert ownership of the UNIX copyrights. So
2718
what it did was invite people, if you want to know what is
going on, if you want to see for yourself what the agreement
say, if you the consuming public want to know the answer, we
invite you to look at it. That is how Novell responded.
It is for that, making available to the public the
actual position by Novell, that there is a claim of slander
here. None of that comes close to any claim of
constitutional malice. First of all, because Novell has not
made a false statement. It did not transfer ownership of
the copyrights. Second of all, those who made the
statements did not believe at the time that they were false
statements. Third, they were not made with the requisite
level of malice.
Now, I would like to speak just for a minute or
two on the issue of damages. The suggestion has been made
somehow that Novell has done these atrocious acts and ought
to be held liable for damages, and one of the measures of
damages is what did the marketplace do in reaction to the
real world?
Well, if we could take a look at just a summary
then of what really happened in the real world. People
dispute to this day that Linux infringes UNIX. That has not
been proven, it has not been established, and the entire
damages analysis that you have heard in this court from Dr.
Botosan is premised on the notion that somehow there is
2719
infringement. That hasn't been proven. It is hotly debated
and it is contested and users of Linux to this day reject
the notion that there is infringement.
There were indemnification programs offered, that
is software companies, Novell being one, Red Hat, another
large software company and others, told their users we do
not believe there is a problem here, but if you get into
trouble, we'll cover you.
There is the issue about the G.P.L. I don't have
time to explain that in-depth, but you heard that term, and
essentially what it means is that the general public license
under which Linux is used would provide protection for Linux
users.
You heard as well that Linux users could quickly
adapt and they could design around and that they would not
pay a licensing extraction fee to SCO. Instead, they would
just design around it. The suggestion of the price, and you
have heard about that, and people were not willing to pay
what SCO was charging and there was this tremendous public
anger.
That is not all. I will only make a brief
reference to this. The claim by the damages expert for SCO
has been that looking in a but-for abstract world what would
have happened? We have evidence from the real world, what
really happened, and we know that in 2004 in this litigation
2720
a judicial ruling was issued that at a minimum raised a
serious question as to whether amendment number two
transferred copyright ownership to SCO. That was available
to the public, and consumers were able to look themselves at
the details of the ruling, and to read the rationale of the
Court and make their own decision based on that ruling that
called into question SCO's claims.
That was not all. On August 10th, 2007 in this
courthouse, not Judge Stewart but another judge, issued
summary judgment in favor of Novell, holding as a matter of
law that Novell did not transfer ownership of the copyrights
under the asset purchase agreement, including amendment
number two. So consumers in 2007 looking at the rulings of
a Federal District Judge concluded or could conclude that
there was no reason to buy a SCOsource license.
Was that determination reversed? Yes. That is
why we are here today. But the important rationale is what
were consumer thinking at the time when they were able to
look at the rulings being issued by a Federal District Court
judge?
THE COURT: Mr. Brennan, you have four minutes
left.
MR. BRENNAN: Thank you, Your Honor.
Now, there were many who rejected the claim that
Novell had any influence on buying decisions. This is one
2721
of many. Let me use as an example H.P. It was put in front
of you the notion that somehow Hewlett-Packard did not take
a license and didn't enter into this agreement because of
Novell. I urge you to take a look at Exhibit D-20 when you
have a chance to retire to the jury room. You will see very
clearly why Hewlett-Packard for so many reasons, none of
which even reference Novell, decided not to enter into that
agreement that was suggested to you was a fait accompli. I
urge you to take a look at that.
Now, how do we conclude this? I would like to
show you another copy of the special verdict form in this
case. If we could take a quick look at it on the Elmo. The
first question asks did the amended asset purchase agreement
transfer the copyrights? No. How do you know that? You
can look at the agreements themselves. Look at the words.
Look at what they say. Look at the amendments. The
contract does not support the claim being made here.
If you answer that question no, as we suggest the
contract compels, then that really is the end of your
deliberation. The instruction suggests that you sign the
verdict form and turn it in. So my plea to you after
considering the evidence is mark it no.
Now, if it goes past there the question is whether
or not Novell slandered the title, and may I suggest this,
that if you get into the jury room and begin your
2722
deliberations and there is an initial conference about what
has happened here, and if there is a question in the mind of
any of you, if any of you has some doubt in your mind
whether there was a transfer of copyrights, I submit that
you're reasonable people and if a reasonable person can
differ on that question how on earth could Novell have
committed this atrocious act of slander if reasonable jurors
would have a question in their own minds about whether the
contracts permitted it?
This constitutional standard is high. When you
walked into this courthouse you saw a beautiful painting on
the wall. That painting is a representation of the signing
of the Constitution. That Constitution protects us. It
protects people from spurious claims. It protects them
against making outrageous demands for money. It protects
you and me so that we in a free market and in a free economy
and a free country can state our position without fear.
Ladies and gentlemen of the jury, there may be a
difference of opinion, there may be a question of the legal
merits, but this contract supports Novell's claim and it was
entitled to rely on it and it was entitled to protect its
position.
We're very, very grateful for your time and
attention to these matters. Novell is not liable. It did
not slander title. It owns those copyrights. If there is a
2723
reasonable difference of opinion, at the very least it did
not slander title. It and you and I are protected by this
beautiful Constitution.
Thank you, ladies and gentlemen.
THE COURT: Thank you, Mr. Brennan.
Ladies and gentlemen, why don't you stand up. You
have another 12 to 15 minutes here, and I want to make sure
that you have got some energy left for it.
(Standing recess.)
THE COURT: Go ahead, Mr. Singer.
MR. SINGER: Thank you, Your Honor.
Ladies and gentlemen, in 12 minutes I'm planning
to touch on only a few topics, but you will have the
opportunity back in deliberations to think about what you
heard, think about the credibility of the witnesses you
heard over three weeks, and think about the documents. I
would like to touch on a few points.
May I borrow that book that you had up here?
MR. BRENNAN: Certainly.
MR. SINGER: This repeatedly was told to you to be
the contract, the sanctity of the contract. The problem is
is that you won't find anywhere in this book amendment
number two, because that was entered into a year later.
That is what fixed the problem in this contract. It is part
of the account, and as you heard Judge Stewart instruct you,
2724
it prevails over any inconsistent terms. We are not here
saying, well, there is some unwritten language that we are
relying on. This is the written agreement that controls.
That won't be found in this book, but it is the most
important part of the case. It is the most important part
because that with a few other things, which really aren't
disputed, proves that the copyrights transferred.
The language, as we have seen repeatedly through
this trial, says that the copyrights are excluded except for
those required for the UNIX and UnixWare business. Now,
there has been no denial of the two points of evidence that
clearly indicate that those were required. One was their
own admission on June the 6th. You can determine whether
that is just a casual admission, but with their general
counsel involved they say that it supports SCO's position.
The second point, which was not addressed at all
by Mr. Brennan, was the testimony of Ms. Amadia who
supposedly did draft that agreement. She started out in her
direct examination supporting Novell's position. But, as I
explained to you and showed you during my closing, under
Mr. Normand's cross-examination she admitted that if the
copyrights were required for the business, they transferred.
That is just the plain language of the agreement.
Then the question you have to ask yourself is
simply are the copyrights for the software business, the
2725
prime intellectual property to UNIX and UnixWare operating
systems, required for that business? Virtually every
witness in here has said, yes, they are and that it is
obvious, that it would be absurd to have it without it.
Even if you could sell UnixWare products on a
license, and there is no express license in any of this,
there is only a license back to Novell, there is no license
to SCO, but even if you could do that, you could not protect
the intellectual property. That is a part of the business,
protecting the intellectual property.
That makes it clear and that is why Novell, when
confronted with this on June 6, 2003, admitted that we were
correct.
Now today in this court they say something
different. They tell you that we are trying to extract a
license fee, a term that you repeatedly heard from Mr.
Brennan. I suppose that when Novell licenses its
intellectual property it is not an extraction, and when
I.B.M. does that it is not an extraction. Well, it is not
an extraction for SCO either. It is a business. It is a
licensing business. You have a right to offer to consumers
the opportunity to purchase a SCOsource license. They can
make an intelligent decision, especially since we are
talking about sophisticated corporate consumers.
There is nothing wrong with that, except that as
2726
Mr. Pisano told you, that program is no gone. It can't be
resurrected. The market has moved on. That program is
dead. That is why you need to consider that in terms of a
damage award, rather than SCO now being able to go into the
market years later and try to start selling SCOsource
licenses.
Then they come to us and they say, well, there
will be other litigation. Litigation, of course, is nothing
more than another constitutional right, a right to go to the
courts, a right that they tried to block. If SCO has proper
rights, we trust the courts to vindicate. That is no
different than any other citizen, corporate or individual
should have. It is, of course, the right that I.B.M. and
Novell have availed themselves of throughout this.
Then Mr. Brennan talked about the First Amendment.
There was a very interesting phrase he used when about near
two-thirds of the way through his closing he approached the
First Amendment. He said now we get to the important
question. I submit to you the reason he phrased it that way
is he knows that this is a case where copyright ownership in
fact is with SCO, and he knows that these statement were
false, and that the difficult question, relatively speaking,
the one that he is counting on is that you will find that
these statements were in fact not slanderous under the First
Amendment.
2727
I would suggest to you to look at the jury
instruction that Judge Stewart provided on that subject of
constitutional malice, because it weighs the interests of
free speech against protecting people against slander. The
test is recklessness, and I went over what went on on May
28th that was reckless, not finding out whether that
amendment was signed, and then we have deliberate
publication and republication of the slanders, which is done
knowing that amendment number two has been signed, up to and
including March of 2004 when Chris Stone stands up and goes
so far as to say we still own UNIX. Those are slanders and
those are actionable and those are liable.
One more point before I turn to some of the
evidence. They also talk about these court decisions, and
those were reversed as Judge Stewart told you. Of course,
they have nothing to do with damages, because the damages
presume the slander never occurred and you would never have
any litigation and you would have these court decisions to
begin with. That is a little slight of hand I think from
Novell.
If we turn to what Novell has told you, they are
saying you only get an implied license. Mr. LaSala admitted
that. You will see under the instructions that an implied
license does not give you the rights of a copyright owner.
That does not give you what you need for this business. You
2728
also had some discussion about the empty table with the
Brobeck Phleger firm, which they know, of course, is a firm
that no longer exists. They also should know that Brobeck
indicated its position on January 31, 1997, in this exhibit,
which was submitted to the European union where they stated
that SCO acquired the copyrights for UNIX. Maybe they
didn't testify here because the firm isn't here, but you
know what their position is.
Now, they also have raised that, well, we didn't
get all the rights from Santa Cruz Operation when that was
sold to Caldera. But the stipulated facts, the very first
thing, ladies and gentlemen, that you heard at the beginning
of the trial said that we have acquired all of the assets
that Santa Cruz acquired from Novell. That is a non-issue.
In fact, if you look at the document, it specifically
assigns all of the copyrights and it says the assigner has
the full power and authority and all rights necessary to
transfer those rights. This is what we call a red herring
issue.
Now, the issue on amendment number two is whether
the copyrights are required for the UNIX and UnixWare
business to protect it. You see a number of statements here
which indicate how strongly those are required, that it
would be ludicrous to operate the business without it,
equating it to oxygen, that the copyrights have to go with
2729
it. We couldn't protect our software and we would be out of
business.
In response to that they point to Mr. McBride who
says, yes, we can try like these licensees to sell product,
but be can't protect the intellectual property without the
copyrights. Without the intellectual property being
protected the products soon become meaningless, because the
intellectual property in our products are out there, and if
they are in a free product, it is very hard to compete with
something that is being offered for free.
Now, they also suggested that what we could
protect was this box, the Lego on top of another Lego.
Except you'll recall Mr. Nagle saying that the UnixWare
system embraces almost entirely at the time of the sale,
UNIX. So it would be a very slivered, small sliver they
went to give us of intellectual property, and yet they want
to maintain all of the key intellectual property that gives
that strength, the intellectual property which if just
distributed widely would undermine the products that SCO was
seeking to sell.
That is why all of these people, including their
C.E.O. and other individuals agree, that you have to have
the copyrights, and that is why they transferred to us under
amendment number two.
Now, I would like to address a few other issues
2730
that came up in the course of the closing. One of those was
a statement that there was an alleged term sheet from
Mattingly's garage. Now, it has been testified to, and
Mattingly was a Novell executive, and to be the term sheet
actually used before the board meeting at Novell on the 15th
of September to tell the executives what the summary of the
deal was. It didn't mention anything about retaining
copyrights.
You'll note that it was not produced for the first
time by Mr. Mattingly. Those two documents were produced by
Novell. They are SCO Exhibit 570 and SCO Exhibit 83, which
are also in evidence, and there is no question about these
being the actual term sheets. You heard Mr. Frankenberg say
that this was presented, and you heard Mr. Bradford admit
that he was not aware of any other term sheet.
Now, let's talk a little bit, if we might, about
the witnesses who testified. I don't think that anything
that Mr. Brennan said takes away from what we said a few
minutes ago, that you have to disbelieve ten different
witnesses, half of them are from Novell, to belive their
position that the intent of this deal was not to transfer
the copyrights.
Now, they have taken a lot of shots at witnesses,
including their own executives, and I would like to go
through some of them, those individuals.
2731
THE COURT: You have two minutes.
MR. SINGER: Steve Sabbath, who testified that
this I.B.M. declaration was not his testimony. You heard
Kim Madsen, and she was not equivocal, and she told you what
was involved. Burt Levine, here is a gentlemen, it is true,
he reviewed the copyright exclusion language. What did he
say? It was intended to apply to NetWare. It would be
unethical to have excluded the UnixWare copyrights.
Michael DeFazio did talk about the need to
bulletproof a royalty stream. That was done by having
separate equitable interest in the royalties. You have the
draft language of amendment number two, but Ms. Amadia when
she testified on cross-examination admitted under the final
language, the approved language, that if the copyrights are
required, we get those.
Now, you also heard about Tor Braham and all these
handwritten notes which are true, and that is why something
like this done at the last minute didn't get corrected until
a year later. It got fixed. That is the agreement that you
have to interpret here.
The one person they really can't take shots at is
Bob Frankenberg. He has no interest in SCO. You know the
old saying, that is where the buck stops. He came in here,
and I don't have to look at slides, his testimony is recent
enough in your minds to know where he stands, that it was
2732
clearly the intent to transfer these copyrights. That while
Mr. Bradford and Mr. Tolonen had important roles in the
company, they were not the individuals that he charged with
selling this business. Those were Mr. Thompson and
Mr. Chatlos and others. The deal they negotiated called for
the transfer of those copyrights.
Now, with respect to damages you have heard, I
think, two very credible witnesses, witnesses who if you put
on the scales against a witness who has been paid to testify
in over 200 cases, and was not a professor at Harvard, has
not done any surveys, only comes up with a zero number, I
think you'll find both Professors Botosan and Pisano very
persuasive and that their views are reasonable. You will
ultimately need to determine that.
I ask that you keep in mind the importance of this
case to SCO, given what it has had to go through for these
years, and to have to not have clear title to the crown
jewels of the business, the UNIX and UnixWare copyrights
that were a part of this transaction and which belonged to
them.
Again, on behalf of SCO and on behalf of my
colleagues and myself, thank you so very much for your
careful consideration.
Thank you.
THE COURT: Thank you, Mr. Singer. You can
2733
breathe now.
MR. SINGER: I didn't want to go over your
deadline, Your Honor.
THE COURT: Ladies and gentlemen, as we began this
trial we selected 13 of you with one of you being an
alternate juror. Ms. Cooper, it will be you, which means
that you will be excused as soon as the jury is excused in
just a moment. You will not be allowed to deliberate with
the jury. That will perhaps be of some disappointment to
you. That means I don't have to give the rest of this
speech.
Upon reflection, if you think to yourself that
perhaps you are disappointed that you did not get to help
make the decision, I do want you to know that your being
involved the last three weeks was a very, very important
part of what we needed here. You will be excused with our
gratitude, as I said, as soon as the jury is excused as a
group in just a minute.
I do want to give an instruction to you, Ms.
Cooper, as well as all of the jurors, although I normally
would have given this at the end, as to whether or not you
discuss this with anyone, including the attorneys in this
case, or the media or anyone else, after the deliberations
are all completed and the verdict has been rendered, I will
leave up to you. You may or you may not. You are not
2734
prohibited from doing so and that will be entirely your
decision.
With that, Ms. Malley, we need Mr. Jensen, I
suppose.
This is Ben Jensen and he is from the marshal's
office. He will have the responsibility to take care of you
during the course of these deliberations. I want you to
listen to the oath that he is about to take, because
although it is addressed to him, it will indicate to you as
jurors somewhat your conduct as well.
Mr. Jensen, if you would please come forward.
(WHEREUPON, an oath was administered.)
THE COURT: Ladies and gentlemen, you have now
heard all of the evidence and you have been instructed on
the law and you have heard the closing arguments, and you
will now be allowed to go back to the jury room and to begin
your deliberations.
Ms. Malley will be in shortly with a copy of the
jury instructions that I read to you earlier this morning,
as well as all of the exhibits admitted in this case.
Mr. Jensen, if you would please now assist the
injure into the jury room.
(WHEREUPON, the jury leaves the proceedings.)
THE COURT: Counsel, if you would please make
certain that Ms. Malley has telephone numbers to get ahold
2735
of you. If a note comes from the jury that has any
substance to it, then I will ask you to come here and I will
have you approve my response to it.
If it is something very simple, for example, if
they should request a dictionary, the response to that will
be no, and instead of making everybody come over here, I
will simply say, yes, we agree it ought to be no, and we
will handle that by telephone. If there is anything more
than that, then I will ask one or more of you from each side
to be here to approve whatever response the Court may give.
I do want to say a couple of last things to you
all. I want to thank you on behalf of Mr. Copeland, because
you had not met your apparent quota of at least one motion
per day, he would have spent this last week as an aimless
wasteful soul wandering the streets of Salt Lake.
I also think that on behalf of the Court I have a
special expression of gratitude to Mr. Calvin and Mr. Lee,
because they have played an extraordinary role on behalf of
both sides as well as the Court's interest in this case, and
with the way they have applied the technology that federal
taxpayer dollars have recently paid to upgrade this
courtroom. They have really made this system almost seem
worthwhile.
I want to say one other thing, and that is that if
any of you have loud teenagers and you want to know where to
2736
get this white noise, you can talk with Ms. Malley.
One last thing, counsel. I am very sincere when I
say this. In the ten years I have been a judge I have never
had a collection of such fine attorneys in this courtroom at
one time. I want to thank you not only for your competence
but in particular for your professionalism. The way that
you have treated one another and the way that you have dealt
with court personnel and the court has been genuinely
appreciated in a case that has been hotly contested and the
stakes are very high, and you have acquited yourselves
extraordinarily well and you do have the sincere gratitude
of this Court. I wanted to make sure that you heard that.
We'll be in recess until we receive either a
verdict or a note.
(Recess)
