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Novell's Motion to Dismiss and Memorandum in Support
Friday, February 13 2004 @ 02:12 AM EST

I'm never going to get any sleep, I guess. Not this amazing week. Because here is Novell's Motion to Dismiss. And their Memorandum in Support of the motion is absolutely fascinating, too fascinating not to read right now. Here's the pdf.

Essentially, they've done something very clever. They are trying to get SCO's action dismissed on the pleadings alone. Shazam.

From media reports, I couldn't figure out why they didn't argue that there was an absence of malice shown. On reading the memorandum, I see they've chosen to try to avoid anything that would require a trial to resolve. They list elements that they assert SCO has failed to plead sufficiently in their Complaint, giving the judge the opportunity to dismiss the case on the pleadings alone, for failure to state a claim.

There are four necessary elements you must prove in a slander of title action, and if they fail to sufficiently plead even one of them, it means dismissal. This means it could be over very soon. SCO does have an opportunity to answer this motion, of course, but they'd better have something more specific to say than what they said in their letters to Novell.

Presumably SCO could try, try again with better pleadings, unless it's dismissed with prejudice, or they could try stating a different cause of action, but to do that, they'd need better facts. I don't know where they can find some of those. If this Motion to Dismiss fails, Novell can always use the lack of malice argument later as a defense, if the case does go forward. In short, Novell means business. They saw flaws in SCO's legal pleadings, and lawyers start happily salivating when that happens. Obviously, they were not going to let it slip by them.

The umbrella terminology is that they are asking to dismiss SCO's complaint "for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6)." I have to tell you that you see that phrase in virtually all responsive pleadings. You always throw that in, but it's boilerplate usually, thrown in for good measure along with the arguments you really think will win. This is the first time in my career I've seen failure to state a claim pled on its own like this and in a way that actually might prevail.

There are four things SCO has to prove in a slander of title action, and Novell lists them:

  • 1. there was a publication of a slanderous statement disparaging claimant's title,
  • 2. the statement was false,
  • 3. the statement was made with malice, and
  • 4. the statement caused actual or special damages.
SCO's complaint fails on two of the four (2 and 4), falsity and special damages, they argue (they could obviously assert 1 and 3 down the road), but they only need to prove one to get the motion dismissed. First, SCO didn't prove that Novell's claim to be the owner of the copyrights is false. SCO is relying on a document that fails to meet the requirements of the Copyright Act for a valid transfer of copyright ownership, Novell states. Without a transfer, SCO can't prove it is the owner of the copyright and it also, necessarily, can't prove element two, above, that the statement was false.

First, Novell argues, it actually is the copyright owner, because the Asset Purchase Agreement and Amendment 2 do not constitute a proper transfer of the copyright. At most, it's a promise to do so on certain future events, but not a conveyance. They point out the language is "will convey" not "hereby conveys". And also, it doesn't specifically list what copyrights were to be conveyed, a requirement for any such transfer to be legal. Because SCO relies on the APA and Amendment 2 for its slander of title action, the fact that the documents prove Novell continues to be the owner of the copyrights makes a dismissal proper, they argue:

"All documents attached as exhibits to the complaint are properly considered in ruling on a motion to dismiss. Issa v. COMP USA, No. 03-4024, 2003 U.S. App. Lexis 26280, at *10 (10th Cir. Dec. 24, 2003). The trial court need not accept as true 'allegations of fact that are at variance with the express terms of an instrument attached to the complaint as an exhibit and made a part thereof.' . . .

Therefore the Court should ignore any allegations in the Complain that are contradicted by the Asset Purchase Agreement and Amendment 2."

Neat slice, huh?

They also land a blow SCO left themselves open to. SCO admits, they point out, that they are not the copyright owners in the very relief they ask the court to grant them: namely, they ask that the Court issue an injunction "requiring Novell to assign to SCO any and all copyrights Novell has registered in UNIX and UnixWare." You can't ask for copyrights to be assigned to you if you already have them, can you? If you don't already have them, you can't scream slander of title if the person you want to assign them to you says they own them. Duh. Some things are just obvious. How could SCO not notice that the relief they were asking for undermines their claim?

But that's not all. The motion should be dismissed, they say, because SCO didn't adequately plead special damages. You have to say something like, "I lost a contract worth XXX dollars and xx cents", not vague "there is uncertainty in the marketplace". On those two elements, both of which are essential to a slander of title claim, they say the slander of title action must be dismissed. Here is how the Preliminary Statement puts it:

"The crux of SCO's slander of title claim is its assertion that pursuant to an agreement attached to its Complaint, it owns the copyright to UNIX and UnixWare; that Novell's statements that SCO does not hold such title are false; and that these statements have left SCO's customers and potential customers unable to ascertain the truth about copyright ownership.

"The Complaint fails, however, to allege facts sufficient to support two necessary elements of slander of title: falsity and special damages. As to falsity, the documents SCO relies upon to establish ownership of the copyrights fail on their face to meet the federal copyright law requirements for such an instrument. Without conclusively establishing that it owns the UNIX and UnixWare copyrights, SCO cannot show that Novell's statements to the contrary are false, and cannot prevail. As to special damages, SCO has not set forth its alleged special damages sufficiently to state a claim.

"Because SCO's Complaint fails as a matter law, the motion to dismiss should be granted."

Another more fascinating detail. On page three, there is this sentence:

"On October 16, 1996, Novell and SCO's alleged predecessor, The Santa Cruz Operation, Inc. ('Santa Cruz"), executed Amendment No. 2 to the APA." [emphasis added]

Catch their drift? I expect we will hear more on this.

The detailed arguments on why the APA and Amendment 2 don't measure up as a copyright transfer sound a lot like Harlan's comments for the last few months. It's complex, and you have to force your eyes not to glaze over, but here it is: First, the APA's Section 1.1(a) is "merely a promise to transfer, upon closing" of all of the assets listed in Schedule 1.1(a), which also says that this does not include those "Excluded Assets" set forth in Schedule 1.1(b). That schedule lists "all copyrights" as being excluded. So the APA didn't transfer any copyrights on the day of closing.

Then Amendment 2, standing alone, doesn't transfer either, because it doesn't mention specific copyrights being transferred. A copyright transfer must mention with specificity what is being transferred:

"APA Amendment No. 2 similarly does not purport to transfer anything in and of itself; it merely amends a section of the 'Excluded Assets' section of the Asset Purchase Agreement."

Finally, even if you put both documents together, they are still insufficient, being merely a promise "to assign unidentified copyrights if those copyrights are 'required'." The agreement says Seller "will sell, convey, transer", etc., not that Seller "hereby sells, conveys", etc. Nowhere in the agreement, Novell points out, does it ever say that "Seller hereby assigns" or that "Buyer hereby acquires". This, they say, makes the documents a promise to assign in the future. That's not the same as an actual assignment, under the Copyright Act. They cite some cases to prove their point.

Therefore, there has been no actual copyright transfer to date under these written documents, which leaves Novell the continuing owner of the copyrights at issue. So SCO perforce can't prove that Novell's claiming to be the owner is a false statement, the first element they need to prove and now can't.

Even if the APA and Amendment 2 were an attempt to transfer the copyright, their motion would have to fail anyway, Novell says, because of the failure to meet the Copyright Act's requirement that a transfer document specify what copyrights are being transferred specifically and especially so when a purported assignment is seeking to transfer less than all rights, as in this case. Copyright ownership isn't one right; it's a bundle of rights, and you can transfer all or some or part. Amendment 2 is too vague on this point. Remember the famous clause?

"All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the [Asset Purchase Agreement] required for [Santa Cruz] to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."

Clear as mud? Precisely. What copyrights are required? It's not clear, they say. This vagueness means it can't meet the requirements to be a conveyance under the Copyright Act. Novell, with a touch of irony, adds that this writing requirement "avoids inadvertent transfers of copyright ownership by copyright holders." I like lawyers with a killer sense of humor.

More when we get it transcribed. Meanwhile, here is the motion.

*****************************************************************

MORRISON & FOERSTER LLP
Michael A. Jacobs (pro hac vice pending)
Matthew I. Kreeger (pro hac vice pending)
[address, phone, fax]

Paul Goldstein (pro hac vice pending)
[address, phone]

ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[address, phone, fax]

Attorneys for Defendant Novell, Inc.
FILED
9 FEB 04 PM 4:33
DISTRICT OF UTAH
BY:_______________

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware corporation,
Plaintiff,
vs.
NOVELL, INC.,  a Delaware corporation,
Defendant.
MOTION TO DISMISS

Case No. 2:04CV00139

Judge Dale A. Kimball


        Defendant Novell, Inc., by and through its attorneys of record, hereby moves this Court to dismiss The SCO Group, Inc.'s Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 1(b)(6).  The grounds for this Motion are more fully set forth in the Memorandum in Support, filed concurrently herewith.

Dated: February 9, 2004

ANDERSON & KARRENBERG

__[sig: heather M. Sneddon]__
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
Attorneys for Defendant Novell, Inc.




CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this _9th_ day of February, 2004, I caused a true and correct copy of the foregoing MOTION TO DISMISS to be served via first class mail, postage prepaid, to the following:

Brent O. Hatch
Mark R. Clements
HATCH JAMES & DODGE, P.C.
[address]

Kevin P. McBride
[address]

Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
[address]

_[sig: Heather M. Sneddon]__



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