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Transcript of SCO-Novell May 11th Hearing on SCO's Motion to Remand -- as text
Sunday, June 27 2004 @ 04:32 AM EDT

Here is the transcript of the May 11th SCO-Novell hearing on SCO's Motion to Remand. The hearing handled two motions, SCO's motion to remand and Novell's motion to dismiss, but we've only got the first motion transcribed as text so far. The other part of the transcript will follow later, when it's done. In any case, the motion to remand was by far the more interesting to me, because it dealt with an area of law that isn't very clear and because I really was not able to predict which way the ruling would go. I worried about SCO prevailing on this motion. They did not.

Both parties refer repeatedly to a case, Jasper v. Bovina Music, Inc., so you might like to have it handy so you can watch how each side, and the judge, uses the case. The second case that comes up repeatedly is T.B. Harms v. Eliscu. And Novell uses Radio Television Espanola SA v. New World Entertainment, Ltd.. The 1976 Copyright Act is also brought up in the discussion.

To understand their discussion about diversity and subject matter jurisdiction, you'll find this page useful, particularly because the lawyers and the judge know all this, and so they talked to each other at the hearing in a kind of shorthand, like text messaging:

"Federal Question Jurisdiction

"Congress has conferred upon federal courts jurisdiction to decide federal questions i.e., cases or controversies arising under the Constitution and laws of the United States (28 U.S.C. § 1331) and cases or controversies between citizens of different states (diversity jurisdiction). (28 U.S.C. § 1332.) There is a presumption against federal jurisdiction.  The existence of subject matter jurisdiction generally must be demonstrated at the outset by the party seeking to invoke it.  (See FRCP 8) It cannot be conferred by consent of the parties, nor can its absence be waived.  (Friedenthal § 2.2)  The rule that a suit arises under the Constitution and laws of the United States only when the plaintiff's statement of his own cause of action so demonstrates is called the 'well pleaded complaint rule.'

SCO at the hearing purports to prefer to stay in federal court in Judge Kimball's court but says they are compelled to argue for remand to state court because they worry that down the road, if there is a ruling adverse to Novell, Novell will argue that the court lacks jurisdiction. Jurisdiction can't be waived, Hatch points out, so Novell can make the argument at any time. Venue in contrast can be waived, meaning if one side says they want the case heard in a state that isn't where the other side is located but has some conceivable argument to be made that it is more convenient to the plaintiff, the other side can go along with it and waive their right to contest it, if they want to. A kind of venue argument is going on in the AutoZone case.

But you can't waive federal question jurisdiction. It either belongs in federal court or it doesn't, and there is a presumption that it doesn't, as Hatch points out when saying that the burden is on Novell to prove it does belong there.

The parties can't make it belong there if it doesn't, so the question can be raised at any point, even by the judge. So SCO and Novell can't just agree that they want to be in federal court and it happens, not that they actually do, but even if they did, they can't. It has to be the kind of case that a federal court is empowered to decide. Here is an Oklahoma case, but the ruling happens to explain it the most clearly of the cases I read:

Subject matter jurisdiction is the power of courts and judicial officers to take cognizance of and to hear and determine the subject matter in controversy and to exercise judicial power over them. Lowry v. Semke, 571 P.2d 858 (Okla. 1977). Lack of jurisdiction of subject matter cannot be waived or overlooked by the court. Taylor v. Oklahoma Employment Security Commission, 1993 OK CIV APP 195, 867 P.2d 490.

SCO pretends that this is a big problem and that because they worry they'll spend a lot of time and money in federal court, only to have Novell raise the jurisdictional question later, they're raising it now. It's an icky argument, because it is so obviously not the real reason they so wanted outa there. "Really, Your Honor, given our druthers, SCO would rather stay with your learned self", SCO hypocritically says, in effect, to which the Judge humorously replies, "I can tell," which is a judge's way of saying, Yeah, right.

On diversity, it just means whether the parties are in the same state. If they are not, you can bring a case in federal court if damages are above a threshold:

"The two types of cases that can be heard by a federal court are:

"1. Cases involving claims that a federal law has been violated, which are called 'federal question' cases, and

"2. Cases involving claims between citizens of different states and in which damages in excess of $75,000 are claimed, which are called 'diversity of citizenship' cases.

"The fact that you can bring these types of lawsuits in federal court does not mean that you must bring them in federal court. You may be able to file certain types of cases in either federal or state court."

In this case, both parties are Delaware corporations, so diversity does not apply to this case. If it had, staying in federal court would have been a slamdunk for Novell, so that is why the judge asked Mr. Hatch if there was diversity. The question here was deeper, namely when does a copyright case belong in federal court and when can it be sent to state court for a mere interpretation of contract law? It is one of the least clear areas of law.

If you want to read Judge Kimball's decision after hearing all the arguments from both sides, it's here. Here are some highlights on his ruling on the remand motion, in colored text so you can skip it if you wish to but mostly to set it off clearly, since it's quite long:

"The burden of establishing federal jurisdiction lies with the removing defendant, who must establish jurisdiction based on a preponderance of the evidence. . . . There is no assertion in this case that there is diversity jurisdiction. Therefore, the only basis for jurisdiction is federal question jurisdiction under 28 U.S.C. Section 1331 and Section 1338(a). A case may be validly removed from state to federal court if a claim 'arising under' federal law appears on the face of the well pleaded complaint. . . .

"Federal courts have exclusive jurisdiction over actions 'arising under' the federal copyright laws. . . . However, 'the fact that a case concerns a copyright does not necessarily mean that it is within the jurisdiction of a federal district court.' Jasper v. Bovina Music, Inc., 314 F.3d 42, 46 (2d Cir. 2002). . . .

"The Tenth Circuit has no specific test for determining whether a case arises under the federal Copyright Act. However, the Second Circuit established a test in T.B. Harms that has been adopted by several courts across the country. . . The T.B. Harms court determined that '[a]n action "arises under" the Copyright Act if and only if the complaint is for a remedy expressly granted by the Act, e.g. a suit for infringement or for the statutory royalties for record reproduction, or asserts a claim requiring construction of the Act …or … presents a case where a distinctive policy of the Act requires that federal principles control the disposition of the claim.' . . . SCO's slander of title claim does not seek a remedy expressly granted by the Copyright Act. Therefore, for federal question jurisdiction to exist, SCO's claim must require construction of the Copyright Act or present a question with respect to a distinctive policy of the Act that requires federal principles to control the disposition of the claim. . . .

"Novell argues that this case presents more substantial Section 204(a) issues than Jasper. Novell argues that on its face, there is no instrument that purports to convey copyrights, and the only instrument that SCO contends is an instrument of conveyance, the APA Amendment No. 2, is so indeterminate as to fail the requirements of Section 204(a). SCO, however, asserts that Amendment No. 2 is clearly a section 204(a) writing and the only issue for the court is contract interpretation as to which copyrights were conveyed.

"It is undisputed that the APA did not transfer any copyrights. . . . Also, Amendment No. 2 merely amends the schedule of excluded assets and does not constitute a transfer of copyrights on its own. Therefore, the issue raised by Novell is whether the APA as amended by Amendment No. 2 is a sufficient writing under Section 204(a) to transfer ownership of copyrights. . . .

"The APA Amendment No. 2 excludes from transfer '[a]ll copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the [APA] required for [SCO's predecessor] to exercise its rights with respect to the acquisition of UNIX and Unixware technologies.' The Amendment does not identify which copyrights are required for SCO to exercise its rights with respect to the acquisition of UNIX and Unixware and provides no date for the transfer. The Amendment mentions copyrights owned by Novell as of the date of the APA but it is not retroactive to the date of the APA. Furthermore, although Amendment No. 2 states that its effective date is the date of the amendment, the language of Amendment No. 2 does not state that a transfer of the copyrights is to occur as of the date of the amendment.

"The Amendment also contains no transfer language in the form of 'seller hereby conveys to buyer.' Given the similarly ambiguous language in the APA with respect to the transfer of assets-seller 'will' sell, convey, assign, and buyer 'will' purchase and acquire-it is questionable on the face of the documents whether there was any intention to transfer the copyrights as of the date the amendment was executed. Moreover, the use of the term 'required' in Amendment No. 2 without any accompanying list or definition of which copyrights would be required for SCO to exercise its rights in the technology is troublesome given the number of copyrighted works involved in the transaction. There is enough ambiguity in the language of Amendment No. 2 that, at this point in the litigation, it is questionable whether Amendment No. 2 was meant to convey the required copyrights or whether the parties contemplated a separate writing to actually transfer the copyrights after the 'required' copyrights were identified. Therefore, this is not a case where the court can immediately conclude that there is a writing under Section 204(a).

"Although the case will obviously require contract interpretation, at this stage of the litigation, the agreements raise substantial doubt as to whether the APA as amended by Amendment No. 2 qualifies as a Section 204(a) writing. This court will be required to analyze the requirements of Section 204(a) and the cases interpreting that law in order to determine whether the Amendment No. 2 qualifies as a writing under Section 204(a). In this regard, the case presents an issue that does not turn solely on regular contract principles. Because there is a substantial issue as to whether Amendment No. 2 is a Section 204(a) writing, this case is similar to Jasper. Here, like Jasper, there are two documents but neither alone appear to satisfy the requirements of Section 204(a). The facts of the instant case raise an equally, or even more, substantial question of whether Section 204(a) has been satisfied. Therefore, this court finds Jasper's finding of federal jurisdiction persuasive. . . .

"To determine whether the APA as amended by Amendment No. 2 qualifies as a Section 204(a) writing will require this court to apply the standards of Section 204(a) and federal case law interpreting Section 204(a). Therefore, this case does not turn merely on ordinary principles of contract law, but presents 'a need for determining the ... application of [federal] law' sufficient for this court to retain jurisdiction. See T.B. Harms, 339 F.2d at 827.

"Moreover, the T.B. Harms court also acknowledged that federal jurisdiction exists when 'a distinctive policy of the [Copyright] Act requires that federal principles control the disposition of the claim.' . . . Although SCO's slander of title claim is a state law claim, the determination of copyright ownership controls necessary elements of the claim. The federal law standards created to further the federal interest established in section 204(a) control the disposition of whether Section 204(a)'s requirements have been met. SCO has failed to cite any relevant state common law that would control the disposition of this issue. Accordingly, this court concludes that it has subject matter jurisdiction over SCO's slander of title action. SCO's motion to remand the case to state court is, therefore, denied."

With that under your belt, you are in a position to read the transcript of the hearing and know what arguments persuaded this judge and which fell flat with him.

It also will give you insight into why the trade press so often gets things wrong. Imagine that prior to the ruling, a journalist spoke to Mr. Hatch and asked for his assessment on how things would go. Mr. Hatch gives him an impassioned and lengthy and persuasive account of why they will prevail. It sounds good to the journalist. So he writes a story essentially saying what Hatch has planted in his ear. Maybe the journalist also calls the other side, and they give a short statement saying something like "We believe we have a sound basis to remain in federal court and we hope to prevail." He puts that sentence in the story and maybe some more quotations from other attorneys he knows, but he's been persuaded by his conversation with the very personable Mr. Hatch. Would he get his story right? Isn't that pretty much what we've seen over and over?

Unless you understand the legal process itself, you are not likely to get it right. Even if you do understand, you still might not. A lawyer, even an independent one with no ax to grind, still can't predict 100% what is going to happen in a close case. That's just how the law is. You may know how it ought to go, in your opinion, based on the law and the facts, but it's up to the judge, and sometimes it isn't so simple, particularly as in the case here in what Judge Kimball called the "murky" area of law regarding copyright law and federal jurisdiction. It's why I said I couldn't predict the outcome on this particular motion, because it involved an area of the law that isn't clear yet. Decisions in the law aren't predictable like mathematics. In math, 2 + 2 always =4. But laws and cases are situationally applied. If there is no situation exactly like yours, and here that was the case, it's up to the judge to decide what to do next. He applies the law and the principles of prior cases as closely as he can. The question becomes, Is this case *more* like such-and-such a case or more like that other case? It's a built-in human element that makes the law different from math or even chess.

It's why mistakes can happen sometimes, which is what the appeals process is for. It's also the heart of the whole system and why the law can keep growing and changing with the times. And it's why it truly matters who gets appointed to the bench. A lot of good lawyering involves analyzing judges, how they think, what they tend to do, and working well with what you have. At a conference once, the panel was discussing what was more important in a judge, humility or intelligence. If you had to choose between a humble judge or an intelligent, scholarly one, which should you choose? One panelist opined that humility was the most vital. A smart judge might be tempted to show off his intelligence instead of relying on the law. Judge Kimball agreed that was a danger, but he asked a clarifying question... was the humble judge also stupid? That's dangerous too:

"Forum shopping is all right if it's legal. Humility is a marvelous attribute. A cause-oriented judge is a dangerous judge and one cause may be a judge's own brilliance. Is the humble judge also intelligent? Or is he humble and stupid? A stupid judge is dangerous also. If the matter is complex you may want to take your chances with the brilliant unhumble judge."

Forum shopping means deciding where to file your case depending on your analysis of where you are most likely to prevail, and analyzing judges is part of that process, or can be. Forum shopping is on display in the AutoZone matter. But my point is that analyzing a case and predicting a possible outcome without that element of analyzing the particular judge is bound to be an incomplete analysis. Judge Kimball is a brainiac. That's how it is. He doesn't appear to lack humility -- note his reaction when Novell's very able attorney Michael Jacobs corrects him on a matter -- but he is extremely intelligent. And so he isn't going to shy away from a detailed, granular and fundamental examination of the issues, and he's willing to think as deeply as he needs to. And happily, he can. That's what he just did in this very complex case, and it was a beautiful sight to behold.

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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

_______________________________

THE SCO GROUP,

Plaintiff,

vs.

NOVELL, INC.,

Defendant.

_______________________________

Case 2:04-CV-139

________________________________

BEFORE THE HONORABLE DALE A. KIMBALL

MAY 11, 2004

REPORTER'S TRANSCRIPT OF PROCEEDINGS

MOTION HEARING

Reported by: KELLY BROWN, HICKEN CSR, RPR, RMR

APPEARANCES

FOR THE PLAINTIFFS: HATCH, JAMES &DODGE
BY: BRENT O. HATCH
MARK R. CLEMENTS
Attorney at Law
[ address ]
RYAN E. TIBBITS
SCO GROUP
Attorney at Law
[ address ]
FOR THE DEFENDANT: MORRISON & FOERSTER
BY: MICHAEL A. JACOBS
Attorney at Law
[ address ]
ANDERSON & KARRENBURG
BY: JOHN P. MULLEN
Attorney at Law
[ address ]

SALT LAKE CITY, UTAH, TUESDAY, MAY 11, 2004

* * * * *

THE COURT: We're here this afternoon in the matter of the SCO Group, Inc., vs. Novell, Inc., 2:04-CV-139. For plaintiff, Mr. Brent Hatch, Mr. Mark Clements, Mr. Ryan Tibbits. For the defendant, Mr. Michael Jacobs.

MR. JACOBS: Good afternoon, Your Honor.

THE COURT: Good afternoon. And Mr. John Mullen.

MR. MULLEN: Good afternoon, Your Honor.

THE COURT: Good afternoon.

We have two motions, plaintiff's motion to remand and defendant's motion to dismiss. Let's hear the motion to remand first. Who's going to argue it?

MR. HATCH: I am, Your Honor.

THE COURT: Mr. Hatch.

Who's going to argue for the defendant on remand?

MR. JACOBS: I am.

THE COURT: That would be Mr. Jacobs;[sic] right?

MR. JACOBS: Right.

THE COURT: Go ahead, Mr. Hatch, on the motion to remand.

MR. HATCH: Thank you, Your Honor.

Your Honor, as you know, Novell, being a party who removed this action from the state court, carries the burden, and any ambiguities should be resolved against removal in this case. What this really comes down to is, Your Honor, we brought a state court action seeking state court remedies in state court.

THE COURT: Slander of title.

MR. HATCH: Slander of title. And the complaint, unlike many of the cases cited by Novell, does not allege federal question, does not allege or seek a federal remedy. SCO as -

THE COURT: Can you get to your title claim without somehow deciding something about 204(a)?

MR. HATCH: I think so, Your Honor. I think what's happened here is Novell to a large part has put form over substance here. Section 204(a), as Your Honor is well aware now having read the briefs, that requires a writing. And that's it. There isn't a lot more there. There isn't a set of standards for a court to apply, like Novell seems to imply that there's something more there. They call it, there needs to be a contract of conveyance or what have not.

We clearly allege that there is an agreement by which these copyrights were transferred. It is a writing, and prima facie meets the requirements of 204(a). The kind of argument that they're making here is that there needs to be something more has been really routinely objected to by the courts. And I think if we just get to the nub of the matter, essentially what they are relying on here is some - a ruling in Jasper. The reality here is the type of argument they're making that somehow if you have to get to the underlying argument about what the contract means and what it is, which are frankly all state law questions, it will turn every single contract case that even tangentially mentions a copyright or trademark into a federal question.

And that's been pretty routinely rejected by all the courts. As a matter of fact, Judge Friendly, a fine judge out of the Second Circuit that we read over and over and over again in law school made that very clear in the TB Harms decision. He said we can't put form over substance. If we do the kind of things that Novell is asking to do here, we're going to always have a federal question.

And the reality is that 204(a) doesn't apply standards. It makes it very clear that you have to have it in writing. Particularly what they're worried about, and this comes out in the cases, is that somebody loses a copyright because of someone coming later and saying, we have had some type of oral agreement. It really creates a distinction between oral and written agreements, so there is something concrete to go on. It doesn't go to the underlying, what does the written agreement say.

And that's frankly, where Novell makes its mistake, in my view, on the law because the cases it cites, virtually every one of them, are - where they're saying there's a 204, a real 204 issue, they were oral agreements.

Now, really what it gets us down to, as I say again, is the Jasper case.

THE COURT: The Second Circuit case Jasper?

MR. HATCH: Correct, Your Honor. 2002.

THE COURT: 2002.

MR . HATCH: And I think the decision, because they rely on it so heavily, if you look at TB Harms, you look at virtually every other decision, and it's really clear that all we're looking for is a written agreement, and we have that here. And at this stage of the game it shouldn't be going any further than that.

What it really comes down to is if the Court is going to rely on Jasper. Does Jasper give the Court anything to chew on? And Jasper really does an interesting thing, Your Honor. It goes through the law. And I think it states it pretty well. They say - and they go right to Judge Friendly, as I did. And they say:

Judge Friendly pointed out the fact that a case concerns copyright does not necessarily mean that it is within the jurisdiction of the Federal District Court.

Well, that's good law. I think that's still in place, and I think almost every court follows that. And just right below that in the decision, he says:

Specifically, if the case concerns a dispute as to ownership of copyright -

Which is exactly what we have here. And the issue - which I point out is raised by the defense. It's not raised in the initial pleadings.

Specifically, if the case concerns a dispute as to ownership of copyright, then the issue of ownership turns on the interpretation of a contract, the case presents only a state law issue. And unless the complaint asserts a remedy expressedly granted by the Copyright Act, federal jurisdiction is lacking in the absence of diversity jurisdiction.

And then he makes the point that I just made a few -

THE COURT: There's no claim that there's any diversity here, is there?

MR. HATCH: No. Both companies are Delaware corporations, so it could not be removed on a diversity basis.

So they're relying -

THE COURT: So it's federal jurisdiction or no jurisdiction.

MR. HATCH: That's exactly right Your Honor.

And Judge Friendly found and so did Judge Newman here in the Jasper case and says:

The difficulty that is almost every case involving contract interpretation, appropriate for state court determination, could be recharacterized as a case appropriate for a federal court simply by framing the issue to be whether the disputed contract qualified as a writing within the meaning of Section 204(a). In most cases, there will be no doubt that the contract is a Section 204(a) writing, and the only substantial issue can be contract interpretation.

THE COURT: Except Jasper was not one of those cases.

MR. HATCH: It was not.

THE COURT: How is your case different than Jasper?

MR. HATCH: Well, I would urge the Court to look very close to Jasper because the Court there made it very clear that it is the rare exception to the rule. And I would report to the court that Jasper - and in their briefs Novell says it is a leading case in its area. I would agree it's a leading case in the area, but on a very different point than they do. I think it's a leading case in the area of the following.

In Jasper, the plaintiff himself brought his case in federal court, unlike us. He claimed that his case was one that fell under federal copyright laws, the plaintiff himself. Again, unlike our case. The defense in that case never raised an issue as to whether or not subject matter jurisdiction properly was laid in the federal court.

THE COURT: The ultimate question, though, is still the same, isn't it? Is there appropriate federal jurisdiction?

MR. HATCH: Exactly. Eventually what happened here, the case went to a bench trial, and the plaintiff lost. In other words, it was found that he didn't have a case. And this matter for the first time on jurisdiction was raised on appeal. And it really doesn't take a lot to read why the court found this a rare exception.

Now, in our brief we point out one of the reasons here is because there were third parties involved and there had to be some clarification as to the copyright. But the reality is they cite the law, which would apply directly here, and say this is the rare case because it's pretty clear the Court said, you had your day in court. You wasted all of our time. This is a rare case.

And what goes to show that even more -

THE COURT: You're saying that more normally the jurisdiction question would have been raised and decided much earlier.

MR. HATCH: Oh, sure.

THE COURT: Theoretically, it shouldn't make any difference, I guess.

MR. HATCH: Correct. And if you notice, Judge Friendly does the same kind of thing. If you look at the TB Harms decision, it's kind of interesting. He pointed out there were other cases that were like that where people miss it. And frankly, I guess in some people's minds, they don't look at those issues. And Your Honor is absolutely right. Subject matter jurisdiction can be raised at any time.

And Judge Friendly was called to deal with the Rossiter case and also the Venus Music cases, that somehow they went forward even though there wasn't - in his mind it was pretty clear you can read between the lines there wasn't subject matter jurisdiction. And he said kind of the same thing I said here. It was kind of bad facts making bad law. He said:

But the jurisdictional problem, that was obscured by the insistence of both parties that this action as a copyright infringement.

In other words, the district court missed it because nobody raised it, and the district court didn't catch it himself.

Here, we don't have that instance. It's not one of those rare instances. This is one of those cases where it's pretty clear there was a writing, and this is an argument that is being made purely for the purposes of shopping for federal court jurisdiction.

I think one of the things it points out most clearly is the Jasper court laid out kind of parameters, and the parameters were if it's contract interpretation, that's all it is. If there is an actual writing and all you're doing is interpreting it, that's a state law question. And that's exactly our case here.

What Jasper doesn't do, and if it's really a leading case on exceptions, where's the standard, Your Honor? You know, if you're trying to put this in a case book for law students to study or better yet, be in the case law so you and I can understand, what's the rare exception? How do we apply it? There's no standards really enunciated here. And I think it's really a rare exception in the sense that this Court wasn't about to let the plaintiffs in that case after having gone clear to trial and getting a judgment, then being the one to take advantage and say, never mind. Gee, we want to take a second bite in state court. And since they had brought their case under federal law, I think the Court allowed it to be - die its intermediate death under federal law.

Simply put, the 204(a) is the same. It doesn't apply any standards at all. Just like Jasper, its only requirement is there be a writing. And I don't think there can be really honest dispute that there is a writing here.

Now, Novell is trying to make what we believe are very convoluted arguments that there may be some issue as to what the writing meant. But isn't that really the gravamen of any contract claim that is decided in state court where there's a dispute between the parties? And I don't think that in and of itself makes it a federal claim.

So, Your Honor, as much as we'd like to be here -

THE COURT: I can tell.

MR. HATCH: And in reality, I think we would. But the difference is I think we have to raise this because we don't want to be put in a position where one or the other parties having received a bad ruling at the end of the matter then says, wait a minute -

THE COURT: No jurisdiction.

MR. HATCH: - no jurisdiction, for the exact reason Your Honor raised, and that's the kind of thought process we went through. We'd rather be here. But the bottom line is it can't be waived, and so - and it can can be raised at any time. And we don't want to have to go through the time and expense of getting really quite far down the road when we want to be able to see this through as quickly as possible and have somebody who doesn't think the litigation is going particularly well say, oh, wait a minute, we just discovered there isn't subject matter jurisdiction here. Because, gosh, that is a writing. And since it's a writing and we are interpreting the contract, we really ought to be in state court.

That ought to happen now, not later.

Thank you, Your Honor.

THE COURT: Thank you, Mr. Hatch.

Mr. Jacobs? You have a somewhat different view in this matter.

MR. JACOBS: Indeed, Your Honor. Good afternoon.

Your Honor, I think SCO's argument understates the significance of Section 204(a) and understates the significance of this dispute. And what I'd like to do is walk you through the structure of the relevant provisions of the Copyright Act so you can see how 204(a) sits in context. Where I'm going is this.

THE COURT: You would agree, before you go wherever you're going, you would agree it's your burden to establish - you're the removing defendant. It's your burden to establish federal jurisdiction because you removed and claimed it.

MR. JACOBS: That's correct, Your Honor.

THE COURT: And the standard is preponderance.

MR. JACOBS: Well, I don't know that there is a preponderance standard. I think the standard is -

THE COURT: What do you think it is if it isn't preponderance?

MR. JACOBS: I think the question - the standard is whether applying Jasper - whether there's a substantial 204(a) issue raised by the complaint. And I'll come to the issue of boundaries so that we see that isn't infinitely elastic.

THE COURT: Okay.

MR. JACOBS: 204 is in the Copyright Act around some other sections that make clear that the Copyright Act is going to supplant state law when it comes to the question of transfers of copyright interests. Section 201, for example, says that ownership can be transferred by a conveyance. So there's no question. I'm a copyright owner. I can transfer. And what it goes on to say is, this will be relevant to sort of a tertiary issue about what the amendment Number 2 means, 201 says that:

Any of the exclusive rights and any subdivision of the exclusive rights can be transferred by conveyance.

So we have a lot of flexibility under the Copyright Act. We can transfer. If you ever thought there was some issue about transferring, the 1976 Copyright Act says, no. It's broadly transferable.

Section 202 says, if I give you a physical object, that doesn't necessarily mean I gave you any copyright rights in that physical object. The two are distinct. So we're going to deal with any ambiguity that might have been lurking in the law about whether, if I give you a physical object, you own the copyright rights to that object.

Section 204 says, however, you have all these rights to transfer, you can transfer in a very open-ended sort of way, but you have to have a written instrument of conveyance in order to do so. And what case after case says is if you don't have a written instrument of conveyance, then there is no transfer. And federal law, not state law, is the law that says that that is so.

And our contention here is that there is no written instrument of conveyance. There's a writing. There's a contract. We agree that's undisputed. But SCO's argument reads out of the statute the words of conveyance. And our point here, our position is that 204(a) says a written instrument of conveyance, in order to transfer the copyrights, I need a piece of paper that looks more or less like a deed,

THE COURT: You agree with Mr. Hatch that there's a writing, but you don't think there's a written instrument of conveyance.

MR. JACOBS: Precisely. There's a contract, but it didn't convey ownership.

THE COURT: And because there's not a written instrument of conveyance, then we have to get to the 204(a) question.

MR. JACOBS: Well, 204(a) tells us that we need to look to whether there is a written instrument of conveyance before they get to the first paragraph of their complaint, which is that SCO, acquired by new SCO -- pause, definitional moment, I'm going to use SCO interchangeably referred to SCO that contracted with Novell and the SCO that we're dealing with today so I don't have to repeatedly say old SCO and new SCO.

So in the very first paragraph of SCO's complaint, they allege that they obtained ownership under the asset purchase agreement. We say, how? Where's the instrument of conveyance? Where's the transfer? We see a promise. We see an asset purchase agreement that says something will occur, and then I'll walk you through the asset purchase agreement, perhaps, if we get to the merits. But we say there is no written instrument of conveyance.

So our point is if you look at the very first paragraph of their complaint, you see the federal issue. They did not say, under Section 204(a) we obtained ownership. But the cases teach us that they can't plead around that problem.

Contrary to SCO's view on this, there are lots of ownership cases as to which federal jurisdiction under 1331 and 1338 has been held to lie. Those ownership issues are ones in which there's a substantial federal question relating to ownership. What is a widow? What is a work for hire? What is a joint author? And we submit, and Jasper demonstrates, has the 204 bridge been crossed?

Paragraph 1 of their complaint again doesn't say, we crossed the 204(a) bridge, in hac [sic] verba. But we submit the question is there and can't be avoided. You can't hand wave and say, no, there's a writing so there's no 204(a) issue.

SCO says that 204(a) cases are really about the distinction between a written agreement and an oral agreement. And that's not right. The best example of that is the Radio Television Espanola case --

THE COURT: You say the distinction here is between one kind of written agreement and perhaps another kind.

MR. JACOBS: Precisely. And it's a sharp distinction in the law. The Arachnid case is probably the best one to look at if you really want to see plain as day a context of the patent, a case where the court is saying, well, no. For this period, we didn't have an assignment. For this period, we had a promise.

So that's right. Of course, if there was an oral issue, we'd have a 204(a) versus an oral promise. But 204(a) says you have to have a written instrument of conveyance.

Now, SCO says, there is no real law around this, and that's just not right. 204(a) sets up federal standards for an instrument of conveyance. The Radio Television Espanola case says that, and a very good case to look at is the Pamfiloff case at 794 F Sup 933.

What Pamfiloff says, it's very interesting. What Pamfiloff says is that 204(a) is so powerful that it displaces all other bases on which you could argue ownership. Equitable estoppel, for example. 204(a) displaces equitable estoppel. So to say there is no law here for a requirement of writing, that's simply incorrect. 204(a) sets up what might be thought of as federal common law for the transfer of copyright ownership.

Is Jasper infinitely elastic? I think that's a tough question here. Jasper says, is there a substantial 204(a) issue? If so, federal jurisdiction lies. I think we are still looking at --

THE COURT: What did Jasper mean when it says this is rare?

MR. JACOBS: There are -- I don't know what it really means when it says that it is rare because there are a fair number of ownership cases that turn on federal law and, therefore, make their way into federal court. What Jasper literally says is this is the rare contract case in which there's a 204(a) issue. There the 204(a) issue was trivial compared to the one here. There the 204(a) issue is whether -- if some of the co-owners signed the documents after the purported transfer took place, what does that mean? Does that mean effective conveyance? And the Court said yes. It didn't spend a lot of time on the issue. But if you look at the history of the 204(a) law, it is an issue whether you can have an after-signed, a later-signed document somehow affects the transfer of copyright. So it was an issue, and the Court looked at it and passed on it.

They don't argue that Jasper was incorrectly decided. And if Jasper wasn't incorrectly decided, then I don't see how they can credibly argue here there is no federal jurisdiction.

THE COURT: Well, there was -- I guess Mr. Hatch will get to reply since this is his motion. But maybe he does think it was incorrectly decided because he thought the circuit let it go because it had already been to trial and they didn't want to disturb it and so on.

MR. JACOBS: Those are the facts of the case. But let's be clear on whether we are arguing to you that you should not follow Jasper or not, because that's an important -- that's really a strong argument to make to you, that you should not follow Jasper. We say Jasper was correctly decided. But even if Jasper was kind of out here given the fact that the Court had to construct its own 204(a) issue to maintain jurisdiction, we're well inside of Jasper because we're not asking you to construct the 204(a) issue. We're saying it's as plain as day, right on the face of the complaint, even though they don't utter the words 204(a).

So what are the boundaries? We still have a well-pleaded complaint rule. We contend, however, that the well-pleaded complaint doesn't allow them to recharacterize what is an ownership dispute as a slander of title claim, not mention 204(a) and avoid as plain as day copyright ownership 204(a) issues. They can't do that because the Supreme Court told us even in the Christensen case that the well-pleaded complaint doesn't mean that the plaintiff is entirely the master of his claim. Got a lot of mastery over the claim and a lot of mastery where the case ends up, but not entirely. You penetrate into the complaint, and you look at whether there is a substantial 204(a) issue.

Since copyright law governs ownership transfers and since this case pleads an ownership transfer, right on its face, right in the opening paragraph, this complaint necessarily goes through a proper bridge and through a gate, a bridge and a gate defined by 204(a). This is not a side issue. This is not an issue within an issue. This is a threshold question they don't get anywhere close to making out their slander additional element if they haven't shown that ownership occurred. And that's why there's federal jurisdiction here.

THE COURT: Thank you, Mr. Jacobs.

You get to reply, Mr. Hatch.

MR. HATCH: Thank you.

THE COURT: Slander action does presuppose ownership, doesn't it?

MR. HATCH: Yes, it does, Your Honor. And I assume they've raised that as one of their remaining defenses.

What's interesting here is what they're essentially saying is that this is not an instrument of conveyance, the APA and the Amendment 2. And a lot of this gets into the argument that they're also making on the motion to dismiss. To a large degree, they're putting the cart before the horse, because they're asking you, and I will argue in that motion, as well, given an opportunity, that they're asking you to look at things in a vacuum. I mean, they're really putting substance ahead of form because it really defies logic to say this isn't a 204(a) writing. It's a contract -

THE COURT: You meant form ahead of substance.

MR. HATCH: What did I say?

THE COURT: Substance ahead of form.

MR. HATCH: Sorry.

THE COURT: Isn't that what you meant?

MR. HATCH: Yes.

THE COURT: Okay. I just wanted to make sure I understood you.

MR. HATCH: I'll hear about that back at the office, but I appreciate that.

No, they truly are, because it really defies one to be able to say this is not a standard, in a sense a standard contract that is purporting to transfer copyrights to have a party pay millions of dollars for it. By asking you to look at it in a vacuum, they're basically saying, you know, gee, this isn't it. But we alleged, one, ownership. We alleged, two, the contract. We alleged it's closed and its pact. And for eight years the parties have acted as though it is.

One of the exhibits that we attached to the motion is very interesting because they're saying, well, this isn't an instrument of conveyance. Well, this is a press release put out by them. And what did they say about it? Because you'll recall - well, one of the things you may not be aware of is when this deal closed in 1996, most of the executives in that period of time moved on to other endeavors. The management caused what we are calling the problems today are all new management with presumably different agendas. And when they first started making these types of slanderous comments about the copyright ownership, they pointed only initially to the APA. The APA has what we consider to be an error, and it did not reflect the intent of the parties, which was fixed by Amendment 2, which made it very clear that the copyrights were transferred.

The CEO of Novell, apparently because he hadn't been there and he wasn't aware of the transaction and apparently didn't do his homework before he started making the comments he was making to the public, basically went out and said, well, look, we've got the APA, and it doesn't transfer copyrights. The words aren't in there.

So my client sent him a copy of Amendment 2. And immediately what he told the public upon receiving that is he had to make a public statement because he saw that he was wrong. And he says in a May 28th letter to SCO:

Novell challenged SCO's claims to UNIX patent and copyright ownership and demanded that SCO substantiate its allegations that Linux infringed SCO's property rights. Amendment 2 to the 1995 SCO-Novell asset purchase agreement was sent to Novell last night by SCO. To Novell's knowledge, this plan is not present in Novell's payment. The amount of energy support SCO's claim that certain copyrights bringing did transfer to SCO in 1992.[sic]

So he's even acknowledged that the way they view the contract is it was - that it was transferred at the time, the APA was a transferred document.

Now, the cases that Mr. Jacobs cited to you claiming that there's a lot of law, and I'll point - put to you that none of them cite Jasper, nobody cites Jasper. There's only one case that I'm aware of that cites Jasper, and it sites[sic] Jasper for our position, for the good law that it does quote like when it's quoting Judge Friendly. But most of the other cases he's talked about are totally different kinds of cases. They are cases where there wasn't an adequate right. The writing that was alleged in those cases didn't make a transfer. That's true. The Radio case, the Arachnid case. He's saying that Arachnid, it does not rise to the level of present agreement and existing invention. It doesn't vest legal title.

Now, we've alleged the exact opposite. We've alleged that this is the operative agreement and that the deal closed. And as a matter of fact, he's saying it didn't - in the motion to dismiss, he makes a lot of arguments that somehow puts again this agreement out as in a vacuum as though we can't look at anything else.

I mean, I posed the question to one of the lawyers in the firm today, you know, what would they go on if we hadn't even - if we'd never attached the agreement, we just made the allegations? I don't think we'd be here. I mean, every piece of evidence isn't attached to a complaint or put in a complaint. We're in another pleading state.

I just went back today, pulled off a Novell cite[sic]. How did Novell look at this deal? And this is their press release, and it's still on their sight[sic] as of today. You can get it yourself. Dated November 6, 1995. And it's saying:

Novell states it completed the sale of UnixWare business to SCO finalizing the agreement first announced in September of 1995.

That's the APA.

And so it really kind of - it really does stretch the imagination to be able to try and take what was a transaction that was treated as a transfer of copyright for the last eight years and then all of a sudden there was a dispute between the new management of Novell and SCO, and all of a sudden, this becomes a federal issue because 204(a) requires a writing, and they don't think this is enough of a writing, but didn't have any problem over the last eight years? I mean, this is the same company that upon the closing of the agreement, the evidence is going to show, immediately wrote letters to virtually every one of their clients saying, we don't own it anymore. Here's contact to SCO. They're who you have to deal with now.

So I would urge the Court not to look at it in a vacuum that apparently Novell wants you to to be able to not look at the reality out there and take it for what it is. This couldn't be more clear as an instrument of conveyance even if you want to put it that way.

Thank you, Your Honor.

THE COURT: Thank you.

I'll take the motion under advisement. And since I don't yet know how I'm going to rule on the motion to remand, I don't want to bring you all back, I'll now hear arguments on the motion to dismiss.

Mr. Jacobs? Obviously if I end up remanding, I wouldn't worry about the motion to dismiss. But if I do don't, [sic] I will.

[to be continued]


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