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DaimlerChrysler Hearing Transcript, Orders, Broderick Supplementary Affidavit
Sunday, September 05 2004 @ 11:29 AM EDT

Here, to help complete our records, are more documents in the SCO v. DaimlerChrysler lawsuit:

These are all scanned documents that I am finally getting to. The most helpful document here is the transcript of the hearing on July 21, 2004. If you follow what each party says, you really can see how significant this ruling is. I even see a tie-in to the AutoZone and IBM cases, because in DaimlerChrysler, SCO also trotted out its argument about methods and concepts, but significantly they got absolutely nowhere. But let's see how the DC lawyers framed the issues, so you'll see how they won, and also how SCO lost.

Keep in mind that judges have to go by the law. They can't just say, "This is the goofiest lawsuit ever," and just toss it out. If it's a stupid lawsuit, they'll surely look to find a way to toss it out legally, but they are bound by the law. And the law favors rights holders, no doubt about it. So how did SCO lose this one so thunderously? Let's follow the arguments the parties made sequentially, and you'll see some fine lawyering on DC's side in making sure that the argument stayed properly cabined as a breach of Section 2.05.

It all began with the letter demanding certification, the Dear UNIX licensee letter from December of 2003:

Such written certification must include statements that:

1. You are not running Linux binary code that was compiled from any version of Linux that contains our copyrighted application binary interface code ("ABI Code") specifically identified in the attached notification letter.

2. You, your contractors and your employees have, to your knowledge, held at all times all parts of the Software Products (including methods and concepts) in confidence for SCO.

3. You have appropriately notified each employee and contractor to whom you have disclosed the Software Products, and taken steps to assure that such disclosure was made in confidence and must be kept in confidence by such employee or contractor. Please provide evidence of your compliance with this obligation. This evidence may include, but not be limited to, nondisclosure agreements, employee policies or manuals, or other such evidence of compliance.

4. Neither you nor your contractors or employees with access to the Software Products have contributed any software code based on the Software Product for use in Linux or any other UNIX-based software product.

5. Neither you nor your contractors or employees have used any part of the Software Products directly for others, or allowed any use of the Software Products by others, including but not limited to use in Linux or any other UNIX-based software product.

6. Neither you nor your contractors or employees have made available for export, directly or indirectly, any part of the Software Products covered by this Agreement to any country that is currently prohibited from receiving supercomputing technology, including Syria, Iran, North Korea, Cuba, and any other such country, through a distribution under the General Public License for Linux, or otherwise.

7. Neither you nor your contractors or employees have transferred or disposed of, through contributions to Linux or otherwise, any part of the Software Product.

8. Neither you nor your contractors or employees have assigned or purported to assign any copyright in the Software Products to the General Public License, or otherwise, for use in Linux or another UNIX-based software product.

DC didn't respond within the 30 days, so SCO served its complaint which mentioned DC agreeing to Sections 2.01, 2.02, 7.05(a), 7.09, but then in the cause of action listed only 2.05, as you can see in this snip:

24. Consistent with these restrictions, in § 2.05, Defendant also agreed to account to SCO on an annual basis regarding its use of System V software licensed pursuant to the Software Agreement. Specifically, § 2.05 provides as follows:

On [SCO’s] request, but not more frequently than annually, Licensee shall furnish to [SCO] a statement, certified by an authorized representative of Licensee, listing the location, type and serial number of all Designated CPUs hereunder and stating that the use by Licensee of Software Products subject to this Agreement has been reviewed and that each such Software Product is being used solely on such Designated CPUs (or temporarily on back-up CPUs) for such Software Products in full compliance with the provisions of this Agreement. (Emphasis added.) . . . .

Plaintiff respectfully requests that the Court:

Enter an order that DC has violated § 2.05 of the Software Agreement by refusing to provide the certification of compliance with the “provisions” of that Agreement;

Enter an order declaring that DC has not complied with, and instead has violated, the provisions of the Software Agreement with which § 2.05 required DC to certify compliance;

Enter an order permanently enjoining DC from further violations of the DC Software Agreement; and

Issue a mandatory injunction requiring DC to remedy the effects of its past violations of the DC Software Agreement; and

Award damages in an amount to be determined at trial; . . .

So SCO tried to include the other clauses under Section 2.05, saying that because DC had agreed to the other clauses in the contract by signing it, they had to certify that they had faithfully followed each and every term, not just the matters specifically mentioned in the one certification clause.

That's not what Section 2.05 said, however, as DC was quick to point out in their Reply Brief in Support of its Motion for Summary Disposition, and you can see how they began to try to limit SCO's claims in that document, which the judge would read prior to the hearing: Their argument was a legal one. They didn't say, this is ridiculous, although I'm sure they felt it. They said that since there is nothing unclear about the terms of section 2.05, or anything else in the contract, the judge needed to stick to what the law was regarding unambiguous contract terms, and that law is that if a contract is clear, the judge is to simply interpret it by its own terms and apply it. There is nothing for a jury to interpret, because no reasonable minds could disagree. No outside testimony as to what it means or meant is appropriate. That's only useful if there is real doubt about what a contract is saying:

This case presents the rare circumstance where summary disposition at the initial state of the litigation is not only appropriate, but required. The SCO Group, Inc. ("SCO") alleges a sole cause of action for breach of contract and declaratory judgment. However, the two documents that SCO itself attaches to the complaint in ostensible support of its claim instead defeat the claim as a matter of law. The documents --- a letter from SCO seeking a certification it says DaimlerChrysler is required to provide pursuant to a license agreement, and the license agreement itself --- show that there is no genuine issue of material fact as to whether DaimlerChrysler breached the agreement. The license agreement delineates, in unambiguous terms, what the certification must include, and by those plain terms, DaimlerChrysler has no contractual duty to provide the information that SCO demands in its letter. In addition, DaimlerChrysler has provided SCO with the only certification required under the license, demonstrating that DaimlerChrysler is not even using and has not used the licensed software for more than seven years. Accordingly, there is no genuine issue of material fact, and SCO's claim fails as a matter of law. .. .

11. Section 2.05 of the License Agreement specifies the required contents of a proper certification:

a list of the location, type and serial number of all Designated CPUs under the License Agreement:

a statement that the Licensee has reviewed the use of Software Products subject to the License Agreement; and

a statement that "each such Software Product is being used solely on such Designated CPUs (or temporarily on back-up CPS) for such Software Products in full compliance with the provisions of this Agreement."

See Cmpl. Exhibit A (License Agreement) § 2.05. . . .

SCO claims that DaimlerChrysler breached the License Agreement by failing to provide SCO with the Linux Certifications. Put simply, this claim fails because DaimlerChrysler has no obligation under the plain terms of the License Agreement to provide SCO with the Linux Certifications. SCO's inability to identify any express contractual provision that DaimlerChrysler breached requires dismissal of its claim. ...

A motion seeking summary disposition pursuant to MCR 2.116(C)(10) must specifically identify the issues as to which the movant believes that there is no genuine issue of material fact. LoPiccolo Homes, Inc. v. Grand/Sakwa of Brooklane, No. 241386, 244800, 2003 WL 23018549, slip op. at *2 n.1 (Mich App, Dec 23, 2003)(per curiam)(attached hereto as Exhibit D)(citing MCR 2.116(G)(4)); MCR 2.116(G)(4)). The movant has the initial burden of supporting its position with affidavits, pleadings, admissions, and other documentary evidence. Id. (citing Quinto v. Cross & Peters Co, 451 Mich 358, 362; 547 NW2d 314 (1996)). The burden then shifts to the opposing party to set forth specific facts showing a genuine issue of material fact for trial. Id. (citations omitted). If there are no genuine issues of material fact, the moving party is entitled to judgment as a matter of law. See Maiden v. Roxwood, 461 Mich 109, 120; 597 NW2d 817 (1999). The test is whether the kind of record that might be developed will leave open an issue upon which reasonable minds might differ. Singerman, 455 Mich at 139.

This case presents no issue on which reasonable minds might differ. The unambiguous terms of Section 2.05 of the License Agreement are susceptible to only one reasonable interpretation, and bar SCO's claim for breach and declaratory judgment as a matter of law. Moreover, because the License Agreement's terms are unambiguous, no amount of discovery would enable SCO to develop a record that would leave open the issue of breach. Accordingly, this Court should grant summary disposition in favor of DaimlerChrysler on SCO's claims. ...

II. SCO ADMITS THAT SECTION 2.05 IS UNAMBIGUOUS.

SCO concedes that Section 2.05 is not ambiguous: "SCO submits that Section 2.05 is indeed unambiguous -- but not in favor of Daimler's motion." (See The SCO Group, Inc.'s Memorandum of Law in Opposition to DaimlerChrysler Corporation's Motion for Summary Disposition ("SCO Mem.") at p. 15.) Because SCO concedes that Section 2.05 is not ambiguous, this Court should not look outside the four corners of the License Agreement to construe that provision. . . . .

SCO's interpretation of Section 2.05 is facially unreasonable and unsupported by law. Moreover, to the extent SCO's interpretation is based on the Broderick Affidavit, it may not be considered, as that affidavit constitutes parol evidence admissible only if this Court determines that Section 2.05 is ambiguous -- which even SCO admits it is not. See Teitelbaum Holdings Ltd v Gold, 48 NY2d 51, 56; 396 NE2d 1029 (1979). Accordingly, there is no dispute that DC provided the information required under the plain terms License Agreement, and this Court should rule as a matter of law that there has been no breach.

So the argument by DC was framed simply: the contract is clear. All we have to certify is what is in 2.05, not all the other stuff. The reason they wanted to do this is, they were bringing a motion for summary disposition, and for that there have to be only issues of law, not fact. If there are any issues of fact in dispute, then the judge can't resolve them in a summary disposition. So, DC sticks to that rule and argues only law issues. Had they lost the motion, they knew that at a trial, they'd have plenty of opportunities to tell the jury how stupid the whole lawsuit was, but this wasn't the time and place for that. Before the judge, it was all about law issues, which she could resolve. A lot was said at the hearing but here are the parts that really mattered to the judge:

DC atty Feeney: ... [T]his is a very simple, straightforward breach of contract case. The issue, Your Honor, before the Court today is whether this section 2.05 of the software license agreement requires a certification of compliance with the agreement in the detailed enumeration that is set forth in the letter requesting compliance, or, does that section require, as it plainly states, that the party to whom the certification is -- from whom the certification is sought merely state that the licensee has, in all respects, complied with the agreement. That's really the long and the short of it, Your Honor.

And the license agreement itself, which is attached as Exhibit A to the Plaintiff's complaint, in section 2.05 plainly states as follows: "On AT&T's request . . . but no more frequently than annually, licensee. . . shall furnish to AT&T/IS a statement certified by an authorized representative of licensee listing the location, type and serial number of all designated CPU's hereunder and stating that the use by licensee of software products subject to this agreement has been reviewed and that each such software product is being used solely on designated CPU's, or temporarily on backup CPUs, or such software products, in full compliance with the provisions of this agreement." . . .

If the court agrees that section 2.05 is unambiguous, then this is certainly an appropriate matter summary disposition. SCO, in their response to the motion, acknowledges that section 2.05 is unambiguous. This is a question of what section 2.05 requires. If it requires -- if it requires the enumerations of all these paragraphs that were set forth in their latter, then obviously our letter than we submitted does not satisfy or meet those requirements. But if, as we say, Your Honor, what section 2.05 requires is exactly what it says, which is a statement that we are in compliance, we have complied.

SCO atty Heise:They are obligated to treat all of that product, the source code, their modifications to it, their derivative works, the methods and concepts and keep the related documentation that goes with all of that confidential. They are required to instruct their employees that they must keep all of this confidential. And what they have done, in their certification, which they've acknowledged, as they must, that they did not ever provide one, and they're required to do so by the agreement. And I don't think there's any case that supports that as a matter of law waiting almost four months and beyond 30 days after suit was filed it is sufficient. So on that grounds, certainly summary disposition is incorrect.

But on the more fundamental issue of, is the certification that they did provide adequate, because where they say we are not using it, have they complied -- does that comply with the terms of section 2.05. And clearly it does not. The 2.05 says that it must be solely on such designated CPU's and in full compliance with the provisions of this agreement. There has to be a statement that they're in full compliance with the provisions of this statement. And the question for the Court is, can they unilaterally limit what they're providing the certification to. Can they say, we're not using it, so therefore, we must be in full compliance? . . . The items that are enumerated in items 1-7 of the letter correspond directly to the limitations that they agreed to in the agreement, to keep it confidential, to inform their employees to keep it confidential, to make sure that the source code stays in the United States, that it does not get exported outside the United States, so, for example, in this case, that it's not appearing in Germany now that Daimler is part of this company.

. . . . So either they have to provide the full certification indicating that the source code, the methods and concepts, the modifications, all of that has been kept confidential, it's not being used on any other CPU's in any manner whatsoever, or, they can take advantage of 6.02 of the agreement and terminate and specifically identify that they have destroyed all of the source codes so that we, at AT&T, now SCO know that our source code is not in a position to be made publicly available by Daimler, and that they have, in fact, throughout the years, instructed their employees to maintain the confidential nature of this source code, the derivative works, the modifications. Because it quite simply is not the situation where one can say, we haven't used that computer over there in seven years so as a result, we must be in compliance. That is not what section 2.05 says.. . . They can't take the source code, the written documentation and use it now in this new operating system that they've publicly stated that they're using, Linux, and assist in that. If they do that, they must tell us about it.

DC atty Feeney:Very briefly, your Honor. Your Honor, this is a fishing expedition. There is no basis for any claim of any breach of the confidentiality provision. They don't even make that claim in the complaint. . . . That's not what this lawsuit -- this lawsuit, as filed, was a lawsuit claiming a breach of section 2.05. And it doesn't require certification as to anything else. If they think they've got a breach of duty or some sort of a lawsuit that they want to bring against DaimlerChrysler, that's their choice to make. But to bring a lawsuit asserting a breach of section 2.05, given what they asked for, is not the right way to go about it, Your Honor, and we'd ask that the motion be granted.

The judge accepted the argument as DC had framed it, and she ruled that the contract meant what it said it meant, and she applied it that way:

"However, the contract very clearly does not require certification of the various clauses contained in the agreement as 2.05 relates to the current use of the software by its unambiguous terms.

Thus, Defendant is not required to certify, for example, that it has not exported the software to a prohibited country. Specifically, Defendant is not required by 2.05 to certify compliance with 2.06, 4.01, 7.05, 7.08, 7.09. I assume you mean two point zero six, four point zero one, seven point zero five, seven point zero eight, seven point zero nine, as requested by Plaintiff's correspondence.

Therefore, any claim for failing to certify compliance with those sections of the agreement are properly dismissed pursuant to (c)(10) as Defendant has no contractual obligation to make such certifications.

Because there was a fact issue regarding how quickly a licensee had to answer, that couldn't be resolved in a summary disposition action, she ruled. The only reason there was a question there was because the contract was silent on that point. But for the rest, it was all tossed out, methods and concepts and all. That decision was a stake in SCO's heart, because it meant that no other company who had received such a letter would be likely to feel obligated to certify to any of those other things mentioned in the letter either. This case doesn't mean SCO can't try again with another company, but it's a strong hint that it would be pointless for them to do so. This is a blow, because when the lawsuit was announced, SCO indicated it was a template for many future actions:

"'We expect this will also become an area of focus of our enforcement initiatives,' SCO Chief Executive Darl McBride said in a conference call Monday."

In that same article, an attorney with a well-respected law firm expressed skepticism about the legal strategy:

"However, the license agreements describe only limited auditing authority, and SCO might have trouble extracting all the information it wants beyond basics such as how many computers and processors are running Unix, said Jeffrey Osterman, a partner with Weil, Gotshal & Manges."

In the most recent teleconference, Darl McBride was asked the unusual question by Dion Cornett whether they had considered asking for a second legal opinion, since so many reputable firms were expressing skepticism about SCO's legal advice. McBride answered that the pundits would have different ideas, after they learned all that SCO has filed under seal with the court in the IBM case. But this lawyer's opinion proved to be exactly right, didn't it? If anything, he was too conservative about SCO's problem.

The part that is so hard to understand, for me anyway, is why SCO didn't bring the necessary type of action to get the other issues heard? They mention them in the complaint, but then they didn't ask for any relief associated with any of those other clauses, except via the rejected theory that their victim needed to certify regarding Linux, regarding exporting, etc. Why did they try to squeeze it all into a Section 2.05 certification demand, like trying to shove Cindarella's step-sisters' big feet into a dainty glass slipper? Why didn't they accuse DC of breach of the other clauses? I think anyone could see in advance it wasn't going to work the way they framed it. Are they trying to lose? Too creative for their own good? I am completely stumped, and it's not likely trying anything like that would help them now, post the DC decision. Some more pundits have expressed doubt about SCO's overall strategy, which McBride expressed like this:

"The DaimlerChrysler case centered on Unix and only brushed up against Linux, but SCO has considered a strategy to expand from the Unix contract into Linux. 'Say they have a license for the Unix source code to be on 10 boxes. If they have 2,000 boxes that have Linux source code on it that is duplicative of our Unix source code, they are breaking the contract they have with us,' SCO Chief Executive Darl McBride said in an earlier interview.

"That argument likely won't hold water, Radcliffe [Mark Radcliff of Gray Cary] said. 'Linux is clearly not licensed under the contract. The problem is: This is a contract that says, "You'll tell us where the software products are being used." It doesn't, by its terms, say, "Any program that infringes the copyright of our software products,"' he said. . . . The remaining issue in the DaimlerChrysler case--that the automaker didn't respond fast enough--likely won't produce any monetary damage award, Radcliffe said."

It's too late to terrify anyone now, they think:

"'From the outside looking in, it seems like SCO is really getting beat around the head and shoulders at almost every turn,' said John Ferrell, an attorney at Carr & Ferrell.

"The legal troubles spill over into SCO's attempt to get Linux users to buy SCO intellectual-property licenses, Radcliffe said. 'A year ago, everything was up in the air, nothing was certain, and SCO had a reasonable argument: "Why don't you buy peace now, while it's cheap?" Now, basically, they haven't had any significant wins, they've had some losses, so I think that argument is gone,' he said. . . .

"'Over the last two years, SCO has managed to waste an incredible amount of goodwill and reputation over its increasingly specious-seeming litigation,' Ferrell said. 'It's a real shame, because SCO had a tradition of being a very strong and important company in the Unix industry and the software industry in general.'"

Another puzzlement to me is the William Broderick affidavit. You'll remember that DC moved to strike some paragraphs from the original affidavit, on the grounds that Broderick had no personal knowledge of some of the matters he was testifying to:

"DaimlerChrysler Corporation ('DCC'), through its counsel, Dykema Gossett PLLC, submits this motion to strike Paragraphs 8, 10-26, 28, 35, 44-45, 56-57, 59 and 62-65 of the Affidavit of William Broderick ('Broderick Affidavit') for failure to comply with MCR 2.119(B)(1) and MCR 2.116(G)(6) because the statements contained therein are not within the personal knowledge of the affiant."

When you read the supplemental affidavit, you may feel, as I did, puzzlement as to why none of the qualifying material was put in the original affidavit. The judge accepted the supplemental affidavit, naturally, but by then it made no difference. She had made up her mind, based on what the contract unambiguously said, thanks to DC framing the argument that way, and we have DC's attorneys to thank for that.

When you get hit with a lawsuit, here's what you really are paying your lawyer for: the ability to figure out which way to handle it. There are always choices, and it's a matter of figuring out what is most likely to win. DC did just that. Their first question was, do we bring a summary disposition action immediately? Do we qualify for a summary disposition before discovery even begins, unusual as that might be? Can we frame it successfully as a question of law with no material issues of fact left hanging that would require a jury?

And we also have SCO to thank, because they made mistake after mistake, as I view it, including bringing a lawsuit against a company that hadn't used their product in almost a decade. Had they done the normal thing and followed up their letter with a phone call to DC, they could have avoided a public embarrassment. And you can't help but wonder, despite the bluster at the teleconference, whether even SCO now must realize that their overall strategy isn't panning out. When a lawyer tells you that he's going to use your case to make new law, watch out.


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