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SCO's Reply Memorandum in Support of Motion For Stay in DC litigation - as text
Tuesday, December 07 2004 @ 05:40 PM EST

Here is SCO's strained reply memorandum to DaimlerChrysler's withering opposition to SCO's Motion for a Stay of Proceedings in SCO v. DaimlerChrysler, and as you know, SCO lost the motion at the November 24 hearing, and the case goes to trial on January 7, unless SCO can think of something else to try quick.

Speaking of strained, I'm thinking SCO's lawyers better start memorizing Portia's speech in the Merchant of Venice, about the quality of mercy not being strain'd, as they might wish to plead for some mercy from DaimlerChrysler or the judge on January 7. Methinks they might be needing some mercy dropping on them like gentle rains from heaven.

There's a not-to-be-missed article by Steven B. Hantler, assistant general counsel at DaimlerChrysler, "How to Beat the Trial Bar." The Wall St. Journal is displaying it free to the public briefly, so hurry and take a look. In it, Hantler points out that a company targeted by a bogus, phony lawsuit doesn't have to just curl up and die. They can send a don't-mess-with-me message instead, and if ever there was a company qualified to speak on that topic, I believe DaimlerChrysler has proven itself to be it. Would any SCO-like litigant ever choose DC as its intended victim ever again? Maybe if they wanted to commit suicide by judge.

Hantler says "successful companies must take time to study the trial bar's playbook -- and develop opposition strategies. The good news is, the bar can be beaten." There are several dozen trial-lawyer firms "poring over every successful company's government filings, press releases and all their public documents." Why? "To find the next billion-dollar 'mistake'." Once they find one, what do they do?

"Page Two is testing this alleged mistake on mock juries and the media. If the story sells, they move to Page Three and bring the issue to government regulators, including state attorneys general, and try to involve them.

"Page Four is filing the lawsuit, if possible in one of those magic jurisdictions that the American Tort Reform Association calls 'Judicial Hellholes.' Page Five is staging a press conference or working with their allies at the network news magazines to generate incendiary coverage about their lawsuits. In Old West parlance, some of these events could be called 'necktie parties' -- that is, public hangings. Trial lawyers have even been known to brief financial analysts who cover a company's stock in an effort to drive down share price. . . .

"The idea of this coordinated campaign is to create a perfect storm of highly adverse media coverage, regulatory agency subpoenas, share-value loss, and decline in company and product reputation that overwhelms any company that did not see it coming. The trial bar knows that if they can turn up the heat, someone in the besieged company will propose settling the lawsuit 'for a couple hundred million dollars' as the most expedient solution, even though the lawsuit is without merit."

Sound like anybody we know? He outlines some strategies to cope, and one is having "an effective, proactive litigation communications function" to respond in real time and when appropriate to "get its message out first," instead of just saying "No comment." Now I finally understand why SCO hates Groklaw. We got in the way of the 5-Page program, particularly pages 2 and 5. Once again, I see how vital it is for the FOSS community to have "an effective, proactive litigation communications function," because it can and it does make a difference.

Finally, he writes that sometimes you simply have to litigate meritless lawsuits, even if it would be cheaper to settle. DC has done so in the past, and in doing so, he says they have sent a message that bringing a meritless case against them "is a lousy investment". Finally, he points out the need to "restore fairness and predictability to our tort system." Amen to that. Let's start with sending a clear and unmistakeable message to SCO, and by proxy to Microsoft, and do something about restoring sanity to patent law while Microsoft is still in the float the concept in the media stage.

I was just chatting by email with the Inquirer's Charlie Demerjian on exactly this subject of whether SCO picked the wrong target in suing DC. He was musing on the subject of lawyers. He was remembering a firm that made a practice of defending large car companies against frivolous lawsuits:

"You know, the people who got drunk, didn't wear their seatbelt, and ran into a tree at high speeds while hanging out the window mooning a cop. This is the car company's fault, of course, for not putting a "don't moon a cop at high speeds while not wearing your seatbelt sticker" on the sun visor, $500 million. Client shows up in a wheelchair and cries a lot about how their high school football career is now over.

"The short story is that these lawyers are USED to frivolous lawsuits and deal with them every day. They are used to sleazy underhanded lawyers looking for multi-million dollar shakedowns. They don't take anything from anyone and know when they are being jerked around. SCO is probably just another in a long line . . .nothing special. Only a $1 Billion, feh.

"If SCO had to pick a worse target, I can hardly think of one that would have been better prepared. Firearms manufacturers perhaps?"

You will notice, as I did, that SCO's lawyers do not refer to DaimlerChrysler, when abbreviating its name, as DC, or even as DaimlerChrysler referred to itself in its earlier court filings, as DCC. No. SCO refers to them as DCX, with the obvious allusion to their stock. Putting that together with Mr. Hantler's article, I deduce it may be deliberate. I also noticed they don't list the name of their firm in the header. But we surely want them to have "credit" for their work, so the name of the firm is Seyburn, Kahn, Ginn, Bess and Serlin, PC. The name of the firm that prevailed in this matter, representing DaimlerChrysler, is Dykema Gossett, PLLC.

This filing made me angrier than any I have read yet. Maybe it's cumulative, but when I reached the part where SCO says the only reason they brought the lawsuit is because DaimlerChrysler "admittedly" failed to fulfill their certification obligations on time, I felt my brain would explode. I tend to go do some research at such times, and so here is a trip down memory lane. First, here is SCO's May 12, 2003 threat to the 1500, long before DC even got a certification demand letter from SCO:

"Similar to analogous efforts underway in the music industry, we are prepared to take all actions necessary to stop the ongoing violation of our intellectual property or other rights."

And here is what Unix licensees were told, in this December 18 letter, to certify within 30 days:

"Accordingly, SCO requires written certification by your authorized representative under Para. 2.04 within 30 days of receipt of this letter. 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.

"SCO will not allow UNIX Licensees to make any improper use of the Software Products, including the use of the Software Products to assist development of Linux. If you fail to make, or are unable to make, a full and complete certification as required above within 30 days of receipt hereof, SCO may pursue all legal remedies available to it, including, but not limited to, license termination rights."

Now, compare those demands with the paragraph on certification in the license:

"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."

Any licensee, such as DaimlerChrysler, would naturally see a disjoint between the Unix license requirement to annually certify about CPUs and what SCO was trying to make it mean, stretching it to cover Linux. We don't need to wonder who is right, because the judge already said DaimlerChrysler was correct, that they had no duty to certify to the items SCO listed in its letter at all:

"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."

The only question that the court couldn't dismiss on summary judgment motion was the time issue on the annual Unix certification, but only because the license is silent about how fast a demand must be responded to (it just says annually), another reason why any "delay" on DC's part can hardly be called a "delinquency", at least not without a trial, being a fact-based issue that hasn't yet been determined, although most of us can guess the outcome without straining our beanies.

So, for SCO to pretend that DC somehow deserved to be sued for "tardiness" in fulfilling an "obligation" the court has now said it didn't have, especially when you tack on that SCO never sent DC any info that they were now successor in interest to the license, as the agreement said they were obligated to do, such "certification" had never before been demanded, DC stopped using Unix software almost a decade ago, and SCO sent their letter to the wrong person at a company name that is no longer in use and to the wrong address, and at Christmas time, which as you will recall is a time when SCO itself has claimed it more or less shuts down, or at least it does when there is a discovery deadline it wants more time to meet, and there may be many reasons why DC didn't instantly respond to SCO's "Stick 'Em Up" letter.

Did SCOX call them up and ask them if they got the letter? Nooo. If one is following Mr. Huntler's 5 page-strategy, do you care about such niceties as calling up a company to make sure they even got your letter before you launch a lawsuit? And for heaven's sake, in what way was SCO in any way harmed by a few weeks "delay" here or there, anyway? Where are the damages? What is this lawsuit for? This is, in my opinion, the silliest and the meanest lawsuit I've ever seen, and SCO's insistence on pursuing it even now is revelatory of just what they really want. When they talk about DC's "feigned umbrage", while I can't speak for DC, I hasten to assure you, the public's umbrage is not feigned, but rather it streams down from heaven like a bursting thundercloud. We are really sick of companies who use the courts this way. We're sick of law firms that help them do it, too.

Here, then, is SCO's failed attempt to persuade the judge that they actually have a good reason to seek a delay. The no-nonsense judge, the very Honorable Rae Lee Chabot, to her credit, didn't buy it.

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

STATE OF MICHIGAN
IN THE CIRCUIT COURT FOR THE COUNTY OF OAKLAND

______________________________

THE SCO GROUP, INC.,

Plaintiff,

vs.

DAIMLERCHRYSLER CORPORATION,

Defendant.

________________________________

JOEL H. SIRLIN (P20224)
BARRY R. ROSENBAUM (P26487)
Attorneys for Plaintiff
[address, phone]

JAMES P. FEENEY (P13335)
THOMAS S. BISHOFF (P53753)
STEPHEN L. TUPPER (P53918)
Attorneys for Defendant
[address, phone]


REPLY MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR STAY OF PROCEEDINGS

Plaintiff The SCO Group, Inc. ("SCO"), respectfully submits this memorandum of law in order to correct several factual and legal errors contained in defendant DaimlerChrysler Corporation's ("DCX") opposition to SCO's motion for a stay of proceedings. As discussed below, Daimler has failed to articulate a reasoned basis for denial of SCO's request for a stay of proceedings pending a determination of the motion for summary judgment in the related IBM case. DCX's feigned umbrage at SCO's request for a stay is insufficient to overcome the advantages to judicial efficiency and conservation of party resources that counsel in favor of a limited stay of these proceedings.

Factual Background

Following a court appearance on July 21, 2004, the Court entered an order on August 9, 2004, granting in part and denying in part DCX's motion for summary disposition. Contrary to the suggestion in DCX's papers, DCX contacted SCO's counsel on only two occasions to discuss the conduct of further proceedings in this case -- during the last week of August and on September 15, 2004. In fact, in August, counsel worked together to propose an Amended Scheduling Order in the case that contained extended dates for discovery of the remaining timeliness claim.

DCX also erroneously states that SCO did nothing until November 5, 2004, when it requested that DCX stipulate to a limited stay of this action. To the contrary, SCO contaced DCX counsel on October 20, 2004, in an attempt to propose a limited stay of proceedings, before receiving DCX's initial discovery demands relating to the timeliness claim. After an exchange of telephone messages between counsel, SCO formally requested DCX's consent to a limited stay on October 26, 2004, in an attempt to propose a limited stay of proceedings, before receiving DCX's initial discovery demands relating to the timeliness claim. After an exchange of telephone messages between counsel, SCO formally requested DCX's consent to a limited stay on October 26, 2004 in the course of a telephone conversation with DCX counsel. DCX did not respond to SCO's request until November 5, 2004, when DCX counsel indicated that his client would not consent. In the course of the November 5 telephone conversation, SCO requested that DCX reconsider the stay proposal, and proposed the alternative of a voluntary dismissal of the remaining claim in the case. On November 8, 2004, SCO, by email, reiterated its request that DCX reconsider a limited stay of proceedings, and in the alternative, forwarded a proposal "Stipulated Order of Dismissal WIthout Prejudice and Without Costs" for DCX's consideration. DCX responded to SCO's proposals by letter dated November 12, 2004, in which it stated that it would oppose a dismissal of the remaining claim without prejudice.

Finally, the efforts expended by DCX's counsel on the remaining timeliness claim have consisted of limited discovery demands received October 20, 2004; brief witness and exhibit lists dated October 27, 2004; and a four-page case evaluation summary dated November 16, 2004. Much of DCX's limited efforts were expended following notice from SCO that it intended to seek a stay of proceedings or a voluntary dismissal of the remaining timeliness claim.

What should not be lost in the face of DCX's posturing and hyperbole regarding SCO's alleged "gamesmanship," "tactic[s]," and "naked effort to manipulate the Court system" is that this action would not have been brought but for DCX's admitted failure to respond to SCO's request for a certification of its compliance with its UNIX license agreement until after this lawsuit was filed -- a certification that DCX has conceded was required by its very conduct in supplying a certification 110 days after it was requested.

Legal Analysis

As stated in SCO's stay motion, this Court clearly has the authority to exercise its discretion and stay proceedings in any case on its docket for good cause. The authority to stay an action while another case is proceeding is inherent and, contrary to the statement footnoted in DCX's response (DCX Mem. at 3 n.2), is not subject to the requirement that the two cases involve the identical parties and issues.

The authority DCX cites for its erroneous conclusion is based on two cases involving the former "plea of abatement by prior action." The defense of plea of abandonment is now codified as a ground for summary disposition in MCR 2.116(C)(6). When another action has been initiated between the same parties involving the same claim, the second action is subject to dismissal. The rule is designed to stop parties from endlessly litigating matters involving the same questions and claims as those presented in pending litigation. Kowry v. University of Michigan, 441 Mich 1, 20 (1992)(Riley, J. concurring).

Since a plea of abatement is not being offered in this case by either party, the rule cited by DCX is not applicable to SCO's request for a stay. Furthermore, a stay of proceedings has been authorized by the Michigan Supreme Court in order to promote judicial economy. In Consumers Power Co v. Michigan Public Utilities Commission, 270 Mich 213 (1935), three citizens started an action against the City of Saginaw and Consumers Power Company to invalidate a contract for the furnishing of natural gas. While that suit was pending, the City filed a petition before the Public Utilities Commission to fix the rate for natural gas. Rather than dismiss the second action, the Supreme Court ordered the commission to stay the proceedings while the validity of the underlying contract was being litigated:

But it is apparent that the Michigan public utilities commission cannot proceed to a determination of a reasonable rate for natural gas in the city of Saginaw except upon the assumption that the city is not bound by the contract of June, 1933. If in so assuming the utilities commission should be in error, appellant will have been uselessly subjected to the expense and inconvenience of a proceeding before the utilities commission to determine the charge to be made in Saginaw for natural gas furnished by appellant. To avoid even the possibility of a useless and burdensome proceeding before the commission, as well as to preserve the orderly administration of justice, we think the proceedings pending before the Michigan public utilities commission should be held in abeyance until decision of the case pending in the Federal court.

Id. at 217-218 (emphasis added).

SCO's request for a stay of proceedings is fully appropriate under the standard adopted in the Consumers Power case. First, as a practical matter, litigation of the timeliness issue in this case -- which is important to establish that UNIX licensees like DCX are required to timely provide a certification in response to the licensor's request, rather than ignore such a request -- will only be necessary if the license agreement at issue is interpreted in such a way as to protect SCO's rights to control its intellectual property (beyond the mere literal source code) in UNIX. It is important to recall that prior to the filing of this law suit, while the IBM case was ongoing, SCO had merely sought to collect information about compliance with its UNIX licenses from hundreds of its licensees here and abroad. To accomplish this purpose, SCO used letters, not litigation. It was only because DCX ignored SCO's request that SCO went to court to enforce its certification right. The issue of the scope of the certification was raised by DCX's own motion, which this Court decided on summary disposition was significantly narrower than urged by SCO. Once this Court ruled as it did, the usefulness of obtaining certifications from DCX and other licensees was greatly reduced. In other words, SCO's effort to collect information in advance of a ruling in the IBM case has been substantially impeded, and it now makes practical sense, both from the standpoint of both the Court's and the parties' resources, to await a summary judgment ruling in the IBM case before proceeding to litigate either the timeliness claim in this case or to appeal this Court's order regarding the scope of the required certification uder the UNIX license agreement.

Thus, SCO is not suggesting in its motion for stay that the issues in the IBM case and the instant case are identical. The issues are, however, as explained above, closely related in a practical sense. Moreover, a ruling in the IBM case as to the scope of the protections and restrictions contained in the UNIX license agreement will have the further consequence of informing SCO and its licensees what their rights are under the license agreement, and this, in turn, will make the certification requests and licensees' responses thereto, more meaningful than they would be in the absence of such a ruling.

Conclusion

For all of the foregoing reasons and the reasons stated in its Motion for Stay of Proceedings, SCO respectfully requests that its motion for stay be granted.

Respectfully submitted,

SEYBURN, KAHN, GINN,
BESS AND SERLIN, P.C.

By: ____[signature]____
Barry R. Rosenbaum (P26487)
Attorneys for Plaintiff
[address, phone]

Dated: November 22, 2004

Steven I. Froot, Esq.
Co-Counsel for Plaintiff
Boies, Schiller & Flexner
[address, phone]

Mark J. Heise, Esq.
Co-Counsel for Plaintiff
Boies, Schiller & Flexner LLP
[address, phone]


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