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Transcript of the April 21, 2005 SCO v. IBM Hearing
Wednesday, May 25 2005 @ 12:15 AM EDT

Here is the transcript of the April 21, 2005 hearing in SCO v. IBM. We have many volunteers to thank for the text and HTML, including some anonymous contributors. A special thanks to Steve Martin, who did the final version, and to Josh Watson, Simon Gibbs, Scott Daniels, feldegast, Jody Belka, Greg Cardell, Dan Smith, and webster, who all pitched in.

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

THE SCO GROUP, INC.,

Plaintiff,

vs.

INTERNATIONAL BUSINESS
MACHINES CORPORATION,

Defendant.

Case 2:03-CV-294

BEFORE THE HONORABLE DALE A. KIMBALL

APRIL 21, 2005

REPORTER'S TRANSCRIPT OF PROCEEDINGS

MOTION HEARING

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

1

APPEARANCES

FOR THE PLAINTIFFS:  

HATCH, JAMES & DODGE, PC
BY: BRENT O. HATCH
Attorney at Law
[address]

BOIES, SCHILLER & FLEXNER, LLP
BY: EDWARD J. NORMAND
SEAN ESKOVITZ
Attorneys at Law
[address]

FOR THE DEFENDANT:  

SNELL & WILMER, LLP
BY: TODD M. SHAUGHNESSY
Attorney at Law
[address]

CRAVATH, SWAINE & MOORE LLP
BY: DAVID R. MARRIOTT
Attorney at Law
[address]

2

SALT LAKE CITY, UTAH, THURSDAY, APRIL 21, 2005
* * * * *

THE COURT: We're here this afternoon in the matter of The SCO Group vs. International Business Machines Corporation, 2:03-CV-294. For plaintiff, Mr. Brent Hatch and Mr. Sean Eskovitz and Mr. Edward Normand; correct?

MR. NORMAND: Correct, Your Honor.

THE COURT: For defendant, Mr. David Marriott and Mr. Todd Shaughnessy.

MR. MARRIOTT: Good afternoon, Your Honor.

THE COURT: Good afternoon.

All right. We have SCO's motion to compel IBM to produce Mr. Palmisano for deposition; SCO's motion for leave to file a third amended complaint, which might touch on the question of defendant wanting or not wanting to narrow the Ninth Counterclaim; and proposed scheduling orders from everyone.

Now, the first and third of those motions clearly have no confidentiality problems. The second one, the motion for leave to file a third amended complaint, there might be some alleged confidential information there, but you can argue it in a way that doesn't refer directly to it. You can refer to it in exhibits and so on. So I'm sure for the happy conclusion of the spectators, the courtroom will not be sealed.

3

All right. Let's take up the motion to compel. Who's going to argue that?

MR. ESKOVITZ: I will, Your Honor.

THE COURT: And you are?

MR. ESKOVITZ: I'm Sean Eskovitz.

THE COURT: You are Mr. Eskovitz.

MR. ESKOVITZ: And, Your Honor, in connection with both of the motions that will be argued this afternoon, we submitted to the Court two separate binders of exhibits that will come up during the argument.

THE COURT: And you've given them to opposing counsel, no doubt?

MR. ESKOVITZ: We have.

THE COURT: Thank you.

MR. ESKOVITZ: Your Honor, SCO seeks to depose sam Palmisano because before he became IBM's chairman and CEO, he personally spearheaded IBM's multi-billion dollar strategic decision to shift the focus of its operating system business from Unix to Linux, and that strategy is at the center of SCO's claims in this case. Specifically, SCO alleges that in order to carry out his strategy of quickly upgrading Linux into an operating system that could compete with Unix, SCO's product for business users, IBM took the shortcut of misappropriating SCO's intellectual property in Unix and contributing Unix' enterprise strength features into Linux.

4

Now, Mr. Palmisano spearheaded that IBM Linux strategy when he was the vice-president in charge of IBM's computer server group in late 1999 and early 2000, years before he was installed as the company's CEO and chairman. But IBM has attempted to shield Mr. Paul Palmisano from deposition based on his current positions.

They've refused to produce Mr. Palmisano on two grounds. First, they've argued that he has no knowledge regarding any specific issues that are relevant to this lawsuit; and they've also argued in the alternative that any knowledge he has can be obtained by deposing other individuals within IBM. And those objections are wrong as a matter of fact and as a matter of law. And as I'll detail in this argument, Mr. Palmisano clearly has knowledge regarding specific relevant issues about IBM Linux strategy and with respect to the legal position that IBM has taken. They incorrectly base their refusal to produce Mr. Palmisano on an inapposite body of case law that merely stands for the proposition that in garden variety lawsuits where a party should not be permitted to harass or interfere with the other party's operations simply by attempting to take the deposition of the highest executive of the company, who may have nothing to contribute with respect to the matters at issue in the lawsuit. And that doctrine has no application here.

Mr. Palmisano, as we'll detail, made key senior

5

policy decisions regarding Linux and had direct responsibility for IBM Linux-related activities that are at issue in this case, all while he was vice-president at IBM before he took over his current responsibilities.

THE COURT: If I let you depose him, how long do you want to take?

MR. ESKOVITZ: That was exactly my next point, Your Honor, which is we would comply with the Court's restrictions. It would be a seven-hour deposition one day. The deposition could be done with a maximum of convenience. Our offices are actually in Armonk, New York, which IBM is headquartered and Mr. Palmisano has his office. He literally needs to cross the street or we'll cross the street to depose him. And we can schedule his deposition with him with advance notice to accommodate his schedule. So it really is a minimum burden.

THE COURT: You're just happy neighbors there; is that right?

MR. ESKOVITZ: That's right, Your Honor. It's a small town. We all get along.

I forgot to mention, under all the applicable case law, Mr. Palmisano's personal knowledge of IBM's intent and motive with respect to the Linux strategy requires that he give deposition testimony. As an initial matter, it is well settled that -- and this is documented in Exhibit A that was submitted to the Court in connection with this motion.

6

THE COURT: You don't trust our water here?

MR. ESKOVITZ: I don't want to spill it, Your Honor. I'm prone to that.

THE COURT: Go ahead. I'm sorry.

MR. ESKOVITZ: It well goes without saying that an order barring litigants to take a deposition is an extraordinary form of relief. And the parties seeking such an order under the case law that we cited in Exhibit A establishes that the parties seeking to quash a deposition notice bears the burden of showing that the proposed deponent has nothing to contribute.

And that is particularly true with respect to the case law cited in Exhibit B, when the deposition that is sought relates to the issues of a company's motivation and intent with respect to implementing a relevant corporate plan or strategy. The courts recognize that when it comes to the matter of corporate motivation, the high-level executive who proved the strategy or implemented the strategy is the person with the most probative information to give on a deposition.

And constructive on that point is the Travelers Rental vs. Ford Motor Company case, which we cited in our case and also in Exhibit B. And the Court recognizes in that case, District of Massachusetts case, that:

Those with greater authority may have the last word on why, in this case the Ford

7

Company, formulated and/or administered the plan in the manner in which the lower level executives describe it as being formulated and/or administered. And as the ultimate authority, their views as to why may be of far greater probative value on the issues of intent and motive than the views of the lower level executives.

IBM has told us that they have hundreds of individuals working on their Linux strategy. And we have, in fact, deposed some of those. But those individuals are not in a position to tell us why Mr. Palmisano approved the strategy that he approved. And that is unique knowledge that Mr. Palmisano has that no lower level executive is going to be able to give us in a deposition. And it is precisely the situation where courts permit high-ranking executives to be deposed. And certainly, as a matter of law, high-ranking corporate executives are not immune from deposition.

It's precisely -- this is precisely the kind of case in which such depositions are appropriate because, as I said, first, Mr. Palmisano was personally involved in formulating and approving the Linux strategy; and, second, that strategy is relevant to numerous issues in this case. And I'll take those two points in turn.

First, there can really be no dispute that while he

8

was an IBM vice-president Mr. Palmisano was personally involved in and indeed spearheaded IBM's strategy to embrace Linux and guided IBM's Linux-related efforts.

In Exhibit C that we've handed up to the Court, there's a New York Times article from March 2000 that featured Mr. Palmisano explaining his role in connection with what it described as IBM's ambitious Linux strategy. The article describes Mr. Palmisano as the leader of that ambitious strategy, the IBM senior executive who pushed both emphatically for the Linux initiative. It quotes Mr. Palmisano's hand-picked Czar from the technology side of the Linux operation as referring to IBM's Linux strategy as Sam's bet. And the article quotes Mr. Palmisano --

THE COURT: Sam's bet?

MR. ESKOVITZ: Sam's bet. It was Mr. Palmisano's bet on Linux on behalf of IBM.

And the article quotes Mr. Palmisano as describing that Linux strategy, and this is important to the King Czar case, as driving the Linux momentum at the front because, in his view, moving quickly was imperative for IBM.

And as I explained, and I'll get into more, the fact that IBM's motive here was to upgrade Linux as quickly as it possibly could in order to begin to recoup the billions of dollars that they invested into that strategy, it's critical to proof of our contract claim as well as defenses to the

9

copyright claims in this case and for other independent reasons.

At Exhibits D and E of the book that Your Honor has are IBM's own descriptions of Mr. Palmisano's contributions. And they credit him in Exhibit D with leading IBM's adoption of the Linux operating environment; and in Exhibit E, as spearheading when he was head of IBM's server and enterprise storage businesses, a major initiative to embrace Linux across IBM's server line.

And, indeed, shortly after IBM adopted Mr. Palmisano's Linux strategy in January of 2000, Mr. Palmisano, this is in Exhibit F, publicly announced that IBM would take the lead in the industry by making IBM technologies available to the Linux and open source communities.

And as I alluded to earlier, we have taken the deposition of other IBM executives with respect to the Linux strategy, and particularly Mr. Wladawsky-Berger, who I described earlier and the New York Times described as IBM's technical Linux Czar. And Mr. Wladawsky-Berger testified in his deposition, and these are excerpted in Exhibit F, that he reported and made his recommendations directly to Mr. Palmisano; that Mr. Palmisano made the decision that IBM should embrace Linux; and that Mr. Palmisano believed that IBM's Linux strategy was a high priority, important effort for

10

IBM.

So I don't think there's really much dispute here that Mr. Palmisano was directly involved and, as the New York Times described, spearheaded, and as IBM itself describes, spearheaded the strategy. So the question is, what relevance does the strategy have to SCO's claims?

And as I alluded to earlier, there are several independent bases on which the strategy is relevant. The first one I described already, which is that the corporate motive and intent of IBM in throwing its weight and billions of dollars that have been publicly reported behind Linux is the reason why IBM took the shortcuts that SCO claims it did and misappropriated SCO's code in order to upgrade Linux as quickly as it could to make it enterprise-hardened, is the word that has been described in the industry, to make it a viable competitor with Unix as quickly as possible. To turn it from a hobbyist's interest into something that -- operating system that would appeal to sophisticated businesses.

Second, and maybe even more directly, SCO has tort claims including a claim for unfair competition in its complaint, and it's in Exhibit G. We cite some case law for the Court, these are in the our briefs, as well, that it is an element of SCO's unfair competition claim to show IBM's bad faith or IBM's corporate intent, its motive. And that's obviously also relevant to SCO's claim for punitive claims

11

under its tort claims.

With respect to the unfair competition claim, SCO specifically alleges that IBM has engaged in a course of conduct that is intentionally and foreseeably calculated to undermine and/or destroy the economic value of Unix and to seize the value of Unix for its own benefit and for the benefit of its Linux distribution partners. Obviously, the evidence that Mr. Palmisano can give as to why IBM and why he on behalf of IBM proof of Linux strategy is evidence that goes to IBM's intent with respect to the tort claims of punitive damages claims.

And finally and independently with respect to damages, the evidence of IBM's corporate intent or motive is relevant to the benefit that IBM receives by being able to shortcut the development process and being able to rely on misappropriated Unix code in developing Linux.

It bears noting in connection with the relevance point that Mr. Palmisano's Linux documents have already been the subject of two separate court orders from Judge Wells compelling their production. And those orders recognize the relevance of the high-level documents and Linux -- and IBM's Linux strategy to the claims in this case.

Specifically in March 2003, the Court ordered IBM to produce all the documents and materials generated by and in the possession of employees that have been and that are

12

currently involved in the Linux project. And the Judge specifically provided that IBM was to produce materials and documents relating to IBM's Linux strategy from Mr. Palmisano and other high-level executives. However, among other deficiencies in IBM's production, they have not produced a single e-mail or other correspondence discussing Linux from Mr. Palmisano's files.

We renewed our motion to compel. Counsel for IBM represented to the Court that it would look again for relevant documents, even though it had already been ordered to do so in March of 2003, and Judge Wells ordered IBM to produce affidavits from the high-level executives concerning the efforts with respect to document production. After that order, IBM produced additional documents from Mr. Wladawsky-Berger file, but still has not produced any correspondence or e-mails relating to Linux from Mr. Palmisano's own files. They did not produce any explanation as to why they have not produced any of those documents. And in response to the Court's order, they simply produced a very source affidavit from Mr. Palmisano that says he gave his lawyers unrestricted access to his files. But again, no explanation as to why these e-mails had not been produced.

So to date, despite these two prior court orders on this issue, IBM has not provided any explanation for this

13

shortcoming in its document production from Mr. Palmisano. Mr. Wladawsky-Berger, and the Court has the testimony, testified that he communicated by e-mail to Mr. Palmisano. And in Exhibit H that the Court has, IBM produced at least one such document, but not from Mr. Palmisano's file. So we have at least an indication, a confirmation of Mr. Wassenberger's testimony from IBM's production that, in fact, Mr. Palmisano communicated about the Linux strategy in writing --

THE COURT: You mean Exhibit I?

MR. ESKOVITZ: I believe I'm going to get to Exhibit I -- I'm sorry. You're right. Sorry, Your Honor. Exhibit I is the IBM-produced document. And Exhibit J is another e-mail that we found on the Internet from Mr. Palmisano relating to the Linux strategy. Neither of these documents were produced from IBM's -- from Mr. Palmisano's files. We still have not received from Mr. Palmisano's files any such Linux-related correspondence.

We have a third motion to compel such documents, which are currently pending before the Court. But what's important for these purposes is that for the very same reasons that the Court has seen fit to order IBM now twice to produce these Linux documents, because it's the same reason why Mr. Palmisano's testimony is relevant to this case, he was a key decisionmaker. And frankly, Your Honor, given the difficulty that we've had getting documents and getting

14

straight answers about why these shortcomings persist with respect to the production, we should be permitted to explore the adequacy of Mr. Palmisano's document production, as well.

As I alluded to earlier, IBM's argument essentially relies on an inapposite body of case law in which parties resisting high-level depositions establish that the potential deponent either had no personal knowledge of the events at issue frequently in the cases of discrimination cases or unfair termination cases where there were no corporate strategies that were at issue, or at least identify the particular witnesses who could provide the testimony that was being offered. For example, where a plaintiff is looking for financial information, and the defendant says, you can get that from our accountants or from our CFO. You don't need the CEO for this.

Again, Mr. Palmisano is the only person who can explain his reasons, his motives for adopting the policy that he adopted. And unlike many of the cases in which IBM relies on, they have not provided any affidavits from Mr. Palmisano disclaiming relevant knowledge, and they haven't identified who these witnesses would be. They've said there's hundreds of people who are involved with the Linux strategy.

And finally, I should note that IBM had served notice on SCO for our CEO. We intend to produce him. And I don't see any real reason for, you know, IBM's CEO being

15

treated any differently.

So Mr. Palmisano is an important witness in the case. He's got relevant testimony to give. The case law establishes that that relevant testimony requires him to sit for a deposition. There's no basis for IBM certainly to resist that deposition, and they certainly haven't met their burden of showing good cause that Mr. Palmisano has nothing to contribute. Thank you.

THE COURT: Thank you, Mr. Eskovitz.

Mr. Marriott?

MR. MARRIOTT: Good afternoon, Your Honor.

THE COURT: Good afternoon.

MR. MARRIOTT: As much as we disagree with SCO with respect to their claims, Your Honor, we recognize that IBM must provide, and, indeed, we have provided, some measure of discovery with respect to their claims. We have, in fact, provided substantial discovery. IBM has produced millions of pages of paper. It's produced hundreds of millions of lines of source code. And it's made available for deposition very high-level executives, including the head of IBM software business, Steve Mills; Irving Wladawsky-Berger, the person SCO describes to people as IBM's Linux Czar; and the head of IBM's Linux technology center, Dan Frye.

Now, we recognize that a person is not protected from deposition merely by virtue of being a CEO or chairman of

16

a Fortune 100 Company. But the circumstanced in this case, we respectfully submit, are such that it does not make sense that Mr. Palmisano be deposed, certainly not at this juncture of the case. In our judgment, a CEO of a Fortune 100 Company like Mr. Palmisano should not be deposed, except where the information they haven't provided is directly relevant in a case, where they have in this case as described, has unique personal knowledge and the information sought is not available from others, such as the other 300,000-plus persons who are employed at IBM.

THE COURT: SCO says unlike the unusual cases where the CEO is protected from deposition, here this particular CEO had some direct involvement with the set of problems that form the basis of this case.

MR. MARRIOTT: Well, Your Honor, I appreciate that's the contention that SCO makes. It's SCO's formulation, however, that there is virtually no circumstance under which a CEO would not be subject to deposition because under the SCO view of the world, any person, any CEO who has any personal knowledge of those things over which that person is in charge. And there's no question, and I'll come to it momentarily, Mr. Palmisano has some knowledge with respect to Linux. We all, indeed, now have some knowledge with respect to Linux. But there's nothing that is unique, Your Honor, about Mr. Palmisano's knowledge with respect to Linux.

17

Whether or not Mr. Palmisano should be deposed is, of course, a matter committed to Your Honor's discretion. And I would like just in a few minutes offer two reasons why we believe the Court should exercise its discretion not now to require Mr. Palmisano's deposition. First, Your Honor, is that there is persuasive authority, notwithstanding Mr. Eskovitz' contention of the contrary that the deposition of an apex employee, that is, the CEO or chairman of a company like IBM, should not be deposed except where that person has unique personal knowledge.

THE COURT: I do know what apex means.

MR. MARRIOTT: Pardon?

THE COURT: I know what apex means.

MR. MARRIOTT: I wasn't doubting you did, Your Honor.

In the words of the Baine case, which we cite at Pages 6 and 8 of our brief, quote, the legal authority is fairly unequivocal, close quote, on this point. Moore's Federal Practice says, Your Honor, federal courts, quote:

Often are reluctant to permit apex depositions of the highest level corporate officers or managers or who are unlikely to have personal knowledge of the facts sought by the opposing party, close quotes.

And in the Cardenas case, which we cite on Pages 3

18

and 4 of our brief, the courts says, the courts, quote:

Frequently restrict efforts to depose senior executives where the party seeking a deposition can obtain the same information with less intrusive means or where the party has not established the executive has some unique knowledge pertinent to the issues in the case.

And, Your Honor, SCO has made a number of arguments to suggest that that is not a unique personal knowledge, the controlling standard. In fact, in its papers at Page 8 in its opening brief, SCO suggests that it is well-settled that a company's CEO is subject to deposition where his knowledge is, quote, even arguably relevant, close quote.

And that simply is not the test. None of the cases cited by SCO suggest that is the test. Indeed, some of the cases cited by SCO, such as the Six West case, which is cited on Page 9 of its brief, makes it quite clear that a unique set of personal knowledge is what the test is.

SCO suggests in Footnote 3 and Mr. Eskovitz said again here this afternoon that the doctrine of limiting these depositions to those persons who have unique personal knowledge is somehow inapplicable in cases of this kind. And it applies to cases that Mr. Eskovitz describes as garden variety cases, Your Honor.

In SCO's brief, it says the doctrine is limited to

19

personal injury, employment, and contract cases. This is, Your Honor, in an important respect a contract case. And the only case on which SCO relies for the proposition that the doctrine set out, for example, in the Cardenas case is somehow limited to cases of this kind is the Bridgestone/Firestone case. In Bridgestone/Firestone, the Court there observed nothing other than that a rigid rule is applicable in cases - - in cases of whether apex depositions should be taken. In that case, Your Honor, the Bridgestone/Firestone case, the Court allowed deposition to proceed, but only after substantial discovery, most depositions had been completed, and only after the plaintiff filed a list of specific questions about which - - subjects about which it would question the witnesses in court, in where we would submit there is a greater showing of knowledge, of unique knowledge on the part of the CEO.

THE COURT: Greater than here, you mean?

MR. MARRIOTT: Greater than here, Your Honor.

SCO suggests that IBM bear a heavy burden, which is rarely ever met, to avoid deposition of this content. The cases cited by the parties, Your Honor, as I understand, regarding this were a little more than the proposition that the party seeking a particular form of relief bears the burden to establish a basis for that relief. Parties seeking to compel a deposition bears the burden to establish a basis for compelling a deposition. Parties seeking a protective order

20

bears the burden of establishing a basis for a protective order.

In this case, SCO seeks to compel the deposition of Mr. Palmisano. And in our judgment, as we read the cases, SCO, therefore, then bears the burden. In the Cardenas case, which we cite, the plaintiff there, like SCO here, moved to compel the deposition of executives. In that case, it was three executives of Prudential. And applying the unique personal knowledge test, the magistrate judge in that case denied the motion on the grounds that the plaintiff had failed to show that the executives, quote, possessed any information that could not be obtained from lower level employees or other sources, much less their knowledge of plaintiff's allegations was unique. The District Court then upheld the Court's decision in Cardenas.

Most of the cases, Your Honor, on which SCO relies for the proposition that IBM here bears a heavy burden are not even apex deposition cases. After stating the general proposition that parties seeking a form of relief bears a burden to establish the relief, a number of those cases actually preclude depositions.

For example, SCO relies upon Simmons v. Willis for the proposition that courts, quote, rarely will grant a protective order that totally prohibits a deposition, close quotes.

21

Not only was the Simmons case not an apex deposition case, Your Honor, it is a case in which the Court ordered that the deposition sought not to take place. The courts also granted protective orders in a number of the other cases that SCO cites, such as Frideros, Medlin, Motsinger, Snowden and Cotracom.

Your Honor, the second point that I wish to make, and then I will sit down, is that Mr. Palmisano here does not have any unique personal knowledge and it hasn't been shown to that effect. Mr. Palmisano didn't draft, he didn't execute, he didn't negotiate the agreements that IBM is alleged to have breached. The agreements were executed in the office in order of 20 years ago by individuals who don't even report to Mr. Palmisano.

Mr. Palmisano is obviously familiar with IBM'S Linux strategy, but there is no showing here that. he has any personal knowledge about that strategy that is unique and that is unknown by other individuals within IBM. He's not a computer programmer, and he certainly has no particular knowledge of the technology contributions that Mr. Palmisano alleged to have made to the Linux operating system in violation of either contract copy reference --

THE COURT: Is it relevant that you're going to depose SCO's CEO?

MR. MARRIOTT: I don't think it's relevant, Your

22

Honor. It is true that we intend to depose Mr. McBride. And with respect to Mr. McBride and Mr. Eskovitz, I think there is a big difference between Mr. Palmisano and Mr. McBride. Mr. McBride is a CEO of a company that by my count has slightly over 100 employees. Mr. Palmisano is a leader of a company that has more than 300,000 employees. Mr. McBride, as I would see it, is uniquely positioned to address the questions at issue in this case including issues in our counterclaims that go directly to Mr. McBride's public statements about SCO's alleged evidence.

Mr. Palmisano, by contrast, Your Honor, while he has some knowledge in actually Linux' operating system and some involvement there, he doesn't have a perspective with respect to IBM's strategy with respect to Linux, the issue on which SCO intends to acquire discovery I think in any way distinguishes on him.

In its opening papers, Your Honor, SCO indicated that it required Mr. Palmisano's deposition with respect to two causes of action, two sets of causes of action: SCO's contract claims against IBM; and IBM's claims in a declaration of non-infringement with respect to IBM's Linux strategy. For the first time in its reply papers and again here today, SCO suggests that there are additional claims to which Mr. Palmisano's testimony would be relevant.

But whatever the claims are, Your Honor,

23

specifically the testimony that SCO contends it requires from Mr. Palmisano relates to IBM's so-called Linux strategy. And in SCO's words, it wishes to depose Mr. Palmisano regarding, quote, IBM's strong financial motivation to use shortcuts in order to promote Linux' commercial appeal.

Although, Your Honor, IBM's motivation for promoting and contributing to Linux is not an element of any of SCO's claims, and although I submit it is of marginal relevance to any of the elements of the claims in the case, we have nevertheless produced thousands of pages of paper relating to that strategy. There is an enormous body of information in the public domain with respect to that strategy, as indicated by SCO's own papers, which go on at some length about their version of IBM strategy. And IBM has made available for deposition, Your Honor, three very high-level executives who have to the extent SCO has propounded questions about IBM's Linux strategy undertaken to answer.

Putting aside, Your Honor, that strategy is of marginal relevance, putting aside that there's an enormous body of information available about it, there is no showing here that Mr. Palmisano has any unique perspective. And again, under the scope and view of unique perspective, everyone has a unique perspective, and everyone would be subject to deposition. In the line of cases that suggests

24

that some unique perspective is required are just dead wrong, because in their view, those cases would be wrongly decided.

There are an enormous number of people -- there are a lot of people, not to overstate it, at IBM, Your Honor, who devote their time and their talents and their energies to Linux, and there is no reason why SCO ought not be required at least in the first instance to undertake to obtain the information they seek from those individuals. They have taken by my count something like three depositions, the individuals that I mentioned, all high-level executives, about Linux, and that's it. There are many others, Your Honor, who they can learn information about IBM's Linux strategy without troubling Mr. Palmisano about a deposition.

Courts have declined in cases that I would submit are not any different from this case to permit apex depositions. I mentioned the Cardenas case. You mentioned a couple others. In the Consolidated Rail case, the Court deferred the depositions of a party's chairman, president, CEO, as well as senior vice-president of operations and vice-president of labor relations. We produced vice-president level depositions here, Your Honor. In that case, depositions were put in multiple lawsuits involving breach of contract regarding freight charges, quote, until it has been demonstrated that they have some unique personal knowledge pertinent to the issues in the case, close quote.

25

In the Stone v. Morton case, Judge Boyce granted a protective order preventing plaintiffs from deposing one of Morton International's vice-president in light of his lack of knowledge of facts relative to the action because the plaintiff had not exhausted other methods of discovery.

The Evans v. Allstate case, the Court precluded depositions of Allstate's chairman, president, CEO, as well as chief financial officer and senior vice-president where, quote, Allstate has already provided adequate information or the information can alternatively be obtained from other sources without apex officers.

In Harris v. Computer Associates, the Court precluded a deposition of an executive computer associate. And in doing that, the Court observed, quote, when a vice-president can contribute nothing more than a lower-level employee, good cause is shown not to take the deposition, close quote.

In Baine v. General Motors, the Court quashed a deposition of a GM vice-president for failure to show the information sought could not be obtained from other witnesses, interrogatories and a 30(b)6 deposition.

In Mulvey v. Chrysler, the Court found, quote, an orderly discovery process is best served by resorting to interrogatories at this time, without prejudice to a subsequent deposition, close quote.

26

And finally, Your Honor, in the Hughes v. General Motors, the Court denied a motion to take the deposition of GM's president because it found no good cause in that situation.

The cases, Your Honor, on which SCO relies are, I respectfully submit, distinguishable. Mr. Eskovitz mentioned the Travelers case. It was specifically an antitrust case. And the Court granted deposition, Your Honor, only after at least once deferring the deposition until other depositions in the discovery had been taken.

In summary, Your Honor, respectfully, we believe Mr. Palmisano's deposition ought not be allowed and certainly not ought to be allowed now, and if it ever were to be allowed, it ought to be limited to three hours. Thank you, Your Honor.

THE COURT: Thank you, Mr. Marriott.

Mr. Eskovitz, you get to reply.

MR. ESKOVITZ: Thank you, Your Honor.

Your Honor, significantly during Mr. Marriott's argument, we didn't hear any attempt to dispute all of the materials that were presented to the Court, many of which come from IBM's own mouth concerning Mr. Palmisano's personal involvement in spearheading, improving, implementing IBM's Linux strategy. That's a critical fact that distinguishes this case from many, in fact, all of the cases that

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Mr. Marriott and a litany of cases that Mr. Marriott has discussed in his argument and cited in his brief. And although Mr. Marriott again repeats the idea that the strategy is not relevant to any of the issues in this case because it is not an element to any of the issues, he ignores the fact that the intent or motive of the company is an element of SCO's tort claim for unfair competition. And even if it's not an element, it still is relevant, it's obviously important to the contract claims, to SCO's damages claims, to punitive damages under SCO's tort claim.

So just to, you know, brush aside this testimony as irrelevant because it's not an element of a claim, which, in fact, it is, kind of misses the boat here. So the two really undisputable facts that I think dictates Mr. Palmisano's deposition in this case is that he personally spearheaded the strategy, and the strategy is relevant.

And the Travelers case is right on point here because it talks about the importance of high-level executive depositions when, in fact, that corporate strategy is at issue. When the corporation's intent or motive in implementing a strategy is at issue, what Mr. Palmisano decided or why Mr. Palmisano decided it is the most probative evidence of IBM's intent in this case.

If Mr. Marriott claims that under our standard, under our standard, there would be - - every case would lead to

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a deposition of a high-level executive, and that certainly is not the case. In fact, I would suggest that under Mr. Marriott's standard, there would never be an instance in which a high-level executive could be deposed, not even when the strategy that they approved is at issue in this case could that executive be deposed under IBM's standard.

To the contrary, the cases in which Mr. Marriott relies on, and I'll go through on particular ones, if the Court is interested in them, but they're all distinguishable on the basis that the executives did not have any relevant information. They were termination cases where the executives had nothing to do with the termination or the role of supervising an employee. They're not the kind of cases where the corporate strategy or corporate intent or motive with respect to strategies are at issue.

And Mr. Marriott on the one hand says, you know, we've already deposed a lot of senior executives at IBM, and on the other hand says, we should go depose more of them. We have got a limited number of depositions in this case. Mr. Palmisano is the person who spearheaded and executed this policy. We've already asked Mr. Wladawsky-Berger and Mr. Frye a number of questions, and they pointed the finger at Mr. Palmisano as the person who made the decision, as Mr. Wladawsky-Berger put in the New York Times article, as Sam's Bet. This is Mr. Palmisano's strategy.

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And significantly, and this is a point that IBM ignores in its papers and ignores in its argument, this is Mr. Palmisano's bet while he was the vice-president at IBM before he became IBM's CEO chairman. The fact that IBM has now elevated him to these positions should not shield him from discovery on the decisions that he made while he was the person spearheading their computer server group. And I think that point IBM has lost in the shuffle is important for the Court's consideration, as well.

Mr. Marriott made a number of arguments. And if the Court is interested, I can discuss them in detail, about the law that is applicable. I think even under IBM --

THE COURT: You don't need to discuss them.

MR. ESKOVITZ: The burden obviously shouldn't depend on who filed the motion and doesn't depend obviously on the cause of actions that are at issue. It's the relevance of the corporate motivation and corporate intent with respect to strategies to the claims in the case, whatever they are.

And, frankly, Your Honor, I was blown away by Mr. Marriott's argument that a different standard ought to apply for the two CEOs in this case because of the size of the parties involved. I respectfully suggest just as IBM intends to depose Mr. McBride on issues of damages on SCO's business model and other issues, just for the same reason Mr. Palmisano should be subject to deposition, particularly

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since these were decisions that he made before he became IBM's CEO and chairman.

THE COURT: Thank you.

MR. ESKOVITZ: Unless the Court has questions. Thank you.

THE COURT: Thank you.

Let's move to the motion for leave to file amended complaint. Who's going to argue that?

MR. NORMAND: I will, Your Honor.

THE COURT: Mr. Normand?

MR. NORMAND: Yes.

Good afternoon, Your Honor. May it please the Court, I'm Ted Normand.

The SCO Group has sought leave to file a third amended complaint to add a new claim of copyright infringement. The facts forming the basis for the new claims are based on documents that we requested before the amendment deadline in this case that IBM produced after the amendment deadline. I'd like to describe those basic facts very quickly, Your Honor.

In the late 1990s, SCO's predecessor in interest, Santa Cruz Operation, owned the source code in Unix System V Version 4 or SVR-4. IBM gained access to that source code through a joint development arrangement in Santa Cruz called Project Monterey. Under Project Monterey a project to create

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an AIX For Itanium Product that could operate on a new hardware - -

THE REPORTER: Could you speak up a little more? I'm sorry.

THE COURT: She's having trouble hearing you.

THE REPORTER: Just speak up a little more. You're dropping your voice, and I'm having trouble hearing you.

MR. NORMAND: With that access, Your Honor, to the SVR-4 source code, IBM copied over 200,000 lines of source code into different versions of IBM's AIX For Power products. And the point of our claim is IBM did so without authorization, and that the documents we've uncovered in the last six to eight months showed that IBM knew it was copying without authorization.

We've set out a basic chronology of those facts in tab binders that Your Honor has. And I will try to walk the line that Your Honor described in terms of describing the documents that we've submitted in the binder that form the basis of the new complaint. And I'd like to walk through those very quickly, Your Honor.

THE COURT: Okay.

MR. NORMAND: Tab 2, Your Honor, an IBM internal e-mail shows that IBM knows that if it cancelled Project Monterey, it would not have the rights to the SVR-4 code that it put into its product.

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Tab 3, Your Honor, IBM internal e-mail shows that IBM knows that it could use the SVR-4 code only on the AIX For Itanium products, not on the AIX For Power products into which IBM copied code.

Tabs 4 and S need to be read together, Your Honor. IBM internal e-mail pointing out that compilers are not included in the PRPQ. PRPQ is an acronym for "Program Request For Pricing Quote." It's a reference to the draft AIX For Itanium product that IBM was creating through Project Monterey.

Internal IBM e-mail in response to that e-mail. In response to the assertion that the compiler would not be included in a PRPQ,

I think the compiler must be available in some form, or SCO won't buy it.

Tab 6, internal IBM e-mail. IBM is concerned that if they don't call the PRPQ a generally availability product, they won't have the rights to use the SVR-4 code.

MR. MARRIOTT: Your Honor, I apologize for interrupting. My concern is just that we've moved to quoting from the documents, which as they themselves indicate marked confidential under the protective order.

THE COURT: Well, you can read -- why don't you characterize it rather than quote it.

MR. NORMAND: Yes, Your Honor. I was making an

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effort to paraphrase the documents.

Tab 7, Your Honor, IBM internal e-mail drawing a distinction between the internal position that IBM has reached with respect to Project Monterey and the external position that IBM should take to the world on whether Project Monterey is continuing.

These documents and others like them, Your Honor, form the basis for our proposed amendment. In response, IBM has not even attempted to oppose the merits of the claim. Instead, IBM has raised several procedural road blocks why we should not be able to bring the amendments, and I think they're wrong in each count.

First, there is no undue burden to IBM. As the Supreme Court has noted, Rule 15 is designed to facilitate the amendment of pleadings except where prejudice to the opposing party would result.

There is no prejudice here. Indeed, IBM's main argument in its opposition brief was that the addition of SCO's claim would interfere with what IBM called its entitlement to a prompt resolution of the litigation. The magistrate's court discovery orders from January and from yesterday I think have mooted that part of IBM 's undue prejudice argument. And this Court, of course, denied summary judgment motions and ruled that no summary judgment will be filed until after the close of fact discovery.

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IBM's other argument for its claim of undue burden was that SCO's proposed claim required additional discovery. As an initial matter, Your Honor, the adverse party's burden of undertaking discovery does not constitute undue burden for purposes of Rule 15. And that is particularly true here where SCO will not need to take substantial new discovery on its claim where given the new period for fact discovery in this matter, which we think should be extended even further in light of the magistrate's court's order from yesterday, IBM would have more time to take discovery in SCO's new copyright claim than it would have had before the amendment deadline. And where given the new period for fact discovery, SCO's pursuit of the new claim will not prolong discovery. In each of those respects, there's no undue burden to IBM.

In addition, Your Honor, the subject matter of Project Monterey specifically is already involved in the case, has been for sometime and has been with respect to at least three separate claims. First, Project Monterey is involved in this case by virtue of SCO's own contract and copyright. SCO will show that IBM not only misappropriated source code in AIX that IBM licensed, but that it misappropriated source code that it had not licensed and contributed such source code to Linux. IBM ignores this point in its briefing.

The second way that Project Monterey is already part of the case, Your Honor, is our claim for unfair

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competition, which Mr. Eskovitz mentioned. In that claim, we allege that IBM was engaged in a course of conduct that was intentionally and foreseeable calculated to undermine and/or destroy the economic value of Unix by misappropriation of source code, including specifically in Project Monterey. And that's at Tab 8 of the binder, Your Honor.

By way of example and in response to IBM's interrogatories, and this is at Tab 9, Your Honor, SCO has stated IBM made and continued to make investments in the development of Linux and secretly advanced and promoted in the development of Linux without disclosing such activities to SCO including under Project Monterey.

SCO also stated that IBM's conduct forming the basis of a claim of unfair competition included using products, methods and know-how jointly developed by SCO and IBM in Project Monterey. And we noted in that interrogatory response, Your Honor, that SCO needs to take discovery of IBM where activity of this sort is typically done behind closed doors. And the documents we walked through, Your Honor, show that.

In addition, Your Honor, Project Monterey is already involved in this lawsuit by virtue of IBM's Ninth Counterclaim, which is very (unintelligible)

THE COURT: Which is what?

MR. NORMAND: Very broad, Your Honor.

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And we quote that in the tabloids. Ninth Counterclaim states:

IBM is entitled to a declaratory judgment that IBM does not infringe, induce the infringement of or contribute to the infringement of any SCO copyright through the reproduction, improvement and distribution of AIX and Dynix, and that some or all of SCO's purported copyrights in Unix are invalid and unenforceable.

IBM lists SVR-4 code as one of the copyrights for which IBM seeks a declaration of non-infringement. In short, IBM asks the Court to declare that IBM has not infringed any SCO copyrighting in developing AIX And in SCO's proposed new copyright claim, we seek to prove such infringement.

In fact, IBM has acknowledged that Project Monterey is already subject matter specifically in the lawsuit. For one thing, in response to our document requests, IBM produced the Project Monterey documents. In addition, Your Honor, and by way of example, in response to one of our interrogatories, IBM identified 19 Project Monterey witnesses who may have knowledge concerning certain issues in this lawsuit and identified Project Monterey as those persons subject to area of knowledge.

SCO has also noticed and deposed two witnesses almost exclusively regarding the subject matter of Project Monterey and IBM's interpretation of the joint development

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agreement that was the basis for the relationship between IBM and Santa Cruz under Project Monterey.

Finally, of how, Your Honor, IBM has acknowledged that Project Monterey is already in this lawsuit is the very first deposition that was taken in this case. And we quote part of the transcript of that deposition at Tab 12. The deposition concerned Project Monterey. Toward the end of the deposition, counsel for IBM specifically asked the witness whether the witness knew that IBM did, in fact, release a product, a Monterey product, worldwide to customers. In other words, Your Honor, at the very time, the very first deposition in this case, IBM was asking witnesses questions to set up IBM's assertion that its release of the Monterey product was a worldwide product giving IBM authorization to copy the SVR-4 code.

And I can tell you at the time, Your Honor, we didn't appreciate the important question. In retrospect, you see what a defensive question it was, that IBM knew Project Monterey was an issue in the case and was trying to collect evidence to defend its pretextual release of the Monterey product in 2001. At the time of the deposition, we had asked for the Project Monterey documents before the discovery -- before the amendment deadline, Your Honor, and yet, we didn't get the documents until after the amendment deadline. All of the foregoing, Your Honor, shows that SCO's copyright claim

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would not unduly prejudice IBM.

Very briefly, Your Honor, the question of good faith, which is a factor in the Rule 15. The facts forming the basis of SCO's claim are based on the documents that we've uncovered in the last to six eight months. IBM's main argument is that if our motion were granted, we would no doubt immediately following the granting of the motion would request for additional discovery. That was IBM's sole argument for claiming that our motion was made in bad faith. Of course, the magistrate court orders have mooted that argument. I won't dwell on the point, but I will point out in our opening brief, we pointed out by the time this motion was argued, either Your Honor or the magistrate court would have decided whether fact discovery would be extended. So the suggestion that we filed our motion to trump the Court's decision of whether to extend the discovery schedule is an inaccurate one.

I think it's clear, Your Honor, that we don't propose the amendment in bad faith and that the amendment would not unduly prejudice IBM. IBM further argues that SCO has delayed in proposing the amendment and that the amendment would be futile. We think both of those arguments are incorrect, taking the argument as to the delay first. IBM first argues that Rule 16 applies because deadline for amendment has passed. As Your Honor mentioned, there is a relationship between the issue of the scheduling order and our

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motion to amend, I'd be happy to address that issue.

I will move now to the issue of the scheduling order or briefing. I can say we think there are good reasons and independent reasons why IBM's Rule 16 argument does not make sense. First, we've proposed a new amendment deadline. We think a new amendment deadline makes sense for at least two reasons. One, the appointment of the deadline is to allow the parties to conform the evidence to their claims. Two, the question of whether a prejudice results from a deadline not at issue here.

IBM will have more time under the new discovery schedule to take discovery on our new claim than it would have had under the old schedule. Under the schedule we proposed, even the Court -- the magistrate court's order yesterday, there will be six, seven, eight months of fact discovery even after the proposed amendment deadline. Under the previous order, I think it was five-and-a-half or six months of discovery that would follow the amendment deadline. As a practical matter, Your Honor, we think we will succeed for that matter.

As a logical matter, we also think Rule 16 doesn't apply for the following reason. If there is no undue delay by SCO under Rule 15 because SCO's amendment is based on the documents that SCO obtained in discovery, then Rule 16 cannot bar the amendment. That is because it is undisputed that IBM

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produced the documents after the amendment deadline, but that we requested the documents before the amendment deadline. So if there is no undue delay under Rule 15, there's no place for Rule 16. It doesn't apply. We asked for the documents before. We got them afterwards. We also asked for the documents two or three months into the case, Your Honor, in June of 2003.

So the relevant analysis of Rule 15, which I'll turn to now, Your Honor I'm sure is familiar with the refrain from liberal granting of motions to amend, reflect the basic policy that pleadings should enable the claims to be heard on the merits.

THE COURT: I have heard that before.

MR. NORMAND: I suspected it.

The rule for undue delay is the following, Your Honor. Where the parties seeking amendment knows or should have known of the facts upon which the proposed amendment is based but failed to include them in the original complaint, the motion to amend is subject to denial.

Our claim is based on facts in the documents that we saw for the first time since the last amendment deadline. Those documents show, as I described, Your Honor, that IBM copied more than 200,000 lines of the SVR-4 code into IBM's AIX For Power product without authorization. And that during the project, IBM knew that its limited release of the AIX For

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Itanium product did not authorize IBM to copy the code as it had done. As soon as we reviewed those documents and undertook an investigation, we brought a proposed claim, and IBM doesn't argue that we weren't diligent in acting after we received the production that they produced after the amendment deadline.

Given these basic facts, our amendment is not unduly delayed. It's not delayed at all. The function of Rule 15, which provides generally the amendment of pleadings, is to enable a party to assert matters that were overlooked or were unknown at the time he interposed the original complaint or answer. The Court admitted there is no delay if the plaintiff uncovered the facts supporting the amendment during discovery.

And we cited in our brief two cases that we think are good examples in particular of that. The Journal Publishing case from the Southern District of New York, a three-and-a-half year lapse between the original complaint and the amended complaint were justified where the plaintiffs proposed amended complaint was based at least in part on documents that came to light during discovery.

The Koch case, District of Kansas, there is no undue delay to seek leave to amend if plaintiffs acquire knowledge of the facts behind the new claim only through recent discovery.

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As we see it, Your Honor, IBM would have this Court apply a standard whereby as soon as the plaintiff in litigation had any conceivable basis for bringing a claim, it would be obligated to assert that claim rather than await the production of documents that the plaintiff has requested and expect to bear on the issue. Again, we take it that that is the point of the amendment deadline. That is not standard and one that IBM opposes that the Court should impose. And, indeed, the very point of Rule 15 is to impose a different standard. Under the precedent, the plaintiff should be entitled to a critical mass of evidence of high probative value supporting the claim. And that's a quote from the case -- one of the tabs to the binder.

And we think, Your Honor, that IBM's own cases make that point. And we discussed these cases and distinguished them in detail in our reply brief. I'll mention a few of them. In particular, from the 10th Circuit, in the Panis case, 10th Circuit 1995, the plaintiff's proposed amendments were not based on new evidence. In the Pallottino case, 10th Circuit, 1994, the proposed amendment was not based on new evidence. In the Frank case, 10th Circuit, 1993, plaintiff's counsel conceded that the failure to amend was strategic decision. In the Woolsey case, 10th Circuit, 1991, plaintiff's counsel acknowledged that no new evidence that was unavailable at the time of the original filing had come to

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plaintiff's attention. Those cases make the point that focus on undue delay is on the plaintiff in litigation and plaintiff's efforts to find the documentation to support the new claim.

IBM's response to these points is to argue that the question of undue delay requires the Court to impute to the SCO Group the limited knowledge that certain employees of SCO's predecessor Santa Cruz might have regarding the same general subject matter, that is, Project Monterey and products being created.

Now, IBM does not argue, nor present any evidence that Santa Cruz or the SCO Group had concluded it actually had a copyright infringement arising out of Project Monterey. And IBM does not argue, nor present any evidence that anyone from Santa Cruz or the SCO Group knew anything about IBM's internal views of its pretextual release as reflected in the documents that were produced. What the evidence does show is that those key facts were hidden from view until discovery in this case.

And one of the internal IBM documents that I cited earlier illustrates the point, and we'll quote, Your Honor, at Tab 7, but it is the document, internal IBM e-mail that expressly draws the distinction between the internal position that IBM has taken on Project Monterey is not worth pursuing. And in the e-mail the author said, we need to take an external position, and the external position is that Project Monterey

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goes on. We're still working on the AIX For Itanium product. That is the kind of information that the world and that we were aware of, the external position.

The excerpt from the first deposition taken in this case, and I also mentioned earlier, further illustrates the point. While IBM was asking witnesses questions to defend its worldwide release, IBM had documents in its possession reflecting the fact that IBM itself did not regard the Monterey product release as one that would authorize IBM to copy the SVR-4 system.

Although SCO had served numerous document requests, IBM would not produce the documents in response to those requests until after the amendment deadline. IBM relies on several documents with respect to Santa Cruz' supposed knowledge. We believe those documents are not compelling, and they fall into two basic categories. One, documents that SCO did not see and Santa Cruz did not see and had no reason to see, such as private consulting for its software announcements and memoranda for IBM licensees and manuals that IBM's technical support organization published for IBM licensees. Santa Cruz was not an IBM licensee.

The second category of documents show what products certain people envisioned would be created in Project Monterey. These are not documents that reflect any actual knowledge on the part of anyone at Santa Cruz about any claim

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for copyright infringement. These facts are no grounds for the Court to conclude there has been any undue delay on the part of the SCO Group.

And it's worth pointing out, Your Honor, because I will briefly get to the point, IBM can and does raise such arguments in support of the statute of limitations argument on futility. These are accrual arguments that are subject to different standards. And we put cases in the binder that show the courts analyze the question of undue delay distinctly from the question of whether the limitations period. I won't dwell on that point, Your Honor, but I do think there are important policy differences between Rule 15 and the application of the statute of limitations. I quoted Wright, et al, earlier, the function of Rule 15, to enable a party to assert matters that were overlooked or unknown, the purpose of policy underlying all statutes of limitations. And this is from a Utah Supreme Court case in the last few months, Your Honor. To promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.

None of those things is true here.

In addition, Your Honor, there's essentially a policy for statute of limitations conflicts with the policy under Rule 15, which is to promote claims to be brought even if they were overlooked. That's not the case here, but right

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from the middle to point out the policy.

IBM's next claim under Rule 15 is that our claim would be futile. And we think that's wrong, as well. As an initial matter, an amendment is futile only if the proposed amendment could not have withstood a motion to dismiss. That's the general standard. I'm sure the Court has heard that one, as well.

SCO alleges that only through copyright to the SVR-4 code that IBM copied in excess of 200,000 lines of that code into the AIX For Power product. IBM did it without authorization, that those are the elements of copyright infringement. IBM does not dispute the merits of those allegations, but they made several procedural arguments.

IBM first invokes a statute of limitations provision in the joint development area for JDA. That provision states:

Any legal or other action relating to a breach of disagreement must commence no later than two years from the date of the breach.

And the Court cited that in the state of New York. Now, IBM does not dispute that the Court must strictly construe a contractual provision modifying a statute of limitations, which it does. In fact, under a reasonable instruction, let alone a strict instruction, IBM's interpretation of Section 22.3 does not make sense. It cannot

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encompass (unintelligible)

THE REPORTER: Excuse me. Cannot encompass?

MR. NORMAND: SCO's copyright claim.

The reading that IBM offers fails to reconcile other provisions in the JDA and creates an unreasonable result. First, IBM actually ignores parts of the provision interpreting Section 22.3. That is, IBM does not even argue that the accrual portion of Section 22.3 applies to SCO's claim.

You'll note that the portion of the provision, Your Honor, saying that the claim under Section 22.3 must be commenced no later than two years from the date of the breach. IBM ignores that part of the rule because it creates an unreasonable result. IBM argues that the rule of the accrual should be the rule of accrual for the copyright act. And we think the reason that IBM does that is because when you read the provision as a whole, it would mean that under IBM's interpretation, Section 22.3 would eliminate both the rule for when a copyright claim accrues as well as the rule that the plaintiff can bring a copyright claim on the defendant's continuing infringement. That is not a reasonable reading.

If the scope of Section 22.3 were as broad as IBM argues, the copyright claim would have to be commenced within two years of the breach of the contract. Under that reading, if during Product Monterey IBM copied SCO's code but then

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waited two years to release the part containing the code, SCO's claim would have been time-barred. We think that's an unreasonable result. IBM relied only on the first part of the language of Section 22.3 because it knows the section read as a whole, it creates an unreasonable result.

The fact that Section 22.3 clearly does provide for a discovery rule of accrual -- excuse me -- that Section 22.3 does not provide for a discovery rule of accrual is a reason to reject items of interpretation, not to parse the language as IBM has.

In addition, Your Honor, IBM's interpretation fails to reconcile other provisions of the JDA. You'll see at Tab 19, Your Honor --

THE COURT: 20.1.

MR. NORMAND: 20.1. The entire liability of each party for any cause whatsoever regardless of the form of action, whether in contract or tort.

Section 20.1 shows the parties knew how to include in broad fashion any claims under the agreement, which is effectively the interpretation IBM gives of Section 22.3. It's not reasonable to give different conditions the same meaning.

In addition, Your Honor, we think these arguments made clear that Section 22.3 can reasonably be interpreted as SCO's (unintelligible). We think that the provision is clear

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in our favor. At an absolute minimum, the provision is ambiguous. And because it's ambiguous, the Court cannot resolve the party's intent and, therefore, cannot preclude SCO's amendment at this stage of the proceedings.

Given that Section 22.3 does not apply, Your Honor, we enter into the world of accrual of copyright claim and statute of limitations of copyright claim. There shouldn't be any dispute on this point. Under the copyright act, every court that has addressed the issue has concluded that the copyright claim in which claims based on infringement that occurred in the previous four years under the statute of limitations. i think it's actually three years, Your Honor.

IBM argues that there's some dispute in the case law as to the doctrine of continuing infringement. That's wrong. There's a dispute as to whether a copyright claim of who brings a claim 10 years after the copyright claim has accrued can recover damages for the entire 10-year period. There is no dispute under the case law that plaintiff who brings a copyright claim can recover the damages for the infringement that has occurred the previous three years. Where the copyright claim accrual and limitations period applies, there is no question that our amendment is not shield from.

IBM argues that venue is improper in this court. Given that Section 22.3 does not apply, that argument fails.

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Finally, Your Honor, I think it is worth noting IBM dismisses too quickly a case showing very clearly that the District Court always has the discretion to determine that the interest of judicial economy regarding pending litigation can override the forum selection. In the Steward case from the District of Minnesota, 2001, the Court declined to transfer the litigation to the locale specified in the forum selection clause because the Court preferred to have both cases adjudicated simultaneously before the Court that is intimately familiar with the issues in the case. We think that is the case here, Your Honor.

The discovery that SCO must pursue to defend against IBM's Ninth Counterclaim, for example, includes the precise Project Monterey activities underlined in SCO's proposed amendment. The fact that in this case the documents regarding Project Monterey have already been produced and are being reviewed, and presumably there will be a supplemental production, the parties have already taken other discovery regarding Project Monterey, such as the three depositions I referred to. The subject matter and many specifics of Project Monterey have already been part of the lawsuit and been made part of the lawsuit. And whether or not SCO's new claims in the case, SCO will present the facts of IBM's conduct in copying Project Monterey. Your Honor, in the interest of judicial economy clearly shows that SCO's new claim should not

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be split from this litigation.

In short, Your Honor, SCO proposes a good faith meritorious claim on the basis of facts that SCO uncovered only recently in discovery in this matter and that SCO could not have recovered without that discovery or before the deadline for the amendment of the pleadings. We proposed a claim that concerns the very same subject matter that is already at issue in the case including by virtue of IBM's counterclaims. We propose a claim with approximately six to eight months of fact discovery remaining, depending on how Your Honor rules on the issue of scheduling orders.

Under the circumstances, Your Honor, we submit the Court should permit SCO to bring its copyright claim.

THE COURT: Thank you, Mr. Normand.

Mr. Marriott?

MR. MARRIOTT: Your Honor, there are a number of reasons why the Court should deny SCO's application to amend. I'd like to focus on just two of them without diminishing the importance of those other reasons which I think are adequately addressed in our briefs.

THE COURT: All right.

MR. MARRIOTT: Before I come to those, Your Honor, two quick points. We believe that SCO's predecessor in interest, Santa Cruz Operation, Inc., granted to IBM and that IBM has a license to use Unix System V Release 4 code, SVR-4

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code, in its AIX For Power product. SCO devoted some portion of its presentation to its view of the merits of whether IBM has that license. The Court cannot resolve that question on this motion. I don't intend to try Your Honor's patience with inquiring into the merits, except to say we believe that the evidence will show that we have that license.

Second, Your Honor, as another preliminary matter, let me just say just a word about the standards that apply to this motion. There are three. The first, Your Honor, rose out of this Court's order of June 10, 2004. The deadline, as Mr. Normand indicates, for amending the pleadings has passed. It passed more than a year ago. As a result, this motion is untimely, unless SCO can satisfy first the requirement of this Court's order of June 10. In the order dated June 10, Your Honor said that the scheduling order will not be modified again except upon a showing of extremely compelling circumstances. Absent a showing of extremely compelling circumstances, the motion should be denied.

Second standard, Your Honor, that relates to this claim is Rule 16(b). Rule 16(b) provides that an amendment shall not be permitted after the deadline for amending the pleadings has passed, except upon a showing of good cause. And as Your Honor knows, the central inquiry there is whether the parties seeking to amend after the deadline has acted in due diligence.

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The third standard, Your Honor, is the standard that Mr. Normand focuses on primarily. That is Rule 15 and Rule 15 (a), the rule the Court need not reach. But if it chooses to reach Rule 15, Rule 15 would not permit an amendment where there has been undue delay where there would be prejudice to the party opposing the amendment, which bad faith with an ulterior motive where the proposed amendment is futile or should have been and must be brought in another court.

First point, Your Honor, which I would like to make is that SCO has known about the proposed claim, that is to say, its claim that IBM has included Unix System V Version 4 code and IBM AIX For Power product for many years, and it has done nothing about it. If SCO, Your Honor, knew or should have known that IBM included -- that IBM included in AIX For Power SVR-4 code and it knew that before the deadline for amending the pleadings passed, then this motion fails. If it knew before the deadline passed for amending the pleadings that IBM included that code, Unix System V Release 4 code in its AIX Power Product, then it can't establish good cause, it can't satisfy the requirements of Rule 15, it certainly can't establish compelling circumstances, let alone extremely compelling circumstances.

SCO contends, Your Honor, that it did not know and had no reason to know that IBM included SVR-4 code in its AIX

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For Power product because in SCO's words, IBM's conduct was, quote, an egregious clandestine violation, close quote. And IBM, quote, took affirmative steps, close quote, to prevent SCO from discovering this alleged clandestine conduct,

Those allegations are false. And with the Court's permission, I intend to show that SCO's internal documents, Your Honor, documents in its possession for many years and in possession of its predecessor interest, show it to be false. I will show also, Your Honor, that the public record makes perfectly clear that SCO and the world knew and understood that IBM had included SVR-4 code in its AIX For Power product. The showing I intend to make, Your Honor, again is not based on the Monterey licensing agreement, so we think it will totally support cur position. This showing is based upon their documents and the public record.

If I may approach.

THE COURT: Yes.

MR. MARRIOTT: Your Honor, beginning at Page 2, we lay out at least eight indications in the public record and in SCO's own documents, documents found in its files, that IBM included SVR-4 code in its AIX For Power product. One, indication one, the purpose of Project Monterey, Your Honor, was to create a family of operating systems, including the AIX For Power product. It was not, as the SCO brief suggests, a simple afterthought. And I refer the Court to the last bullet

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on the page, a SCO presentation at a SCO partner conference in the year 2000.

Project Monterey in the presentation said, quote:

To establish high-volume, enterprise class Unix platform through...Single scalable Unix product line family for IA-32, IA-64 and IBM Power microprocessors

In a joint IBM/SCO presentation, Your Honor, it states IBM and SCO - quote:

IBM and SCO join forces to deliver the most advanced family of Unix products in the world including AIX, PPC

That's Power PC product

At Page 2 of our book, Your Honor, the second indication found in SCO's documents that it knew or should have known Project Monterey's combined features from both AIX and UnixWare. If you look, for example, at the last quote on Page 3, Your Honor, May 2, 2001, print-out of the web page for the AIX 5L product, which website was jointly sponsored by IBM and SCO, that is to say, the Santa Cruz Operation, Inc., so its predecessor. This is a document produced by SCO to us in this litigation. AIX is, quote, for both Intel Itanium- and IBM Power-based systems, close quote. AIX 5L is taking IBM's AIX Unix operation system and combining it with the best technologies from SCO's UnixWare operating system.

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The third indication, Your Honor, is found at Page 4 of the book. SCO provided IBM with UnixWare/SVR-4 code for inclusion into IBM's AIX For PowerPC Product. A SCO e-mail dated 10-23-98 states, quote:

UnixWare for AI32 and AIX PPC continue to be developed and controlled by SCO and IBM respectfully. The only difference here is each of us now has access to technology from both UnixWare and AIX which can be added to the existing product lines to increase compatibility and improve the family story.

Next bullet, SCO e-mail dated 9-7-99. Quote:

SCO is providing UnixWare technology to IBM for inclusion in AIX. Thus users should think of AIX, paren, on PowerPC, close paren, SCO'S UnixWare on IA32 and Monterey on IA64 as becoming the same operating system over the next two years.

Indication four, Your Honor, Page 5 of our book.

IBM communicated to SCO regarding the inclusion of Unixware/SvR4 code in AIX For Power.

And IBM-SCO Family Unix Technical Proposal, dated 9-2-98, produced by SCO in the case states that technology from UnixWare 7 would be incorporated in both AIX or IA-64 and AIX For Power.

And IBM presentation also produced by SCO states

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that the Project Monterey strategy includes a plan to aggressively grow and enhance AIX-Power offering by including, quote, contributions from SCO's UnixWare and Sequent's Dynix/ptx.

It lists SVR-4 Print Subsystem as among the common subsystems in the Project Monterey product line, including AIX For Power.

And finally, SCO e-mail dated 8-11-00, distributing text of a press release prepared by IBM: refers to AIX 5L running on both Power, the allegedly infringing product, running on both Power in IA64 and notes, quote, that among the Unix System 5 technologies to be incorporated in this release is the SVR-4, the allegedly infringed technology, printing substance.

Fifth indication, Your Honor, in the documents is that SCO was aware of the specific UnixWare/SVR-4 code that would be included in AIX For Power. An IBM-SCO family Unix technology proposal, again produced by SCO in the litigation, lists specific technology from UnixWare 7, the allegedly infringed product in part, to be incorporated into both AIX for IA64 and AIX For Power. Included are, quote, proc filesystem and SVR-4 Printing subsystem/printcap files, the allegedly infringed product listed in the proposed amended complaint.

A joint SCO/IBM document comparing AIX For Power

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and AIX for IA64:

Notes that the SVR-4 print subsystem is common between the two products

A SCO-IBM agreement overview, dated 11-4-98 lists, quote, common features/technology, close quote, between UnixWare 7, Monterey 1A64, and AIX For PowerPC, including, again, SVR-4 print subsystem, one of the allegedly infringed products.

The sixth indication. SCO and IBM marketed AIX For Power - - SCO and IBM marketed AIX For Power as a product that would include UnixWare/SVR-4 technology.

A SCO presentation to its Data Center Acceleration Program, dated l1-4-98.

SCO supplying IBM. SCO, present sentence, supplying IBM with UnixWare 7 APIs and technologies for AIX. It describes AIX on PowerPC as, quote, AIX with UnixWare, close quote.

SCO presentation at SCO partner conference 2000. Refers to technology exchanges between AIX, UnixWare and Dynix. And notes that the Project Monterey strategy includes the plan to, quote, aggressively grow and enhance AIX-Power offering, close quotes, by including, quote, enhancements from SCO's UnixWare and IBM NUMA-Q Dynix/ptx.

Seventh, and nearly final indication for today, Your Honor, IBM specifically announced the inclusion of

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Unix/SVR-4 technologies in AIX 5L For Power.

In March 2001, a document entitled, Printing for Fun and Profit under AIX 5L, it's noted that the addition of the SVR-4 print subsystem, the allegedly infringing product -- alleged infringed product, rather, is in this release of AIX, it devotes more than 150 pages for the SVR-4 print subsystem.

IBM 4-17-01 software announcement for AIX 5L For Power, includes a section titled, SVR-4 Printing Subsystem.

A 2001 AIX 5L for Power Version 5.1 release notes includes a section of instructions on how to use SVR-4 printing subsystem.

The eighth indication, Your Honor, is that contemporaneous industry reports noted the inclusion of Unixware/SVR-4 code in AIX For Power.

And August 8, 2000 -- this is Page 9 in the book. August 8, 2000, "The Register" refers to AIX 5L as an operating system that runs on both the IA64 and Power architectures and that included contributions from, quote, SCO UnixWare and Unix System V standard technologies, quote close.

June 2001, report by Andrews Consulting Group describes AIX 5L as, quote, a single Unix for both PowerPC and IA64, close quote. And notes that, quote, AIX 5L supports a number of Unix System V Release 4, SVR-4, commands and utilities, especially in the printing subsystem, close quote.

And finally, September 24, 2001, article, notes

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that AIX 5L, quote, can be used with both IBM PowerPC processors and the merging Intel 1A64 Itanium chips and that AIX 5L, the allegedly infringing product, included a SVR-4 compatible printing subsystem, the allegedly infringed product.

What's more, Your Honor, SCO contends that it should be allowed to amend because it just discovered evidence of the alleged infringement after it says the deadline passed for amending the pleadings. And SCO attaches to its opening brief and it includes in the book that it provided the Court today six documents, and it references IBM's AIX For Power code. And Mr. Normand said by my count today no less than five times, IBM produced these documents for the very first time after the deadline passed for amended pleadings. That's false. Three of the six documents, which Mr. Normand refers to, were produced before the deadline for amending the pleadings. Three of the six.

And when it comes to the scheduling order, Your Honor, I have a handout which lays out the chronology. It may make more sense to talk about it there in greater detail. It shows the dates on which it was produced and a cover letter of their production. Let me take one example. This is Exhibit 6 of SCO's opening brief, a piece of this allegedly newly discovered evidence. It deserves special mention.

The document was produced, Your Honor, not among

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millions of pages of paper, as counsel would have the Court believe. It was produced on a single CD with less than a box of documents on November 11, 2003, nearly three months before the deadline for amending the pleadings. SCO's newly discovered evidence, Your Honor, is not so new.

On this record, I would respectfully submit that there is no basis for SCO's proposed amendment. SCO fails to establish good cause. It fails to satisfy the requirements of 15(a), and it certainly fails to establish compelling circumstances, again let alone extremely compelling circumstances, as this Court's June 10, 2004, order requires. In fact, Your Honor, SCO cannot establish a good cause. To quote the Court on deadlines, which is cited in our papers, the good cause standard primarily considers the diligence of the party seeking the amendment.

This party, which had these documents in its files for years, has acted with anything, we respectfully submit, but diligence. The courts, Your Honor, have refused to find -- putting aside the Court's June 10 order, the courts have refused to find good cause under circumstances no different than these. And I direct the Court to Pages 10 and 11 of the book where we cited a number of cases where the court commonly refused to permit pleadings after the deadline for amendment of pleadings.

In the Sipp case, for example, the 10th Circuit

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affirmed its denial of a motion to file less than a year after the original complaint. This motion was filed 19 months after the original complaint and only two months after the expiration of deadline of any pleadings. This motion was filed nine months after the deadline for amending the pleadings.

And the Court can see for itself the results of the Brown, Schwinn, Doelle and Proctor & Gamble case. Of course, I know the Court is familiar, I know, with the Proctor & Gamble case.

The Court need not reach Rule 15(a) --

THE COURT: I'm a lot more familiar than I ever wanted to be with Proctor & Gamble.

MR. MARRIOTT: The Court need not reach 15(a) because SCO can't satisfy Rule 16(b), Your Honor. But if the Court does reach 15(a), the result there is the same. And Page 13 in our book, we lay out a number of cases in which courts have declined under Rule 15(a) to allow it in because it was untimely.

In the Frank case, for example, the 10th Circuit affirmed a denial of a motion to amend when the plaintiff's motion was filed four months after the Court's deadline for amending pleadings. And the plaintiff knew or should have known of the proposed claim long before that date.

Now, Your Honor, SCO offered by my count three

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reasons to explain its delay. First of all, Your Honor, it seeks to dismiss the documents, to which I've just referred as ambiguous. In its papers, it says that the AIX 5L reference might not really be AIX For Power, it might be AIX for IA64 only. It says also that the SVR, that is the System V technology, might not have been SVR-4, which it contends IBM doesn't have a license to, but it might just have been SVR-3, which it acknowledges IBM had a license to.

The documents, Your Honor, which I've just reviewed and which we highlight in some limited way on Page 14 are abundantly clear that the references here are not to AIX for IA64 only, but to AIX For Power. And the documents make abundantly clear that the technology issue is not just SVR-3, but it's SVR-4. And I won't read them all to Your Honor, but you can see them on Page 14.

Now, SCO contends, Your Honor, that it didn't know about this evidence. And for that proposition, it relies upon the declaration that it submits from one of its employees, Mr. Jay Peterson. And respectfully, Your Honor, Mr. Peterson's declaration isn't worth much. It is based on speculation, it is based on improper legal conclusion, and it lacks foundation. Mr. Peterson is in no position to testify what people in the Santa Cruz Operation, Inc., many years ago as a collective group knew or did not know. Mr. Peterson can speak to what Mr. Peterson knows and what Mr. Peterson doesn't

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know. And what Mr. Peterson knows and doesn't know, frankly, is of little consequence in the face of the evidence here that both the Santa Cruz Operation, Inc., and SCO knew that AIX For Power included SVR-4 code. Mr. Peterson's professed ignorance cannot be reconciled with the documentary evidence before the Court.

Now, finally, Your Honor, SCO suggests that in its papers, that it can't be charged here with the responsibility and the knowledge of its alleged predecessor in interest in the Santa Cruz Operation, Inc. It can't have it both ways, Your Honor. From the beginning of this litigation, the SCO grouping has pretended that there is no distinction between it and the Santa Cruz Operation, its predecessor in interest.

And I direct, Your Honor, for example to Page 15 of the book. In SCO's initial complaint, it alleged that it performed the activities undertaken by the Santa Cruz Operation, Inc. It blurred the distinction, it said, quote;

From and after September 1995, SCO dedicated significant amounts of funding and a large number of Unix software engineers, many of whom were original AT&T Unix software engineers, to upgrading UnixWare for high-performance computing on Intel processors, close quotes.

It says:

In furtherance of Project Monterey, SCO

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expended substantial amounts of money and dedicated a significant portion of SCO's development team to completion of the project.

Your Honor, in 1995, the SCO Group didn't exist. In 1995, its predecessor Caldera Systems, Inc., didn't exist. Santa Cruz Operation, Inc., and the SCO Group are not, not withstanding its prior contentions, the same company. They are nevertheless predecessors in interest, Your Honor. And the law is abundantly clear, we laid the cases out at Page 16 in the book, that a party is charged with the knowledge what its predecessor in interest knew or should have known.

Even if, Your Honor, even if they didn't know what the documents included, even if you credited Mr. Peterson's declaration, even if they were allowed selectively to identify themselves with the Santa Cruz Operation, Inc., the proposed amendment here is untimely and shouldn't be allowed. A proposed claim is untimely if the moving party should have known about the claim.

And you can see the cases that support that proposition in 17. Frank v. US West, 10th Circuit, said, quote:

It is well-settled in this circuit that the untimeliness alone is a sufficient reason to deny leave to amend, especially when the party

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filing the motion has no adequate explanation for the delay.

Las Vegas Ice, Your Honor, reaches the similar result.

The law is clear here, that the SCO Group had a duty to investigate. Those cases are laid out at Page 18. SCO's own cases, Your Honor, indicate, as laid out in Page 19, that, in fact, it had a duty to investigate.

A party who fails to comply with its duty to investigate is charged with knowledge of the facts constituting the infringement, as indicated in the cases laid out at Page 20.

The most basic of public investigations, the most basic of internal investigations would have shown, indeed, I submit did show that IBM included SVR-4 code in its AIX For Power product years ago. They knew it, Your Honor, and this claim is untimely both under Rule 15, Rule 16 and certainly this Courts order of June 10th.

The second point, Your Honor, the last point which I intend to make, is that the proposed claim here is not a claim which may properly be brought in this court. Section 22.3 of the JDA, and I refer you to Page 21 of the book, provides, quote:

Any legal or other action related to a breach of disagreement must be commenced no

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later than two years from the date of the breach in a court cited in the state of New York.

It is undisputed that this proposed claim is a legal or other action. It is equally undisputed, notwithstanding - - it is equally clear, Your Honor, that the proposed claim here is related to a breach of disagreement.

I refer you to the next slide, Page 22 of the book, wherein SCO in the proposed amended complaint and in its opening brief on this motion acknowledge that the proposed claim is a claim relating to a breach of the agreement. SCO's proposed third complaint says, quote:

IBM converted SCO's copyrighted code for IBM's own use in violation of the specific restrictions of the parties' Joint Development Agreement.

SCO's opening brief states that IBM, quote, ignored the JDA's restrictions in violation -- I apologize, Your Honor. It states that IBM ignored the JDA's restrictions on its use of SCO's SVR-4 code and released an Itanium product that did not satisfy the conditions of a product release.

You know, SCO obviously didn't bring the claim in New York. That is reason enough under this provision for this claim not to be included in this case. It offers in its papers, Your Honor, two arguments as to why that shouldn't be the case and said barely a word about it today.

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The first argument Mr. Normand mentioned today is -- the only argument that Mr. Normand mentions today is that Section 22.3, which we just read, is inapplicable. They took the opposite position, Your Honor, in their opening brief, the opposite position. In their opening brief, they acknowledge that that section applied here. They brought it up in their opening brief.

The law is clear, Your Honor, that a court generally refuses to consider arguments raised for the first time in a reply brief, which this argument of inapplicability is; and in any event, it is a reversal of position, which the courts also decline to consider. And the authorities for that proposition are set out at Slide 23.

Pickering v. USX Corp., refusing to rule on arguments raised for the first time in reply memorandum.

Weaver v. University of Cincinnati, stating that the Court would address only the merits of defendants' original contention where defendants shifted their argument in their reply brief.

Even if, Your Honor, they hadn't conceded the applicability in their prior papers of Section 22.3, even if that were true, and it's not, that section plainly applies here, Your Honor, a contract must be construed to give meaning to all the terms. That Section 22.3 is an important term of the contract. Cases to that effect are laid out at Tab 24.

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Courts have construed, Your Honor, language comparable to the related-to language here to include non-contract claims, such as SCO's proposed copyright claim.

At Page 25, you'll see, for example, the Turtur decision, Your Honor, Second Circuit, holding that, quote, rising out of or related to, close quote, language to apply to a tort as well as a contract claim.

In the Ward case, the Court found that the, quote, scope of a relating-to language is broad and intended to cover a much wider scope of disputes, not just those arising under the agreement itself.

Courts, Your Honor, have even interpreted more restrictive language, like "arising under" as opposed to "related to" to encompass claims of the kind here used in the forum selection clause. And those cases are laid out in Page 26.

In Monsanto, Your Honor, the Court held, the Federal Circuit, held that if patent claims were subjected to forum selection clause applicable to, quote, all disputes arising under the contract.

Second, Your Honor, SCO contends that IBM ought not be allowed to enforce this amending provision here because IBM has waived its rights to the provision. Two arguments they make. First one is the argument was waived because IBM failed to assert the defense in its responsive pleadings. That's

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wrong for three reasons.

First, Your Honor, SCO didn't raise the argument in its opening brief. It's improper for the reasons that I've already stated. Second, we haven't submitted a responsive pleading. The complaint hasn't been allowed in the case yet. Third, Your Honor, we have submitted in the case in connection with their other three complaints four responsive pleadings. In every one of those pleadings, notwithstanding their contentions to the contrary, and this is laid out, Your Honor, at Page 28 of our book, notwithstanding what their brief says, in every one of our responsive pleadings, we have asserted a defense of improper venue.

The second and last argument they make with respect to waiver, Your Honor, is that the claim is waived somehow by virtue of IBM'S assertion of its Ninth Counterclaim. Your Honor, Section 22.1 of the Joint Development Agreement and that's wrong, by the way, Section 22.1 of the Joint Development Agreement, which is set out at Page 29 of the book, expressly provides:

No waiver of any portion of this agreement shall be effective unless it is set forth in a writing which refers to the provisions so affected and is signed by an authorized representative of each party.

There is no such writing.

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Second, to establish waiver, they've got to show a voluntary and intentional abandonment of a known right. Cases to that effect are set out at 30. There has been no knowing and intentional abandonment of a known right. And the case law, Your Honor, indicates that the mere assertion of a counterclaim, as we show at Page 31, is an insufficient basis for final waiver.

Finally, they suggest that the Ninth Counterclaim somehow encompasses the proposed claim. That isn't right, Your Honor. The Ninth Counterclaim was intended to be narrow in scope. The Ninth Counterclaim could not have been as broad as they contend because, A, the Court wouldn't have subject matter jurisdiction over it, IBM couldn't have brought a Ninth Counterclaim seeking a declaration of non-infringement with respect to the conduct at issue in their proposed complaint because we hadn't been sued for that, one; and they had never threatened to sue us for that, two. We lacked a reasonable apprehension suit. There would have been no subject matter jurisdiction with respect to a claim of that kind. And in any event, the claim that they contemplate having somehow been swept up in Ninth Counterclaim is a claim that must be brought, if at all, in New York by virtue of the agreement that IBM entered into with its partner in Monterey, the Santa Cruz Operation, Inc.

In summary, Your Honor, the motion should be

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denied. It should be denied because they've known about this claim from the very beginning of the case, and it should be denied because there is a forum selection clause here which requires this claim to be asserted in New York, not in the state of Utah.

THE COURT: If I let them amend as they want to do, would it affect your motion to narrow the Ninth Counterclaim?

MR. MARRIOTT: Would it affect the motion? Your Honor --

THE COURT: In other words, would you still want me to grant that motion?

MR. MARRIOTT: Your Honor, the motion with respect to the Ninth Counterclaim is intended simply to reflect IBM's intent to filing a motion.

THE COURT: All right. So I'll call it a motion to clarify.

MR. MARRIOTT: Call it a motion to clarify. The motion frankly is of little consequence. It doesn't make much difference. SCO doesn't really care, Your Honor, about that motion except for purposes of being able to argue in this connection that somehow the claim is waived.

THE COURT: But my question to you is, if I let them amend, do you care about your motion?

MR. MARRIOTT: I don't care about the motion, Your Honor.

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THE COURT: Okay. Thank you.

MR. MARRIOTT: Thank you.

THE COURT: Reply, Mr. Normand?

I assume you'll be brief and efficient.

MR. NORMAND: Thank you, Your Honor, I'll make an effort to be brief and efficient. Mr. Marriott has raised some new issues, some new documents and some arguments that I'm hearing for the first time.

Just to clear the field, to begin with, Your Honor, the question of when documents were produced, I think we're going to have a factual dispute with IBM about that. I do not purport to have personal knowledge about when documents were produced, but it is my understanding that the documents had been produced after the amendment deadline. If we're incorrect, we're incorrect. It stands that several of the documents at least, as Mr. Marriott concedes, were produced after the deadline. And this goes to the point of plaintiff's entitlement to collect a core critical mass of highly privilege documents. There is no question that some of the very important documents were produced after the deadline. And we have not purported to present to the Court with all of the documents.

As an overarching matter, Your Honor, there is no argument of undue prejudice from IBM. And under the Supreme Court precident and under a lot of other precidents, that's

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the primary overriding factor. There is no undue prejudice.

IBM makes a series of arguments about Rule 16. We think those arguments misconstrue the case law and are overstated. Let me note from the onset, Your Honor, that, as I noted in my opening argument, there is no place for Rule 16 here. There may not be a place for Rule 16 because there may be a new amendment deadline.

Even if there is not a new amendment deadline, the question, then, is Rule 16, because there is no question that many of the documents, at least, even pending this dispute with IBM over the timing of production of documents, there's no question that some of the documents were produced after the deadline. If there's been no undue delay and Rule 15 is prior to the deadline, Rule 16 has been placed. In any event, the questions under Rule 16 as we cite in the briefs is whether the plaintiff uncovered previously unknown facts during the discovery that would support an additional cause of action. The question is whether the supporting facts did not surface when the last amendment deadline had passed.

Now, with regard to another matter, IBM spends a lot of time going through the documents, the documents that we had not seen before, internal documents from Santa Cruz. We think that misses the point entirely. There is evidence that people at Santa Cruz might have known that as part of the Project Monterey the parties intended to allow copying to

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happen. IBM, first of all, argues that there was an authorization, but they don't point to the Court or to us any basis for that supposed authorization.

Santa Cruz understood that the product was to be developed. Santa Cruz understood that there would be sharing of the code as part of the project, but there is no allegation and no proof that anyone at Santa Cruz or SCO actually knew they had a claim. More importantly, IBM's arguments ignore the key evidence that we've uncovered. It is highly relevant that IBM itself thought and its product release did not authorize itself to use the code. And I'd like to walk the Court through that in a little bit more detail.

SCO must prove that IBM's copying was unauthorized. Part of that proof is the question of the operation of the JDA. Very relevant evidence as to the operation of the JDA is how IBM thought the JDA operated. Accordingly, very relevant evidence to our claim is IBM's view that it was not authorized under the JDA to undertake the copying it did. There is just no question that that evidence is relevant. IBM's argument produces the claim that the evidence is irrelevant, that it added nothing, that we could have brought a copyright claim without knowing that IBM thought that the release was pretextual. I don't think that's true to the extent that an argument is an accrual argument. And I'll address that in a moment, Your Honor.

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IBM tends to confront the three reasons that we've offered for why we think it is appropriate. Some of the reasons are ones that IBM has frankly mischaracterized. They first discussed the documents and say that we dismissed the documents. As I said, that misses the point that as many of the documents that are released, they did not either attempt or give any basis for thinking they have copyright claims. And none of the documents suggest that anyone at Santa Cruz knew that IBM itself regards itself as having lack of authorization of the copying of the code. That is a critical aspect of the claim we propose to bring. It is an aspect that we could not have discovered possibly until we reviewed the documents in this litigation.

Argument -- IBM then argues the issue of whether we should be imputed to have what little knowledge Santa Cruz might have had about the subject matter of the claim. We think IBM misses the point there, as well, Your Honor. IBM cites no case for its proposition and for purposes of Rule 15 that plaintiff should have knowledge of its predecessor imputed to it. These are the cases that IBM cites, cases in which the defense of laches had already barred the predecessor's claims when the predecessor purported to assign the claims to the successor. Those cases make sense. If laches were to preclude the predecessor's lawsuit, he should not be permitted to escape his untimeliness by selling or

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giving his patent or other intellectual property rights to a successor to then try to file a timely lawsuit.

SCO does not seek to gain any rights that Santa Cruz did not have. The only issue here is whether SCO can bring a new claim as an amendment in this proceeding. IBM cites no cases to support its oral argument that knowledge of Santa Cruz, however limited, should be imputed to us.

IBM illustrates what I think is its failure to confront our main argument where it says the most basic of public and internal investigations would have revealed the basis for our proposed claim. That is not true. It's not remotely true. We would not have known even with the most intense investigation that IBM itself viewed itself as unauthorized to publish and to copy code as it did. That's critical evidence, Your Honor.

IBM argues that we acknowledged in our opening brief the JDA applied. That's not true, Your Honor. Here's the statement we made in our opening brief.

SCO recognizes that the parties' JDA for Project Monterey contains a forum selection clause for New York courts.

We acknowledge that the JDA contained a forum selection clause. We weren't obligated to raise every argument, Your Honor, in which 22.3 would not apply.

We're also at the height of formality here, Your

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Honor. IBM filed an ex-parte motion for leave to file a surreply after they concluded that when we raised the issue of waiver in the applicability provision in our reply brief, they argue that we raised that for the first time. They got permission to file a surreply. They filed a 16-page surreply, and we're here arguing the points before Your Honor. I think it's an incorrect argument, and in any event, a technical one that shouldn't preclude the consideration of merits.

As to the interpretation, Your Honor, of Section 22.3 of the JDA, IBM ignores again our main argument, which is by their own lights, the provision doesn't make any sense. They leave the accrual portion of the provision out because it would give the provision an unreasonable reading. They cite several cases that they say support their arguments, that in light or analogous provisions a forum selection clause should apply.

We think those cases make our point. In contrast to those cases, Section 22.3 does not encompass all claims relating to or arising under the agreement or concerting the parties' rights and duties under the agreement. That is not the scope of this provision. That's the scope of 20.1. It's a reason not to give the reading of 22.3 that IBM does.

IBM argues that there's been no waiver of the provision. We think that's wrong, Your Honor, for one basic reason, which is the scope of the Ninth Counterclaim. I

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quoted the Ninth Counterclaim before, and it is extremely broad. It asks for a declaration of non-infringement. it does so in plain language. It was a counterclaim that exceeded the scope, as Mr. Marriott concedes, as praise as written that he exceeds the scope of our claims. That makes it not a compulsory counterclaim, as Mr. Marriott again explicitly concedes, but a permissible counterclaim. Parties pursue litigation from one forum constitutes the waiver of that party's ability to enforce the forum selection clause to another forum.

The Ninth Counterclaim is permissive. None of SCO's claims required any fact finder to determine whether IBM's development of AIX violated any SCO copyrights. We think the precident makes clear that the defendant waives any venue objections when it objects to new issues in the case. 10th Circuit held long ago in Thompson, 1962, that the filing of a counterclaim can constitute the waiver of a forum selection clause.

IBM cites a more recent 10th Circuit case, Campbell, I believe it's Campbell, in which the Court concludes that if the counterclaim was compulsory, it would not be a waiver. But the rule as it stands and as we can prove from a variety of precidents is that the defendant voluntarily submits himself to the forum through filing a permissible counterclaim. We think the plain language of the

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Ninth Counterclaim makes it clear that it's permissive.

I'll address in a moment, Your Honor, the question of whether IBM's re-interpretation of its Ninth Counterclaim makes any sense. I want to address IBM's brief argument on the non-waiver provision in the JDA. We cited the case in our briefs that show where the party's conduct constitutes a waiver generally of venue objection, even if there is a no-waiver condition in the contract, that is not a right to the waiver, constitute a waiver, both of the no-waiver provision and of the venue objection generally in federal court.

The cases IBM cites don't support its argument. In the Roboserve case, the Seventh Circuit case, the Court acknowledged only that the waiver of authority in Illinois holds that, Waiver Only in Writing provisions can be waived by words and deeds of the parties. And I think IBM's Ninth Counterclaim constitutes a deed by which IBM intends to inject new issues into the case.

IBM argues that its Ninth Counterclaim shouldn't be read as written. IBM says its Ninth Counterclaim is not intended to encompass SCO's claims. And it's filed a motion styled, A Motion For Entry of Order Limiting the Scope of the Ninth Counterclaim. The motion is fully briefed. I take it, Your Honor, it will be heard another time. But in sum, in our Opposition to that motion, we

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point cut that among other things, IBM filed that motion only having seen after the October 2004 hearing before the magistrate court the evidence of its violation of SCO's copyrights and the evidence that it knew it was not authorized to use SCO's code.

IBM doesn't seek leave to amend the counterclaim but seeks leave to ask the Court to enter an unprecedented order that would retroactively limit the scope of (unintelligible) It's unprecedented. IBM cites unprecedented to support a motion. And the motion directly contradicts IBM's argument to this Court in September of 2004, as Your Honor may recall, with respect to our motion to dismiss IBM's Tenth Counterclaim as a permissive one. IBM argued at that point that what you should control is the plain language of the scope of our copyright claim. In our view, our copyright claim was more narrow than IBM interpreted it to be. And we argued that the plain language didn't support IBM's agreement. And IBM argued that the plain language had to control. And the Court adopted, as we understand the Court's order, that rule, that the plain language of the counterclaim would control and the plain language of SCO's allegations would control. I don't see why a different rule would apply in this instance.

In short, Your Honor, IBM'S argument ignores the crucial fact that there is no undue prejudice, IBM's argument

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deduces the claim without any citation or precident or authority remotely analogous, that Santa Cruz' limited knowledge should be imputed to us. And we think those arguments are wrong.

And as a last point, Your Honor, the question of the extent of Santa Cruz' knowledge is a statute of limitations accrual question. It is not a question that is relevant to the policies of Rule 15. At the very least, Your Honor, the question of when a claim (unintelligible) is a fact question, and we cited cases in our brief showing that it is a fact question, not only requiring discovery, but is one that cannot be resolved in summary judgment. An intense fact question. And to the extent that the document, the new document that IBM submitted suggests that Santa Cruz had a certain level of knowledge of copying, which is different from the question of any knowledge of IBM's knowingly unauthorized copying, that IBM acknowledged the copying was unauthorized, that is a fact question. And the fact that Mr. Marriott has brought in new documents, ones that we have not seen before, only highlights what that question is. It is no basis for (unintelligible) . Thank you, Your Honor.

THE COURT: Thank you.

MR. MARRIOTT: May I have just a moment, Your Honor? I can segway easily, if you like, into the scheduling discussion.

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THE COURT: But you want -- well, the scheduling discussion is not going to be very lengthy.

MR. MARRIOTT: Perhaps not.

THE COURT: You want to say something? You want to reply to his reply?

MR. MARRIOTT: I would if I could.

THE COURT: How long?

MR. MARRIOTT: Three minutes.

THE COURT: Then he still gets the last word. It's his motion.

MR. MARRIOTT: That's fine with me.

MR. NORMAND: Your Honor, that's fine.

THE COURT: I'll give you two minutes.

MR. MARRIOTT: Okay. Thank you.

First, Mr. Normand suggests that he heard nothing from IBM with respect to prejudice. As I said at the outset, Your Honor, we are not making here all of our arguments. There is no question that it would be prejudice to IBM if this motion would be allowed. If it would be allowed, it would be prejudice because the forum selection clause would be read out of the contract. There would be prejudice because new issues would be inserted in this case which are otherwise not here. Like, for example, whether IBM has a license to include Unix System VR-4 code into this product. That issue is not in this case. That is the central issue in all likelihood in their

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proposed claim.

The proposed claim, Your Honor, concerns a contract between IBM, a New York corporation, and the Santa Cruz Operation, Inc., a California corporation, not the SCO Group, Inc., a Utah based company.

SCO suggests, Your Honor, by way of its inquiry in SCO's arguments that a party is not on notice for purposes of inquiry notice unless that party has all of the evidence, which we indicate the alleged underlying violation. That's wrong, Your Honor. If that were the rule, there would be no inquiry notice as a test.

Mr. Normand suggests that Rule 15 somehow is oblivious to whether a party knew or should have known. That's a fact question he says the Court couldn't possibly resolve in this posture. Courts resolve that question all the time in this juncture, Your Honor. If Mr. Normand were right that that was a fact question and the Court couldn't hear it and consider it, we would never have these decisions laid out in our book in which courts have denied amendments because the party should have known of the alleged misconduct.

With respect to the scheduling points, Your Honor, I guess my question is whether the Court intends to hear any argument with respect to that. If it does not, I'd like to show one other exhibit, which I think is of some consequence to this.

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THE COURT: Consequence to this motion?

MR. MARRIOTT: It is.

THE COURT: Or referring to schedule?

MR. MARRIOTT: It is the consequence of both.

THE COURT: Well, show it. We're going to have a brief discussion about scheduling.

Now, tell me how this is of consequence to this motion.

MR. MARRIOTT: I will, Your Honor. It is of consequence to this motion because this chronology which lays out the events concerns both. The reason it relates to scheduling, Your Honor, because one of the scheduling questions is whether the Court should enter an order which includes a new deadline for filing amended pleadings.

THE COURT: Yeah, that is one of the questions.

MR. MARRIOTT: Pardon?

THE COURT: That is one of the questions.

MR. MARRIOTT: That is one of the questions. And that question is also obviously relevant to the motion that SCO should be allowed to amend its complaint. The documents that SCO contends is the newly discovered evidence are indicated here with asterisks, Your Honor. At the tabs, you'll see the correspondence which indicates when these newly discovered pieces of the evidence were produced. There is a factual record, and it is right here. And this is the record

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that indicates when the documents were produced. Three of the six, as I say, were produced before the close of fact discovery.

Your Honor, the code in question, IBM AIX For Power product, was produced to SCO in March of 2004, as indicated on this document. SCO says in its papers that it was relatively easy to determine from those -- from that code that IBM infringed because it says that IBM copied hundreds of thousands of lines of code, to put that code into its AIX For Power product. SCO had that discovery, Your Honor, by March 4th. On April 5th, it filed a motion seeking to amend the scheduling orders. In that motion to amend, which is laid out here in the book, Your Honor, it asks for date after date after date for events in this case. Not a single one of those dates concerns a date for amending pleadings.

The parties appeared before the Court on June 8th, 2004, for a hearing with respect to the scheduling order, at which point SCO had had the allegedly critical documents, at which point all of the allegedly critical documents were in its possession, some for more than six months, the code which he said was -- well, that it easily determined was in possession. And nothing was said at that hearing about a need, Your Honor, to amend the schedule to have a new date for which to file an amended pleading. That is indicative of there not being either good cause or extraordinarily good

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circumstances. Thank you.

THE COURT: Thank you.

Mr. Normand?

MR. NORMAND: Thank you, Your Honor. I won't dwell on the point. As I said, I don't know personally whether what IBM has represented about the documents is accurate. To the extent Your Honor thinks it might be relevant, we ask for the opportunity to respond to the submission that they made. Mr. Marriott said earlier that, I think he said three of the six were produced in November of 2003; three of the most relevant were not. Even as to those that were produced, we received them only a few months before the original amendment of pleadings. Thank you, Your Honor.

THE COURT: Thank you.

All right. Now who's going to talk now about scheduling? Mr. Marriott?

MR. MARRIOTT: Yes, sir.

THE COURT: Who over here?

MR. NORMAND: Your Honor, I will.

THE COURT: All right. Now, I have your proposed schedules. Talk to me briefly, each of you, about what difference in your proposed, if any, the magistrate's order entered yesterday may make and what difference - - what your proposals would be if I allowed plaintiff to amend or if I didn't allow plaintiff to amend.

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MR. NORMAND: Yes, Your Honor. We have a revised scheduling order. May I approach?

THE COURT: Yes. Have you given Mr. Marriott a copy of it?

MR. MARRIOTT: He has, Your Honor.

THE COURT: Okay. This is your proposed revision; right?

MR. NORMAND: Yes, Your Honor.

THE COURT: And this is after the order yesterday by Magistrate Wells?

MR. NORMAND: Yes, Your Honor. The modifications to the scheduling order - -

THE COURT: Would this be affected by my ruling on the motion to amend?

MR. NORMAND: It would not, Your Honor. It proposes an amendment deadline.

THE COURT: Okay.

MR. NORMAND: You see near the top of the page, Your Honor, amendment deadline of June 17, 2005.

THE COURT: Okay.

MR. NORMAND: The differences between this revised schedule and the schedule we submitted several weeks before the magistrate's court order relate to merely timing.

THE COURT: Relate to what?

MR. NORMAND: Timing. The magistrate court order

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gave IBM, as we understand it, as of yesterday --

THE COURT: Most schedules do relate to timing.

MR. NORMAND: Then I'm right.

THE COURT: You are right. You are certainly -- I'll take judicial notice of the correctness of your last statement.

Excuse me. Go ahead.

MR. NORMAND: Thank you, Your Honor. I have that going for me.

The magistrate court's order gave IBM 90 days from yesterday to comply with the discovery order the magistrate court had originally entered in January. Accordingly, we've changed our schedule in roughly proportional fashion, moved dates back. Of course, we moved the fact discovery deadline back 54 days, as indicated in the footnote, And we've moved most of the other dates back about 90 days. We don't presume to take a full 90 days that the Court has given. We would take 70 days. We think that the delay in the production is relevant to our ability to structure the order as we originally proposed it.

THE COURT: Thank you.

Mr. Marriott?

MR. MARRIOTT: Your Honor, I believe that Magistrate Judge Wells' order doesn't change much of our proposed schedule, except that I would suggest that by

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adjusting outward the dates two months would accommodate the Court's order of yesterday.

With respect to the other question, adding that complaint, Your Honor, would from our perspective complicate the case and require a line of discovery which was otherwise not contemplated and which is otherwise not necessary and would require a minimum of nine months additional time.

THE COURT: Have you looked at this?

MR. MARRIOTT: I was handed that at the beginning of the hearing, Your Honor. I have not studied that.

THE COURT: All right. Thank you.

Now, do either of you -- is there -- would you be able to sleep tonight based on what you've told me about scheduling? I don't want you to go home and say, oh, gee, I wish I would have said that when we talked about scheduling. That happened to me a few times when I was practicing. Why didn't I say X? So is there something else you want to say about scheduling?

MR. NORMAND: Well, I know if I don't say something, Mr. Eskovitz will tell me I should have said something. Two main points --

THE COURT: That's reason enough. You don't want your partners calling you in the middle of the night.

MR. NORMAND: Thank you, Your Honor.

Mr. Marriott first said he doesn't see how the

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magistrate's court order changes their proposed schedule. We'll point out that their proposed schedule from a few weeks ago presupposed that they would win a motion for reconsideration.

The other point, Your Honor, is the reasons I outlined my argument on the motion to amend, to the extent to the nine-month discovery schedule that IBM proposes for fact discovery, which is what I heard Mr. Marriott say, to the extent that that is premised on Project Monterey discovery, we think that has to be incorrect. Project Monterey is in the suit. We don't, SCO, need to take substantial additional discovery. And there's a six- to eight-month discovery under our schedule that we think is plenty to accommodate Project Monterey. Thank YOU,

THE COURT: Thank you.

Mr. Marriott, do you want to sleep well tonight?

MR. MARRIOTT: I do, Your Honor. Project Monterey is not in the case in the sense in which they propose to put it in the case, the words mentioned in the case to be sure. The issues presented by their motion is not here, and I think an additional nine months would be required with respect to that.

I don't think, to respond briefly to what Mr. Normand said about my comment about Judge Wells' order, I don't think that doesn't affect the case at all. I think I

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said it would shift about two months in the proposed dates.

The one thing which I'd like to mention with respect to the proposed schedule is set out in the papers, but I think it deserves special emphasis. We believe that it is critical that the Court enter a proposed scheduling order that includes a provision which requires both parties to disclose the allegedly misused material, whatever it is, by a date certain, and that the parties then have an opportunity subsequent to the disclosure of that allegedly misused material to take discovery with respect to that material.

The Linux Operating System, Unix System V, AIX, and Dynix, include collectively hundreds of millions of lines of code, Your Honor. When they identified that which IBM has alleged to have misused, we're going to need to take discovery with respect to that identified code. We're going to need to take discovery with respect to who and when, where, why, how. We're going to need to take discovery with respect to whether it's subject to contracts, whether it's subject to copyright principles. We're going to need to take discovery with respect to whether it's in public domain, and if so, to what extent.

Your Honor, our proposal is that the Court impose an interim deadline, by which the parties disclose, I understand already should have been done, if the parties have additional information they disclose that and that there be a

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final deadline. And after that deadline, the target is fixed. The experts are not permitted to disclose additional information in their reports or other pretrial submissions. They're not allowed an opportunity to add additional uses about that which was supposedly misappropriated. The target is fixed.

That's the only way, Your Honor, if there's allowed to be a period of brief fact discovery after that we can properly prepare our defense. The only other alternative, Your Honor, is to undertake that kind of investigation with respect to the hundreds of millions of lines of code in issue in the case under a hypothetical, yet unasserted theories of liability. That is impossible, and any scheduling order we respectfully submit should include that kind of provision.

Now, they've made various arguments against it, Your Honor. We've laid out in our papers why none of them are respectfully are any good. If as they contend we will get this information in the ordinary course, which is their argument, then they ought to have no difficulty agreeing to a schedule in which there is that kind of provision.

And respectfully, the reason that they don't particularly care about that provision is that IBM has disclosed to them 700,000-plus lines of code, line for line match up that we contend that they infringed in our copyright claim. That we don't have. That we want. That we think we

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need in order for this case to progress. Thank you.

THE COURT: Thank you.

Mr. Normand?

MR. NORMAND: Thank you, Your Honor. The parties do disagree over the structure of the fact discovery. We have proposed that the fact discovery in this case proceed as it does in every other civil case, with mutual discovery. IBM wants a period of unilateral discovery to begin very shortly. They want that period to begin on August 11th. That's not enough time for us to review the code.

IBM's unilateral discovery proposal fails for several other reasons in addition, Your Honor. First, our schedule conforms that mutual discovery contemplated in the federal rules and the one that was structured in the previous schedule orders. And we think it would be odd if that framework changed as a result of - - as reflected in the magistrate court's January order, IBM's failure to produce relevant evidence for over a year.

IBM can prepare a defense to SCO's claims during the period of mutual fact discovery. IBM has served interrogatories on SCO, and SCO is under an obligation to respond to those interrogatories. We will do so as soon as we can. If it arises that IBM is of the view that it has not received our responses to their interrogatories in enough time to complete discovery, that is an issue to raise with the

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Court at that point. The Court is full of arsenal of measures it can take to allow more time or to preclude us from using evidence if we haven't produced responses to those interrogatories in time.

IBM's argument suffers we think also from a very fundamental flaw. No one knows better than IBM what they contributed to Linux, how it was derived, how it was created. The notion that IBM is flying blind is absurd.

Thank you, Your Honor.

THE COURT: Thank you.

Anything else?

All right. Thank you all. I'll take these motions under advisement and get a ruling out in due course.

Court will be in recess.

(whereupon, the court proceedings were concluded.)
* * * * *

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STATE OF UTAH  
  ss.
COUNTY OF SALT LAKE

I, KELLY BROWN HICKEN, do hereby certify that I am a certified court reporter for the State of Utah;

That as such reporter, I attended the hearing of the foregoing matter on April 21, 2005, and thereat reported in Stenotype all of the testimony and proceedings had, and caused said notes to be transcribed into typewriting; and the foregoing pages number from 3 through 96 constitute a full, true and correct report of the same.

That I am not of kin to any of the parties and have no interest in the outcome of the matter;

And hereby set my hand and seal, this       day of            2005.

(space for signature)
KELLY BROWN HICKEN, CSR, RPR, RMR


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