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SCO v. Novell Hearing Reports
Wednesday, May 25 2005 @ 06:30 PM EDT

The hearing on Novell's motion in SCO v. Novell was today, and it's just finished. It lasted about 35 minutes, and Judge Kimball has taken it under advisement. A question that was argued today was whether Judge Kimball would allow Novell to convert to a motion for summary judgment instead of its motion for dismissal. Kimball at the start indicated he was not leaning toward permitting that change, but he allowed Novell to argue it anyway. Here is Frank Sorenson's report, part 1, with more details to follow shortly from Frank and Chris Brown.

Michael Jacobs spoke for Novell (Karrenberg and John Mullin were also there). Ted Normand spoke for SCO (Brent Hatch and Shawn Eskovitz and others were there).

Kimball began by saying that he wasn't inclined to convert to Summary Judgment, but he'd listen to the argument briefly.

Mike Jacobs: Regarding conversion to summary judgment: SCO submitted documents outside the record, and based on case law, runs the risk of conversion to summary judgment. Based on Kimball's comments, Jacobs will focus on arguments related to the dismissal motion.

Jacobs: There is substantial overlap with the SCO v. IBM case. The copyright ownership issue has come up in both cases, etc.

Kimball: I'm aware of that case.

Jacobs: Kimball noted several things in his February 9th order. He noted that SCO has cavalierly ignored certain arguments of IBM's.

Jacobs: SCO has shifted theories, and now claims that the APA effected the copyright transfer. SCO can't claim malice because their allegations are controverted by the very documents attached to the complaint.

Jacobs: In Novell's Opening Memorandum, Novell mentioned their letter to SCO that SCO had repeatedly asked Novell to transfer the copyrights. If Novell has a meritorious argument related to ownership, SCO can't claim malice.

Jacobs: Spoke of "conditional privilege", "knowing falsehood", points on "special damages" and other legal terms (more legal discussion than most other hearings).

Jacobs: This is not a slander of title case. SCO should have asked for a declaration of ownership. They want the community to believe they have a slam-dunk copyright case.

Here's part 2:

Ted Normand: This is Novell's Second Motion to Dismiss. SCO filed the Amended Complaint to clarify Special Damages, but Novell hasn't addressed everything they've brought up.

Normand: Novell's Motion fails in 3 ways...

Normand: 1) Novell waived arguments in their Second Motion to Dismiss (Novell had responded in different ways between the First and Second Complaints)

Normand: 2) SCO has alleged malice generally and specifically.

Normand: 3) SCO's allegations of malice are asserted, and Novell can't dismiss them by claiming falsity. Novell's assertion of ownership cannot trump malice.

Normand: In its previous ruling, The Court did not address Novell's state of mind. Novell seeks conversion rather than dismissal, and has abandoned dismissal.

Normand: Novell continues to assert that the Court's comments on falsity preclude the malice argument. [Quotes from Novell's press release about Amendment 2 to the APA. Refers to Novell's press release about SCO asking for the copyrights.] Novell does not submit evidence to back up the claim that SCO requested the copyright.

Jacobs: SCO is making a couple of oversimplifications. Our argument isn't as simple as "we claim ownership, therefore there is no malice." Our argument is that if you do a detailed review of the communication between the two companies and the background, if ever there was a case where the litigants had legitimite issues to argue, this was the case.

Jacobs: In this case, there is a real issue on ownership. There is a real horse race on the ownership issue.

Normand: Would like to say more.

Kimball: Okay, but I'll let them speak again. It's their motion.

Normand: We didn't say that malice and falsity are not related at all. We just don't believe they're related in the way that Novell claims. We do not believe there is a real horse race on ownership.

Jacobs: Nothing further.

Kimball: I'll take the matter under advisement and have a ruling not too far off.

And now, here is Chris Brown's report:

Mike Jacobs argued for Novell, he was joined by Thomas Karrenberg. Ted Normand argued for SCO and was joined by Brent Hatch, Sean Eskovitz.

Mike Jacobs argued for converting from a motion to dismiss to a motion for summary judgment because SCO submitted documents outside the record and therefore accepted the risk conversion. Judge Kimball, preliminarily, said he was not inclined to do that and said to argue for dismissal, then at the end he could argue for converting to summary judgment. Jacobs indicated that there is significant overlap with the SCO v. IBM case that he is sure Judge Kimball is aware of. Judge Kimball indicated that he very aware of it.

Novell argued that SCO's assertions that the APA as amended transferred copyright ownership were contraverted by the underlying record. He cited the letter from SCO to Novell requesting that Novell transfer the copyrights to SCO. SCO didn't even attempt to address this. He argued that there can be no malice if Novell answers SCO's request to transfer the copyrights by saying: "No". Nor can Novell be charged with malice by thereafter asserting they own the copyrights.

Novell cited Judge Kimball's dismissal order in this case last year where he said the APA by itself does not transfer the copyrights.

Novell, in arguing for conversion to summary judgment, said that he believed this is not a slander of title case, but is a declaratory judgment case. I regret saying at this point but I didn't manage to write down all Mike Jacobs argued in favor of this, but it was all *very* good, and hopefully we will have the transcript soon. The main point is that Novell did not want this case to go away without having put the copyright ownership issue to bed.

Ted Normand replied for SCO. He handed out a book with many tabs. SCO claimed Novell had no basis to convert the motion to dismiss to a summary judgment. SCO spoke at length about the malice issue saying that Novell never countered it, that Novell only spoke to the falsity issue (claiming that Novell owned the copyrights) rather than what Novell's state of mind was when making the assertions that SCO did not hold the copyrights. SCO claimed Novell was deliberatly trying to hurt SCO's business and other lawsuits. He argued that the falsity claim does not override Novell's malice.

SCO brought up the press release Novell made following SCO's mailing the APA's amendment. SCO pointed out that in that press release Novell indicated that the amendment gave SCO the copyrights.

Mike Jacobs replied by countering SCO's claims that there is no overlap in the malice and falsity arguements. He said to look at the record of correspondence back and forth between Novell and SCO, to look at the thoughtfulness exhibited in those letters, that there is no malice evident in them.

Ted Normand replied again and repeated, I believe, earlier arguments.

Judge Kimball said he will take it under advisement and get back with them "not too far off."

----

Personal notes: I got the impression that Judge Kimball, while understanding the impact this case *could* have in the other SCO cases, was not inclined to go out on any judicial limb and make any judgments on copyright ownership. He seemed to be ready to dismiss the case based on absence of malice on Novell's part and the record that shows Novell had cause to believe they were telling the truth in asserting their ownership of the copyrights. There was a point where Judge Kimball said something to the effect of, "So I can just dismiss based on [the issue of] malice." And his earlier, initial comment, that he was "not inclined" to convert to a motion for summary judgment. I was pleased to hear Novell argue strongly, and well, for a conversion.

Both our eyewitnesses said that the hearing was much harder for a layperson to follow than earlier hearings, because there were more nuanced legal arguments.

To review, Novell filed a motion to dismiss SCO's Amended Complaint, (their Memorandum in Support of their motion is here), which SCO opposed. Novell's reply to SCO's memorandum in opposition is here.

Novell's motion to dismiss read like this, short but sweet:

Defendant Novell, Inc. ("Novell"), by and through its attorneys of record, hereby moves this Court to dismiss the Amended Complaint filed by The SCO Group, Inc. ("SCO"), pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted.

The basis for SCO's single cause of action against Novell for slander of title is that Novell made ten "false oaths," "misleading public representations" and "wrongful assertions" concerning Novell's ownership of UNIX copyrights. (Am. Compl. 19.) However, given the context in which Novell's statements were made and the public controversy surrounding the ownership of UNIX copyrights, SCO cannot prevail on its slander of title claim against Novell because (1) Novell has a privilege to publicly assert a rival claim to the UNIX copyrights; (2) Novell has a privilege to publish its rival claim to parties with a common interest in the UNIX copyrights; and (3) SCO cannot allege malice sufficient to ground a claim for slander of title given the Court's June 9, 2004 Order.

"Failure to state a claim upon which relief may be granted" is legalese for, "they have no case."

SCO's opposition memorandum was certainly not short, and I'm not aware of anyone ever connecting SCO with the word sweet, but here are some highlights to help you understand the arguments at the hearing:

Almost eight years after Novell sold its entire UNIX-related business, including the UNIX copyrights, to SCO, Novell asserted for the first time that it, and not SCO, was the true owner of those copyrights. After SCO asserted its legal rights against IBM for its improper contribution of SCO's intellectual property to Linux (a business in which Novell is heavily invested), Novell repeated its newly contrived ownership claims in press releases, in public statements by its CEO, in sworn statements to the United States Copyright Office, and in postings published to the world through Novell's website. As SCO set out in the slander-of-title Complaint that it filed against Novell on January 23, 2004 (and has now realleged in its Amended Complaint), Novell made all of these statements (1) with full knowledge of their falsity, having admitted in a June 6, 2003 press release that "ownership of certain copyrights for UNIX did transfer to SCO in 1996"; and (2) with the malicious intent to injure SCO, its business, and its enforcement of its UNIX-related rights. . . .

Novell argues in a second motion to dismiss that SCO's allegations are insufficient to establish Novell's malice and that Novell enjoys certain privileges that, it argues, entitle it to dismissal of SCO's claim.

The principal basis for Novell's second motion is that this Court's June 9 Order somehow negates Novell's malice as a matter of law. Novell mistakenly maintains that in denying SCO's motion for a remand, the Court "made a sufficient determination to reject any claim that Novell lacked a good-faith basis to make its rival claim to the UNIX copyrights." Novell Mem. at 23 - 24. This Court in no way decided the issue of Novell's malice as a matter of law. To the contrary, in denying Novell's first motion to dismiss on falsity grounds, the Court concluded "that all of these arguments as to the parties' understandings and interpretations of the agreements would more properly be before the court on motions for summary judgment or trial." June 9 Order at 15. Moreover, the Court stated that it "could not conclude that SCO can present no set of facts that would prove its claim." Id. at 15. Thus, far from supporting Novell's new-found arguments in its second motion to dismiss, the Court's prior Order actually acknowledged the legal sufficiency of the very same slander-of-title allegations that now constitute SCO's Amended Complaint. . . .

To the extent Novell contends that it has not previously raised its arguments that SCO fails to "adequately plead the element of malice" or that its statements fall under a supposed "privilege," Novell Mem. at 1, 14-20, Novell has waived its right to raise those arguments. Under Fed. R. Civ. P. 12(g), a defendant may not raise in a second motion to dismiss arguments that it could have, raised in its first motion. . . .

In addition, the allegations Novell challenges are more than sufficient. Under Federal Rule of Civil Procedure 9(b), and the cases in this Circuit applying that Rule, SCO need only "aver generally" malice. SCO has plainly (indeed, indisputably) done so. See. e.g., Am. Compl. 25 (alleging that Novell made its false public statements "intentionally," "maliciously," and "with utter disregard for the truthfulness thereof"). . . . Under controlling legal authority, having properly pleaded malice (both generally and specifically), SCO has presented a fact question that cannot be resolved on a motion to dismiss.

Indeed, Novell's main argument - that the Court's prior comments on the issue of copyright ownership must resolve the question of Novell's state of mind - relies entirely on inferences favorable to Novell, even though the Rule 12(b)(6) standard requires that the Court draw all such inferences in SCO's favor here. Although the legal plausibility of a party's argument for ownership may be relevant (if only indirectly) to whether that party in fact possessed a "good-faith belief' in its public statements of ownership, such plausibility does not even constitute direct evidence of the party's "good faith," let alone resolve the question.

Novell then replied, with the corporate minutes, showing that there was no intent to transfer copyrights, and adding that by introducing evidence outside the complaint, such as the Ed Chatlos declaration, SCO was inviting the Court to convert the motion to dismiss into a summary judgment, which they said meant the Court had the option to decide the matter once and for all and with finality, which a motion to dismiss does not provide:

In rearguing the intent and effect of the APA, SCO has submitted evidence outside the pleadings, including a six-page declaration from a former Novell employee. 1 Under well-settled law, SCO has thereby invited the Court to consider Novell's motion as a motion for summary judgment. In view of the parties' respective burdens of proof, Novell's motion therefore should be evaluated as follows:

Has Novell established that there is no triable issue of fact that its statements were protected by conditional privileges?

Has SCO demonstrated the existence of a triable issue of fact whether Novell made its statements with actual malice or excessively published its statements, which would overcome Novell's privileges?

SCO must have thought that its additional evidence would not only overcome the weight of the Court's earlier findings on the merits of Novell's ownership position, but also would create a jury issue on the factual predicate for Novell's defense. Even with its additional evidence, however, SCO has not created a jury issue. The Court therefore should enter summary judgment in favor of Novell.

Alternatively, if the Court declines to convert Novell's motion (and thus declines to consider SCO's additional evidence and the argument based on it), SCO's complaint should nonetheless be dismissed. Novell's statements demonstrate the absence of malice, and Novell's ownership position is meritorious. Any further inquiry into Novell's subjective state of mind -- especially on the very legal issue the Court has already evaluated -- is unnecessary and irrelevant. Novell's motion invited SCO to file a claim for declaratory judgment of copyright ownership, but SCO has declined to do so. SCO should not be given yet another chance to file a complaint stating the proper cause of action, and its case should be dismissed with prejudice.

As you can discern from all this, the issue that matters the most to SCO is, is there one fact -- just one will do -- that can't be decided on a motion to dismiss but must go to a jury? That is what all the arguments about malice are really all about, I think, trying to create a fact that is in dispute, that will make it impossible to dismiss, a fact that will force this litigation to go to trial. We saw in the DaimlerChrysler case that it doesn't matter how nonsensical SCO's position is, their attorneys argue it as if it made sense, which is what creates that Alice in Wonderland feel to it all.

If you are curious about summary judgments, here's Law.com's definition:

motion for a summary judgment
n. a written request for a judgment in the moving party's favor before a lawsuit goes to trial and based on testimony recorded outside court, affidavits (declarations under penalty of perjury), depositions, admissions of fact and/or answers to written interrogatories, claiming that all factual and legal issues can be decided in the moving party's favor. These alleged facts are accompanied by a written legal brief (points and authorities) in support of the motion. The opposing party needs to show by affidavits, written declarations or points and authorities (written legal argument in support of the motion) that there are "triable issues of fact" and/or of law by points and authorities. If there are any triable issues the motion must be denied and the case can go to trial. Sometimes, if there are several claims (causes of action) such a motion may cause the judge to find (decide) that some causes of action can be decided under the motion, leaving fewer matters actually to be tried. The paperwork on both sides is complex, burdensome and in many states, based on strict procedures.

Here's my understanding of why it matters (you can read these rules of civil procedure for a clear explanation. It's for the state of Mississippi, but the same concepts apply). A motion to dismiss doesn't necessarily speak to the issues. For example, you can move to dismiss on the basis that the court has no jurisdiction. In that case, if your motion succeeds, the other side can refile somewhere else. Or if you didn't say something the way you should have, the judge may give you the opportunity to fix your complaint. In fact, that happened in this case. Novell's first motion to dismiss was granted in part and denied in part. And here they are again, with an improved version of their complaint to include the special damages wording.

A motion for summary judgment, in contrast, is, as implied by the name, a decision, a ruling on the issues raised in the complaint, in this case saying at least that there are no issues of triable fact, that there is nothing on the table that needs a trial, because there is no case. The issue of copyright ownership could conceivably come into play, but it wouldn't have to, because the complaint is on slander of title only. The other side can't fix or amend its complaint or change where it is filed or refile on the issues decided. Obviously, Novell would prefer to bring this show to a close, with a final curtain.

UPDATE: Here's Bloomberg's coverage. And KSL-TV used AP's.


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