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IBM Subpoenas JP Morgan Securities and McGraw-Hill
Wednesday, March 01 2006 @ 05:25 AM EST

IBM continues its court-scheduled defense discovery. It has subpoenaed documents from JP Morgan Securites, Inc. and McGraw-Hill Companies, Inc. [PDF]. Here's Defendant/Counterclaim Plaintiff IBM's Notice of Service of Subpoenas Duces Tecum [PDF]. That is the kind that asks for documents only. There is no deposition scheduled.

Looking at what IBM is asking them to provide I gather IBM would like to demonstrate what Santa Cruz bought from Novell, what its UNIX assets were, what they were really worth when they bought them and when they transferred them to Caldera, and what Caldera actually bought from Santa Cruz, specifically and including what intellectual property transferred and what didn't. Regarding both transfers, Novell to Santa Cruz in 1995 and then Santa Cruz to Caldera in 2001, it would like documents that speak to how a purchase price was arrived at.

I phrase it that way -- "court-scheduled discovery" -- because I saw Rob Enderle opine that IBM's discovery is untimely. He's factually wrong about that. He also accused IBM of having ulterior motives for doing it now, but having gotten the time issue wrong, obviously the slur can't be right, since it's founded on inaccurate information. This is still the appropriate time the court ordered IBM to do exactly what it is now doing. And don't forget, it wasn't until IBM recently deposed Darl McBride that it found out there were numerous emails between Darl and Microsoft on the subject of Linux. Naturally, it wishes to follow that lead. It couldn't do that before, because it had no fact-based string to pull, because SCO hadn't turned over those missing emails until IBM found out about them during the deposition and then asked for them pointedly.

Here's how it works. SCO has accused IBM of allegedly misusing its material, and so this is the time for fact discovery as to defenses to those claims. SCO didn't provide a list of allegedly misused material until December 22nd. That is the reason why IBM is doing this type of discovery after that and not earlier. Duh.

How could an analyst not know something as basic as that? Or more pointedly, how can an analyst express an opinion without checking the facts first to make sure his opinion is valid? A year ago, I jokingly wrote I wanted to be a tech analyst when I grew up:

I have decided what I want to be when I grow up. I want to be a tech analyst.

No, don't bother to try to talk me out of it. My mind is made up. It's the only job I have ever heard of where you can have huge gaps in your knowledge, get random but truly vital facts utterly wrong, say the opposite of what is observably true, and nobody sues you. They don't even fire you. They don't even notice. No one says a word. In fact, they actually pay you good money, and the next time they want to know something, they forget you got it all wrong the last time and ask you for your opinion all over again.

Being a fortune teller might be just as easy. In fact, I met one once, by chance, and she confided in me what she did for a living and confessed, just between us girls, that she just made stuff up. But I think analysts get paid more, and I believe they get retirement benefits too. And of course it's steadier work.

That's got to beat being a journalist, where you have to do time-consuming actual work that's really hard, like research for hours to dig up proof for the facts you write about.

Here's the truth. IBM is supposed to do defense discovery right now and up until March 17th, and that is why it is doing it now.

Here's what the order said would happen at exactly this moment in time:


Having considered the parties’ proposed Amended Scheduling Orders and the briefing related to the proposed Orders, the court sets forth the following deadlines: . . .



Final Deadline for Parties to
Identify with Specificity All
Allegedly Misused Material

December 22, 2005

Close of All Fact Discovery
Except As to Defenses to
Claims Relating to Allegedly
Misused Material

January 27, 2006

Close of All Remaining
Discovery (i.e., Fact Discovery
As to Defenses to Any Claim
Relating to Allegedly Misused

March 17, 2006

As you can see, until March 17, 2006, it's time for defense discovery. Just so he knows. That way he can avoid falsely accusing folks in the future, as he did in his article when he wrote that IBM was asking for discovery it should have asked for long ago and was doing it to suggest wrongdoing (presumably on Microsoft's part? Could that be Enderle's worry? You think?).

When people are prejudiced, and they lack accurate knowledge of a subject, it can lead to low blows, because prejudiced people will tend to leap to ugly conclusions. Sometimes they do it unconsciously. Enderle strikes me as obviously prejudiced against IBM and Linux, judging from his track record of statements and articles, so anything he says needs to be viewed in that context, I think. He didn't know this was the exact time for IBM to do this type of discovery, assuming I give him every benefit of the doubt. The problem is, you can't arrive at accurate opinions and conclusions based on inaccurate facts. As the old expression goes, garbage in, garbage out.

Here's what IBM is asking for. IBM asks McGraw-Hill for "Santa Cruz intangible asset valuation documents," specifically a document entitled "Estimation of the Fair Market Value of Certain Intangible Assets of Santa Cruz Operation, Inc. as of May 4, 2001" as prepared by PricewaterhouseCoopers LLP on August 31, 2001 and sent to the then-Controller of Caldera Michael Olson. IBM also asks for all documents relied on or referred to in the report, as well as all draft versions, and all correspondence concerning it. It also wants all documents that refer, reflect or relate to the Agreement and Plan of Reorganization dated August 1, 2000 and amended on September 13, 2000 , December 12, 2000, and February 9, 2001 by and between Santa Cruz, Caldera Systems, Inc. and Caldera International, Inc. IBM wants all documents concerning the sale or transfer of Unix or Unix-related assets from Santa Cruz to Caldera, and all supporting exhibits and work papers supporting the Impairment/Valuation Analysis incorporated in Caldera's October 31, 2001 10K. It wants to know how they decided on a "purchase price of the acquisition for financial reporting purposes."

From JP Morgan Securities, IBM asks for a fairness opinion sent to the board of Santa Cruz by David G. Golden of Hambrecht & Quist in a letter dated September 19, 1995, as well as all documents relied on or referred to in the fairness opinion. IBM also asks for all documents referring to or related to the Asset Purchase Agreement dated September 19, 1995 between Novell and Santa Cruz and all documents concerning the sale or transfer of Unix or Unix-related assets from Novell to Santa Cruz, specifically including how they arrived at a purchase price. (Don't forget we have all the contracts on our permanent Contracts page, including Amendment 1, and Amendment 2 to this APA, as well as the Technology License Agrement, and the TLA's Schedules.) I note IBM asks for "notes, client interviews, discount rate support and analysis, and licensing agreements of the intellectual property or any licensing agreements".

Well, that would be refreshing, to get that spelled out with specificity. What did Novell actually transfer to Santa Cruz? After all, Santa Cruz could only later transfer to Caldera what it had earlier obtained from Novell, and it was not obligated necessarily to transfer all that it had. Specifically, did the copyrights transfer, or does Novell still hold them? All of this information is defense discovery because, for one thing, SCO Group is asking the court to award it billions in damages, and no doubt IBM would like to nail down what Unix was actually worth at the time and how much of Unix SCO Group actually owns. That's relevant because if SCO Group never owned the copyrights in the first place, it's been putting us all through a horrible experience without the right to do so, and the billions it dreamt IBM might "disgorge" to SCO, as they put it recently in a court document, go poof. Even if, in some Alice in Wonderland crazy world, SCO could get some damages for some contract "violation," IBM naturally wishes to limit any such damages to a more realistic, fact-based figure, and that is what defense discovery is for, to establish what the facts really are regarding any alleged harm done.

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