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IBM's Memo in Support of its Motion for SJ on SCO's Interference Claims - Updated
Sunday, October 08 2006 @ 03:35 AM EDT

Would you like to hear the rest of the BayStar story? Then pull up a chair, my friends.

On page 21 in IBM's Amended Redacted Memorandum in Support of its Motion for Summary Judgment on SCO's Interference Claims (SCO's Seventh, Eighth and Ninth Causes of Action [PDF], IBM reveals that SCO alleged that it was IBM that got BayStar to threaten litigation against SCO and to terminate its business relationship. BayStar denies it, as does IBM. If you noticed a Declaration by Larry Goldfarb on the list of exhibits [PDF], this is what it's about. He provided a declaration for IBM stating that SCO's allegations aren't true. A lot of folks have done so too, and so IBM is now asking the court to toss out these three SCO claims.

BayStar, Goldfarb testifies, dumped SCO because its stock price, financial performance and the viability of its UNIX products all appeared to be in decline, and he "was also very concerned about SCO's high cash burn rate." Pure financial animals get nervous when that happens. But the kicker was he began to realize that Microsoft, whose senior VP of corporate development and strategy had promised that Microsoft would in some way guarantee the SCO investment, started showing signs it might not do that after all:

"Mr. Emerson and I discussed a variety of investment structures wherein Microsoft would 'backstop,' or guarantee in some way, BayStar's investment.... Microsoft assured me that it would in some way guarantee BayStar's investment in SCO."

Let me interrupt my narrative to quickly ask, Why ever would Microsoft guarantee BayStar's investment in SCO? What would be the business purpose here? What would Microsoft's benefit or payback be? What were they hoping for as the return on the investment? And why didn't they wish to invest directly? Pray do explain. Joke. Joke. Anyhow, after the investment was made, Goldfarb says, "Microsoft stopped returning my phone calls and emails, and to the best of my knowledge, Mr. Emerson was fired from Microsoft."

Ah! The well-known Microsoft 180. Kiss kiss, let's do a deal. Drop dead. Well, not to try to teach Mr. Goldfarb anything, since he's the businessman, not I, but isn't life's highway littered with companies who thought it'd be remunerative to be a Microsoft partner, only to end up as roadkill? That's what I've been reading, anyway. In any case, now we know the rest of the story about BayStar. Good for Mr. Goldfarb, for providing this declaration. He didn't have to do that.

But that's not the only crazy SCO allegation.

After SCO filed its Final Disclosures, SCO served on IBM a revised interrogatory response regarding its claims of interference. It identified, among other things, 6 companies or entities IBM allegedly interfered with by direct contacts, namely BayStar, HP, Computer Associates, Oracle and Intel and an "OpenSource conference in Scottsdale, Arizona."

Say, what was that last one, again? It seems John Terpstra was hosting a conference in the spring of 2004. SCO's story is that Darl had an oral agreement with Terpstra to speak at the conference, but it claims IBM allegedly told Terpstra it didn't want Darl to speak at the conference and would withdraw its support if he did.

How would one quantify the damages due to SCO from that missed opportunity for Darl to speak at an Open Source conference? One can't help but wonder. Did he think he'd rake in some business at an Open Source conference, after going for Linux's throat with his fangs? Apparently so, because IBM is alleged to have interfered with SCO's ability to "generate potential new business and establish goodwill in the open source community."

Say, what? Goodwill? In the Open Source community? These SCOfolk have no shame. In 2004, do you remember SCO trying to establish goodwill in the community? It was actively suing DaimlerChrysler and AutoZone, opposing Red Hat's request to the judge to reconsider and let the case go forward, threatening legal activity in Spain, Germany, and the UK against Linux users, issuing a subpoena to FSF, all the while FUDing away to such a degree Red Hat brought it to the court's attention. None of that was endearing to the Open Source community. Yet he actually thought he'd get business from speaking at an Open Source conference? I don't really think so. Darl attended the Novell BrainShare conference that spring, but secretly, under cover, in disguise. If he wanted goodwill, why would he do that?

Sometimes I wonder if news can't make it over the Wasatch Mountains. SCO seems so cut off from reality. If you don't remember all that history, just go to our Archives and look by dates at that time period. I think it would be hard to find conduct more offensive to the Open Source community than what we watched back then. About the only thing worse would be SCO's conduct the year before.

This filing is an hilarious account of all IBM went through to try to figure out what SCO's claims regarding interference really are. What SCO wrote in its Second Amended Complaint doesn't altogether match what SCO later came up with. BayStar, for example, isn't even mentioned in the complaint. Here's the short version of SCO's claims, the heart of what IBM is responding to, the pertinent causes of action in the complaint. For the long version you can read the complaint itself, but it hardly seems worth it, since SCO's claims morph and grow and then contract, and serious study of the original claims probably won't help you figure out what SCO is complaining about now, but here's the essence of the claims as they started:

  • 7th, Interference with Contract -- "IBM, directly and through its Linux distribution partners, has intentionally and without justification induced SCO’s customers and licensees to breach their corporate licensing agreements, including but not limited to, inducing the customers to reverse engineer, decompile, translate, create derivative works, modify or otherwise use the UNIX software in ways in violation of the license agreements. These customers include Sherwin Williams, Auto Zone, among others."

  • 8th, Interference with Contract -- "Specifically, commencing on or about May 2003, Novell began falsely claiming that Novell, not SCO, owned the copyrights relating to UNIX System V. On information and belief, IBM had induced or otherwise caused Novell to take the position that Novell owned the copyrights -- a position that is flatly contradicted by the Asset Purchase Agreement. Since that time, Novell has improperly registered the same copyrights that it sold to SCO and that SCO had previously registered.

    "In addition, IBM intentionally and improperly interfered with the Asset Purchase Agreement by inducing or otherwise causing Novell to violate the Asset Purchase Agreement by claiming Novell could waive and was waiving breaches of license agreements by various licensees, including IBM. ...Again, Novell's position, improperly encouraged and induced by IBM, is flatly contrary to the terms of the Asset Purchase Agreement.

  • 9th, Interference with Business Relationships -- "SCO had existing or potential economic relationships with a variety of companies in the computer industry, including but not limited to Hewlett Packard. IBM has intentionally interfered with plaintiff's existing or potential economic relations. For example, at Linux World in January, 2003 IBM representatives contacted various companies with whom SCO had existing or potential economic relations. These IBM representatives said that IBM was discontinuing doing business with SCO and that these other companies, some of whom are business partners with IBM, also should discontinue doing business with SCO."

Essentially, then, SCO alleged that IBM somehow induced Novell to get copyrights on Unix, to waive any alleged breach on IBM's part, all in violation of the APA, and SCO also says that IBM told HP and other companies at Linuxworld in 2003 that IBM wasn't going to do any business with SCO and neither should they.

That's in the complaint. But IBM goes on to recount how SCO's claims kept changing, without IBM ever being able to find out exactly what SCO was alleging IBM had done. In interrogatories and depositions and various communications, the story kept changing, and IBM details for the court how hard it has tried to find out what its "crimes" actually amounted to, and now it asks the court to deep six these three claims. In IBM's Preliminary Statement, IBM writes:

SCO's Seventh, Eighth and Ninth Causes of Action allege that IBM has interfered with SCO's contracts and business relationships with customers, business partners and other entities. As shown in detail below, SCO's description of these claims has shifted throughout the pretrial proceedings, expanding, contracting, and again expanding (at times wildly), with the only constant thing being SCO's failure to provide any clear identification of the specific contracts or business relationships that were supposedly injured or the acts of IBM that allegedly caused such injury. Although it appeared that SCO was attempting simply to avoid disclosing its evidence (at least until trial), it is now clear that what SCO has been seeking to disguise is the lack of any support for these claims at all.

Yes, it isn't just code that SCO isn't providing specifics about. It's the alleged interference too. Which businesses did IBM interfere with? IBM asked SCO to tell it in interrogatories. SCO kept changing the list, and there were no specifics provided, despite several court orders. So, having failed to get answers from interrogatories, IBM tried deposing folks that SCO provided to testify about the alleged interference with 14 companies IBM listed in its notice. IBM deposed Jeff Hunsaker and Ryan Tibbits. However, IBM found Hunsaker "not prepared" to answer its questions with the kind of detailed and specific information IBM was asking for. SCO handed over two more documents listing 13 companies, and IBM deposed Darl McBride and asked him if the 13 companies in the documents were the only companies with which IBM was alleged to have interfered. McBride ended up listing 10 "acts" involving 43 entities, and while the section is heavily redacted, it ends by telling that at the deposition, "Mr. McBride could not identify all of the members of these groups." IBM wrote to SCO to object to McBride's apparent attempt to expand the claims in his testimony, noting he didn't testify from first-hand experience, and SCO seemed to back off and said Mr. Tibbits would testify on those matters and they'd be consistent with the numbers on the IBM interrogatories, the depositions, and the two documents SCO provided the day before McBride's deposition.

But then, at the Tibbits deposition, SCO produced a spreadsheet, listing interferences SCO was alleging "and currently investigating" and there were some 250 entities in at least 7 countries listed, but again, no meaningful details about exactly how IBM was alleged to have interfered or how SCO was harmed. Mr. Tibbits essentially just read from the spreadsheet, IBM claims, or speculated in his answers. So after interrogatories and now three depositions, IBM was still in the dark as to what it had allegedly done, except that they now knew that SCO was alleging that IBM's sales force was allegedly persuading SCO's customers that "SCO has no viability" and that there was IBM direct pressure to stop dealing with SCO. But again, no specifics.

So here's IBM, wondering how many entities is it? It spoke with SCO's counsel, who said they'd decided to limit it to maybe ten, possibly five. SCO would give IBM an updated interrogatory response reflecting this soon. IBM warned SCO that if it failed to do so, IBM would bring the matter to the judge. But when SCO next filed its Final Disclosures, it didn't include the updated interrogatory response. The next day, SCO told IBM the final number would be six, BayStar, HP, Oracle, AutoZone, Intel and Novell.

The next month, after the Final Disclosures, SCO served on IBM the revised interrogatory response, in which it identified 150 entities allegedly interfered with, and the 6 companies or entities IBM allegedly interfered with by direct contacts. SCO says that it and HP still have a "good business relationship" but HP provides a lot less support than in 2002, and it blames IBM for that.

The essence of SCO's interference gripe, though, is that IBM encouraged companies to migrate to Linux rather than use SCO's Unix products. High crimes and misdemeanors indeed. IBM "enabled" them to switch. Dear SCO: That's called competing in business. There's no law against that that I know of. SCO provided IBM a list of some 19 customers SCO said it lost because they moved to Linux, including KMart, Safeway, Shaw's Supermarkets, Target, and AutoZone.

IBM next tried to depose Tibbits a second time, as recently as June 30, 2006. Tibbits narrowed SCO's claims, saying it was dropping its tortious interference claims with respect to five of the 19 "former SCO customers" in its last supplement response to the interrogatory. The five dropped would be Avnet, Frazee Paints, Save Mart, Snyder Drug Stores and Target -- "because these companies had not switched to a Linux platform at all."

You know SCO. Claim first, research later.

So that left 14 vague interference claims entities, the seven identified entities that IBM allegedly directly contacted or SCO alleges specific interfering conduct, BayStar, HP, Computer Associates, Oracle, Intel, Novell, and that conference, and some 156 "other Linux users" who were somehow influenced by the marketplace to switch, or maybe they did. SCO says they make the claim only on information and belief. I'll mention that you can't prevail against a summary judgment motion with "information and belief" materials. It has to be actual facts. SCO has to raise a genuine issue of fact to survive this motion, and supposings and maybes and probably won't cut it, as IBM carefully shows, with cases to back up the position.

OK, so now IBM knows the list of entities, but where's the evidence? "SCO has not identified any evidence of improper conduct by IBM that interfered with any of its contracts or business relationships and it cannot do so, for at least the reasons explained below," IBM tells the court. Aside from the BayStar incident, IBM provides rebuttal declarations on every accusation:

Computer Associates, Oracle and Intel: IBM never stated to them at Linuxworld 2003 it was cutting off its ties with SCO or that they should do the same, they all testify. All of them have provided declarations so stating, and so has Karen Smith, the former IBM respresentative accused of having said it. Does SCO just make stuff up? Or are there paranoid tendencies here?

There's more. It turns out that it was SCO itself that "supported the migration of Computer Associates, Oracle and Intel products to Linux, partnering with each of these companies to provide Linux solutions to their end users." A former SCO employee, Gregory Anderson, states that any change in those relationships had to do with SCO's [alleged] decision not to continue to distribute Linux products." That word in brackets tells a story.

HP: HP provides a declaration as well, by the way. And any of us who despised them for continuing to partner with SCO needs to repent in sackcloth and ashes, because as a result of not breaking off the relationship, HP can now provide IBM a strong defense from the charge of interfering with SCO's relationship with HP.

Terpstra: As for the Arizona conference, Terpstra rescinded the invitation because of complaints from other participants, not IBM, who wasn't involved in that conference in any way. IBM was invited, Terpstra states in a declaration, but they didn't want to participate, but they never said anything about McBride. Others surely did though, threatening not to participate if McBride was a speaker, so he called McBride and took back the invitation. Why it was ever offered in the first place is a mystery.

Novell: As for Novell, there's a declaration from Novell's lawyer, Joseph LaSala, saying that IBM didn't induce anything. Novell got the copyrights, because Novell owns them. It waived because it has the right to and it was in Novell's interest to do so. IBM didn't ask for that or ever "express a desire that Novell breach, or take any action contrary to, the APA, Amendment X, or any other agreement between Novell and Santa Cruz or Novell and SCO." Careful language.

Why IBM supported Linux: As to why IBM supported Linux, its purpose had nothing to do with ill will to SCO. It wanted to make money, and it supported Linux for competitive reasons. As for SCO's amorphous claims, IBM notes that not one of SCO's experts "attempts to quantify or even address the alleged damages allegedly caused by IBM." There were factors adversely affecting Santa Cruz's business since 1999, at least, that had nothing to do with IBM. SCO couldn't get new customers even when Linux was new, didn't have credentials and was relatively unproven. After the Caldera acquisition, Caldera was basically trying to keep the customers it had as opposed to getting new ones for UnixWare and OpenServer. As for its Linux products, they were more expensive than the competition's. The company did that, kept Linux at a comparative price with the Unix products, because otherwise it would "devalue our UNIX business." This is a quotation from Exhibit 308, the sealed transcript of a November 2004 deposition of Philip E. Langer.

IBM says it is entitled to summary judgment for three independent reasons:

1) Of the companies SCO mentioned specifically by name, the companies or entities all deny any such interference and there's absolutely no evidence on SCO's side to support its allegations. And as for the alleged interference with the Unix on Intel market, Utah law doesn't recognize activities regarding an entire market as a basis for recovery for "intentional" interference;

2) Utah law, which IBM says applies to the interference claims because if there had been any injury, it would have been there that it would have been felt, requires SCO to prove that IBM's allegedly tortious acts were undertaken with an improper purpose or by improper means, which is not the case, IBM sums up. In fact, SCO's own experts have acknowledged that IBM's support for Linux was motivated by "compelling competitive reasons and undertaken for the purpose of protecting IBM's legitimate, long-range economic interests";

3) There's no causal link shown by SCO between anything IBM has done and any specific injury to SCO. If SCO is experiencing a deteriorating business, its own witnesses and documents show it's because of a variety of factors having nothing to do with IBM, including "decisions made by SCO management."

I'll say. You can't sue your own customers and expect business to pick up. Business 101. And when Caldera/SCO decided, allegedly, not to distribute Linux any more, it was simply sure to lose both customers and partners. It had been first a Linux vendor. And you aren't likely to win on interference claims for your declining business after you've shot your own business in the foot.

IBM asks that the court dismiss these three SCO claims with prejudice "and as a matter of law."

Update: The story has now hit The Wall Street Journal [sub req'd], as well as Slashdot, and Ars Technica. The Journal has some interesting details. I gather they have the Goldfarb declaration already in hand:

Mr. Goldfarb testifies that Richard Emerson, a Microsoft senior vice president, approached him "sometime in 2003" about investing in SCO. Mr. Emerson, who is no longer with Microsoft, "stated that Microsoft wished to promote SCO and its pending lawsuit against IBM and the Linux operating system. But Microsoft did not want to be seen as attacking IBM or Linux," Mr. Goldfarb testified.

Update 2: It's now picked up by IDG News Service, as you can see on LinuxWorld and InfoWorld also.


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