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IBM Speaks, At Last: Memo in Support of SJ Motion on SCO's Contract Claims - as text
Monday, October 23 2006 @ 10:35 AM EDT

Here, at last, IBM speaks. And it has a lot to say.

Here is IBM's Redacted Memorandum in Support of its Motion for Summary Judgment on SCO's Contract Claims (SCO's First, Second, Third and Fourth Causes of Action [Part I and Part II]

We've listened to SCO for more than three years tell its side of the story, and the media printed its every word. IBM, when asked to comment, invariably said nothing. Now it tells the court in detail how truly wronged it has been by The SCO Group, and why the court should bring this wrong to an end by granting IBM's motion for summary judgment on SCO's contract claims.

There are five other summary judgment motions, but this one matters greatly to IBM, because it has to do with the claim most observers thought might be SCO's strongest, the contract claims, particularly with regard to Sequent. Yet here, in this document, we find SCO's house of cards has collapsed. There isn't any System V code placed in Linux by IBM. SCO in the end hasn't even lodged such a claim.

So what is SCO claiming? That IBM breached the agreements by contributing its own original source code (not UNIX System V source code) to the open source operating system known as Linux:

For years, SCO perpetuated the illusion that it had evidence that IBM took confidential source code (including methods and concepts) from UNIX System V and"dumped" it into Linux. However, SCO does not have -- and never has had -- any such evidence. SCO has not identified any UNIX System V source code (including methods or concepts) that IBM is alleged to have contributed to Linux. Nor has SCO identified any modification or derivative work of UNIX System V that IBM is alleged to have contributed to Linux. It is undisputed and indisputable that IBM has not contributed to Linux any UNIX System V source code (including methods or concepts) or any modification or derivative work of UNIX System V. To the extent that IBM has contributed source code, methods, and concepts to Linux, those contributions have been original or homegrown IBM works or the works of third parties other than SCO created independent of UNIX System V.

SCO's contract claims thus turn on the proposition that the Agreements somehow give SCO the right to control IBM's and others' original works. SCO argues that IBM's AIX and Dynix/ptx ("Dynix") products, which are comprised of many tens of millions of lines of source code and are indisputably owned by IBM, include some UNIX System V material and are therefore modifications and derivative works of UNIX System V. According to SCO, the Agreements forbid IBM from contributing its own original works to Linux if they were ever part of AIX or Dynix. SCO further claims that any IBM representative who worked in AIX or Dynix is forbidden from working on Linux.

Can you beat that? The mountain of infringing code it told the media IBM had wrongly placed in Linux has completely disappeared.

Instead, SCO is left with an odd interpretation of contract that would give SCO control over IBM's own code, copyrighted and patented by IBM and written without reference to System V. For that matter, SCO's interpretation would pretty much give it control over the code of the entire software industry. Further it would make programmers unemployable for life on any other operating system but Unix, once exposed to it, which all computer science students are. Groklaw member PoIR dubs it "retromagical contractual obligations."

Further, IBM relates, it's a theory utterly contrary to the contract's interpretation for almost twenty years:

AT&T and its successors repeatedly told their licensees, including IBM and Sequent, that they could do as they wished with their own original works, whether or not they were part of a modification or derivative work of UNIX System V. Moreover, AT&T's licensees, including IBM and Sequent, took AT&T and its successors at their word and used their original works as they wished for nearly two decades.

It would be grossly unfair to IBM, it argues, to allow SCO to completely reinterpret the contract anew after all these years. IBM relied on the previous interpretation and invested money and effort into AIX it never would have had it known that SCO would interpret the contract in such a lopsided way.

As for methods and concepts, both IBM and Sequent disclosed them all in patent applications, without a squawk from SCO or its predecessors in interest. In the case of Sequent, the patent on RCU was filed more than six years before this litigation, and that means any claim regarding RCU is barred by the statute of limitations. IBM and Sequent each wrote books and papers disclosing methods and concepts, and so did hundreds of other authors. You can see just some of those many works in Groklaw's Unix Books project.

Even if the contract were interpreted as SCO would like in what IBM calls its "wishful thinking," under New York law, which these contracts are bound by, waiver can be established if a party manifests an intent and purpose not to hold the other party to the terms of the contract, and that happened, not only by AT&T and Novell not enforcing the contract the way SCO now wishes to interpret it, but also by IBM and Sequent being repeatedly told they could do what they wished with their homegrown code and with derivative products, so long as System V code was not present. AT&T didn't protect methods and concepts in other ways:

99. AT&T knew that some universities made the source code available to individual students who were not bound by confidentiality obligations. AT&T also knew that such students often took copies of the source code with them when they graduated. AT&T's practice was not to take acton regarding such breaches of the license agreements unless the students sought to commercialize the software, in which case it would require the students to enter into license agreements and pay royalties.

At a very early time, AT&T had an interest in protecting methods and concepts, but it abandoned that interest:

102. In an effort to make UNIX an "open" operating system, meaning that customers would not be locked in with a particular hardware vendor or a particular operating system vendor, AT&T itself published information concerning the interface of the operating system. For example, AT&T published a System V Interface Definition ("SVID"), which provided a complete interface specification that could even be used by AT&T's competitors to develop independently their own UNIX-like operating systems. (Ex. 281 36; Ex 182 37.)

103. AT&T and its successors authorized, or at least did not prevent, the publication of hundreds, if not thousands, of books, articles, internet web-sites and other materials regarding UNIX, many of which provide detailed information regarding the design and implementation of the UNIX operating system. (Ex. 181 58-59 & Ex. E; Ex. 281 37-38; 182 37-38.)

104. Between 1985 and 1996, AT&T Capital Corporation, then a subsidiary of AT&T, sold thousands of used or discontinued AT&T computer systems, hundreds of them from Bell Labs, without imposing any confidentiality restrictions on the purchasers. Some of the computers included UNIX System V, Release 3, and Release 4 source code. (Ex. 174 10-16; Ex. 223 4-10; Ex. 253 3-5; Ex. 281 39; Ex. 189 32.)...

106. The code, methods, and concepts of UNIX System V are available without restriction to the general public within the meaning of 7.06(a), as the provision was intended by AT&T.

Here's an argument we didn't think of: Novell is in the line of ownership. It too, IBM relates, explicitly told IBM and Sequent that it asserted no rights to their code, methods and concepts and that they could do whatever they wished whether or not their code was included in modifications or derivative works of UNIX products. This seems to be a brick wall for SCO. Even if earlier AT&T had asserted such control, which many declarations attached to this motion say it did not, then Novell would have inherited that control, and by saying what it did, it would have relinquished any such control. IBM asserts it had a right to rely on such statements, and Novell intended that it could rely upon them, and on the strength of those promises, IBM built a business with AIX.

Waiver also enters the picture because of SCO's own actions in distributing the very code it is suing IBM for in Linux products. And get this: IBM has gotten in discovery invoices and other documentation that show that SCO not only continued to distribute Linux from its websites, it also continued to *sell* Linux to customers at least into 2004:

167. SCO has also produced invoices and other documentation reflecting SCO's continued distribution of its OpenLinux 3.1.1 and Linux Server 4.0 products until at least January 2004. (See Ex. 33 at Tab 121; Ex. 505; Ex. 296; Ex. 486.)...

168. Moreover, SCO made available to the public as recently as the end of 2004 the Linux. 2.4 kernel for download from its website. (See Ex. 45 at 3; Ex. 167 11.) The version of Linux available from SCO's website includes code SCO claims IBM disclosed in violation of its contracts. (See Ex. 44; Ex. 45; Ex. 33 at 43; Ex. 167 5, 11.)

169. In addition, SCO has admitted that it made available to the public for download material that SCO claims IBM improperly contributed to Linux. (See Ex. 44 at 3-22.) This material includes JFS (Item 1), RCU (Item 2) and certain "negative know how" (items 23 and '90). (See id.) For the remaining Items of allegedly misused materiil, SCO indicates that it has "not presently determined" whether it made the material available to the public for download. (Id.)

SCO can't benefit financially from the IBM contributions to Linux, IBM points out, and simultaneously sue IBM for putting them in there. And what about the 43 items in SCO's list of allegedly infringing materials? While they are under seal, look what IBM tells the court:

234. Only two of the remaining 43 Items (Items 1 and 2) identify any AIX or Dynix source code. Thirty of the remaining 43 Items (Items 113-42) identify code from Sequent's SPIE Test Suites as well as code from the Linux Test Project. (See Ex. 54.) None of that testing code is part of either the Dynix or Linux operating systems. (Ex. 287 41; Ex. 288 25, 29; Ex. 291 9.)...

236. SCO has not specifically identified, in the Final Disclosures or elsewhere, a single line of UNIX System V material that IBM is alleged to have misused in violation of its contractual obligations....

237. None of the material IBM is alleged to have misused is, or contains, UNIX System V code, methods or concepts, or is, or contains, a modification or derivative work of UNIX System V....

238. All of the material IBM is alleged to have misused in the remaining Items (Items 1-2, 23, 43, 90, 94, 113-42, and 186-92) is original IBM work or the work of third parties other than SCO and independent of System V....

239. None of the AIX or Dynix material that IBM is alleged to have misused was written by referencing UNIX System V....

275. In some cases (Items 187, 188) the cited technology did not even exist in Dynix.

Finally IBM thinks of another reason SCO's interpretation makes no sense:

286. From a practical standpoint, if SCO had the right to control the code, methods, and concepts of all flavors of UNIX, the owners of those products would be limited in their ability to support or even market them. To support and market an operating system, it is often necessary to reference and disclose the code, methods, and concepts of the operating system. If SCO, as opposed to IBM, had the right to control what IBM could say publicly about the non-System V code, methods and concepts of AIX, for example, then IBM could not provide installation and technical assistance without the cooperation of SCO (an IBM competitor). (Ex. 181 55.)...

This was a group-transcribed text with many volunteers working on it for you. I've added the exhibits at the very end. Thanks to that fantastic chart a volunteer contributed showing all the exhibits IBM has filed with the court in support of its summary judgment motions, and which exhibits are referenced by each motion, I can provide you with links to all the many exhibits this motion references, so as you read you can easily find them. So you can either click on the link and find the exhibits that way, or just scroll down.

I want to thank everyone who helped on this massive project, The Cornishman, DMF, so many of you, and especially juliac for weaving all the many parts together. If you worked on this, can you please email me and let me know how you wish to be credited, by nym or name, so I can put your credit up in lights? Thanks.

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

SNELL & WILMER L.L.P.
Alan L. Sullivan (3152)
Todd M. Shaughnessy (6651)
Amy F. Sorenson (8947)
[Address]
[Phone]
[Fax]

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler (admitted pro hac vice)
David R. Marriott (7572)
[Address]
[Phone]
[Fax]

Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC.


Plaintiff/Counterclaim-Defendant,

v.

INTERNATIONAL BUSINESS
MACHINES CORPORATION,

Defendant/Counterclaim-Plaintiff

IBM'S REDACTED MEMORANDUM
IN SUPPORT OF ITS MOTION FOR
SUMMARY JUDGMENT ON SCO'S
CONTRACT CLAIMS (SCO'S FIRST,
SECOND, THIRD AND FOURTH CAUSES OF
ACTION)

(ORAL ARGUMENT REQUESTED)

Case No. 2:03CV-0294 DAK

Honorable Dale A. Kimball

Magistrate Judge Brooke C . Wells

SNELL & WILMER L.L.P.
Alan L. Sullivan (3152)
Todd M. Shaughnessy (6651)
Amy F. Sorenson (8947)
[Address]
[Phone]
[Fax]

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler (admitted pro hac vice)
David R. Marriott (7572)
[Address]
[Phone]
[Fax]

Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC.


Plaintiff/Counterclaim-Defendant,

v.

INTERNATIONAL BUSINESS
MACHINES CORPORATION,

Defendant/Counterclaim-Plaintiff

IBM'S MEMORANDUM IN SUPPORT OF
ITS MOTION FOR SUMMARY JUDGMENT
ON SCO'S CONTRACT CLAIMS (SCO'S
FIRST, SECOND, THIRD AND FOURTH
CAUSES OF ACTION)

(ORAL ARGUMENT REQUESTED)

FILED UNDER SEAL PURSUANT TO 9/16/03
PROTECTIVE ORDER, DOCKET #38

Case No. 2:03CV-0294 DAK

Honorable Dale A. Kimball

Magistrate Judge Brooke C . Wells

2


Table of Contents

Page
Preliminary Statement ............................................................................1
Statement of Undisputed Facts ...............................................................5
A.Development of the UNIX Operating System ...................................5
B.Commercialization of the UNIX Operating System ..............................7
C.Basic Rights and Obligations of UNIX System V Licensees ...................9
D.IBM/Sequent Negotiations of New UNIX Licenses ............................14
E.IBM's and Sequent's License Agreements .......................................19
F.Parties' Intent as to Homegrown Material .......................................23
G.AT&T's Assurances as to Homegrown Material ...................................26
H.IBM's and Sequent's Reliance......................................................28
I.Continued Assurances and Reliance...............................................30
J.Wide Availability of UNIX Information............................................33
K.Development of the Linux Operating System...................................36
L.USL and Novell......................................................................37
M.Formation of SCO ..................................................................40
N.Novell and Santa Cruz Share UNIX Interests....................................41
O.SCO's Promotion of Linux and Acquisition of UNIX .............................45
P.SCO's Distribution of the Disputed Material......................................46
Q.SCO's Litigation......................................................................49
R.SCO's Touting and Obfuscation ...................................................51
S.Novell's Waiver of any Purported Breaches .....................................53

i

3

i
T.SCO's Failure to Substantiate Its Claims ........................................57
U.SCO's Interim and Final Disclosures .............................................60
V.SCO's Failure of Proof .............................................................63
W.Specific Items of Alleged Misuse ................................................66
1. Journaled File System (JFS) ................................................66
2. Read-Copy Update ...........................................................69
3. Testing Technologies .........................................................70
4. General Operating System Experience .....................................71
X.Implications of SCO's Theory .....................................................73
Standard of Decision ............................................................................79
Argument .........................................................................................80
I.SCO CANNOT ESTABLISH A BREACH OF THE AGREEMENTS .........................80
A.The Plain Language of the Agreements Forecloses SCO's Theory ...........81
1. The Language of the Agreements ............................................82
2. The Unreasonableness of SCO's Claim ......................................83
B.The Extrinsic Evidence Precludes SCO's Claim ...................................91
II.SCO IS ESTOPPED FROM PURSUING ITS THEORY OF BREACH ..................... 94
A.AT&T and Its Successors Communicated to IBM and Others for
Nearly Two Decades that They Could Do as They Wished with
Their Original Works ................................................................
96
B.IBM and Sequent Reasonably Relied on the Statements, Conduct
and Inaction of AT&T and Its Successors .........................................
97
C.IBM Would Be Prejudiced if SCO Were Allowed to Change Its
Position After Two Decades ........................................................
100
III.THE ALLEGED BREACHES HAVE BEEN WAIVED ......................................... 101

ii

4

A.AT&T and Its Successors. Waived SCO's Theory of Breach Long
Ago ...................................................................................
102
B.Novell Has Explicitly Waived the Alleged Breaches by IBM ...................104
C.Through Its Own Conduct, SCO Has Waived Its Purported Rights
to Claim Breach of Contract .......................................................
107
IV.SCO'S CLAIMS RELATING TO RCU ARE BARRED BY THE
STATUTE OF LIMITATIONS ................................................................
111

iii

5


Table of Authorities


CasesPage(s)
American Express Bank Ltd. v. Uniroyal, Inc., 562 N.Y.S.2d 613 (N.Y.
App. Div. 1990) .............................................................................
81
AXA Global Risks U.S. Ins. Co. v. Sweet Assocs., Inc., 755 N.Y.S.2d
759 (N.Y. App. Div. 2003) .................................................................
101-02
Banks v. Rite Aid Corp., No. 98-115, 2001 WL 1806857 (D. Utah Mar.
15, 2001) .....................................................................................
79
Besicorp Group Inc. v. Enowitz, 652 N.Y.S.2d 366 (N.Y. App. Div. 1997) .......... 95
Bethlehem Steel Co. V. Turner Constr. Co., 141 N.E.2d 590 (N.Y. 1957) ............ 105
Cambridge Elecs. Corp. v. MGA Elecs., Inc., 227 F.R.D. 313 (C.D.
Cal. 2004) ......... ..........................................................................
109
Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 369 N.E.2d 4
(N.Y. 1977) ..................................................................................
88
Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 232 F.3d 153 (2d Cir. 2000) ..........................
93
Dolgoff Holophase, Inc. v. E.I. Du Pont de Nemours & Co., 622 N.Y.S.2d
769 (N.Y. App. Div. 1995), aff'd, 53 N.E.2d 241 (N.Y. 1944) .......................
111, 112
Elec. Distribs., Inc, v. SFR, Inc., 166 F.3d 1074 (10th Cir. 1999) ..................... 81
Elsky v. Hearst Corp., 648 N.Y.S.2d 592 (N.Y. App. Div. 1996) ....................... 85
Farrell Lines, Inc. v. City of N.Y., 281 N.E.2d 162 (N.Y. 1972) ......................... 83
G. Ricordi & Co. v. Paramount Pictures, Inc., 189 F.2d 469 (2d Cir. 1951) ......... 87
Gen. Motors Acceptance Corp. v. Clifton-Fine Central School Dist.,
647 N.E.2d 1329 (N.Y. 1995) ...........................................................
101
Glezos v. Frontier Invs., 896 P.2d 1230 (Utah Ct. App. 1995) ....................... 81
Heidi E. v. Wanda W., 620 N.Y.S.2d 665 (N.Y. App. Div. 1994) ...................... 107

iv

6

In Re Estate of Flake, 71 P.3d 589 (Utah 2003) ......................................... 102, 108
In re Grandote Country Club Co., 252 F.3d 1146 (10th Cir. 2001) ................... 79
In re Lipper Holdings, LLC, 766 N.Y.S.2d 561 (N.Y. App. Div. 2003) ................ 84
Jacobson v. Sassower, 489 N.E.2d 1283 (N.Y. 1985) ................................. 94
Johnson Controls, Inc. v. A.P.T. Critical Sys., Inc., 323 F. Supp. 2d 525
(S.D.N.Y. 2004) ............................................................................
87-88
Johnson v. Werner, 407 N.Y.S.2d 28 (N.Y. App. Div. 1978) .......................... 94
Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563 (10th Cir.
1989) ........................................................................................
93
Kearns v. Manufs. Hanover Trust Co., 272 N.Y.S.2d 535 (N.Y. Sup.
Ct. 1966) ....................................................................................
95, 100
Landers, Frary & Clark v. Universal Cooler Corp., 85 F.2d 46 (2d Cir.
1936) ........................................................................................
101
Lauth v. McCollum, No. 03-8529, 2004 WL 2211620 (N.D. Ill. Sept.
30,2004) .....................................................................................
109
Lawrence v. IBP, Inc., No. 94-2027,1995 WL 261144 (D. Kan. Apr.
21, 1995) ....................................................................................
108
Leighton's Inc. v. Century Circuit, Inc., 463 N.Y.S.2d 790 (N.Y. App.
Div. 1983) ...................................................................................
84
Lemelson v. Carolina Enter., Inc., 541 F. Supp. 645 (S.D.N.Y 1982) ................. 111
M & T Chems., Inc. v. Interational Business Machines Corp., 403
F. Supp. 1145 (S.D.N.Y. 1975) ..........................................................
112
Mandelblatt v. Devon Stores, Inc., 521 N.Y.S.2d 672 (N.Y. App.
Div. 1987) ...................................................................................
84
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) ............ 79
McElroy v. Cudd Pressure Control, Inc., No. 00-1162, 2000 WL 1838710
(E.D. La. Dec. 13,2000) ...................................................................
109
McManus v. Board of Educ. of Hempstead Union Free School Dist.,
87 N.Y.2d 183 (NY, 1995) .................................................................
95

v

7

Moncrief v. Williston Basin Interstate Pipeline Co., 174 F.3d 1150 (10th
Cir. 1999) ....................................................................................
91
Mopex, Inc. v. Am. Stock Exch., No. 02-1656, 2002 WL 342522
(S.D.N.Y. Mar. 5, 2002) ...................................................................
112
N.Y. State Guernsey Breeders' Co-op v. Noyes, 22 N.Y.S.2d 132 (N.Y.
App. Div. 1940) ............................................................................
95
Nassau Trust Co. v. Montrose Concrete Prods, Corp., 56 N.Y.2d 175
(1982) ......................................................................................
94, 95, 100
Oswego Falls Corp. v. City of Fulton, 265 N.Y.S. 436 (N.Y. Sup.
Ct. 1933) ...................................................................................
95
Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245 (N.Y. 1963) ..................... 88
Ouevedo v. Trans-Pac. Shipping Inc., 143 F.3d 1255 (9th Cir. 1998) .............. 108
R/S Assoc. v. New York Job Dev. Auth., 771 N.E.2d 240 (N.Y. 2002) ............. 81
Reape v. N.Y. News, Inc., 504 N.Y.S.2d 469 (N.Y. App. Div. 1986) ................ 84
Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590 (N.Y. 1976) ............ 88
Rehberger v. Richtberg, 744 N.Y.S.2d 477 (N.Y. App. Div. 2002) .................. 81
Rieter v. Tavella, 549 N.Y.S.2d 888 (N.Y. App. Div. 1990) ........................... 94
Rothschild v. Title Guar. & Trust Co., 97 N.E. 879 (N.Y. 1912) ....................... 95
Sachs v. Cluet, Peabody & Co., 39 N.Y.S.2d 853 (N.Y. App.
Div. 1943), aff'd, 53 N.E.2d 241 (N.Y. 1944) ..........................................
111
Sassower v. Barone, 447 N.Y.S.2d 966 (N.Y. App. Div. 1982) ....................... 95
Sec. Indus. Automation Corp. v. United Computer Capital Corp.,
723 N.Y.S.2d 668 (N.Y. App. Div. 2001) ..............................................
102, 111
Soter's Inc. v. Deseret Fed. Sav. & Loan Ass'n, 857 P.2d 935
(Utah 1993) ................................................................................
102
Sporn v. MCA Records, 451 N.Y.S.2d 750 (N.Y. App, Div. 1982) .................... 111
Stanley Tulchin Assocs, Inc. v. Vignola, 186 A.D.2d 183 (N.Y
App. Div. 1992) ............................................................................
88

vi

8

Stone v. CGS Distrib. Inc., No. 93-2188, 1994 WL 832021 (D. Colo.
Aug. 18, 1994) ........................................................................
108
T.W.A. Trading, Inc. v. Gold Coast Freightways, Inc., No. 01-900,
2002 WL 1311648 (N.Y. Sup. Ct. Apr. 2 2002) ..................................
102, 111
Terry v. Int'l Dairy Queen, Inc., 554 F. Supp. 1088 (N.D. Ind. 1983) .......... 104
Topps Chewing Gum, Inc. v. Imperial Toy Corp., 686 F. Supp. 402
(E.D.N.Y. 1988), aff'd 895 F.2d 1410 (2d Cir. 1989) ............................
103-04, 110
Traffas v. Bridge Capital Investors II, No. 90-1304, 1993 WL 339093
(D. Kan. Aug. 23, 1993) .............................................................
108-09
Westchester Resco Co. v. New England Reinsurance Corp., 818 F.2d 2
(2d Cir. 1987) .........................................................................
94

Statutes & Administrative Codes
17 U.S.C.A. 103(b) (West 2006) .................................................. 86
17 U.S.C.A. 106 (West 2006) ..................................................... 86
17 U.S.C.A. 201(a) (West 2006) ................................................. 86
35 U.S.C.A. 112 (West 2006) ..................................................... 112
N.Y. C.P.L.R. 213 (2006) .......................................................... 111
Utah Code Ann. 78-12-23 (2006) ................................................ 111
Other
Fed. R. civ. P. 56(c) ................................................................... 79
Restatement (Third) of Unfair Competition 41 ................................... 88

vii

9


Defendant/Counterclaim-Plaintiff International Business Machines Corporation ("IBM") respectfully submits this memorandum in support of its motion for summary judgment on the breach of contract claims of Plaintiff/Counterclaim-Defendant The SCO Group, Inc. ("SCO").1


Preliminary Statement

During the 1980s, IBM and Sequent Computer Systems ("Sequent") (which IBM acquired in 1999) entered into licensing agreements with AT&T for the source code to the UNIX System V operating system. Now, more than two decades later, SCO -- which played no part in negotiating the agreements but purports to have acquired rights to them -- claims that IBM breached the agreements by contributing its own original source code (not UNIX System V source code) to the open source operating system known as Linux. SCO's contract claims depend entirely on an unsupported (and unsupportable) reading of IBM's and Sequent's agreements with AT&T and should be rejected as a matter of law.

SCO has asserted four separate contract claims against IBM relating to the UNIX System V licensing agreements that IBM and Sequent executed with AT&T in 1985. These licensing agreements are in the form of a "Software Agreement", which sets forth the terms under which UNIX System V source code can be used and disclosed, and a "Sublicensing Agreement", which sets forth the terms under which software based on UNIX System V code can be distributed (collectively, the "Agreements"). IBM and Sequent performed under, and organized their businesses around, the Agreements for nearly two decades, without any dispute

10

with AT&T or its successors, until SCO changed management and asserted that the Agreements give it the right to control tens of millions of lines of original IBM source code.

For years, SCO perpetuated the illusion that it had evidence that IBM took confidential source code (including methods and concepts) from UNIX System V and "dumped" it into Linux. However, SCO does not have -- and never has had -- any such evidence. SCO has not identified any UNIX System V source code (including methods or concepts) that IBM is alleged to have contributed to Linux. Nor has SCO identified any modification or derivative work of UNIX System V that IBM is alleged to have contributed to Linux. It is undisputed and indisputable that IBM has not contributed to Linux any UNIX System V source code (including methods or concepts) or any modification or derivative work of UNIX System V. To the extent that IBM has contributed source code, methods, and concepts to Linux, those contributions have been original or homegrown IBM works or the works of third parties other than SCO created independent of UNIX System V.

SCO's contract claims thus turn on the proposition that the Agreements somehow give SCO the right to control IBM's and others' original works. SCO argues that IBM's AIX and Dynix/ptx ("Dynix") products, which are comprised of many tens of millions of lines of source code and are indisputably owned by IBM, include some UNIX System V material and are therefore modifications and derivative works of UNIX System V.2 According to SCO, the Agreements forbid IBM from contributing its own original works to Linux if they were ever part

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of AIX or Dynix. SCO further claims that any IBM representative who worked in AIX or Dynix is forbidden from working on Linux.

SCO's theory of the case is wrong as a matter of law, and IBM is entitled to summary judgment on SCO's contract claims, for at least four reasons.

First, the Agreements do not preclude IBM from using and disclosing its own original works, even if they were once (or in the future might be) part of AIX or Dynix:

1. By their terms, the Agreements place limits on what IBM can do with AT&T's UNIX System V software and modifications and derivative works of UNIX System V software. But they do not limit what IBM can do with its own original works, so long as it protects AT&T's UNIX System V software. Interpreting the licenses as SCO does would be patently unreasonable and lead to absurd results. (See Section I.A.)

2. The individuals who executed the licenses and were involved in their negotiation, on behalf of both AT&T and IBM, have offered unequivocal testimony that the agreements were not intended and should not be understood to preclude IBM's use and disclosure of its original works, and contemporaneous documents reflect this interpretation of the licenses. (See Section I.B.)

Second, even if (contrary to fact) the Agreements could be read as SCO contends, SCO would be estopped from pursuing its theory of the case. AT&T and its successors repeatedly told their licensees, including IBM and Sequent, that they could do as they wished with their own original works, whether or not they were part of a modification or derivative work of UNIX System V. Moreover, AT&T's licensees, including IBM and Sequent, took AT&T and its successors at their word and used their original works as they wished for nearly two decades,


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without any objection from AT&T or its successors. IBM and Sequent reasonably relied, to their detrimcnt, on the representations, conduct, and inaction of AT&T and its successors. They built AIX and Dynix businesses based on the belief that they, not SCO and its successors, control their original works. IBM and Sequent would experience severe prejudice if SCO were allowed to reverse course and claim control of IBM's and Sequent's work after more than two decades of contrary practice. Thus, as a matter of basic fairness, SCO's theory of the case is untenable.

Third, even if the Agreements could be read to give SCO control of more than 100 million lines of original IBM code, and even if SCO were not estopped from pursuing its theory of breach, the alleged breaches have been waived - by AT&T and its successors (including SCO), by Novell, Inc. on behalf of SCO, and by SCO itself:

1. For the same reasons SCO is estopped from asserting its contract claims against IBM, SCO and its predecessors waived SCO's interpretation of the Agreements by communicating for nearly two decades that they would not enforce the Agreements in the way SCO now seeks to enforce them. (See Section II.A.)

2. Novell, which at one time owned all rights in the Agreements, retained the right to waive alleged breaches of the Agreements, and Novell has exercised that right to effect a waiver of the alleged breaches in this case, (See Section II.B.)

3. SCO itself sold or otherwise made available to its customers and the public much, if not all, of the material it claims IBM should not have revealed. By its own conduct, therefore, SCO has waived any right to claim that IBM acted improperly by contributing its code to Linux. (See Section II.C.)


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Fourth, SCO's contract claims relating to at least some of the allegedly misused material (i.e., RCU) are barred by the statute of limitations. The statute of limitations for breach of contract is six years under New York law, which governs SCO's contract claims. IBM publicly disclosed the allegedly misused material relating to RCU in connection with a patent application and the resulting patent, which issued in 1995, more than six years prior to the date that SCO filed its lawsuit. Thus SCO's claims relating to RCU are barred by the statute of limitations.

For these reasons, summary judgment should be entered on behalf of IBM on SCO's claims for breach of contract (SCO's First, Second, Third and Fourth Causes of Action).


Statement of Undisputed Facts

The undisputed and indisputable facts material to this motion are set forth below, and in the memoranda in support of IBM's other motions for summary judgment, which are submitted herewith and incorporated herein by reference.3

A. Development of the UNIX Operating System.

1. In the 1960s, MIT, AT&T's Bell Labs, and General Electric collaborated on a project, known as Multics, to create a computer operating system that would allow for the simultaneous access by multiple users to a single computer, (Ex. 487 at 26-27; Ex. 384; Ex. 230 5.)

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2. Multics resulted in an operating system that could accommodate simultaneous users, but the operating system could not support many multiple users and was expensive to operate, and Bell Labs withdrew from the project. (Ex. 384; Ex. 385; Ex. 386; Ex. 230 6.)

3. After Bell Labs withdrew from Multics, one of its developers, Ken Thompson, undertook to design an alternative operating system, drawing on the work done in Multics. (Ex. 386.) With others at Bell Labs, including Dennis Ritchie, Mr. Thompson developed an operating system they called Unics. (Ex. 497 at 9; Ex. 387.) At the suggestion of another Bell Labs developer, Brian Kernighan, the name of the operating system was eventually changed to "UNIX". (Ex. 388.)

4. In the years that followed, AT&T developed numerous versions of UNIX and made it widely available to universities and businesses, as well as to the United States government. (Ex. 389.) AT&T permitted licensees, including the University of California at Berkeley ("UC Berkeley") to develop and add their own features to UNIX and to distribute those features. (Ex. 488 at *1-2, 18; Ex. 275 13; Ex. 230 8; Ex. 389.)

5. By the end of the 1970s, UNIX had grown in popularity. Universities throughout the world, including UC Berkeley, began offering educational courses and sponsoring research projects involving UNIX. (Ex. 487 at 119-33; Ex. 389; Ex. 230 10.)

6. Numerous manuals, articles and papers were written about UNIX, including no less than seven editions of the "UNIX PROGRAMMER'S MANUAL", which was distributed by Bell Labs with its UNIX operating systems, and the Lions' Commentary on UNIX 6th Edition, written by John Lions. (Ex. 487 at 43, 130; Ex. 385; Ex. 491; Ex. 230 11.)


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B. Commercialization of the UNIX Operating System.

7. In 1982, AT&T entered into a consent decree with the U.S. Federal Trade Commission, which provided for the spin-off of the regional Bell operating companies and freed AT&T to enter the computer industry, from which it had previously been barred. (Ex. 487 at 190; Ex. 230 19.)

8. As a result, AT&T developed and sold a commercial version of the UNIX operating system known as UNIX System III. This release met with limited success, however. Many universities and companies had utilized their rights under the AT&T licenses to create their own versions of UNIX, creating confusion and competition in the marketplace. Moreover, companies like Western Electric, a subsidiary of AT&T, continued to sell older UNIX versions. (Ex. 391.)

9. In an attempt to end confusion concerning the differing versions of the UNIX operating system, AT&T in 1983 combined various versions of UNIX developed at universities and other companies into UNIX System V, Release 1. (Ex. 391.) Later, AT&T released other versions, including System V Release 2.0, System V Release 3.0, and System V Release 4.0. (See Ex. 297 at 32:2-13.)

10. Over the years, through various business units and subsidiaries, including AT&T Technologies, Inc. and UNIX System Laboratories, Inc. ("USL"), AT&T licensed various versions of its UNIX operating system, both in source code and object code form. (See Ex. 3 23-24; Ex. 5 9; Ex. 64 2.)

11. AT&T generally licensed its UNIX operating system pursuant to standard form agreements. A software agreement granted the licensee the right to use and modify the source


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code of the operating system. A sublicensing agreement granted the licensee the right to furnish sublicensed products based on UNIX System V to customers in object code format. And, a substitution agreement provided that the software agreement and, if applicable, the sublicensing agreement replaced earlier agreements relating to UNIX System V software. (Ex. 282 6.)

12. The head of the AT&T division responsible for licensing AT&T UNIX software during this time was Otis Wilson. Mr. Wilson led the UNIX licensing negotiations for AT&T and either personally signed, or authorized the signing of, almost all, if not all, of AT&T's UNIX licensing agreements. (See Ex. 281 5; Ex. 282 3; Ex. 301 at 41:4-14, 42:7-43:6.)

13. Mr. Wilson reported to Michael DeFazio, who was then the head of the overall AT&T organization responsible for the UNIX software, including product management, marketing and licensing. (See Ex. 182 1.) As head of the organization, Mr. DeFazio had ultimate responsibility for the terms and conditions of AT&T's UNIX licensing agreements. (See id. 6-7.)

14. Reporting to Mr. Wilson was, among others, David Frasure, who was AT&T's national sales and licensing manager for its UNIX products. (See Ex. 190 5; Ex. 302 at 8:1-22.) Mr. Frasure participated in negotiating many of AT&T's UNIX System V licenses, and on occasion signed the agreements on Mr. Wilson's behalf. (See Ex. 302 at 8:13-9:6.)

15. Under the direction of Messrs. DeFazio, Wilson and Frasure, AT&T and its subsidiaries licensed UNIX source code, including UNIX System V source code, to hundreds of licensees. AT&T also licensed many companies to distribute their own UNIX operating systems, such as Hewlett-Packard Co.'s "HP-UX" operating system. (See Ex. 3 24-27; Ex. 64 3.)


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C. Basic Rights and Obligations of UNIX System V Licensees.

16. The standard software agreements that AT&T used to license UNIX System V source code and related materials set forth the various rights given to licensees and the restrictions imposed on the liccensees with respect to such materials. (Ex. 282 6.)

17. Among the provisions in AT&T's early software agreement (including in the IBM Software Agreement and the Sequent Software Agreement) were the following:

  • Section 2.0 1: "AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE's own internal business purposes."
  • Section 2.05: "No right is granted by this Agreement for the use of SOFTWARE PRODUCTS directly for others or for any use of SOFTWARE PRODUCTS by others"
  • Section4.01: "LICENSEE agrees that it will not, without the prior written consent of AT&T, export, directly or indirectly, SOFTWARE PRODUCTS covered by this Agreement to any country outside of the United States."
  • Section 7.06(a): "LICENSEE agrees that it shall hold all parts of the SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T."
  • Section 7.10: "Except as provided in Section 7.06(b), nothing in this Agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part."

(Ex. 282 12; Ex. 119; Ex. 492.)

18. These provisions concern the UNIX System V source code and related materials -- the "SOFTWARE PRODUCT" or "SOFTWARE PRODUCTS" -- that AT&T provided to its licensees. The Agreements define "SOFTWARE PRODUCT"as "materials such as COMPUTER PROGRAMS, information used or interpreted by COMPUTER PROGRAMS and documentation relating to the use of COMPUTER PROGRAMS"; "COMPUTER PROGRAM"


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is defined as "any instruction or instructions, in source-code or object-code format, for controlling the operation of a CPU". (Ex. 119; Ex. 492.) The provisions do not, by their terms, place restrictions on what licensees can do with their own original works. (Ex. 282 12; Ex. 119; Ex. 492.)

19. As Messrs. Wilson, DeFazio, and Frasure understood and discussed the provisions with licensees, they do not and were not intended to, restrict a licensee's right to use, export, disclose or transfer its own products and source code, so long the licensee did not use, export disclose or transfer AT&T's UNIX System V source code along with it. AT&T's software agreements were not intended to place any restrictions on licensees' use of their own original work. (Ex. 282 12; Ex. 182 17; Ex. 189 14-16.)

20. AT&T's standard software agreements granted licensees the right to modify UNIX System V source code and to prepare derivative works based upon the code. Section 2.01 of AT&T's early software agreement included the following language:

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such, SOFTWARE PRODUCT provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.

(Ex. 281 13; Ex. 182 16; Ex. 189 15; Ex. 190 14.)

21. As Messrs. Wilson, DeFazio, Frasure and other AT&T representatives communicated to AT&T's licensees, this provision was only intended to ensure that if a licensee were to create a modification or derivative work based on UNIX System V, any material portion of the original UNIX System V source code provided by AT&T or USL that was included in the modification or derivative work would remain subject to the confidentiality and other restrictions of the software agreement. Any source code developed by or for a licensee and included in a


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modification or a derivative work would not constitute "resulting materials" to be treated as part of the original software product, except for any material proprietary UNIX System V source code provided by AT&T or USL and included therein. (Ex. 282 14; Ex. 182 16; Ex. 190 14.)

22. AT&T and USL did not intend to assert ownership or control over modifications and derivative works prepared by licensees, except to the extent of the original UNIX System V source code included in such modifications and derivative works. Although the UNIX System V source code contained in a modification or derivative work continued to be owned by AT&T or USL, the code developed by or for the licensee remained the property of the licensee, and could therefore be used, exported, disclosed or transferred freely by the licensee. (Ex. 282 15; Ex. 182 17; Ex. 190 16.)

23. Messrs. Wilson, DeFazio, Frasure and other AT&T representatives did not believe that licensees would have been willing to enter into the software agreement if they had understood Section 2.01 to grant AT&T or USL the right to own or control source code developed by the licensee or provided to the licensee by a third party. They understood that many of AT&T's licensees invested substantial amounts of time, effort and creativity in developing products based on UNIX System V, and they did not intend Section 2.01 to appropriate for AT&T the technology developed by AT&T's licensees. (Ex. 282 16; Ex. 182 17; Ex. 190 29.)

24. Some licensees sought to clarify that, under the agreements, the licensee, not AT&T or USL, would own and control modifications and derivative works prepared by or for the licensee (except for any original UNIX System V source code provided by AT&T or USL


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and included therein). Messrs. Wilson, DeFazio, Frasure, and other AT&T representatives provided such clarification when asked because that is what they understood the language in the standard saftware agreement to mean. In some cases, they provided this clarification orally. In other cases, they provided it in writing, such as in a side letter. (Ex. 282 17; Ex. 182 18; Ex. 189 14; Ex, 190 17-18.)

25. It was Mr. Wilson's view at the time that AT&T could not claim any rights to non-UNIX System V code source (as SCO does here) without raising serious antitrust issues. In light of the divestiture of AT&T in the early 1980s, AT&T as a company was concerned with the potential anticompetitive effects of its actions. As a result one of the reasons Mr. Wilson made clear to AT&T's licensees that its UNIX System V software agreements did not impose any restrictions on the use or disclosure of their own original code, except insofar as it included UNIX System V code, was to avoid any appearance of any impropriety. (Ex. 282 18.)

26. Because AT&T and USL intended to distribute the UNIX System V source code and related information widely, AT&T understood that it would be difficult to require that the code and related information be kept confidential. Since AT&T believed that its licensees held the same view, its standard UNIX software agreements provided that a licensee would not be required to keep a software product confidential if it became available without restriction to the general public. (Ex. 282 29.)

27. The exception is set forth in Section 7.06(a) of the standard software agreement:

If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE'S obligations under this section shall not apply to such information after such time.


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(Ex. 119 7.06(a).) The licensee was free to disclose, without any restriction whatsoever, any information that became available without restriction to the general public by acts not attributable to that particular licensee. (Ex. 281 30.)

28. This exception was intended to ensure that the confidentiality restriction applied only to information that needed to be protected -- specifically, any trade secrets embodied in UNIX System V source code provided by AT&T or USL. If part or all of the source code were not entitled to be protected as a trade secret then such software product (or portion of a software product) would be "available without restriction to the general public" within the meaning of the agreements, and no longer protected by any confidentiality restriction. AT&T did not intend to impose a confidentiality obligation beyond what it could enforce under trade secret law. (Ex. 281 31.)

29. AT&T never attempted to list all the ways in which source code could become "available without restriction to the general public" within the meaning of the software and related agreements. But AT&T, including Mr. Wilson and other representatives, believed that the UNIX System V source code (or any part thereof) would be available without restriction to the general public if, for example, it were (1) published by a party other than the licensee in question; (2) accessible outside the limits of a confidentiality agreement, such as for download from the internet, (3) available because its owner failed, even if by inadvertence or simple negligence, to take sufficient precautions to ensure that it would remain confidential; (4) distributed so widely that contractual confidentiality restrictions would be insufficient to maintain confidentiality; (5) made available to a third party who had the right to disclose the


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software product (or any part thereof); or (6) distributed under an open-source license like the GNU General Public License (the "GPL"). (Ex. 281 32.)

30. Some licensees requested side letters clarifying or amending AT&T's standard terms or including most-favored customer provisions. AT&T agreed to issue side letters in some circumstances as an accommodation to the licensee, but it nevertheless intended to hold all licensees to the same basic standard. (Ex. 281 22-26, 43.)

31. Although not all of AT&T's licensees had a side letter or most-favored customer provision, AT&T interpreted its license agreements in light of the collective body of UNIX license agreements. For example, the UNIX licensing group used the entire body of side letters to provide its guidance to AT&T's UNIX licensees. AT&T's policy was to deal with a licensee that did not have a most-favored customer provision in a side letter (like Sequent) in the same manner as a licensee that had a side letter with such a provision (like IBM). (Ex. 281 43.)

D. IBM/Sequent Negotiations of New UNIX Licenses.

32. IBM and Sequent (like many other companies) entered into negotiations with AT&T in the mid-1980s, to replace their existing UNIX licenses with new ones for UNIX System V. Those negotiations led ultimately to execution of the Agreements, which SCO now contends IBM has breached. (See Ex. 178 4-5; Ex. 190 6-7; Ex. 217 4; Ex. 228 4-9; Ex. 233 4; Ex. 252 2; Ex. 266 13; Ex. 275 7-8; Ex. 282 7-8.)

33. While Messrs. Wilson, DeFazio, and Frasure had primary responsibility for the negotiation and execution of the new IBM and Sequent UNIX licensing agreements, Mr. Steve Vuksanovich and Mr. Ira Kistenberg also participated in the negotiations. (See Ex. 275 7; Ex. 217 4.) Mr. Vuksanovich was the AT&T account representative assigned to the IBM


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account. (See Ex. 275 8.) Mr. Kistenberg was the AT&T account representative specifically assigned to the Sequent account, (See Ex. 217 3-5.)

34. IBM was represented in the negotiation of its UNIX licensing agreements by, among others, Messrs. Richard McDonough, Thomas Cronan, and Jeffrey Mobley. Mr. McDonough was the Division Counsel for IBM's System Products Division, (Ex. 228 4.) Mr. Cronan was an attorney in IBM's System Products Division. (See Ex. 178 4-5.) Mr. Mobley was a member of IBM's corporate Commercial & Industry Relations staff (See Ex. 233 1, 3-4.)

35. Sequent was represented in the negotiation of its UNIX licensing agreements by, among others, Messrs. David Rodgers and Roger Swanson. Mr. Rodgers was Sequent's Vice President of Engineering. (See Ex. 252 2.) Mr. Swanson was Sequent's Director of Software Engineering. (See Ex. 266 2-3.)

36. The AT&T representatives insisted on licensing its UNIX System V software and related materials pursuant to a standard set of license agreements. They stated that AT&T intended to license and distribute UNIX System V software and related materials broadly and, for the sake of efficiency and ease of administration, wanted to avoid having to draft different agreements with each of its licensees. In addition, they made clear that AT&T wished to license UNIX System V software and related materials evenhandedly; they said they expected to treat all of their licensees the same. (Ex. 178 7; Ex. 217 6-7, Ex. 228 5-6; Ex. 252 6; Ex. 266 6; Ex. 275 10.)

37. Mr. Wilson and his staff explained that the proposed agreements controlled what licensees could and could not do with the UNIX System V software products. They stated that


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the proposed agreements did not allow AT&T to control licensees' use, export, disclosure, or transfer of any software products or source code that licensees developed themselves that did not contain any UNIX System V code, (Ex. 178 9; Ex. 228 12; Ex. 233 8-9; Ex. 252 7; Ex. 266 10.)

38. Both IBM and Sequent made clear during their respective negotiations that they could not and would not enter into any agreement that did not give them ownership and control of their own original works. The IBM and Sequent negotiators insisted that they had to own and control their own original works, even if they were included in a modifications and derivative work of UNIX System V. (Ex. 178 13-14; Ex. 228 13; Ex. 233 6, 8; Ex. 252 7; Ex. 266 10-11.)

39. The AT&T negotiators separately advised both the IBM and Sequent negotiators that AT&T did not seek to preclude ownership and control of their original or homegrown works. In fact, the AT&T negotiators assured IBM and Sequent that the purpose of the restrictions imposed by the AT&T Agreements was to protect AT&T's original code and that IBM and Sequent could do whateyer they wanted with their own code so long as they did not use, export, disclose, or transfer AT&T's original code (unless otherwise permitted by the AT&T Agreements). (Ex. 178 19; Ex. 228 15; Ex. 233 16; Ex. 252 8; Ex. 266 12.)

40. The IBM negotiating team would never have agreed to give AT&T the right to own or control IBM's original works. To do so would have represented a dramatic departure from IBM's practices regarding the licensing of third-party code and would have required IBM to change the way it developed products to ensure that it not allow any IBM or third-party code to be introduced into the source code base containing the UNIX System V code (however


25

briefly) unless IBM was prepared forever to yield control of that code to AT&T. (Ex. 179 9; Ex. 228 18; Ex. 233 17.)

41. So that there would be no confusion, the IBM negotiators told the AT&T representatives with whom they negotiated that IBM intended to include portions of AT&T's UNIX System V code in products with IBM code and to make changes to the AT&T code (such as by adding to it) and thus IBM had to ensure that the parties agreed that IBM had the right to do so, without forfeiting any rights (including the right to control) to such IBM products and code. (Ex. 178 19.)

42. Similarly, the Sequent negotiators would never have agreed to give AT&T the right to own or control their original works. (Ex. 252 7; Ex. 266 10-11.) As a small company at the time, it would not have made any sense for Sequent to have entered into an agreement that gave AT&T control over the source code that Sequent developed for its own software products. (Ex. 266 11.) Sequent's original or homegrown source code was one of the key assets of the company, and to compromise Sequent's ownership of or control over the code would have required the approval of Sequent's board of directors. (Ex. 295 at 47:9-49:19.)

43. Messrs. Wilson, Frasure and DeFazio understood that neither IBM nor Sequent would have entered into the proposed UNIX licensing agreements if AT&T had sought and insisted on the right to control any product or code that might in the future be associated with UNIX System V code, except insofar as it might include UNIX System V code. (Ex. 182 17; Ex. 190 29; Ex. 282 16.) No one involved in the negotiation of the Agreements ever suggested that they would give AT&T (or anyone else other than IBM or Sequent) the right to


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control IBM or Sequent original code. (Ex. 178 11-12; Ex. 228 19; Ex. 233 9; Ex. 252 7; Ex. 266 10.)

44. Based at least in part on AT&T's assurances, IBM and Sequent made the decision to execute licensing agreements that AT&T represented to reflect its standard terms. Sequent agreed to sign the agreements as is, whereas IBM agreed to sign them subject to clarifications and amendments set out in a contemporaneous side letter. IBM wanted to make sure there would be no question that, among other things, AT&T's licensees, not AT&T, would own and control the source code that was developed by the licensee or developed for the licensee by a third party. (Ex. 178 13-17; Ex. 228 13-14, 18; Ex. 233 10-13; Ex. 252 7; Ex. 266 12.)

45. The AT&T negotiators agreed to provide IBM with a side letter, including, among other things, a most-favored customer provision, but stated that a side letter was not necessary because, among other reasons, AT&T did not wish to assert ownership or control over any modifications and derivative works prepared by or for IBM, or by any other of AT&T's licensees for that matter, except to the extent that those portions of the modifications or derivative works contained licensed UNIX System V source code. (Ex. 178 16; Ex. 228 13-14; Ex. 233 12-13; Ex. 182 18, 20; Ex. 189 14-16; Ex. 281 17.)

46. AT&T made clear that -- side letter or not -- AT&T intended to treat all of its licensees the same. Messrs, Wilson, DeFazio Frasure, Kistenberg, and Vuksanovich intended to hold all licensees to the same, basic standard. AT&T's stated policy was to treat all of its licensees essentially the same. (Ex. 182 18, 20; Ex. 189 14-16; Ex. 217 21-22; Ex. 275 26-27; Ex. 281 17.) All were free to do as they wished with their original or homegrown


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works, so long as they protected AT&T's UNIX software. (See Ex. 182 18; Ex. 190 26; Ex. 217 12; Ex.275 29; Ex.282 28.)

E. IBM's and Sequent's License Agreements.

47. IBM and Sequent completed negotiations relating to their UNIX System V licensing agreements beginning in early 1985. (Ex. 119; Ex. 120; Ex. 122; Ex. 492.)

48. IBM executed its agreements with AT&T, including its side latter, on February 1, 1985 (collectively, the "IBM Agreements"). The IBM Agreements were executed by Mr. Frasure on behalf of Mr. Wilson for AT&T and by Mr. McDonough for IBM. (Ex. 120; Ex. 122; Ex. 492.)

49. Sequent executed its agreements with AT&T on April 18, 1985 and January 28, 1986 (collectively the "Sequent Agreements"). The Sequent Agreements were executed by Mr. Wilson for AT&T and Mr. Rodgers for Sequent. (Ex. 119; Ex. 121.)

50. The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V. (Ex. 119; Ex. 492; Ex. 282 6; Ex. 182 15.)

51. The Agreements included the following provisions from AT&T's standard Software Agreements, each of which SCO accuses IBM of breaching:

Section 2.01:

AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE's own internal business purposes and solely on or in conjunction with DESIGNATED CPUs for such SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE


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PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.

Section 2.05

No right is granted by this Agreement for the use of SOFTWARE PRODUCTS directly for others, or for any use of SOFTWARE PRODUCTS by others.

Section 4.01

LICENSEE agrees that it will not, without the prior written consent of AT&T, export, directly or indirectly, SOFTWARE PRODUCTS covered by this Agreement to any country outside of the United States.

Section 6.03

If LICENSEE fails to fulfill one or more of its obligations under this Agreement, AT&T may, upon its election and in addition to any other remedies that it may have, at any time terminate all the rights granted by it hereunder by not less than two (2) months' written notice to LICENSEE specifying any such breach, unless within the period of such notice all breaches specified therein shall have been remedied; upon such termination LICENSEE shall immediately discontinue use of and return or destroy all copies of SOFTWARE PRODUCTS subject to this Agreement.

Section 7.06(a)

LICENSEE agrees that it shall hold all parts of the SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T. LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder. ...If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE's obligations under this section shall not apply to such information after such time.

Section 7.10

Except as provided in Section 7.06(b), nothing in this Agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part.


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(Ex. 492; Ex. 119.)

52. On their face, the allegedly breached provisions (Sections 2.01, 2.05, 4.01, 6.03, 7.06(a) and 7.10) pertain to AT&T's "SOFTWARE PRODUCT", which is defined by the Agreements as:

[M]aterials such as COMPUTER PROGRAMS, information used or interpreted by COMPUTER PROGRAMS and documentation relating to the use of COMPUTER PROGRAMS. Materials available from AT&T for a specific SOFTWARE PRODUCT are listed in the Schedule for such SOFTWARE PRODUCT.

(Ex. 492 1.04; Ex. 119 1.04.)

53. The various schedules attached to the IBM and Sequent Software Agreements identify the specific "SOFTWARE PRODUCT" or "SOFTWARE PRODUCTS", and related materials, that AT&T provided under the terms of the agreements. (Id.) The particular "SOFTWARE PRODUCT" at issue in this case is "UNIX System V". (See, e.g., Ex. 125; Ex. 126).)

54. The IBM Side Letter clarified Section 2.01 as follows:

Regarding Section 2.01, we agree that that modifications and derivative works prepared by or for [IBM] are owned by [IBM]. However, ownership of any portion or portions of SOFTWARE PROOUCTS included in any such modification or derivative work remains with [AT&T].

(Ex. 122 at 2; Ex. 282 19-20; Ex. 189 14; Ex. 182 18; Ex. 275 15-16; Ex. 228 13-14; Ex. 178 13-16; Ex. 233 10-13.) This language clarified that IBM (like all AT&T licensees) owned and controlled its original or homegrown works. (Ex. 282 19-20; Ex. 189 14; Ex. 182 18; Ex. 275 15-16; Ex. 228 13-14; Ex. 178 13-16; Ex. 233 10-13.)


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55. In addition, the Side Letter, as well as subsequent Amendment No. X, amended Section 7.06(a) of the IBM Software Agreement to provide as follows:

LICENSEE agrees that it shall hold SOFTWARE PRODUCTS subject to this Agreement in confidence, for AT&T. LICENSEE further agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder. ...Nothing in this Agreement shall prevent LICENSEE from developing or marketing products or services employing ideas, concepts, know-how or techniques relating to data processing embodied in SOFTWARE PRODUCTS subject to this Agreement, provided that LICENSEE shall not copy any code from such SOFTWARE PRODUCTS into any such product or in connection with any such service.... If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE's obligations under this section shall not apply to such information after such time.

(Ex. 122 A.9; Ex. 124 6.) This language clarified, among other things, that IBM (like all AT&T licensees) had no obligation of confidentiality regarding UNIX software that becomes available without restriction to the general public by acts not attributable to IBM.

56. Consistent with AT&T's policy to treat all licensees the same, Paragraph A.12 of the IBM Side Letter provides:

We agree that all SOFTWARE PRODUCTS, including enhancements to or new versions of existing SOFTWARE PRODUCTS, generally available under the Software Agreement will be made available to you at the fees and under terms, warranties and benefits equivalent to those offered to other licensees.

(Ex. 122 A.12.) This language meant that if any other licensee was offered or obtained terms more favorable to the licensee than those contained in the IBM Agreements, then IBM would have the advantage of such more favorable terms as if they had been set forth in the IBM Agreements. (Ex. 281 43.)


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F. Parties' Intent as to Homegrown Material.

57. All of the individuals who executed and negotiated the Agreements, as well as Mr. DeFazio, who had ultimate responsibility for them (collectively, the "Involved Persons"), agree that the Agreements were not intended to, and do not, restrict in any manner the use or disclosure of any original code written by, or for, IBM and Sequent. (See Ex. 178 18; Ex. 182 17-18; Ex. 189 13-16, 24-29; Ex. 217 9; Ex. 228 11-19; Ex. 233 9; Ex. 252 7-9; Ex. 266 8; Ex. 275 12; Ex. 282 14-15, 27-30.)

58. None of the Involved Persons understood the Agreements to give AT&T or its successors the right to assert ownership or control over all of the source code of any modifications or derivative works based on UNIX System V. To the contrary, they understood that IBM and Sequent owned, and were permitted to use however they wanted, any modifications or derivative works that they created (or that others created for them) based on UNIX System V software except for the UNIX System V material that might be contained within their modifications or derivative works. (See Ex. 178 17; Ex. 182 20; Ex. 190 14-15; Ex. 217 10-11; Ex. 228 13, 15; Ex. 233 8-9; Ex. 252 7; Ex. 266 10-12; Ex. 275 13; Ex. 282 15.)

59. As the Involved Persons understood the Agreements, they impose no restrictions on IBM's or Sequent's use, export, disclosure or transfer of those portions of any modifications or derivative works of UNIX System V that were created by or for IBM or Sequent and do not contain any UNIX System V source code. (See Ex. 178 18; Ex. 182 18; Ex. 190 24; Ex. 217 12; Ex. 228 16; Ex. 233 6; Ex. 252 18; Ex. 266 12; Ex. 275 12; Ex. 282 27.) Under the Agreements, IBM and Sequent are free to use however they want any AIX or Dynix


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source code, except for the UNIX System V source code or other licensed software products provided by AT&T that may be contained therein (except as otherwise permitted by the AT&T Agreements). (See Ex. 178 19; Ex. 182 18; Ex. 190 26; Ex. 217 12; Ex. 228 15; Ex. 233 14; Ex. 252 13; Ex. 266 13; Ex. 275 29; Ex. 282 28.)

60. According to the Involved Persons, SCO's theory of the case -- that IBM has breached the Agreements by improperly using, exporting, disclosing or transferring AIX and Dynix source code, irrespective or whether IBM has improperly used, exported, disclosed or transferred any protected UNIX System V source code -- is inconsistent with the provisions of the Agreements and with the parties' intentions. (See Ex. 178 21; Ex. 182 31; Ex. 190 27; Ex. 217 24; Ex. 228 17; Ex. 233 16; Ex. 275 30; Ex. 282 29; Ex. 310 at 116:18-118:4.) The Agreements were not intended to limit IBM's or Sequent's freedom of action with respect to their original source code, methods, or concepts and were intended merely to protect AT&T's interest in its own UNIX System V source material. (See Ex. 178 22, Ex. 182 22; Ex. 190 12; Ex. 228 18; Ex. 233 17; Ex. 276 3; Ex. 282 12; Ex. 310 at 80:15-19, 117:14-118:4; 124:12-21.)

61. Section 2.01 of the Software Agreements, as understood by the Involved Persons, was only intended to ensure that if a licensee were to create a modification or derivative work based on UNIX System V, any material portion of the original UNIX System V source code provided by AT&T or USL that was included in the modification or derivative work would remain subject to the confidentiality and other restrictions of the software agreement (See Ex. 178 11; Ex. 182 16; Ex. 190 14; Ex. 228 12; Ex. 233 8; Ex. 282 14; Ex. 584 at 176:2- 18; Ex. 310 at 30:17-31:5.) Any source code developed by or for a licensee and included in a


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modification or a derivative work would not constitute "resulting materials" to be treated as part of the original software product, except for any material proprietary UNIX System V source code provided by AT&T or USL and included therein. (See Ex. 178 11; Ex. 182 16; Ex. 190 14; Ex. 217 11; Ex. 228 12; Ex. 233 8; Ex. 252 7; Ex. 282 14; Ex. 584 at 173:3- 174:8.)

62. None of the Involved Persons intended the Agreement to permit AT&T and USL to assert ownership or control over modifications and derivative works prepared by licensees, except to the extent of the original UNIX System V source code included in such modifications and derivative woks. (See Ex. 178 15; Ex. 182 20; Ex. 190 14-15; Ex. 217 22; Ex. 228 13; Ex. 233 8; Ex. 252 7; Ex. 266 10; Ex. 275 27; Ex. 282 15.) They intended that the code developed by or for the licensee would remain the property of the licensee, and could therefore be used, exported, disclosed or transferred freely by the licensee. (See Ex. 178 18; Ex. 182 20; Ex. 190 14-15; Ex. 217 23; Ex. 228 15; Ex. 233 9; Ex. 252 8-9; Ex. 266 10, 12; Ex. 275 27; Ex. 282 15.)

63. Whether or not AT&T entered into a side letter or other agreements with its licensees to clarify the treatment of modifications and derivative works, or altered the language of Section 2.01, AT&T's and USL's intent was always the same. It never intended to assert ownership or control over any portion of a modification or derivative work that was not part of the original UNIX System V source code provided by AT&T or USL. The licensee was free to use, copy, distribute or disclose its modifications and derivative works, provided that it did not use, copy, distribute or disclose any portions of the original UNIX System V source code


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provided by AT&T or USL except as permitted by the license agreements. (See Ex. 182 20; Ex. 190 24; Ex. 217 22; Ex. 275 27; Ex. 282 27.)

G. AT&T's Assurances as to Homegrown Material.

64. At about the same time that IBM and Sequent executed the Agreements, other licensees and prospective licensees sought clarification that AT&T and USL did not intend to assert ownership or control over modifications and derivative works prepared by licensees, except to the extent of any material portions of the original UNIX System V source code provided by AT&T or USL and included in such modifications and derivative works. (See Ex. 217 13; Ex. 275 17.)

65. Because of the numerous inquiries it received from licensees, AT&T further clarified the meaning of Section 2.01 of its software license agreements at seminars organized for licensees and in its "$ echo" publication. $ echo was a newsletter that AT&T published for all UNIX System V licensees to keep them informed of AT&T's policies with respect to UNIX System V. AT&T intended the guidance provided in the newsletter to apply to all of its UNIX System V licensees. (See Ex. 190 19; Ex. 217 14-15; Ex. 275 18-19; Ex. 282 21.)

66. The April 1985 edition of $ echo describes presentations made by a member of Mr. Wilson's licensing group, Mr. Frasure, outlining changes that AT&T intended to make to the licensing and sublicensing agreements as a result of discussions that Mr. Wilson and others in his group had with AT&T's licensees. (See Ex. 190 20; Ex. 217 16; Ex. 275 20; Ex. 282 22.)

67. As discussed in the newsletter, among the changes AT&T decided to implement, and which were announced at the seminars by Mr. Frasure, were "[l]anguage changes ... to clarify ownership of modifications or derivative works prepared by a licensee". (see Ex. 190


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20; Ex. 217 17; Ex. 275 21; Ex. 282 23) The August 1985 edition of $echo describes these changes in detail. With respect to Section 2.01, the newsletter states:

Section 2.01 - The last sentence was added to assure licensees that AT&T will claim no ownership in the software that they developed -- only the portion of the software developed by AT&T.

(See Ex. 190 21; Ex. 217 18; Ex. 275 22; Ex. 282 24.)

68. This change was not intended to alter the meaning of the software agreements, but was meant only to clarify the original intent of Section 2.01. AT&T intended only to make clear to its licensees that AT&T, and later USL, did not claim any right to the licensees' original work contained in modifications or derivatives of UNIX System V. (See Ex. 182 20; Ex. 190 21; Ex. 217 18; Ex. 275 22; Ex. 282 24.)

69. The new language is reflected, for example, in Section 2.01 of a software agreement between AT&T Information Systems Inc. and The Santa Cruz Operation, Inc. entered into in May 1987. That agreement includes the following language:

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as such SOFTWARE PRODUCT. AT&T-IS claims no ownership interest in any portion of such a modification or derivative work that is not part of a SOFTWARE PRODUCT.

(Ex. 127 2.01 (emphasis added)).

70. As AT&T communicated at its seminars and in its newsletters to UNIX System V licensees this new language was intended only to clarify the language in the original Section 2.01, not change its meaning. Mr. Wilson's licensing group interpreted the language of the


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original Section 2.01 and thus revised Section 2.01 in exactly the same way. (See Ex. 190 22; Ex. 217 20; Ex. 275 24; Ex. 282 25.)

71. Although AT&T made "specimen copies" of the revised software agreement available to its licensees, it did not require that its licensees enter into new agreements. AT&T intended for all of AT&T's UNIX System V licensees to receive the benefit of the changes and clarifications it outlined at its seminars and in the newsletter. (See Ex. 190 23, Ex. 217 21; Ex. 275 26; Ex. 282 26.)

H. IBM's and Sequent's Reliance.

72. Based in important part on the Agreements and AT&T's repeated and consistent explanations of them, IBM continued the development of and distributed a flavor of the UNIX operating system known as AIX (see Ex. 5 13), and Sequent (which IBM acquired in 1999) continued the development of and distributed a flavor of the UNIX operating system known as Dynix (see id. 16).

73. Both IBM and Sequent invested in the development of AIX and Dynix based on the understanding -- reinforced by the repeated assurances of AT&T representatives -- that AT&T claimed no interest whatsoever in IBM's and Sequent's original works, even if they might be included in a modification or derivative work of UNIX System V. (Ex. 257 3-5; Ex. 310 at 29:8-31:5, 56:11-57:5, 62:20-63:17, 119:16-120:2, 127:15-128:1.)

74. IBM devoted hundreds of millions of dollars and tens of thousands of person-hours to the development and marketing of AIX, including writing many millions of lines of original source code for AIX. Similarly, Sequent spent tens of millions of dollars and hundreds of person-hours in the development and marketing of Dynix, including writing millions of lines


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of original source code for Dynix/ptx. (Ex. 257 7-10; Ex. 252 at 97:25-98:20, 140:12-21; Ex. 181, Ex. G; Ex. 596 3-4.)

75. AIX and Dynix are comprised of code from numerous sources, including code written by IBM and Sequent software engineers (or outside contractors retained by IBM or Sequent) and also code written by third parties and licensed to IBM or Sequent for inclusion in AIX or Dynix. (See Ex. 270 4-5; Ex. 236 4-5.)

76. The overwhelming majority of the code in AIX and Dynix is original IBM or Sequent work, written or created independent of UNIX System V. (Ex. 181, Ex. C, Ex. G.)

77. For example, AIX 5.1.G for Power is comprised of 123,821 files and 160,198,865 lines of source code. (Ex. 181, Ex. G.) The Final Disclosures identify [REDACTED] lines of System V code in any version of AIX. (Ex. 54, Item 1, Tab 425.) SECTION REDACTED

78. The base operating system of Dynix/ptx 4.6.1 alone is comprised of 36,096 files and 10,238,823 lines of source code. (Ex. 181, Ex. G.) Here again, the Final Disclosures identify [REDACTED] lines of System V code in any version of Dynix. (Ex. 54, Item 204, Tab 220.)

79. SECTION REDACTED


80. Among the original IBM works in AIX are Virtual Resource Manager, Logical Volume Manager, Object Data Manager, System Management Interface Tool, Network Install Manager, Web-based System Manager, IBM Java Development Kit, AIX Workload Manager,


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Dynamic Logical Partitioning, Capacity On Demand, Cluster System Management, and many other developments. (Ex. 257 8; Ex. 283 85.)

81. Among the original Sequent works in Dynix are Read-Copy Update, Symmetric Multiprocessing and Non-Uniform Memory Access capabilities, and functionality for Transmission Control Protocol/Internet Protocol (TCP/IP) networking protocols on parallel computers. (Ex. 283 86.)

I. Continued Assurances and Reliance.

82. Following execution of the Agreements, AT&T and USL communicated with licensees on a regular basis and frequently explained their intent, view, and understanding as to their licensees' rights to their own original materials. (Ex. 191 11; Ex. 250 4; Ex. 271 3-4; Ex. 276 4-5; Ex. 280 3-4.)

83. AT&T and USL representatives communicated to licensees, including IBM and Sequent, that they owned and could do as they wished with their own original works, even if those works might be included in a modification or derivative work of UNIX System V, so long as they protected AT&T's UNIX System V source code. (Ex. 183 5; Ex. 191 4-6; Ex. 250 3-4; Ex. 271 3-4; Ex. 276 4-5; Ex. 280 3-5.)

84. Some licensees sought to clarify that, under the agreements, they, not AT&T or USL, would own and control modifications and derivative works prepared by or for the licensees (except for any original UNIX System V source code provided by AT&T or USL and included therein). (Ex. 182 18; Ex. 189 17; Ex. 275 15-17; Ex. 281 12-16.)

85. Mr. Wilson and members of this staff stated, orally and in writing, that AT&T's licensees, not AT&T or USL, would own and control modifications and derivative works


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prepared by or for the licensee (except for any original UNIX System V source code provided by AT&T or USL and included therein). (Ex. 182 18; Ex. 189 17-22; Ex. 271 3-5; Ex. 27 25; Ex. 280 3-5; Ex. 282 17.)

86. For example, Mr. Frasure, who continued to work with and for Mr. Wilson until he retired, was in daily communication with UNIX licensees. He personally communicated with them both in writing and orally, and participated in conferences that clarified AT&T's position regarding ownership of code that licensees developed themselves. Mr. Frasure assured licensees that they owned any code they developed themselves, or that third parties developed on their behalf and that they could disclose their code to whomever they wanted, just as long as they kept UNIX System V source code confidential, (Ex. 191 4-6.)

87. Similarly, Mr. DeFazio, who remained head of the overall AT&T/USL/Novell organization responsible for UNIX software until 1997, made sure licensees understood they could do as they wished with their original works, even if they might have been included in a modification or derivative work of UNIX System V, and that AT&T and USL had no interest in maintaining the confidentiality of code their customers developed, (Ex. 183 4-5.)

88. In addition to dealing with licensees on a daily basis regarding the Agreements, AT&T and USL communicated with their licensees at users conferences, such as USENIX (an organization that supports the development of UNIX variants), and in other public presentations. Representatives of AT&T and USL emphasized that their licensees, including IBM and Sequent, could do as they wished with their own original material. (Ex. 255 6-7.)


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89. AT&T and its representatives intended for their licensees to rely upon their statements and assurances about what licensees could and could not do with their original works. (Ex. 183 6; Ex. 191 7; Ex. 250 4-5; Ex. 271 5; Ex. 276 4-5;.)

90. Taking Mr. Wilson and his colleagues at their word, IBM, Sequent and other UNIX licensees exercised ownership and control over their original works, despite the fact that those works had been part of a modification and derivative work of UNIX System V or had been associated in some respect with UNIX System V code, such as by publicly disclosing them. (Ex. 508; Ex. 509; Ex. 510; Ex. 511; Ex. 512; Ex. 559; Ex. 560; Ex. 561; Ex. 562; Ex. 563; Ex. 564; Ex. 565; Ex. 566; Ex. 567; Ex. 568; Ex. 569; Ex. 570; Ex. 571.)

91. For example, IBM publicly disclosed -- in open and candid fashion -- code, methods and concepts of AIX in AIX Operating-System: Programming Tools and Interfaces (1989) (Ex. 560). IBM also disclosed AIX methods and concepts in patent applications and in the resulting patents, such as Patent No. 4,742,447 (Ex. 509), Patent No. 4,742,450 (Ex. 510), Patent No. 4,918,653 (Ex. 511), and Patent No. 5,032,979 (Ex. 512).

92. Mr. Wilson, his staff, and other AT&T representatives were aware and understood that AT&T's licensees were exercising ownership and control over, and disclosing, code, methods and concepts from their flavors of UNIX, including AIX and Dynix. At no point did AT&T or USL take any steps to preclude their licensees from doing as they wished with their original works. (Ex. 183 6-7; Ex. 191 8; Ex. 250 6-7; Ex. 271 5-6; Ex. 276 6-7.)

93. Based on their understanding of the Agreements, the representations of AT&T representatives and AT&T's failure to take any action to preclude licensees from doing as they


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wished with their original works, IBM and Sequent (like other licensees) continued to develop their flavors of UNIX. (Ex. 257 3-10; Ex. 310 at 29:8-31:5, 56:11-57:5, 62:20-63:17, 119:16-120:2, 127:15-128:1.)

94. SECTION REDACTED

During this time, Sequent likewise invested heavily in the development and marketing of Dynix and wrote millions of lines of original source code. (Ex. 257 10; Ex. 252 at 67:21-68:11; 97:25-98:20, 140:12-21; Ex. 181, Ex. G; Ex. 596 3-4.)

95. Neither IBM nor Sequent would have invested in AIX and Dynix as they did if they had believed that AT&T or its successors, instead of IBM and Sequent owned and had the right to control IBM's or Sequent's original works, whether or not they were part of a modification or derivative work of UNIX System V. (Ex. 257 6; Ex. 295 at 27:2-25.)

J. Wide Availabilty of UNIX Information.

96. Over the years, AT&T made the source code to its UNIX operating systems available to many thousands of persons and entities, without necessarily requiring that the code be kept confidential. AT&T's view was that a large number of UNIX-knowledgeable programmers would help foster the adoption of UNIX System V as an industry standard within the information technology marketplace. (Ex. 182 37; Ex. 281 33-37.)

97. Because AT&T and USL intended to distribute the UNIX System V source code and related information widely, they understood that it would be difficult to require that the code and related information be kept confidential. (Ex. 182 36, Ex. 189 35-36; Ex. 279 9; Ex. 281 29.)


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98. AT&T licensed its UNIX source code to universities worldwide on very favorable terms, to encourage use by professors and students alike. AT&T sought to promote the widespread adoption of UNIX operating systems by ensuring that UNIX System V ideas, concepts, know-how, methods, and techniques would be widely known and understood by future programmers. (Ex. 182 36-37; Ex. 281 34.)

99. AT&T knew that some universities made the source code available to individual students who were not bound by confidentiality obligations. AT&T also knew that such students often took copies of the source code with them when they graduated. AT&T's practice was not to take action regarding such breaches of the license agreements unless the students sought to commercialize the software, in which case it would require the students to enter into license agreements and pay royalties. (Ex. 281 34.)

100. AT&T's commercial licensing practices also resulted in the wide availability of UNIX source code. AT&T licensed the source code to hundreds of licensees, who in turn (with AT&T's permission) made it available to tens of thousands of individuals, such as professional software developers that AT&T knew would become knowledgeable about its source code. (Ex. 281 33.)

101. AT&T expressly granted IBM the right to disclose UNIX System V ideas, concepts, know-how, methods, and techniques embodied in UNIX System V (Ex. 122 9) and then afforded the same right to its licensees, which AT&T endeavored to hold to the same standard (Ex. 281 13-17). At approximately the same time, AT&T "abandoned" (to use Mr. Wilson's term) an early interest in protecting the methods and concepts of its UNIX operating systems. (Ex. 346 at 62:23-25, 84:8-13, 86:4-18, 264:8-265:8.)


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102. In an effort to make UNIX an "open" operating system, meaning that customers would not be locked in with a particular hardware vendor or a particular operating system vendor, AT&T itself published information concerning the interface of the operating system. For example, AT&T published a System V Interface Definition ("SVID"), which provided a complete interface specification that could even be used by AT&T's competitors to develop independently their own UNIX-like operating systems. (Ex. 281 36; Ex 182 37.)

103. AT&T and its successors authorized, or at least did not prevent, the publication of hundreds, if not thousands, of books, articles, internet web-sites and other materials regarding UNIX, many of which provide detailed information regarding the design and implementation of the UNIX operating system. (Ex. 181 58-59 & Ex. E; Ex. 281 37-38; 182 37-38.)

104. Between 1985 and 1996, AT&T Capital Corporation, then a subsidiary of AT&T, sold thousands of used or discontinued AT&T computer systems, hundreds of them from Bell Labs, without imposing any confidentiality restrictions on the purchasers. Some of the computers included UNIX System V, Release 3, and Release 4 source code. (Ex. 174 10-16; Ex. 223 4-10; Ex. 253 3-5; Ex. 281 39; Ex. 189 32.)

105. AT&T recognized that its goal of promoting the widespread adoption of UNIX System V was inconsistent with its general desire to preserve the confidentiality of the source code. However, AT&T was more concerned with promoting the widespread adoption of UNIX System V, and collecting the associated royalties, than it was with protecting the confidentiality of its source code. (Ex. 281 35; Ex. 190 25.)

106. The code, methods, and concepts of UNIX System V are available without restriction to the general public within the meaning of 7.06(a), as the provision was intended by


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AT&T. (Ex. 181 58-59 & Ex. E; Ex. 122 14; Ex. 125 2; Ex. 207 11-13; Ex. 281 33-39; Ex. 219.)

K. Development of the Linux Operating System.

107. In 1991, an undergraduate student at the University of Helsinki, named Linus Torvalds, set out to create a new, free operating system, which later became known as "Linux". (Ex. 272 3; Ex. 398 at 1-5.)

108. Torvalds began developing the core of the operating system, known as the "kernel", and some months later posted news of his project to Internet newsgroups, inviting volunteers to assist him in his offorts. (Ex. 398 at 1-5; Ex. 272 4.)

109. With the Internet providing for a distributed collaboration, other programmers joined to create code making up the kernel. (Ex. 398 at 1-5; Ex. 272 5.) Torvalds directed the collaboration to a version 1.0 release of the Linux kernel in 1994 and has continued to maintain the kernel development since. (Ex. 398 at 1-5; Ex. 272 5.)

110. In the years that followed, thousands of developers, including developers at SCO, contributed to the further development of Linux, (See Ex. 5 45; Ex. 364 (identifying SCO contributions to Linux); Ex. 105 at 15, 22, 26; Ex. 194 5.)

111. Linux is an "open source" program, which means, among other things, that its source code is publicly available, royalty-free, and users have the freedom to run, copy, distribute, study, adapt, and improve the software. (Ex. 5 22; Ex. 272 6; Ex. 221 7; Ex. 64 8.)

112. Linux not only adheres to open standards, but also is built and maintained by a worldwide group of engineers who share the common goal of making open systems and open


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source ubiquitous. (Ex. 106 at 3; Ex. 272 7; Ex. 221 8.) Anyone can freely download Linux and many Linux applications and modify and re-distribute them with few restrictions. (Ex. 107 at 5; Ex. 272 8; Ex. 221 9.)

113. The Linux kernel is distributed under the GNU General Public License ("GPL"). The GPL provides that a person receiving code under the GPL "may copy and distribute verbatim copies of the Program's source code" and "modify [their] copy or copies of the Program or any portion of it". (Ex. 272 9; Ex. 128 1, 2; Ex. 107 at 24; Ex. 221 10.) The GPL also provides that a person receiving code under the GPL receives "a license from the original licensor to copy, distribute or modify the Program". (Ex. 128 6.)

L. USL and Novell.

114. At approximately the same time Mr. Torvalds began the development of Linux, Novell acquired (in 1991) an interest in USL, which held all of AT&T's UNIX-related assets, including AT&T's UNIX licensing agreements and copyrights. (Ex. 5 10; Ex. 182 8.) In 1993, Novell acquired all of the UNIX assets held by USL. (Ex. 240 9.)

115. As an owner of AT&T's UNIX assets, Novell assumed AT&T's rights and obligations under its UNIX licenses, including AT&T's UNIX licensing agreements with IBM and Sequent. Like AT&T and USL before it Novell managed UNIX licensing agreements by, among other things, interpreting, explaining, and enforcing their terms. (Ex. 240 10.)

116. In acquiring AT&T's rights to the Agreements, Novell understood them to place restrictions on the extent to which AT&T's licensees could use UNIX System V. Novell did not understand the UNIX licenses to confer on AT&T or Novell (as AT&T's successor) any rights to the code, methods or concepts of AT&T's and Novell's licensees - whether or not the


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licensees' code, methods or concepts were or had been part of a modification or derivative work of AT&T's UNIX software product. (Ex. 240 11-23.)

117. Novell understood that UNIX licensees could do as they wished with any non-UNIX portions of their modifications and derivative works of the UNIX software product. That is how Novell understood its own UNIX license with AT&T. AT&T made it clear to Novell, and Novell to AT&T, that Novell, as an AT&T licensee, could do as it wished with its own code, methods, and concepts. AT&T stated that it asserted no rights to Novell material, even if included in a modification or derivative work of UNIX software. (Ex. 240 11-23.)

118. Novell shared its view of its licenses with its new (and AT&T's former) licensees, with whom Novell (like AT&T) had frequent dealings. Like AT&T, Novell intended for its licensees to rely on its statements and assurances about what licensees could do and not do with their original works. (Ex. 183 5-6; Ex. 240 11-23.)

119. Novell representatives made clear to Novell's licensees, including IBM and Sequent, that Novell asserted no rights to the licensees' code, methods and concepts and that they could do with them as they wished, whether or not they were included in modifications or derivative works of UNIX software products. To the extent Novell ever had any right to its licensees' code, methods, and concepts, Novell relinquished it. (Ex. 240 11-23.)

120. Just as they had before Novell acquired USL, IBM, Sequent and other UNIX licensees exercised ownership and control over their original works, despite the fact that those works were (or had been) part of a modification and derivative work of UNIX System V or were (or had been) associated in some respect with UNIX System V, such as by publicly disclosing them. (Ex. 561; Ex. 562; Ex. 563; Ex. 567; Ex. 568; Ex. 569; Ex. 571)


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121. Put differently, Novell's UNIX licensees publicly disclosed code, methods, and concepts from their flavors of UNIX after Novell acquired AT&T's UNIX assets. (Ex. 561; Ex. 562; Ex. 563; Ex. 567; Ex, 568; Ex. 569; Ex. 571.)

122. For example, IBM published The Advanced Programmer's Guide to AIX 3.x, which contained source code, methods and concepts from AIX (Ex. 493), and disclosed AIX methods and concepts in patent applications and issued patents including Patent No. 5,202.971 (Ex. 567), Patent No. 5,175,852 (Ex. 495), Patent No. 5,421,011 (Ex. 496), and Patent No. 5,428,771 (Ex. 497). Likewise, Sequent disclosed methods and concepts in patent applications and issued patents including Patent No. 5,442,758 (Ex. 498), and Patent No. 5,185,861 (Ex. 499).

123. IBM and Sequent were not alone in disclosing the code, methods, and concepts of their flavors of UNIX. For example, Sun Microsystems, Inc. ("Sun") disclosed source code from Solaris, its UNIX flavor, in Solaris Porting Guide (1995) (Ex. 561 at 228), and Solaris Multithreaded Programming Guide (Ex. 562).

124. Like AT&T and USL before it, Novell was aware and understood that its licensees were exercising their full rights of ownership and disclosing the code, methods and concepts of their flavors of UNIX. (Ex. 183 6-7; Ex. 250 � 6-7; Ex. 271 5-6; Ex. 276 6-7.) Yet, Novell took no steps to stop its licensees from doing as they wished with their original works. (Ex. 183 6-7; Ex. 250 6-7; Ex. 271 5-6; Ex. 276 � 6-7.)

125. Based on its understanding of the Agreements, the statements of Novell representatives and Novell's failure to take any action to preclude licensees from doing as they wished with their original works, IBM continued to develop its flavor of UNIX. Similarly,


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Sequent, having received no indication of a different interpretation of the Agreements from Novell, continued to develop its own Dynix operating system. (Ex. 257 3-5; Ex. 252 at 67:21-68:11; 97:25-98:20, 140:12-21; Ex. 596 24.)

126.
SECTION REDACTED
Sequent likewise invested tens of millions of dollars in the development and marketing of Dynix and wrote millions of lines of original source code. (Ex. 257 10; Ex. 252 at 67:21-68:11; 97:25-98:20, 140:12-21; Ex. 181, Ex. G, Ex. 596 3-4.)

127. Neither IBM nor Sequent would have continued to invest in AIX and Dynix as they did if they had believed that Novell (instead of IBM and Sequent) owned and had the right to control their original works, whether or not they were included in a modification or derivative work of UNIX System V. (Ex. 257 6; Ex. 295 at 27:2-25).)

M. Formation of SCO.

128. After Novell announced the termination of a project related to Linux, members of Project Corsair (as it was known) left Novell to form Caldera, Inc. ("Caldera), a predecessor of SCO, in 1994. (Ex. 107; Ex. 440; Ex. 193 6; Ex. 221 16.)

129. Caldera was formed to develop and market software based on the Linux operating system and to provide related services enabling the development, deployment, and management of Linux-specialized servers. (Ex. 221 17; Ex. 107 at 6, 31; Ex. 193 7; 242 6.) In fact Caldera was the first company to invest heavily in the establishment of Linux as an acceptable business solution. (Ex. 221 18; Ex. 441.)


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130. Caldera continued the work done by Novell on Project Corsair to develop a Linux desktop operating system and eventually delivered a product called "Caldera Network Desktop" in 1995, (Ex. 221 19; Ex. 440; Ex. 107 at 8; Ex. 283 at 33; Ex, 193 8; Ex. 242 7.)

131. Caldera also made code contributions to Linux and helped and encouraged independent software vendors and manufacturers to port their programs to its Linux products in an attempt to provide the types of software that had been unavailable for Linux to that time. (Ex. 440; Ex. 442; Ex. 221 31.)

132. To facilitate the porting of Linux to the existing applications in the market that were written primarily for UNIX-based operating systems, Caldera worked on making its Linux, products compliant with various UNIX standards, including the X/Open brand for UNIX 95, and the POSIX.1 specification. (Ex. 221 32; Ex. 442.)

133. To achieve compliance with UNIX standards with its Linux products, Caldera hired software developers that had both UNIX and Linux experience to work on making Linux compliant with UNIX standards. (Ex, 221 35; Ex. 442.)

N. Novell and Santa Cruz Share UNIX Interests.

134. In 1995, as Caldera was beginning its Linux business, Novell entered negotiations with The Santa Cruz Operation, Inc. ("Santa Cruz") concerning the sale of certain Novell assets relating to its UNIX and UnixWare software products. (Ex. 239 4; Ex. 123.)

135. On September 19, 1995, Novell and Santa Cruz executed an Asset Purchase Agreement ("APA"). (Ex. 239 5.) The parties entered into two Amendments to the APA: Amendment No. 1 on December 6, 1995, and Amendment No. 2 on October 16, 1996. (Ex. 239 6; Ex. 502; Ex. 444, Ex. 123.)


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136. Santa Cruz did not have the financial capacity to pay the purchase price contemplated by Novell for its UNIX assets. (Ex. 182 43; Ex. 254 10; Ex. 239 8.) To bridge the price gap and consummate the transaction, Novell and Santa Cruz agreed that Novell would receive Santa Cruz stock and retain certain UNIX rights. (Ex. 123; Ex. 239 8.)

137. Under the APA and its Amendments, Santa Cruz obtained a variety of assets, including hundreds of contracts and licenses, various trademarks, source code and binaries to UnixWare products, and physical assets such as furniture and personal computers. (Ex. 123; Ex. 444; Ex. 502; Ex. 239 7.)

138. Novell retained the right to receive royalty payments under System V Release X ("SVRX") licenses, prior approval rights relating to new SVRX licenses, and amended SVRX licenses, the right to direct Santa Cruz to take certain actions relating to SVRX licenses and the right to conduct audits of the SVRX license programs. (Ex. 123 4.16; Ex. 239 8.)

139. Santa Cruz assumed responsibility for administering the collection of royalty payments from SVRX licenses. The APA provided that Santa Cruz would collect and pass through to Novell 100% of the SVRX royalties. In return, Novell agreed to pay Santa Cruz an administrative fee of 5% of those royalty amounts. Santa Cruz also agreed to pay additional royalties relating to other products. (Ex. 123 4.16(a); Ex. 239 9.)

140. As specified by Section V.A of Schedule 1.1(b) of the APA, it excluded from the transfer and Novell retained "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare". Amendment No. 2 to the APA addressed copyrights but did not effect the transfer of any copyrights to Santa Cruz. (Ex. 123 1.1(b); Ex. 444, Ex. 239 10.)


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141. Novell also retained rights to supervise Santa Cruz's administration of SVRX licenses. (Ex. 239 11.) Section 4.16(b) of the APA provides that:

Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf (Ex. 123 4.16(b).)

142. Novell, therefore, retained the "sole discretion" to direct Santa Cruz to amend, supplement, modify, waive, or assign any rights under or to the SVRX licenses; if Santa Cruz fails to take any such action, the APA specifically granted Novell the right to take these actions on behalf of Santa Cruz. (Ex. 123 4.16(b); Ex. 239 8) Santa Cruz recognized this right in Amendment X to IBM's Software and Sublicensing Agreements, to which Novell was a party, and which noted that Novell retained... certain rights with respect to" the agreements IBM entered into with AT&T, including "Software Agreement SOFT-00015 as amended" and "Sublicensing Agreement SUB-00015A as amended". (Ex. 124 at 1.)

143. While Novell and Santa Cruz shared ownership of AT&T's UNIX assets (from 1995 to 2001), representatives of Novell and Santa Cruz told SVRX licensees that they could do as they wished with their original code. They told licensees they were free to do as they wished with their own code, modifications and derivative works, so long as the code, modifications, and derivative works did not contain System V code. (Ex. 227 8-11; Ex. 266 6-13.)

144. IBM, Sequent and other SVRX licensees continued to use the non-SVRX portions of their flavors of UNIX as they wished. (Ex. 564; Ex. 565.)


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145. For example, IBM publicly disclosed AIX methods and concepts in AIX/6000: Internals and Architecture (1996), which included an entire chapter on the Journaled File System (Ex. 503 at 55-65), and Hewlett-Packard disclosed the methods and concepts behind the Journaled File System in its version of UNIX called HP-UX in a book titled HP-UX: Tuning and Performance (2000) (Ex. 565).

146. Representatives of Novell and Santa Cruz were aware and understood that its licensees were exercising their full rights of ownership and disclosing the code, methods and concepts of their flavors of UNIX. Neither company took any steps to preclude them from doing as they wished with their original works. (Ex. 183 6-7; Ex. 250 6-7; Ex. 271 5-6; Ex. 276 6-7; Ex. 227 8-11.)

147. Santa Cruz representatives, including David McCrabb, the President of Santa Cruz's Server Software Division, told System V licensees that they were free to do as they wished with their own code, modifications and derivative works, so long as the code, modifications, and derivative works did not contain System V code. Santa Cruz representatives, including Mr. McCrabb, told licensees that it interpreted the license agreements in this manner. (Ex. 227 8.)

148. Based on its understanding of the Agreements, the representations of Novell and Santa Cruz representatives and Novell's failure to take any action to preclude licensees from doing as they wished with their original works, IBM continued to develop its flavor of UNIX. Similarly, Sequent, having received no indication of a different interpretation of the Agreements from Santa Cruz, continued to develop its own Dynix operating system. (Ex. 257 3-5; Ex. 252 at 67:21-68:11; 97:25-98:20, 140:12-21; Ex. 596 2-5.)


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149.
SECTION REDACTED
Up to the time it was acquired by IBM, Sequent likewise invested tens of millions of dollars in the development and marketing of Dynix and wrote millions of lines of original source code. (Ex. 257 10; Ex, 596 2-4.)

150. Neither IBM nor Sequent would have continued to invest in AIX and Dynix as they did if they had believed that Novell or Santa Cruz (instead of IBM and Sequent) owned and had the right to control their original works, whether or not they were part of a modification and derivative work of UNIX System V. (Ex. 257 6; Ex. 596 3-4.)

O. SCO's Promotion of Linux and Acquisition of UNIX.

151. While Novell and Santa Cruz shared an interest in UNIX System V software and related assets, Caldera continued to develop and promote Linux. (Ex. 106 at 2-5.)

152. To expand and enhance its Linux business, Caldera acquired the Server Software and Professional Services divisions of Santa Cruz and its UNIX-related assets on May 7, 2001. (Ex. 106 at 16; Ex. 221 80.)

153. Caldera purchased the UNIX assets of Santa Cruz with an eye toward open-sourcing the UNIX technology to improve Linux. (Ex. 221 85; Ex. 471.) Because the UNIX assets were rapidly losing their value and because the market was moving toward Linux, Caldera's CEO, Ransom Love, stated that "UNIX is dead, except as a value add to Linux". (Ex. 221 85; Ex. 472.)

154. Although Caldera ultimately did not contribute all of its UNIX assets to Linux and distributed certain UNIX products, Caldera positioned its Linux products ahead of its UNIX products. (Ex. 340 at 31;20-25, 33:12-25, 34:1-12; 55:4-15; Ex. 472.)


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155. At the time Caldera acquired Santa Cruz's UNIX assets, Santa Cruz did not believe it was selling, and Caldera did not believe it was buying, the right to control what all UNIX System V licensees could do with their original works. (Ex. 227 37-38; Ex. 221 107-09.)

P. SCO's Distribution of the Disputed Material.

156. In May 2002, SCO formed a partnership, known as UnitedLinux, with three other Linux distributors, to streamline Linux development and certification around a global, uniform distribution of Linux designed for business. (Ex. 348; Ex. 221 94-96.)

157. In a November 2002 launch event co-sponsored by IBM, UnitedLinux released its first Linux distribution, "UnitedLinux Version 1.0". (Ex. 407.) In January 2003, IBM joined UnitedLinux as a technology partner to, among other things, help promote the recently released product. (Ex. 408.) UnitedLinux Version 1.0 was marketed and sold by each of the partners in UnitedLinux under its own brand name. (Ex. 407.) SCO's release of UnitedLinux was called "SCO Linux 4". (Ex. 349.)

158. SCO Linux4 included the very code and technologies that SCO claims IBM improperly contributed to Linux. (See Ex. 33 at 43; Ex. 44 at 3-22.) This material includes JFS (Item 1), RCU (Item 2) and certain "negative know how" (Items 23 and 90). (See id.) For the remaining Items of allegedly misused material, SCO indicates that it has "not presently determined" whether the material is included in its UnitedLinux distribution. (Id.)

159. In its Revised Response to IBM's interrogatories, SCO stated that the allegedly misused material "is included in any product that contains the Linux kernel 2.4 and above, which is sold or distributed by hundreds of entities around the world", including by SCO. (Ex. 33


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43.) In particular, SCO conceded that its "SCO Linux Server 4.0" Products contain such code. (Id.)

160. Although not identified by SCO in its interrogatory responses, SCO's earlier Linux distributions also contain code SCO claims IBM improperly contributed to Linux. (See Ex. 350; Ex. 351.) Among other products, SCO's "OpenLinux Server 3.1.1 " and "OpenLinux Workstation 3.1.1" products, which were released in January 2002, both include the Linux 2.4 kernel. (See Ex. 350 at 2; Ex. 351 at 2; Ex. 296 at 16:18-23.)

161. In fact, SCO specifically advertised to its customers that its distributions of Linux included some of the very technology it now complains IBM should not have contributed to Linux. (See Ex. 350; Ex. 351; Ex. 352; Ex. 396; Ex. 353.)

162. For example, in its product announcements for OpenLinux Server 3.1.1 and OpenUnix Workstation 3.1.1, SCO specifically advertised that the products included new features such as "journaling file system support". (Ex. 350 at 2; Ex. 351 at 2.)

163. Similarly, in its November 2002 product announcement for "SCO Linux Server 4.0", which was based on UnitedLinux Version 1.0, SCO noted that "[t]he core of SCO Linux Server 4.0 is the 2.4.19 Linux kernel. New features include broadened USB support, Logical Volume Manager, improved journaling file system support". (Ex. 352 (emphasis added).)

164. Likewise, SCO's Technical Overview of SCO Linux 4.0 emphasized that its product included "JFS (Journaling File System Developed by IBM)". (Ex. 396 (emphasis added).)

165. Although SCO claims to have "discontinued" distributing any products containing the source code it claims IBM should not have disclosed, it continued to do so after it


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filed this lawsuit. (See Ex. 44; Ex. 45; Ex. 296 at 92:1-22; 353; 33 at Tab 121; Ex. 505; Ex. 486.)

166. For example, SCO released its "SCO Linux Server 4.0 for the Itanium Processor Family" distribution on April 14, 2003, after SCO filed its original Complaint. (See Ex. 353; Ex. 1.) In the product announcement, SCO touted the new features of this release, including "improved journaling file system support". (Ex. 353 at SCO1269793.)

167. SCO has also produced invoices and other documentation reflecting SCO's continued distribution of its OpenLinux 3.1.1 and Linux Server 4.0 products until at least January 2004. (See Ex. 33 at Tab 121; Ex. 505; Ex. 296; Ex. 486.)

168. Moreover, SCO made available to the public as recently as the end of 2004 the Linux. 2.4 kernel for download from its website. (See Ex. 45 at 3; Ex. 167 11.) The version of Linux available from SCO's website includes code SCO claims IBM disclosed in violation of its contracts. (See Ex. 44; Ex. 45; Ex. 33 at 43; Ex. 167 5, 11.)

169. In addition, SCO has admitted that it made available to the public for download material that SCO claims IBM improperly contributed to Linux. (See Ex. 44 at 3-22.) This material includes JFS (Item 1), RCU (Item 2) and certain "negative know how" (items 23 and '90). (See id.) For the remaining Items of allegedly misused material, SCO indicates that it has "not presently determined" whether it made the material available to the public for download. (Id.)

170. SCO distributed source code for the Linux. 2.4 kernel, which is contained in SCO's OpenLinux Server 3.1.1, OpenLinux Workstation, and Linux Server 4.0 products, under


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the terms of the GPL. (Ex. 128; Ex. 296 at 75:9-12.) The terms of the GPL permit licensees freely to use, copy, distribute and modify whatever code is provided thereunder. (Ex. 128.)

Q. SCO's Litigation.

171. Following its acquisition of Santa Cruz's UNIX assets, Caldera was unable to make a profit, switched management, changed its name to SCO, and adopted a new business model focused on litigation. (See, e.g., Ex. 1; Ex. 141; Ex. 142; Ex. 423; Ex. 427.)

172. SCO filed its original Complaint, which featured a claim for the misappropriation of trade secrets, on March 6, 2003. (Ex. 1.) In that Complaint SCO, among other things, alleged that IBM had breached its UNIX System V license by "subject[ing] SCO's UNIX trade secrets to unrestricted disclosure, unauthorized transfer and disposition, unauthorized use, and has otherwise encouraged others in the Linux development community to do the same". (Id. 135.)

173. In the Complaint SCO did not identify with any specificity what "UNIX trade secrets" it claimed were at issue. (See Ex. 1.) SCO instead described its trade secrets only as "unique know how, concepts, ideas, methodologies, standards, specifications, programming, techniques, UNIX Software Code, object code, architecture, design and schematics that allow UNIX to operate, with unmatched extensibility, scalability, reliability and security". (Id. 105.) SCO did not identify any specific UNIX code upon which it based its claim. (See id.)

174. SCO filed an Amended Complaint on July 22, 2003. (Ex. 2.) The Amended Complaint did not identify in any greater detail the trade secrets allegedly misappropriated by IBM. (See id.) Again, SCO described its trade secrets only as "unique know how, concepts, ideas, methodologies, standards, specifications, programming, techniques, UNIX Software Code,


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object code, architecture, design and schematics that allow UNIX to operate with unmatched extensibility, scalability, reliability and security". (Id. 161.)

175. SCO thereafter sought, and was granted, permission to file a Second Amended Complaint. (Ex. 3.) In its Second Amended Complaint, filed on February 27, 2004, SCO abandoned its claim for misappropriation of trade secrets altogether. (See id.) In fact, at a hearing on December 5, 2003, SCO acknowledged that there are in fact no trade secrets in UNIX System V. Counsel for SCO stated: "There is no trade secret in UNIX system [V]. That is on the record. No problem with that." (Ex. 414 at 46:2-3.)

176. In its Second Amended Complaint SCO asserts four separate breach of contract claims, all of which rest on the underlying allegation that IBM breached its licenses for the UNIX System V software product. (Ex. 3 110-72.)

177. SCO's First and Third Causes of Action allege that IBM misused source code subject to the IBM and Sequent Software Agreements by contributing such code to Linux. (Ex. 3 110-36,143-66.) Specifically, SCO alleges that IBM and Sequent breached Sections 2.01, 2.05, 4.01, 6.03, 7.06(a) and 7.10 of the Software Agreements. (Ex. 3 112-25.)

178. SCO's claims rest on the proposition that "[t]he AIX work as a whole and the Dynix/ptx work as a whole are modifications of or are derived from [UNIX] System V". (Ex. 132 at 2.) Under SCO's theory of the case, all of the tens of millions of lines of code ever associated with any technology found in AIX or Dynix, even if that code does not contain any UNIX System V code, is subject to the restrictions of the IBM and Sequent Software Agreements. (See id.)


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179. SCO made this position clear in its opposition to IBM's motion for partial summary judgment on IBM's Tenth Counterclaim. (Ex. 64.) In that brief, SCO argued: "SCO's contract claims do not depend on any proof that IBM contributed original source code from UNIX to Linux. Rather, the theory of SCO's case -- which is based on the plain, unambiguous meaning of the Software Agreements -- is that IBM breached those agreements by contributing code from AIX and Dynix." (Id. 21.)

180. SCO's Second and Fourth Causes of Action allege that IBM breached the IBM and Sequent Sublicensing Agreements by continuing to distribute AIX and Dynix after SCO's purported termination of those agreements on June 13, 2003. (See Ex. 3 137-42, 167-72.)

181. These two causes of action ultimately depend on SCO's allegation that IBM "fail[ed] to fulfill one or more of its obligations under the Software Agreement[s]". (Ex. 3 128, 158.) SCO contends that because IBM breached the IBM and Sequent Software Agreements, SCO had the right unilaterally to terminate the IBM and Sequent Sublicensing Agreements. (See id.) Absent breach of the Software Agreements, therefore, there is no breach of the Sublicensing Agreements.

182. The construction and performance of the IBM and Sequent Software Agreements and the IBM and Sequent Sublicensing Agreements are governed by New York law. (See Ex. 492 7.13; Ex. 119 7.13; Ex. 120 6.05; Ex. 121 6.05.)

R. SCO's Touting and Obfuscation.

183. From the beginning of this litigation, SCO has touted its claims and the strength of its alleged evidence. (See, e.g., Ex. 367; Ex. 368; Ex. 369.)


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184. According to SCO, the issues presented here are the most important issues faced by the software industry in ten years and the future of the industry -- indeed, the future of the global economy -- hangs in the balance:

a. In an article for Salon.com, Sam Williams quotes SCO's CEO Darl McBride as saying, in reference to this case: "There really is no middle ground ... The future of the global economy hangs in the balance." (See Ex. 370.)

b. In an article from KSL.com, Jed Boal quotes McBride as saying, in reference to this case: "It has become the biggest issue in the computer industry in decades ... The stakes are extremely high. The balance of the software industry is hanging on this." (See Ex. 371.)

185. SCO's public statements concerning its alleged evidence are no less grandiose:

a. In an interview with CNet News.com in August 2003, McBride claimed that SCO had found a "mountain of code" improperly contributed to Linux. (See Ex. 367.)

b. In a teleconference with analysts and reporters on May 30, 2003, McBride stated: "Everybody's been clamoring for the code - show us two lines of code. We're not going to show two lines of code, we're going to show hundreds of lines of code. And that's just the tip of the iceberg of what's in this." (See Ex. 368)

c. In an interview in LinuxWorld.com, McBride claimed that a "truckload of code, was improperly contributed to Linux (See Ex. 372.)


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d. In July 2003, in an interview with Business Week, McBride stated that the amount of LINUX code infringing on SCO's intellectual property rights is "gargantuan". (Ex. 480.)

e. On August 18, 2003, at its SCO Forum in Las Vegas, SCO, through its Senior Vice President Chris Sontag, stated that it had uncovered more than a million lines of improperly copied UNIX code in Linux. (Ex. 383.)

186. At the same time, SCO refused to disclose the particulars of its claims and alleged evidence. (See Ex. 32; Ex. 33; Ex. 132; Ex. 34.) As a SCO representative stated, it was the company's strategy to obfuscate its alleged evidence. (See Ex. 374; Ex. 375.)

187. For example, SCO's counsel indicated in an interview with Maureen O'Gara of LinuxGram in March 2003, at the beginning of the case, that SCO "doesn't want IBM to know what they [SCO's substantive claims] are". (Ex. 374.)

189. Further, SCO Vice President Gregory Blepp stated in a published interview in April 2004 that "You don't put everything on the table at the start, but instead you bring out arguments and evidence piece by piece. (Ex. 375.)

S. Novell's Waiver of any Purported Breaches.

189. After SCO filed suit Novell sent a series of letters to SCO that explicitly waived the purported breaches of contract SCO has asserted IBM committed. (See Ex. 135; Ex. 136; Ex. 137; Ex. 138; Ex. 240 29.)

190. On October 7, 2003, in a letter from Joseph A. LaSala Jr. to Ryan Tibbitts, Novell directed SCO to waive any purported right to assert a breach of the IBM Software


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1 The undisputed and indisputable facts set forth in this motion are supported by the declarations and documents submitted herewith, including those appended to the Declaration of Todd M. Shaughnessy, which are cited herein as "Ex.___".

2 AIX 5.1.G for Power, for example, includes more than 160 million lines of source code. The vast majority of code in AIX and Dynix is original IBM code, written or created independent of AT&T's UNIX System V or any other third party code.

3 References to the memoranda in support of IBM's motions for summary judgment submitted herewith are cited as follows; IBM's motion for summary judgment on SCO's unfair competition claim as "UC.Br.__"; IBM's motion for summary Judgment on SCO's copyright claim as "Copyright Br.__"; IBM's motion for summary judgment on SCO's interference claims as "Interference Br.__"; IBM's motion for summary judgment for copyright infringement (IBM's Eighth Counterclaim) as "AIX Br.__"; and IBM's motion for summary judgment for a declaration of non-infringement (IBM's Tenth Counterclaim) as "Non-Infringement Br.__".



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

PART II

Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 135; Ex. 240 30.) The letter states:

[P]ursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to require IBM to treat IBM Code itself as subject to the confidentiality obligations or use restrictions of the Agreements. Novell directs SCO to take this action by noon, MST, on October 10, 2003, and to notify Novell that it has done so by that time.

(Ex. 135; Ex. 240 32.)

191. In the letter, Novell informed SCO that its position that IBM's own homegrown code "must be maintained as confidential and subject to use restrictions is contrary to the agreements between AT&T and IBM, including Amendment X, to which Novell is a party". (Ex. 135; Ex. 240 33.)

192. According to Novell, the agreements between AT&T and IBM provide "a straightforward allocation of rights":

(1) AT&T retained ownership of its code from the Software Products ('AT&T Code'), and the Agreements' restrictions on confidentiality and use apply to the AT&T Code, whether in its original form or as incorporated in a modification or derivative work, but (2) IBM retained ownership of its own code, and the Agreements' restrictions on confidentiality and use do not apply to that code so long as it does not embody any AT&T Code.

(Ex. 135; Ex. 240 33.) Novell concluded that any other interpretation "would defy logic as well as the intent of the parties". (Ex. 135, Ex. 240 31.)

193. After SCO failed to follow Novell's instruction, on October 10, 2003, Novell expressly waived any purported right of SCO's to assert a breach of the IBM Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 136; Ex.240 34.) Novell states in its letter to SCO:


1

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to require IBM to treat IBM Code, that is code developed by IBM, or licensed by IBM from a third party, which IBM incorporated in AIX but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and IBM, itself as subject to the confidentiality obligations or use restrictions of the Agreements.

(Ex. 136; Ex. 240 34.)

194. Additionally, on February 6, 2004, in a letter from Mr. LaSala to Mr. Tibbitts, Novell further directed SCO to waive any purported right to assert a breach of the Sequent Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 137; Ex. 240 35.) The letter states:

[P]ursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to require Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license.

Novell directs SCO to take this action by noon, MDT, on February 11, 2004, and to notify Novell that it has done so by that time.

(Ex. 137.)

195. In the letter, Novell reiterated that SCO's reliance on Section 2.01 of the Software Agreement was misplaced, and stated that "SCO's interpretation of section 2.01 is plainly contrary to the position taken by AT&T, as author of and party to the SVRX licenses". (Ex. 137.)

196. After SCO failed to follow Novell's instruction, on February 11, 2004, Novell expressly waived any purported right of SCO to assert a breach of the Sequent Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 138; Ex. 240 36.) Novell states in its letter to SCO:


2

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to require Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license.

(Id.)

197. Novell also waived any purported right of SCO to terminate the IBM Sublicensing Agreement. (See Ex. 139; Ex. 140; Ex. 240 37-39.)

198. On June 9, 2003, in a letter from Jack L. Messman to Darl McBride, Novell informed SCO that under the terms of Amendment No. X, SCO did not have the right to terminate any of IBM's rights under the Sublicensing Agreement to distribute its AIX software program. (Ex. 139; Ex. 240 37.) The letter states:

Pursuant to Amendment No. X, however, Novell and SCO granted IBM the "irrevocable, fully paid-up, perpetual right" to exercise all of the rights under the IBM SVRX Licenses that IBM then held. IBM paid $10,125,000 for the rights under Amendment No. X. Novell believes, therefore, that SCO has no right to terminate IBM's SVRX Licenses, and that it is inappropriate, at best, for SCO to be threatening to do so.

(Ex. 139; Ex. 240 37.)

199. Novell further directed SCO to waive any purported right under its SVRX Licenses with IBM to terminate IBM's right to distribute AIX under the IBM Sublicensing Agreement:

[P]ursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM. Novell directs SCO to take this action by noon, MDT, June 12, 2003, and to notify Novell that it has done so by that time.

(Ex. 139; Ex. 240 38.)


3

200. After SCO failed to follow Novell's instruction, on June 12, 2003, Novell expressly waived any purported right of SCO to terminate IBM's rights under the IBM Sublicensing Agreement, (Ex. 140; Ex, 240 39.) Novell states in its letter to SCO:

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM.

(Ex. 140, Ex. 240 39.)

T. SCO's Failure to Substantiate Its Claims.

201. Following SCO's refusal to disclose the nature of its claims or its alleged evidence, IBM served interrogatories on SCO asking it to describe in detail its allegations and alleged evidence of misconduct by IBM. (Ex. 11.)

202. For example, IBM asked SCO to: "[p]lease identify, with specificity (by product, file and line of code, where appropriate) ... any confidential or proprietary information that plaintiff alleges or contends IBM misappropriated or misused". (Ex. 11 at Interrogatory No. 1.)

203. IBM asked SCO: "For ... any confidential or proprietary information identified in response to interrogatory No. 1, [to] please identify (b) the nature and source of [SCO's] rights". (See Ex. 11 at Interrogatory No. 2.)

204. At the same time, IBM also asked SCO to identify how IBM is alleged to have violated SCO's rights. IBM asked SCO: "For ... any confidential or proprietary information identified in response to Interrogatory No. 1, [to] please describe, in detail ... (a) the date of the alleged misuse or misappropriation; (b) all persons involved in any way in the alleged misuse or misappropriation; (c) the specific manner in which IBM is alleged to have engaged in misuse or


4

misappropriation; and (d) with respect to any code or method ... the location of each portion of such code or method in any product such as AIX, in Linux, in open source, or in the public domain." (Ex. 11 at Interrogatory No. 4.)

205. Moreover, IBM asked SCO to: "(1) identify with specificity all the material in Linux to which it claims rights; (2) detail the nature of its alleged rights, such as whether and how the material in which SCO claims rights derives from UNIX; and (3) state whether IBM has infringed SCO's rights and, if so, detail how IBM infringes SCO's alleged rights. (See Ex. 12 at Interrogatory No. 12.)

206. Further, IBM asked SCO: "For each line of code and other material identified in response to Interrogatory No. 12, [to] please state whether (a) IBM has infringed plaintiff's rights, and for any rights IBM is alleged to have infringed, describe in detail how IBM is alleged to have infringed plaintiff's rights". (Ex. 12 at Interrogatory No. 13.)

207. SCO did not provide IBM with all of the information it requested, and IBM twice moved to compel meaningful responses on October 1, 2003 and November 6, 2003. (Ex. 62; Ex. 63.)

208. Specifically, IBM asked the Court to require SCO to specify (1) all the material in Linux to which SCO claims rights (i.e., by kernel version X, file Y, and lines 1-2-3); (2) the nature of SCO's alleged rights, including whether and, if so, how the material derives from the UNIX software (i.e., if SCO asserts contract, copyright or some other right to the identified code, and how the Linux code identified derives from UNIX version A, file B, lines 4-5-6); and (3) whether IBM has infringed material to which SCO claims rights, and if so, the details of the alleged infringement (i.e., by copying Linux kernel version X, file Y, lines 1-2-3, which are

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copied or derived from UNIX version A, file B, lines 4-5-6; or by distributing Linux kernel version X, file Y, lines 1-2-3, the structure and sequence of which was copied from UNIX version A, file B, lines 7-8-9; or by inducing others to copy (or distribute) Linux kernel version X, file Y, lines 1-2-3, which are copied or derived from UNIX version A, file B, lines 4-5-6). (See Ex. 63.)

209. On December 12, 2003, the Court ordered SCO to provide this information on or before January 12, 2004. (See Ex. 55.) The Court ordered SCO to "identify and state with specificity the source code(s) that SCO is claiming form the basis of their action against IBM". (Ex. 55.)

210. In an order dated March 3, 2004, the Court reiterated its December 2003 order, compelling SCO again to provide meaningful responses to IBM's interrogatories, this time on or before April 19, 2004. (See Ex. 56.) Specifically, the Court required SCO to "fully comply within 45 days of the entry of this order with the Court's previous order dated December 12, 2003". (Ex. 56.) Thus the Court required SCO to "respond fully and in detail to Interrogatory Nos. 12 and 13 as stated in IBM's Second Set of Interrogatories [which require SCO to specify (1) the material in Linux to which SCO claims rights; (2) the nature of SCO's alleged rights including whether and, if so, how the material derives from UNIX; and (3) whether IBM has infringed material to which SCO claims rights and, if so, the details of the alleged infringement]." (Ex. 55.)

211. Despite the Court's orders, SCO again did not produce the information requested by IBM. (See Ex. 132.) While SCO identified more materials in Linux to which it claimed rights (albeit without the particularity ordered by the Court and without an adequate explanation as to why it did not provide all of these materials in response to the Court's first order), SCO still


6

did not detail the nature of its alleged rights or describe in detail how IBM was alleged to have infringed SCO's rights. (See Ex. 132.)

212. Despite the Court's order, SCO did not identify a single version, file, or line of System V code, methods, or concepts allegedly misused by IBM. SCO did not identify a single version, file, or line of AIX or Dynix code, methods or concepts allegedly misused by IBM. And, SCO did not link a single line of allegedly misused Linux code to any version, file, or line of AIX, Dynix or System V code. (See Ex. 132.)

213. Based on SCO's continued failure to comply, IBM moved on May 18, 2004 for partial summary judgment. (Ex. 65 at 27.)

214. On February 8, 2005, the Court expressed astonishment at SCO's failure of proof, but deferred a decision on the merits of IBM's summary judgment motion until after the close of discovery. (Ex. 57 at 10.)

215. The Court set October 28, 2005 as the "Interim Deadline for Parties to Disclose with Specificity All Allegedly Misused Material" and December 22, 2005 as the "Final Deadline for Parties to Identify with Specificity All Allegedly Misused Material". (Ex. 58 at 4.) The Court required SCO "to Update Interrogatory Reponses Accordingly". (Ex. 58 at 4; Ex. 418 at 56.)

U. SCO's Interim and Final Disclosures.

216. On October 28, 2005, pursuant to the Court's July 1, 2005, scheduling Order, SCO served its Interim Disclosures. Like its prior discovery responses concerning the allegedly misused materials, SCO failed to describe all of the allegedly misused materials by version, file, and line of code. (Ex. 53.)


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217. Upon review of SCO's Interim Disclosures, IBM immediately notified SCO that it failed "to identify the allegedly misused material by version, file and line, of code", "to identify and match up the allegedly infringing and allegedly infringed material by version, file and line of code", "to identify the material alleged to have been contributed improperly by version, file and line of code", and to identify, "to the extent the allegedly contributed matreial is not UNIX System V code, but is in any sense alleged to have been based on or resulted from UNIX System V code, the version, file and line of UNIX System V code from which the allegedly contributed material is alleged to derive or result." (Ex. 151 at 1.)

218. IBM notified SCO that unless SCO complied with the specificity required by the Court's many orders, "IBM intends to ask the Court to preclude SCO from pursuing any claims regarding allegedly misused material not property disclosed on or before December 22, 2005". (Ex. 151 at 2.)

219. Thereafter SCO expressly stipulated and agreed with IBM that its claims would not exceed the Final Disclosures. In a Stipulation Re Scheduling Order filed with the Court on December 7, 2005, the parties stipulated and agreed as follows:

1. Both parties are required to identify with specificity any and all material that each party contends the other has misused no later than December 22, 2005; ...

(c) Neither party shall be permitted to use [the period for discovery relating to the Final Disclosures] for the purpose of identifying additional misused material not disclosed by the December 22, 2005, deadline.

(Ex. 481.)


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220. On December 22, 2005, SCO served its Final Disclosures, again largely failing to describe all of the allegedly misused materials by version, file, and line of code and to update its interrogatory responses. (Ex. 54.)

221. Based on SCO's failure to follow the court's orders requiring it to identify all of the allegedly misused materials by version, file, and line of code, IBM moved on February 13, 2006 to preclude certain of SCO's claims. (Ex. 66.)

222. Pending the disposition of IBM's motion, SCO served several expert reports seeking to challenge additional allegedly misused materials that were not identified in its Final Disclosures. IBM then made another motion (which has been fully briefed but not yet argued) to confine and limit the scope of SCO's claims to those materials identified in its Final Disclosures. (Ex. 67.)

223. In an order dated June 28, 2006, the Court granted, in part, IBM's February 13, 2006 motion to preclude certain of SCO's claims -- striking from the case SCO's Final Disclosure Item Nos.: 3-22, 24-42, 44-89, 91-93, 95-112, 143-49, 165-82, 193, 232-71, 279-93. (Ex. 59 at 36-38.)

224. In granting IBM's motion in part the Court held that "SCO should have supplied not only line but version and file information for whatever claims form the basis of SCO's case against IBM". (Ex. 59 at 28.)

225. The Court held further that "SCO has had ample opportunity to articulate, identify and substantiate its claims against [IBM]. [SCO's] failure was intentional and therefore willful based on SCO's disregard of the court's orders and failure to seek clarification. In the view of the court it is almost like SCO sought to hide its case until the ninth inning in hopes of gaining

9

an unfair advantage despite being repeatedly told to put 'all evidence ... on the table.'" (Ex. 59 at 32.)

226. Finally, the Court held that SCO's conduct prejudiced IBM in that "[r]equiring IBM to engage in an analysis of millions of lines of code to figure out which code is at issue in hopes of answering such questions is patently unfair given the fact that it was SCO's duty to provide more detailed code in the first place." (Ex. 59 at 35.)

227. Following the Court's order the following "Items" relating to SCO's allegations of IBM's breach of contract relating to the AIX and Dynix operating systems remain in the case: Items 1, 2, 23, 43, 90, 94 113-42, and 186-92.

V. SCO's Failure of Proof.

228. Despite three orders of the Court, SCO has not adduced any evidence that IBM breached the Agreements. (See Ex. 54.)

229. SCO's Final Disclosures identify 294 Items of allegedly misused material. However, only a subset of these Items concerns SCO's claims of breach of contract. (Ex. 54.)

230. As a result of the Court's order of June 28, 2006, only 43 of the Items relating to SCO's contract claims remain in the case. Items 1, 2, 23, 43, 90, 94, 113-42 and 186-92.) These Items concern allegations of misuse relating to AIX and Dynix. (See Ex. 54; Ex, 59.)

231. Only one of the remaining 43 Items, Item 1, concerns allegations of misuse relating to AIX. Item 1 concerns IBM's Journaled File System (JFS). (Ex. 54; Ex. 291 6)

232. The remaining 42 Items concern allegations of misuse relating to Dynix. item 2 concerns Read-Copy Update (RCJ); Items 113-42 concern testing technologies; and Items 23,

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43, 90, 94 and 186-92 concern "negative know-how" or "exposure" to Dynix. (Ex. 54; Ex. 291 7.)

233. Only one of the remaining 43 Items (Item 1) identifies any UNIX System V source code. That Item identifies 17 lines of code from one version of a UNIX System V file. (See Ex. 54 Item 1, Tab 425; Ex. 291 8.) SCO's experts do not address this file in their expert reports. (See generally Ex. 285; Ex. 286 84-122.) SCO does not allege that IBM publicly disclosed this file to Linux or otherwise. (See Ex. 54.)

234. Only two of the remaining 43 Items (Items 1 and 2) identify any AIX or Dynix source code. Thirty of the remaining 43 Items (Items 113-42) identify code from Sequent's SPIE Test Suites as well as code from the Linux Test Project. (See Ex. 54.) None of that testing code is part of either the Dynix or Linux operating systems. (Ex. 287 41; Ex. 288 25, 29; Ex. 291 9.)

235. While the remaining 43 Items do identify Linux kernel source code files or Linux Test Project files, 11 of those Items (Items 23, 43, 90, 94, and 186-92) do not identify any versions or lines of code in the Linux kernel or any versions, files or lines of source code from UNIX System V, AIX or Dynix. SCO simply lists a number of Linux kernel files (without version or line information) for each of those Items and does not offer any evidence (expert or otherwise) that these files contain any code methods or concepts from UNIX System V, AIX, or Dynix. (See Ex. 54; Ex. 291 10.)

236. SCO has not specifically identified, in the Final Disclosures or elsewhere, a single line of UNIX System V material that IBM is alleged to have misused in violation of its contractual obligations. Nor has it specifically identified any evidence that IBM misused any

11

UNIX System V code. (Ex. 54; Ex. 291 5.) When IBM raised with SCO its failure to disclose UNIX System V material, SCO stated that "IBM keeps insisting on something that is not part of SCO's claims, so it should come as no surprise that files or lines of code in System V have not been identified". (Ex. 134 at 2.)

237. None of the material IBM is alleged to have misused is, or contains, UNIX System V code, methods or concepts, or is, or contains, a modification or derivative work of UNIX System V. (See Ex. 54; Ex. 291 11; Ex. 181 IN 11-50.)

238. All of the material IBM is alleged to have misused in the remaining Items (Items 1-2, 23, 43, 90, 94, 113-42, and 186-92) is original IBM work or the work of third parties other than SCO and independent of System V. (Ex. 162. 5; Ex. 248 5; Ex. 218 5; Ex. 243 5; Ex. 168 6; Ex. 258 4-5; Ex. 231 7-8; Ex. 292 4; Ex. 507 at 40, 57, 199-200, 225-26, 228; Ex. 293 4; Ex. 173 4; Ex. 196 5; Ex. 235 5; Ex. 237 5; Ex. 211 5; Ex. 216 5; Ex. 246 4; Ex. 210 6; Ex. 263 5; Ex. 222 5; Ex. 206 4-5; Ex. 274 4; Ex. 161 4; Ex. 225 5; Ex. 188 5.)

239. None of the AIX or Dynix material that IBM is alleged to have misused was written by referencing UNIX System V. (Ex. 291 11.)

240. SCO has identified 25 persons as having been involved with the allegedly improper disclosures: Barry Arndt, Ben Rafanello, Dave Kleikamp, Mark Peloquin, Steve Best, Dipankar Sarma, Paul McKenney, Martin Bligh, Tim Wright, Pat Gaughen, Wayne Boyer, John George, Haren Babu Myneni, Hien Nguyen, Jim Keniston, Larry Kessler, Hal Porter, Vivek Kashyap, Nivedita Singhvi, Shirley Ma, Venkata Jagana, Jay Vosburgh, Mike Anderson, Mike Mason, Ruth Forester. (Ex. 291 12.)

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241. None of these individuals referred to or otherwise used non-public UNIX System V source code, methods, or concepts in making the challenged Linux contributions. (Ex. 291 13; Ex. 162. 5; Ex. 248 5; Ex. 218 5; Ex. 243 5; Ex. 168 6; Ex. 258 4-5; Ex. 231 7-8; Ex. 292 4; Ex. 507 at 40, 57, 199-200, 225-26, 228; Ex. 293 4; Ex. 173 4; Ex. 196 5; Ex. 235 5; Ex. 237 5; Ex. 211 5; Ex. 216 5; Ex. 246 4; Ex. 210 6; Ex. 263 5; Ex. 222 5; Ex. 206 4-5; Ex. 274 4; Ex. 161 4; Ex. 225 5; Ex. 188 5.)

242. In making the challenged contributions, the alleged wrongdoers identified by SCO relied on their own creativity and general experience. (Ex. 291 13; Ex. 162 5; Ex. 248 5; Ex. 218 5; Ex. 243 5; Ex. 168 6; Ex. 258 4-5; Ex. 231 7; Ex. 292 4; Ex. 507 at 109-10; Ex. 293 4; Ex. 173 6; Ex. 196 5; Ex. 235 5; Ex. 237 5; Ex. 211 5; Ex. 216 5; Ex. 246 4; Ex. 210 6; Ex. 263 5; Ex. 222 5; Ex. 206 5; Ex. 274 4; Ex. 161 5; Ex. 225 5; Ex. 188 5.)

W. Specific Items of Alleged Misuse.

243. The remaining Items of allegedly misused material all concern original IBM works that can be described in four categories. (1) IBM's Journaled File System (JFS) contribution; (2) IBM's Read Copy-Update (RCU) contribution; (3) IBM's Linux Test Project (LTP) contributions; and (4) general operating system experience or "negative know how"'. (Ex. 291 14.)

1. Journaled File System (JFS).

244.

SECTION REDACTED


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SECTION REDACTED

245. The allegedly misused JFS material does not concern or include any UNIX System V code, methods, or concepts; it is not a modification or derivative work of UNIX System V; and it was not based on or created with reference to UNIX Systern V. (Ex. 291 16.)

246. SCO has not specifically identified any UNIX System V material (by version, file or line of code, or otherwise) that it alleges is contained in the allegedly misused JFS material. (Ex. 291 17l; see also Ex. 54, Item 1.)

SECTION REDACTED

247.

The allegedly misused JFS material did not contain any UNIX System V code and none of these individuals identified by SCO used or referred to UNIX System V source code in developing JFS. (Ex. 291 18; Ex. 168 6; Ex. 218 5; Ex. 243 5; Ex. 248 5; Ex. 162 5.)

248. The JFS code that IBM contributed to the Linux JFS was originally ported from IBM's OS/2 operating system, not AIX, or was written specifically for the Linux JFS. (Ex. 291 19; Ex. 168 4-5.)

249. OS/2 did not include any UNIX System V code, and was not based on UNIX System V. (Ex. 291 19; Ex. 168 7.)

250. Some OS/2 based JFS material was later shipped in IBM's AIX product. For this reason, the JFS material that IBM contributed to Linux is sometimes mistaken as having originated from AIX. (Ex. 291 20; Ex. 168 5.)

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251.

252. SECTION REDACTED

253. SCO has identified thirty files in AIX that contain "origin codes" which, SCO claims, indicate that the files were based an UNIX System V, Release 2 or earlier. (Ex. 54; Ex. 286 95; Ex. 291 21.) For these files, the Final Disclosures do not identify a single line of source code in AIX that is alleged to be identical to or substantially similar to any source code in UNIX System V. (Ex. 291 21.) In any event, origin codes are not necessarily indicators of whether a file contains System V material. (Ex. 291 21; Ex. 181 61, n.12.)

254. The Final Disclosures draw no connection with any lines of code in UNIX System V and the JFS code that IBM contributed.

SECTION REDACTED

255.


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SECTION REDACTED

2. Read-Copy Update (RCU).

256.

SECTION REDACTED

257. IBM's Linux RCU contributions, and the earlier Sequent implementation of RCU in Dynix, do not include any UNIX System V code; they are not modifications or derivative works of UNIX System V; and they were not based on or created with reference to UNIX System V. They are original IBM work created independent of UNIX System V. (Ex. 231 8; Ex. 258 5; Ex. 291 24.)

258. SCO has not specifically identified any UNIX System V material (by version, file, or line of code, or otherwise) that it alleges is contained in RCU. (See Ex. 54 Item 2.)

259.

SECTION REDACTED


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260.

SECTION REDACTED

261. Sequent engineers Paul McKenney and John Slingwine filed a patent application for RCU on July 19, 1993, and the patent was granted on August 15, 1995. (Ex. 231 5; see Ex. 498.) The implementation of RCU in Dynix and the challenged implementation of RCU in Linux are implementations of the same general concept that is embodied in U.S. Patent # 5,442,758. (Ex. 231 4-5; Ex. 291 27; Ex. 268 at 117-21.)

3. Testing Technologies.

262.

SECTION REDACTED

263. The allegedly misused testing technology material does not include any UNIX System V code; it is not a modification or derivative work of UNIX System V; and it was not based on or created with reference to UNIX System V. It was original Sequent work created independent of UNIX System V, (Ex. 196 5; Ex. 173 4; Ex. 291 29.)

264.

SECTION REDACTED


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SECTION REDACTED

265. SCO fails to identify anyone at IBM or Sequent as involved in misconduct relating to the SPIE Test Suits.

SECTION REDACTED

266. SCO identifies no UNIX System V code, methods, or concepts in connection with Items 113-142. (Ex. 291 30.)

267. The SPIE tests were not part of the Dynix or Dynix/ptx operating systems. (Ex. 209 102; Ex. 298 25, 29; Ex. 173 3; Ex. 196 4; Ex. 291 30.)

4. General Operating System Experience.

268.

269.

SECTION REDACTED

works created independent of UNIX System V. (Ex. 291 33.)


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270. SCO identifies no UNIX System V code, methods or concepts (by version, file or line of code or otherwise) in connection with these Items. SCO identifies no Dynix/ptx code, methods, or concepts (by version, file, or line of code) in connection with these Items. (See Ex. 54; Ex. 291 34.)

271. SCO lists Linux files in connection with these Items, but does not identify which versions or which lines of code in these files contain the allegedly misused material. SCO also lists whole directories in Linux without providing any version, file, and line information. (See Ex. 54; Ex. 291 35.)

272.

SECTION REDACTED

273. For all of these Items, the programmers allegedly making the disclosure either (a) did not make any contributions to the files or directories listed or (b) did not base their contributions to the listed files or directories on UNIX System V or refer to UNIX System V in making the challenged contributions. (Ex. 291 37; Ex. 292 4; Ex. 507 at 40, 57, 199-200, 225-26, 228; Ex. 293 4; Ex. 235 3-5; Ex. 237 4-5; Ex. 211 3-5; Ex. 216 3-5; Ex. 246 4-6; Ex. 210 4-7; Ex. 263 4-6; Ex. 222 4-6; Ex. 206 4-5; Ex. 274 3-4; Ex. 161 4-5; Ex. 225 4-5; Ex. 188 4-5.)

274. In some cases (Items 186, 187, 190 and 191), the programmers allegedly making the disclosure did not have experience in Dynix in the particular technology area cited by SCO. (Ex. 291 38; Ex. 235 3; Ex. 237 4; Ex. 211 3; Ex. 274 3; Ex, 188 4; Ex. 225 4.)

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275. In some cases (Items 187, 188) the cited technology did not even exist in Dynix. (Ex. 291 38; Ex. 246 6; Ex. 210 7; Ex. 263 6; Ex. 222 6; Ex. 206 6.)

276.

SECTION REDACTED

X. Implications of SCO's Theory.

277. In a nutshell, SCO claims the right to control the code, methods and concepts of any modification or derivative work of System V, even where the code, methods, or concepts do not include or reveal any System V material or were not written or created by SCO or any of its predecessors in Interest. (Ex. 43 at 7-8.)

SECTION REDACTED

278. SCO's claim depends on the proposition that SCO's alleged predecessor (AT&T) acquired the right to control modifications and derivatives of System V pursuant to its System V licensing agreements. The argument appears to be that SCO has the right to control not only System V, but also the code, methods and concepts of other flavors of UNIX like AIX and Dynix. In fact, SCO seems to claim that it has the right to control any code, methods, and concepts ever associated with System V. (Ex. 181 52.)

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279. When informed of the interpretation of the IBM and Sequent Software Agreements that SCO is advancing in this case, the individuals from AT&T who were involved in negotiating the agreements state unequivocally that SCO is wrong. (Ex. 217 24; Ex. 189 27-28; Ex. 281 29; Ex. 182 31; Ex. 275 30.)

280. According to Mr. Wilson, any claim that the IBM Software Agreement and the Sequent Software Agreement prohibit the use, export, disclosure or transfer of any code other than UNIX System V code is clearly wrong. Not only did Mr. Wilson and others at AT&T not intend the agreements to be read that way, but they also went out of their way to assure AT&T's licensees that that is not what the agreements meant. (Ex. 282 30.)

281. SCO's interpretation of the Agreements is impossible to reconcile with what Mr. Frasure (and, he believes, others at AT&T) understood the Software Agreements to mean. Mr. Frasure never suggested, nor would have thought to suggest, to AT&T's customers that the Agreements precluded them from using or disclosing their own products as they might wish, so long as they did not disclose any UNIX System V code. Moreover, Mr. Frasure did not believe that AT&T's customers (particularly large ones like IBM) would have entered into agreements that placed restrictions of the kind SCO seeks to impose on their use of code that they developed. In fact, some, including IBM, specifically said so. (Ex. 189 18-26.)

282. According to Mr. DeFazio, SCO's claims are inconsistent with the provisions of the Agreements. He does not believe that anyone at AT&T, USL, or Novell intended the Agreements to be construed as SCO construes them. In all cases, according to Mr. DeFazio, modifications and licensees' contributions to derivative works are not subject to the confidentiality and other restrictions contained in the license agreements (except for any


21

protected UNIX System V source code actually included therein) because they are owned by the licensees. (Ex. 182 31.)

283. Despite the fact that SCO's theory is contrary to the plain language of the Agreements and the intent of the individual who negotiated them, it would, if accepted, have far-reaching, negative implications. (Ex. 181 51.)

284. If SCO had such a right to control modifications and derivative works of System V, then it would have extraordinary -- indeed, seemingly limitless -- control over the software industry. AT&T and its successors widely disseminated information about the code, methods, and concepts of System V. System V alone has been licensed for redistribution to thousands of entities worldwide. These licensees have combined the code, methods, and concepts of System V software with hundreds of millions of lines of original non-AT&T code and many thousands of original, non-AT&T methods and concepts. For example, certain versions of AIX include more than 100 million lines of non-AT&T code, methods and concepts. Thus, if SCO had the right to control modifications and derivative works of System V, then it would control vast quantities of others' property. (Ex. 181 53.)

285. The viral quality of SCO's claim would give it control rights well beyond the life of the System V rights that the "control rights" are purported to protect. The apparent purpose of the "control rights" claimed by SCO seems to be to ensure, among other things, the confidentiality of AT&T System V code, methods, and concepts. The argument seems to be prophylactic in nature: by retaining control of its licensees' code, methods, and concepts, SCO can retain control of any System V code, methods, and concepts that might be included therein. Even where the code, methods, and concepts of System V are no longer confidential, SCO would


22

have the right to control the original works of its licensees, System V could become freely available and SCO's right to control others' works would (under its theory) persist (Ex. 181 54.)

286. From a practical standpoint, if SCO had the right to control the code, methods, and concepts of all flavors of UNIX, the owners of those products would be limited in their ability to support or even market them. To support and market an operating system, it is often necessary to reference and disclose the code, methods, and concepts of the operating system. If SCO, as opposed to IBM, had the right to control what IBM could say publicly about the non-System V code, methods and concepts of AIX, for example, then IBM could not provide installation and technical assistance without the cooperation of SCO (an IBM competitor). (Ex. 181 55.)

287. Moreover, if, as it contends, SCO's "control rights" extend to experience and know-how (positive or negative), then it could control the employment of a significant sector of the computer industry. Many hundreds of thousands of people have been exposed to the code, methods, and concepts of System V and other flavors of UNIX. SCO and its predecessors have disseminated such information to many, many thousands of persons and entities. Assuming the truth of SCO's claims about the scope of its control rights, it would appear to have the ability to control the employability of these persons. (Ex. 181 56.)

288. At the same time, SCO would have little information about the scope of its rights. It could not, as a practical matter, know to what extent its licensees have associated their own original code, methods, and concepts with System V code, methods, and concepts. It could know even less about the extent to which software developers have relied upon public


23

information about the code, methods, and concepts of System V. Thus, if SCO had the right to control modifications and derivative works, there would be widespread uncertainty about the scope of SCO's rights, including the identity of the persons whose employability it claims to have controlled. (Ex. 181 57.)

289. Based in part on the assurances of AT&T and its successors about what UNIX licensees could do with their original works, IBM and Sequent invested heavily in the development of AIX and Dynix. (Ex. 257 3-5; Ex. 310 at 29:8-31:5, 56:11-57:5, 62:20-63:17, 119:16-120:2, 127:15-128:1 (Ex. 257 3-5, 10; Ex. 283 87.) IBM assigned thousands of people to AIX projects. (Ex. 257 3-5, 10; Ex. 283 87.)

SECTION REDACTED

Sequent devoted hundreds of person-years to developing Dynix. (Ex. 596 4.) Both companies invested at least tens of millions of dollars in developing their businesses around AIX and Dynix. (Ex. 257 7, 10; Ex. 283 87; Ex. 596 3-4.)

290. Both companies added significant quantities of original code to the operating systems. To give an example, the original AT&T SVR2.0 source code totaled 896,204 lines of code. (Ex. 181 Ex. G.) The AIX Version 5.1.0 for Power contains 160,198,865 lines of code, (Id.) SCO does not and could not allege that AIX or Dynix incorporate all of any version of System V. (See Ex. 285 at 22-25.)

291. Since the initial introduction of the original versions of AIX in 1987, IBM has incorporated new technology and improvements, including Virtual Resource Manager, a Journaled File System, a Logical Volume Manager, an Object Data Manager, a System Management Interface Tool and a Network Install Manager, and others. (Ex. 257 8, Ex, 283


24

81-85.) Subsequent AIX versions integrated even more enhancements, including a Web-based System Manager, an IBM Java Development Kit, an AIX Workload Manager, and many other developments. (Ex. 257 8; Ex. 293 81-85,)

292. AIX code has been employed in other IBM products including servers, printers, and multi-protocol routers. (Ex. 257 9; Ex. 283 89.)

293. Each of these developments stands on its own right and is comprised of non-UNIX source code. Some of them can even be considered stand-alone products. If IBM had believed that these additions to UNIX would have subjected the code to the confidentiality provisions of the licensing agreements, it would not have packaged them with AIX. Similarly, AIX code has been employed in other IBM products, including servers, printers, and multi-protocol routers. If IBM ever believed that the IBM code included with AIX in these IBM products would be subject to the confidentiality provisions of the licensing agreements, AIX would not have been used in these products. (Ex. 257 9.)

294. In sum, if AT&T or its successors had ever expressed the position SCO asserts in this lawsuit, IBM and Sequent would have directed the vast amount of financial and human resources they spent on AIX and Dynix quite differently. (Ex. 257 6, 9; Ex. 596 3-4.)


25

Standard of Decision

Summary judgment should be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of fact and that the moving party is entitled to a judgment as a matter of law," In re Grandote Country Club Co., 252 F.3d 1146, 1149 (10th Cir. 2001) (quoting Fed. R. Civ. P. 56(c)); see also Banks v. Rite Aid Corp., No. 98-115, 2001 WL 1806857, at.* l (D. Utah Mar. 15, 2001) (Ex. A hereto).

Although the Court must view the record in the light most favorable to the non-moving party, the non-moving party cannot rely on unsupported conclusory allegations to create a genuine issue of fact. See In re Grandote, 252 F.3d at 1149. "To withstand summary judgment, the nonmoving party 'must come forward with specific facts showing that there is a genuine issue for trial'". Id. at 1150 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

Here, summary judgment is appropriate with respect to SCO's contract claims for at least four reasons, (1) SCO cannot establish that IBM breached the Agreements, which do not restrict what IBM does with its original software products (see Section I below); (2) SCO is estopped from asserting a claim for misuse of IBM's own software, because SCO and its predecessors represented for nearly two decades that SVRX licensees could do as they wished with their own software and they did so without objection by AT&T or its successors (see Section II below); (3) the alleged breaches have been waived -- by AT&T and its successors years ago, by Novell pursuant to Section 4.16(b) of the APA, and by SCO based on its own Linux activities (see


26

Section III, below); and (4) SCO's claims relating to RCU are barred by the statute of limitations (see Section IV below).


Argument4

I. SCO CANNOT ESTABLISH A BREACH OF THE AGREEMENTS.

SCO's claims (Counts 1-4) concern a set of licensing agreements for the UNIX System V operating system and seek redress for a laundry list of alleged breaches.5

( 176-82.) The claims depend ultimately upon the proposition that the Software Agreements preclude IBM from contributing its own original software to Linux. ( 178-79.) That proposition is untenable as a matter of law, and as a result, summary judgment should be entered in favor of IBM.

By their terms, the Software Agreements limit the circumstances under which IBM can use and disclose, and thus contribute to Linux, materials from the "SOFTWARE PRODUCT" that IBM licensed from AT&T -- UNIX System V. ( 17, 18.) They also limit the circumstances under which IBM can use and disclose modifications and derivative works of UNIX System V. ( 17-21.) However, it is undisputed that IBM has not contributed to Linux any material (source code, methods or concepts) from UNIX System V. ( 228-37.) Although SCO alleges that IBM has taken certain material from its AIX and Dynix products and improperly contributed it to Linux, it is also undisputed that IBM has not contributed its entire AIX and Dynix programs (which SCO claims to be modifications and derivative works of UNIX

27

System V) to Linux. ( 229-39.) Thus, SCO's claims turn on whether the Software Agreements preclude IBM from contributing original or homegrown IBM material to Linux because that material was once part of AIX or Dynix or from allowing developers who worked on AIX or Dynix to work on Linux.

As is discussed below, the Software Agreements do not, as a matter of law, preclude IBM from contributing its or Sequent's original or homegrown material to Linux. The plain language of the agreements, the extrinsic evidence of the meaning of the agreements and general principles of public policy support only one conclusion -- that IBM owns and is free to disclose any material that it or Sequent created, so long as that material does not contain UNIX System V material. Accordingly, summary judgment should be entered in favor of IBM on SCO's contract claims.

A. The Plain Language of the Agreements Forecloses SCO's Theory.

Under New York law (which governs the Agreements),6

when a contract's language is "clear, unequivocal and unambiguous, the contract is to be interpreted by its own language". R/S Assoc. v. New York Job Dev. Auth., 771 N.E.2d 240,242 (N.Y. 2002). It is the Court's role, as a matter of law, to interpret unambiguous contracts. See American Express Bank Ltd. v. Uniroyal, Inc., 562 N.Y.S.2d 613, 614 (N.Y. App. Div. 1990); Rehberger v. Richtberg, 744 N.Y.S.2d 477,478 (N.Y. App. Div. 2002). Based upon the plain language of the Software

28

Agreements, IBM is entitled to judgment as a matter of law on SCO's contract claims. While the Agreements place restrictions on IBM's use and disclosure of UNIX System V and on modifications and derivative works of System V, they do not preclude IBM from contributing its own original works to Linux, even if they relate to or were once part of AIX or Dynix.

1. The Language of the Agreements.

By their terms, the provisions of the Software Agreements that IBM is alleged to have breached -- Sections 2.01, 2.05, 4.01, 6.03, 7.06(a), and 7.10 -- pertain to "SOFTWARE PRODUCT[S]". ( 51.) The term "SOFTWARE PRODUCT', relates to the UNIX System V computer program (and certain related materials, such as product documentation, that are identified in the Schedules attached to the agreements). ( 52-56.) SCO has not identified (and cannot identify) any UNIX System V code, or related materials that IBM has improperly used, exported, or disclosed in violation of Sections 2.01, 2.05, 4.01, 6.03, 7.06(a) or 7.10. ( 229-39.) In fact, when IBM raised with SCO its failure to disclose its alleged evidence, SCO stated that it does not even contend that IBM misused any UNIX System V Software: "IBM keeps insisting on something that is not part of SCO's claims, so it should come as no surprise that files or lines of code in System V have not been identified". ( 236.)

In the absence of any evidence that IBM misused any of AT&T's Software Products, SCO grounds its allegations of breach on a single clause in Section 2.01 of the Software Agreements. As originally drafted, Section 2.01 grants licensees "the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT". ( 20.) SCO argues that AIX and Dynix are modifications and


29

derivative works of AT&T's UNIX System V Software (i.e., "resulting materials") and that they must therefore be treated like UNIX System V Software. According to SCO, IBM may not use or disclose any portion of AIX or Dynix, including original IBM works (created independent of UNIX System V), except with SCO's permission, even if the original IBM works are no longer part of AIX or Dynix. ( 178-79.) SCO goes so far as contend that any IBM developer ever exposed to AIX or Dynix is precluded from using his/her experience in working on any other operating system including Linux.

SCO's construction finds no support in the plain language of the Software Agreements. While Section 2.01 requires that modifications and derivative works (AIX and Dynix as a whole, according to SCO) be treated like UNIX System V, it does not foreclose IBM from doing as it wishes with its original works simply because they might have once been (or in the future might be part of) a modification or derivative work of UNIX System V. ( 20-21.) Likewise, Section 2.01 offers no support for the proposition that anyone ever exposed to AIX or Dynix is forever precluded from working on another operating system or using his/her operating system experience. The restrictions that SCO seeks to impose on IBM's original works are a figment of SCO's wishful thinking.

2. The Unreasonableness of SCO's Claim.

SCO's interpretation of Section 2.01 not only finds no support in the text of the Agreements, but also it is patently unreasonable and therefore untenable.

The "Rules of construction of contracts require, whenever possible, that an agreement should be given a 'fair and reasonable interpretation'". Farrell Lines, Inc., v. City of N.Y., 281 N.E.2d 162, 165 (N.Y. 1972). "[A] contract should not be interpreted to produce a result that is


30

absurd, commercially unreasonable or contrary to the reasonable expectations of the parties." In re Lipper Holdings, LLC, 766 N.Y.S.2d 561, 562 (N.Y. App. Div. 2003) (internal citations omitted); see also Leighton's Inc. v. Century Circuit, Inc., 463 N.Y.S.2d 790,792 (N.Y. App. Div. 1983) (Fein, J., dissenting) ("An unreasonable interpretation or an absurd result is to be avoided"); Reape v. N.Y. News, Inc., 504 N.Y.S.2d 469, 470 (N.Y. App. Div. 1986) ("'[W]here a particular interpretation would lead to an absurd result, the courts can reject such a construction in favor of one which would better accord with the reasonable expectation of the parties."). Indeed, it is "against the general policy of the law" to interpret a contract in a way that would produce "an unreasonable result' or "would, in effect, place one party to the contract at the mercy of the other". Mandelblatt v. Devon Stores, Inc., 521 N.Y.S.2d 672, 675 (N.Y. App. Div. 1987).

a. SCO's Theory Is Inconsistent with IBM's Ownership Rights.

SCO does not and cannot dispute that IBM owns both AIX and Dynix, including the material that SCO contends IBM has misused. Under SCO's theory, however, it has the right to control every single one of the many millions of lines of code that have ever been put into (and that will ever be put into) AIX or Dynix by IBM or Sequent. ( 178-79.) SCO's interpretation would allow it to co-opt decades of work in developing and improving AIX and Dynix -- by continually adding new capabilities and functionalities -- simply because those programs contain, or even once contained, some source code, no matter how negligible, from UNIX System V. SCO's interpretation would also mean that SCO has the right to control code that was written by third parties and licensed to IBM, even if such third parties have no relationship at all with SCO. According to SCO, just because a third party licenses code -- that it expended its


31

own resources developing -- to IBM, and IBM includes such code in AIX or Dynix, SCO may forever dictate the use and disclosure of that third party's code by IBM.

At the same time, SCO would have little information about the scope of its rights. ( 288.) It could not, as a practical matter, know to what extent its licensees have associated their own original code, methods, and concepts with System V code, methods, and concepts. It could know even less about the extent to which software developers have relied upon public information about the code, methods, and concepts of System V software. Thus, if SCO had the right to control modifications and derivative works of System V software, there would be widespread uncertainty about the scope of SCO's rights, including the identity of the persons whose employability it claims to have controlled.7

( 288.) Thus, SCO's reading of the Agreements would not only effectively nullify IBM's ownership of AIX and Dynix; it would effectively expand SCO's ownership rights exponentially. ( 285.) Such an interpretation is plainly untenable. See Elsky v. Hearst Corp., 648 N.Y.S.2d 592, 593 (N,Y. App. Div. 1996) (holding that contract should not be interpreted to lead to a "commercially unreasonable restriction").

b. SCO's Theory Is Inconsistent with Copyright Law.

As further evidence of the unreasonableness of SCO's theory, SCO's interpretation of the Agreements is at odds with the basic principles underlying federal copyright law.

32

Under the copyright law, the right to copyright a work, and the attendant benefits, "vests initially in the author or authors of the work". 17 U.S.C.A. 201(a) (West 2006). The holder of a copyright on a particular work "has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; [and] (3) to distribute copies or phonorecords of the copyrighted work to the public by sale of other transfer of ownership, or by rental, leasing or lending. ..." 17 U.S.C.A. 106 (West 2006). Thus, when IBM, or any other person or entity, writes its own computer code, it automatically gains the exclusive right to copy and distribute that code.

This same principle applies even with respect to derivative works, although the copyright law makes clear that the "copyright in a ... derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material". 17 U.S.C.A. 103(b) (West 2006). The copyright in such derivative work "is independent of and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the preexisting material". Id. (emphasis added).

Under the copyright law, therefore, it is well settled that the author of a derivative work has the right to copyright (and thus control the copying and distribution of) any of its own original materials in the derivative work, but has no rights with respect to the preexisting materials. It is also settled that the author of the preexisting materials does not have any rights in the newly created derivative, work, except to the extent of the preexisting materials contained therein. As a leading treatise puts it:


33

If the copyright owner of a pre-existing or underlying work limits his consent for its use in a derivative work to a given medium (e.g., opera), the copyright owner of the derivative work may not exploit such derivative work in a different medium (e.g., motion pictures) to the extent the derivative work incorporates protectible material from the underlying work. However, the new matter added by the author of the derivative work, if not combined with the underlying material, may be used in any media without restriction.

1 David Nimmer, Nimmer on Copyright 3.07 (citing G.Ricordi & Co. v, Paramount Pictures Inc., 189 F.2d 469, 472-73 (2d Cir. 1951) (emphasis added)).

SCO's interpretation of the Agreements is not consistent with these basic copyright principles. As SCO reads the agreements, the author of a preexisting work (here SCO, allegedly) has the right to control all parts of AIX and Dynix (which SCO claims to be IBM and Sequent derivative works), including those original materials contributed by IBM and Sequent. This is an unreasonable interpretation of the language of the Agreements, which gives no indication that it is meant to deprive either party of its rights under the copyright laws.

c. SCO's Theory Is Contrary to Public Policy.

SCO's claim is not limited to controlling IBM's original works.

SECTION REDACTED

Thus, SCO seeks to control the employment and employability of anyone who ever worked on Dynix.

Under New York law "'negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirement of reasonableness'". Johnson Controls,


34

Inc. v. A.P.T. Critical Sys., Inc., 323 F. Supp. 2d 525, 533 (S.D.N.Y. 2004) (quoting Reed, Roberts Assocs., Inc. v. Strauman, 353 N.E.2d 590, 592 (N.Y. 1976)). As the New York Court of Appeals has stated, "'powerful considerations of public policy ... militate against sanctioning the loss of a man's livelihood.' Indeed, our economy is premised on the competition engendered by the uninhibited flow of services, talent and ideas, Therefore, no restrictions should fetter an employee's right to apply to his own best advantage the skills and knowledge acquired by the overall experience of his previous employment". Reed, Roberts, 353 N.E.2d at 593 (internal citations omitted) (quoting Purchasing Assocs., Inc. v. Weitz 196 N.E.2d 245, 247 (N.Y. 1963)). Restrictive covenants "will be enforced only if reasonably limited temporally and geographically and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customer lists." Columbia Ribbon & Carbon Mfg. Co., v. A-1-A Corp., 369 N.E.2d 4, 6 (N.Y. 1977) (internal citations omitted) (holding unenforceable a restrictive covenant requiring that an employee "not divulge any other information that he has or shall have acquired during his period of employment" because it did "no more than baldly restrain competition").8

35

If, as it contends, SCO's "control rights" extend to experience and know-how (positive or negative), then it could control the employment of a significant sector of the computer industry. Many hundreds of thousands of people have been exposed to the code, methods and concepts of System V and other flavors of UNIX. ( 287.) SCO and its predecessors have disseminated such information to many, many, thousands of persons and entities. ( 284, 287.) Assuming the truth of SCO's claims about the scope of its control rights, it would appear to have the ability to control the employability of these persons. Given the strong public policy against such restrictions on employees' use of their general experience, SCO's theory of "mental contamination" is unreasonable and unenforceable.

d. SCO's Theory Leads to an Absurd Result.

Finally, SCO's theory, if accepted, would generally have far-reaching negative implications. If SCO had the right to control all software into which some System V code was ever included, then it would have extraordinary -- indeed, seemingly limitless -- control over the software industry. AT&T and its successors widely disseminated information about the code, methods and concepts of System.V. ( 284.) System V alone has been licensed for redistribution to thousands of entities worldwide. ( 284.) These licensees have combined the code, methods and concepts of System V software with hundreds of millions of lines of original non-AT&T code and many thousands of original, non-AT&T methods and concepts. For example, certain versions of AIX include more than 100 million lines of non-AT&T code, methods and concepts. ( 77.) Thus, if SCO had the right to control modifications and derivative works of System V (as it seems to claim), then it would control vast quantities of others' property.


36

The viral quality of SCO's claim would give it control rights well beyond the life of the System V rights that its supposed control rights are purported to protect. ( 285.) The apparent purpose of the control rights claimed by SCO seems to be to ensure, among other things, the confidentiality of AT&T System V code, methods and concepts. ( 285.) The argument seems to be prophylactic in nature: by retaining control of its licensees' code, methods and concepts, SCO can retain control of any System V code, methods and concepts that might be included therein, ( 285.) Even where the code, methods and concepts of System V software are no longer confidential, SCO would have the right to control the original works of its licensees. System V software could become freely available and SCO's right to control others' works would (under its theory) persist.9

( 285.)

From a practical standpoint, if SCO had the right to control the code, methods and concepts of all flavors of UNIX, the owners of those products would be limited in their ability to support or even market them. ( 286) To support and market an operating system, it is often necessary to reference and disclose the code, methods and concepts of the operating system. ( 286.) If SCO, as opposed to IBM, had the right to control what IBM could say publicly about the non-System V code, methods and concepts of AIX, for example, then IBM could not provide installation and technical assistance without the cooperation of SCO (an IBM competitor). ( 286.)

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B. The Extrinsic Evidence Precludes SCO's Claim.

As stated, the Software Agreements are unambiguous and plain on their face. Applying SCO's allegations to the language of the Software Agreements shows that IBM is entitled to summary judgment. However, even if the Court were to find the Software Agreements to be ambiguous, SCO's claims still fail as a matter of law. The relevant extrinsic evidence regarding the proper interpretation of the Software Agreements supports the view that IBM and Sequent may do as they wish with their original works so long as they treat UNIX System V as required by the Agreements, Where, as here, the "evidence so clearly weighs in one direction that there is no genuine issue of material fact left", summary judgment is appropriate. Moncrief v. Williston Basin Interstate Pipeline Co. 174 F.3d 1150, 1173 (10th Cir. 1999).

IBM and Sequent made clear to AT&T during the negotiations resulting in the Agreements that they must retain ownership and control of their original works, whether or not those works were part of a modification or derivative work of UNIX System V. ( 38.) None of the AT&T representatives involved in the negotiations expressed any disagreement as to who would own and control IBM's and Sequent's original works. ( 37.) In fact, the AT&T negotiators explicitly stated that they shared IBM's and Sequent's intent and did not seek to assert ownership or control over their original works. ( 37.) They indicated that AT&T required only that its licensees protect AT&T's UNIX System V material. ( 39.) The AT&T negotiators did not believe that AT&T licensees would have entered into their licensing agreements If they believed AT&T's agreements would give it ownership control over the licensees' original works. ( 43.)


38

Moreover, the Agreements were executed on behalf of AT&T by Messrs. Wilson and Frasure. ( 48.) Mr. McDonough executed the Agreements for IBM, and Mr. Rogers executed them for Sequent. ( 48, 49.) All agree that they were not intended to restrict IBM's use of its original works -- whether or not they were or might become part of a modification or derivative work of UNIX System V. ( 57.) In addition, Mr. DeFazio, the overall head of UNIX licensing, and the other individuals who actually and actively negotiated the Agreements, Messrs. Vuksanovich and Kistenberg, likewise agree that the Agreements were not intended to restrict IBM's use of its original works, even if they were or might become part of a modification or derivative work of UNIX System V. ( 57-59.)

Finally, during the course of performing under the Agreements, representatives of AT&T and its successors repeatedly stated, over many years, that licensees, including IBM and Sequent, could do as they wished with their original works. ( 82-88, 119, 143.) Following execution of the Agreements, AT&T and USL communicated with licensees on a daily basis and frequently explained their intent, view and understanding as to their licensees' rights to their own original materials. ( 82-88.) AT&T and USL representatives communicated to licensees, including IBM and Sequent, that they owned and could do as they wished with their own original works, even if those works might be included in a modification or derivative work of UNIX System V, so long as they protected AT&T's UNIX System V source code. ( 83.) In addition to dealing with licensees on a daily basis regarding the Agreements, AT&T and USL communicated with their licensees at users' conferences, such as USENIX (an organization that supports the development of UNIX variants), and in other public presentations. ( 88.) Representatives of AT&T and USL emphasized that their licensees, including IBM and Sequent, could do as they


39

wished with their own original material. ( 88.) AT&T and its representatives intended for their licensees to rely upon their statement and assurances about what licensees could do and could not do with their original works. ( 89.) Taking Mr. Wilson and his colleagues at their word, IBM, Sequent and other UNIX licensees exercised ownership and control over their original works, despite the fact that those works had been part of a modification and derivative work of UNIX System V or had been associated in some respect with UNIX System V code, such as by publicly disclosing them. ( 90.) Based on their understanding of the Agreements, the statements of AT&T representatives and AT&T's failure to take any action to preclude licensees from doing as they wished with their original works, IBM and Sequent (like other licensees) continued to develop their flavors of UNIX. ( 93.)

Taken together, the extrinsic evidence in this case "is so one-sided ... that no rational trier of fact" could conclude that the IBM and Sequent Software Agreements prohibit IBM's disclosure of code, such as the code IBM allegedly contributed to Linux, that does not contain any licensed UNIX System V code. See Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 569 (10th Cir. 1. 989). Accordingly, summary judgment should be granted in IBM's favor on SCO's breach of contract claims even if the Court finds the language of the agreements to be ambiguous, See Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 159 (2d Cir. 2000) (holding that a court "may resolve the ambiguity in the contractual language as a matter of law if there is no extrinsic evidence to support one party's interpretation of the ambiguous language or if the extrinsic evidence is so one-sided that no reasonable fact-finder could decide contrary to one party's interpretation" (internal citations omitted)).


40

Summary judgment is especially appropriate in this case, where any ambiguity must be construed against SCO, because AT&T -- SCO's alleged predecessor-in-interest -- drafted and prepared the standard form agreements used to license UNIX System V. ( 36.) See Jacobson v. Sassower 489 N.E.2d 1283, 1284 (N.Y. 1985) ("In cases of doubt or ambiguity, a contract must be construed most strongly against the party who prepared it.") (emphasis added); see also Westchester Resco Co. Y. New England Reinsurance Corp., 818 F.2d 2, 3 (2d Cir. 1987) ("'Where an ambiguity exists in a standard-form contract supplied by one of the parties, the well-established contra proferentem principle requires that the ambiguity be construed against that party.")10


II. SCO IS ESTOPPED FROM PURSUING ITS THEORY OF BREACH.

Even if SCO's reading of the Agreements were correct -- and it is not -- SCO is estopped from pursuing its theory of breach. Equitable estoppel is a doctrine imposed "to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party's words or conduct, has been misled into acting upon the belief that such enforcement would not be sought". Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 N.Y.2d. 175, 184 (1982). The effect of estoppel is to "foreclose[] one from denying his own expressed or implied admission which has

41

in good faith and in pursuance of its purpose been accepted and acted upon by another". N.Y. State Guernsey Breeders' Co-op v. Noyes, 22 N.Y.S,2d 132,139 (N.Y. App. Div. 1940).11;p/[

Equitable estoppel "rests largely on the facts and circumstances of the particular case; consequently, any attempted definition usually amounts to no more than a declaration of an estoppel under those facts and circumstances"'. Sassower 447 N.Y.S.2d at 971 (quoting N.Y. Jur. 2d Estoppel, Ratification and Waiver 15). But grounds for estoppel exist where (1) a party undertakes a course of action that defines its position with regard to a contractual provision; (2) the opposing party acts in reliance on that position; and (3) the opposing party would suffer damages should the initial party seek to assert a contrary position to the one already taken. See Nassau Trust Co., 56 N.Y.2d at 184.12

42

Here, the undisputed facts support a finding of estoppel. For almost two decades, AT&T and its successors represented to their licensees including IBM and Sequent, that they could do as they wished with their own works, so long as they did not disclose any original UNIX software. ( 82-88, 119,143.) AT&T's licensees, including IBM and Sequent took AT&T and its successors at their word and made public disclosures of their original works -- without objection by AT&T or its successors. ( 90, 120-23, 144-45.) IBM and Sequent reasonably relied to their detriment on the statements and conduct of AT&T and its successors, such as by building their businesses on the idea that they could do as they wished with their original works. ( 73-75, 79, 94-95, 125-27, 148-50.) IBM and Sequent would experience severe prejudice if it were forced suddenly to stop those businesses in their tracks.

A. AT&T and Its Successors Communicated to 1BM and Others for Nearly Two Decades that They Could Do as They Wished with Their Original Works.

As discussed, in negotiating the Agreements, IBM and Sequent were insistent on the right to do as they wished with their original works, and AT&T assured them that AT&T had no interest in its licensees' original works. Putting aside the negotiations leading up to the Agreements, AT&T and its successors made perfectly clear to their licensees, including IBM and Sequent that they could do as they wished with their original works as long as they protected their UNIX Software Product.

First, AT&T and its successors told their licensees that they could do as they wished with their original works. ( 83-95, 119, 143.) AT&T and its successors dealt with their licensees on a regular basis regarding the Agreements. ( 82, 88.) In those dealings, licensees frequently raised issues concerning their rights, and AT&T and its successors frequently advised their


43

licensees that could do as they wished with their original or homegrown code, so long as they protected AT&T's UNIX System V software. ( 83.) AT&T and its successors also communicated with their licensees at users' conferences, such as USENIX, and in other public presentations. ( 88.) Publicly, too, AT&T representatives emphasized that their licensees, including IBM and Sequent, could do as they wished with their own original works. ( 88.) SVRX licensees took AT&T and its successors at their word and freely used and disclosed their original works without objection. ( 90-95; 125-27, 148-50.)

Second, taking AT&T and its successors at their word, IBM, Sequent and other UNIX licensees used their original works as they wished. More to the point, they did the very things about which SCO now complains: publicly disclosed the code, methods and concepts of their original works. ( 90, 120-23, 144-45.) For example, IBM disclosed AIX source code in books, including AIX Operating System: Programming Tools and Interfaces (1989) and The Advanced Programmer's Guide to AIX 3.x (1994). ( 91, 122.) AT&T and its successors were aware and understood that their licensees were exercising ownership and control of the code, methods and concepts of their flavors of UNIX, including AIX and Dynix. ( 92, 124, 146.) At least until SCO changed management and filed this lawsuit (nearly twenty years after the execution of the Agreements), neither AT&T nor any of its successors took steps to preclude IBM or Sequent from doing as they wished with their original works. ( 93, 124, 146.)

B. IBM and Sequent Reasonably Relied on the Statements, Conduct and Inaction of AT&T and Its Successors.

Putting aside the fact that neither IBM nor Sequent would have entered into the Agreements if they had believed the Agreement would give AT&T or its successors the right


44

forever to control what IBM and Sequent could do with their original works, IBM and Sequent relied on AT&T's assurances about their rights.

Based in part on the assurances of AT&T and its successors about what UNIX licensees could do with their original works, IBM and Sequent invested heavily in the development of AIX and Dynix. ( 289.) Sequent assigned hundreds, and IBM thousands, of people to AIX and Dynix projects. ( 299.)

SECTION REDACTED

Both companies added significant quantities of original code to the operating systems. To give an example, the original AT&T SVR2.0 source code totaled 896,204 lines of code. ( 290.) The AIX Version 5.1.G for Power contains 160,198,865 lines of code. ( 290.) IBM never would have invested the time, money and resources into expanding upon UNIX if it had believed that it would not have ownership and control over the resulting additions and enhancements. ( 289-94.)

Since the initial introduction of the original versions of AIX in 1987, IBM has incorporated a broad army of new technology and quality improvements into all aspects of the system design and implementation. These include such innovations such as Virtual Resource Manager, a Journaled File System, a Logical Volume Manager, an Object Data Manager, a System Management Interface Tool and a Network Install Manager, among countless other developments. ( 291.) Subsequent AIX versions integrated even more enhancements,


45

including a Web-based System Manager, an IBM Java Development Kit, an AIX Workload Manager, and many other developments. ( 291.)

Each of these developments stands on its own right and is comprised of non-UNIX source code. ( 293.) Some of them can even be considered stand-alone products, ( 293.) Yet because they were packaged with some UNIX System V code, each of them falls within the scope of SCO's complaints. Similarly, AIX code has been employed in other IBM products, including servers, printers and multi-protocol routers. ( 292.) If IBM had believed that these additions to UNIX would have subjected the code to the confidentiality provisions of the licensing agreements, it certainly would not have packaged them with AIX. ( 293-94.)

IBM and Sequent also relied upon the inaction of AT&T and its successors. Not only did AT&T and its successors repeatedly tell UNIX licensees that they could do as they wished with their original works, but also they took no steps to prevent them from exercising ownership and control over their original works. ( 73-75, 93-95, 125-27, 148-50.) If AT&T and its successors had expressed concern about IBM's and Sequent's use of their original works, then the companies could have and would have done business differently. Neither IBM nor Sequent would have developed, added to, or marketed and sold AIX and Dynix as they did if they had not believed that they had the right to do as they wished with their original works. ( 294.)

It was perfectly reasonable for IBM and Sequent to rely upon AT&T's and its successors' assurances that they would have complete ownership and control over their homegrown code. IBM and Sequent made clear during negotiations that they would need to control their own code. ( 38.) AT&T even provided IBM a clarification, in the form of a side letter, that IBM would own and control its own code. ( 31.) AT&T made public statements at various USENIX


46

conferences and in newsletters expressing its view that its licensees could disclose their homegrown code. ( 88.) Finally, IBM, Sequent and other UNIX licensees publicly disclosed their code, methods and concepts of their original works for nearly two decades without objection. ( 90-91, 120-23, 144-45.) Courts have found reliance on much less convincing assurances than those given by AT&T and its successors to IBM and Sequent. See, e.g., Nassau Trust Co., 56 N.Y.2d at 184 (finding plaintiff's reliance on defendant's past course of conduct to be justifiable, even where that conduct contravened the terms of the agreement); Kearns, 272 N.Y.S.2d at 541.

C. IBM Would Be Prejudiced if SCO Were Allowed to Change Its Position After Two Decades.

Finally, no question exists as to whether IBM would be injured if SCO were allowed to ignore nearly two decades of assurances and practice allowing UNIX licensees to do as they wished with their original source code, methods and concepts. Allowing SCO to pursue its theory would not only undermine the plain language and clear intent of the Agreements, but it would also strip IBM of control of its original works in AIX and Dynix. Those works are the result of an extraordinary investment of human and other resources, the value of which would be destroyed. SCO, not IBM, would control more than one hundred million lines of original IBM works. IBM would lose the value associated with control of its original works.

IBM and Sequent developed much of their businesses around the belief that they had complete control and ownership over any improvements to the original code they licensed from AT&T. ( 289-94.) If AT&T or its successors had ever expressed the position SCO asserts in this lawsuit, IBM and Sequent would likely have built their businesses around different operating


47

systems or developed one completely on their own. ( 294.) The vast amount of financial and human resources -- resources that can never be recouped -- that IBM and Sequent used in developing AIX and Dynix would have been allocated differently. ( 294) The clock cannot be turned back; AIX now pervades many facets of IBM's business. Courts have found that building a business around the assumption that one party will not object constitutes harm sufficient to establish estoppel. See Landers, Frary & Clark v. Universal Cooler Corp., 85 F-2d 46,49 (2d Cir. 1936) (holding that defendant's large expenditures in developing and advertising a brand name in reliance that plaintiff would not assert trademark infringement satisfied the injury prong of estoppel, and noting that "[w]hen for eight years one plan[s] one's business on the assumption that one may use a mark, it is a grave dislocation of the business to stop its use; the whole selling organization must be recast and the market re-educated; nobody can estimate what the losses may be").


III. THE ALLEGED BREACHES HAVE BEEN WAIVED.

Even if SCO's theory of the case were not foreclosed by the Agreements, and even if SCO were not estopped from pursuing it, the alleged breaches have been waived, and SCO's contract claims are therefore untenable for yet another reason.

Under New York law, "[c]ontractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned. Such abandonment 'may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage'". Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P. 850 N.E.2d 653,658, (N.Y. 2006) (quoting Gen. Motors Acceptance Corp. v. Clifton-Fine Central School Dist., 647 N.E.2d 1329,1331 (N.Y. 1995)); see also AXA Global Risks U.S. Ins. Co. v. Sweet Assocs.,


48

Inc., 755 N.Y.S.2d 759, 760 (N.Y. App. Div. 2003) ("Waiver requires the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable".)13

A court may find waiver as a matter of law "when it is proved by the express declaration of the party charged with waiver, or by undisputed words or conduct so inconsistent with a purpose to stand upon the contractual right allegedly waived as to leave no possibility of any reasonable inference to the contrary". 13 Richard A. Lord, Williston on Contracts 39:21 (4th ed. 2006); see Sec. Indus. Automation Corp. v. United Computer Capital Corp., 723 N.Y.S.2d 668 (N.Y. App. Div. 2001); T.W.A. Trading, Inc. v. Gold Coast Freightways, Inc. No. 01-900, 2002 WL 1311648 (N.Y. Sup. Ct. Apr. 2, 2002) (Ex. B hereto).

Here, the alleged breaches have been waived for at least three reasons: (1) AT&T and its successors, including Novell, Santa Cruz and SCO, expressly waived SCO's theory of breach over the course of nearly two decades; (2) Novell waived the alleged breaches by IBM, on SCO's behalf, pursuant to Section 4.16(b) of the APA; and (3) SCO itself waived any right to assert claims against IBM relating to IBM's and Sequent's original works based on its own Linux activities.

A. AT&T and Its Successors Waived SCO's Theory of Breach Long Ago.

As discussed above, AT&T and its successors represented to their licensees for many years that they would not assert control over the original works of their licensees, even if those works were at some point included in a modification or derivative work of AT&T's UNIX

49

software. ( 82-88,119,143.) IBM and Sequent reasonably relied on those representations to their detriment so that SCO is estopped from pursuing its theory of the case. (See Section II) These same facts, which are undisputed, support the conclusion that SCO's breach of contract theory has been waived by its alleged predecessors. "While the doctrines of waiver and estoppel are generally distinguishable, where it party waives a requirement of a contract and the other party changes his or her position to his or her injury in reasonable reliance upon that waiver, the elements of both doctrines are present." 13 Richard A. Lord, Williston on Contracts 39:16 (4th ed. 2006).

While IBM does not believe AT&T or its successors ever had control over their licensees' original works, if they did, as SCO contends, they knowingly, intentionally and voluntarily abandoned the right by telling their licensees, including IBM and Sequent that they could do as they wished with their original works so long as they protected AT&T's UNIX software. ( 182-88, 119, 143.) Representatives of AT&T and its successors repeatedly told SVRX licensees, including IBM and Sequent, on numerous occasions, that they could do as they wished with their original works, even if the works were included in a modification or derivative work of UNIX System V. (Id.)

Courts have found waiver as a matter of law in similar cases in which one party to the contract has unambiguously expressed its intention to abandon its contractual benefits. See, e.g., Topps Chewing Gum, Inc. v. Imperial Toy Corp., 686 F. Supp. 402,408 (E.D.N.Y. 1988), aff'd. 895 F.2d 1410 (2d Cir. 1989) (stating that waiver may be established as a matter of law with "the express declaration of the [contracting] party, or by (its) undisputed acts or language so inconsistent with (its) purpose to stand upon (its) rights as to leave no opportunity for a


50

reasonable inference to the contrary" and ruling on summary judgment that the purported breach had been waived by defendant who stated, in essence, "there had been no breach by [plaintiff]", and acted contrary to the intent to claim breach); Terry v.. Int'l Dairy Queen, Inc., 554 F. Supp. 1088, 1095-96 (N.D. Ind. 1983) (finding waiver based on, inter alia, "uncontradicted evidence" that plaintiff-licensees had acted contrary to an alleged license prohibition without objection from and with knowledge of defendant-licensors' predecessors-in-interest).

B. Novell Has Explicitly Waived the Alleged Breaches by IBM.

In addition to the fact that Novell waived SCO's theory of breach long ago, it also waived the alleged breach, on SCO's behalf, after the commencement of this case pursuant to Section 4.16(b) of the APA.

Novell retained certain rights to AT&T's UNIX System V licenses (including IBM's and Sequent's) when it sold UNIX to Santa Cruz (from whom SCO eventually acquired its purported rights to the licenses). ( 138-42.) In particular, under the parties' 1995 Asset Purchase Agreement, Novell retained the, right "at [its] sole discretion" to direct Santa Cruz to "amend, supplement, modify, or waive any rights under ... any SVRX License", and to take any such actions on Santa Cruz's behalf if Santa Cruz failed to do so. ( 141 (emphasis added).) Indeed, Santa Cruz recognized as much in Amendment No. X to IBM's Software and Sublicensing Agreements, to which Novell was a party, and which specifically noted that "Novell retained ... certain rights with respect to" the agreements IBM entered into with AT&T, including particularly "Software Agreement SOFT-00015 as amended" and "Sublicensing Agreement SUB-00015A as amended". ( 142 (emphasis added).)


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The language of the APA setting forth Novell's continuing rights to AT&T's UNIX System V agreements is plain and unambiguous and can therefore be understood based on its terms alone. No parol evidence is needed to explain the parties' intent. Indeed, it is axiomatic that under New York contract law a court is prohibited from considering extrinsic evidence when faced with clear and unambiguous contract language. See Bethlehem Steel Co. v. Turner Constr. Co., 141 N.E.2d 590, 593 (N.Y. 1957). Therefore, the interpretation of Section 4.16(b) of the APA is a question of law suitable for summary adjudication without reference to any other materials. See id. There is no question that Novell retained the right to waive any rights under the UNIX System V licenses entered into by IBM and Sequent including specifically the IBM Software Agreement and the Sequent Software Agreement.

There is also no question that Novell invoked its rights. On October 7, 2003, after SCO commenced this lawsuit against IBM, Novell informed SCO by letter that its interpretation of the Software Agreement was incorrect. ( 191.) Consistent with the plain language of the contracts, and the extensive extrinsic evidence reviewed above, Novell stated in its letter that the agreements between AT&T and IBM provide "a straightforward allocation of rights":

(1) AT&T retained ownership of its code from the Software Products ("AT&T Code"), and the Agreements' restrictions on confidentiality and use apply to the AT&T Code, whether in its original form or as incorporated in a modification or derivative work, but (2) IBM retained ownership of its own code, and the Agreements' restrictions on confidentiality and use do not apply to that code so long as it does not embody any AT&T Code.

( 192.) In accordance with the rights it retained to AT&T's UNIX System V licenses, Novell therefore directed SCO "to waive any purported right SCO may claim to require IBM to treat


52

IBM Code itself as subject to the confidentiality obligations or use restrictions of" the IBM Agreements. ( 190.)

After SCO failed to follow Novell's instruction, on October 10, 2003, Novell sent a letter to SCO that expressly "waive[d] any purported right SCO may claim to require IBM to treat IBM Code, that is code developed by IBM or licensed by IBM from a third party, which IBM incorporated in AIX but which Itself does not contain proprietary UNIX code supplied by AT&T ...[,] as subject to the confidentiality obligations or use restrictions of the Agreements". ( 193.)

On February 6, 2004, Novell further directed SCO to waive any purported right to assert a breach of the Sequent Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. ( 194.) In its letter, Novell reiterated that SCO's reliance on Section 2.01 of the Software Agreement was misplaced, and stated that "SCO's interpretation of section 2.01 is plainly contrary to the position taken by AT&T, as author of and party to the SVRX licenses". ( 195.)

After SCO failed to follow Novell's instruction, on February 11, 2004, Novell expressly "waive[d] any purported right SCO may claim to require, Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license" ( 196.)

Novell's letters to SCO establish as a matter of law that even if SCO had the right under the IBM and Sequent Software Agreements to prevent IBM from disclosing its or Sequent's original code, Novell explicitly waived such right.


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C. Through Its Own Conduct, SCO Has Waived Its Purported Rights To Claim Breach Of Contract.

Even if SCO's interpretation of the IBM and Sequent Software Agreements were correct (which it is not), SCO itself has also waived any alleged breach by IBM relating to the code IBM is alleged to have improperly contributed to Linux. Under New York law, waiver "may be established ... by acts and conduct manifesting an intent and purpose not to claim the alleged advantage or from which an intention to waive may reasonably be inferred". Heidi E, v, Wanda W., 620 N.Y.S.2d 665, 665 (N.Y. App. Div. 1994) (quoting N.Y. Jur. 2d Estoppel, Ratification and Waiver 81.).14

In this case, SCO's acts and conduct are plainly inconsistent with an intention to assert a breach of contract against IBM based on the disputed material. Both before and even after SCO sued IBM, SCO sold to customers and made publicly available on the Internet -- pursuant to the GPL -- the material that it claims IBM improperly contributed to Linux. ( 156-68.) Indeed, that material was still available on SCO's website as recently as the end of 2004. ( 168.) SCO cannot on the one hand market and sell the source code IBM contributed to the Linux operating system, and on the other hand claim that IBM was prohibited by its licensing agreements from contributing that code to Linux.

For many years prior to its filing this lawsuit SCO's principal business was the distribution of the Linux operating system, the development and marketing of software based on Linux, and the provision of Linux-related services to customers. ( 128-33, 151-70.) In fact, in


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2002, SCO formed the UnitedLinux partnership with three other Linux distributors with the intention of creating a single uniform Linux distribution designed for business use. ( 156.) Just two months before SCO brought suit against IBM, in January 2003, UnitedLinux signed IBM as a technology partner to, among other things, jointly promote UnitedLinux's first Linux distribution, UnitedLinux Version 1.0. ( 157.)

SCO does not dispute that its own Linux distributions, including UnitedLinux Version 1.0 (distributed by SCO as "SCO Linux Server 4.0"), which it sold or otherwise made available before bringing this suit against IBM, contain code upon which SCO's claims are based. ( 158.) SCO, in fact, either admits that SCO Linux Server 4.0 included, and SCO made available for download on its website, the exact Items that it claims IBM misappropriated (including JFS (Item 1), RCU (Item 2) and certain negative know-how claims (Items 23 and 90), or states, despite three court orders requiring SCO to disclose its allegations and evidence, that it has "not presently determined" whether or not such material was included in SCO's product. ( 158.) Having failed in the face of three court orders to reveal whether certain of the allegedly misused material is included in its Linux products, SCO is foreclosed from arguing that they are not in SCO's products. See, e.g., Quevedo v. Trans-Pac. Shipping Inc., 143 F.3d 1255, 1258 (9th Cir. 1998); Lawrence v. IBP, Inc. No. 94-2027, 1995 WL 261144, at *7 (D. Kan. Apr. 21, 1995) (Ex. C hereto); Stone V. CGS Distrib. Inc., No. 93-2188, 1994 WL 832021, at *6 (D. Colo. Aug. 18, 1994) (Ex. D hereto); Traffas v, Bridge Capital Investors II, No. 90-1304, 1993 WL 339093,

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at *6 (D. Kan. Aug. 23,1993) (Ex, E hereto); see also Lauth v, McCollum, No. 03-8529,2004 WL 2211620, at *4 (N.D. 111. Sept. 30, 2004) (Ex. F hereto); Cambridge Elecs. Corp. v. MGA Elecs., Inc. 227 F.R.D. 313, 321-25 (C.D. Cal. 2004); McElroy v. Cudd Pressure Control, Inc, No. 00-1162, 2000 WL 1838710, at *3 (E.D. La. Dec. 13, 2000) (Ex. G hereto).

SCO specifically touted to its customers that its distributions of Linux included some of the very technology it now complains IBM improperly contributed to Linux, ( 161-64.) For example, in its January 2002 product announcements for OpenLinux Server 3.1.1 and OpenLinux Workstation 3.1.1, SCO advertised that the products included new features such as 'journaling file system support". ( 162.) Likewise, its November 2002 product announcement for "SCO Linux Server 4.0" stated that the "core of SCO Linux Server 4.0 is the 2.4.19 Linux kernel" and that "[n]ew features" include "improved journaling file system support". ( 163.) SCO's Technical Overview of SCO Linux 4.0 even emphasized that its product included "JFS (Journaled File System Developed by IBM)". ( 164 (emphasis added).)

Moreover, as a member of UnitedLinux, SCO gave up any intellectual property rights that it might have had in most of its UnitedLinux products (SCO Linux 4.0), including the allegedly misused material. In May 2002, Caldera joined with other Linux vendors to form UnitedLinux. ( 156.) Pursuant to the terms of the UnitedLinux joint Development Contract ("JDC") and the Master Transaction Agreement ("MTA"), the members of UnitedLinux, including SCO, assigned to UnitedLinux (with exceptions not relevant here) ownership of all the intellectual property rights held by the members in software developed by UnitedLinux. ( 251.) Hence, SCO has expressly relinquished its intellectual property rights over the pertinent content of SCO Linux 4, including the IBM contributions thereto that allegedly violated the Agreements.


56

SCO's knowing and intentional abandonment of its alleged claim to materials that IBM contributed to Linux demonstrates that SCO has waived its breach of contract claims based on such materials. Topps Chewing Gum, 686 F. Supp. at 408 (finding waiver on summary judgment based on "undisputed acts or language [of defendant] inconsistent with [its] purpose to stand upon [its] rights").

Finally, although SCO claims to have "discontinued" distributing any products containing the source code it claims IBM improperly disclosed, SCO continued to do so after it filed this lawsuit. ( 165-69.) For example, SCO released its "SCO Linux Server 4.0 for the Itanium Processor Family" product on April 14, 2003, after SCO filed its original Complaint. As with its earlier release of SCO Linux Server 4.0, SCO's product announcement proclaimed that the new features of this product included "improved journaling file system support"'. ( 166.) Invoices and other documentation produced by SCO to date for its Linux products further reflect SCO's distribution of products containing the code SCO claims IBM improperly contributed to Linux until at least January 2004. ( 167.) Likewise, SCO continued to make the Linux 2.4 kernel available for download from its website well after it commenced this lawsuit. ( 168.) This code was still available on SCO's website as recently as the end of 2004. ( 168.) The version of Linux available from SCO's website includes code it claims IBM disclosed in violation of its contracts. ( 168.)

Given SCO's extensive promotion and sale of Linux, and of the specific code contributed by IBM therein, before commencing this suit against IBM and even after, SCO has waived any right to claim that IBM breached its contracts by disclosing such code. SCO cannot openly accept the benefits of IBM's contributions to Linux, and then claim that such contributions were


57

improper. SCO's claims therefore fail as a matter of law for this reason also. See e.g., Sec. Indus. Automation Corp. v. United Computer Capital Corp., 723 N.Y.S.2d 668, 669 (N.Y. App. Div. 2001) (affirming grant of plaintiff's cross-motion for summary judgment where defendant's conduct demonstrated waiver of contract claim); T.W.A. Trading, Inc. v. Gold Coast Freightways. Inc., No. 01 -900, 2002 WL 1311648, at *1(N.Y. App. Term Apr. 2, 2002) (granting defendant's cross-motion for summary judgment after finding waiver of contract claim based on plaintiffs conduct) (Ex. B hereto).


IV. SCO'S CLAIM RELATING TO RCU ARE BARRED BY THE STATUTE OF LIMITATIONS.

Both New York and Utah apply a six year statute of limitations for breach of written contract actions. N.Y. C.P.L.R. 213 (McKinney 2006); Utah Code Ann. 78-12-23 (West 2006). "A cause of action for damages for breach of a nondisclosure, agreement accrues on the date that the protected information was disclosed, and it does not continuously accrue upon subsequent disclosures". Dolgoff Holophase, Inc. v. E.I. Du Pont de Nemours & Co., 622 N.Y.S.2d 769, 770 (N.Y. App. Div. 1995) (holding that breach of nondisclosure agreement was barred by the statute of limitations) (citing Sachs v. Cluett Peabody & Co., 39 N.Y.S.2d 853, 857 (N.Y. App. Div. 1943), aff'd, 53 N.E.2d 241 (N.Y. 1944) (per curiam); Sporn v. MCA Records, 451 N.Y.S.2d 750,751 (N.Y. App. Div. 1982).15

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Sequent publicly disclosed RCU more than six years prior to the commencement of the case (in March 2003), and SCO's claim relating to RCU is therefore barred by the statute of limitations. Sequent filed a patent application for RCU on July 19, 1993, and the patent issued on August 15, 1995. ( 261.) The Linux RCU and the Dynix RCU are, as IBM's Paul McKenney testified, implementations of the same general concepts embodied in that patent. ( 261.) By filing the patent, Sequent ceased holding RCU "in confidence for AT&T" ( 17) as SCO contends (incorrectly) it was required to do, and thus breached the Software Agreement according to SCO's mistaken theory. Pursuant to law, the RCU patent provided a "written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and ... set forth the best mode contemplated by the inventor of carrying out his invention." 35 U.S.C.A. 112 (West 2006).

Courts have found claims barred by the statute of limitations in similar circumstances. See Mopex Inc. v. Am. Stock Exch., No. 02-1656, 2002 WL 342522, at * 11 (S.D.N.Y. Mar. 5, 2002) (plaintiffs' claim of breach of confidentiality agreement was barred by six-year statute of limitations where defendant disclosed plaintiffs' trade secrets in an application to the SEC in 1994, but plaintiff failed to bring claim for breach of that agreement until 2001) (Ex. H hereto); Dolgoff Holophase, 622 N.Y.S2d at 770 (plaintiff's claim for breach of nondisclosure

59

agreement was time-barred where defendant disclosed alleged confidential infomation in a patent application and through the publication of a hologram).


60

Conclusion

For the foregoing reasons, summary judgment should be entered in favor of IBM and against SCO on SCO's claims for breach of contract (SCO's First, Second,Third and Fourth Causes of Action).

DATED this 25th day of September, 2006.

SNELL & WILMER L.L.P.

____[signature]___
Alan L. Sullivan
Todd M. Shaughnessy
Amy F. Sorenson

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler
David R. Marriott

Attorneys for Defendant/Counterclaim-Plaintif
International Business Machines Corporation

Of counsel:

INTERNATIONAL BUSINESS MACHINES CORPORATION
Alec S. Berman
[Address]
[Phone]

Attorneys for Defendant/Counterclaim-Plaintiff International
Business Machines Corporation


4 The undisputed facts are cited in this Part as ' __", referring to the relevant paragraph number(s) in the foregoing "Statement of Undisputed Facts".

5 SCO's claims for breach of the Sublicensing Agreements are merely derivative of and depend entirely upon its claims relating to the Software Agreements, ( 180-181).

6 As SCO's contract claims are before this Court based on diversity jurisdiction, Utah choice of law rules determine the applicable law. See Elec. Distribs., v. SFR. Inc., 166 F.3d 1074, 1083 (10th Cir. 1999). Utah law provides that the parties' choice of law in a contract should be respected. See id. at 1083-84; see also Glezos v. Frontier Invs. 896 P.2d 1230, 1234 (Utah Ct. App. 1995).


7 Under SCO's theory, it has the right to control the work of the hundreds of UNIX System V licensees who at any time used some source code from UNIX System V in one of its own computer programs. This would mean that SCO has the right to control, for example, all of the source code for all of the different functionalities in Hewlett Packard's HP-UX operating system and SGI's IRIX operating system, among others. (See 284.)


8 See also Stanley Tulchin Assocs. Inc., v. Vignola 186 A.D.2d 183, 185 (N.Y App. Div. 1992) (holding unenforceable that portion of a restrictive covenant requiring the employee to treat the "'Know-How' he gained as an employee as confidential and ... neither use nor disclose such 'Know-How' to third parties for a period of three years after his employment"); Reed, Roberts, 353 N.E.2d at 593 (holding a restrictive covenant unenforceable where "[a] contrary holding would make ... specialists in certain aspects of an enterprise virtual hostages of their employers"); Restatement (Third) of Unfair Competition 41 cmt. a (2006) ("[A] nondisclosure agreement that encompasses information that is generally known or in which the promisee has no protectable interest such as a former employee's promise not to use information that is part of the employee's general skill and training (see 42, Comment d), may be unenforceable as an unreasonable restraint of trade.")


9 This is not an academic concern. UNIX System V is generally available without restriction to the general public and therefore freely available under the terms of the Agreements.


10 See also Johnson v. Werner, 407 N.Y.S.2d 28, 31 (N.Y. App. Div. 1978) (noting that ambiguities in a form contract must be resolved against the author); Rieter v. Tavella, 549 N.Y.S.2d 889, 889 (N.Y. App. Div. 1990) (same).



11 See also McManus v. Board of Educ. of Hempstead Union Free School Dist., 87 N.Y.2d 183, 186-187 (N.Y, 1995) (Estoppel is a bar that "precludes a party from denying a certain [] state of facts exists to the detriment of another party who was entitled to rely on such facts and had acted accordingly.'); Sassower v. Barone 447 N.Y.S.2d 966, 971 (N,Y. App, Div. 1982) ("The doctrine of equitable estoppel 'prohibits a person, upon principles of honesty and fair and open dealing, from asserting rights, the enforcement of which would, through his omissions or commissions, work fraud and injustice.'" (quoting Rothschild v. Title Guar. & Trust Co., 97 N.E. 879 (N.Y. 1912)).

12See also Besicorp Group Inc. v. Enowitz, 652 N.Y.S.2d 366,369 (N.Y. App, Div. 1997) (Under equitable estoppel, "a party is 'precluded from asserting rights against another who has justifiably relied upon such conduct and changed his position so that the will suffer injury if the former is allowed to repudiate the conduct'") (quoting Black's Law Dictionary 538 6th ed. 1990)); Kearns v. Manufs. Hanover Trust Co., 272 N.Y.S.2d 535 (N.Y. Sup. Ct. 1966) ("An equitable estoppel in pais has been defined as the effect of the voluntary conduct of a party, whereby he is absolutely precluded, both in law and in equity, from asserting rights which might have otherwise existed, either of property, or of contract, or of remedy, as against another person who has in good faith relied upon such conduct, and has been led thereby to change his condition for the worse, and who, on his part, acquires some corresponding right, either of property or contract, or of remedy." (quoting Oswego Falls Corp. v. City of Fulton, 265 N.Y.S. 436, 443 (N.Y. Sup. Ct. 1933)).


13 Under Utah law: "A waiver is the intentional relinquishment of a known right. To constitute waiver, there must be an existing right, benefit or advantage, a knowledge of its existence and an intention to relinquish it." In Re of Flake, 71 P.3d 589, 599 (Utah 2003) (quoting Soter's Inc. v. Deseret Fed. Sav. & Loan Ass'n, 857 P.2d 935, 942 (Utah 1993)).


14 See also In Re Estate of Flake, 71 P.3d 589, 599 (Utah 2003) (holding that waiver occurs under Utah law when a party intentionally acts in a manner inconsistent with its contractual rights).


15See also Lemelson v. Carolina Enter., Inc., 541 F. Supp. 645, 660 (S.D.N.Y 1982) ("If the basis for the theory of continuing wrong lies in the fear that 'continuing use of a trade secret constitutes continuous jeopardy to the rightful owner's protection (because) the wrongful user might tend to make the secret generally known,' ... full-scale disclosure through the issuance of a patent renders the continuing tort theory inapplicable to the instant case. Hence, the issuance of the -059 patent totally destroyed any value the trade secret might have had, and the only action available to plaintiff was one for misappropriation and complete destruction of the secret upon such issuance and not for any future or continued use by defendants,") (quoting M & T Chems., Inc. v. International Business Machines Corp., 403 F. Supp. 1145, 1149 (S.D.N.Y, 1975)).


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CERTIFICATE OF SERVICE

I hereby certify that on the 25th day of September, 2006, a true and correct copy of the
foregoing was served by U.S. Mail, postage pre-paid, to the following:

Brent O . Hatch
Mark F. James
HATCH, JAMES & DODGE, P.C.
[Address]

Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
[Address]

Robert Silver
Edward Normand
BOIES, SCHILLER & FLEXNER LLP
[Address]

/S/ Amy F. Sorenson


62

CERTIFICATE OF SERVICE

I hereby certify that on the 29th day of September, 2006, a true and correct copy of the
foregoing was sent by U.S. Mail, postage pre-paid to the following:

Brent O . Hatch
Mark F. James
HATCH, JAMES & DODGE, P.C.
[Address]

Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
[Address]

Robert Silver
Edward Normand
BOIES, SCHILLER & FLEXNER LLP
[Address]

/S/ Todd M. Shaughnessy


63

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Exhibits

Ex 1 - SCO's original Complaint

Ex 2 - SCO's Amended Complaint

Ex 3 - SCO's Second Amended Complaint

Ex 5 - SCO's Answer to IBM's Second Amended Counterclaims

Ex 11 - IBM's First Set of Interrogatories and First Request for the Production of Documents

Ex 12 - IBM's Second Set of Interrogatories and Second Request for the Production of Documents

Ex 32 - SCO's Supplemental Response to Defendant's First Set of Interrogatories

Ex 33 - SCO's Revised Supplemental Response to IBM's First and Second Set of Interrogatories

Ex 34 - SCO's Supplemental Response to IBM's Second Set of Interrogatories and Second Request for the Production of Documents

Ex 43 under seal - SCO's Second Revised Supplemental Response to IBM's Sixth Set of Interrogatories

Ex 44 - SCO's Response to IBM's Seventh Set of Interrogatories

Ex 45 - SCO's Objections and Responses to Part of IBM's Second Set of Requests for Admission

Ex 53 under seal - SCO's Interim Disclosure of Materials Allegedly Misused by IBM

Ex 54 under seal - SCO's Disclosure of Materials Allegedly Misused by IBM

Ex 55 - Hon. Brooke C. Wells' Order Granting IBM's Motions to Compel Discovery and Requests for Production or Documents, dated December 12, 2003

Ex 56 - Hon. Brooke C. Wells' Order Regarding SCO's Motion to Compel Discovery and IBM's Motion to Compel Discovery, dated March 3, 2004

Ex 57 - Hon. Dale A. Kimball's Memorandum Decision Order, dated February 8, 2005

Ex 58 - Hon. Dale A. Kimball's Order, dated July 1, 2005

Ex 59 - Hon. Brooke C. Wells' Order Granting in Part IBM's Motion to Limit SCO's Claims, dated June 28, 2006

Ex 62 - IBM's Memorandum in Support of its First Motion to Compel Discovery

Ex 63 - IBM's Memorandum in Support of its Second Motion to Compel Discovery

Ex 64 - SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on IBM's Tenth Counterclaim for Declaratory Judgment of Non-Infringement

Ex 65 - IBM's Memorandum in Support of Its Cross-Motion for Partial Summary Judgment on Its Claim for Declaratory Judgment of Non-Infringement

Ex 66 - IBM's Memorandum in Support of its Motion to Limit SCO's Claims Relating to Allegedly Misused Materials

Ex 67 - IBM's Memorandum in Support of its Motion to Confine SCO's Claims to, and Strike Allegations in Excess of, the Final Disclosures

Ex 105 - 10-K/A, filed by Caldera Systems, Inc. for the fiscal year ended October 31, 2000

Ex 106 - 10-K, filed by Caldera International, Inc. for the fiscal year ended October 31, 2002

Ex 107 - 10-K, filed by Caldera Systems, Inc. for the fiscal year ended October 31, 2000

Ex 119 - Software Agreement (Number SOFT-000321) between AT&T Technologies and Sequent Computer Systems, Inc, ("Sequent"), dated April 18, 1985

Ex 120 - Sublicensing Agreement (Number SUB-00015A) between AT&T Technologies and IBM, dated February 1, 1985

Ex 121 - Sublicensing Agreement (Number SUB-000321A) between AT&T Technologies and Sequent, dated January 28, 1986

Ex 122 - Letter agreement Re: Software Agreement Number SOFT-00015, Sublicensing Agreement Number SUB-0015A and Substitution Agreement Number XFER-00015B, between AT&T Technologies and IBM, dated February 1, 1985

Ex 123

Ex 124

Ex 125 - Asset Purchase Agreement between Novell, Inc. and The Santa Cruz Operation, Inc., dated September 19, 1995

Ex 126 - Supplement No. 2 to the Software Agreement between AT&T Technologies and Sequent, dated January 28, 1986

Ex 127 - Software Agreement (Number SOFT-000302) between AT&T Information Systems, Inc. and The Santa Cruz Operation, Inc., dated May 6, 1987

Ex 128 - GNU General Public License

Ex 132 - redacted Letter from Brent O. Hatch to Todd M. Shaughnessy, dated April 19, 2004

Ex 134 - Letter from Mark J. Heise to David R. Mariott, dated February 4, 2004

Ex 135 - Letter from Joseph A. La Sala, Jr. to Ryan E. Tibbitts, dated October 7, 2003

Ex 136 - Letter from Joseph A. La Sala, Jr. to Ryan E. Tibbitts and Ronald A. Lauderdale, dated October 10, 2003

Ex 137 - Letter from Joseph A. La Sala, Jr. to Ryan E. Tibbitts, dated February 6, 2004

Ex 138 - Letter from Joseph A. La Sala, Jr. to Ryan E, Tibbitts and Ronald A. Lauderdale, dated February 11, 2004

Ex 139 - Letter from Jack L. Messman to Darl McBride, dated June 9, 2003

Ex 140 - Letter from Jack L. Messman to Darl McBride and Ronald A. Lauderdale dated June 12, 2003

Ex 141 - Letter from Darl McBride to Lucio A. Noto, dated May 12, 2003

Ex 142 - Form letter from Ryan E. Tibbitts to "Linux User", dated December 19, 2003

Ex 151 - Letter from Todd M. Shaughnessy to Edward Normand, dated December 5, 2005

Ex 161 - Declaration of Mike Anderson, dated September 13, 2006

Ex 162 - Declaration of Barry Arndt, dated September 14, 2006

Ex 167 - Declaration of Kathleen Bennett, including a copy of the files downloaded from SCO's Internet website on January 9, 2004, dated August 16, 2004

Ex 168 - Declaration of Steve Best, dated September 10, 2006

Ex 173 - Declaration of Wayne Boyer, dated September 11 , 2006

Ex 174 - Declaration of Robert F. Bucco, dated August 23, 2003

Ex 178 - Declaration of Thomas L. Cronan III, dated July 29, 2004

Ex 181 under seal - Expert Report and Declaration of Randall Davis

Ex 182 - Declaration of Michael J. DeFazio, dated October 3, 2003

Ex 183 - Declaration of Michael J. DeFazio, dated September 21, 2006

Ex 188 - Declaration of Ruth Forester

Ex 189 - Declaration of David W. Frasure, Oct. 7, 2003

Ex 190 - Declaration of David W. Frasure, March 28, 2004

Ex 191 - Declaration of David Frasure, September 21, 2006

Ex 193 - Declaration of Jim Freeman

Ex 194 - Declaration of Daniel Frye

Ex 196 - Declaration of John George

Ex 206 - Declaration of Venkata Jagana

Ex 207 - Declaration of Dion L. Johnson II

Ex 208 under seal - Expert Report and Declaration of Frans Kaashoek, dated July 14, 2006

Ex 210 - Declaration of Vivek Kashyap

Ex 211 - Declaration of Jim Keniston

Ex 216 - Declaration of Larry Kessler

Ex 217 - Declaration of Ira Kistenberg

Ex 218 - Declaration of David Kleikamp

Ex 219 under seal - Software License Agreement (Agreement # 125115) between Sun Microsystems, Inc. and The SCO Group, dated February 25, 2003 and bearing Bates numbers SCO1607394-405

Ex 221 - Declaration of Ransom Love

Ex 222 - Declaration of Shirley Ma

Ex 223 - Declaration of Mark Magee

Ex 225 - Declaration of Michael Mason

Ex 227 - Declaration of David McCrabb

Ex 228 - Declaration of Richard A. McDonough III

Ex 230 - Declaration of M. Douglas McIlroy

Ex 231 - Declaration of Paul McKenney

Ex 233 - Declaration of Jeffrey W. Mobley

Ex 235 - Declaration of Haren Babu Myneni

Ex 236 - Declaration of Scott Nelson

Ex 237 - Declaration of Hien Nguyen

Ex 239 - Declaration of Greg Jones

Ex 240 - Declaration of Joseph A. La Sala, Jr.,

Ex 242 - Declaration of Gregory Page

Ex 243 - Declaration of Mark Peloquin

Ex 246 - Declaration of Hal PorterEx 246

Ex 248 - Declaration of Ben Rafanello

Ex 250 - Declaration of Edward J. Riddle

Ex 252 - Declaration of David P. Rodgers

Ex 253 - Declaration of Thomas Roehr

Ex 254 - Declaration of Steven M. Sabbath

Ex 255 - Declaration of Peter H. Salus

Ex 257 under seal - Declaration of William Sandve, Jr., dated September 22, 2006

Ex 258 - Declaration of Dipankar Sarma

Ex 263 - Declaration of Nivedita Singhvi

Ex 266 - Declaration of Roger Swanson

Ex 268 under seal - Transcript of the December 2, 2005 Deposition of Paul E. McKenney

Ex 270 - Declaration of Joan Thomas

Ex 271 - Declaration of Jeanette L. Tilley

Ex 272 - Declaration of Linus Torvalds

Ex 274 - Declaration of Jay Vosburgh

Ex 275 - Declaration of Stephen D. Vuksanovich

Ex 276 - Declaration of Stephen D, Vuksanovich

Ex 279 - Declaration of Max B. Wicker, October 31, 2003

Ex 280 - Declaration of Max B. Wicker, September 21, 2006

Ex 281 - Declaration of Otis Wilson, December 11, 2003

Ex 282 - Declaration of Otis Wilson, dated April 26, 2004

Ex 283 under seal - Expert Report and Declaration of Robert Willig, dated July 17, 2006

Ex 285 under seal - Expert Report of Marc J. Rochkind, dated May 19, 2006

Ex 286 under seal - Expert Report of Evan Ivie, dated May 19, 2006

Ex 287 under seal - Rebuttal Report of Marc Rochkind, dated August 26, 2006

Ex 288 under seal - Expert Rebuttal Report of Evan Ivie, dated August 28, 2006

Ex 291 under seal - Declaration of Ron Clark, dated September 23, 2006

Ex 292 - Declaration or Martin Bligh

Ex 293 - Declaration of Patricia Gaughen

Ex 295 under seal - Transcript of the June 10, 2004 Deposition of David P. Rodgers

Ex 296 under seal - Transcript of the May 11, 2004 Deposition of Erik W. Hughes

Ex 297 under seal - Transcript of the May 11, 2004 Deposition of William M. Broderick

Ex 301 - Transcript of the June 10, 2004 Deposition of Otis L. Wilson

Ex 302 under seal - Transcript of the June 8, 2004 Deposition of David Frasure

Ex 310 under seal - Transcript of the January 17, 2996 Deposition of Roger Swanson

Ex 340 under seal - Transcript of the March 31, 2006 Deposition of Erik Hughes

Ex 346 under seal - Transcript of the August 25, 2006 Deposition of Otis Wilson

Ex 348 - "Caldera, Conectiva, SuSE, Turbolinux Partner to Create UnitedLinux, and Produce a Uniform Version of Linux for Business"

Ex 349 - "SCO Unveils SCO Linux 4.0, Powered by UnitedLinux"

Ex 350 - SCO product announcement for OpenLinux Server Release 3.1.1

Ex 351 - SCO product announcement for OpenLinux Workstation Release 3.1.1

Ex 352 - SCO product announcement for SCO Linux Server 4.0, Powered by UnitedLinux

Ex 353 - SCO product announcement for SCO Linux Server 4.0 for the Itanium Processor Family

Ex 364 - "Linux Kernel

Ex -367 - "SCO Puts Disputed Code in the Spotlight" by Lisa Bowman, CNET

Antone Gonsalves, titled Ex 368 - "SCO to Release Disputed Code this Week", by Antone Gonsalves, InternetWeek

Ex 369 - "Linux Community Scoffs at SCO's Evidence", by Lisa Bowman, The Globe and Mail

Ex 370 - "SCO, Open Source and the World", by Sam Williams, Salon

Ex 371 - "Utah Software Company Suing IBM",by Jed Boal, KSL.com

Ex 372 - "SCO Files for AIX Injunction Against IBM", by Maureen O'Gara, LinuxWorld.com

Ex 374 - "SCO's Lawyer Speaks, Says Nothing", by Maureen O'Gara, LinuxWorld

Ex 375 - "Linux Hunter SCO Puts Everything on the Line", by Holger Dambeck, Spiegel Online

Ex 383 - "Getting a glimpse at SCO's evidence", by Lisa Bowman, CNETNews.com

Ex 384 - "Before Multics there was chaos, and afterwards, too"

Ex 385 - "The Evolution of the Unix Time-sharing System" by Dennis M. Ritchie Ex 386, Ex 387 - The UNIX system begins to take shape"

Ex 388 - "It looked like an operating system, almost"

"Sharing UNIX with the rest of the world"

Ex 391 - "Unix"

Ex 396 under seal - Document titled "Technical Overview of SCO Linux Server 4.0, Powered by UnitedLinux"

Ex 398 under seal - Document titled, "SCO Linux Educational Materials: Learning Unit 001"

Ex 407 - "UnitedLinux Releases Version 1.0"

Ex 408 - "UnitedLinux Signs IBM and AMD as First Technology Partners"

Ex 414 - Transcript of December 5, 2003 Hearing before Hon. Brooke C. Wells

Ex 418 - Transcript of October 7, 2005 Hearing before Hon. Dale A. Kimball

Ex 423 - Transcript of conference call, "The SCO Group Conference Call to Provide Updates on IBM lawsuit, UNIX Ownership and Copyrights"

Ex 427 - Transcript of November 18, 2003 Conference Call, titled "SCO Expands Scope of its Agreement with Boies, Schiller & Flexner LLP And Provides 4th Quarter Financial Guidance"

Ex 440 - "Caldera and Corsair", Linux Journal

Ex 441 - "Embedded Linux Moved To Top Priority At Lineo, Inc., Formerly Known As Caldera Thin Clients, Inc."

Ex 442 - "Caldera Open Linux Product To Obtain Posix And Fips Certifications, And The X/Open Brand For Unix 95 And Xpg4 Base 95"

Ex 444 - Amendment No. 2 to the Asset Purchase Agreement between Novell, Inc. and The Santa Cruz Operation, Inc.

Ex 471 under seal - Document titled, "The Caldera Connection", dated October 2000

Ex 472 under seal - Email from Ransom Love to Jeff Hunsaker, regarding "Rite Aid Corporation"

Ex 480 - "Commentary: Will This Feud Choke the Life Out of Linux?", by Otis Port, BusinessWeek

Ex 481 - Scheduling Order Stipulation

Ex 486 under seal - Exhibit 3(a) from the May 11, 2004 Deposition of Erik Hughes

Ex 487 - Excerpt from book by Peter H. Salus, titled A Quarter Century of UNIX

Ex 488 - Unix Sys. Labs. Inc. v. Berkeley Software Design, Inc.

Ex 492 - Software Agreement (Agreement No. SOFT-00015) between AT&T Technologies, Inc. and IBM, dated February 1, 1985

Ex 493 - U.S. Patent No. 6,111,572

Ex 495 - U.S. Patent No. 5,175,852

Ex 496 - U.S. Patent No. 5,421,011

Ex 497 - U.S. Patent No. 5,428,171

Ex 498 - U.S. Patent No. 5,442,758

Ex 499 - U.S. Patent No. 5,185,861

Ex 502 - Amendment No. 1 to the Asset Purchase Agreement between Novell, Inc. and The Santa Cruz Operation, Inc.

Ex 503 - U.S. Patent No. 6,275,810

Ex 505 under seal - Set of Invoices from SCO Operations, Inc.

Ex 507 under seal - Transcript of the November 15, 2005 Deposition of Timothy J. R. Wright

Ex 508 - IBM Technical Disclosure Bulletin by V. A. Albaugh, titled "Combined Event Performance Trace for AIX

Ex 509 - U.S. Patent No. 4,742,447

Ex 510 - U.S. Patent No. 4,742,450

Ex 511 - U.S. Patent No. 4,918,653

Ex 512 - U.S. Patent No. 5,032,979

Ex 559 - Excerpts from book titled HP-UX Reference Release 10.0 Volume 3 (of 4) , published by Hewlett-Packard Co. in 1983

Ex 560 - Excerpts from book titled AIX Operating System: Programming Tools and Interfaces, published by IBM in 1989

Ex 561 - Excerpts from book titled Solaris Porting Guide, Second Edition, published by Sun Microsystems, Inc. in 1995

Ex 562 - Excerpts from book titled Solaris Multithreaded Programming Guide, published by Sun Microsystems, Inc. in 1995

Ex 563 - Excerpts from book by Rudy Chukran, titled Accelerating AIX: Performance Tuning for Programmers and System Administrators, published by IBM in 1998

Ex 564 - Excerpts from book by David A. Kelly, titled AIX/6000: Internals and Architecture, published by IBM in 1996

Ex 565 - Excerpts from book by Robert F. Sauers and Peter S. Weygant, titled HP-UX: Tuning and Performance, Concepts, Tools & Methods, published by Hewlett-Packard Co. in 2000

Ex 566 under seal - Document titled, "Caldera OpenLinux System Information, OpenLinux Version 1.0"

Ex 567 - Excerpts from book by Phil Colledge, titled The Advanced Programmer's Guide to AIX 3.x, published by IBM in 1994

Ex 568 - Excerpts from book by John R. Graham, titled Solaris: Internals & Architecture, published in 1995

Ex 569 under seal - Letter from J. M. Baccash to Ramesh Subramanian, dated November 30, 1993

Ex 570 - Excerpts from book titled Guide to Parallel Programming, on Sequent Computer Systems, Second Edition, published by Sequent in 1987

Ex 571 - Excerpts from book titled Solaris Multithreaded Programming Guide, published by Sun Microsystems, Inc. in 1995

Ex 584 under seal - Transcript of January 11, 2005 Deposition of Stephen D. Vuksanovich

Ex 596 - Declaration of Paul McKenney, dated September 24, 2006


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