Here's SCO's Redacted Memorandum in Opposition to IBM's Motion for Summary Judgment on SCO's Interference Claims (SCO's Seventh, Eighth and Ninth Causes of Action) as text.
So you can compare, here is
IBM's Memorandum in Support of its Motion for Summary Judgment on SCO's Interference Claims (SCO's Seventh, Eighth and Ninth Causes of Action), the one #907 is opposing.
Brent O . Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE
[address, phone, fax]
Stuart H. Singer (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Stephen N. Zack (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Attorneys for The SCO Group, Inc.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
THE SCO GROUP, INC.,
SCO'S MEMORANDUM IN
OPPOSITION TO IBM'S MOTION
FOR SUMMARY JUDGMENT ON
SCO'S INTERFERENCE CLAIMS
(SCO'S SEVENTH, EIGHTH AND
NINTH CAUSES OF ACTION)
FILED IN REDACTED FORM
[ORIGINALLY FILED UNDER SEAL]
Case No. 2:03CV0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke C. Wells
TABLE OF CONTENTS
PRELIMINARY STATEMENT ........................................................................................ 1
SCO'S STATEMENT OF MATERIAL FACTS................................................................. 4
A. Santa Cruz's Strong Position In The Unix-On-Intel Market ................................ 4
B. IBM Recognized SCO's Strong Position In The Unix On Intel Market ............... 5
C. IBM's Tortious Interference With SCO's Business Relations In The Unix-On-
Intel Market ......................................................................................................... 6
D. SCO Did Not Encourage Its Customers Or Partners To Use Linux Instead Of
E. IBM's Threats And Efforts To Prevent SCO From Asserting Intellectual
Property Rights .................................................................................................... 8
F. Specific Impacts On SCO's Key Partners And Investors ................................... 13
G. IBM's Interference With Novell ........................................................................ 19
H. SCO Properly Disclosed Its Tortious Interference Claims ................................. 25
I. IBM Blocked Key Discovery On Key Topics Relating To SCO's Tortious
Interference Claims, And Now Purports To Introduce Evidence On Those Very
Topics ................................................................................................................ 27
SUMMARY JUDGMENT STANDARD ................................................................................ 27
ARGUMENT ......................................................................................................................... 27
I. SCO'S RESPONSE TO IBM'S STATEMENT OF ALLEGED UNDISPUTED
II . CIRCUMSTANTIAL EVIDENCE FROM WHICH TORTIOUS
INTERFERENCE MAY BE INFERRED PRECLUDES SUMMARY
III . A MATERIAL ISSUE OF DISPUTED FACT EXISTS PRECLUDING
SUMMARY JUDGMENT ON SCO'S SEVENTH AND NINTH CAUSES OF
A. IBM Intentionally Interfered with SCO's Business Relations in the Unix on Intel
Market. .............................................................................................................. 31
1. IBM’s Interference with the Unix-On-Intel Market Was Intentional ..................................................................................32
2. IBM Interfered with the Unix-on-Intel Market Through Improper Means.........................................................................................39
3. IBM’s Interference with the Unix-On-Intel Market Injured SCO ...................................................................................................43
IV. SCO’S COMPLAINT AND THE EVIDENCE SUBMITTED ESTABLISH A CAUSE OF ACTION FOR TORTIOUS INTERFERENCE WITH SPECIFIC BUSINESS RELATIONSHIPS (SEVENTH, EIGHTH AND NINTH CAUSES OF ACTION).....................................................................................................46
A. IBM Tortiously Interfered With SCO’s Business Relations with Hewlett Packard, Oracle, Intel, and Computer Associates. .............................................47
B. IBM Tortiously Interfered With SCO’s Business Relations with Novell. ..........50
C. IBM Tortiously Interfered With SCO’s Business Relations with Baystar. .........53
TABLE OF AUTHORITIES
Bower v. Stein Eriksen Lodge Owners Association, Inc.,
201 F. Supp. 2d 1134 (D. Utah 2002) ........................................................................ 37, 38, 41
Cherberg v. Peoples Nat'l Bank of Washington,
564 P.2d 1137, 1143 (Wash. 1977) ........................................................................................33
Danjanovich v. Robbins,
2006 WL 1348204 (D. Utah May 15, 2006) ..........................................................................54
Frontier Refining, Inc. v. Gorman-Rupp Company,
136 F. 3d. 695 (10th Cir. 1998) .............................................................................................54
Leigh Furniture and Carpet Co. v. Insom,
657 P.2d 293 (Utah 1982)...............................................................................................passim
Madison v. Deseret Livestock Co.,
574 F.2d 1027 (10th Cir. 1978) .............................................................................................32
Malek v. Martin Marietta Corp.,
859 F. Supp 458 (D. Kan. 1994)...................................................................................... 53, 54
McCorvey v. Utah State Dep't of Transp.,
868 P.2d 41 (Utah 1993) ....................................................................................................... 48
McNeil v. Security Benefit Life Ins. Co.,
28 F.3d 891 (8th Cir. 1994) .................................................................................................... 40
Motley v. Marathon Oil Co.,,
71 F. 3d 1547 (10th Cir. 1995) ..............................................................................................54
Mumford v. ITT Commercial Finance Corp.,
858 P.2d 1041 (Ut. Ct. App. 1993) ............................................................................ 35, 36, 38
O'Neil v. Cont'l Ill. Nat'l Bank & Trust Co.,
No. 84-9398, 1985 WL 2710 (N.D. Ill. Sept. 25, 1985) ........................................................39
Perez v. Volvo Car Corp.,
247 F. 3d 303 (1st Cir. 2001) ................................................................................................. 53
Perkins v. Chris Hunt Water Hauling Contractor,
2002 WL 1753177 (10th Cir. July 29, 2002) .........................................................................32
Ricks v. Xerox Corp.,
877 F. Supp 1468 (D. Kan. 1995) ..........................................................................................54
Sampson v. Richins,
770 P.2d 998, (Ct. App. Utah 1989) ................................................................................passim
State National Bank v. Academia, Inc.,
802 S.W.2d 282 (Tex. Ct. App. 1990) ...................................................................................39
Steffensen v. Smith's Mgmt. Corp.,
820 P.2d 482 (Utah Ct. App. 1992) .......................................................................................48
United States v. Bald Eagle Realty,
21 F. Supp.2d 1332 (D. Utah 1998)................................................................................passim
U.S. v. First Sec. Bank of Utah, N.A.,
208 F.2d 424 (10th Cir. 1953) ............................................................................................ 48
Westside Center Assocs. v. Safeway Stores 23, Inc.,
42 Cal. App. 4th 507 (Cal. Ct. App. 1996) ............................................................................40
Plaintiff, The SCO Group ("SCO") submits the following Memorandum in Opposition
to Defendant IBM's Memorandum in Support of its Motion for Summary Judgment on SCO's
Interference Claims (SCO's Seventh, Eighth, and Ninth Causes of Action) dated September 25, 2006 (the “Interference Motion”).
IBM has moved for summary judgment on SCO's seventh, eighth and ninth causes of
action, all of which arise from IBM's tortious interference with SCO's prospective and existing
business relations. IBM's motion for summary judgment on these causes of action should be
denied because SCO has adduced evidence sufficient to create a genuine factual dispute on
each element of its tortious interference claims. SCO's claims for tortious interference turn in
part on the same conduct that forms the basis for SCO's other causes of actions: namely, IBM's
wrongful conduct in executing its Linux strategy, including breach of contract,
misrepresentation of its rights and actions, copyright infringement and unfair competition.
Through this wrongful conduct, IBM interfered with SCO's business relations in the Unix-on-Intel market, which SCO had undisputedly dominated. In its simplest terms, IBM gave SCO's
most significant asset--its protected intellectual property--to the Linux community, and
thereby facilitated the development of a free UNIX clone that displaced SCO's UNIX products
in a market they had previously dominated. IBM then directly undermined support for SCO with SCO's partners and an investor, in order to isolate SCO and remove its funding so that SCO could not protect its intellectual property.
In arguing that summary judgment is appropriate, IBM misapprehends the law
applicable to SCO's tortious interference claims and misstates (or ignores altogether) critical
evidence that creates, at a minimum, genuine issues of material fact precluding the relief
requested. IBM posits (at 2-3) three principal bases for summary judgment: (1) that the seven
businesses that SCO contends were interfered with "flatly den[y]" any interference and that
Utah law does not recognize an "entire market" basis for recovery; (2) IBM's acts are
privileged because they were not taken with an improper purpose; and, (3) SCO has not
demonstrated a "causal link between any act of IBM and any specific injury to SCO." In each
instance, however, IBM is simply incorrect.
In making its first point, IBM overstates the evidence it relies upon in support of the Motion and neglects to identify the existence of significant and material contrary evidence that demonstrates, without equivocation, that summary judgment is inappropriate. By example,
IBM threatened SCO that it would cut off all of SCO's business ties and instruct other IBM
business partners to do the same. Further, contrary, to the assertion of IBM that Utah law does
not recognize a cause of action for interference with SCO's business relations in the "Unix-on-Intel market", the Utah Supreme Court's decision in Leigh Furniture and Carpet Co. v. Insom,
657 P.2d 293 (Utah 1982), proves to the contrary. As such, the first argument proffered by
IBM provides no basis for the grant of summary relief.
IBM's second basis for summary judgment is equally without merit. In arguing that the
Motion should be granted, IBM dispenses with the totality of Utah law on tortious interference,
arguing instead that SCO must prove that IBM acted with improper purpose. In actuality, Utah
law provides for recovery where the interference was undertaken with an improper purpose or
through the use of improper means. A plaintiff is only required to prove one or the other, not
both. The record evidence adduced in this case clearly shows that IBM employed improper
means in interfering with SCO's business relationships by, among other things, (1) improperly
placing technology that SCO controlled into Linux, which technology SCO had the right to
insist not be publicly disclosed; (2) misrepresenting to the public the derivation of some of that
technology; (3) violating SCO copyrights; and (4) committing the common law tort of unfair
competition as it abandoned its Project Monterey partnership with SCO in favor of Linux.1
These acts, taken together with IBM's other wrongful conduct in encouraging IBM partners
like Hewlett Packard, Intel, Oracle, Computer Associates, Baystar, and Novell to terminate
their business relationships with SCO, demonstrate that this is a quintessential example of a
case not appropriate for summary judgment.
The last argument in support of IBM's Motion is that SCO failed to show a "causal
link” between any act of IBM and specific injury to SCO. IBM essentially asks this Court to
reject record evidence from which such a link can be found in favor of several conclusory, self-
serving declarations from the very companies with which IBM is alleged to have successfully
interfered--and, incidentally, companies that substantially benefited from IBM's Linux
strategy. In making this quantum leap in logic, IBM requires this Court to weigh the
credibility of witness testimony and completely discount contrary evidence, both of which are
improper at this stage of the proceeding. SCO's executives and employees have testified
regarding the detrimental impact of IBM's acts of interference on its business, which testimony
must be construed in the light most favorable to SCO as the non-moving party, creating triable
issues of fact for a jury.
SCO'S STATEMENT OF MATERIAL FACTS
A. Santa Cruz's Strong Position In The Unix-On-Intel Market
1. Santa Cruz Operation (hereinafter “SCO”) was founded 1979 as a UNIX system porting and consulting company. (Ex. 250.) 2 In 1983, SCO delivered the first packaged UNIX System for Intel processor-based PCs, and continued to focus on UNIX systems on Intel processors (referred to as Intel architecture or simply, IA). (Id.)
2. As one industry analyst described it, “SCO established the market for advanced operating systems on industry-standard Intel platforms in the 1980s, pioneering such features as a full 32-bit implementation, security, and multiprocessing.” (Ex. 244.)
3. At least as far back as 1989, SCO was described as “the largest vendor of Unix-like operating systems on Intel-based computers.” (Ex. 246.)
6. The strength of SCO’s market position at this time was described in detail in the expert reports of Dr. Gary Pisano and Dr. Jeffrey Leitzinger, and those findings are incorporated herein by reference. (Ex. 284 at 40-46; Ex. 281 at 9-20.)
B. IBM Recognized SCO's Strong Position In The Unix On Intel Market
9. In addition, IBM identified for Gerstner SCO’s key market segments, customers, and applications. (Id. at 1710136590-91.)
C. IBM's Tortious Interference With SCO's Business Relations In The Unix-On-Intel Market
11. In early 2000, IBM began disclosing proprietary UNIX technologies to Linux for the purpose of commercially hardening Linux for use in core enterprise functions. (Ex. 284 at 31-34, 50; Ex. 281 at 45-48.)
12. The competitive reasons for IBM’s strategy are discussed in detail in the reports of Drs. Pisano and Leitzinger, as well as Dr. Avner Kalay, and those discussions are incorporated herein by reference. (Ex. 284 at 58; Ex. 286 at 40-42; 49; Ex. 281 at 28-45; Ex. 279 at 29-35.)
13. The impact of IBM’s disclosures on SCO’s business was direct, immediate and profound. (Ex. 286 at 20; Ex. 281 at 56-58; 62-69; Ex. 279 at 12, 27.)
SCO’s revenues dropped as customers migrated to the Linux operating system, as noted by both industry analysts and SCO distributors. (Ex. 286 at 25-26.)
14. The reason for this swift impact on SCO’s business was that IBM’s disclosures to the Linux community enabled Linux to be used within corporations for the same functions as SCO’s UNIX operating systems. (Ex. 284 at 52; Ex. 286 at 31, 39; Ex. 281 at 54-56.)
15. In 1999, prior to IBM’s disclosures, Linux had not been used for these functions and did not compete with SCO’s UNIX operating systems. (Ex. 284 at 43; Ex. 286 at 19, 26; Ex. 281at 22-24.)
17. In 2000, even before the disclosures were implemented in Linux but after they were made, the expectation of such implementation impacted customers’ buying patterns and drove buyers away from SCO’s UNIX products to Linux. (Ex. 284 at 47-49; Ex. 286 at 48.)
18. The details of IBM’s commercial hardening of Linux are discussed in detail in the expert reports of Marc Rochkind and Evan Ivie, and those discussions are incorporated herein by reference. (Ex. 287 at 25-36; Ex. 277 at 32-33, 43-46, 56-58, 62.) SCO’s experts conclude that, but for IBM’s disclosures to Linux, Linux would not have been in a position to compete for the same functions with the same customers as SCO’s UNIX operating systems. (Ex. 286 at 39; Ex. 281 at 52-54.)
D. SCO Did Not Encourage Its Customers Or Partners To Use Linux Instead Of Unix
19. Contrary to IBM assertions at paragraph 50 of the Motion, and elsewhere, SCO did not encourage its partners or its customers to use or support Linux instead of Unix. Rather, SCO consistently positioned Linux as a complimentary solution to UNIX, and something that could be used in addition to (not in place of) UNIX. (Ex. 1 ¶ 3; Ex. 369 ¶ 3.)
21. Consistent with this message, and contrary to IBM assertions at paragraph 50 of the Motion, SCO did not encourage Oracle, Computer Associates, or Intel to support Linux instead of UNIX. To the extent SCO was involved in Linux activities with these customers, it was only after these companies had decided to support Linux. This was an effort to preserve some revenue in connection with these companies after they made a decision adverse to SCO’s UNIX business, i.e., an effort to mitigate its losses. (Ex. 1 ¶11; Ex. 369 ¶¶ 7, 19.)
E. IBM’s Threats And Efforts To Prevent SCO From Asserting Intellectual Property Rights
23. In late 2002 and early 2003, SCO began researching the intellectual property surrounding Linux. At this time, SCO discovered that customers were using its proprietary UNIX libraries with Linux – which was not permissible. (Ex. 165 ¶ 3.) SCO also ultimately discovered that Linux violated its System V copyrights and that IBM had disclosed proprietary UNIX technology to the Linux community in violation of its software licensing
agreements with SCO. See SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Contract Claims (SCO’s First, Second, Third and Fourth Causes of Action); SCO’S Memorandum in Opposition to IBM’s Motion for Summary Judgment on its Claim for Declaratory Judgment of Non-infringement (IBM’s 10th Counterclaim).
24. In response to such discoveries and customer requests, SCO attempted to implement a strategy in late 2002 and early 2003 (after the improper disclosures were already made and in an effort to mitigate its damages) by which customers could license from SCO the right to use SCO’s proprietary UNIX libraries with Linux. (Ex. 165 ¶ 3.) SCO later devised a license by which customers could legitimately use Linux more broadly, without violating SCO’s intellectual property rights. (Id.)
25. SCO presented its library licensing plan to multiple partners, including Oracle, Intel, Computer Associates, and was met with favorable response. (Ex. 9 ¶ 4.) Until IBM, no company objected to the plan or expressed disapproval. (Id.)
d) IBM ultimately persuaded SCO to delay its press release until January 2003, allegedly because IBM was concerned that the release would impact its ability to reach its December Linux-revenue numbers. (Ex. 165 ¶ 5.) Based upon the representations made by IBM, SCO agreed to push the release and the initiation of the program back to January 2003. (Id.)
e) IBM again expressed negativity about SCO’s efforts to protect its intellectual property in a call in mid-January 2003. This call included Mr. McBride and IBM executives Karen Smith and Bob Butler. (IBM Ex. 164 at 49:6 – 50:2.) While IBM again sought to dissuade SCO from issuing a press release about its plan, Mr. McBride, in that meeting or later, never gave any assurances to IBM that the press release would not go out. (Ex. 165 ¶ 6.).
f) On January 22, 2003, SCO issued its press release announcing the formation of its new business division, SCOsource, to manage the licensing of its intellectual property. (Ex. 201) The press release further explained that SCO had retained the law firm of Boies, Schiller and Flexner “to help research and advise SCO on the company’s intellectual property.” (Id. at 1.)
27. Just a day later, Ms. Smith began to execute on her threat that IBM would discontinue its business relationships with SCO:
28. IBM also conveyed its negativity about SCO’s plan to protect its rights to other SCO partners.
29. IBM engaged with SCO partners at a meeting or meetings referred to in the press as the “Chicago Seven Meetings”:
a) In July of 2003, representatives from seven different companies engaged or involved in the Linux business community met in Chicago. (IBM Ex. 164 at
78:12). The participants represented IBM, Novell, Computer Associates, Oracle, Dell, Intel and HP. (Id. at 83:9-84:17.)
b) The meeting was motivated by, at least in part, concerns shared by Linux distributors arising from SCO’s claims against IBM. (Ex. 256.)
c) The ostensible purpose of the “Chicago Seven” meeting was to discuss a distribution of Linux to which all of the partners would contribute (and, of course, benefit). (Ex. 256.) According to IBM’s vice president, the group discussed the respective investments each was making in the Open Source Development Labs (“OSDL”), including certification and testing of Linux. OSDL, notably, was not invited to participate in this discussion with the “Chicago Seven.” (Ex. 256.)
F. IBM’s Interference With SCO’s Key Partners And Investors
30. SCO’s relationship with HP began in the early 1980’s. (IBM Ex. 312 at 35:20-21) HP works with SCO as a Tier 2 vendor, an IHV, and an independent hardware vendor. (Ex. 1, ¶ 13.) HP does not consume SCO’s products directly; rather, they certify their hardware on SCO operating systems and various peripheral drivers. (IBM Ex. 312 at 35:21-
33. When SCO first proposed its SCOSource library licensing program to HP, the proposal was received without opposition. (Ex. 9 ¶ 4.)
34. Oracle and SCO’s business relationship began in approximately 1996. (IBM Ex. 312 at 61:21-62:1.)
35. Oracle is an independent software vendor (ISV), meaning that they provided software, such as database and other solutions, to their customers. For many years, Oracle would certify its software to run on SCO platforms such that customers using SCO’s operating systems could use Oracle’s software on those operating systems. (IBM Ex. 312 at 34:20-35:16; Ex. 369 ¶ 14a.)
36. Oracle certifications on SCO operating systems benefited SCO. While SCO made little revenue from Oracle directly, the Oracle certifications were important to both existing and prospective customers. (Ex. 369 ¶ 14)
37. After Linux became commercially hardened by IBM’s improper disclosures of SCO’s proprietary technology, Oracle decided to support only Linux on the Intel platform, and to forego its support for SCO’s Unix on Intel operating systems. (Ex. 369 ¶ 17.)
38. When SCO first proposed its SCOSource library licensing program to Oracle, the proposal was received without opposition. (Ex.9 ¶4; IBM Ex. 330 at 105:17-106:8.)
39. In the 2000 to 2001 time frame, after IBM had begun hardening Linux with SCO’s intellectual property, Oracle began to focus its efforts on Linux. (IBM Ex. 322 at 321:8-20; Ex. 369 ¶ 17.)
40. SCO’s business relationship with Oracle dwindled in the following years, as Oracle refused to certify on SCO’s UNIX operating systems. (Ex. 369 ¶ 20.)
Oracle only began taking this position after it had largely moved its business to enterprise Linux, which would not have been possible if IBM had not wrongfully advanced Linux to the point where it was a viable alternative for Oracle and others, as set forth above.
41. In 2003, Oracle withdrew OpenUnix8 certification. (Ex. 369 ¶ 20.) Although the parties once had a close working relationship,
SCO’s UNIX operating systems run on Intel architecture and Intel is the “foundation” of these operating systems. (IBM Ex. 312 at 32:1-6.)
44. SCO’s relationship with Intel began in 1979 as SCO “offered one of the first UNIX-like systems on Intel platforms for multi users and multitasking.” (IBM Ex. 312 at 64:9-12.)
47. However, from 2001-2003, Intel only supported a limited number of servers on UnixWare. REDACTED.
48. SCO’s relationship with Computer Associates (“CA”) began in the midto early 1990’s. (IBM Ex. 312 at 25:5-8)
REDACTED “various solutions that work on [SCO] operating systems, such as ARC Serve and Unicenter, Ingress . . . .”
34:2-8.) CA certification of their products and services on SCO operating systems would create revenue for SCO from other joint CA and SCO customers. (Ex. 369 ¶ 12.)
49. Computer Associates’ certification to SCO’s products has declined since 2003. (Ex. 369 ¶ 12.)
50. Baystar invested $50 million in SCO in October 2003. The investment had been made through a preferred stock transaction. (Ex. 165 ¶ 27.)
51. SCO sought the investment from Baystar to fund its ongoing operations, which included continuing development and marketing of its UNIX and other products,
protection of its intellectual property, and its lawsuits against IBM and other companies. (Ex. 165 ¶ 27).
54. Nevertheless, on April 15, 2004, Baystar sought redemption of its SCO shares.
55. However, Baystar never could substantiate, or even fully explain, the nature of its claims of breach against SCO.
56. SCO originally believed that Mr. Goldfarb’s erratic behavior was attributable to an interest he expressed to Mr. McBride early in his investment. Mr. Goldfarb stated: “Look, Darl I’m a trader, and I don’t really care whether your stock goes up or down, I just need it volatile because I can make money if it goes up and I can make money if it goes down.” (IBM Ex. 319 at 31:1-32:1; Ex. 165 ¶ 28.) Based on this comment, SCO suspected that Mr. Goldfarb’s difficult and troubling behavior was simply an attempt on his part to manipulate the stock of his company to his own advantage. (Id.).
57. However, following settlement of the dispute with Baystar, SCO learned that Mr. Goldfarb’s conduct and ultimate redemption of his shares had been spurred by the extreme pressure put on him from IBM. Mr. Goldfarb expressly stated to Mr. McBride that IBM had been “on him, on him, on him” to retract his support from SCO. (Ex. 165 ¶ 29.)
58. In the partial redemption of Baystar’s investment, SCO lost a significant source of funding for its ongoing operations and protection of its intellectual property. In April of 2004, SCO settled Baystar’s request for the return of its investment with a $13 million cash payment, and the issuance of approximately 2.1 million shares of common stock. In return, Baystar relinquished its preferred stock. The value of the cash and stock issued to Baystar pursuant to this resolution amounted to $20 million from SCO (Ex. 165 ¶ 30.)
G. IBM’s Interference with Novell
59. In 1995, Novell sold its entire UNIX-related business to SCO’s predecessor-in-interest The Santa Cruz Operation, Inc. (also referred to herein as “SCO”). See
Asset Purchase Agreement dated Sept. 19, 1995 between Novell and SCO (“APA”) Recital A, §§ 1.1(a), 1.3(a)(i), Schedule 1.1(a) (Ex. 38.)
60. The extrinsic evidence confirms that Santa Cruz bought the business REDACTED (Ex. 136) Extrinsic evidence confirms that SCO obtained Novell’s UNIX copyrights through the APA. (Ex. 39 ¶¶ 6-12; Ex. 40 ¶¶ 5-10, 12-16; Ex. 59.)
61. The contemporaneous documents confirm Novell’s view that Santa Cruz had acquired the full scope of the UNIX business and licenses including its intellectual property rights.
REDACTED (Ex. 136 (emphasis added)) The document thus plainly confirms Novell’s view that Santa Cruz had acquired the full scope of the UNIX business including the UNIX copyrights.
62. Moreover, Amendment No. 2 to the APA, which was executed on October 16, 1996, confirms that the APA transferred to SCO “the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies.” (Ex. 41 ¶ A.)
63. There was one limited exception to the wholesale transfer of Novell’s UNIX business to SCO: Novell retained the right to continue to receive and protect royalties paid by then-existing UNIX System V (“SVRX”) licensees for their ongoing distribution of binary products based on their UNIX flavors pursuant to SVRX sublicensing agreements (the “binary royalty stream”). (Ex. 38 §§ 1.2(a)-(b), 4.16(a); Id. Schedule 1.1(b), Item VIII
(excluding from asset sale “All right, title and interest to the SVRX Royalties, less the 5% fee for administering the collection thereof pursuant to Section 4.16 hereof”).) Otherwise, pursuant to the other provisions in the APA, SCO received complete ownership and control of all UNIX source code, including the exclusive right to license the source code for SCO’s own benefit and the right to enforce intellectual-property protections against licensees of the source code. (Ex. 39 ¶¶ 9-10; Ex. 40 ¶ 11; Ex. 42 ¶ 6; Ex. 41.)
64. The SVRX binary royalties were part of the consideration paid to Novell for the transfer of the UNIX assets to SCO. (Ex. 38 § 1.2(a)-(b)) The parties agreed to this limited exception because Santa Cruz was not able to pay up-front what Novell regarded as the value of the business; the future binary royalty stream bridged the price gap. (Ex. 39 ¶¶ 7, 9, 13; Ex. 40 ¶¶ 6, 9, 10.)
65. Near the end of 2002, SCO and Novell began communicating about the APA and SCO’s acquisition of the UNIX copyrights. Mr. McBride called Novell executive Greg Jones in November 2002 to discuss the intent of the APA and, specifically, the fact that the copyrights to Unix and Unixware had been transferred to SCO. Mr. Jones agreed with Mr. McBride. Mr. McBride then asked whether Mr. Jones had any paperwork confirming the parties’ understanding of the APA. Mr.. Jones committed to check and get back to him. (Ex. 165 ¶ 8; Ex. 9 ¶ 6.)
66. In December 2002 or early January 2003, Mr. Jones called Mr. McBride and explained that the documents relating to the APA were in storage and would be difficult to access. Instead, Mr. Jones proposed that someone at Novell simply sign a statement or letter confirming their mutual understanding that SCO had acquired the UNIX copyrights, rather
than trying to find the old documents in storage. Mr. McBride agreed with this proposal. (Ex. 165 ¶ 9; Ex. 9 ¶ 7.)
67. At no time in these conversations did Mr. Jones state or imply that SCO did not own the Unix and Unixware copyrights, and in fact consistently agreed with Mr. McBride’s statements that the copyrights had transferred to SCO. (Ex. 165 ¶ 10; Ex. 9 ¶ 11.)
68. However, Novell reversed course when IBM began speaking to Novell in early 2003. According to Novell’s CEO, Jack Messman, IBM and Novell had “multiple discussions” in the first four or five months of 2003. (Ex. 145 at 165:3-9) These discussions occurred shortly after SCO informed IBM that it intended to take steps to protect its intellectual property improperly included in Linux. (Ex. 165 ¶¶ 11, 12.)
69. In January 2003 – after IBM had been speaking to Novell – Mr. Jones called Mr. McBride and informed them that Novell would not issue the clarification they had previously discussed and agreed would be issued. Mr. Jones explained that it was not that Novell did not agree with SCO’s position, but that they did not want to be involved or to take any position. Mr. Jones explained that Novell was nonetheless “not interested in Unix anymore.” (Ex.165 ¶ 11; Ex.9 ¶ 12.)
70. On January 22, 2003, shortly after Mr. Jones refused to issue the clarification, Karen Smith of IBM informed Mr. McBride that IBM had “researched” SCO’s ownership of the UNIX copyrights, and “concluded” that SCO had not acquired the copyrights from Novell. (Ex. 165 ¶ 12.)
71. In 2003, Novell sent SCO a series of letters purporting to waive SCO’s right to enforce its UNIX license agreements against IBM. IBM general counsel was carbon
copied on the correspondence. (Ex. 139; Ex. 140.) Novell also made public announcements to the effect that Novell, not SCO, held the UNIX copyrights. (Ex. 165 ¶ 13.)
72. On June 3, 2003, Mr. McBride called Mr. Messman. Mr. McBride informed Mr. Messman’s that Novell’s public statements about the UNIX copyright ownership were false, and asked Mr. Messman if he had read Amendment 2 to the APA. Mr. Messman responded that he was not aware of Amendment 2. (Ex. 165 ¶ 13.)
73. Mr. McBride faxed Amendment 2 to Mr. Messman; Mr. Messman called Mr. McBride back shortly after receiving it. In this call, Mr. Messman agreed that – contrary to Novell’s public statements – Amendment 2 confirmed that Novell had transferred the Unix and UnixWare copyrights to SCO. (Ex. 165 ¶ 14.)
74. Mr. McBride explained to Mr. Messman that Novell’s false statements had caused injury to SCO and its shareholders. He then asked Mr. Messman if Novell and IBM had a conversation regarding Novell’s public statements about its ownership of the UNIX assets. (Ex. 145 at 18-24.) Mr. Messman initially answered evasively: “We talked with IBM about a lot of things” – an answer Mr. Messman acknowledges would not have been satisfying to Mr. McBride. (Id.) When Mr. McBride pressed him to be more specific, Mr. Messman responded that he should not talk further about IBM’s involvement without an attorney present. (Ex. 165 ¶ 15.)
75. Thereafter, Novell issued a press release which recanted Mr. Messman’s prior statement claiming Novell owned UNIX copyrights, stating “[t]he amendment [to the APA] appears to support SCO’s claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996.” (Ex. 332.) Novell thus admitted that it does not own the copyrights
at issue and acknowledged the relevance of Amendment No. 2 on the question of copyright ownership.
76. Despite its public concession, Novell’s retraction was short-lived.
78. Notably, all the while, IBM was simultaneously increasing its relationship with Novell in the Linux area. (Ex. 131 at 230:22-231:2.)
79. At the time it purposed to direct SCO to waive its rights, Novell was seeking to promote business interests entirely separate from any rights it retained under the APA.
80. IBM’s financial and other support of Novell during this period were patently designed to create a rift in the relationship between SCO and Novell and to induce Novell to claim rights that it knew (and previously acknowledged) it did not have.
81. When SCO initially introduced its SCOsource licenses, also called IP Compliance Licenses, there was a flurry of activity. (IBM Ex. 324 at 182:19-21.)
82. However, once Novell falsely asserted that SCO had not actually acquired the UNIX copyrights, customer interest in the SCOsource licenses fell off and SCOsource sales dwindled until, in 2004, SCO had to stop even marketing the licenses.
83. After Novell made its false assertions,
H. IBM Blocked Discovery On a Key Topic Relating To SCO’s Tortious
Interference Claims, And Now Purports To Introduce Evidence On This Very Topic
84. IBM blocked key discovery in a key area – IBM’s communications with Novell—and now presents one-sided evidence on the issue.
85. In support of the Motion, IBM submitted the declaration of Joseph LaSala, general counsel for Novell, in an effort to show that IBM did not interfere with SCO’s business relationship with Novell. (IBM Ex. 240.)
86. To that end, Mr. LaSala states in his declaration: "Novell informed representatives of IBM of the actions it took with respect to the UNIX copyrights. However, at
no time did any representative of IBM request or express a desire that Novell breach, or take any action contrary to, the APA, Amendment X, or any other agreement between Novell and Santa Cruz or Novell and SCO." (IBM Ex. 240 at 42.) Notably, Mr. LaSala does not say that IBM and Novell did not discuss the APA; nor does he state that IBM did not ask Novell to assert the right of waiver. Rather, he says that IBM did not "request or express a desire that Novell breach, or take any action contrary to, the APA." (IBM Ex. 240 at 42:4.) Of course, since it is Novell’s position that it is not breaching or taking action contrary to the APA (and SCO’s position that Novell is), this statement does not indicate that IBM did not ask Novell to assert the right of waiver. Nor does the declaration address any of the myriad of other statements that IBM could have made that would have, as SCO alleges, interfered with its business relationship with Novell.
87. Mr. LaSala goes on to state generally: "Novell's decision to assert it contractual rights under the APA and Amendment X was in no way caused or influenced by IBM's $50 million investment." Again, the declaration does not state that its decisions were unrelated to other conduct of IBM and, indeed, in narrowly tailored to deal with only specific statements, with the hope that this Court will extrapolate further.
88. On August 15, 2005, SCO submitted a Rule 30(b)(6) notice directly seeking information on these discussions between IBM and Novell:
18. IBM’s reasons and/or incentives for investing approximately $50 million in Novell, Inc. in or about March 2004.
19. IBM’s communications with Novell, Inc. regarding (a) Novell’s asserted rights to direct SCO to waive its rights against IBM, including but not limited to the correspondence that Novell sent to SCO in which Novell claimed those rights, and (b) the pending lawsuit between SCO ad Novell in the United States District Court, District of Utah, Case No. 2:04CV00139.
89. IBM unilaterally narrowed the scope of the topic and then designated Scott Handy as the witness on the topics. (Ex.309 at 2.)
90. At his deposition, Mr. Handy testified that he had not researched or asked any IBM attorneys about their communications with Novell. (Ex.306 at 20:19-25, 21:219, 22:7-11) Furthermore, Todd Shaughnessy revealed that IBM was, in any event, asserting a “common interest privilege” over such communications. (Ex. 306 at 59:4-12.)
I. SCO’S RESPONSE TO IBM’S STATEMENT OF ALLEGED UNDISPUTED FACTS
91. In addition to the material facts set forth in the above section, SCO has included additional material facts in the attached Appendix A that further support the denial of the Motion. At bottom, it is clear that there is sufficient record evidence in dispute to preclude summary judgment and SCO respectfully requests that the Motion be denied.
SUMMARY JUDGMENT STANDARD
SCO has set forth the applicable summary judgment standard in its contemporaneously filed briefs and incorporates the same herein by reference. 3
II. CIRCUMSTANTIAL EVIDENCE FROM WHICH TORTIOUS
INTERFERENCE MAY BE INFERRED PRECLUDES SUMMARY
The tort of intentional interference with economic relations has three elements a plaintiff must prove under Utah law: “(1) that the defendant intentionally interfered with the plaintiff’s existing or potential economic relations, (2) for an improper purpose or by improper means, (3) causing injury to the plaintiff.” Sampson v. Richins, 770 P.2d 998, 1003 (Ct. App. Utah 1989) (quoting Leigh Furniture and Carpet Co. v. Insom, 657 P.2d 293, 304 (Utah 1982)).
To meet its burden on the first element, plaintiff need only show that defendant’s intentional conduct interfered with existing or prospective business relationships; thus, plaintiff is not required to identify specific contractual relationships with which defendant interfered. See Leigh Furniture, 657 P.2d at 302. In evaluating the types of relationships that warrant protection, Utah law recognizes that actionable business relationships include plaintiff’s actual or potential customers, suppliers, and business associates. Id. at 306 (“Driving away an individual’s existing or potential customers is the archetypical injury this cause of action was devised to remedy.”).
The second element may be proven either by proof that the defendant engaged in conduct with the “pursuit of an improper objective of harming plaintiff or the use of wrongful means that in fact caused injury to plaintiff’s contractual or business relationship . . . .” Leigh Furniture, 657 P.2d at 304. In its Motion, IBM fails to acknowledge that improper means are sufficient without an improper motive to create liability for this tort. Thus, upon a finding of either improper purpose or means, the court need not even consider the alternative. See Sampson, 770 P.2d at 1004 (sustaining trial court’s entry of judgment for plaintiff).
To sustain a cause of action based on improper purpose, plaintiff must demonstrate that the defendant’s purpose to injure the plaintiff predominated over all other purposes, including long-ranges economic goals. See id. at 311. Improper means, on the other hand, may be shown by defendant’s violations of statutes, regulations, or common-law rules.” See id. By itself, a breach of contract will not generally satisfy plaintiff’s burden, but a deliberate breach for the purpose of injuring the plaintiff—even if that is not the predominate purpose—will satisfy this element of the tort. See id. at 309-10. Examples of conduct constituting improper means include the misrepresentation to third parties of a plaintiff’s entitlement to a proprietary
interest; false statements regarding a plaintiff’s right to a proprietary interest; and disclosure of confidential information obtained in the course of a relationship with plaintiff (See Sampson, 770 P.2d at 1004.) Other acts found to constitute improper means under Utah law is preventing the plaintiff from consummating potentially advantageous business associations; interruption of sales activities; breach of contract with an intent to injure the plaintiff; and even unreasonable or onerous demands for documentation. See Leigh Furniture, 657 P.2d at 311.
Plaintiff may prove causation with defendant’s acts that, by themselves, would not otherwise satisfy plaintiff’s burden, if the cumulative effect causes injury to the plaintiff. See Leigh Furniture, 657 P.2d at 306 (noting that while none of defendant’s actions alone would establish the intentional interference element of the tort, “in total . . . [defendant’s] acts cross the threshold beyond what is incidental and justifiable to what is tortuous.”). Thus, a defendant may not escape liability by adducing proof that a plaintiff’s loss were caused by his own business decision, so long as the evidence supports a reasonable inference that defendant’s tortious interference and harassment would have likely continued to injure plaintiff’s business. See id. at 307. Similarly, evidence that plaintiff’s business was in decline or facing difficulty even prior to defendant’s interference will not defeat an inference of causation provided that plaintiff survived those difficulties before defendant’s interference. See Sampson, 770 P.2d at 1006. Given that the above is the clear state of the law in Utah on tortious interference, SCO believes that there is no legal basis to grant the Motion.
Indeed, summary judgment is improper where the evidence demonstrates any dispute of material fact, drawing all reasonable inferences in favor of the non-moving party. A plaintiff may meet his burden with circumstantial evidence, even where direct evidence is offered by the moving party, as this Circuit has recognized that “inferences from circumstantial facts may
frequently amount to full proof of a given theory, and may on occasion even be strong enough to overcome the effect of direct testimony to the contrary.” Madison v. Deseret Livestock Co., 574 F.2d 1027, 1036-37 (10th Cir. 1978) (noting further that “summary judgment should not be based on the deposition or affidavit of an interested party. . . as to facts known only to him a situation where demeanor evidence might serve as real evidence to persuade a trier of fact to reject his testimony.”); see also Perkins v. Chris Hunt Water Hauling Contractor, Inc., 46 Fed. App. 903, 2002WL 1753177, at *5 (10th Cir. Jul 29, 2002) 4 (reversing summary judgment order where plaintiff advanced circumstantial evidence supporting its claim). This result is particularly appropriate where, as here, the relied upon testimony offered through certain declarations is extremely narrow and references only very specific statements by IBM. The declarations are devoid of testimony regarding the myriad of other IBM statements or conduct that could support the claims here and, thus, the declarations must be limited to their contents, without inference in IBM’s favor.
Issues of intent and knowledge in particular are appropriately proven through circumstantial evidence. See, e.g., Cherberg v. Peoples Nat’l Bank of Washington, 564 P.2d 1137, 1143 (Wash. 1977) (upholding verdict where evidence supported an inference that defendant breached its contractual obligation for an improper purpose, thereby satisfying plaintiff’s tort claim). Similarly, whether or not causation has been proven is a question of fact. See Sampson, 770 P.2d at 1006. SCO believes that the material facts set forth in this response support its claims and, ultimately, liability on the part of IBM. At worst, however, they are sufficient to establish that materials facts exist such that the claims should be submitted to the jury. This result is even more compelling given that questions regarding
IBM’s intent and the import of its conduct is within the unique province of the jury where there are facts in dispute. As such, SCO believes the Motion should be denied.
III. A MATERIAL ISSUE OF DISPUTED FACT EXISTS PRECLUDING
SUMMARY JUDGMENT ON SCO’S SEVENTH AND NINTH CAUSES OF ACTION.
A. IBM Intentionally Interfered with SCO’s Business Relations in the Unix-onIntel Market.
IBM interfered with SCO’s business relations in the UNIX on Intel market by wrongfully disclosing SCO’s UNIX proprietary technology. IBM did this to develop Linux into a software platform capable of competing with SCO’s UNIX products and, as result, compete more effectively with Microsoft and Sun. These improvements to Linux directly and foreseeably caused Linux to displace SCO’s UNIX operating systems in the Intel market; indeed, that was the desired result. IBM took these actions with full knowledge of the advantageous position occupied by SCO in the Intel market; appreciation of SCO’s right to prevent disclosure of the technology to Linux; and knowledge of the detrimental impact its actions would necessarily have on SCO’s market positions. (See, e.g. , Ex. 129). Even as IBM made its wrongful disclosures to Linux in breach of SCO’s contracts and in violation of SCO’s copyrights, IBM made false statements about the derivation of that technology, and engaged in unfair competition in relation to its Project Monterey partnership with SCO. These issues are more fully addressed in SCO’s other briefs.5 The impact of IBM’s actions on SCO was devastating and immediate; SCO’s revenue and market value plummeted following IBM’s wrongful conduct, and SCO’s UNIX business continues to struggle as a result.
1. IBM’s Interference with the Unix-On-Intel Market
IBM contends (at 48) that SCO’s tortious interference claim must fail as a matter of law because Utah does not recognize a claim for “indirect” interference, or “interference with the market.” Interestingly, IBM fails to cite any authority for this position; instead, IBM appears to impose this limitation on the claim by misreading the first element, e.g, that defendant’s conduct be “intentional.” That is not the law, however. As one Utah court observed:
The tort of interference with economic relations is an intentional tort. However, even if the defendant does not act for the purpose of interfering or does not desire it but knows that the interference is substantially certain to occur as a result of defendant’s action and is a necessary consequence thereof, the interference is intentional.
Mumford v. ITT Commercial Fin. Corp., 858 P.2d 1041, 1044 (Ut. Ct. App. 1993).
IBM’s improper Linux activities literally decimated SCO’s competitive position in a market that it had previously dominated. The evidence here shows that before its improper Linux activities, IBM knew that SCO dominated the Unix-on-Intel market; knew the strength of SCO’s customer and partner relationships and the reasons those relationships were strong; and knew the expected future size of that market. Accordingly, the actions IBM took were intentional.
For example, in 1997, before its improper Linux conduct, IBM sang the praises of SCO’s UnixWare operating system:
IBM acknowledged the compelling reasons for the very business relationships with SCO with which it later interfered;
Fully aware of SCO’s position in the UNIX-on-Intel market, IBM embarked on its initiative to make Linux the operating system of choice for commercial users, and specifically targeted the market segment served by SCO more than by any other provider. This evidence is more than sufficient to satisfy the “intentional” element of the tort under Utah law. See Mumford, 858 P.2d at 1044.
IBM claims (at 48) that SCO’s claim for interference with the UNIX-on-Intel market does not satisfy the requirement that the interference be “intentional” because SCO has not
shown that IBM directly contacted or communicated with any of the companies impacted by IBM’s actions. In Leigh Furniture, 657 P.2d at 302, 306, the Utah Supreme Court recognized that actionable business relationships include plaintiff’s actual or potential customers, suppliers, and business associates. The fact that the number of potential customers with whom SCO would have completed a transaction, but for IBM’s interference, exceeds the number that SCO can possibly identify, makes IBM’s improper conduct no less actionable. IBM assumes that the success of SCO’s claims depend on its ability to specifically identify the third parties who, as a result of IBM’s wrongful conduct, withdrew their interest in SCO and chose not to purchase SCO’s UNIX products. Leigh Furniture makes clear that that is not the standard.
In Leigh Furniture, the focus of the court’s concern was the unidentified customers who were driven away from the plaintiff’s store. Thus, although the court mentions interference with two named businesses, the damages in that case were not linked specifically to the interference with only the two identified business partners. The Court observed: “Driving away an individual’s existing or potential customers is the archetypical injury this cause of action was devised to remedy.” Leigh Furniture, 657 P.2d at 306. This is precisely what IBM did to SCO’s business relations in the Unix-on-Intel market.
IBM cites (at 48) the case Bower v. Stein Eriksen Lodge Owners Asso’, Inc., 201 F. Supp.2d 1134 (D. Utah 2002) for the proposition that SCO has not shown that the interference was “intentional” under Utah law. (Id. at 1143.)Bower is inapposite, however. In Bower, the
claim of tortious interference was premised on the plaintiffs’ contention that an “obstructed view” caused by the defendant’s construction “lowers both the fair market value and the rentability of their condominium, and therefore, interferes with prospective economic relations.” (Id.) Unlike SCO, the plaintiffs in that case failed to provide any evidence that the defendant intended to injury them when it completed the construction, or that they had suffered any injury from defendant’s conduct. (Id.) For these reasons, the court concluded that the claim was speculative. (Id.)
In stark contrast to the facts in Bower, SCO has identified significant evidence that IBM knew of the strength of SCO’s business relations in the Intel market and the nature of those relationships. There is likewise more than ample evidence that IBM was proceeded with its improper Linux strategy in the face of these business relationships; it cannot be reasonably disputed that this evidence is sufficient to show that IBM’s actions were intentional and, therefore, summary judgment is inappropriate.
IBM’s proposed construction of the “intentional” prong would impose an additional burden SCO that is not present under Utah law. There is simply no authority for IBM’s position that for conduct to be deemed intentional, the defendant must have acted with the “improper purpose” of harming the plaintiff’s business relationships. The intentional requirement relates merely to whether IBM knew that its conduct, whether taken for an improper purpose or through use of an improper means, would cause SCO harm. As noted above, a defendant’s actions are “intentional” when the defendant “knows that the interference is substantially certain to occur as a result of defendant’s action and is a necessary consequence thereof . . . .” Mumford, 858 P.2d at 1044. The evidence shows that IBM assuredly knew the consequences of its actions, which fulfills the element of intent under Utah law.
Furthermore, unlike the plaintiffs in Bower, SCO has adduced evidence of substantial and direct harm to its business relationships. Thus, SCO’s claims are not speculative in that regard. Notably, the cases cited by defendant for its contention that SCO’s claims are too indirect to be actionable are not from this jurisdiction, and accordingly they are neither controlling nor persuasive. The cases relied upon by IBM (at 49) are actually contrary to Utah law. Specifically, Defendant relies on State Nat’l Bank v. Academia, Inc., 802 S.W.2d 282 (Tex. Ct. App. 1990), for the proposition that tortious interference requires contact by the defendant with an identifiable third party with whom plaintiff had a business relationship. Decided under Illinois law, the court applied an approach explicitly rejected by the court in Leigh Furniture. 6 Under Illinois law, a plaintiff must demonstrate that the defendant’s conduct was directed towards a third party with whom defendant had actual contact. See State Nat’l Bank, 802 S.W.2d at 297. 7
Utah courts, conversely, have recognized that a cause of action may lie even where no such contact is alleged. In Mumford, 858 P.2d 1041 (Ut. Ct. App. 1993), the trial court granted summary judgment in favor of a defendant accused of tortiously interfering with plaintiff’s business relations by denying plaintiff access to property necessary for plaintiff to perform its hauling contracts. The court of appeals reversed, observing that the evidence advanced raised a material issue of disputed fact. See id. at 1044. Though the defendant submitted affidavits asserting that it was not even aware of plaintiff’s contracts with which it allegedly interfered, and did not intend to so interfere, the court found that plaintiff’s affidavit alleging that
defendant intentionally prevented him for accessing his property was sufficient to create a jury question as to whether defendant’s conduct constituted intentional interference with plaintiff economic relations. See id.
IBM’s remaining cases are also easily distinguished. Westside Center Assocs. v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507 (Cal. Ct. App. 1996), involved the solitary sale of a parcel of real estate, which parcel was artificially depreciated by defendant’s conduct, depriving plaintiff of the opportunity to determine its true market value. The court concluded that without an existing relationship with an identifiable buyer, there was insufficient evidence from which to infer whether defendant’s actions actually had any impact on the sale price. See id. at 527. The court’s conclusion is understandable in light of the nature of the business with which defendant was alleged to have interfered: because real estate is unique, its value is determined only by what a particular purchaser is willing to pay for it. Thus, without evidence that a prospective buyer was influenced by defendant’s conduct in offering a lower price or retracting an attractive bid following defendant’s actions, the plaintiff had no way of proving causation or injury. Again, that is not this case. SCO has adduced undisputed evidence of a strong market position, a high demand for its products, and a precipitous fall in revenue following IBM’s tortious conduct. The facts and evidence here are archetypal examples of those that this business tort was designed to address. To find otherwise would allow IBM to improperly benefit for its egregious and intentional conduct, which is inconsistent with Utah law.
Defendant’s reliance on McNeil v. Security Benefit Life Ins. Co., 28 F.3d 891 (8th Cir. 1994), is surprising in light of the court’s observation in that case that conduct similar to that alleged against IBM here was found to be tortious, though not actionable due to plaintiff’s
failure to show injury. See id. at 894-95 (“[Defendant] made false statements to other insurance companies about the McNeills, told policyholders the McNeills were misinterpreting the policies, refused to provide the McNeills with information regarding their clients’ policies, and urged policyholders ‘to ignore the McNeills as their agent and to continue their relationship with SBL.’”). The record evidence shows that the conduct of IBM was tortious, but, at a minimum, creates a material issue of fact precluding the granting of IBM’s Motion.
The only case IBM cites applying Utah law is both mis-cited and factually distinguishable. The court in Bower v. Stein Eriksen Lodge, granted summary judgment in defendant’s favor, deciding without discussion that plaintiff failed to meet its burden of proof. 201 F. Supp.2d 1134 (D. Utah 2002.) Plaintiff’s theory of recovery was prospective: namely, that the defendant’s construction would injure its future economic relations. SCO has not relied on such a prospective theory of what might happened but, rather, has introduced sufficient competent evidence that IBM’s conduct did in fact cause a significant loss of SCO’s business relationships. Thus Bower is simply inapplicable to the present case.
Bower cannot be read as fairly supporting IBM’s contention (at 48) that “SCO must show that IBM had knowledge of each relationship and that IBM intended to interfere specifically with each relationship.” The court recited the movant’s argument, observing that the movant contended that plaintiff failed to prove intent, injury, damage, or any third party with whom the defendant allegedly interfered. Agreeing only that the plaintiff’s claim was too speculative, the court granted summary judgment, but expressed no opinion as to the necessity of plaintiff to specifically identify a third party with whom it contended defendant interfered. See id.
2. IBM Interfered with the Unix-on-Intel Market Through
IBM claims (at 53-57) that SCO has not shown that IBM interfered with its business relations in the Unix-on-Intel market and that, even if it had, IBM’s actions are “privileged” because they advanced IBM’s legitimate, competitive interests. SCO has shown that, in executing its Linux initiative, IBM (1) disclosed technology to Linux that SCO had a right to insist not be publicly disclosed; (2) misrepresented to the public its own right to disclose that technology and the derivation of that technology; (3) violated SCO copyrights by making disclosures to and encouraging the use of Linux; and, (4) committed the common law tort of unfair competition when it put out a pre-textual release of the Project Monterey operating system while covertly switching its efforts to Linux. This evidence, as well as the other evidence cited herein, evince of pattern of tortious conduct supporting relief.
IBM correctly asserts that the resolution of this claim in part turns on the resolution of IBM’s other motions for summary judgment. Thus, IBM’s conduct is likewise improper for the reasons set forth in SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Contract Claims (SCO’s First, Second, Third and Fourth Causes of Action); SCO’S Memorandum in Opposition to IBM’s Motion for Summary Judgment on its Claim for Declaratory Judgment of Non-infringement (IBM’s 10 th Counterclaim); and SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Unfair Competition Claims (SCO’s Sixth Cause of Action).
IBM further asserts (at 57) that its breaches of the Software Licensing Agreements cannot constitute “improper means” for tortious interference under Utah law. IBM is correct that, as a general matter, breaches of a contract, without more, cannot constitute “improper means.” When combined with a motive to injure the plaintiff, however, such conduct may
support a tort claim. See Leigh Furniture, 657 P.2d at 309. In addition, IBM’s total conduct in the aggregate can be considered to support tortious interference. See Sampson v. Richins, 770 P.2d at 1004 (finding that defendant’s separate acts, including misrepresenting information about plaintiff’s right to reimbursement and disclosure of plaintiff’s confidential information, taken together, constituted improper means).
Here, IBM misrepresented the derivation of the technology: IBM announced that its JFS technology was derived from its non-UNIX derived OS/2 operating system, when in fact, as SCO’s experts have shown, the technology came from IBM’s UNIX-derived operating system AIX. (Ex. 344) A jury may reasonably infer that this intentional misrepresentation demonstrates not only consciousness of guilt, but an intentional attack on SCO’s UNIX business strategy.
Contrary to IBM’s assertions (at 57), IBM’s improper Linux actions were not “privileged” under Utah law. IBM seems to believe that, even if its means were improper, as described above, the fact that it was acting in its own economic interest in engaging in this improper activities renders its actions privileged. This turns Utah’s improper purpose or improper means rule on its head. The law in Utah is that the conduct is privileged if the defendant was exercising a “legal right.” See Leigh Furniture, 657 P.2d at 305 n.8. There is no “legal right” to compete through improper means – as IBM did. Thus, if it is concluded that IBM used improper means in executing its Linux initiative, IBM’s conduct cannot be privileged just because IBM was acting in its own economic self-interest. The privilege requested by IBM would effectively reverse the improper purpose or improper means rule set forth in Leigh Furniture.
On a related point, IBM relies on language from Leigh Furniture for the proposition that a defendant may not be held liable for its “efforts to persuade others not to . . . deal with certain entities.” 657 P.2d at 293. Its reliance is misplaced. The above quotation is drawn from the court’s discussion of the “prima facie tort approach,” and its recognition that such an approach would cast too broad a net, creating liability for otherwise legitimate examples of persuasion. Id. For this reason, the court rejected that approach and observed the additional requirement that plaintiff show interference by either improper purpose or means. Thus, Leigh Furniture does not, as IBM suggests, give blanket approval for persuading a party not to deal with a particular entity. Rather, if coupled with either improper purpose or means, Leigh Furniture recognizes that a refusal to deal (or inducement of a refusal to deal) may be the basis for liability.
Leigh Furniture presented a case of first impression for the Supreme Court of Utah. In deciding that Utah does recognize the tort of intentional interference of prospective economic relationships beyond those reduced to a contract (and those not expected to be reduced to contract), the court observed that there is no majority position on the definition of the elements of the tort.See Leigh Furniture, 657 P.2d 303. The court considered the Restatement (Second) of Torts, and rejected its approach as too burdensome on the plaintiff. See Leigh Furniture, 657 P.2d at 303-04. Instead, the court adopted Oregon’s approach, which the court characterized as a “middle ground,” requiring “the plaintiff to allege and prove more than the prima facie tort, but not to negate all defenses of privilege.” See id. at 304.
The court summarized a plaintiff’s burden as follows:
In summary, such a claim is made out when interference resulting in injury to another is wrongful by some measure beyond the fact of the interference itself. Defendant’s liability may arise from improper motives or from the use of improper means.
The plaintiff in that case entered into a contract with the defendant for the purchase of defendant’s furniture business. The contract further provided for a lease with an option to buy the building where the business was located. The contract imposed obligations on the plaintiff to pay rent and to maintain a certain minimum inventory. When defendant decided it would be more advantageous to sell the property than lease it to plaintiff, defendant and his family began a campaign to agitate plaintiff enough to quit the building and breach the lease. See id. at 297. Defendant and his wife visited the plaintiff’s store on numerous occasions, disrupting his ability to service his customers. The frequent visits were “demoralizing and upsetting” to plaintiff and his employees, reducing their productivity and ability to conduct their business. See id. When plaintiff sought to exercise his option to buy the property, defendant refused to appoint an independent appraiser to determine the fair value of the property, as the contract required him to do. See id. at 300.
Defendant forced plaintiff to defend himself in two baseless lawsuits, one initiated by the defendant, another by a contractor whom defendant refused to pay for services that the contract established were defendant’s responsibility. Ultimately, plaintiff filed bankruptcy as a result of defendant’s conduct. See id. at 301. Noting that the only contract in evidence was the one between plaintiff and defendant, the court held that plaintiff could nonetheless sue for tortious interference with “advantageous economic relations.” See id. The same conclusion should be reached here based upon the record evidence.
3. IBM’s Interference with the Unix-On-Intel Market Injured SCO.
IBM argues (at 58-63) that, with respect to the claim for interference with the Unix-onIntel market, SCO cannot establish that it was injured nor can it show a causal relationship between any injury and the acts of IBM.
As noted above, SCO’s UNIX operating systems occupied a strong competitive position in 1999, prior to IBM’s improper Linux activities.
In his August 28, 2006 Report, Gary Pisano concluded that SCO’s UNIX License revenues for its UNIX operating systems increased under SCO’s direction and management from 1995 to 1999. (Ex. 286, Response to the Reports and Decl. of IBM Experts by Gary Pisano, Ph.D, dated August 28, 2006, at 11 (hereinafter “Pisano Reb. Rep.”).) For instance, Dr. Pisano shows that revenues for
Dr. Pisano further concluded that, absent IBM’s wrongful conduct, SCO would have continued to compete and grow in the Intel market. (Ex. 284, Pisano Rep. at 54-57.)
Prior to IBM’s improper technology disclosures, Linux lacked crucial reliability and functionality to compete with SCO UNIX for mission critical workloads, and Linux was not a viable competitor to SCO UNIX in 1999 for commercial workloads. (Ex. 286, Pisano Reb. Rep. at 30-31; Ex. 288, Rochind Reb. Report at 56-57.)
Ex. 277, Expert Report of Evan Ivie, dated May 19, 2006, at 6; Ex 276 at 33-34.) That was clearly by design as IBM knew precisely the areas that needed to be improved if it was to fulfill its Linux strategy.
Once IBM began disclosing proprietary technology to Linux, Linux rapidly displaced SCO’s UNIX operating systems in the Intel market.
In the face of this evidence, IBM claims (at 60-63) that the deterioration of SCO’s business was indisputably caused by factors independent of IBM. In this section of its memorandum, IBM asks this Court to make factual and credibility determinations that are wholly inappropriate for resolution on summary judgment. IBM advances the argument that SCO’s revenue losses were caused by its own business strategies, including its support and promotion of Linux, and its failure to support and advance its UNIX products. IBM’s evidence on this point at best demonstrates the existence of material issue of disputed fact and is proof positive that summary judgment is not appropriate. Nonetheless, IBM’s evidence in support of this argument is contradicted by SCO employees with personal knowledge of SCO’s business decisions, as well as competent expert testimony.
By example, Janet Sullivan, who is presently SCO’s developer program manager, but previously held the positions of OEM licensing manager; product marketing manager; channel
partners manager; and strategic alliance manager, disagrees with IBM’s statements that SCO focused on Linux in favor of UNIX during the time-period of 2001-2003. (Ex. 369 ¶¶ 1a., 2b.) Erik Hughes, Senior Director of Product Management & Strategic Alliances, similarly disagrees. (Ex. 1 ¶ 2.) Rather, SCO presented Linux as a complimentary or additional product to UNIX, and viewed Linux as appropriate for simple and dedicated functions, not as a general purpose operating system platform for running a business or for running mission critical applications (Ex. 369 ¶ 2b, 4; Ex.. 1¶ 5.) SCO did not encourage any of its customers to switch from UNIX to Linux, but did provide support to those customers who chose to switch platforms (Ex. 369 ¶ 5; Ex. 1 ¶ 7.) Nor did SCO encourage its partners Oracle and Computer Associates to support Linux, or port to Linux instead of UNIX (Ex. 369 ¶ 9, 13; Ex. 1 ¶ 9.) There is no credible evidence that such was the case.
Moreover, while IBM would impose on SCO the burden of proving that its tortious conduct was the sole cause of SCO’s losses, the law does not impose any such obligation. Rather, SCO’s evidence is sufficient to reach a jury so long as IBM’s wrongful conduct caused any part of SCO’s losses. See U.S. v. First Sec. Bank of Utah, N.A., 208 F.2d 424, 429 (10th Cir. 1953) (noting that when concurrent causes exist and when each is a proximate cause, then the injury may be attributed to all or any of the causes); McCorvey v. Utah State Dep’t of Transp., 868 P.2d 41, 45 (Utah 1993) (stating that there can be more than one proximate cause, or substantial causative factor, but it is sufficient to prove the conduct of one is the proximate cause); Steffensen v. Smith’s Mgmt. Corp., 820 P.2d 482, 486 (Utah Ct. App. 1992) (noting that when establishing the element of proximate cause “there can be more than one proximate cause of an injury so long as each is a concurrent contributing factor in causing the injury").
IBM also contends that SCO bears the burden of proving that its losses are attributable to IBM’s interference with existing contracts SCO had with third parties. This Court, however, has previously rejected the argument defendant now advances and refused to limit a plaintiff’s recovery of lost profits in a claim for tortious interference, finding that it was a question properly decided by the jury, “provided that such damages can be proven with reasonable certainty and are a reasonably foreseeable consequence of the defendant’s act.” United States v. Bald Eagle Realty, 21 F. Supp.2d 1332, 1334-35 (D. Utah 1998).
While SCO’s experts do not set forth a separate damages model for the interference with the Unix-on-Intel market, that is not necessary in these circumstances. SCO’s injuries from IBM’s interference with its relations in the UNIX on Intel market are subsumed within and overlap with the injuries caused by IBM’s breach of contract and copyright infringement. With regard to proving the specific amount of its damages, SCO’s burden is much lower than IBM avers. “Once a defendant has been shown to have caused a loss, the reasonable level of certainty required to establish the amount of a loss is generally lower than that required to establish the fact or cause of a loss.” Sampson v. Richins, 770 P.2d 998, 1007 (Ct. App. Utah 1989) (emphasis in original). SCO has adduced sufficient evidence of its injury to create a jury question as to the amount of its losses attributable to IBM’s tortious interference and nothing in IBM’s Motion negates this fact.
IV. SCO’S COMPLAINT AND THE EVIDENCE SUBMITTED ESTABLISH A
CAUSE OF ACTION FOR TORTIOUS INTERFERENCE WITH SPECIFIC
BUSINESS RELATIONSHIPS (SEVENTH, EIGHTH AND NINTH CAUSES OF ACTION).
In addition to IBM’s broader interference with the Unix-on-Intel market, SCO alleges specific acts of interference with certain companies. IBM’s interference induced SCO partners Intel, Oracle, Computer Associates, and HP to decrease or end their support of SCO; induced
the SCO investor Baystar to partially redeem its investment and threaten litigation against SCO; and induced Novell to assert false rights to the UNIX copyrights, to the detriment of SCO’s intellectual property licensing program. All of these actions constitute tortious interference.
In early 2003, SCO began to discover that IBM was disclosing proprietary UNIX technology to Linux – technology that SCO had a right to demand be held in confidence by IBM. (Ex. 165 ¶¶ 3,12,18.) SCO brought its concerns about the intellectual property in Linux to IBM’s attention, and IBM reacted with antagonism to SCO’s concerns. (Ex. 9, 165.) IBM’s efforts to prevent SCO’s protection of its intellectual property took several forms.
A. IBM Tortiously Interfered With SCO’s Business Relations with
Hewlett Packard, Oracle, Intel, and Computer Associates.
IBM’s improper course of action against SCO is exemplified by the Linux World conference in January of 2003. First, IBM executive Karen Smith threatened SCO CEO Darl McBride that if SCO did not desist in endeavoring to protect its intellectual property in Linux, IBM would instruct SCO’s partners and customers that IBM was no longer doing business with SCO and that those partners should do the same. (¶ 23(g) supra). When Mr. McBride refused to acquiesce, Ms. Smith carried out her threat that afternoon with HP executive Richard Becker, as admitted by Mr. Becker himself. (¶¶ 23(h)-(k), 24 supra). SCO has introduced evidence that support from its partners and customers, including HP, Oracle, Computer Associates, and Intel fell off after IBM threatened that it would force these customers and partners to stop doing business with SCO. Though IBM contends (at 39-44) that the alleged tortious interference with these companies did not occur, SCO has presented circumstantial evidence from which a jury could reasonably conclude that it did, which is sufficient to satisfy SCO’s burden.
With respect to HP, IBM acknowledges (at 53 n9) the existence of contradictory evidence regarding whether the alleged conduct occurred, but contends (at 52-53) that the interference could not have been for an improper purpose.
(Ex. 118 at 55:6-11.) Standing alone this evidence is sufficient to preclude summary judgment.
IBM attempts to legitimize its threat by characterizing it as a suggestion that HP withdraw all business activities with SCO “in the interest of the best outcome for [IBM and HP’s] joint Linux activities,” concluding thus that IBM’s conduct could not have been for an improper purpose. The conflict in the evidence is sufficient for a jury to conclude that IBM’s purpose – as Ms. Smith made perfectly clear at her breakfast that morning with Darl McBride – was to dissuade SCO from protecting its intellectual property rights, and, failing that, to isolate and injure SCO. (See ¶¶ 25, 26, supra).
This direct evidence of IBM’s interference with SCO’s relationship with HP, combined with the direct evidence of Ms. Smith’s threat to Mr. McBride that IBM would destroy SCO’s partner support, is circumstantial evidence from which the jury may conclude that Ms. Smith, IBM’s representative and agent, communicated to the executives of SCO’s other partners at Linux World IBM’s desire that they discontinue support for SCO as it had with HP. Standing alone, the evidence of IBM’s interference with HP is sufficient to overcome SCO’s burden of proof at the summary judgment standard.
IBM also contends (at 59) that SCO has not established damages or causation from its interference with these partners. In fact, SCO’s experts identified SCO’s loss of partner support as a significant contributory cause of SCO’s revenue losses and injury. (Ex. 286 at 5051). The loss of partner support was caused, as shown above, by IBM’s unfair competition, breach of contract, and other wrongful acts comprising this claim for tortious interference; additionally, IBM’s wrongful contributions to Linux, which developed Linux from a hobbyist tool to a commercially viable operating system, made it possible for SCO’s once loyal partners to migrate away from its UNIX products to a Linux system.
Finally, IBM claims (at 60) that the loss of support by these companies was caused by SCO’s own actions rather than IBM’s wrongful conduct. SCO did not, as IBM alleges, encourage its customers to switch back and forth between UNIX and Linux platforms. (Ex. 369 ¶ 4-6; Ex. 1 ¶ 9.) Rather, SCO supported its customers’ use of Linux as a compliment or addition to its UNIX operating systems, but only at the customer’s request, not at SCO’s encouragement. (Ex. 369 ¶ 6, 9, 13, 14; Ex. 1 ¶ 7.) UNIX remained SCO’s primary focus even through the time period that it supported its customer’s use of Linux (Ex. 1 ¶ 2.)
This notwithstanding, even if IBM’s account of SCO’s business strategy was accurate, it would not negate IBM’s role in SCO’s injury. The explanation advanced by IBM was considered and rejected by Professor Gary Pisano in his Rebuttal Report, wherein he observed that SCO’s business strategy was based on facts available to the management at the time, and was premised on certain assumptions about the sanctity of their intellectual property rights. (Pisano Reb. Rep. at 52.) As has been shown above and in SCO’s other responses filed contemporaneously herewith, SCO did not immediately discover IBM’s breach or the dilution
of its intellectual property. Professor Pisano illustrated the fallacy of IBM's argument as follows:
One can also argue convincingly that SCO should have followed a very different strategy had it known that its IP was going to be violated. However, with IBM’s alleged actions, SCO’s strategy was logical. It is only after the alleged actions, in hindsight, that the strategy can be questioned.
(Ex. 286, Pisano Reb. Rep. at 54.) If SCO’s assumptions about its intellectual property rights had been accurate, its plan to offer Linux as a complimentary product would have only strengthened its relationship with its customers, without compromising its UNIX business strategy. (Ex. 1 ¶ 6.) Sufficient evidence of SCO’s losses resulting from IBM’s tortious conduct has been adduced and it is properly for a jury to determine the amount attributable to this cause of action. That being the case, this argument fails as well.
B. IBM Tortiously Interfered With SCO's Business Relations with
Beginning in 2003, IBM induced Novell to assert publicly that Novell, and not SCO,
owned the UNIX copyrights at the heart of SCO's dispute with IBM. (SCO's Eighth Cause of Action.)
IBM contends (at 45) that the alleged tortious interference with Novell did not occur.
Notably, IBM relies heavily on Joseph LaSala, Jr.'s declaration, which is not based on personal
knowledge and should not be considered. (IBM Ex. 240.) 9 Moreover, when SCO sought
discovery related to the very issue Mr. LaSala addresses in his declaration, counsel for IBM
asserted a "common interest privilege." (See ¶ 90, supra). IBM should not be permitted to
assert the privilege as both sword and shield. See, e.g., Frontier Refining, Inc. v. Gorman-Rupp
Co., 136 F. 3d 695 (10th Cir. 1998) (work product); Motley v. Marathon Oil Co., 71 F.3d 1547
(10th Cir. 1995) (attorney client). Indeed, in both the cases, the Tenth Circuit held that a party
that prohibited discovery on a particular subject could not then benefit from the use of such evidence at some other point in the proceedings. Under the circumstances, the LaSala declaration should be stricken and not considered in the determination of this motion. See Danjanovich v. Robbins, 04CV-623 2006 WL 1348204 (D. Utah May 15, 2006). 10
IBM contends (at 53) that – if IBM induced Novell “improperly to assert contractual rights vis a vis SCO” – IBM was not acting with an improper purpose because it was “acting to protect its own legitimate economic interests.” Here IBM again turns Utah law on its head. Somehow IBM is of the mistaken belief that if a defendant induces a company to make false contractual assertions, to the detriment of plaintiff, it is absolved from the tort of interference
because it actions were motivated by economic self interest. As discussed above, this is not the law.
In any event, the question of what motivated IBM’s conduct is for a jury to decide. SCO has adduced evidence that, when construed most favorably to SCO, supports the conclusion that IBM induced Novell to make false public assertions regarding SCO’s ownership of the UNIX copyrights to cut off SCO’s revenue from its SCOsource licenses, which were an important source of funding for SCO. A reasonable inference may be drawn that IBM’s “research” into SCO’s ownership rights, which Karen Smith mentioned to Darl McBride in January of 2003, would have entailed direct contact with Novell on this subject – the only other party to the APA, by which Novell transferred the UNIX copyrights to Santa Cruz, SCO’s predecessor. (Ex. 165 at 12.) In fact, it was Mr. McBride’s impression that Ms. Smith implied that someone from IBM had asked Novell whether Novell, or SCO, held the copyrights. (Id.)
Novell’s position regarding SCO’s ownership of those copyrights flipped completely following this conversation and Ms. Smith’s threat to Mr. McBride that IBM would disrupt SCO’s partner support if SCO pursued its library licensing program. The success of that initiative (“SCOsource”) depended not only on SCO’s ownership of the UNIX copyrights but its ability to substantiate its claim of ownership in the market. While SCO and Novell had always conducted business under the mutual understanding that SCO, not Novell, held the copyrights, Mr. McBride recognized the importance of SCO’s ability to evidence its ownership of the copyrights if challenged upon the initiation of the licensing program. (Ex 165 at ¶ 7.)
Though Novell executive Greg Jones admitted to Mr. McBride and to Chris Sontag that he shared their understanding that the APA had effectuated the transfer of copyrights to Santa
Cruz, and even agreed to execute a letter confirming this fact, he later refused to follow
through on his agreement. (Ex. 165 at 10-11; Ex. 9 at 11-12.) Mr. Jones indicated that his
change in position was not a reflection that Novell disagreed with SCO regarding its rights
under the agreement, but rather that Novell just did not want to be involved or take a position on the matter. (Ex. 165 ¶ 11; Ex. 9 ¶ 12.)
Nonetheless, Novell did take a position, announcing publicly that Novell, not SCO, held the UNIX copyrights. When confronted with the indisputable evidence that the APA had in fact transferred the copyrights to SCO (Ex. 41 ¶ A), Mr. Jones conceded that this evidence was conclusive. Mr. McBride explained that Novell’s public denouncement of SCO’s right to enforce the UNIX copyrights had seriously injured the SCOsource initiative and asked Mr. Jones what involvement IBM had had in Novell’s decision to make such an announcement. Mr. Jones implied that Novell had discussed the issue with IBM, but he would not directly answer Mr. McBride’s question, and ultimately refused to say anything about the matter without an attorney present. (Ex. 165 ¶ 15). A jury can reasonably that IBM caused Novell’s change in position with regard to SCO’s ownership of the copyrights. This inference is corroborated by the fact that Novell’s Chairman and CEO, Jack Messman, carbon-copied IBM’s general counsel on its correspondence with SCO “
C. IBM Tortiously Interfered With SCO's Business Relations with BayStar.
BayStar invested at a critical time in SCO's history, following initiation of this suit and
SCO's efforts to protect its intellectual property. Shortly after its investment in SCO, in
October of 2003, BayStar partner Larry Goldfarb began a course of disruptive, almost abusive, conduct towards SCO, including publicly criticizing its management, and ultimately demanding return of its investment. Mr. Goldfarb claimed SCO had breached its agreement but failed to ever identify any specific breach. Long after settlement had been reached between these parties, Mr. McBride learned the reason for Mr. Goldfarb’s inexplicably erratic demands: he had been under pressure from IBM. (Ex. 165 ¶ 29.)
SCO’s injury arising from IBM’s interference with BayStar is not limited to the partial redemption of preferred stock or cash payment, totaling approximately $20 million, but also includes the damage to SCO’s reputation and lost customers. (Ex. 165 ¶ 30.) Both losses were foreseeable to IBM when it pressured Mr. Goldfarb to disengage from SCO and the existence of record evidence supporting SCO allegations preclude the granting of the Motion at issue. Rather, as with the other arguments raised by IBM, the only conclusion that can be drawn is there is ample competing evidence, which, ultimately, should be presented to a jury.
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James
BOIES, SCHILLER & FLEXNER LLP
Robert Silver (admitted pro hac vice)
Stephen N. Zack (admitted pro hac vice)
Stuart H. Singer (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
Attorneys for The SCO Group, Inc.
RESPONSE TO IBM'S "STATEMENT OF UNDISPUTED FACTS"
SCO's Statement of Material Facts, set forth above, raises genuine issues of material
fact that preclude summary judgment on SCO's tortious interference claims in its seventh,
eighth and ninth causes of action. Following is a specific response to the facts that IBM contends are undisputed.
A. SCO Response to IBM Section "SCO Complaints and Obfuscation"
1. IBM ALLEGED FACT: SCO's first complaint in this case, filed on
March 6, 2003, included a claim for interference with contract. In it, SCO identified seven
companies with whose contracts IBM is alleged to have interfered: The Shenvin-Williams
Company ("Sherwin-Williams"), Papa John's Pizza, AutoZone, Inc. ("AutoZone"), Hewlett-
Packard Company ("Hewlett-Packard"), Fujitsu Ltd., NEC and Toshiba Group. (Ex. 1 at 32.)
SCO RESPONSE: Disputed. SCO's first complaint in this case, filed on March
6, 2003, alleged SCO has contracts with customers around the world for the licensing of UNIX
software, and that IBM induced SCO's customers and licensees to breach their corporate
licensing agreements with SCO. (IBM Ex. 1 at 32, ¶¶ 123, 124.) SCO then named, as
examples of the companies with whom IBM interfered, the customers listed by IBM. (Id. )
SCO was pursuing discovery, and did not limit its interference claims to those companies.
2. IBM ALLEGED FACT: SCO’s Amended Complaint, filed on July 22,2003, also contained a claim for interference with contract, but this time listed only three companies with which IBM is alleged to have interfered: Sherwin-Williams, Papa John’s Pizza and AutoZone. (Ex. 2 at 42.)
SCO RESPONSE: Disputed. SCO’s second complaint in this case, filed on July 22, 2003, alleged that SCO has contracts with customers around the world for the licensing of SCO OpenServer and UnixWare (SCO’s UNIX operating systems), and that IBM induced SCO’s customers and licensees to breach their contracts. (IBM Ex. 2 at 42, ¶¶155, 157.) SCO then named, as examples of the companies with whom IBM interfered, the
customers named by IBM. (Id.) SCO was pursuing discovery, and did not limit its interference claims to those companies.
3. IBM ALLEGED FACT: IBM propounded its first set of interrogatories
on June 13, 2003, asking, in Interrogatory No. 8, that SCO, among other things, "identify all
agreements with which plaintiff alleges IBM interfered and describe, in detail, each instance in
which plaintiff alleges or contends that IBM interfered with those agreements, including but
not limited to . . . all persons involved in the alleged interference . . . and . . . the specific trade
secret or confidential or proprietary information, if any, involved in the alleged interference".
(Ex. 11 at 4.)
SCO'S RESPONSE: Undisputed that IBM served its first set of interrogatories
on June 13, 2003.
4. IBM ALLEGED FACT: On August 4, 2003, SCO responded to IBM’s Interrogatory No. 8 only with stock objections, stating that “discovery has just begun and [SCO] has not received responsive discovery from IBM that would allow it to fully answer this question because part of this information is peculiarly within the knowledge of IBM”. (Ex. 31 at 12.)
SCO RESPONSE: Undisputed that SCO informed IBM, in its initial response to Interrogatory No. 8 on August 4, 2003, that SCO had not yet received responsive discovery from IBM and that SCO would provide responsive documents to IBM once a confidentiality order was entered. (IBM Ex. 31 at 12).
5. IBM ALLEGED FACT: On October 1, 2003, IBM filed a motion to compel SCO to provide complete responses to its interrogatories, including Interrogatory No. 8. (Ex. 62.)
SCO RESPONSE: Undisputed that IBM filed a motion to compel responses to interrogatories on October 1, 2003. This was surprising in that it was prior to the date that the parties had agreed that SCO would supplement its interrogatory responses. (IBM Ex. 254, SCO’s 10/23/2003 Memorandum of Law In Opposition to IBM’s Motion to Compel Discovery.) Also, in this Motion, IBM does not even mention Interrogatory Number 8, which is the interrogatory related to SCO’s claims for tortious interference.
6. IBM ALLEGED FACT: On October 23, 2003, the same day it filed an opposition to IBM’s motion to compel, SCO served IBM with a Supplemental Response to IBM’s First Set of Interrogatories. (Ex. 32 at 32.) In it, SCO claimed that IBM had interfered with SCO’s contracts or prospective relationships with 12 entities – Sherwin-Williams, AutoZone, Target Corporation (“Target”), The Kroger Company (“Kroger”), Advanced Auto, Shaw’s Supermarkets, State of Maine (Department of Labor), Eckerd Corporation/CVS Pharmacy (“Eckerd/CVS”), Safeway, Inc. (“Safeway”), Hewlett-Packard, Intel Corporation (“Intel”) and Computer Associates International, Inc. (“Computer Associates”) – nine of whom had never before been identified by SCO. (Id.)
SCO RESPONSE: Undisputed that on October 23, 2003, SCO filed its opposition to IBM’s Motion to Compel and, as the parties had previously agreed, its Supplemental Response to IBM’s First Set of Interrogatories. (IBM Ex. 32 at 32.) IBM’s description of SCO’s response is disputed. In SCO’s response, while pointing out that discovery had still not been received from IBM, SCO explained its claim for interference with its business relationships in the Unix-on-Intel market. Specifically, SCO stated that from 2000 to present, IBM had induced or attempted to induce breach of agreements between SCO and some of its customers by encouraging them to switch from SCO’s UnixWare to Linux and to use UnixWare applications on Linux. (Id.) SCO then named the nine customers referenced by IBM as examples of the companies in SCO’s market with whom IBM’s conduct had interfered. (Id.) SCO did not limit its interference claims to those companies. SCO further explained in this response that IBM executives Karen Smith and Dan Frye approached SCO partners during LinuxWorld in January 2003 and induced such partners to stop doing business with SCO. (Id.) SCO named Hewlett Packard, Intel, and Computer Associates as examples of the companies with which IBM interfered at LinuxWorld, but explained that its investigation was still ongoing. (Id.)
7. IBM ALLEGED FACT: On December 12, 2003, Magistrate Judge Wells granted IBM’s motions to compel, and ordered SCO “[t]o respond fully and in detail to Interrogatory Nos. 1-9 as stated in IBM’s First Set of Interrogatories” on or before January 12, 2004. (Ex. 55 at 2 (emphasis added).)
SCO RESPONSE: Undisputed that Magistrate Judge Wells granted IBM’s First and Second Motions to Compel on December 12, 2003.
8. IBM ALLEGED FACT: After the January 12, 2004, deadline, SCO submitted its “Revised Supplemental Response to Defendant’s First and Second Set of Interrogatories” on January 15, 2004. In it, SCO claimed that IBM had interfered with SCO’s contracts or prospective relationships with seven – not 12 – entities: Sherwin-Williams, AutoZone, Target, Hewlett-Packard, Intel, Computer Associates and Oracle Corporation (“Oracle”). (Ex. 33 at 50-56.) (SCO dropped Krogers, Advanced Auto, Shaw’s Supermarkets, State of Maine (Department of Labor), Eckerd’s/CVS and Safeway, and added Oracle for the first time.)
SCO RESPONSE: Undisputed that SCO filed supplemental responses to IBM’s interrogatories on January 15, 2004. IBM’s new assertion that SCO’s responses (almost three years ago) were three days “late” under Magistrate Judge Wells’ prior order is disputed and not material. IBM had never previously raised any claim based on the supposed lateness of these responses, and Magistrate Judge nevertheless held on March 3, 2004 that SCO had answered IBM’s interrogatories in “good faith.” (IBM Ex. 56 at 3).
9. IBM ALLEGED FACT: The next month, SCO filed a Second Amended Complaint, dated February 27, 2004, and the list of companies shrank further. There, SCO’s Seventh Cause of Action again alleged interference with contract, this time identifying only two companies (Sherwin-Williams and AutoZone) with which IBM is alleged to have interfered. SCO’s Ninth Cause of Action – claiming interference with business relations – identified only one company (Hewlett-Packard) with whose business relationship IBM is alleged to have interfered. Finally, a new Eighth Cause of Action claimed that IBM had interfered with the Asset Purchase Agreement between Novell, Inc. (“Novell”) and The Santa Cruz Operation, Inc. (“Santa Cruz”). (Ex. 3 at 55-61.) Thus, as of February 27, 2004, the four companies involved in SCO’s interference claims were Sherman-Williams, AutoZone, HewlettPackard and Novell.
SCO RESPONSE: Undisputed that SCO filed its Second Amended Complaint on February 27, 2004, and pled three causes of action for IBM’s tortious interference with SCO’s business relations. IBM’s characterization that, “as of Feburary 27, 2004, the four companies involved in SCO’s interference claims were Sherman-Williams, AutoZone, HewlettPackard and Novell” is disputed. SCO’s Seventh Cause of Action alleged that IBM induced
SCO’s customers and licensees to breach their corporate licensing agreements, and specifically states that the customers impacted include “Sherwin Williams, AutoZone, and others.” (IBM Ex. 3 at 56, ¶ 190) (emphasis added.) SCO’s Eighth Cause of Action alleged that IBM interfered with Novell. SCO’s Ninth Cause of Action alleged that IBM intentionally interfered with its “existing or potential economic relationships with a variety of companies in the computer industry, including but not limited to Hewlett Packard.” (Id.) (emphasis added.) SCO did not limit its interference claims to the companies named.
10. IBM ALLEGED FACT: With respect to its claim that IBM interfered with its relationship with Novell, SCO alleges in its Second Amended Complaint:
[C]ommencing on or about May 2003, Novell began falsely claiming that Novell, not SCO, owned the copyrights relating to UNIX System V. On information and belief, IBM had induced or otherwise caused Novell to take the position that Novell owned the copyrights – a position that is flatly contradicted by the Asset Purchase Agreement.
(Ex. 3 at 58.) SCO also alleges:
IBM intentionally and improperly interfered with the Asset Purchase Agreement by inducing or otherwise causing Novell to violate the Asset Purchase Agreement by claiming Novell could waive and was waiving breaches of license agreements by various licensees, including IBM. Specifically, with the IBM Termination Date looming only days away, Novell wrote to SCO claiming that either SCO must waive its right to terminate IBM’s license based upon IBM’s numerous breaches thereof or else Novell would purportedly waive SCO’s right to terminate the license and otherwise excuse IBM’s numerous breaches of the license agreements.
(Id.) Finally, SCO states that after inducing Novell to take these actions, “IBM has contributed $50 million dollars to Novell so that Novell can complete the purchase of SuSE, the largest Linux distributor in Europe”. (Id. at 60.)
SCO RESPONSE: Undisputed except to say that SCO’s Eighth Cause of Action in its Second Amended Complaint is a written document that speaks for itself and contains allegations other than those set forth by IBM. SCO’s claims and evidence regarding IBM’s interference with Novell are set forth more fully in paragraphs 65-83 supra.
11. IBM ALLEGED FACT: By 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. (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”. (Id. at 2.)
SCO RESPONSE: Undisputed that Magistrate Judge Wells entered an order on March 3, 2004 that compelled both SCO and IBM to provide further discovery to each other. The Magistrate Court further observed that SCO had made “good faith efforts to comply with the Court’s prior order.” (IBM Ex. 56 at 3).
12. IBMALLEGED FACT: On January 22, 2005, IBM propounded its sixth set of interrogatories, including Interrogatory No. 24, which states:
For each of the claims asserted by plaintiff in this lawsuit, please describe in detail all of the alleged damages to plaintiff that were proximately caused by IBM, including, but not limited to; (a) the amount of the alleged damages; (b) the basis for the alleged damages; (c) the precise methodology by which the damages were calculated; documents or other materials relied upon or considered in determining the alleged damages; and (d) all efforts undertaken by plaintiff to mitigate the alleged damages.
(Ex. 17 at 3.)
SCO RESPONSE: Undisputed.
13. IBM ALLEGED FACT: On April 21, 2005, at a hearing before the Court, counsel for SCO stated:
IBM has served interrogatories on SCO, and SCO is under an obligation to respond to those interrogatories. We will do so as soon as we can. If it arises that IBM is of the view that it has not received our responses to their interrogatories in enough time to complete discovery, that is an issue to raise with the Court at that point. The Court is full of arsenal (sic) of measures it can take to allow more time or to preclude us from using evidence if we haven’t produced responses to those interrogatories in time.
(Ex. 417 at 95:20-96:4.)
SCO RESPONSE: Undisputed.
14. IBM ALLEGED FACT: On July 1, 2005, the Court entered a Revised Scheduling Order, setting 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”. (IBM Ex. 58 at 4.) The Court required SCO to update interrogatory responses accordingly, including its response to Interrogatory No. 8. (Id.)
SCO RESPONSE: Undisputed.
B. SCO Response to IBM Section “SCO’s Deposition Disclosures”
15. IBM ALLEGED FACT: Having received no further update to its response to Interrogatory No. 8 despite the three Court orders, on September 2, 2005, IBM served SCO with a Rule 30(b)(6) deposition notice, asking that SCO designate a corporate representative to testify about SCO’s relationships, and IBM’s alleged interference, with the 13 entities identified in all of SCO’s interrogatory responses to that point (Sherwin-Williams, AutoZone, Target, Kroger, Advanced Auto, Shaw’s Supermarkets, State of Maine (Department of Labor), Eckerds/CVS, Safeway, Hewlett-Packard, Intel, Computer Associates and Oracle), as well as with Novell . (Ex. 20 at 5-6.)
SCO RESPONSE: Undisputed that IBM served a Notice of 30(b)(6) deposition on September 2, 2005 that sought information about the companies that had been named by SCO as targets of IBM’s interference, as well as “any other company or entity whose relationship with SCO IBM has allegedly interfered with.” (IBM Ex. 20).
16. IBM ALLEGED FACT: SCO designated Jeff Hunsaker, Senior VicePresident and General Manager of SCO’s UNIX division and former Vice-President of Worldwide Sales, to testify about SCO’s business relationships with the 14 entities listed in IBM’S notice. SCO also designated Ryan Tibbitts, SCO’s general counsel, to testify about the remaining subtopics, including “the date, nature and particulars of any conduct by IBM interfering with the relationship” and “the impact on SCO of IBM’s conduct”. (Ex. 47.)
SCO RESPONSE: Undisputed.
17. IBM ALLEGED FACT: On October 7, 2005, at a hearing before the Court, counsel for SCO committed to supplementing SCO’s responses to IBM’s interrogatories, including its response to Interrogatory No. 8, by December 22, 2005, as required by the Court in its July 1, 2005, Order:
Counsel for SCO: Now, with respect to material that has been produced, Judge Kimball ordered us by October 24th to provide our interim disclosures of the technology and supplement that with the final disclosure in December. We are working on that
and. We intend to fully comply with the order, which is the current order we understand we are operating under with respect to those mentioned by identification.
The Court: Does that encompass interrogatory Number 13?
Counsel for SCO: It would encompass supplementing interrogatories to SCO which have asked for information relating to the nature of what we believe has been misappropriated. I don’t have 13 in front of me, Your Honor, if that’s such the interrogatory that would include that.
(Ex. 418 at 56:l-14.)
SCO RESPONSE: Disputed. The excerpted comment pertained to Interrogatory 13 and identification of the material IBM misappropriated, not Interrogatory 8 or SCO’s tortious interference claims. (IBM Ex. 418 at 56:1-14).
18. IBM ALLEGED FACT: At his deposition on November 10, 2005, Mr. Hunsaker could name no companies other than the 14 listed in IBM’s 30(b)(6) notice as having relationships with SCO with which IBM allegedly interfered:
SCO RESPONSE: Disputed. The portion of Mr. Hunsaker’s answer quoted by IBM is incomplete, and therefore misleading. Mr. Hunsaker’s complete response, with the portion omitted by IBM in bold, was:
(IBM Ex. 312 at 19:10-17.) Mr. Hunsaker was referring here to SCO's claim for interference
with its business relations in the Unix-on-Intel market. Further, this question was outside the
scope of the topic for which Mr. Hunsaker had been designated, which was only the business
relationships with certain companies, and this restriction on the scope of Mr. Hunsaker's
testimony was clear from the inception of the questioning. (IBM Ex. 312 at 11:17-12:14)
SCO RESPONSE: Undisputed.
20. IBM ALLEGED FACT: On November 30, 2005, counsel for IBM wrote to counsel for SCO, requesting that SCO produce the “financial and other information dating from 1996 and pertaining to SCO customers, revenues and product sales” that Mr. Hunsaker testified he had reviewed. (Ex. 209 at 3.) Counsel for IBM stated, “It became readily apparent that IBM was seeking reasonably detailed and specific information with respect to the Subject Companies. Mr. Hunsaker was not prepared to provide this type of information”. (Id. at 4.)
SCO RESPONSE: Undisputed.
SCO RESPONSE: Undisputed.
22. IBM ALLEGED FACT: The next day, IBM deposed Darl McBride, SCO’s President and CEO. When Mr. McBride was asked to confirm that the 13 companies identified in the documents were the only companies with which IBM was alleged to have interfered, he declined to do so and instead went on to identify ten new “sets” of relationships, constituting at least 43 entities, with which he claimed IBM interfered. (Ex. 317 at 63:1283:24.) The ten “sets” identified by Mr. McBride were:
At his deposition, Mr. McBride could not identify all of the members of these groups. (Ex. 317 at 67:19-68:9.)
SCO RESPONSE: Undisputed that Mr. McBride was deposed on December 2, 2005 and that identified ten sets of entities with which he believed IBM had interfered. Mr. McBride named multiple specific entities with which IBM interfered,
23. IBM ALLEGED FACT:
24. IBM ALLEGED FACT: On December 5, 2005, counsel for IBM sent SCO’s counsel a letter, objecting to Mr. McBride’s testimony and the expansion of SCO’s interference claims. (Ex. 52.) Counsel for IBM stated:
It is difficult to view Mr. McBride’s testimony as anything other than a misguided attempt by SCO to gain an unfair tactical advantage by expanding the scope of its interference and unfair competition claims and trying to force an extension of the discovery schedule. If SCO were allowed to expand its claims by Mr. McBride’s assertions, which (like most of his testimony) lacked any basis in personal knowledge, then IBM would be required to undertake substantial additional third-party discovery at great expense, burden and prejudice to IBM.
(Id.) Counsel for IBM also requested that SCO confirm that SCO’s interference claims were limited to IBM’s alleged interference with only the persons or entities listed in its interrogatory responses, at its Rule 30(b)(6) depositions and in the two documents produced the day before Mr. McBride’s deposition. (Id.)
SCO RESPONSE: Undisputed that counsel for IBM sent SCO’s counsel the referenced letter. (IBM Ex. 52).
25. IBM ALLEGED FACT: In response, counsel for SCO stated that IBM’s objections to Mr. McBride’s testimony were “mistaken”, that Mr. Tibbitts would testify on behalf of the company on the remainder of IBM’s Rule 30(b)(6) subtopics regarding SCO’s interference claims, including the identity of all companies with whom IBM is alleged to have interfered, and that “SCO’s supplemental interrogatory responses . . . will be consistent with SCO’s 30(b)(6) testimony on the same topics as the interrogatory responses.” (Ex. 60.)
SCO RESPONSE: Undisputed that counsel for IBM sent SCO’s counsel the referenced letter. However, IBM’s incomplete characterization of SCO counsel’s response is disputed. More completely, SCO counsel explained:
Mr. Hunsaker was not designated to testify as a 30(b)(6) witness on the topic of IBM’s interference with SCO’s business relationships underlying SCO’s claims for tortious inference with contract and/or unfair competition. As per SCO’s objection at the time that IBM questioned Mr. Hunsaker (which objection you do not acknowledge in your December 5 letter), any question about the scope of SCO’s interference or unfair competition claims “exceeds the scope of the topic, the designation, for the witness.” Hunsaker Dep. at 18:22-24.
(IBM Ex. 60 at 5.) SCO counsel further reminded IBM counsel that SCO had designated Ryan Tibbitts “to testify for SCO as to the remaining issues in Topic 10 - including the identity of any company or entity ‘whose relationship with SCO IBM has allegedly interfered with,’” and that IBM counsel had acknowledged previously that Mr. Tibbitts might testify to more companies and relationships than those on the list. (Id.) Finally, counsel for SCO stated:
As I am sure will be the case with IBM, SCO’s supplemental interrogatory responses (both parties specified that their initial interrogatory responses were necessarily preliminary) will be consistent with SCO’s 30(b)(6) testimony on the same topics as the interrogatory responses.
26. IBM ALLEGED FACT: IBM took the Rule 30(b)(6) deposition of Mr. Tibbitts as to SCO’s interference claims the following week, on December 16, 2005. During Mr. Tibbitts’ deposition, SCO produced a spreadsheet describing “the interferences that [SCO is] alleging and currently investigating”. (Ex. 319 at 43:9-14, 44:3-9.) This spreadsheet, marked as Exhibit 90 to Mr. Tibbitts’s deposition, identifies some 250 entities in at least seven countries. (Ex. 61.) Exhibit 90 provides virtually no meaningful information concerning the nature of SCO’s claim, IBM’s alleged misconduct, SCO’s relationships with the companies identified, SCO’s historical or prospective business with the companies or SCO’s alleged damages. (Id.)
SCO RESPONSE: Undisputed that Mr. Tibbitts was deposed as a 30(b)(6) witness on December 16, 2005, and that Exhibit 90 (IBM Ex. 61) was produced at his deposition. Exhibit 90 contained both those interferences that SCO was alleging, and also those that SCO was still investigating. Disputed that the document provided “no meaningful information”; the document provided information reasonably available to SCO on the enumerated companies, including the nature of the interference and the nature of the loss to SCO.
27. IBM ALLEGED FACT:
SCO RESPONSE: Disputed.
28. IBM ALLEGED FACT:
SCO RESPONSE: Disputed.
29. IBM ALLEGED FACT:
SCO RESPONSE: Disputed. Mr. Tibbitts provided specific additional information about numerous companies listed on Exhibit 90. (Id.)
30. IBM ALLEGED FACT: Although many of the entries on Exhibit 90 contain the identical allegations that “IBM’s sales representatives persuad[ed] SCO’s customers that SCO has no viability” (Ex. 61) and that there was “direct pressure from IBM to stop dealing with SCO” (id.), Mr. Tibbitts was unable to substantiate or clarify these allegations in any way.
SCO RESPONSE: Disputed. Mr. Tibbitts had at this point in the deposition already provided specific information regarding exhibit 90:
31. IBM ALLEGED FACT: Mr. Tibbitts, SCO’s Rule 30(b)(6) witness on SCO’s relationship with BayStar, also testified that all he knew about IBM’s alleged interference with BayStar was as briefly stated in SCO’s Exhibit 90:
SCO RESPONSE: Disputed. Mr. Tibbitts provided substantial additional information about Baystar (over 30 pages of deposition testimony), aside from the portion quoted by IBM. (IBM Ex. 319 at 7:18-41:22).
32. IBM ALLEGED FACT: The next week, on December 20, 2005, counsel for IBM spoke with counsel for SCO regarding Mr. McBride’s and Mr. Tibbitts’ testimony and SCO’s expansion of its interference claims. (Ex. 70 ¶ 2.) Counsel for SCO stated that SCO had now determined to limit the number of companies for which SCO was claiming interference to ten, and possibly to five, and that SCO would provide an updated interrogatory response reflecting this as soon as possible. (Id. ¶ 3.) In response, counsel for IBM stated that if such a response was not promptly provided, IBM was prepared to bring the matter to the attention of the Court. (Id.)
SCO RESPONSE: Disputed. On or around December 20, 2005 (following the 30(b)(6) deposition of Ryan Tibbitts), counsel for IBM and counsel for SCO did discuss SCO’s interference claims. However, in that conversation, counsel for SCO made it clear that SCO was limiting its claims regarding interference with specific companies to five to ten companies – not the SCO was so limiting its claims for IBM’s interference with SCO’s business relationships in the Unix-on-Intel market. (Ex. 3 ¶.)
33. IBM ALLEGED FACT: On December 22, 2005, SCO served its Final Disclosures, but failed to update its interrogatory responses, including its response to Interrogatory No. 8. (Ex. 54.)
SCO RESPONSE: Undisputed, but immaterial because SCO updated its interrogatory response to Interrogatory No. 8 on January 13, 2006 (IBM Ex. 46), just over three weeks later, following discussions with IBM counsel about the scope of those claims. (Ex. 3 ¶ 2.)
34. IBM ALLEGED FACT: On December 28, 2005, counsel for SCO informed counsel for IBM that the number of companies at issue would in fact be only six; that they would be BayStar Capital Management, LLC (“BayStar”), Hewlett-Packard, Oracle, AutoZone, Intel and Novell; and that SCO would promptly supplement its interrogatory answers accordingly. (Ex. 70 ¶ 4.)
SCO RESPONSE: Disputed. On December 28, 2004, SCO counsel represented that SCO was limiting its claims based on IBM’s specific interference to six companies: Baystar Capital, Management, LLC (“Baystar”); Hewlett Packard; Oracle; AutoZone; Intel, and Novell. SCO counsel did not suggest that SCO was dropping its broader claim against IBM for tortious interference with SCO’s business relationships in the Unix-on-Intel market. (Id. ¶ 2.)
C. SCO Response to IBM Section “SCO’s Further Reversals of Position”
35. IBM ALLEGED FACT: On January 13, 2006, after the December 22, 2005, deadline for finally submitting its Final Disclosures and updated interrogatory responses,
SCO served a revised Supplemental Response to Interrogatory No. 8 (Ex. 46 (the “Supplemental Response”)).
SCO RESPONSE: Undisputed that SCO updated its interrogatory responses on January 13, 2006. (IBM Ex. 46.) Prior to that time, counsel for SCO and IBM were engaged in discourse over the scope of those claims. (Ex. 3 ¶ 2).
36. IBM ALLEGED FACT: Despite SCO’s commitment to limit its interference claims to approximately six companies, the Supplemental Response identifies over 150 entities whose relationship with SCO IBM allegedly interfered with. The Supplemental Response also identifies six companies or entities with which SCO claims IBM interfered though various direct contacts with the companies: BayStar, Hewlett-Packard, Computer Associates, Oracle and Intel, as well as an “OpenSource Conference” in Scottsdale, Arizona. (Ex. 46 at 2-7.)
SCO RESPONSE: Disputed. The additional entities identified by SCO were representative of business relationships or prospective business relationships in the UNIX-onIntel market impacted by IBM’s improper conduct. SCO never represented that it was dropping that claim. (Id.)
37. IBM ALLEGED FACT: As to these, SCO makes the following allegations:
(a) BayStar: SCO alleges that, following Baystar’s investment in SCO in October 2003, “IBM on one or more occasions communicated with BayStar in order to induce BayStar to threaten litigation against SCO and to terminate its business relationship with and/or withdraw or reduce its investment in SCO and that “[a]s a proximate result of IBM’s communications with BayStar, BayStar terminated its business relationship with SCO in May 2004”. (Id. at 2-3.)
(b) Computer Associates, Oracle and Intel: SCO alleges “[o]n information and belief” that IBM contacted Computer Associates, Oracle and Intel during or shortly after the LinuxWorld 2003 convention and informed them that IBM was “cutting off all business ties with SCO” and that IBM wanted each of them to do the same. (Id. at 4.)
(c) Hewlett-Packard: SCO alleges that “Ms. Smith [of IBM] contacted Rick Becker of Hewlett-Packard during or shortly after the LinuxWorld 2003 convention and stated that IBM was cutting off all business ties with SCO and wanted HewlettPackard to do the same”. (Id.) SCO relies entirely on the deposition testimony of Mr. Becker, that at the LinuxWorld 2003 convention, Karen Smith of IBM “
SCO also alleges that, although Hewlett-Packard and SCO “still have a good business relationship, Hewlett-Packard has provided SCO with significantly less support than it did in 2002”. (Id.)
(d) OpenSource Conference in Scottsdale, Arizona: SCO alleges that Darl McBride “entered into an oral business relationship with John Terpstra, who was hosting an OpenSource Conference in Scottsdale, Arizona, in the spring of 2004, to speak at the conference.” (Id. at 7.) SCO further claims that IBM thereafter “contacted Mr. Terpstra and informed him that IBM did not want Mr. McBride to speak at the conference, and intimated that IBM would withdraw its participation in the conference if Mr. McBride did speak”. (Id.)
SCO RESPONSE: Undisputed that these are the allegations set forth in SCO’s supplemental interrogatory response. As to part (d), in light of Mr. Terpstra’s declaration submitted in support of IBM motion for summary judgment, SCO is not pursuing this aspect of its claim.
38. IBMALLEGED FACT: The Supplemental Response also alleges that IBM “encourag[ed] and improperly enabl[ed] numerous companies to migrate to or to use an enterprise-hardened Linux platform operating on Intel-based hardware rather than use SCO’s UnixWare or OpenServer products”, thereby interfering with SCO’s prospective business relationships with 19 “former SCO customers who migrated to an enterprise-hardened Linux platform” (Actual Systems, Advantage Business Computers, AmCom Software, AutoZone, Avaya, Avnet, Bebe, Frazee Paints, Kmart, Prime Clinical, Radical System, Safeway, Save Mart, Shaw’s Supermarkets, Sherwin Williams, Shopper’s Drug Mart, Snyder Drug Stores, Target Pharmacies and West Communications) and 156 “other Linux users who chose an enterprise-hardened Linux platform”. (Id. at 7-13.)
SCO RESPONSE: Undisputed.
39. IBM ALLEGED FACT: The Supplemental Response says nothing about IBM’s alleged interference with the Novell/Santa Cruz Asset Purchase Agreement, despite the fact that Interrogatory No. 8 expressly seeks the identification of “all agreements with which plaintiff alleges IBM interfered” and a detailed description of “each instance in which plaintiff alleges . . . that IBM interfered with those agreements.” (Ex. 11 at 4.)
SCO RESPONSE: Undisputed; however, SCO’s January 13, 2006 updated interrogatory response expressly stated that it identifying the scope of SCO’s claims for Interference with Contract (Seventh Cause of Action) and Interference with Business Relationships (Ninth Cause of Action). (IBM Ex. 46 at 2.) SCO had fully already fully explained IBM’s interference with Novell in prior interrogatory responses (Ex 3; IBM Ex. 36
at 29-31). SCO expressly incorporated this prior interrogatory response into its answer. (IBM Ex. 46 at 1, n1.)
40. IBM ALLEGED FACT: On June 28, 2006, the Magistrate Judge Wells issued an Order Granting in Part IBM’s Motion to Limit SCO’s Claims. In the Order, Judge Wells states:
In an order signed by Judge Kimball on July 1, 2005, both SCO and IBM were given two important dates, October 28, 2005 and December 22, 2005 respectively. These dates were court ordered deadlines for the parties “to disclose with specificity all allegedly misused material’. With the October date being the interim deadline and the December date being the final deadline. Pursuant to this same order, the parties were also ordered to “update interrogatory responses.”
(Ex. 59 at 14-15.)
SCO RESPONSE: Undisputed. However, the findings and conclusions in the Magistrate Court Order are the subject of objections filed by SCO (Ex. 255), and heard by this Court on October 24, 2006.
41. IBM ALLEGED FACT: Because Mr. Tibbitts was unable to provide meaningful information about SCO’s claims at his December 16, 2005, deposition, and because SCO’s claims continued to evolve, IBM deposed Mr. Tibbitts a second time in his capacity as SCO’s Rule 30(b)(6) witness on the interference claims on, June 30, 2006.
SCO RESPONSE: Undisputed that Mr. Tibbitts was deposed in his Rule 30(b)(6) capacity on June 30, 2006. As set forth above, SCO disputes that SCO and Mr. Tibbitts did not previously provide “meaningful information” on SCO’s claims for tortious interference.
42. IBM ALLEGED FACT: At this deposition, SCO confirmed that the Supplemental Response sets forth “the complete and accurate” response to IBM’s Interrogatory No. 8 as it understood it to date, that it “supersede[s]” and “replace[s]” SCO’s prior responses to Interrogatory No. 8, and that – at least as to pages one through ten of SCO’s Supplemental Response – SCO has “no plan to update anything” therein. (Ex. 345 at 9:10-10:1, 22:2423:21.)
SCO RESPONSE: Disputed. Cited material does not support the proposition.
43. IBM ALLEGED FACT: Mr. Tibbitts further acknowledged that SCO was “abandoning” its tortious interference claims with respect to five of the 19 “former SCO customers” identified in the Supplemental Response – Avnet, Frazee Paints, Save Mart, Snyder Drug Stores and Target – because these companies had not switched to a Linux platform at all. (Id. at 24:23-26:22.)
SCO RESPONSE: Undisputed. 44. IBM ALLEGED FACT: As set out in the Supplemental Response and Mr. Tibbitts’ testimony, SCO now asserts its Seventh, Eighth, and Ninth Causes of Action with respect to:
(a) Seven identified contractual or existing business relationships with which IBM allegedly interfered by specific conduct or communication to the companies or persons with whom SCO had the relationships: BayStar, Hewlett-Packard, Computer Associates, Oracle, Intel, the OpenSource Conference and Novell.
(b) Possible business relationships that allegedly might have been established with companies in a second group, consisting of the 14 “former SCO customers” and 156 “other Linux users.” SCO “is not alleging that IBM contacted any one of these companies individually and somehow wrongfully induced them to switch to Linux on that basis”; instead, the alleged acts consists of IBM’s alleged activities relating to Linux affecting the marketplace in general. (Ex. 345 at 29:16-30:10.) SCO has characterized this claim as one for “indirect” interference or interference with “the UNIX on Intel market as a whole”. (Ex. 317 at 67:22-25; Ex. 345 at 26:19-22, 35:4-11.) SCO asserts that, but for IBM’s alleged interference, these companies and entities “foreseeably would have chosen a SCO platform” rather than a Linux platform. (Ex. 46 at 7-13.) SCO also does not claim that the more than 150 “other Linux users” were SCO customers or that SCO necessarily had any direct contact or communication with them. In fact, during Mr. Tibbitts’ June 30, 2006, Rule 30(b)(6) deposition, counsel for SCO admitted that SCO generated the list of the 156 companies by lifting companies named in an IBM document which purports to identify certain companies as “Linux wins”. (Ex. 345 at 42:6-11.) In its Supplemental Response, SCO expressly states that the claims as to these 156 companies are made only “on information and belief”. (Ex. 46 at 11.)
SCO RESPONSE: Disputed in part for the reasons set forth below:
a) Undisputed. However, SCO’s claims for interference with these business relations are set forth more fully in SCO’s Supplemental Response to IBM’s Interrogatory No. 8, at 2-7. (IBM Ex. 46).
b) Disputed. IBM has misstated SCO’s claims based on interference with SCO’s business relations in the Unix-on-Intel market. This claim is explained fully in
SCO’s Supplemental Response to IBM’s Interrogatory No. 8, at 7-13. (IBM Ex. 46.) The companies that SCO named in that response were representative of the type of customer and partner relationships in the UNIX-on-Intel market impacted by IBM’s improper conduct.
D. SCO Response to IBM Section “SCO’s Failure of Proof”
45. IBM ALLEGED FACT: SCO has not identified any evidence of improper conduct by IBM that interfered with any of its contracts or business relationships and it cannot do so, for at least the reasons explained below.
SCO RESPONSE: Disputed for the reasons set forth below.
46. IBM ALLEGED FACT: No one from IBM ever communicated with any representative of BayStar concerning SCO or BayStar’s investment in SCO.
(a) In a sworn declaration, Larry Goldfarb, managing member of BayStar, states: ‘‘No one from IBM ever had any communications with me or, to my knowledge, anyone at BayStar relating to SCO.” (Ex. 165 ¶ 4.)
(b) Mr. Goldfarb also states: “No one from IBM ever contacted me or anyone else at BayStar about SCO, Baystar’s investment in SCO, or anything else.” (Id. ¶ 16.)
SCO RESPONSE: Disputed. Larry Goldfarb, managing member of BayStar specifically told Darl McBride that IBM had pressured him to discontinue its support of and investment in SCO. (Ex. 165 ¶ 29; IBM Ex. 319 at 86:16-19.) These facts are more fully set forth above. Parts (a) and (b) are disputed for the same reasons.
47. IBM ALLEGED FACT: Baystar’s threats of litigation against SCO and its decision to terminate or reduce its business relationship with SCO were not induced or caused by any action or communication by IBM.
(a) BayStar’s Mr. Goldfarb states: “BayStar terminated its relationship with SCO for multiple reasons. BayStar’s decision to terminate its relationship with SCO had nothing whatsoever to do with any’ communications with or conduct of IBM.” (Id. ¶ 4.)
(b) Mr. Goldfarb further states: “BayStar’s decision to redeem its shares in SCO and retire its investment in SCO had nothing whatsoever to do with IBM or any representative of IBM.” (Id. ¶ 16.)
SCO RESPONSE: Disputed. As set forth in more detail at paragraphs 50-58 supra, Baystar’s actions, including threatening litigation against SCO, and withdrawing its investment from SCO, were caused by IBM pressuring Larry Goldfarb, as Mr. Goldfarb told Mr. McBride. (Ex. 165 ¶ 29.)
48. IBM ALLEGED FACT: BayStar’s decision to redeem its investment in SCO was caused by reasons having nothing to do with IBM.
(a) Shortly after BayStar made the investment in SCO, SCO’s stock price, financial performance and the viability of its UNIX products all appeared to be in decline. Mr. Goldfarb states: “SCO’s stock price declined . . . I was also very concerned about SCO’s high cash burn rate and whether its UNIX products were viable in the marketplace.” (Id. ¶¶ 10, 11.)
(b) Microsoft’s conduct suggested that it might not guarantee BayStar’s investment in SCO as it had promised to Mr. Goldfarb. Mr. Goldfarb states: “Mr. Emerson [Microsoft’s senior vice president of corporate development and strategy] and I discussed a variety of investment structures wherein Microsoft would ‘backstop,’ or guarantee in some way, BayStar’s investment. . . . Microsoft assured me that it would in some way guarantee BayStar’s investment in SCO.” (Id. ¶ 7.) Mr. Goldfarb states that, after BayStar made the investment, “Microsoft stopped returning my phone calls and emails, and to the best of my knowledge, Mr. Emerson was fired from Microsoft.” (Id. ¶ 10.)
(c) When BayStar’s concerns about SCO’s business were not adequately addressed by SCO, BayStar decided to retire its investment in SCO. Mr. Goldfarb states:
Mr. Goldfarb further states: “Having received no satisfactory response from SCO, I determined Baystar’s obligations to its investors required the Fund to get out of the investment. I negotiated the terms of the deal to retire the investment on behalf of BayStar.” (Id. ¶ 14.)
SCO RESPONSE: Disputed.
a) Mr. Goldfarb’s testimony on this point is again directly refuted by contemporaneous statements he made to Mr. McBride that, as a trader, SCO’s stock volatility was important to him – not whether SCO’s stock went up or down. (Ex. 165 ¶ 28.) It also
contradicts contemporaneous statements made by Mr. Goldfarb about the reasons for his investment. For instance, shortly after the investment, Mr. Goldfarb was quoted as stating: “BayStar Capital looks to invest in growth-oriented firms with strong management, substantial market opportunity and solid, comprehensive business plans, and we believe all of those fundamentals are in place for SCO to succeed.” (Ex. 248)
b) Disputed. Microsoft did not guarantee BayStar’s investment in SCO. Microsoft has denied any involvement in the investment by Baystar. (Ex. 326).
c) Disputed. Following the investment, Mr. Goldfarb was asked by reporters if Microsoft had any involvement in the investment, and he stated publicly that Microsoft had no involvement whatsoever in the investment. Goldfarb explained the investment:
We loved the history of what SCO had going back to [incarnation as] Caldera. The stock price had gone up a lot. We thought, regardless of litigation issues, . . . for two or three years we could see some real EPS growth and some cash growth. But we saw a company that could use more cash than it had. So that was the genesis of how we began conversations with Darl. (Ex. 245).
2. Computer Associates, Oracle and Intel.
49. IBM ALLEGED FACT: Neither Karen Smith (IBM’s then Vice President of Linux Strategy and Market Development, and one of IBM’s LinuxWorld 2003 attendees) nor any other IBM representative ever stated to Computer Associates, Oracle or
Intel that IBM was cutting off its business ties with SCO or that IBM wanted them to cut off their business ties with SCO.
(a) In a sworn declaration, Samuel Greenblatt, Senior Vice President and Strategic Technical Advocate for Computer Associates’ Linux Technology Group, states:
I attended the LinuxWorld 2003 convention. At no time did Karen Smith or any other IBM representative communicate to me that IBM was terminating its business relationship with The SCO Group, Inc. (“SCO”) or that IBM wanted CA to stop doing business with SCO.(Ex. 177 ¶¶ 2-4.)
To the best of my knowledge, neither Ms. Smith nor any other IBM representative ever, directly or indirectly, informed CA that IBM had decided to terminate its relationship with SCO or asked CA to stop doing business with SCO.
To the best of my knowledge, CA has not in any way altered its relationship with SCO because of any statements or actions by IBM or any representatives of IBM.
(b) In a sworn declaration, Monica Kumar, Principal Manager of Oracle’s Linux Program Office, states:
I attended the Linux World 2003 convention. At no time did Karen Smith or any other IBM representative communicate to me that IBM was terminating its business relationship with The SCO Group, Inc. (“SCO’) or that IBM wanted Oracle to stop doing business with SCO.
To the best of my knowledge, neither Ms. Smith nor any other IBM representative ever, directly or indirectly, informed Oracle that IBM had decided to terminate its relationship with SCO or asked Oracle to stop doing business with SCO.
To the best of my knowledge, Oracle has not in any way altered its relationship with SCO because of any statements or actions by IBM or any representatives of IBM.
(Ex 241 ¶¶ 2-4.)
(c) In a sworn declaration, Luann Gulesarian, Intel’s Strategic Relationship Manager in its Sales and Marketing Group, states:
I attended the Linux World 2003 convention in New York, New York in January 2003. At no time did anyone named Karen Smith or any other IBM representative communicate to me that IBM was terminating its
business relationship with SCO or that IBM wanted Intel to stop doing business with SCO. To the best of my knowledge, neither Ms. Smith nor any other IBM representative ever, directly or indirectly, informed Intel that IBM had decided to terminate its relationship with SCO or asked Intel to stop doing business with SCO.
To the best of my knowledge, Intel has not in any way altered its relationship with SCO because of any statements or actions by IBM or any representatives of IBM.
(Ex. 204 ¶¶ 2-4.)
(d) Ms. Smith likewise confirms that she had no such conversations with Computer Associates, Oracle or Intel. In a sworn declaration, Ms. Smith states: “I did not have any contacts with Intel, Computer Associates, or Oracle, during or after the LinuxWorld 2003 conference, in which I advised them that IBM was cutting off its business relationship with SCO, or suggested that these companies not do business with SCO.” (Ex. 205 ¶ 5.) In addition, regardless of whether such statements were made, she did not do anything that caused these companies not to do business with SCO. (Id. ¶ 4.)
SCO RESPONSE: Disputed, and subparts (a), (b), (c), and (d) are also disputed. As set forth in more detail in paragraphs 26-27 supra,
50. IBM ALLEGED FACT: SCO supported the migration of Computer Associates, Oracle and Intel products to Linux, partnering with each of these companies to provide Linux solutions to their end users.
(a) SCO’s Gregory Anderson, a former SCO employee responsible for SCO’s relationships with its technology partners, agreed that “any change in the relationship between SCO/Caldera and Computer Associates . . . had to do with SCO’s [alleged] decision not to continue to distribute Linux products”. (Ex. 305 at 149:6-19.)
To the extent that there was a change in the relationship between SCO and Intel, it is attributable to SCO allegedly “ceasing to distribute a Linux operating system and Linux products more so”. (Ex. 305 at 142:11-23.)
SCO RESPONSE: Disputed. As set forth in more detail in paragraphs 19-22 supra, it was never SCO’s strategy for its partners to replace UNIX products; rather, Linux was always presented as a complimentary solution.
a) Disputed. Computer Associates decreased its support of SCO before SCO terminated its distribution of Linux (Ex. 369 ¶ 12.) Further, when SCO initially presented its SCOsource plan to Computer Associates, Computer Associates did not react negatively to the initiative. (Ex. 9 ¶ 4.)
b) Disputed. In recent years, Oracle has phased out support for SCO’s UNIX products. (Ex. 369 ¶ 17.) After Oracle communicated its decision to embrace Linux, SCO encouraged Oracle to certify its products on the Linux Kernel Personality so that SCO would not lose all the Oracle business. (Id.) SCO only embarked on this strategy after
Oracle had decided to support Linux instead of UNIX. (Id.) Further, when SCO initially presented its SCOsource plan to Oracle, Oracle did not react negatively to the initiative. (Ex. 9 ¶ 4.) Finally, SCO’s experts reached the conclusion that Linux’s replacement of SCO’s UNIX products was made possible by IBM’s improvements, which enabled Linux to function for the same uses as SCO’s UNIX products. (Ex. 286 at 32-37, 41, 44-45; Ex. 281 at 56-58, 63; Ex. 283 at 42-45.) Thus, but for the improper disclosures of IBM, Oracle could not have transferred its support from UNIX to Linux.
c) Disputed. Intel decreased its support of SCO before SCO terminated its distribution of Linux (Ex. 369 ¶ 24.) Further, when SCO initially presented its SCOsource plan to Intel, Intel did not react negatively to the initiative. (Ex. 9 ¶ 4.)
51. IBM ALLEGED FACT: Karen Smith of IBM recalls a brief conversation with Rick Becker of Hewlett-Packard at the LinuxWorld 2003 convention, but does not recall stating and does not believe she stated to Mr. Becker that IBM was going to cut off all business ties with SCO and that IBM wanted Hewlett-Packard to do the same. Regardless, Ms. Smith never took any steps that caused SCO harm. (See Ex. 205 ¶¶ 4, 6.)
SCO RESPONSE: Disputed for the reasons set forth above in paragraph 49.
52. IBM ALLEGED FACT: In any case, the statements allegedly made by Ms. Smith to Mr. Becker had no impact on the relationship between Hewlett-Packard and SCO. At his deposition, Mr. Becker testified:
SCO RESPONSE: Disputed.
53. IBM ALLEGED FACT: Hewlett-Packard has confirmed that to the extent its business relationship with SCO has changed, it is for reasons having nothing to do with IBM. Joseph Beyers, Hewlett-Packard’s Vice President of Intellectual Property, states in a sworn declaration:
HP has done business with The SCO Group, Inc. (“SCO), or its predecessor, The Santa Cruz Operation, Inc., since the mid-1980s. HP continues to do business with SCO, and has a variety of business relationships with SCO, ranging from licensing SCO’s intellectual property, including UNIX, to joint marketing and promotions activities.
To the extent HP may have reduced or altered its business relationship with SCO, HP has not in any way reduced or altered its relationship with SCO because of any statements or actions of IBM or any representatives of IBM.
(Ex. 597 ¶¶ 2, 3.)
SCO RESPONSE: Disputed, for the reasons stated in paragraphs 51 and 52. Also, notably, Hewlett Packard was also a participant in the Chicago Seven meeting described at paragraph 88.
54. IBM ALLEGED FACT: Moreover, by SCO’s own admission, the relationship between SCO and Hewlett-Packard did not decline after the LinuxWorld 2003 convention and continues to be strong today:
(a) According to SCO’s Mr. Anderson, who had responsibility for SCO’s relationships with its technology partners, including Hewlett-Packard, the business relationship between SCO and Hewlett-Packard was “very good” from January 2003, during the LinuxWorld event, until at least May 2003, when he left SCO. (Ex. 305 at 145:12-23)
(b) According to Mr. Hunsaker, Senior Vice-President and General Manager of SCO’s UNIX division and former Vice-President of Worldwide Sales,
(c) SCO and Hewlett-Packard have had a mutual “longstanding presence” at SCO Forum and HP World and their “close relationship” has resulted in “billions of dollars” of Hewlett-Packard products running SCO software. (Ex. 170.) Concerning the current business relationship between Hewlett-Packard and SCO, SCO’s website states:
The SCO-HP Relationship: How HP and The SCO Group Can Help You
SCO and HP have been partners in leading edge technology since the mid-1980s, when most PCs were single-task, single-user systems and the term ‘server’ was unknown. The HP/SCO partnership harnessed the latent power of microcomputers with SCO UNIX to bring mainframe and minicomputer capabilities like multi-user and multi-tasking to the desktop. SCO was the first to bring these features to market, leveraging the superior reliability and stability of HP systems.
The SCO/HP partnership is reflected in a longstanding presence at SCO Forum and HP World. This close relationship has resulted in billions of dollars of HP hardware running SCO software worldwide. HP and SCO have a considerable presence in such vertical markets as Financial, Health Care, Manufacturing, and Transaction Processing. HP continues to support SCO operating systems across its server lines and has recently extended support to HP advanced storage technologies such as the MSA1000 and MSA1500.
(d) SCO’s website also names Hewlett-Packard as the only “Platinum Sponsor” of its 2006 SCOForum event, the highest level of sponsorship among the eighteen sponsors listed, while displaying Hewlett-Packard’s logo in connection with the event. (Ex. 192.)
SCO RESPONSE: Disputed. While Hewlett Packard and SCO do have a healthy and even “good” ongoing relationship, SCO’s relationship with Hewlett Packard did decline from what it was previously, as described in ¶ 52.
4. Open Source Conference in Scottsdale, Arizona
55. IBM ALLEGED FACT: John Terpstra’s decision to rescind the invitation to Darl McBride to speak at the OpenSource Conference in Scottsdale, Arizona, was the result of complaints from other participants of the OpenSource Conference, not IBM.
a) Mr. Terpstra states:
Although I asked representatives from IBM to participate in the Open Source Open Standards Conference multiple times, no one from IBM was willing to commit to speak at the conference or to participate in it in any way, at any time. b) Mr. Terpstra further states: Other potential participants in the conference did inform me, however, that they would not participate in the conference if Mr. McBride were to be a speaker or if SCO were present in any manner. I was able to secure their attendance only after offering
At no time did anyone from IBM tell me that it did not want Mr. McBride to speak at or participate in the conference. At no time did anyone from IBM tell me that it would not participate in the conference unless Mr. McBride did not speak. At no time did anyone from IBM tell me that it would withdraw its participation in the conference if Mr. McBride did speak – as set forth above, BM never committed to participate in the conference at all. At no time did anyone from IBM pressure me in any way to ask Mr. McBride or SCO not to speak at or participate in the conference.
(Ex. 267 ¶¶ 4, 5.)
assurance that Mr. McBride and SCO would not be present and that a list of attendees would not be made public. As a result, I called Mr. McBride sometime before the conference was to occur, and explained to him that overall feedback from potential participants in the Open Source Open Standards Conference was prejudicial to sustaining the invitation for Mr. McBride to speak and for SCO to be present at this event. (Id. ¶¶ 6, 7.)
SCO RESPONSE: In light of Mr. Terpstra’s declaration, SCO is not pursuing this aspect of its claim.
56. IBM ALLEGED FACT: In 1995, Novell entered negotiations with Santa Cruz concerning the sale of certain Novell assets relating to its UNIX and UnixWare software products. (Ex. 239 ¶ 4.)
SCO RESPONSE: Undisputed.
57. IBM ALLEGED FACT: On September 19, 1995, Novell and Santa Cruz executed an Asset Purchase Agreement (the “APA”). (Ex. 123.)
SCO RESPONSE: Undisputed. 58. IBM ALLEGED FACT: After SCO filed this lawsuit, Novell sent a series of letters to SCO that directed SCO to waive or explicitly waived the purported breaches of contract SCO has asserted IBM committed. (See Exs. 135-138.)
SCO RESPONSE: Undisputed.
59. IBM ALLEGED FACT: In asserting ownership of the UNIX copyrights and exercising its rights under the APA, Novell acted in its own interests and independently of IBM. IBM did not induce Novell to assert ownership of the UNIX copyrights; nor did it cause Novell to breach any of its obligations under the APA. In a sworn declaration, Joseph LaSala, Jr., Senior Vice President and General Counsel at Novell, states:
Contrary to SCO’s claim, Novell asserted ownership of the UNIX copyrights and exercised its rights under the APA because Novell owns the copyrights, because it has a right of waiver under the APA, and because it was in Novell’s interest to exercise these rights. IBM did not have the ability to require Novell to take the steps about which SCO complains and did not
force or pressure Novell to do so. Novell acted independently of IBM.
(Ex. 240 ¶ 42.)
SCO RESPONSE: Disputed. As set forth in more detail in paragraphs 59-83, IBM induced Novell to assert rights under the Asset Purchase Agreement that it did not possess, to the great detriment of SCO. Further, as discussed in more detail in paragraphs 8486, the declaration of Joseph LaSala should not be considered on the subject of the communications between IBM and SCO because IBM previously asserted a joint interest privilege regarding such communications and prohibited SCO from seeking discovery on such communications.
60. IBM ALLEGED FACT: Novell’s decision to assert its contractual rights under the APA was in no way caused or influenced by the $50 million investment made by IBM in connection with Novell’s acquisition of SuSE. Mr. LaSala states:
Novell’s decision to assert its contractual rights under the APA and Amendment X was in no way caused or influenced by IBM’s $50 million investment. Novell would have taken the same actions even if it did not receive the $50 million investment, and the $50 million was never conditioned on Novell taking such actions.
(Id. ¶ 44.)
SCO RESPONSE: Disputed, for the reasons stated in ¶ 59.
61. IBM ALLEGED FACT: IBM never requested or expressed a desire that Novell breach the APA, Amendment X or any other agreement between Novell and Santa Cruz or Novell and SCO. Mr. LaSala states:
Novell informed representatives of IBM of the actions it took with respect to the UNIX copyrights. However, at no time did any representative of IBM request or express a desire that Novell breach, or take any action contrary to, the APA, Amendment X or any other agreement between Novell and Santa Cruz or Novell and SCO.
(Id. ¶ 42).
SCO RESPONSE: Disputed, for the reasons stated in ¶ 59. According to Jack Messman, Novell’s decision to purchase Suse, and IBM’s assistance in funding that purchase, flowed from a meeting known as the “Chicago 7,” described more fully at paragraph 87. Mr. Messman acknowledged that the meeting was prompted by the negative impact SCO’s lawsuit against IBM was having on the Linux market. Following this meeting, attended by all the leading players in the Linux market, Novell announced its intent to purchase SUse Linux with IBM’s assistance. (Ex. 256)
E. SCO Response to IBM Section “IBM’s Purpose in Supporting Linux”
62. IBM ALLEGED FACT: IBM’s Linux strategy was undertaken in good faith and was motivated entirely by competitive reasons. In supporting Linux, IBM harbored no malice or ill will directed towards SCO nor any intent to ham SCO. Dan Frye, co-founder of and Vice President responsible for managing IBM’s Linux Technology Center, states:
IBM undertook its Linux business strategy, and made contributions to Linux, in the good faith belief that these activities were permissible. IBM did not undertake its Linux activities with an intent to harm SCO and those activities were not motivated by any spite or ill will toward SCO. On the contrary, IBM undertook its Linux strategy for competitive reasons.
(Ex. 586 ¶ 5).
SCO RESPONSE: Disputed. While IBM had competitive reasons for embarking on its Linux strategy, IBM’s initiation of its Linux strategy was inextricably linked to IBM’s unfair competition in conducting and terminating its Project Monterey relationship with SCO, as set forth in SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Unfair Competition Claims (SCO’s Sixth Cause of Action). Furthermore, by 2003, when SCO endeavored to assert its intellectual property rights with regard to Linux, IBM acted quickly to isolate SCO in the market and cut off its support, as evidenced by IBM
63. IBM ALLEGED FACT: SCO’s own experts believe that competitive forces created market pressures that led IBM to support Linux:
SCO RESPONSE: Undisputed. Subparts (a) through (f) are also undisputed.
SCO RESPONSE: Undisputed. Subparts (a) through (c) are also undisputed.
SCO RESPONSE: Undisputed, except that SCO’s experts never concluded that IBM’s competition was “on the merits.” Subpart (a) is undisputed.
F. SCO Response to IBM Section “SCO’s Lack of Injury”
66. IBM ALLEGED FACT: SCO cannot specifically identify any damages resulting from any acts of alleged interference by IBM, as explained below.
c) With regard to SCO’s claim for interference with the “Unix on Intel market”, Mr. Tibbitts testified that SCO’s “theory is not company/company specific” (Ex.
REDACTED Thus, SCO is “not allocating a specific dollar amount to each of [those entities] anyway” because SCO’s “tortious interference claim . . . is more of a tortious interference perspective, business relationships for the Unix on Intel market as a whole”. (Ex. 345 at 26: 17-22.)
d) Similarly, as to the seven existing relationships with which SCO alleges IBM interfered, SCO does not claim any discrete damages resulting from IBM’s alleged interference. For example, as to BayStar, Mr. Tibbitts testified:
[W]e don’t have a discreet (sic) claim about BayStar with a damage number associated with that. The BayStar story is part of our overall story about how IBM dealt with us . . . I think it’s just part of the story and we’re not going to say the damages related to BayStar are X dollars, but . . . it’s part of the story that leads to the damages that have been submitted in our damage reports. (Ex. 345 at 14:17-15:9.)
e) Not one of SCO’s experts attempts to quantify or even address the alleged damages allegedly caused by IBM’s alleged tortious interference with SCO’s contractual or business relationships.
SCO RESPONSE: Disputed. SCO’s damages for IBM’s acts of interference are subsumed within and coterminous with SCO’s damages for its breach of contract claims. With that context, subparts (a) through (d) are undisputed. Subpart (e) is disputed for the same reason as stated above: SCO’s damages for IBM’s acts of interference are subsumed within and coterminous with SCO’s damages for its breach of contract claims, and those damages were addressed by SCO’s experts.
67. IBM ALLEGED FACT: There were problems adversely affecting SCO’s business from at least 1999 onward that were independent of any actions of IBM.
a) SCO was not “successful in getting new customers” at a time when “[Linux] hadn’t established itself, didn’t have the credentials” and “was relatively new and unproven”. (Ex. 304 at 67:16-68:4, 68:23-70:12.)
c) From January 2000 to the acquisition by Caldera Systems, Inc. (“Caldera”), of Santa Cruz’s UNIX business in May 2001, SCO’s marketing efforts for its UNIX products were declining. (Ex. 305 at 108:25-109:22.)
e) After the acquisition by Caldera of SCO’s UNIX business in 2001, SCO was “focused on maintaining the existing customers as opposed to approaching new customers” of UnixWare and OpenServer. (Ex. 308 at 47:22-48:18.)
f) SCO’s Linux products were more expensive than the Linux products of its competitors, so SCO was “having trouble getting the business a lot of times on the price point”. (Id. at 26:12-24.) SCO’s Linux products were kept at “a comparative price with [SCO’s] UNIX [products] because we would devalue our UNIX business”. (Id. at 26:1719.)
SCO RESPONSE: Disputed. SCO’s experts concluded that Santa Cruz’s UNIX business grew its revenue 1995 to 1999, and that it occupied a strong market position in 1999. (Ex. 286 at 12-18) Following IBM’s improper conduct and the resulting precipitous decline of revenue from Santa Cruz’s UNIX operating systems, the company suffered from the impact of
the loss of that revenue, including lack of funding issues. (Ex. 286 at 50; Ex. 281 at 62-63). Such issues, SCO’s experts concluded, were attributable to IBM’s wrongful conduct and not an independent cause of SCO’s losses.
a) Disputed, for the reasons set forth above.
b) Disputed. To the extent there were complaints about SCO’s products, SCO’s experts concluded that it was attributable to the revenue losses caused by IBM’s improper disclosures to Linux. (Ex. 286, Pisano rebuttal at 50-51)
c) Disputed. The cited material does not support the proposition that SCO’s marketing efforts were declining from January 2000. In fact, the employee to whom IBM cites testified that marketing funds decreased from the “period” when he came to the company in January 2000 to the acquisition of the UNIX assets by Caldera in 2001. (IBM Ex. 305 at 108:25-109:22) In other words, the funds were less in 2001 than when the employee joined the company in January 2000.
Further, SCO’s experts concluded that, to the extent SCO’s marketing efforts declined in this period, that decline was attributable to the revenue losses caused by IBM’s improper disclosures to Linux. (Ex. 286 at 52-53)
d) Disputed. The document cited by IBM (Ex. 203) was generated by an outside analyst retained for the purpose of identifying SCO’s potential growth strategies shortly after Darl McBride became CEO. (Ex 165.) SCO executive Eric Hughes testified that
Mr. Jenkins, who was new to both the software industry generally and to SCO business specifically, created this presentation early in his process of investigating the company and analyzing the business. (Ex 165.)
e) Disputed. The cited material does not support the proposition. The former SCO employee cited stated that his focus was on selling to his existing customers; he was not referring to SCO more broadly. (IBM Ex. 308, 47:22-48:18).
f) Disputed, in so far as the cited testimony does not support IBM’s contention that problems adversely affecting SCO’s business were independent of any action of IBM. The cited quotations are accurate but removed from their context.
1See SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Contract Claims (SCO’s First, Second, Third and Fourth Causes of Action); SCO’S Memorandum in Opposition to IBM’s Motion for Summary Judgment on its Claim for Declaratory Judgment of Non-infringement (IBM’s 10 th Counterclaim; SCO’s Memorandum in Opposition to IBM’s Motion for Summary Judgment on SCO’s Unfair Competition Claims (SCO’s Sixth Cause of Action).
2The documents, declarations, and depositions supporting SCO’s response are appended to the November 8, 2006 Declaration of Brent Hatch, and are cited herein as “Ex. __.” Where exhibits attached to IBM’s September 25, 2006 Declaration of Todd M. Shaughnessy are referenced herein, they are cited as “IBM Ex. __.”
3SCO’s Opposition to Summary Judgment on SCO’s Contract Claims, “Standard of Decision.”
4A copy of this unpublished opinion is attached pursuant to local rule 7.2 as Ex. B.
5SCO’s Opposition to IBM Motion for Summary Judgment on SCO’s Unfair Competition Claims
6See Leigh Furniture, 657 P.2d at 303 & n.7 (listing the jurisdictions which apply some variation of the Restatement formulation of the tort, Illinois among them).
7For the same reasons, the unpublished opinion in O’Neil v. Cont’l Ill. Nat’l Bank & Trust Co., No. 849398, 1985WL2710 (N.D. Ill. Sept. 25, 1985), is inapplicable to this or any other case decided under Utah law. A copy of that unpublished opinion is attached as Ex. A.
9The Court should further disregard Exhibit 240 because it contains inadmi ssible evidence. The declarant is Joseph A. LaSala, Jr. “on behalf of Novell, Inc.” Mr. LaSala identifies himself as “Senior Vice President and General Counsel at Novell, Inc.” Although not mentioned in the declaration, Mr. LaSala was hired by Novell in 2001. See http://www .novell.com/company/bios/jlasala.html. Mr. LaSala makes no assertion that he has personal knowledge of any matter contained in the declaration. To the contrary, he asserts that the declaration is “based on Novell’s knowledge and understanding of the matters described herein,” and that he is authorized to submit the declaration “on behalf of Novell.” (IBM Ex. 240 ¶ 4.) Federal Rule of Civil Procedure 56(e) states that affidavits in support of summary judgment motions are required to “be made on personal knowledge.” Only in paragraphs 30-36 of the declaration does Mr. LaSala make statements that are based on his personal knowledge. Where the deficiencies in an affidavit make it impossible for the Court to determine “which facts it can accept as based on personal knowledge and which must be rejected as being conjecture or belief,” the Court should disregard the entire affidavit. Malek v. Martin Marietta Corp., 859 F. Supp. 458, 460-61 (D. Kan. 1994). Those statements regarding occurrences prior to Mr. LaSala’s joining Novell in 2001 were clearly not made upon personal knowledge, constitute inadmissible hearsay, and should be disregarded by the Court. See Perez v. Volvo Car Corp., 247 F. 3d 303, 316 (1st Cir. 2001) (where record made clear that events in question occurred prior to affiant’s hiring, parts of affidavit concerning those events “cannot properly be considered”). Additionally, to the extent the entire declaration purports to relay Novell’s “understanding” of matters, it should be disregarded as not in accordance with Rule 54(e). See Malek, 859 F. Supp. at 460 (“It is the plaintiff’s personal knowledge and not his beliefs, opinions, rumors or speculation, that are admissible at trial and the proper subject of any affidavit.”); accord Ricks v. Xerox Corp., 877 F. Supp. 1468, 1470 n.1 (D. Kan. 1995).
10Though decided in the context of assertion of the witness’s Fifth Amendment privilege, its reasoning is analogous. A copy of this unpublished opinion is attached.
CERTIFICATE OF SERVICE
Plaintiff, The SCO Group, Inc., hereby certifies that a true and correct copy of the
foregoing Redacted SCO's Memorandum in Opposition to IBM's Motion for Summary
Judgment on SCO's Interference Claims (SCO's Seventh, Eighth and Ninth Causes of Action)
was served on Defendant International Business Machines Corporation on the 27th day of
December, 2006, by the CM/ECF system to:
David Marriott, Esq.
Cravath, Swaine & Moore LLP
Todd Shaughnessy, Esq.
Snell & Wilmer LLP
/s/ Brent O. Hatch