decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


To read comments to this article, go here
SCO's answer to IBM's motion for PSJ as text.
Saturday, February 24 2007 @ 08:49 AM EST

Thanks to the hard OCR-ing and proofreading work of Groklaw members Steve Martin, Laomedon and MDT we have a text version of IBM-960, the 200 page monster memorandum where SCO defends its contract claims. I have deep respect for the great work these people did, because it contains the 138 page Appendix too. -- MathFox

**********

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.,
Plaintiff/Counterclaim-Defendant,

v.

INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Defendant/Counterclaim-Plaintiff.

SCO'S MEMORANDUM IN
OPPOSITION TO IBM'S MOTION
FOR SUMMARY JUDGMENT ON
SCO'S CONTRACT CLAIMS

FILED IN REDACTED FORM
[ORIGINALLY FILED UNDER SEAL]

Case No. 2:03CV0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke C. Wells

1

Table of Contents

Table of Authoritiesi
Preliminary Statement1
Statement of Material Facts5
I.OVERVIEW5
II.THE PLAIN SCOPE OF THE AGREEMENTS8
 A.The Plain Scope of the IBM and Sequent Agreements8
 B.The Plain Scope of the IBM Side Letter10
III.THE PLAIN TERMS OF THE AGREEMENTS REASONABLY PROTECTED THE VALUE OF UNIX13
 A.The Context of the Development of the UNIX Operating System13
 B.The Popular and Valuable UNIX Ecosystem in 198514
 C.The Significant Advantage Offered by the UNIX Head-Start17
 D.The Parties' Commercially Reasonable Protection of Their Interests19
IV.THE EXTRINSIC EVIDENCE CONFIRMS THE SCOPE OF THE UNIX LICENSE AGREEMENTS24
 A.Contemporaneous and Subsequent Licensing Documents24
 B.The Testimony of Relevant Witnesses31
 C.IBM's and Sequent's Acknowledgment of the Restrictive Scope of the Agreements52

2

V.SANTA CRUZ'S ACQUISITION OF THE UNIX BUSINESS55
 A.The Parties' Intent in the Asset Purchase Agreement55
 B.The Parties' Intent in Amendments Nos . 1 and 2 to the APA58
 C.Amendment No. X59
VI.IBM'S CONTRIBUTIONS TO LINUX IN BREACH OF ITS AGREEMENTS61
VII.SCO PROPERLY SOLD LICENSES FOR ITS INTELLECTUAL PROPERTY TO LINUX USERS63
 A.SCO's Efforts to Protect Its Rights in UNIX63
 B.SCO's Distribution of Linux64
VIII.IBM DESTROYS RELEVANT EVIDENCE AND ILLEGALLY HACKS INTO SCO'S WEBSITE IN PURSUIT OF EVIDENCE65
 A.IBM Destroys Relevant Evidence Shortly After SCO Brings Suit65
 B.IBM Illegally Hacks into SCO's Website to Try to Find Evidence68
IX.SCO REASONABLY UNDERTAKES TO END ITS LINUX BUSINESS69
 A.SCO's Suspension of Its Distribution of Linux69
 B.SCO's Protection of Information on Its Website70
X.SCO HAS PROCEEDED IN GOOD FAITH IN DISCOVERY AND HAS DISCLOSED IBM'S MISCONDUCT IN DETAIL73
 A.SCO's Good-Faith Efforts in Discovery73
 B.IBM's Intransigence In Discovery79

3

 C.SCO's December 2005 Final Disclosures81
XI.NOVELL IMPROPERLY PURPORTS TO "WAIVE" SCO'S RIGHTS83
Standard of Decision89
Argument89
I.SCO HAS ESTABLISHED A BREACH OF THE AGREEMENTS91
 A.The Plain Language of the Agreements Prohibits IBM's Disclosures from AIX and Dynix/AIX92
  1.The Plain Language of the Sequent Agreement98
  2.The Plain Language of the IBM Agreement, Side Letter, and Amendment No. X100
 B.Any Contractual Ambiguity, as Well as the Extrinsic Evidence, Precludes IBM's Motion on the Meaning of the Agreements106
  1.The Core Requirement of Confidentiality111
  2.The UNIX Licensing Group112
  3.Methods and Concepts112
  4.Confidentiality Over Derivative Works113
  5.The IBM Side Letter116
  6.Integrated Agreements117
 C.The Restrictions in the Agreements on Disclosures from Derivative Works Is Reasonable118
  1.The Parties' Shared Control Rights Under the Agreements118

4

  2.The Agreements Properly Reflect Copyright Law120
  3.The Agreements Are Consistent with Public Policy121
  4.The Scope of the Agreements Has Always Been Reasonable126
   a.The Significant Advantage of the UNIX Head-Start in the UNIX in Ecosystem That Developed126
   b.The Parties' Commercial Interests Regarding UNIX128
   c.AT& T's UNIX Licenses Made Good Economic Sense128
II.THE SUBSTANTIAL EVIDENCE AND THE NEW YORK LAW OF EQUITABLE ESTOPPEL PLAINLY ALLOW SCO TO PURSUE ITS CLAIMS FOR BREACH OF CONTRACT133
 A.New York Law Does Not Support IBM's Estoppal Argument134
 B.IBM's Estoppal Argument Is Based on Sharply Disputed Facts143
  1.The Analyses of the Parties' Experts Defeat IBM's Version of Events143
  2.Substantial Evidence Defeats IBM's Claim of Reliance144
  3.Amendment No. X Defeats IBM's Claim of Reliance147
  4.The Few Documents Regarding UNIX Flavors Also Are No Basis for Summary Judgment147
  5.The Fact of IBM's Investment in AIX Also Is No Basis for Summary Judgment151
III.THE SUBSTANTIAL EVIDENCE AND THE NEW YORK LAW OF WAIVER PLAINLY ALLOW SCO TO PURSUE ITS CLAIMS FOR BREACH OF CONTRACT152

5

 A.IBM's Primary Waiver Argument Is Based on Disputed Facts and An Incorrect View of the Law153
 B.Novell Does Not Have the Waiver Rights IBM Claims157
  1.IBM's Interpretation of APA Section 4.16(b) Is Inconsistent With the Language, Purpose, and Intent of the APA158
   a.IBM Misinterprets the Term "SVRX License"160
   b.IBM's Interpretation of 4.16(b) Would Defeat the Whole Purpose of the APA161
   c.IBM's Interpretation of Section 4.16(b) Directly Conflicts with Other Key Provisions of the APA162
   d.IBM Improperly Disregards Amendment No. 2163
  2.The Extrinsic Evidence Directly Refutes IBM's Interpretation Of the Parties' Intent165
 C.SCO's Linux Activities Do Not Constitute a Waiver168
  1.SCO Has Not "Waived" Its Contract Claims by Distributing Limited Linux Products170
  2.SCO Has Not Made "Publicly Available" Source Code That IBM Misappropriated173
IV.SCO HAS TIMELY ASSERTED ITS CLAIMS RELATING TO RCU174
CONCLUSION177

6

Table of Authorities

Cases
67 Wall St. Co. v. Franklin Nat'l Bank,
37 N.Y.2d 245 (1975)
109
Adobe Sys. Inc. v. One Stop Micro, Inc.,
84 F. Supp. 2d 1086 (N.D. Cal. 2000)
121
Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London,
136 F.3d 82 (2d Cir. 1998)
107
Alfin, Inc. v. Pac. Ins. Co.,
735 F Supp 115 (S.D.N.Y. 1990)
109
Apollo Stell Corp. v. Sicolo and Massaro,
752 N.Y.S.2d 493 (App. Div. 2002)
154
Arcadian Phosphates v. Arcadian Corp.,
884 F.2d 69 (2d Cir 1989)
138
Armstrong Virgin Records, Ltd.,
91 F . Supp. 2d 628 (S.D.N.Y. 2000)
151
Automatic Sys. Developers, Inc. v. Sabratek Corp.,
No. 93 Civ. 7149 (VLB). 1993 WL 535670 (S.D.N.Y. Dec. 22, 1993)
138
Bank of N.Y. v. Murphy,
645 N.Y.S.2d 800 (App. Div 1996)
157
Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co.,
5 Cal .4th 854 (Ct. App. 1993)
165
Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc.,
361 F. Supp.2d 283 (S.D.N.Y. 2005)
105, 106
Bennett v. U.S. Lines, Inc.,
64 F.3d 62 (2d Cir. 1995)
134
Besicorp v. Enowitz,
652 N.Y.S.2d 366 (App. Div. 1997)
134
Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co.,
214 F.3d 11 83 (10th Cir. 2000)
89

7

Blumenfeld v. R. H. Macy & Co.,
92 Cal App 3d 38 (Ct. App. 1979)
166
Boston Concessions Group v. Criterion Ctr Corp.,
606 N.Y.S.2d 696 (App. Div. 1994)
152
Bouzo v. Citibank,
96 F.3d 51 (2d Cir. 1996)
107
Boyer v. Bd. of County Comm'rs of Johnson County,
922 F. Supp. 476 (D. Kan. 1996)
89
Brock v. Baskin Robbins, USA, Co.,
No. 5:99-CV-274, 2003 WL 21309428 (E.D. Tex. Jan. 17, 2003)
137
Chase Manhattan Bank v. New Hampshire Ins. Co.,
749 N.Y.S.2d 632 (Sup. Ct. 2002)
125
City of N.Y. v. State,
40 N.Y.2d 659 (1976)
153
Civil Serv. Employees Ass'n. Inc. v. Newman,
450 N.Y.S.2d 901 (App. Div. 1982)
155
Compagnie Financiere de CIC et de L'Union Europeenne v. Merril Lynch,
232 F.3d 153 (2d Cir. 2000)
108
Computer Assocs. v. State St. Bank & Trust,
789 F. Supp. 470 (D. Mass. 1992)
121
Comvest Consulting, Inc. v. W.R.S.B. Dev Co.,
698 N.Y.S.2d 807 (App. Div. 1999)
155
Cooper v. Mart Assocs.,
225 Cal. App. 2d 108 (Ct. App. 1964)
163
Coplay Cement Co. v. Willis & Paul Group,
983 F.2d 1435 (7th Cir. 1993)
108
County of Marin v. Assessment Appeals Bd.,
134 Cal. Rptr. 349 (Ct. App. 1976)
161. 162
Creative Computing v. GetLoaded.com LLC,
386 F.3d 930 (9th Cir. 2004)
174
David v. City & County of Denver,
101 F.3d 1344 (10th Cir. 1996)
89
Davison v. Kless,
280 N.Y. 252 (1939)
169
Dolgoff Holophase, Inc. v. E.I. Du Point de Nemours & Co.,
212 N.Y.S.2d 769 (App. Div. 1995)
175

8

Dunlop-McCullen v. Pascarella,
No. 97 Civ. 0195 (PKL) (DFE). 2002 WL 31521012 (S.D.N.Y. Nov. 13, 2002)
134
EM1 Music Mktg. v. Avatar Records, Inc.,
317 F. Supp. 2d 412 (S.D.N.Y. 2004)
93
EOTT Energy Corp. v. Storebrand Int'l Ins. Co., A/S,
45 Cal. App. 4th 565 (Ct. App. 1996)
165
EPN Ingenieria S.A. de C.V. v. Gen. Elec. Co.,
No. 92 Civ. 1563 (KMW), 1996 WL 531867 (S.D.N.Y. Sept 19, 1996)
110
ESS & Vee Acoustical & Lathing Contractors, Inc. v. Prato Verde, Inc.,
702 N.Y.S.2d 38 (App. Div. 2000)
172
Fashion Bug No. 2100 of Batavia, Inc. v. 425 W. Main Assocs.,
10 Misc. 3d 1053(A) (N.Y. Sup. Ct. 2005)
141
G.& V. General Contractors, Inc. v. Goode,
No. 86-7408, 1990 WL 79436 (E.D. Pa. June 7, 1990)
137
Garza v. Mar Trans. Lines, Inc.,
861 F.2d 23 (2d Cir. 1988)
92
Gebbia v. Toronto-Dominion Bank,
762 N.Y.S.2d 38 (App. Div 2003)
137
Gen. Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist.,
85 N.Y.2d 232 (1995)
169
Gilbert Frank Corp. v. Fed. Ins. Co.,
70 N.Y.2d 966 (1988)
172
Gomez v. Am. Elec. Power Serv. Corp.,
726 F.2d 649 (10th Cir. 1984)
107
Harm v. Frasher,
181 Cal. App. 2d 405 (Ct. App. 1960)
164. 168
Hartford Acc. & Indem. Co. v. Wesolowski,
350 N.Y.S.2d 895 (1973)
107
Heidi E. v. Wanda W.,
620 N.Y.S.2d 665 (App. Div. 1994)
153
Heidlebaugh v. Miller,
271 P.2d 557 (Cal. Ct. App. 1954)
162
Henry Hope X-Ray Prods., Inc. v. Marron Carrel, Inc.,
674 F.2d 1336 (9th Cir. 1982)
123

9

Hertzog, Calamari & Gleason v. Prudential Ins. Co. of Am.,
933 F. Supp. 254 (S.D.N.Y. 1996)
109
Heston v. Farmers Ins. Group.,
160 Cal. App. 3d 402 (Ct. App. 1984)
164
Hicks v. City of Watonga,
942 F.2d 737 (10th Cir. 1991)
89
Holloway v. King,
161 Fed. Appx. 122 (2d Cir. 2005)
136
Holm v. C.M.P. Sheet Metal, Inc.,
455 N.Y.S.2d 429 (App. Div. 1982)
135, 138
HotSamba, Inc. v. Caterpillar Inc.,
No. 01 C 5540, 2004 WL 609797 (N.D. Ill. Mar.25, 2004)
102. 122
I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc.,
307 F. Supp. 2d 521 (S.D.N.Y. 2004)
174
IDX Sys. Corp. v. Epic Sys. Corp.,
285 F.3d 581 (7th Cir. 2002)
122, 124
Imperator Realty Co. v. Tull,
228 N.Y. 447 (1920)
139
In re Caldor. Inc.,
217 B.R. 121 (Bankr. S.D.N.Y. 1998)
152
In re Ellison Assocs.,
13 B.R. 661 (Bankr. S.D.N.Y. 1981)
140
In re Indep. Serv. Orgs. Anti-Trust Litig.,
964 F. Supp. 1469 (D. Kan. 1997)
151
In re Sanders-Langsam Tobacco Co.,
224 B.R. 1 (Bankr. E.D.N.Y. 1998)
153
In re Vebeliunas,
252 B.R. 878 (Bankr. S.D.N.Y. 2000)
140
Int'l Bus. Mach. Corp. v. Medlantic Healthcare Gp.,
708 F. Supp. 417 (D.D.C. 1989)
136
Int'l Chimney Corp. v. 26 W. Spring St. Assocs.,
561 N.Y.S.2d 933 (App. Div. 1990)
138, 139
Integrated Cash Mpmt. Servs. Inc. v. Digital Transactions, Inc.,
732 F.Supp. 370 (S.D.N.Y. 1989)
122
Jackson Jordan, Inc. v. Plasser Am. Corp.,
219 U.S.P.Q. 922 (E.D. Va. 1983)
150

10

Jacobsen v. Deseret Book Co.,
287 F.3d 936 (1 0th Cir. 2002)
150
Jacobson v. Sassower,
66 N.Y.2d 991 (1985)
109
Jellinick v. Joseph J. Naples & Assocs., Inc.,
296 A.D.2d 75 (App. Div. 2002)
92
K. Bell & Assocs., Inc. v. Lloyd's Underwriters,
827 F. Supp. 985 (S.D.N.Y. 1993)
170
Kaiser-Francis Oil Co. v. Producer's Gas Co.,
870 F.2d 563 (10th Cir. 1989)
109
Kerns v. Mfrs. Hanover Trust Co.,
272 N.Y.2d 535 (Sup. Ct. 1966)
134
Kling v. Hallmark Cards Inc.,
225 F.3d 1030 (9th Cir. 2000)
150
Kysar v. Amoco Prod Co.,
379 F.3d 1150 (10th Cir. 2004)
89
Leibowitz v. Elsevier Sci., Ltd.,
927 F. Supp. 688 (S.D.N.Y. 1996)
170
Leo F. Piazza Paving Co. v. Found. Constructors, Inc.,
128 Cal. App. 3d 583 (Ct. App. 1981)
161
Mackinder v. Schawk, Inc.,
No. 00 Civ. 6098 (DAB). 2005 WL 1832385 (S.D.N.Y. Aug. 2, 2005)
106
MacLean Assocs., Inc. v. Wm. W. Mercer-Meidinger-Hansen, Inc.,
952 F.2d 769 (3d Cir. 1991)
150
Madison-Oneida-Herkimer Consortium v. N. Am. Admins.,
765 N.Y.S.2d 184 (Sup. Ct. 2003)
170
Matter of Irving 0. Farber, PLLC v. Kamalian,
791 N.Y.S.2d 609 (App. Div. 2005)
93
McDarren v. Marvel Entm't Group, Inc.,
No. 94 Civ. 0910 (LMM). 1995 WL 214482 (S.D.N.Y. Apr. 11, 1995)
152. 169
McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co.,
858 F.2d 825 (2d Cir. 1988)
110
McManus v. Board of Educ. of Hempstead Union Free Sch. Dist.,
87 N.Y.2d 183 (1995)
139. 141

11

Merrill Lynch v. Adler,
651 N.Y.S.2d 38 (App. Div. 1996)
92
Met. Paving Co. v. City of Aurora, Colo.,
449 F.2d 177 (10th Cir. 1971)
107
Miller v. Cont'l Ins. Co.,
40 N.Y.2d 675 (1976)
125
Moncrief v. Williston Basin Interstate Pipeline Co.,
174 F.3d 1150 (10th Cir. 1999)
108
N.Y. State Guernsey Breeders' Co-op v. Noyes,
22 N.Y.S.2d 132 (App. Div. 1940)
135. 139
Nassau Trust Co. v. Montrose Concrete Prods. Corp.,
56 N.Y.2d 175 (1982)
134. 139
Nat'l Car Rental Sys., Inc. v. Computer Assocs. Int'l. Inc.,
991 F.2d 426 (8th Cir. 1993)
121
Nat'l Envmtl. Serv. Co. v. Ronan Eng'g Co.,
256 F.3d 995 (10th Cir. 2001)
110
Navillus Tile, Inc. v. Turner Constr. Co.,
770 N.Y.S.2d 3 (App. Div. 2003)
172
NetTech Solutions, L.L.C. v. ZipPark.com,
No. 01 Civ. 2683, 2001 WL 11 11966 (S.D.N.Y. Sept. 20, 2001)
152
New England Mut. Life Ins. Co. v. Caruso,
73 N.Y.2d 74 (1989)
125
Nowak v . Ironworker's Local 6 Pension Fund,
81 F.3d 11 82 (2d Cir. 1996)
107
Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co.,
69 Cal. 2d 33 (1968)
165
Peck v. Peck,
649 N.Y.S.2d 22 (App Div. 1996)
155
Pfoh v. Elec. Ins. Co.,
788 N.Y.S.2d 441 (App. Div. 2005)
125
Prof'l Staff Cong.-City Univ. of N.Y. v. N.Y. State Pub. Employee's Union,
-- N.E.2d -- , 2006 WL 2945367 (N.Y. Oct. 17, 2006)
153
Ramming v. Barnard,
No. E030334, 2002 WL 3931 18 (Cal. Ct. App. Mar. 13, 2002)
165
RMLS Metals, Inc. v. Int'l Bus. Mach. Corp.,
874 F. Supp. 74 (S.D.N.Y. 1995)
110

12

Robshaw v. Health Mgmt., Inc.,
470 N.Y.S.2d 226 (App. Div. 1983)
93
Rocky 116 L.L.C. v. Weston,
717 N.Y.S.2d 823 (App. Div. 2000)
155
Rogers v. United States,
281 F.3d 1108 (10th Cir. 2002)
89
Ronnen v. Ajax Elec. Motor Corp.,
88 N.Y.2d 582 (1996)
92
Rose v. Spa Realty Assocs.,
42 N.Y.2d 338 (1977)
93
Rothschild v Title Guar. & Trust Co.,
204 N.Y. 458 (1912)
139
Rotterdam Square v. Town of Rotterdam,
71 7 N.Y.S.2d 473 (N.Y. Sup. 2000)
157
Ruttenberg v. Data Davidge Sys. Corp.,
21 5 A.D.2d 191 (N.Y. App. Div. 1995)
107
Ruttenberg v. Davidge Data Sys. Corp.,
626 N.Y.S.2d 174 (App. Div. 1995)
93
S&H Computer Sys., Inc. v. SAS Inst., Inc.,
568 F. Supp. 416 (M.D. Tenn. 1983)
120
Sassower v. Barone,
447 N.Y.S.2d 966 (App. Div. 1982)
134
Schering v. Home Ins. Co.,
712 F.2d 4 (2d Cir. 1983)
109, 110
Schock v. United States,
21 F. Supp. 2d 115 (D.R.I. 1998)
150
Secs. Indus. Automation Corp. v. United Computer Capital Corp.,
723 N.Y.S.2d 668 (App. Div. 2001)
152
Seiden Assocs., Inc. v. ANC Holdings, Inc.,
959 F.2d 425 (2d Cir. 1992)
107
Slayko v. Sec. Mut. Ins. Co.,
98 N.Y.2d 289 (2002)
125
So. Cal. Edison v. Super. Ct.,
37 Cal. App. 4th 839 (Ct. App. 1995)
166
State v. Home Indem.,
66 N.Y.2d 669 (1985)
107
Stoneybrook Realty. L.L.C. v. Cremktco, Inc.,
675 N.Y.S.2d 749 (App. Term. 1998)
155

13

Structural Dynamics Research Corp. v. Eng'g Mechanics Research Corp.,
401 F. Supp. 1102 (D. Mich. 1975)
123
T.W.A. Trading, Inc. v. Gold Coast Freightways, Inc.,
No. 2001-900 KC, 2002 WL 131 1648 (N.Y. App. Term. Apr. 2, 2002)
153
Tehan v. Thos. C. Peters Printing Co.,
421 N.Y.S.2d 465 (App. Div. 1979)
155
Thayer v. Dial Indus. Sales, Inc.,
85 F. Supp. 2d 263 (S.D.N.Y. 2000)
137
Theofel v. Farey-Jones,
359 F.3d 1066 (9th Cir. 2004)
174
Towers Charter & Marine Corp. v. Cadillac Ins. Co.,
708 F. Supp. 612 (S.D.N.Y. 1989)
93
Towne Gardens v. McDonalds Corp.,
No. 04-CV-292S, 2005 WL 2406004 (W.D.N.Y. Sept. 29, 2005)
137, 148
Trainor v. Apollo Metal Specialties, Inc.,
318 F.3d 976 (10th Cir. 2002)
91
United Commodities-Greece v. Fid. Int'l Bank,
64 N.Y.2d 449 (1985)
153
Viacao Aerea Sao Paulo, S.A. v. Int'l Lease Fin. Corp.,
859 F.2d 924, 1988 WL 103286 (9th Cir. 1988)
161
Wechsler v. Hunt Health Sys.,
216 F. Supp. 2d 347 (S.D.N.Y. 2002)
125
Westchester Resco Co., L.P. v. New England Reinsurance Corp.,
818 F.2d 2 (2d Cir. 1987)
109
Whelan Assocs. v. Jaslow Dental Lab.,
609 F. Supp. 1307 (E.D. Pa. 1985)
120
White v. LaDue & Fitch,
303 N.Y. 122 (1951)
139
Windsor Plumbing Supply Co. v. Windsor Showroom, Inc.,
170 B.R. 503 (Bankr. E.D.N.Y. 1994)
140
Wolf v. Super. Ct.,
114 Cal. App. 4th 1343 (Ct. App. 2004)
165
World Trade Ctr. Props. v. Hartford Fire Ins. Co.,
345 F.3d 154 (2d Cir. 2003)
165

14

Wyeth v. King Pharmaceuticals, Inc.,
396 F. Supp. 2d 280 (E.D.N.Y. 2005)
152
Zep Mfg. Co. v. B. Harthcock,
824 S.W.2d 654 (Tex. Ct. App. 1992)
123

Cases
67 Wall St. Co. v. Franklin Nat'l Bank,
37 N.Y.2d 245 (1975)
109
Adobe Sys. Inc. v. One Stop Micro, Inc.,
84 F. Supp. 2d 1086 (N.D. Cal. 2000)
121
Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London,
136 F.3d 82 (2d Cir. 1998)
107
Alfin, Inc. v. Pac. Ins. Co.,
735 F Supp 115 (S.D.N.Y. 1990)
109
Apollo Stell Corp. v. Sicolo and Massaro,
752 N.Y.S.2d 493 (App. Div. 2002)
154
Arcadian Phosphates v. Arcadian Corp.,
884 F.2d 69 (2d Cir 1989)
138
Armstrong Virgin Records, Ltd.,
91 F . Supp. 2d 628 (S.D.N.Y. 2000)
151
Automatic Sys. Developers, Inc. v. Sabratek Corp.,
No. 93 Civ. 7149 (VLB). 1993 WL 535670 (S.D.N.Y. Dec. 22, 1993)
138
Bank of N.Y. v. Murphy,
645 N.Y.S.2d 800 (App. Div 1996)
157
Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co.,
5 Cal .4th 854 (Ct. App. 1993)
165
Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc.,
361 F. Supp.2d 283 (S.D.N.Y. 2005)
105, 106
Bennett v. U.S. Lines, Inc.,
64 F.3d 62 (2d Cir. 1995)
134
Besicorp v. Enowitz,
652 N.Y.S.2d 366 (App. Div. 1997)
134
Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co.,
214 F.3d 11 83 (10th Cir. 2000)
89

15

Blumenfeld v. R. H. Macy & Co.,
92 Cal App 3d 38 (Ct. App. 1979)
166
Boston Concessions Group v. Criterion Ctr Corp.,
606 N.Y.S.2d 696 (App. Div. 1994)
152
Bouzo v. Citibank,
96 F.3d 51 (2d Cir. 1996)
107
Boyer v. Bd. of County Comm'rs of Johnson County,
922 F. Supp. 476 (D. Kan. 1996)
89
Brock v. Baskin Robbins, USA, Co.,
No. 5:99-CV-274, 2003 WL 21309428 (E.D. Tex. Jan. 17, 2003)
137
Chase Manhattan Bank v. New Hampshire Ins. Co.,
749 N.Y.S.2d 632 (Sup. Ct. 2002)
125
City of N.Y. v. State,
40 N.Y.2d 659 (1976)
153
Civil Serv. Employees Ass'n. Inc. v. Newman,
450 N.Y.S.2d 901 (App. Div. 1982)
155
Compagnie Financiere de CIC et de L'Union Europeenne v. Merril Lynch,
232 F.3d 153 (2d Cir. 2000)
108
Computer Assocs. v. State St. Bank & Trust,
789 F. Supp. 470 (D. Mass. 1992)
121
Comvest Consulting, Inc. v. W.R.S.B. Dev Co.,
698 N.Y.S.2d 807 (App. Div. 1999)
155
Cooper v. Mart Assocs.,
225 Cal. App. 2d 108 (Ct. App. 1964)
163
Coplay Cement Co. v. Willis & Paul Group,
983 F.2d 1435 (7th Cir. 1993)
108
County of Marin v. Assessment Appeals Bd.,
134 Cal. Rptr. 349 (Ct. App. 1976)
161. 162
Creative Computing v. GetLoaded.com LLC,
386 F.3d 930 (9th Cir. 2004)
174
David v. City & County of Denver,
101 F.3d 1344 (10th Cir. 1996)
89
Davison v. Kless,
280 N.Y. 252 (1939)
169
Dolgoff Holophase, Inc. v. E.I. Du Point de Nemours & Co.,
212 N.Y.S.2d 769 (App. Div. 1995)
175

16

Dunlop-McCullen v. Pascarella,
No. 97 Civ. 0195 (PKL) (DFE). 2002 WL 31521012 (S.D.N.Y. Nov. 13, 2002)
134
EM1 Music Mktg. v. Avatar Records, Inc.,
317 F. Supp. 2d 412 (S.D.N.Y. 2004)
93
EOTT Energy Corp. v. Storebrand Int'l Ins. Co., A/S,
45 Cal. App. 4th 565 (Ct. App. 1996)
165
EPN Ingenieria S.A. de C.V. v. Gen. Elec. Co.,
No. 92 Civ. 1563 (KMW), 1996 WL 531867 (S.D.N.Y. Sept 19, 1996)
110
ESS & Vee Acoustical & Lathing Contractors, Inc. v. Prato Verde, Inc.,
702 N.Y.S.2d 38 (App. Div. 2000)
172
Fashion Bug No. 2100 of Batavia, Inc. v. 425 W. Main Assocs.,
10 Misc. 3d 1053(A) (N.Y. Sup. Ct. 2005)
141
G.& V. General Contractors, Inc. v. Goode,
No. 86-7408, 1990 WL 79436 (E.D. Pa. June 7, 1990)
137
Garza v. Mar Trans. Lines, Inc.,
861 F.2d 23 (2d Cir. 1988)
92
Gebbia v. Toronto-Dominion Bank,
762 N.Y.S.2d 38 (App. Div 2003)
137
Gen. Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist.,
85 N.Y.2d 232 (1995)
169
Gilbert Frank Corp. v. Fed. Ins. Co.,
70 N.Y.2d 966 (1988)
172
Gomez v. Am. Elec. Power Serv. Corp.,
726 F.2d 649 (10th Cir. 1984)
107
Harm v. Frasher,
181 Cal. App. 2d 405 (Ct. App. 1960)
164. 168
Hartford Acc. & Indem. Co. v. Wesolowski,
350 N.Y.S.2d 895 (1973)
107
Heidi E. v. Wanda W.,
620 N.Y.S.2d 665 (App. Div. 1994)
153
Heidlebaugh v. Miller,
271 P.2d 557 (Cal. Ct. App. 1954)
162
Henry Hope X-Ray Prods., Inc. v. Marron Carrel, Inc.,
674 F.2d 1336 (9th Cir. 1982)
123

17

Hertzog, Calamari & Gleason v. Prudential Ins. Co. of Am.,
933 F. Supp. 254 (S.D.N.Y. 1996)
109
Heston v. Farmers Ins. Group.,
160 Cal. App. 3d 402 (Ct. App. 1984)
164
Hicks v. City of Watonga,
942 F.2d 737 (10th Cir. 1991)
89
Holloway v. King,
161 Fed. Appx. 122 (2d Cir. 2005)
136
Holm v. C.M.P. Sheet Metal, Inc.,
455 N.Y.S.2d 429 (App. Div. 1982)
135, 138
HotSamba, Inc. v. Caterpillar Inc.,
No. 01 C 5540, 2004 WL 609797 (N.D. Ill. Mar.25, 2004)
102. 122
I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc.,
307 F. Supp. 2d 521 (S.D.N.Y. 2004)
174
IDX Sys. Corp. v. Epic Sys. Corp.,
285 F.3d 581 (7th Cir. 2002)
122, 124
Imperator Realty Co. v. Tull,
228 N.Y. 447 (1920)
139
In re Caldor. Inc.,
217 B.R. 121 (Bankr. S.D.N.Y. 1998)
152
In re Ellison Assocs.,
13 B.R. 661 (Bankr. S.D.N.Y. 1981)
140
In re Indep. Serv. Orgs. Anti-Trust Litig.,
964 F. Supp. 1469 (D. Kan. 1997)
151
In re Sanders-Langsam Tobacco Co.,
224 B.R. 1 (Bankr. E.D.N.Y. 1998)
153
In re Vebeliunas,
252 B.R. 878 (Bankr. S.D.N.Y. 2000)
140
Int'l Bus. Mach. Corp. v. Medlantic Healthcare Gp.,
708 F. Supp. 417 (D.D.C. 1989)
136
Int'l Chimney Corp. v. 26 W. Spring St. Assocs.,
561 N.Y.S.2d 933 (App. Div. 1990)
138, 139
Integrated Cash Mpmt. Servs. Inc. v. Digital Transactions, Inc.,
732 F.Supp. 370 (S.D.N.Y. 1989)
122
Jackson Jordan, Inc. v. Plasser Am. Corp.,
219 U.S.P.Q. 922 (E.D. Va. 1983)
150

18

Jacobsen v. Deseret Book Co.,
287 F.3d 936 (1 0th Cir. 2002)
150
Jacobson v. Sassower,
66 N.Y.2d 991 (1985)
109
Jellinick v. Joseph J. Naples & Assocs., Inc.,
296 A.D.2d 75 (App. Div. 2002)
92
K. Bell & Assocs., Inc. v. Lloyd's Underwriters,
827 F. Supp. 985 (S.D.N.Y. 1993)
170
Kaiser-Francis Oil Co. v. Producer's Gas Co.,
870 F.2d 563 (10th Cir. 1989)
109
Kerns v. Mfrs. Hanover Trust Co.,
272 N.Y.2d 535 (Sup. Ct. 1966)
134
Kling v. Hallmark Cards Inc.,
225 F.3d 1030 (9th Cir. 2000)
150
Kysar v. Amoco Prod Co.,
379 F.3d 1150 (10th Cir. 2004)
89
Leibowitz v. Elsevier Sci., Ltd.,
927 F. Supp. 688 (S.D.N.Y. 1996)
170
Leo F. Piazza Paving Co. v. Found. Constructors, Inc.,
128 Cal. App. 3d 583 (Ct. App. 1981)
161
Mackinder v. Schawk, Inc.,
No. 00 Civ. 6098 (DAB). 2005 WL 1832385 (S.D.N.Y. Aug. 2, 2005)
106
MacLean Assocs., Inc. v. Wm. W. Mercer-Meidinger-Hansen, Inc.,
952 F.2d 769 (3d Cir. 1991)
150
Madison-Oneida-Herkimer Consortium v. N. Am. Admins.,
765 N.Y.S.2d 184 (Sup. Ct. 2003)
170
Matter of Irving 0. Farber, PLLC v. Kamalian,
791 N.Y.S.2d 609 (App. Div. 2005)
93
McDarren v. Marvel Entm't Group, Inc.,
No. 94 Civ. 0910 (LMM). 1995 WL 214482 (S.D.N.Y. Apr. 11, 1995)
152. 169
McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co.,
858 F.2d 825 (2d Cir. 1988)
110
McManus v. Board of Educ. of Hempstead Union Free Sch. Dist.,
87 N.Y.2d 183 (1995)
139. 141

19

Merrill Lynch v. Adler,
651 N.Y.S.2d 38 (App. Div. 1996)
92
Met. Paving Co. v. City of Aurora, Colo.,
449 F.2d 177 (10th Cir. 1971)
107
Miller v. Cont'l Ins. Co.,
40 N.Y.2d 675 (1976)
125
Moncrief v. Williston Basin Interstate Pipeline Co.,
174 F.3d 1150 (10th Cir. 1999)
108
N.Y. State Guernsey Breeders' Co-op v. Noyes,
22 N.Y.S.2d 132 (App. Div. 1940)
135. 139
Nassau Trust Co. v. Montrose Concrete Prods. Corp.,
56 N.Y.2d 175 (1982)
134. 139
Nat'l Car Rental Sys., Inc. v. Computer Assocs. Int'l. Inc.,
991 F.2d 426 (8th Cir. 1993)
121
Nat'l Envmtl. Serv. Co. v. Ronan Eng'g Co.,
256 F.3d 995 (10th Cir. 2001)
110
Navillus Tile, Inc. v. Turner Constr. Co.,
770 N.Y.S.2d 3 (App. Div. 2003)
172
NetTech Solutions, L.L.C. v. ZipPark.com,
No. 01 Civ. 2683, 2001 WL 11 11966 (S.D.N.Y. Sept. 20, 2001)
152
New England Mut. Life Ins. Co. v. Caruso,
73 N.Y.2d 74 (1989)
125
Nowak v . Ironworker's Local 6 Pension Fund,
81 F.3d 11 82 (2d Cir. 1996)
107
Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co.,
69 Cal. 2d 33 (1968)
165
Peck v. Peck,
649 N.Y.S.2d 22 (App Div. 1996)
155
Pfoh v. Elec. Ins. Co.,
788 N.Y.S.2d 441 (App. Div. 2005)
125
Prof'l Staff Cong.-City Univ. of N.Y. v. N.Y. State Pub. Employee's Union,
-- N.E.2d -- , 2006 WL 2945367 (N.Y. Oct. 17, 2006)
153
Ramming v. Barnard,
No. E030334, 2002 WL 3931 18 (Cal. Ct. App. Mar. 13, 2002)
165
RMLS Metals, Inc. v. Int'l Bus. Mach. Corp.,
874 F. Supp. 74 (S.D.N.Y. 1995)
110

20

Robshaw v. Health Mgmt., Inc.,
470 N.Y.S.2d 226 (App. Div. 1983)
93
Rocky 116 L.L.C. v. Weston,
717 N.Y.S.2d 823 (App. Div. 2000)
155
Rogers v. United States,
281 F.3d 1108 (10th Cir. 2002)
89
Ronnen v. Ajax Elec. Motor Corp.,
88 N.Y.2d 582 (1996)
92
Rose v. Spa Realty Assocs.,
42 N.Y.2d 338 (1977)
93
Rothschild v Title Guar. & Trust Co.,
204 N.Y. 458 (1912)
139
Rotterdam Square v. Town of Rotterdam,
71 7 N.Y.S.2d 473 (N.Y. Sup. 2000)
157
Ruttenberg v. Data Davidge Sys. Corp.,
21 5 A.D.2d 191 (N.Y. App. Div. 1995)
107
Ruttenberg v. Davidge Data Sys. Corp.,
626 N.Y.S.2d 174 (App. Div. 1995)
93
S&H Computer Sys., Inc. v. SAS Inst., Inc.,
568 F. Supp. 416 (M.D. Tenn. 1983)
120
Sassower v. Barone,
447 N.Y.S.2d 966 (App. Div. 1982)
134
Schering v. Home Ins. Co.,
712 F.2d 4 (2d Cir. 1983)
109, 110
Schock v. United States,
21 F. Supp. 2d 115 (D.R.I. 1998)
150
Secs. Indus. Automation Corp. v. United Computer Capital Corp.,
723 N.Y.S.2d 668 (App. Div. 2001)
152
Seiden Assocs., Inc. v. ANC Holdings, Inc.,
959 F.2d 425 (2d Cir. 1992)
107
Slayko v. Sec. Mut. Ins. Co.,
98 N.Y.2d 289 (2002)
125
So. Cal. Edison v. Super. Ct.,
37 Cal. App. 4th 839 (Ct. App. 1995)
166
State v. Home Indem.,
66 N.Y.2d 669 (1985)
107
Stoneybrook Realty. L.L.C. v. Cremktco, Inc.,
675 N.Y.S.2d 749 (App. Term. 1998)
155

21

Structural Dynamics Research Corp. v. Eng'g Mechanics Research Corp.,
401 F. Supp. 1102 (D. Mich. 1975)
123
T.W.A. Trading, Inc. v. Gold Coast Freightways, Inc.,
No. 2001-900 KC, 2002 WL 131 1648 (N.Y. App. Term. Apr. 2, 2002)
153
Tehan v. Thos. C. Peters Printing Co.,
421 N.Y.S.2d 465 (App. Div. 1979)
155
Thayer v. Dial Indus. Sales, Inc.,
85 F. Supp. 2d 263 (S.D.N.Y. 2000)
137
Theofel v. Farey-Jones,
359 F.3d 1066 (9th Cir. 2004)
174
Towers Charter & Marine Corp. v. Cadillac Ins. Co.,
708 F. Supp. 612 (S.D.N.Y. 1989)
93
Towne Gardens v. McDonalds Corp.,
No. 04-CV-292S, 2005 WL 2406004 (W.D.N.Y. Sept. 29, 2005)
137, 148
Trainor v. Apollo Metal Specialties, Inc.,
318 F.3d 976 (10th Cir. 2002)
91
United Commodities-Greece v. Fid. Int'l Bank,
64 N.Y.2d 449 (1985)
153
Viacao Aerea Sao Paulo, S.A. v. Int'l Lease Fin. Corp.,
859 F.2d 924, 1988 WL 103286 (9th Cir. 1988)
161
Wechsler v. Hunt Health Sys.,
216 F. Supp. 2d 347 (S.D.N.Y. 2002)
125
Westchester Resco Co., L.P. v. New England Reinsurance Corp.,
818 F.2d 2 (2d Cir. 1987)
109
Whelan Assocs. v. Jaslow Dental Lab.,
609 F. Supp. 1307 (E.D. Pa. 1985)
120
White v. LaDue & Fitch,
303 N.Y. 122 (1951)
139
Windsor Plumbing Supply Co. v. Windsor Showroom, Inc.,
170 B.R. 503 (Bankr. E.D.N.Y. 1994)
140
Wolf v. Super. Ct.,
114 Cal. App. 4th 1343 (Ct. App. 2004)
165
World Trade Ctr. Props. v. Hartford Fire Ins. Co.,
345 F.3d 154 (2d Cir. 2003)
165

22

Wyeth v. King Pharmaceuticals, Inc.,
396 F. Supp. 2d 280 (E.D.N.Y. 2005)
152
Zep Mfg. Co. v. B. Harthcock,
824 S.W.2d 654 (Tex. Ct. App. 1992)
123

23

Plaintiff, the SCO Group, Inc. ("SCO"), respectfully submits this Memorandum in Opposition to IBM's Motion for Summary Judgment on SCO's Contract Claims.

Preliminary Statement

IBM moves for summary judgment on the grounds that the Court should dismiss SCO's contract claims as a matter of law on the basis of only part of the contradictory testimony of only a few of many relevant witnesses and documents. SCO shows below that each of IBM's factual predicates are disputed by competent and overwhelming evidence and that IBM's legal arguments are similarly unfounded.

First, IBM argues briefly otherwise, but the plain language of the standard AT&T UNIX license agreement required the licensee to hold in confidence all parts of the modifications and derivative works the licensee developed based on the licensed UNIX software product. IBM does not dispute that it developed such a derivative work, AIX, and acquired another such derivative work, Dynix/ptx, when it acquired Sequent Computer Systems, Inc. in the late 1990s. IBM also does not dispute that it made hundreds of contributions or disclosures of technology to Linux development from AIX and Dynix/ptx. There is no reading of the agreement to support IBM's theory that the source code, methods and concepts it developed fall outside the confidentiality restrictions when they were created as part of or added to such derivative works.

Second, although IBM entered into a side letter with AT&T that amended aspects of its standard UNIX license agreement, none of those amendments permitted IBM openly to disclose the source code of a product, such as AIX, into which IBM had indisputably copied UNIX source code. In addition, as stated by the clear language of the AT&T's UNIX license agreements, the amendments of the IBM Side Letter did not affect the terms of the standard

24

UNIX license agreement into which Sequent had entered. The vast majority of contributions to Linux that SCO challenges here were made from Sequent's Dynix/ptx derivative work.

Third, in addition to the fact that any contractual ambiguity in the agreements at issue precludes summary judgment under New York law, IBM's reliance on only selected extrinsic evidence is improper. IBM disregards the sworn testimony of numerous witnesses responsible for negotiating, overseeing, interpreting and enforcing the UNIX license agreements for decades and contemporaneous documents contradicting the position that IBM and selected declarants now advance. That evidence underscores the narrow sample of evidence on which IBM relies in its Motion and easily permits the inference that the testimony IBM does cite is unreliable. In addition, the parties' respective businesses and economic incentives at the time of contracting — evidence supported by SCO expert witness Dr. Gary Pisano and that IBM concedes to be relevant in the event of ambiguity in the Agreements — bears out the reasonable scope of the Agreements as SCO has explained them.

Fourth, in addition to the substantial number of relevant witnesses whose testimony IBM's Motion fails to account for or reconcile, the selected witnesses on whom IBM does rely have given other testimony belying IBM's arguments.

Otis Wilson. Mr. Wilson testifies that AT&T decided in the mid-1980s to "abandon" protecting its methods and concepts in UNIX and that a licensee had to keep confidential only the UNIX source code, but fourteen years ago he testified that AT&T always sought to protect its methods and concepts and that a licensee was obligated to keep confidential any derivative work it created with "exposure" to UNIX or by using "contaminated" programmers.

25

David Frasure. Mr. Frasure gives much the same testimony now as Mr. Wilson, but he gave testimony in the same case as Mr. Wilson fourteen years ago and gave much the same testimony then as Mr. Wilson did — testimony that is almost the exact opposite of what they claim now.

Ed Chatlos. Mr. Chatlos worked for Novell, Inc. in 1995 when, as he has confirmed in this case, Novell intended to and did sell its UNIX business and copyrights to SCO's predecessor-in-interest The Santa Cruz Operation, Inc. IBM met with him and drafted a declaration for his signature, but the declaration bore so little resemblance to what Mr. Chatlos had told IBM that he declined to sign any version of it.

"Q: Would you have signed that declaration if it accurately reflected what you had discussed with counsel for IBM?

A. Yes.

Q. Why didn't you sign the declaration?

A. It didn't accurately reflect what was -- what I said."

Ira Kistenberg. IBM met with and drafted a declaration for Mr. Kistenberg's signature regarding his work for AT&T in the 1980s, but when SCO approached him and explained what IBM was using his declaration to say, Mr. Kistenberg signed a new declaration clarifying that AT&T always sought to protect its UNIX methods and concepts, that it required its licensees to keep confidential their derivative works based on the licensed UNIX software product, and that he never represented otherwise to anyone from Sequent (or any other licensee). He then confirmed those views at deposition.

Larry Bouffard. IBM met with and drafted a declaration for Mr. Bouffard's signature regarding his work for Santa Cruz in the late 1980s and for Novell in the 1990s,

26

but when SCO approached Mr. Bouffard and explained what IBM was using his declaration to say, Mr. Bouffard signed a new declaration clarifying that AT&T and successors-in-interest did not intend to permit IBM to use its derivative works to create unlicensed UNIX clones, as IBM has done with Linux, and that neither IBM nor Novell enjoy the rights that IBM claims they do.

Such evidence reveals a pattern whereby witnesses have signed declarations, drafted by IBM, that turn out not to reflect the witnesses' true understanding of or intent in the agreements and transactions at issue, or that plainly contradict testimony the witnesses have previously given or contradict contemporaneous documents that IBM simply chooses to ignore. The clarifications of declarations as they have been drafted or used by IBM underscores the need for the trier of fact to reach conclusions and draw inferences from those disputed facts.

Fifth, IBM's arguments for "estoppel" and "waiver" suffer from the same defects of unambiguous contractual language, contradictory extrinsic evidence, and improper inference. IBM further argues that Novell had the right to and did "waive" SCO's claims against IBM by virtue of mid-1990s agreements between Novell and Santa Cruz, but substantial, relevant evidence of those transactions — including the language of the agreements and amendments thereto and the testimony of all of the principal negotiators on both sides of the transactions — contradicts IBM's "facts" and arguments. Both Mr. Chatlos and Mr. Bouffard, for example, explain why IBM is wrong.

SCO's evidence creates genuine disputes over every assertedly material fact that IBM relies upon for its Motion, or there is simply no genuine support for IBM's position. SCO

27

respectfully submits, for the reasons summarized above and set forth in detail below, that the Court should deny IBM's Motion.

Statement of Material Facts

I. OVERVIEW

1. In the 1960s and 1970s, Bell Laboratories and AT&T developed the seminal and valuable innovation of the UNIX computer operating system. AT&T licensed the UNIX source code to numerous universities and companies for their internal use, requiring those entities to keep the source code, and the methods and concepts embodied therein, confidential.

2. In the early 1980s, AT&T decided to commercialize in earnest its UNIX asset, which AT&T had developed into its "UNIX System V" software product. AT&T began to enter into updated and new UNIX license agreements with numerous companies, giving the companies the right to use the licensed software product to create modifications and derivative works based on the licensed software product.

3. Under AT&T's standard UNIX license agreement, the companies were entitled to distribute in binary format their modifications and derivative works, or UNIX "flavors," and were obligated to pay AT&T a royalty for each such distribution. In a market in which UNIX flavors were in high demand, the licensees benefited substantially from the arrangement by receiving a multi-year head-start in their ability to distribute a UNIX operating system to increase their hardware sales significantly.

4. In exchange for the highly valuable head-start and increased hardware sales the UNIX System V licensees thus realized, as set forth in the plain terms of the standard agreement, the licensees were obligated treat their modifications and derivative works as if they were part of

28

the licensed UNIX System V software product — that is, to hold in confidence for AT&T not only the licensed UNIX System V software product (including the methods and concepts embodied therein), but also all parts of the licensees' modifications and derivative works (including the methods and concepts therein).

5. The standard arrangement made sense from the perspective of both AT&T and its licensees. AT&T sought to protect its business of licensing the source code of its UNIX software product to create binary royalty streams. The licensees, in turn, were in the business of creating competitive UNIX flavors to increase their hardware sales — not the business of competing with AT&T by licensing UNIX or UNIX-flavor source code to create their own binary royalties or by trying to develop unlicensed, royalty-free UNIX clones.

6. On occasion AT&T clarified and even amended its standard agreement in writing, such as it did with IBM in 1985. In no instance, however, did AT&T abandon the core protections for its licensing business. Indeed, in the 1980s, IBM's business model was notoriously "closed," and IBM had and expressed no desire to reserve for itself the right to develop an unlicensed, royalty-free UNIX clone. In addition, as the plain language of the agreements also made clear, any amendments for IBM applied only to IBM.

7. Sequent, like IBM, was among the companies who entered into UNIX System V license agreements with AT&T in 1985, and who proceeded to develop modifications and derivative works based on the licensed UNIX System V software product. IBM called its UNIX flavor AIX, and Sequent called its flavor Dynix, and eventually Dynixptx.

8. AIX and Dynixptx are derivative works of UNIX System V within the meaning of AT&T's UNIX license agreements, as well as within the meaning of that term under the

29

copyright law. IBM has acknowledged as much internally. IBM has also repeatedly acknowledged internally since 1985 that it is obligated to hold AIX in confidence for AT&T.

9. IBM has contributed to Linux, however, a wealth of source code, methods, concepts, techniques, know-how and other such technology taken from AIX and Dynixptx. The technology that IBM contributed from those UNIX flavors was a very substantial factor in Linux's development into a commercially hardened operating system appropriate for use by large companies.

10. After SCO came generally to understand the process that IBM had followed and the technology that IBM had used in significantly advancing Linux into a commercially hardened operating system at the expense of the historical UNIX business, SCO raised the issues with IBM to resolve the issues amicably. When IBM denied any culpability and threatened to retaliate against SCO or else simply put SCO off, SCO filed this lawsuit. After IBM continued to refuse to discuss any meaningful solutions and the parties were unable to resolve their differences, SCO terminated IBM's UNIX agreements.

11. Given the significant improvements to Linux from the initial IBM contributions in 2000, IBM's continued contributions from AIX and Dynixptx, and the perception among prospective Linux users of the importance of IBM's role in developing Linux based on its experience with UNIX flavors, the development of Linux caused a precipitous fall in Santa Cruz's revenues from its UNIX products, and in SCO's UNIX revenues after it (as Caldera International, Inc.) acquired Santa Cruz's UNIX assets in 2001.

30

12. IBM, in sharp contrast, has proceeded to generate billions of dollars in Linux- related revenues for itself since 2000, as a result of the conversion of Linux into a commercially hardened operating system.

II. THE PLAIN SCOPE OF THE AGREEMENTS

A. The Plain Scope of the IBM and Sequent Agreements.

13. The identical license agreements that AT&T entered into with IBM in February 1985 and with Sequent in April 1985 contain provisions governing the licensee's rights to use the licensed software product and to prepare modifications and derivative works based on that software product. These provisions are contained in Section 2.01 of the Agreements (IBM Ex. 119, IBM Ex. 492)1, which states:

AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE'S own internal business purposes and solely on or in conjunction with DESIGNATED CPUs for such SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.

14. Section 1.04 of the Agreements defines "SOFTWARE PRODUCT" as "materials such as COMPUTER PROGRAMS, information used or interpreted by COMPUTER PROGRAMS and documentation relating to the use of COMPUTER PROGRAMS." (IBM Ex. 119, IBM Ex. 492.) The "SOFTWARE PRODUCT" includes UNIX System V source code, methods, and concepts. (§ 7.06(a).)

31

15. Section 7.06(a) of the Agreement states in relevant part:

LICENSEE agrees that it shall hold all parts of the SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T. LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder.

16. Section 7.06(b) of the Agreements states in relevant part:

Notwithstanding the provisions of Section 7.06(a), LICENSEE may distribute copies of a SOFTWARE PRODUCT, either in modified or unmodified form, to third parties having licenses of equivalent scope herewith from AT&T (or a corporate affiliate thereof) for the same SOFTWARE PRODUCT, provided that LICENSEE first verifies the status of any such third party in accordance with specific instructions issued by AT&T.

17. Section 7.10 of the Agreements states: "Except as provided in Section 7.06(b), nothing in this agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part."

18. Section 7.13 of the Agreements contains a New York choice-of-law provision, and the Agreements also contain a merger and integration clause in Paragraph 4:

This Agreement and its Supplements set forth the entire agreement and understanding between the parties as to the subject matter hereof and merge all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date of acceptance hereof in writing and signed by a proper and duly authorized representative of the party to be bound thereby. No provision appearing on any form originated by LICENSEE shall be applicable unless such provision is expressly accepted in writing by an authorized representative of AT&T.

19. AT&T permitted licensees to use UNIX System V to develop modifications and derivative works based on the UNIX System V software product, "provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT." (§ 2.01.) All

32

of the use, transfer, export, and confidentiality restrictions that applied to the original UNIX software product also covered any such modifications or derivative works. The Agreement further specifies: "Except as provided in Section 7.06(b), nothing in this Agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part." (§ 7.10.) The Agreement thus again prohibits the licensee from disclosing any "part" of the "resulting materials." (§§ 2.01; 7.06(a); 7.10.)

20. Licensees executed separate sublicensing agreements, which gave them the right to distribute their modifications and derivative works in object code format only, not readable by human beings. (IBM Ex. 121 § 2.01.) The sublicensing agreements precluded the licensees from distributing and disclosing their modifications and derivative works in source code format.

21. AT&T's standard agreement created a framework in which each modification and derivative successively becomes "treated hereunder as part of the original SOFTWARE PRODUCT." (§ 2.01.)

B. The Plain Scope of the IBM Side Letter.

22. In addition to its own Agreement, IBM entered into a Side Letter with AT&T. (IBM Ex. 122.) Paragraph 3 of the Side Letter confirms IBM's obligation to keep the "resulting materials" confidential. In the Side Letter, AT&T acknowledges: "You have requested that contractors be permitted to use SOFTWARE PRODUCTS pursuant to the referenced Software Agreement." (IBM Ex. 122 ¶ 3.) AT&T agrees that, subject to certain conditions, "the rights granted in Section 2.01 of the Software Agreement be extended to permit you to provide access to and allow use of SOFTWARE PRODUCTS by your contractors." (IBM Ex. 122 ¶ 3.) One of the conditions is that IBM must secure from each such contractor an agreement that shall

33

"provide that, when a contractor's work for you is completed, all copies of the SOFTWARE PRODUCT and any software derived from or developed with the use of a SOFTWARE PRODUCT shall be returned to you by such contractor and any such contractor shall erase any such software from any storage element or apparatus." (IBM Ex. 122 ¶ 3 (emphasis added).)

23. The Side Letter also states: "Regarding Section 2.01, we agree that modifications and derivative works prepared by or for you are owned by you. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with us." (IBM Ex. 122 ¶ 2.)

24. The opening language of Paragraph 9 of the Side Letter says that the right to "develop" at issue is one that applies only internally to IBM: IBM "agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." (IBM Ex. 122 ¶ 9.)

25. Section 7.06(b) of the IBM Agreement states in its last sentence: "LICENSEE may also obtain materials based on a SOFTWARE PRODUCT subject to this Agreement from such a third party and use such materials pursuant to this Agreement, provided that LICENSEE treats such materials as if they were part of such SOFTWARE PRODUCT." (IBM Ex. 492.) Paragraph 10 of the Side Letter clarifies that Section 7.06(b) "covers the situation where one of our licensees wishes to furnish its modified version of our source code for a SOFTWARE PRODUCT to another of our licensees for the same product." (IBM Ex. 122 ¶ 10.)

26. The Side Letter "amends" Section 7.06(a) of the Agreement by "replacing" that Section with a different "7.06(a)." (IBM Ex. 122 ¶ 9.) IBM "agrees that it shall hold

34

SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T" and "further agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." (IBM Ex. 122 ¶ 9 (emphasis added).)

27. Paragraph 9 then affords IBM a limited right to "develop or market" certain products that the Agreement and Sublicensing Agreement do not permit IBM to "develop or market" — namely, products that are not modifications or derivative works based on the SOFTWARE PRODUCT, but that employ ideas, concepts, know-how or techniques embodied in the SOFTWARE PRODUCTS. (IBM Ex. 122 ¶ 9.)

28. The second half of Paragraph 9 first provides: "Nothing in this agreement shall prevent LICENSEE from developing or marketing products or services employing ideas, concepts, know-how or techniques relating to data processing embodied in SOFTWARE PRODUCTS subject to this agreement . . . ." (IBM Ex. 122 ¶ 9.) Paragraph 9 then specifies that IBM may exercise such special rights to develop or market certain products and services only "provided that LICENSEE shall not copy any code from such SOFTWARE PRODUCTS into any such product or in connection with any such service and employees of LICENSEE shall not refer to the physical documents and materials comprising SOFTWARE PRODUCTS subject to this Agreement when they are developing any such products or service or providing any such service." (IBM Ex. 122 ¶ 9.)

29. Accordingly, under the Agreement and Side Letter, where IBM (1) has copied non-public code from the SOFTWARE PRODUCT into a "product" or (2) has referred to the physical documents or materials comprising the SOFTWARE PRODUCTS in developing a

35

"product," then IBM may not "market" that product in source-code form. Instead, IBM must treat that product pursuant to those obligations that otherwise obtain — that is, the obligation to keep confidential for AT&T the SOFTWARE PRODUCT and any modification or derivative work based on the SOFTWARE PRODUCT. Paragraph 9 of the Side Letter thus refers only to IBM's right to develop or market products that are not modifications or derivative works based on the SOFTWARE PRODUCT.

III. THE PLAIN TERMS OF THE AGREEMENTS REASONABLY PROTECTED THE VALUE OF UNIX.

A. The Context of the Development of the UNIX Operating System.

30. In the computer industry before UNIX, vendors such as IBM delivered computer hardware, operating systems, software applications, and services in a vertically integrated manner, as a "closed" system that generated large profit streams through proprietary "lock-in." That is, a customer who purchased computer hardware from IBM was often locked-in to using IBM's operating system, software applications and services as well. It was very difficult for the customer to modify the system or to switch to systems provided by other vendors, thereby limiting the flexibility and options available to customers. (Ex. 284 at 7 & n.9; Ex. 50 ¶¶ 3-16; Ex. 286 at 80.)

31. This approach meant not only that customers had to change their software every time they changed their hardware, but also that programmers had to learn about and write for each hardware system separately. IBM liked this approach because it gave IBM control over IBM customers. Once a customer opted for IBM's hardware, that customer was for the most part

36

locked into choosing IBM's associated software and services as well. (Ex. 286 at 80 & nn.157 & 158; Ex. 50 ¶¶ 3-16.)

B. The Popular and Valuable UNIX Ecosystem in 1985.

32. UNIX became popular and its use spread rapidly in the 1970s because it could run on any hardware platform and enabled software programs to run more easily across many hardware platforms. (Ex. 284 at 7 & n.l0; Ex. 50 ¶¶ 3-16.) Such features allowed customers to use UNIX on hardware from many different vendors with greater flexibility in choosing software applications to run on the hardware and OS. (Ex. 284 n.l1; Ex. 50 ¶¶ 3-16.) UNIX was thus considered an "open," "cross platform" operating system (where "open" meant that UNIX provided greater flexibility, in contrast to "closed" systems that effectively locked-in users). (Ex. 284 at 8; Ex. 50 ¶¶ 3-16.)

33. UNIX was thus revolutionary, because it endeavored to be a commercially hardened operating system that worked across hardware platforms. As a result, end-users could separate their hardware and software decisions, playing vendors off one another and benefiting from the resulting competition. Programmers, meanwhile, could learn one operating system and then use that knowledge to produce programs that would run on a wide variety of hardware platforms. This also increased competition, by increasing the number of programmers who were able to participate in any given hardware market. UNIX thus made possible a vibrant and competitive ecosystem: a community comprising users, programmers, and programs, all attracted to UNIX not only because of its innate qualities as an operating system but also because of the efficiencies that its cross-platform flexibility made possible. (Ex. 286 at 80-81 & n.159; Ex. 12 ¶¶ 3-7; Ex. 50 ¶¶ 3-16.)

37

34. Until 1983, AT&T licensed UNIX primarily to universities and researchers, along with the source code, for teaching purposes as well as internal use on specific central processing units (or "CPUs"). UNIX customers at that time did not have the right to re-distribute UNIX. Instead, to run UNIX on more than one machine or CPU, a customer had to obtain an additional license or licenses. (Ex. 284 at 8.)

35. Starting in 1983, AT&T sought in earnest to capture the commercial value of UNIX by licensing UNIX to large computer-systems vendors such as Sun, Hewlett Packard ("HP"), Silicon Graphics Inc. ("SGI"), Digital Equipment Corporation ("DEC"), and IBM. These licensees typically bundled their modifications, derivatives and enhancements of UNIX with their own proprietary hardware. (Ex. 284 at 8; Ex. 12 ¶¶ 3-7.)

36. AT&T's new approach included the separate sublicensing agreement that allowed the license to become a "distributor" of UNIX. Licensees could distribute their own modified, derived and enhanced versions of UNIX to customers in binary form. (Ex. 284 at 8; Ex. 12 ¶¶ 3- 7.) The licensees had to pay a significant upfront fee for this right to distribute UNIX. (Ex. 284 n.12; Ex. 12 ¶¶ 3-7.) In addition, licensees were required to pay for each binary copy they distributed; those payments were in the form of a royalty. (Ex. 284 at 9; Ex. 12 ¶¶ 3-7.) The licensees could not distribute the modifications or derivative work in source code format, except to AT&T licensees who had licensed the same version of UNIX. (Ex. 284 at 9; Ex. 286 at 81-82 see also ¶¶ 82-86, below.)

37. As a result of the revolutionary advantages offered by UNIX, a large number of users, programs, and programmers did and were expected to favor UNIX over competing operating systems. Accordingly, hardware providers in the 1980s became increasingly interested

38

in offering versions of UNIX that would perform well on their hardware. AT&T recognized this landscape and developed a business plan under which AT&T would help hardware providers achieve this aim. (Ex. 286 at 81; Ex. 4 ¶ 5; Ex. 5 at 26-28; Ex. 12 ¶¶ 3-7.)

38. UNIX provided a valuable head-start for licensees. By 1983 UNIX was not only a mature and robust operating system resulting from fourteen years of development, but also was the foundation technology for an entire network of skilled software developers, experienced IT services staff, and end users. (Ex. 284 at 9; Ex. 138 ¶¶ 3-4; Ex. 12 ¶¶ 3-7; Ex. 50 ¶¶ 3-16; see also IBM Ex. 310 at 27,38.) The UNIX user base began to grow rapidly in the mid-1980s as AT&T began to commercialize UNIX. (Ex. 284 n.13.) From the 45,000-user install base when AT&T announced the first supported version, System V, UNIX grew to approximately 1.2 million installed users by 1989. (Ex. 284 n.14.)

39. With the right to modify and enhance UNIX and then distribute those modifications and enhancements with UNIX to customers, licensees had the incentive to develop innovations that used the UNIX head-start. (Ex. 284 at 9; Ex. 50 ¶¶ 3-16; Ex. 12 ¶¶ 3-7; see also IBM Ex. 310 at 27, 38.) The head-start would allow licensees to capitalize on the years of software development, significant expense and huge popularity of UNIX in the enterprise- computing arena. Licensees would thus reap the benefits from their investments by fulfilling customer demand with a differentiated "flavor" of UNIX that augmented their own proprietary hardware, other software, and services. (Ex. 284 at 9; Ex. 50 ¶¶ 3-16; Ex. 138 ¶¶ 3-4; Ex. 12 ¶¶ 3-7; see also IBM Ex. 310 at 27, 38.) IBM acknowledges that

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

39

C. The Significant Advantage Offered by the UNIX Head-Start.

40. AT&T's business model was thus to allow other firms to purchase a head-start toward involvement in the UNIX ecosystem. What AT&T sold to each hardware firm was the right to use the UNIX foundation to jump start the firm's entry into the community of UNIX end- users, UNIX programs, and UNIX programmers. The hardware firm would as a result be able to take part in the UNIX ecosystem quickly and at reasonable cost, thereby avoiding strategically infeasible alternatives like developing a UNIX-compatible operating system from scratch. (Ex. 138 ¶¶ 3-4; Ex. 50 ¶¶ 3-16; Ex. 286 at 81-82; Ex. 116 at 99; Ex. 12 ¶¶ 3-7; IBM Ex. 310 at 38.)

41. AT&T provided a foundation of UNIX code that licensees could build upon and modify. (Ex. 138 ¶¶ 3-4; Ex. 12 ¶¶ 3-7; Ex. 50 ¶¶ 3-16.) AT&T encouraged and indeed fully expected licensees to add their own code to and integrate it with the original code. What AT&T brought to the table was the foundation. It was up to the licensee to move forward from there, tailoring UNIX to accentuate that particular firm's hardware strengths. Over time, most licensees would add large amounts of code to their UNIX flavor and a great percentage of the resulting Unix code would therefore be code written by the licensee. Even at that point, however, the dynamic would be the same: AT&T would continue to earn revenue based on the resulting UNIX flavor, because the licensee developed that flavor in reliance on AT&T's initial head-start contribution. (Ex. 286 at 81-82; Ex. 12 ¶¶ 3-7; see also IBM Ex. 310 at 27, 38.)

42. In other words, while AT&T in fact delivered specific lines of code to its clients, what it really licensed was the head-start that the code made possible. Firms were not obligated to purchase a head-start from AT&T. A firm could, for example, attempt to develop a UNIX- compatible operating system entirely from scratch. (Ex. 138 ¶¶ 3-4; Ex. 50 ¶¶ 3-16; Ex. 12 ¶¶ 3-

40

7; Ex. 278 ¶¶ 81-86.) However, a firm that took advantage of the head-start could not then escape its royalty and confidentiality obligations just because the head-start had worked and the firm had as a result been able to successfully develop even a substantially further developed UNIX variant. (Ex. 286 at 83; Ex. 12 ¶¶ 3-7.)

43. AT&T had success with its business model. Indeed, between 1985 and 1995, nearly every major hardware firm, including IBM, HP, Sun, Data General, Unisys, NCR, and Compaq, licensed AT&T's UNIX code. (Ex. 286 at 83 & nn.161-67.)

44. AT&T's perception in the mid-1980s of the prospective value of UNIX was further borne out in the years that followed. By the mid-to-late 1980s, there had been an enormous growth in the number of UNIX systems vendors and applications among large businesses and law firms, and an increasing number of corporate users turned to UNIX for their mission-critical computing needs and independent software vendors (or "ISVs") developed numerous business-related applications for use with it. (Ex. 281 n.9.)

45. By the 1990s, UNIX was one of the most successful operating systems in the world, particularly in the area of commercial computing applications. (Ex. 281 at 3-4.) By that time, UNIX was commanding the enterprise (or commercial) space, due to its reputation as the operating system of choice for mission-critical, high-availability applications. (Ex. 281 n.11.)

REDACTED

46. As increasing numbers of corporate users turned to UNIX for their mission- critical computing needs, independent software vendors (or "ISVs") developed numerous business-related applications for use with it. (Ex. 281 n.32.) That development served in turn to

41

make UNIX even more attractive to commercial customers. (Ex. 281 n.33.) In short, in the 1990s, customers widely adopted UNIX. (Ex. 284 n.39.)

47. By the late 1990s, UNIX was the leading server operating system worldwide in terms of license revenues, generating $2.5 billion in annual license revenues, more than half of the total server operating environment (or "SOE") license revenues across all major server operating systems. (Ex. 281 n.39.) Several of the leading UNIX suppliers were also server manufacturers that sold flavors of UNIX that were optimized to their own servers. (Ex. 281 nn. 42 & 43.)

D. The Parties' Commercially Reasonable Protection of Their Interests.

48. The broad protections afforded to AT&T under its UNIX licenses agreements, as reflected in the plain language of those agreements, therefore served reasonably to protect the value of UNIX to AT&T in the ecosystem that had developed. (Ex. 286 at 85-96; Ex. 12 ¶¶ 3- 11; Ex. 278 ¶¶ 81-86.)

49. AT&T's UNIX strategy involved licensing its UNIX foundation to hardware firms and in that way providing them with a head-start toward developing an operating system that would appeal to the UNIX community. (Ex. 138 ¶¶ 3-4; Ex. 12 ¶¶ 3-11; Ex. 50 ¶¶ 3-16; Ex. 278 ¶¶ 81-86.) AT&T earned its UNIX-related revenues from these licenses. AT&T's UNIX business was thus enabling companies to develop licensed UNIX operating systems. (Ex. 286 at 86,88; Ex. 12 ¶¶ 3-11; Ex. 50 ¶¶ 3-16.) In contrast, as of 1985, neither Sequent nor IBM was involved in any business, such as developing an unlicensed UNIX clone that would have given them any cause to loosen the core protections of AT&T's UNIX license. (Ex. 286 at 83-84; Ex. 12 ¶¶ 3-11; Ex. 50 ¶¶ 3-16.)

42

50. IBM was investing in a number of operating system projects, including its licensed work on AIX, its own development of OS/2, and its continued efforts to develop operating systems that worked only with specific IBM hardware. None of these projects, however, was designed to yield an operating system that (a) would have fit into the UNIX ecosystem in terms of accepting UNIX programs and allowing UNIX programmers to apply their full experience and training but (b) would not have required IBM to pay royalties to AT&T. Indeed, IBM at that point was not particularly excited about UNIX at all, let alone interested in developing an unlicensed UNIX-like operating system. (Ex. 286 n.168; Ex. 50 ¶¶ 13-16.) In short, IBM was not trying to build a UNIX system from scratch, without the benefit of AT&T's head-start. (Ex. 286 at 84; Ex. 50 ¶¶ 13-16.)

51. Indeed, although IBM licensed UNIX from AT&T in 1985, it was not until the 1990s that IBM fully embraced UNIX. (Ex. 284 n.16; Ex. 50 ¶¶ 13-16.) Until then, significant IBM revenue and profitability depended upon its proprietary computer-system business. That business consisted primarily of selling mainframe computing hardware, associated software, services, and peripherals compatible with this hardware. (Ex. 284 at 2; Ex. 50 ¶¶ 13-16,)

52. IBM customers were thus forced to buy a bundled system consisting of hardware, an operating system, associated software, and peripherals, as well as services from IBM-related staff. (Ex. 284 n.23; Ex. 50 ¶¶ 13-16.) Each of these other IBM businesses (software, support services, and financial services) depended upon mainframe sales for their revenue, so that when IBM mainframe sales declined so did IBM's combined sales. (Ex. 284 n.24.) IBM market share fell from approximately 37% to 28% between 1985 and 1991 while the overall market grew. (Ex. 284 n.5.) IBM turned to the near-term, stop-gap effort of slashing prices on closed operating

43

system mainframes, but that was not sustainable for the long-term because it involved substantial revenue losses. (Ex. 284 n.26.)

53. Over time, in place of IBM mainframes, customers began to purchase individual parts of an overall IT solution from companies selling pieces of the computing environment. IT solutions that allow software and hardware from diverse vendors to work with other vendors' software and hardware are described as conforming to "open standards" or an "open" architecture. (Ex. 284 n.27.) In contrast, as noted, IBM's mainframes were "closed," proprietary-architecture systems. (Ex. 284 n.28; Ex. 50 ¶¶ 13-16.) Open architectures enabled many competitors to enter market segments traditionally dominated by IBM. (Ex. 284 n.29.) Critically, customers also found that IBM's competitors provided alternatives at a fraction of the price of IBM's proprietary solutions. (Ex. 284 n.30.)

54. At the same time, a new form of computing was taking hold: network-based "distributed" computing. As computers became connected to networks, open-standard computing became increasingly important. (Ex. 284 n.31.) According to the CEO of IBM at the time, Louis Gerstner, in this environment IBM faltered. (Ex. 284 n.32.) "IBM was slow, very slow in delivering distributed computing, and many small companies moved in to fill the gap." (Ex. 284 n.33.)

55. Indeed, IBM's strategy to control the proprietary "stack" jeopardized its performance and almost crippled the company. (Ex. 284 n.34; Ex. 50 ¶¶ 13-16.) That was because UNIX conflicted with IBM's proprietary system strategy. (Ex. 284 n.35.) By the 1990s, however, IBM began to embrace the UNIX operating platform, which allowed buyers to combine the offerings of multiple vendors. (Ex. 284 nn.37 & 38; Ex. 50 ¶¶ 13-16.)

44

56. Accordingly, by the time IBM did fully embrace it, UNIX offered IBM two decades of development and community adoption as a head-start when compared to developing a completely new operating system from the ground up. IBM had been in the operating-system business for many years, yet it did not have a ready-made or close-to-complete operating system for an open-architecture server system, which is what UNIX was. Clearly, however, it would be much more difficult to develop a new operating systems from scratch than building on the head- start of UNIX. (Ex. 284 at 10 & n.17; Ex. 50 ¶¶ 13-16.)

57. Sequent also was not pursuing in the mid-1980s an unlicensed UNIX clone. Sequent was an AT&T licensee even before 1985, paying AT&T for the right to build on a combination of AT&T code and code from Berkeley Software Development. Like IBM, Sequent again signed up to build on AT&T's head-start, and Sequent again was given access to additional AT&T code. Both before 1985 and in 1985, Sequent thus had only one UNIX strategy, and that strategy involved developing a UNIX flavor fully licensed by AT&T. (Ex. 286 at 84-85; Ex. 12 ¶¶ 3-11; see also IBM Ex. 310 at 27,38.)

58. In sharp contrast to the absence of any compelling reason for IBM or Sequent to loosen the core protections of the AT&T standard UNIX license agreement, AT&T had an overriding interest in protecting the value of its UNIX asset. (Ex. 286 at 85-96; Ex. 12 ¶¶ 3-11; Ex. 41 ¶¶ 2-9.) If AT&T had granted its licensees the right to take source code, methods and concepts from a licensed UNIX flavor and publicly disclose that material, such as to use that material to subsidize the development of a competing, unlicensed UNIX clone, such a grant would have threatened AT&T's ability profitably to license its UNIX foundation. (Ex. 12 ¶ 6.) At the same time, neither IBM nor Sequent would have considered that right to be particularly

45

valuable, because neither had any interest in pursuing a UNIX operating system beyond the licensed flavors they were developing. (Ex. 286 at 85; Ex. 50 ¶¶ 3-16.)

59. In other words, from an economic perspective, if AT&T allowed IBM to use the code it developed based on the licensed UNIX source code (or "added-on code") to create or help develop an unlicensed UNIX clone, IBM would be able to destroy AT&T's intellectual property. AT&T's licensees would migrate from AT&T's UNIX ecosystem to IBM's because IBM could offer the same ecosystem at a lower price, thanks to its exploitation of AT&T's head- start. (Ex. 286 at 95-96; Ex. 12 ¶¶ 3-11.)

60. The operation of AT&T's standard UNIX license agreement reflected these basic considerations. AT&T's UNIX licensees were permitted to use the AT&T UNIX foundation internally. They were also permitted to package it with hardware in object code format and to produce flavors that could be sold to equivalent-scope licensees. None of these rights threatened AT&T's UNIX business. The internal use of UNIX could not include the sale of an operating system to third parties, and sales to equivalent-scope licensees at worst would result in disclosure only to parties who already bought from AT&T permission to see source code and thus have already agreed to abide by the above restrictions and confidentiality. AT&T thus protected its UNIX business while leaving licensees with broad rights to pursue their legitimate businesses as well. (Ex. 286 at 87 & nn.172-76; Ex. 12 ¶¶ 3-11; Ex. 375 ¶¶ 12-13; Ex. 50 ¶¶ 3-26.)

61. IBM and Sequent had no compelling reason to object to these provisions, and the terms of the licenses to which they agreed show that they in fact did not object. (Ex. 286 at 87- 88 & nn.177-78; Ex. 12 ¶¶ 3-11.)

46

62. Indeed, at the time, in their business models, neither IBM nor Sequent would have considered it a valuable right even to be able to distribute source code, methods and concepts from their UNIX flavors only to equivalent-scope AT&T licensees. Such distributions would only serve to permit the equivalent-scope licensees to develop their own UNIX flavors to sell with their own hardware, thereby hurting IBM's and Sequent's sale of their hardware on which their UNIX flavors operated. (Ex. 286 at 95-96; Ex. 12 ¶¶ 3-11; Ex. 50 ¶¶ 3-16.)

IV. THE EXTRINSIC EVIDENCE CONFIRMS THE SCOPE OF THE UNIX LICENSE AGREEMENTS.

A. Contemporaneous and Subsequent Licensing Documents.

63. Although AT&T entered into educational license agreements for UNIX System V, the company specifically designed and enforced those licenses to protect the commercial value of AT&T's UNIX business, and in doing so set forth and enforced protections that went far beyond just the licensed UNIX source code. In 1986, for example, Otis Wilson of AT&T (who has signed a declaration for IBM) described the scope of AT&T's standard UNIX System V educational license to Harvard University: "We remind you that commercially motivated research and development activity may not be pursued with an educational license agreement (such as your Agreement E-Soft-00162) even if the resulting product does not contain any UNIX System V code." (Ex. 117 (emphasis added).)

64. Jeanette Tilley of UNIX System Laboratories ("USL") (who has signed a declaration for IBM) signed letters to UNIX licensees confirming that USL had obtained and expected much greater protection from its licensee than protection for just literal UNIX System V source code. On March 20, 1992, for example, Ms. Tilley signed a letter on behalf of USL to

47

Sequoia Systems, Inc., stating: "We remind you that your obligations (and those of your employees and subsidiaries) of confidentiality pursuant to Section 7.06 shall survive and continue after any termination of rights under this Agreement." (Ex. 118.) Section 7.06 of Sequoia's UNIX license agreement (Oct. 3, 1986), in turn, contained the following language: "LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees and contractors of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." (Ex. 119 (emphasis added).)

65. Mr. Wilson has testified that as of the time of IBM's UNIX license agreement, on February 1, 1985, AT&T had decided that it would no longer seek to protect its methods and concepts from disclosure by its UNIX licensees. Yet more than a year and half later, in October 1986, AT&T entered into the license agreement with Sequoia requiring the company to keep the methods and concepts confidential. (Ex. 119.) And over seven years after the alleged suspension of AT&T's efforts to protect the UNIX methods and concepts, Ms. Tilley sent Sequoia a letter reminding the company that it remained obligated to keep the methods and concepts confidential after the termination of its license agreement. (Ex. 118.)

66. In March 1990, Mr. Wilson signed a "Software Attachment" with an "Order for Supplies or Services" from the National Institute of Health. The Attachment was for "Provisions Relating to Rights to Use Certain Software Products for Inclusion in Contracts Between AT&T Information Systems Inc. and Agencies of the US. Government." The Attachment contained the same core protections as set forth in AT&T's standard UNIX license agreement from 1985, namely:

48

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as such SOFTWARE PRODUCT.

.. . the Government's agreement under such clauses not to provide or otherwise make available SOFTWARE PRODUCT to any third party shall also be considered agreement not to disclose methods and concepts utilized in SOFTWARE PRODUCT to any third party without the written approval of Contractor.

(Ex. 120 §§ 5, 13.) Mr. Wilson also signed letter agreements in June and August 1990 directing the licensees: "You will not provide access to any copy of the source code of the SOFTWARE PRODUCT (including methods and concepts contained therein), in whole or in part, to anyone other than your organization's employees who have a need to know." (Ex. 27; Ex. 28; Ex. 29.)

67. Another, similar example is the

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

68. The same documents contradict any suggestion that AT&T successor-in-interest Novell, Inc. had abandoned the protection over UNIX methods and concepts, or over the modifications and derivative works the licensees developed based on the licensed UNIX software product. In February 1992, for example, USL entered into a UNIX System V license agreement with Micro Resources, Inc. Again, seven years after the alleged suspension of efforts to protect the UNIX methods and concepts or the entirety of the UNIX licensees' modifications

49

and derivative works, the agreement contained the same core protections as set forth in AT&T's standard UNIX license agreement from 1985, namely:

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as such SOFTWARE PRODUCT.

LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees and contractors of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder.

(Ex. 122 §§ 2.01,7.05(a).) The same core protections appeared in USL's December 1993 agreement with the United States Department of Commerce. (Ex. 123 §§ 2.01, 7.05(a).)

69. In June, August, and October 1994, Novel1 entered into UNIX System V license agreements with Green Hills Software, Inc., Computational Logic Inc., and Loral Federal Systems, Inc. Now nine years after the alleged suspension of efforts to protect the UNIX methods and concepts or the entirety of the UNIX licensees' modifications and derivative works, each agreement contained the same core protections as set forth in AT&T's standard UNIX license agreement from 1985, namely:

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as such SOFTWARE PRODUCT.

LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees and contractors of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder.
(Ex. 34; Ex. 125; Ex. 126 §§ 2.01, 7.05(a).)

50

70. Similarly, after Santa Cruz had acquired the UNIX business and copyrights from Novell, Santa Cruz continued to implement the same protections. In November 1997, for example, Santa Cruz entered into a UNIX System V license agreement with Samsung Electronics Co., Ltd. Now twelve years after the alleged suspension of efforts to protect the UNIX methods and concepts or the entirety of the UNIX licensees' modifications and derivative works based on the licensed UNIX software product, the agreement contained the same core protections as set forth in AT&T's standard UNIX license agreement from 1985, namely:

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as such SOFTWARE PRODUCT.

LICENSEE further agrees that it shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees and contractors of SAMSUNG to whom such disclosure is necessary to the use for which rights are granted hereunder.
(Ex. 127 §§ 2.01, 7.05(a).) The same protections are also set forth, for example, in the Educational Software License Agreement that Santa Cruz entered into with the California Institute of Technology in November 1997. (Ex. 128.)

71. Since AT&T developed its standard UNIX System V license agreement, AT&T and its successors-in-interest (USL, Novell, and Santa Cruz) have made explicit in their license agreements the following:

This Agreement and its Supplements set forth the entire agreement and understanding between the parties as to the subject matter hereof and merge all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date of acceptance hereof in writing and signed by a proper and duly authorized representative of the party to be bound thereby.

51

(See. e.g., IBM Ex. 492; Ex. 122; Ex. 123; Ex. 34; Ex. 125; Ex. 126; Ex. 127; Ex. 128.)

72. William Murphy, who signed the agreements in paragraph 70 on behalf of Santa Cruz, was involved in overseeing the UNIX license agreements from the 1970s, when he was with AT&T, until 2002, when he retired from SCO. He confirms that it was always his understanding (from AT&T to USL to Novel1 to Santa Cruz to SCO) that the agreements required licensees to keep confidential not only the UNIX System V methods and concepts, but also the entirety of the licensees' derivative works based on the licensed UNIX System V software product. (Ex. 337 ¶¶ 2-15.)

73. Indeed, the evidence shows, by way of further example, that in 1997 Santa Cruz included contractual protections for its UNIX methods and concepts even in licenses other than its source-code licenses. In May 1997, for instance, Santa Cruz and Lucent Technologies, Inc. entered into a "SCO UnixWare OEM Reseller Source for Support Agreement," pursuant to which Lucent obtained the right to use UnixWare source code to correct hugs in the binary distributions and distribute those fixes in binary form, and which included the following language:

LICENSEE agrees that it shall hold all parts of SCO UNIXWARE SOURCE PRODUCT(s) subject to this Agreement in confidence for SCO. LICENSEE further agrees that it shall not make any disclosure of any or all of such SCO UNIXWARE SOUR PRODUCT(s) (including methods or concepts utilized therein) to anyone, except to employees and contractors of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder.
(Ex. 124 § 15.) This document again contradicts any assertion that Santa Cruz was not seeking to protect the disclosure of UNIX methods and concepts.

52

74. IBM also submits declarations claiming that AT&T never intended to exert "control" over the "homegrown material" in their licensees' modifications and derivative works based on the licensed UNIX software product, but contemporaneous documents contradict that assertion. Only months before AT&T entered into its license agreement and Side Letter with IBM, for example, Mr. Wilson made clear in a side letter to DEC that it had to keep all of its modifications and derivative works confidential, even those parts that Digital owned:

If such derivative work does include any of our code or embody any of our methods and concepts you may have a property right in such derivative work to the extent of any modifications that you have added, but the exercise of that property right is subject to the terms of the Software and Sublicensing Agreements, including to the restrictions on the use of the SOFTWARE PRODUCTS (for example, it must be kept in confidence).
(Ex. 36.) Mr. Wilson thus made AT&T's view clear: the derivative work "must be kept in confidence." The same clear distinction was drawn in a side letter with DEC executed after the IBM Side Letter. (Ex. 26.)

75. If AT&T intended that its side letters with some of its licensees would reflect AT&T's view of the scope its agreements with all of its licensees, the foregoing side letter (as just one example) confirms that all licensees were obligated to keep confidential their modifications and derivative works. Indeed, where IBM's argument is taken to its logical conclusion, side letters such as the one between SCO and Siemens AG in June 1998 would establish that all licensees would have access to the licensed source code only if none of the licensees' employees were "working on the design and/or development of product in direct competition with" SCO's operating system products. (Ex. 130.)

53

B. The Testimony of Relevant Witnesses.

76. AT&T used a standard UNIX license agreement in commercially licensing its UNIX software product in the 1980s. (Ex. 41 ¶¶ 2-9; Ex. 8 ¶ 9; Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex. 12 ¶¶ 8-16; Ex. 71 at 87; Ex. 69 at 15.)

77. The standard commercial UNIX license agreement contained the same confidentiality protections as AT&T's educational and governmental UNIX license agreements. (Ex. 10 ¶ 4; Ex. 5 at 68, 240; Ex. 8 ¶ 5; Ex. 14 ¶ 10; Ex. 4 ¶ 7; Ex. 138 ¶¶ 3-10; Ex. 71 at 225; Ex. 69 at 34, 38.)

78. AT&T entered into the commercial UNIX license agreements because it wanted to encourage the widespread acceptability of UNIX as an industry standard, because the more UNIX was used, the more license fees that AT&T would collect, in a domino effect. (Ex. 41 ¶¶ 2-9; Ex. 12 ¶¶ 3-7; Ex. 71 at 168; IBM Ex. 261 at 144-45.)

79. There was nothing inherent in AT&T's UNIX licensing program that would result in disclosures of the protected material in the public domain. If all licensees honored their obligations, there would be no such disclosures, except to whatever extent AT&T decided to make that information public without restriction. (Ex. 12 ¶ 6; Ex. 333 ¶ 15; IBM Ex. 261 at 144-45; Ex. 375 ¶ 6; Ex. 278 ¶ 86; Ex. 71 at 176-77; see also IBM Ex. 260 at 96.)

80. In its standard UNIX license agreement, AT&T and its successors-in-interest intended and required that the licensee keep confidential all parts of the licensed UNIX software product, including the source code, methods, concepts, techniques, know-how and ideas therein. The UNIX licensors never abandoned those protections. (Ex. 10 ¶ 5; Ex. 5 at 149-50; Ex. 41 ¶¶ 2-9; Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex. 375 ¶¶ 4-32; Ex. 5 at 106, 130-31,

54

141-43; Ex. 10 ¶¶ 5-6; Ex. 8 ¶ 9-10; Ex. 14 ¶¶ 7(b), 11(d); Ex. 12 ¶¶ 8-16; Ex. 4 ¶¶ 5,6(b); Ex. 19 at 37,45-46, 147-148; Ex. 5 at 130-31; Ex. 26 at 2; Ex. 27-29; Ex. 38 ¶¶ 2-4,21-25; Ex. 8 ¶ 10; Ex. 71 at 87-89, 97-98, 101; Ex. 69 at 44; Ex. 337 ¶¶ 5-8; Ex. 333 ¶¶ 11-13; see also IBM Ex. 252 ¶ 12; IBM Ex. 295 at 159; IBM Ex. 260 at 49, 102, 162-63; IBM Ex. 260 at 108-08; IBM Ex. 261 at 48-49, 57-59, 75, 93-94, 22-25, 133-34, 162; IBM Ex. 584 at 73-76, 121-22, 178-79, 189.)

81. In its standard UNIX license agreement, AT&T intended to impose protections that the intellectual-property law might not otherwise provide for the licensed UNIX software product and the modifications and derivative works based on that product. (Ex. 7 ¶ 6; Ex. 71 at 90, 222; Ex. 375 ¶ 11; Ex. 333 ¶ 14; see also IBM Ex. 261 at 181-82.)

82. The UNIX license agreements required the licensees to treat the modifications and derivative works they developed based on the licensed UNIX software product as part of the licensed UNIX software product itself. (Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex. 12 ¶¶ 8-16; Ex. 375 ¶¶ 4-32; Ex. 7 ¶ 6; Ex. 24 at 134, 228-29, 231-32; Ex. 19 at 146; Ex. 38 ¶¶ 2-4, 21-25; Ex. 5 at 114-15, 117-18; Ex. 71 at 90; Ex. 69 at 22-23, 36, 47; Ex. 355 ¶¶ 10-13; Ex. 337 ¶¶ 5-8; Ex. 333 ¶¶ 11-13; Ex. 297 at 83-84; see also IBM Ex. 260 at 70; IBM Ex. 584 at 76-80, 92-93, 95, 159-60, 194-95; IBM Ex. 80 at 111-19, 216; IBM Ex. 513 at 51, 23, 121.)

83. AT&T intended and required that the licensee keep confidential all parts of any modification or derivative work that the licensee developed based on the licensed UNIX software product. (Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex. 5 at 130-131; Ex. 12 ¶¶ 8-16; Ex. 8 ¶ 6; Ex. 4 ¶ 6; Ex. 41 ¶¶ 2-9; Ex. 77 at 145; Ex. 355 ¶¶ 10-13; Ex. 38 ¶¶ 2-4, 21-25; Ex. 10 ¶ 5; Ex. 5 at 114-15; Ex. 351 ¶¶ 6-7; Ex. 71 at 89-90, 162-63; Ex. 69 at 25; 44-45,57,

55

177-178; 337 ¶¶ 5-8; Ex. 375 ¶¶ 4-32; Ex. 333 ¶¶ 11-13; Ex. 297 at 83-84; see also IBM Ex. 584 at 139-41; IBM Ex. 301 at 340-43.)

84. A modification or derivative work within the meaning of AT&T's standard UNIX license agreement includes any product that includes any part of, or was developed based on or with exposure to, the licensed UNIX software product. (Ex. 7 ¶ 6; Ex. 5 at 82-84; 15-52; Ex. 14 ¶ 7, 11; Ex. 4 ¶ 6; Ex. 5 at 113, 145; Ex. 19 at 18, 19, 20, 42, 166-68; Ex. 69 at 44-45, 53-54, 178-184; Ex. 337 ¶¶ 5-8; Ex. 375 ¶¶ 15-16; Ex. 333 ¶¶ 11-13; see also IBM Ex. 584 at 76, 95-97, 120; IBM Ex. 80 at 44-46; IBM Ex. 513, at 51, 127-28; IBM Ex. 295 at 31-32.)

85. The "exposure" or "contamination" concerns underlying AT&T's standard UNIX license agreements are ones known to IBM. In 2001, IBM

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

(Ex. 132 at 6.)

86. Although the licensees owned those parts of the modifications and derivative works that were not part of the licensed UNIX software product, they were nevertheless obligated to keep all parts of the modifications and derivative works confidential. (Ex. 43 ¶¶ 2-

56

15; Ex.337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex.5 at 130-131; Ex. 12 ¶¶ 8-16; Ex. 8 ¶ 6; Ex.4 ¶ 6; Ex. 41 ¶¶ 2-9; Ex. 77 at 145; Ex. 38 ¶¶ 2-4, 21-25; Ex. 10 ¶ 5; Ex. 5 at 114-15; Ex. 71 at 50, 89-90, 162-63; Ex. 69 at 25; 44-45, 57, 177-178; 337 ¶¶ 5-8; Ex. 355 ¶¶ 10-13; Ex. 333 ¶¶ 11-13; Ex. 297 at 83-84; see also IBM Ex. 584 at 139-41; IBM Ex. 301 at 340-43.)

87. AT&T and its successors-in-interest never agreed to eliminate the foregoing, core confidentiality protection of the standard UNIX license agreement. (Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 38 ¶¶ 2-4, 21-25; Ex. 5 at 90-91; Ex. 8 ¶ 11; Ex. 14 ¶ 9; Ex. 7 ¶ 8; Ex. 41 ¶¶ 2-9; IBM Ex. 261 at 39-41; Ex. 69 at 204; Ex. 375 ¶¶ 4-32; Ex. 333 ¶ 21; Ex. 355 ¶ 19; Ex. 337 ¶ 15.)

88. AT&T and IBM entered into a side letter that clarified some parts of the IBM Agreement and amended other parts. The IBM Side Letter did not affect how IBM was obligated to treat its modifications and derivative works based on the licensed UNIX software product. (Ex. 77 at 151, 160-61, 163; Ex. 50 ¶¶ 39-41; Ex. 71 at 117, 120, 166-67, 171-72; Ex. 355 ¶ 16; Ex. 333 ¶ 16; Ex. 337 ¶ 9; Ex. 375 ¶¶ 14-17; Ex. 375 ¶¶ 4-32; Ex. 360 ¶ 27; see also IBM Ex. 80 at 29-31, 33-34.)

89. The IBM Side Letter did not affect the terms and conditions of any of AT&T's other UNIX license agreements, including the Sequent Agreement. (Ex. 10 ¶¶ 9-10; Ex. 8 ¶ 12; Ex. 301 at 232-35; Ex. 5 at 93,95; Ex. 12 ¶ 13; IBM Ex. 261 at 70-72; Ex. 71 at 212, 225-26; Ex. 333 ¶ 16; Ex. 355 ¶ 16; Ex. 337 ¶ 9; see also IBM Ex. 260 at 40; IBM Ex. 584 at 111, 193-94; IBM Ex. 295 at 82-84, 146.)

90. There was no single individual in AT&T's, USL's, Novell's or Santa Cruz's UNIX licensing group who had the authority to change, or amend, or waive the terms of AT&T's standard UNIX license agreement. Such a decision required the approval of several individuals,

57

including members of the legal team. (Ex. 138 ¶¶ 3-10; Ex. 12 ¶¶ 8-16; Ex. 375 ¶ 14; Ex. 351 ¶ 8; Ex. 41 ¶ 5; Ex. 71 at 223, 236-37; see also IBM Ex. 80 at 53-54; IBM Ex. 584 at 35-37.)

91. The UNIX license agreement and any written amendments clarifications of or thereto represented the entire understandings between the parties. (Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 138 ¶¶ 3-10; Ex. 375 ¶ 18; Ex. 71 at 226; see also IBM Ex. 63-65, 68; IBM Ex. 584 at 102-03.) The AT&T and successor-in-interest representatives were not permitted to make a representation that was contrary to what was in writing, and they did not so do. (Ex. 41 ¶¶ 2-9; Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 355 ¶¶ 18-21; Ex. 375 ¶ 18; Ex. 138 ¶¶ 3-10 ;Ex. 333 ¶¶ 17-20; Ex. 337 ¶¶ 11-13; see also IBM Ex. 260 at 123; IBM Ex. 584 at 102-03.)

92. The AT&T representatives shared the foregoing understanding and intent regarding the scope of the UNIX license agreements, inasmuch as the scope of the agreements was a common subject of training and discussion within AT&T. (Ex. 41 ¶¶ 2-9; Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; EX. 138 ¶¶ 3-10; Ex. 12 ¶¶ 8-16; Ex. 69 at 58, 133-34, 171-72.)

93. AT&T regularly informed its licensees that they were obligated to keep confidential all parts of their modifications and derivative works based on the licensed UNIX software product. AT&T did not tell its licensees otherwise. (Ex. 43 ¶¶ 2-15; Ex. 337 ¶¶ 2-15; Ex. 12 ¶¶ 8-16; Ex. 71 at 223; Ex. 69 at 32, 158-59, 189-90; Ex. 333 ¶¶ 17-20; Ex. 355 ¶¶ 17-20; Ex. 337 ¶¶ 11-13; see also IBM Ex. 80 at 97, 108; Ex. 137 at 1.)

94. An Amendment No. X, executed in 1996, further defined IBM's right to use the licensed UNIX software product; the parties to Amendment No. X did not intend to increase any of IBM's rights under its UNIX Agreement and Side Letter, and did not intend to permit IBM to

58

disclose any part of any modification or derivative work based on the licensed UNIX software product. (Ex. 38 ¶¶ 2-4, 17-20; Ex. 50 ¶¶ 36-41.)

95. The successors to AT&T's UNIX business and license agreements — USL, Novell, Santa Cruz, and SCO — utilized the same standard protections of confidentiality in the license agreements, the same policy of requiring any changes or amendments to the agreements to be in writing, and the same interpretation of the agreements to require the licensees to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX software product. (Ex. 41 ¶¶ 2-9; Ex. 12 ¶¶ 8-16; Ex. 43 ¶¶ 2-15; Ex. 38 ¶¶ 2-4, 21-25; Ex. 337 ¶¶ 2-15; Ex. 333 ¶ 21; Ex. 375 ¶¶ 4-32; Ex. 355 ¶ 19; Ex. 337 ¶ 15; see also ¶ 80, above.)

96. The executives and managers overseeing and implementing UNIX licensing at AT&T, USL, Novell, Santa Cruz and SCO were not aware of any instance in which a licensee had publicly disclosed any part of its derivative work based on the licensed UNIX software product. (Ex. 50 ¶¶ 27-28; Ex. 12 ¶ 15; Ex. 375 ¶ 32; Ex. 43 ¶ 14; Ex. 71 at 178, 242; Ex. 333 ¶ 20; Ex. 337 ¶ 14; Ex. 355 ¶ 20.)

Ira Kistenberg

97. IBM relies on a declaration from Ira Kistenberg, the account executive who negotiated Sequent's UNIX license on behalf of AT&T, for its position that only copying of literal UNIX source code is protected by the agreements. (See IBM Mem. 33, 46, 57-62, 67-68; see also IBM Ex. 217 ¶ 22.)

98. In his more recent declaration, however, Mr. Kistenberg clarified that the UNIX license agreements protect much more than literal source code. (Ex. 10 ¶ 5.) ("AT&T intended that protected modifications and derivatives would include any product that contained any source

59

code that had been copied verbatim from UNIX System V, any copied source code that was similar in substance to the original source code in UNIX System V; any structures, sequences, patterns, ideas, methods or concepts from UNIX System V; and any source code that the licensee developed with the benefit of exposure to the UNIX System V source code."). Mr. Kistenberg has also now acknowledged that the license agreements protected against copying "any structures, sequences, patterns, ideas, methods or concepts from UNIX System V" aside from the express protection for UNIX source code. (Ex. 10 ¶ 5.)

99. Mr. Kistenberg has further explained that the UNIX structures, sequences, patterns, methods, and concepts were subject to 7.06(a), which prohibits the disclosure of those methods and concepts (even in modified form) "to anyone, except to the employees of the licensee to whom such disclosure was necessary to the use for which AT&T granted rights under the license agreements." (Id. ¶ 6.)

100. IBM also relies on Mr. Kistenberg's first impression in arguing that the language of the IBM Side Letter meant that AT&T removed use and disclosure restrictions on licensees' modifications and derivatives of UNIX System Five. (See IBM Mem. ¶ 63; see also IBM Ex. 217 ¶ 18.)

101. Mr. Kistenberg's more recent declaration recalled AT&T's decision to change the language of its agreements (months after the IBM and Sequent agreements had been executed) and clarified that the change related only to ownership, and did not affect the existing use and disclosure restrictions. (Ex. 10 ¶ 8.)

60

102. Mr. Kistenberg also rejected the notion that licensees who were not party to side letters or subsequent agreements would receive the benefit of such language, despite IBM's attempted reliance on his prior declaration to support such a claim. (Ex. 10 ¶ 9.)

103. With respect to IBM's assertion that Mr. Kistenberg allegedly made certain representations to Sequent regarding the scope of the license agreement. Mr. Kistenberg also insisted that "the policy of the UNIX licensing group was that any changes to a licensee's software agreement had to be in writing. I never verbally agreed with any licensee to modify its license in any way without memorializing the modification in writing." (Ex. 10 ¶ 10.)

104. In his subsequent deposition, moreover, Mr. Kistenberg confirmed each of the foregoing points from his second declaration. (Ex. 75 at 17-23, 25-42, 47-48, 69, 115-118.) He also explained that he did not understand the interpretation IBM would give to the declaration they asked him to sign. (Ex. 75 at 145-46.)

Otis Wilson

105. IBM relies on Otis Wilson's testimony to support its position that only copying of literal UNIX source code was protected. (See IBM Mem. ¶¶ 24-26, 43, 46, 50, 54, 57-63, 67-68, 70-71, 85, 280; see also IBM Ex. 282 ¶¶ 12, 14.) Mr. Wilson confirms that his supervisor in 1985 was William Guffey. (IBM Ex. 301 at 194-96; IBM Ex. 346 at 199-200.) Mr. Guffey disagrees across the board with Mr. Wilson's assertions regarding the supposed scope of the agreements. (Ex. 138 ¶¶ 3-10.)

106. Mr. Wilson gave sworn testimony directly contrary to these statements, moreover, when he was deposed in UNIX System Laboratories. Inc. v. Berkeley Software Design. Inc., Civil Action No. 92-1667 (DRD) (D.N.J.) ("BSD"), nearly twelve years closer to the events in

61

question. Mr. Wilson testified that AT&T's UNIX software agreements protected far more than just "UNIX System V code," and that he had expressly communicated that view to AT&T's licensees. (IBM Ex. 513 at 128.)

107. The BSD case involved a software agreement with substantially similar intellectual-property protections as those found in the IBM and Sequent software agreements. (Compare The Regents of the University of California Agreement (11/12/85) §§ 2.01, 7.06 (Ex. 13) with IBM Agreement (2/1/85) §§ 2.01, 7.06 (IBM Ex. 492) and Sequent Agreement (4/18/85) §§ 2.01, 7.06 (IBM Ex. 119); see also Ex. 10 ¶ 4 (explaining that UNIX commercial, educational, and governmental licenses all provided the same core intellectual-property protections); Ex. 5 at 68, 240 (same); Ex. 8 ¶ 5 (same); Ex. 14 ¶ 10 (same); Ex. 4 ¶ 7 (same)).

108. Mr. Wilson further testified in BSD: "My understanding is that anything created by the university with exposure to the licensed software, based on, contained, a part of, was a derivative work with regard to these documents and had to be treated as licensed software." (IBM Ex. 513 at 51.)

109. According to Mr. Wilson's BSD testimony, AT&T's license agreement covered a licensee's product that did not contain any UNIX source code if the licensee developed that product with exposure to the licensed UNIX product. (Id. at 127-28.)

110. In a deposition in this case, Mr. Wilson admitted that under Section 2.01 of the UNIX license agreement, modifications and derivative works were included in the definition of the protected software product, and thus had to be treated in the same way as the licensed software. (IBM Ex. 301 at 220; see also id. at 340-43.)

62

111. IBM cites Mr. Wilson's testimony in denying that the UNIX software agreements were intended to protect the methods and concepts embodied in UNIX System V. (IBM Ex. 281 ¶ 14.) Such testimony is inconsistent with Mr. Wilson's contemporaneous statements and actions. Just before and well after the IBM Side Letter was signed in February 1985, for example, Mr. Wilson (on behalf of AT&T) repeatedly and expressly sought to protect UNIX "methods and concepts" pursuant to AT&T's software agreements. (Ex. 26 at 2; Ex. 27; Ex. 28; Ex. 29.)

112. IBM cites Mr. Wilson in support of its claim that the IBM Side Letter, which addresses a licensee's ownership of modifications and derivative works, shows that AT&T's UNIX licensees were unrestricted in their right to use and distribute such works. (See IBM Mem. ¶¶ 100, 107, 110, 113; see also Ex.282 ¶¶ 19-20.)

113. Contrary to his current declaration, at the time AT&T entered into its software license and side letter agreements with IBM, Mr. Wilson explained that the licensee's ownership rights did not eliminate the contracted use and disclosure restrictions. (Ex. 26 at 2 (differentiating between the "property rights" of a licensee and the continued restrictions on such property pursuant to the software agreement); Ex. 36 at 3 (same).)

114. IBM cites the declaration of Mr. Wilson in arguing that whether or not AT&T entered into a side letter or other agreements with its licensees to clarify the treatment of modifications and derivative works, or altered the language of Section 2.01, AT&T's and USL's intent was always the same. (See IBM Mem. ¶ 63 (citing Wilson Decl. (4/26/04)) (IBM Ex. 282 ¶ 27).)

63

115. In deposition testimony, however, Mr. Wilson admitted that side letters such as the one IBM entered into with AT&T could not govern the terms of the AT&T-Sequent UNIX license. (IBM Ex. 301 at 232-35.)

116. In his August 2006 deposition, Mr. Wilson admitted that he did not have the sole authority at AT&T to make decisions about intellectual property protections, but rather shared authority with his supervisors. (IBM Ex. 346 at 199-200.)

117. Mr. Wilson admitted that he testified truthfully in the BSD litigation. (Id. at 49- 55, 57-60, 72, 97-103, 105-06, 278-80.) He confirmed that, with respect to the restrictions of confidentiality, there was no difference in AT&T's intent between AT&T's standard commercial license agreement, such as Sequent's, and the educational license agreements about which he testified in the BSD case. (Id. at 42-48.)

118. Asked about the language in the 1983 BSD agreement expressly defining "software product" to include "computer programs prepared by licensee as a modification of or a derivative of the works based on any of the materials solicited or furnished" to the licensee, Mr. Wilson confirmed that AT&T's intent in the 1983 BSD agreement was the same as AT&T's intent in its later license agreements. (Id. at 149-53.)

119. Mr. Wilson agreed that the licensed UNIX software product included the methods and concepts embodied therein, as well as ideas, know-how and techniques. (Id. at 74-75, 80-82, 179-80.)

120. Mr. Wilson testified that the IBM Side Letter abandoned protections for methods and concepts, and that the abandonment affected all of AT&T's UNIX licensees. (Id. at 85-86.) Yet he had no explanation for the Digital Side Letter, dated weeks after the IBM Side Letter,

64

which expressly confirmed Digital's obligation to keep the methods and concepts confidential. (Id. at 90-95.) He also had no explanation for why AT&T's license agreements in 1987 continued to require licensees to hold methods and concepts in confidence for AT&T. (Id. at 145-46.)

121. With respect to the distinction drawn in Paragraph 3 of the Digital Side Letter between rights of ownership and obligations of confidentiality, Mr. Wilson was unable sensibly to reconcile his asserted views of the scope of the license agreements with the language in the Digital Side Letter. (Id. at 12-30.)

122. Mr. Wilson disagreed with AT&T attorney Burt Levine's description of the licensee's obligations of confidentiality with respect to derivative works. (id. at 161-64.) Mr. Wilson disagreed with AT&T attorney Marty Pfeffer's testimony to the extent that Mr. Pfeffer was saying that the licensees were obligated to hold in confidence all parts of their derivative works. (Id. at 193-97.)

123. Mr. Wilson agreed with AT&T attorney Geoff Green's testimony that a derivative work included a product that "somehow includes" the UNIX product or part of the UNIX product. (Id. at 116-18.) He also acknowledged that if a licensee had been exposed to and had used the UNIX software product to help create a product, but that product contained no UNIX software product, that product would nevertheless constitute a derivative work. (Id. at 135-37.)

124. Mr. Wilson admitted that his understanding of the confidentiality protections for derivative works, that the licensee was obligated to hold in confidence only the UNIX source code in the derivative work, was not reflected in the language of the Sequent Agreement. (Id. at

65

154-55.) In addition, he agreed that the Integration Clause in the Sequent Agreement accurately reflected AT&T's intent. (Id. at 291-92.)

David Frasure

125. IBM cites from David Frasure to support its claim that the UNIX software agreements protected AT&T from only the literal copying of UNIX source code. (See IBM Mem. ¶¶ 20-24, 43, 46, 58-63, 67-68, 70-71, 105; see also IBM Ex. 190 ¶¶ 12, 14.)

126. Like Mr. Wilson, Mr. Frasure took a directly contradictory position in his 1992 BSD testimony. Mr. Frasure acknowledged then that modifications and derivative works were to be treated as licensed software under the software agreement. (Ex. 19 at 146.)

127. Mr. Frasure described an occasion on which he and Mr. Wilson threatened litigation to stop a licensee from distributing a derivative product, without regard for whether that derivative product contained any literal UNIX source code. In so doing, Mr. Frasure explained how the fact that the derivative product was based on UNIX sufficed to ensure that it was subject to the protections of the software agreements. (Id. at 23; see also id. at 121.)

128. Mr. Frasure repeatedly testified to AT&T's intent to protect the entire universe of products that could be created as a result of UNIX exposure, regardless of whether the resulting product actually contained any UNIX code. (Id. at 20; see also id. at 42, 166-68.)

129. Mr. Frasure also testified about a meeting that he had attended with Mr. Wilson, Geoff Green (the sole attorney who has signed a declaration submitted with IBM's motion), and representatives of one of AT&T's licensees in late 1984. (Id. at 96-97.) Mr. Frasure recalled the concept of "mental contamination" that he and Mr. Wilson had used to describe the expansive scope of the protections provided under the software agreements. (Id. at 18-19.) Mr. Frasure

66

also specifically reiterated that AT&T's "exposure" concept was intended to cover products even if they did not contain the UNIX source code. (See id.)

130. In his deposition in this case, Mr. Frasure acknowledged that the language of the software agreements does not support IBM's position. After recognizing that modifications and derivatives of the original product are clearly protected by the agreements, Mr. Frasure qualified that protection by adding the caveat that such modifications and derivatives had to contain literal UNIX source code to be protected — but even then admitted that this position is not supported by the plain language of the software agreements. (IBM Ex. 302 at 256-57.)

131. Mr. Frasure also acknowledged that the creation of a "derivative work" does not have to involve literal copying: "Derivative work means that it was based on Unix. It was, in other words it was derived from, from Unix. It also could be that it worked with Unix, but it may not have specific Unix code in it. But the software itself that would be written by a licensee could not have been written, if you will, without Unix existing." (Id. at 178 (emphasis added).)

132. Indeed, in a declaration that he gave to IBM in October 2003 — almost six months before to the March 2004 declaration on which IBM now relies — Mr. Frasure made similar statements that undermine his current position. In his original declaration, Mr. Frasure recognized that an entire modification or derivative work, and not literal lines of UNIX source code within that work, had to be protected under the software agreements. He explained that "licensees owned their modifications and derivative works and were permitted to use or disclose them as they might choose, so long as any modification or derivative work containing any part of a software product was treated the same as a software product under the license agreements." (IBM Ex. 189 ¶ 12.)

67

133. IBM similarly cites Mr. Frasure in attempting to deny protection for UNIX methods and concepts. (IBM Ex. 190 ¶ 15.) Mr. Frasure flatly contradicted these statements in his 1992 BSD testimony, when he testified that "the licensed software to me encompasses methods and concepts techniques," so that "to the extent at some point [a licensee] gets involved with the source code, the I — and its methods and concepts, then I think there — there's a restriction on its — on its use." (Ex. 19 at 45-46.)

134. Mr. Frasure stressed that there is "more to the agreement" than the protection of UNIX source code itself, and pointed to "other portions of paragraphs that cover methods and concepts and — and stuff." (Id. at 37.) Mr. Frasure characterized these protections as a "key part of the agreement." (Id. at 147.)

135. When asked about the types of products covered by AT&T's software agreement, Mr. Frasure explained that products containing UNIX methods and concepts were covered. (Id. at 148.) Mr. Frasure also acknowledged the application of the methods and concepts protection to work created by a licensee's programmers. (Id. at 147-48.) Mr. Frasure also expressed doubts about a licensee's ability to develop genuinely independent, but related products after exposure to UNIX. (Id. at 169-70.)

136. In response to questioning about what products could he disclosed under the agreement, Mr. Frasure was hesitant to concede that any product remained unprotected, noting that "if you develop your own system modifications and you use — and it works with the software that was licensed, there is a — there is a very good chance you are revealing methods and concepts just strictly through the interface technique that — that's used." (Id. at 41-42.) Mr.

68

Frasure maintained this position even when asked about products that did not overtly disclose methods or concepts. (Id.)

137. IBM similarly cites Mr. Frasure in claiming that the IBM Side Letter demonstrates AT&T's intent to relinquish any control over the use and disclosure of derivative works. (See IBM Mem. ¶¶ 24, 43, 46, 58-63, 67-68, 70-71, 105; see also IBM Ex. 190 ¶ 18.) In his deposition in the BSD case, however, Mr. Frasure made clear that the contractual statement of ownership did not in any way alter the contractual restrictions on use and disclosure. (Ex. 19 at 151-152.) Mr. Frasure articulated that distinction numerous times in his BSD testimony. (Id. at 166-67; see also id. at 157-59.) Mr. Frasure also used that distinction to explain the textual change, made later in 1985, to revise AT&T's software agreement in order to reflect substantially similar ownership language from the IBM Side Letter. (Id. at 103; see also id. at 111.) In his testimony in this case, Mr. Frasure acknowledged the distinction between AT&T's ownership rights and AT&T's use and control restrictions. (IBM Ex. 302 at 49.)

Geoff Green

138. IBM had previously cited the testimony of Geoff Green, who served as an AT&T attorney in its UNIX licensing department, to support its claim that the UNIX software agreements protect against only the literal copying of UNIX source code. (See IBM 8/13/04 Mem. (Ex.311) ¶¶ 80, 93; see also IBM Ex. 200 ¶ 6).) During his deposition, however, Mr. Green admitted that modifications of and derivative works based on the UNIX product were protected under the agreements by the same restrictions that governed the original licensed product, regardless of whether or not a licensee's modification or derivative product contained any UNIX source code. Examining the Sequent Agreement, Mr. Green testified:

69

Q: And so any restrictions under the software agreement that applied to the original licensed software product, it was AT&T's intent that the resulting materials would be treated in the same way?

A: Yes.

Q: So that applies, then, to any derivatives or modifications that are based on the original software product?

A: Under this provision, yes.

Q: Is there any requirement in the license agreement that such modifications or derivatives have to include literally copied source code from the original product?

A: In this form of the agreement, no.
(Ex. 5 at 114-15.)

139. When asked if there was anywhere in the standard UNIX System V license agreement where "the protection for derivatives or modifications" is "limited to those derivatives or modifications that include literally copied source code," Mr. Green responded: "NO there isn't. Yes, that is correct." (Id. at 117-18.)

140. Mr. Green, whose job it was to "change the language to reflect the intent" of AT&T, id. at 109, stated that "the language of the agreement should speak for itself as to — as to what we did to protect the software." (Id. at 161.)

141. Mr. Green noted that "something that was based on the licensed product" or "a variation of the product" would fall within the definition of a derivative work. (Id. at 113.) Mr. Green further made clear that literal copying is not required in order for a licensee to create a modification or derivative work subject to the protections of the UNIX software agreements under Section 2.01. (Id. at 145.)

70

142. Mr. Green agreed that one of the concerns that prompted the protection of UNIX modifications and derivatives was AT&T's concern that "it would be easy for a licensee to copy the intellectual property in UNIX without literally copying the source code." (Id. at 149-50.)

143. Mr. Green recalled the concept of "mental contamination" articulated by Messrs. Wilson and Frasure, and explained that the UNIX licensing group, and particularly Messrs. Wilson and Frasure, were interested in protecting products created with the benefit of programmers' exposure to UNIX, even if such products did not contain any literal UNIX source code. (Id. at 82-84, 150-52.)

144. Mr. Green stated that, as per the terms of the license agreements in 1985, modifications and derivatives that contained the "concepts, the ideas, the structure, the organization, the methods from the original licensed product," but did not contain the "source code in the original licensed product" would have been "covered by the agreement" and its various restrictions. (Id. at 130-31.)

145. Mr. Green further agreed that AT&T would "certainly" be interested "in products that were developed with the benefit of UNIX even if the licensee were to go off and develop that product on its own based on that exposure," claiming that AT&T "would be concerned about whether any of AT&T's intellectual property was involved in the result." (Id. at 90-91.)

146. Mr. Green was at a total loss to explain how IBM's view of the contract would not convert the final clause of Section 2.01 ("provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT") into mere surplusage. (Id. at 113-15, 124-25, 247-48.)

71

147. IBM also cites Mr. Green to deny that the UNIX software agreements afforded any protection to methods and concepts. (IBM Ex. 200 ¶ 6.)

148. In his deposition, however, Mr. Green admitted that methods and concepts were specifically protected by both the use and disclosure provisions of the software agreements. He stated that, as per the terms of the agreements in 1985 (when both the IBM and Sequent Agreements were executed), modifications and derivatives that contained the "concepts, the ideas, the structure, the organization, the methods from the original licensed product," but did not contain the "source code in the original licensed product" would have been "covered by the agreement" and its restrictions. (Ex. 5 at 130-31; see also id. at 141-43.)

149. Further, Mr. Green testified that UNIX methods and concepts were included under the definition of the "SOFTWARE PRODUCT" in Section 1.04 of the software agreements. (Id. at 106.) Addressing the specific time frame of April 1985, when the Sequent Agreement was signed (months after the IBM Agreement was signed), Mr. Green acknowledged that the very definition of the "SOFTWARE PRODUCT" term used in Sections 2.01 and 7.06 of the agreements included much more than literal UNIX source code. (Id. at 106, 147.)

150. Mr. Green testified that the agreements' protection of modifications and derivatives extended to products created by employing UNIX methods and concepts, even if they did not contain any literal UNIX source code. (Id. at 142-43.)

151. Mr. Green further testified that the IBM Side Letter's version of Section 7.06 replaced the explicit "methods and concepts" language with another clause that was designed to protect against copying UNIX methods and concepts. (Id. at 223; see also id. at 224 (noting again that the revised Section 7.06 was "another way of getting at the methods and concepts").)

72

152. This continued protection of methods and concepts in the IBM Side Letter is "consistent" with the fact that AT&T specifically included language expressly protecting UNIX methods and concepts in its standard agreements for many years after the IBM and Sequent software agreements were signed. (Id.; see also IBM Ex. 119 § 7.06; IBM Ex. 127 § 7.05; Ex. 31 § 7.05; Ex. 32 § 7.04; Ex. 33 § 7.05; Ex. 34 § 7.05; Ex. 35 § 7.05.)

153. In his recent deposition, Mr. Green also recalled that AT&T distinguished between ownership rights, on the one hand, and the contractual use and disclosure restrictions, on the other, and that he was "sure" he had conversations about that distinction with both Mr. Wilson and Mr. Frasure. (Ex. 5 at 300.)

154. Mr. Green acknowledged that the merger clause contained in the Sequent and IBM agreements was intended "to make clear that the agreement and its supplements constituted the entire agreement. That's what the language says." (Id. at 93.)

155. Applying the merger clause to the terms of the Sequent software agreement, Mr. Green explained that Sequent's rights and obligations would be governed only by the agreements that Sequent executed with AT&T. (Id. at 95.)

156. Mr. Green further testified that, while licensees sometimes received a "most favored nation clause," such provisions were typically specific to the context of pricing, and he was not aware of any such clause relating to the agreements' intellectual-property protections. (Id. at 96.) In any event, Mr. Green acknowledged that no such clause appeared in the Sequent software agreement. (Id. at 96-97.)

73

David Rodgers

157. IBM cites David Rodgers, Sequent's former Vice President of Engineering who executed Sequent's Agreement, to support its claim that the license agreements restricted only the literal copying of UNIX source code. (See IBM Mem. ¶¶ 36-39, 42-44, 57-59, 61-62, 125-126, 148; see also IBM Ex. 252 ¶ 8.) In deposition in this case, however, Mr. Rodgers admitted that the software agreements protected even modifications comprised of "completely new source code." (IBM Ex. 295 at 31-32.)

158. Mr. Rodgers acknowledged that products created entirely by Sequent would be covered by the software agreements if they were based on the UNIX product. Mr. Rodgers testified that only "work which had already been created by Sequent" before licensing UNIX and "work that in the future was created by Sequent, not based upon that source code, remained the property of Sequent." (Id. at 27 (emphasis added).)

159. Further, Mr. Rodgers could not explain how IBM's view of the contract would not render the final clause of Section 2.01 ("provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT") a nullity. (Id. at 101.)

160. IBM further cites Mr. Rodgers to deny that the UNIX software agreements afforded any protection to methods and concepts. (IBM Ex. 252 ¶ 12.)

161. In his deposition in this case, however, Mr. Rodgers acknowledged that the software agreements protected UNIX methods and concepts. (IBM Ex. 295 at 159.) Responding to a hypothetical concerning a product created by a licensee that contains "structures and sequences and organization as it appears in System V," Mr. Rodgers conceded that "if the reason

74

the similarity was there was because it was just copied, then yeah, I would agree that that would be subject to the constraints." (Id.; see also id. at 137.)

162. Mr. Rodgers contradicted IBM's other declarants in his recent deposition, discussing what he characterized as the "open-ended" requirement in Section 2.01, which did not address ownership, but rather use and disclosure restrictions. (IBM Ex. 295 at 128.) Mr. Rodgers also acknowledged that this understanding applied to a licensee's own source code. (See id. at 135.)

163. Mr. Rodgers testified about the written, countersigned process through which a licensee or AT&T would change the terms of the written software agreements, directly contradicting IBM's position that the terms of the individual agreements could change even without the parties executing a new agreement or modification. (IBM Ex. 295 at 169-70.) Mr. Rodgers acknowledged that Sequent signed the "standard form agreement" and that, aside from price, Sequent did not negotiate or change any terms from that standard agreement. (See id. at 82-84.) With regard to the language in the IBM Side Letter that removed the explicit reference to methods and concepts in Section 7.06, Mr. Rodgers acknowledged that no such revision was proposed or made in Sequent's case. (See id. at 146.)

C. IBM's and Sequent's Acknowledgment of the Restrictive Scope of the Agreements.

164. IBM claims it never believed it was precluded from doing "as it wished" with what it calls its "homegrown code" in AIX, as opposed to the System V material in AIX, but numerous IBM internal documents draw no such distinction between the two. In January 2000, for example, IBM

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

75

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

The document gives no indication that IBM believed it could disclose at the so-called "homegrown" parts of AIX however it saw fit.

165. Other internal documents further confirm that IBM regarded AIX as UNIX- derivative source code to be kept confidential.

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

76

166. Other contemporaneous evidence from IBM's own files demonstrates that it did not distinguish between what it now calls "homegrown" material in AIX and the UNIX System V material in AIX for purposes of its obligations of confidentiality. According to its own

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

167. Similarly, internal Sequent document confirm that Sequent also drew no such distinctions. After IBM announced its acquisition of Sequent in 1999, Sequent initiated discussions with Santa Cruz in November 1999 regarding IBM's access to Sequent's Dynix/ptx.

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

Sequent never even raised the possibility with SCO that Sequent was somehow entitled to show to show or give to IBM what IBM now calls Sequent's "homegrown" technology from Dynix/ptx.

77

168. Instead, Santa Cruz Contracts Manager Bill Broderick told Sequent: (1) as a wholly owned subsidiary of IBM, Sequent did not have the right to disclose its Dynix/ptx technology to IBM; (2) if Sequent were going to remain a wholly owned subsidiary (rather than become a division) of IBM, Sequent needed to send SCO a written request to disclose its Dynix/ptx technology to IBM, and (3) if Sequent were to become a division of IBM, IBM would be obligated to assume the terms of Sequent's UNIX license as is, because SCO would not renegotiate that license. (Ex. 135.) There were no discussions between the parties regarding different terms or conditions for any "homegrown" part of Dynix/ptx. (Ex. 333 ¶¶ 17-20.)

V. SANTA CRUZ'S ACQUISITION OF THE UNIX BUSINESS.

A. The Parties' Intent in the Asset Purchase Agreement.

169. 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, §§ l.l(a), 1.3(a)(i), Schedule 1.1(a) (IBM Ex. 123).)

170. The extrinsic evidence confirms that Santa Cruz had bought the business "lock stock and barrel." (Ex. 136.) The evidence confirms that SCO obtained Novell's UNIX copyrights through the APA. (Ex. 39 ¶¶ 6-12; Ex. 9 ¶¶ 6-12; Ex. 351 ¶ 9; Ex. 40 ¶¶ 5-10, 12-16; Ex. 38 ¶¶ 2-4, 5-16; Ex. 59 Ex. 6 ¶ 4; Ex. 333 ¶ 7; Ex. 355 ¶ 7; Ex. 76 at 36-40; 187; 189; Ex. 42 ¶ 4; IBM Ex. 585 at 18-19, 22-25, 32-33, 34-36, 38, 88-90, 97, 264-65, 288, 290.)

171. The contemporaneous documents confirm Novell's view that Santa Cruz had acquired the full scope of the UNIX business and licenses. On October 18, 1995, Mr. Bouffard stated in an internal Novell document:

78

We are obligated to give SCO all information, contracts, assets etc. pertaining to the UnixWare business and the old UNIX source code business. The have bought it lock, stock and barrel. Once the transaction is closed (Nov.-Dec.) we will have no more involvement with this business. Therefore [sic], if a contract is for UnixWare and lets [sic] say NetWare, the UnixWare part if theirs.
(Ex. 136 (emphasis added).) The document thus plainly confirms Novell's view that Santa Cruz had acquired the full scope of the UNIX business, logically including the UNIX copyrights.

172. 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." (IBM Ex. 44 ¶ A; see also Ex. 76 at 50; Ex. 42 ¶ 6; IBM Ex. 585 at 13, 20, 55-58, 85, 165, 184.)

173. IBM's own internal documents confirm that IBM considered Santa Cruz to be the owner of the UNIX copyrights. In August 1997, for example,

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY


(Ex. 59 (emphasis added).) IBM thus regarded SCO as the copyright owner, and indisputably did not regard Novell as the copyright owner, of the code.

174. 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

79

royalty stream"). (IBM Ex. 123 §§ 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. 38 ¶¶ 2-4, 5-16; IBM Ex. 444; Ex. 76 at 35, 37-38; 100-110; 194-196; 207-08, 209; Ex. 42 ¶ 6; IBM Ex. 585 at 33-34, 40-41, 98, 264-65.)

175. The SVRX binary royalties were part of the consideration paid to Novell for the transfer of the UNIX assets to SCO. (IBM Ex. 123 § 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, l0; Ex. 42 ¶ 6; IBM Ex. 585 at 31-32, 94.)

176. Section 4.16 of the APA governs Novell's rights to the SVRX binary royalty stream. Section 4.16(a) sets out the procedures for SCO's collection and payment to Novell of the royalties, and gave Novell the right to audit those collection efforts. (IBM Ex. 123 § 4.16(a); see also Ex. 301 ¶¶ 7, 9; Ex. 76 at 35, 37-38, 100-10, 194-96, 207-08, 209.) SCO receives a fee for performing this administrative function. (See IBM Ex. 123 § 4.16 (A) ("In consideration of such activities described in the preceding sentence, Seller shall pay to Buyer within 5 days of receipt of SVRX Royalties from Buyer as set forth in the preceding sentences, an administrative fee equal to 5% of such SVRX Royalties."))

80

177. Section 4.16(b) protects Novell's interest in the binary royalty stream by providing in relevant part: "In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller." (Id. § 4.16(b).)

178. The text of Section 4.16 of the APA does not give Novell rights to veto or to waive decisions made by SCO under the software agreements at issue here. (Ex. 39 ¶ 13; Ex. 76 at 41-42, 53; Ex. 42 ¶ 5; IBM Ex. 585 at 19-20, 36-37.) Section 4.16 refers only to SVRX Licenses, not more broadly to software agreements. "SVRX Licenses" is not defined by the APA, but are referenced in Section 4.16 as being listed in "detail" under Item VI of APA Schedule l.l(a). By contrast, UNIX "Software Agreements" are expressly covered by Item III.L to Schedule 1.l(a) — an Item not referenced anywhere in Section 4.16.

179. Section 4.16(c) of the APA protects the assets transferred to SCO from interference by Novell, by prohibiting Novell from promoting the sale of SVRX products: "Seller further covenants that immediately following the Closing Date neither it, nor any of its officers, directors or employees shall . . . take any material action designed to promote the sale of SVRX products." (IBM Ex. 123 § 4.16(c).)

B. The Parties' Intent in Amendments Nos. 1 and 2 to the APA.

180. Amendment No. 1 to the APA, effective as of the closing of the APA in December 1995, permits SCO to retain all of the SVRX royalties with respect to certain categories of SVRX licenses, including SCO's own SVRX license. (IBM Ex. 502 ¶ E.)

181. Amendment No. 2 to the APA, which was executed on October 16, 1996, states: "This Amendment does not give Novell the right to increase any SVRX licensee's rights to

81

SVRX source code," and that "Novel1 may not prevent SCO from exercising its rights with respect to the SVRX source code in accordance with the Agreement." (IBM Ex. 444 ¶ B.5.)

182. The Amendment further specified that SCO had obtained the copyrights for UNIX. (IBM Ex. 444 ¶ A.) The intent of the parties in Amendment No. 2 was to make clear that Novell did not have right to interfere on in any way waive SCO's rights under the UNIX licensees that SCO had acquired from Novell. (Ex. 39 ¶ 13; Ex. 40 ¶ 10; Ex. 38 ¶¶ 2-4, 14-16; Ex. 42 ¶ 6; Ex. 76 at 41-42, 53.)

C. Amendment No. X.

183. The parties to Amendment No. X did not intend to increase IBM's source code rights except in limited ways. (Ex. 38 ¶¶ 2-4, 17-20; Ex. 50 ¶¶ 36-41.)

184. Amendment No. X states in pertinent part that the "second to last sentence of paragraph 9 of the February 1, 1985 amendment to SOFT-00015 is modified by deleting the words: 'and employees of Licensee shall not refer to the physical documents and materials comprising Software Products subject to this Agreement when they are developing any such products or services or providing any such service.'" (IBM Ex. 124 ¶ 6.)

185. Amendment No. X further provides: "Except as modified herein, all other terms and conditions of the Related Agreements will remain in effect. This Amendment No. X does not give IBM any additional rights to distribute the Software Product in source code form other than as modified in Section 2 and 3 of this Amendment No. X." (IBM Ex. 124 § 8.)

186. Amendment No. X also addresses the extent to which IBM could distribute source code of the SOFTWARE PRODUCT to certain third parties. The IBM Sublicensing Agreement gave IBM the right to permit its sub-licensees to distribute the SUBLICENSED PRODUCT, and

82

the right to use contractors to use a SOFTWARE PRODUCT "to modify a SUBLICENSED PRODUCT derived from such SOFTWARE PRODUCT." (IBM Ex. 120 § 2.05(b).) The Side Letter expanded on those rights with respect to contractors (as noted above). (IBM Ex. 122 ¶ 3.)

187. In 1987, AT&T and IBM had agreed to a new section for the Sublicensing Agreement. Section 2.05(c) specified that where a LICENSEE had given access to the SOFTWARE PRODUCT source code to a third party to create derivative works and that third party subsequently distributed "sublicensed products based on all or any portion of such a derivative work," such a third party must do so "under the terms of its own Software Agreement and Sublicensing Agreement with AT&T." (Ex. 137 at 1.)

188. Specifically, the second sentence of Section 2.05(c) states: "IBM may not authorize or permit any third party to whom IBM has provided a SOFTWARE PRODUCT pursuant to Section 7.06(b) of the Software Agreement (source code licensee) or paragraph 3 of the February 1, 1985 amendment to the Software Agreement (contractor) to be a DISTRIBUTOR, pursuant to this Sublicensing Agreement, with respect to any SUBLICENSED PRODUCT, derived from such SOFTWARE PRODUCT, which was, in whole or in part, provided by such third party" or its subsidiaries or parents. (Ex. 137 § 2.05(c).)

189. Amendment No. X expands on IBM's right to distribute the SOFTWARE PRODUCT to such third parties, but only for specific purposes. The contractor must be working "in support of the contractor's distribution and support of Sublicensed Products," and only for the "Authorized Purpose" of "making modifications to the Software Products, and furnishing such modifications to IBM and/or distribution of such modifications of Sublicensed Products in

83

binary form by the contractor to customers directly or through other Distributors," provided that even additional conditions are satisfied. (IBM Ex. 124 § 2.1.)

190. Amendment No. X further provides that IBM "may license a Software Product in source code form to an eligible contractor or customer for such contractor's or customer's use in accordance with Section 2," and details the restrictions on that right to license. (IBM Ex. 124 § 3.) The "Software Product in source code form" is called a "Source Copy." (Id.)

191. With respect to IBM's circumscribed right to distribute source code to eligible contractors or customers, Amendment No. X provides scenarios to "clarify and illustrate the relief provided in Subsection 2.1." (IBM Ex. 124 § 3.7.) Company A is a "general computer system manufacturing firm" and a sublicensee of the Sublicensed Product: "IBM may not distribute Source Copies to Company A for purposes of making modifications to adapt the Sublicensed Products as a general operating system for Company A's general computer hardware system." (IBM Ex. 124 § 3.7.) Amendment No. X thus does not permit IBM to license the Software Product in source code form to a company to permit the company to modify and adapt the Sublicensed Product as a general operating system for that company.

IV. IBM'S CONTRIBUTIONS TO LINUX IN BREACH OF ITS AGREEMENTS.

192. AIX is a derivative work based on the licensed UNIX software product. (Ex. 276; Ex. 287; Ex. 288; Ex. 116 at 62; Ex. 139 ¶¶ 32-35; Ex. 11 ¶ 18; see also IBM Ex. 260 at 127-29; IBM Ex. 80 at 44-46; IBM Ex. 584 at 76,95-97, 120.) Dynix/ptx is also a derivative work based on the licensed UNIX software product. (Ex. 75 at 47-48; Ex. 116 at 62; see also IBM Ex. 260 at 127-29; IBM Ex. 80 at 44-46; IBM Ex. 584 at 76, 95-97, 120.)

84

193. IBM specifically decided to make and then made numerous critical contributions of important technology from AIX and Dynix/ptx to Linux development. (Ex. 277, 287; 287, 288; Ex. 300.) SCO identifies those contributions in detail in its December 2005 Final Disclosures, and SCO's experts detail the significance of the disclosures in their initial and rebuttal expert reports. (Exs. 144, 287, 288, 277, 278.) Documentary evidence produced by IBM describes and depicts IBM's movement of AIX and Dynix/ptx technology into Linux. (Ex. 300.)

194. SCO's Final Disclosures and Expert Reports reveal that IBM disclosed a wealth of technology — in the form of source code, methods, concepts, techniques, and know-how — from both AIX and Dynix/ptx into Linux development. (Exs. 144, 287, 288, 277, 278.)

195. With respect to AIX, for example, IBM contributed to Linux the source code for the AIX Journaling File System derived from UNIX System V. (Ex. 277 ¶¶ 95-114 & Exs. C-H.). With respect to Dynix/ptx, for example, IBM contributed to Linux the source code for the Read-Copy-Update ("RCU") functionality. IBM made scores of additional contributions of technology from Dynix/ptx in the form of source code, methods, concepts, techniques and know- how.2 (Exs. 287, 288.)

196. SCO's experts further explain how and why IBM's AIX and Dynix/ptx contributions have been integral to the development of Linux into a commercially ready operating system. (Exs. 277, 287, 287, 288.) With respect to JFS, for example, IBM contributed the advanced journaling capability that Linux had sorely lacked. (Exs. 277, 278.) With respect

85

to RCU, IBM's contribution enabled Linux to run in the types of multi-processing environments had been unable to run on prior to that time. (Exs. 287, 288.)

197. SCO's experts have shown in detail, moreover, how IBM's contributions to Linux from AIX and Dynix/ptx, by bringing Linux into the enterprise, have been a very substantial factor in harming SCO's UNIX business. (Ex. 281 at 10-24, 45-58, 62-69; Ex. 284 at 39-57; Ex. 283 at 2-73; Ex. 286.)

VII. SCO PROPERLY SOLD LICENSES FOR ITS INTELLECTUAL PROPERTY TO LINUX USERS.

A. SCO's Efforts to Protect Its Rights in UNIX.

198. Other than through express written agreements and for due consideration, SCO has never intended to waive and has always sought to protect and evidence its rights under the UNIX license agreements. (Ex. 49 ¶ 3; Ex. 333 ¶¶ 20-21; Ex. 355 ¶¶ 20-21.)

199. SCO did not know that IBM had contributed source code and other technology to Linux in violation of its (and Sequent's) SVRX software agreements until December 2002 or January 2003. (Ex. 49 ¶ 5; Ex. 333 ¶¶ 22; Ex. 355 ¶ 22.)

200. After filing suit against IBM for breaching the SVRX agreements, SCO further demonstrated its intent to enforce its rights under those agreements by delivering a termination notice to IBM pursuant to Section 6.3 of the SVRX license. (Ex. 49 ¶ 10.)

201. SCO attempted to meet and confer with IBM, but IBM failed to cure its breaches during the two-month period provided in SCO's termination letter to IBM. (Ex. 49 ¶ 11.) Accordingly, effective June 13,2003, SCO terminated IBM's SVRX license; and effective July

86

30,2003, SCO terminated the Sequent SVRX license. (Ex. 49 ¶ 11.) SCO thus further demonstrated its intent to enforce its rights under those licenses. (Ex. 49 ¶ 11.)

B. SCO's Distribution of Linux.

202. SCO and its predecessors copied, advertised, and distributed the Linux kernel and other related Linux software for years before 2003. (IBM Ex. 284 ¶ 9.)

203. SCO did not know that any of the features mentioned in SCO's advertisements (with the sole exception of the journaling file system support, or "JFS") had been contributed by IBM to Linux. (Ex. 49 ¶¶ 6-8.) As to that one exception, SCO marketed JFS as "developed by IBM," but did not know that JFS was derived from SCO-licensed code or that IBM had contributed it in breach of the software agreements. (Id. ¶ 8.)

204. Indeed, SCO did not know that any of the advertised features had been derived from SCO's proprietary software licensed to IBM or had been contributed to Linux by IBM in violation of IBM's agreements with SCO. (Ex. 49 ¶7-8; Ex. 6 ¶¶ 3, 6-14.)

205. Caldera, Inc., Caldera Systems, Inc. and Caldera International, Inc. (collectively, "Caldera"), as noted, also copied, advertised, and distributed the Linux kernel and other related Linux software for years before 2003. Until approximately June 2001, Caldera was neither the owner of the UNIX copyrights nor the owner of the UNIX license agreements at issue in this case. (Ex. 269 ¶ 9.)

206. Until 2002, Caldera International did not undertake to determine if IBM's contributions to Linux constituted a breach of its UNIX license agreement. (Ex. 269 ¶¶ 3, 11-14, 17-18; Ex. 6 ¶¶ 3, 6-14; see also Ex. 386 ¶ 7; Ex. 378.)

87

207. Neither Santa Cruz nor Caldera International ever intended to waive any of its rights under the UNIX license agreements at issue in this case, and never represented to anyone that it believed that IBM's Linux contributions complied with the terms of its UNIX license agreements. (Ex. 269 ¶¶ 3, 11-14, 17-18; Ex. 6 ¶¶ 3, 6-14; Ex. 333; Ex. 337.)

208. Neither Santa Cruz nor Caldera International ever intended that its silence on the question of the legality of IBM's contributions to Linux be construed as Caldera International's consent, implied or otherwise, to IBM's contributions to Linux from AIX or Dynix/ptx. (Ex. 269 ¶¶ 3, 11-14, 17-18; Ex. 6 ¶¶ 3, 6-14; 333 ¶ 21; Ex. 337 ¶ 15.)

VIII. IBM DESTROYS RELEVANT EVIDENCE AND ILLEGALLY HACKS INTO SCO'S WEBSITE IN PURSUIT OF EVIDENCE.

A. IBM Destroys Relevant Evidence Shortly After SCO Brings Suit.

209. SCO filed its Complaint on March 6,2003. (Ex. 103.) Among the allegations in the Complaint were the following:

  1. IBM is precluded by its agreements with SCO from disclosing its UNIX- derivative AIX source code to the Linux development community, because it contains SCO's UNIX source code. (Id. ¶¶ 91-94.)

  2. IBM had recently and publicly released parts of AIX for contributions into Linux, in breach of its agreements with SCO. (Id. ¶¶ 95.)

  3. IBM had recently and expressly promised to exploit its expertise in AIX to bring Linux up to par with UNIX and then to obliterate UNIX. (Id. ¶ 98.)

  4. A large number of the IBM employees devoted to Linux development have, or have had, access to the UNIX source code. (Id. ¶ 100.)

88

210. IBM's Linux Technology Center ("LTC") was launched in 2001 to dispose of all or part of UNIX, including its concepts, ideas, and know-how, into an open-source Linux environment. (Id. ¶ 102(a).)

211. In makings contributions or disclosures to Linux development, the LTC programmers have relied on expertise and technology from two UNIX-derived operating systems, AIX and Dynix/ptx, developed with the UNIX System V source code, methods, and concepts that IBM licensed from SCO's predecessor-in-interest AT&T.

  1. Among the pending causes of action that SCO brought based on such allegations were its claims that IBM had engaged in unfair competition, based in part on IBM's "Violation of confidentiality provisions running to the benefit of plaintiff'' (Id. ¶ 118(b)); and breach of contract, based on IBM's contributions to Linux development of source code, methods, and concepts that IBM had promised to keep confidential, but instead had subjected to "unrestricted disclosure," "unauthorized transfer and disposition," and "unauthorized use" (Id. ¶¶ 129-36).

  2. Notwithstanding the filing of the foregoing complaint and the foregoing allegations, discovery in this case has revealed that in early April 2003, IBM

    REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

  3. REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

    A sandbox may

    89

    exist on a developer's computer hard drive or as a link to a copy of source code wherein the developer makes changes. (Ex. 108 at 119-20; Ex. 104 at 54.)

  4. REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

  5. REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

  6. IBM destroyed this evidence after repeatedly and publicly boasting that the Unix- derived expertise and ideas it open-sourced were the critical difference in making Linux usable by enterprises. In an interview with Linux Magazine about the state of the Linux kernel in 2001, for example, IBM programmer Patricia Gaughen stated that Linux was "not where the proprietary Unixes are yet, but we are making much faster progress due to the experienced Dynix/IRIX/AIX/SN1 /Yalnix/<fill_in_the_blank> hackers." (Ex. 111.)

  7. In another example, Dan Frye, the Director of the LTC, confirmed in an interview with the Consulting Times that the LTC "wanted skills from across IBM, and we have people from AIX, and OS2 ... and PTX, and Research and so on." (Consulting Times, Inside IBM — Dan Frye and the Linux Technology Center (undated) (Ex. 112).) Frye also discussed the porting of IBM's proprietary

    90

    technology to Linux, stating "[IBM] just add[s] arms and legs and skills to make [projects within Linux] go faster." (Id.)

B. IBM Illegally Hacks into SCO's Website to Try to Find Evidence.

212. As described below at Section X.A., SCO reasonably discontinued its sale and marketing of its Linux-related products in May 2003.

213. On May 14, 2003, SCO suspended all sales and marketing of its entire Linux product line. (IBM Ex. 284 ¶ 3; IBM Ex. 324 at 179, 186; IBM Ex. 296 at 16, 37, 48, 51.)

214. After May 14, 2003, SCO entered into no further obligations to sell SCO Linux Server 4.0 or any other Linux product. (IBM Ex. 284 ¶ 3; IBM Ex. 296 at 53.) SCO made limited post-May 14 sales to customers in consideration of its obligations to its customers. (IBM Ex. 284 ¶¶ 3-5; IBM Ex. 324 at 188-89; IBM Ex. 296 at 72-73; Ex. 49 ¶¶ 12-14; IBM Ex. 300 at 221-23.) The last sale of Linux Server 4.0 was on May 31, 2004. (IBM Ex. 284 ¶ 4; IBM Ex. 311 at 60.)

215. SCO permitted access to Linux source code files via its website after May 2003, because of SCO's pre-existing contractual obligations with its customers and with the UnitedLinux consortium. (IBM Ex. 324 at 190-91, 194; Ex. 49 ¶¶ 17-19; Ex. 324 ¶ 4.)

216. In accordance with its UnitedLinux agreements, SCO provided customers who purchased SCO Linux Server 4.0 with a password to enter at a log-in screen on SCO's download site so that only they would have access. (IBM Ex. 324 at 195; IBM Ex. 311 at 37-38; Ex. 49 ¶¶ 17-19; Ex. 324 ¶ 4.)

217. The only way a non-customer could access the Linux Server 4.0 code on SCO's download site was to bypass the password-protected security system by hacking into the system.

91

(Ex. 49 ¶¶ 20-21.) In addition, the download site contained an explicit notice that access to the Linux Server 4.0 files was limited to SCO customers. (Id. ¶ 28.)

218. Between October 31 and December 1, 2003, IBM repeatedly accessed the SCO log-in site but did not obtain access to the SCO Linux Server 4.0 files. (Id. ¶ 25.) After news of a bug in the SCO site's security system was reported on internet websites, IBM exploited the bug to bypass the security system, hack into SCO's website, and download the posted files attached. (Id. ¶¶ 22-27.) IBM uses (¶ 168) those files as purported evidence in support of this motion.

219. SCO diligently sought to remove all Linux-related code from its website promptly after expiration of the last of its contractual commitments, on December 31, 2004. (IBM Ex. 284 ¶ 11; IBM Ex.324 at 191, 194; IBM Ex. 311 at 37-38, 121; Ex. 49 ¶ 17; Ex. 324 ¶¶ 2-11.)

IX. SCO REASONABLY UNDERTAKES TO END ITS LINUX BUSINESS.

A. SCO's Suspension of Its Distribution of Linux.

220. SCO marketed and licensed its Linux product Linux Server 4.0 for only a few months, from November 19, 2002, until May 14, 2003. (IBM Ex. 284 ¶ 2.)

221. After filing suit against IBM, SCO considered whether to continue selling and marketing Linux-related products, including SCO Linux Server 4.0. (Ex. 49 ¶ 12.) An important issue SCO considered was its obligations to existing SCO customers; SCO took the view that SCO's customers were entitled to order SCO's products and updates from SCO for a period of time after becoming customers. (Id. ¶ 13.)

222. SCO decided that the most sensible solution was to suspend its sale and marketing of its Linux-related products (which SCO did effective May 14, 2003), and to continue to allow SCO's pre-existing customers to order such products. (Id. ¶ 14.) Since May 14, 2003, SCO has

92

not entered into any further obligations to sell Linux Server 4.0 or OpenLinux 3.1.1. (IBM Ex. 284 ¶ 3.)

223. By suspending the sale of its Linux-related products, including the operating system, services, support, professional services, education, and layered applications, SCO lost approximately 5-10% of its revenues. (Ex. 49 ¶ 15.) From May 14, 2003, until May 31, 2004 (when SCO last sold a unit of Linux Server 4.0), SCO sold 83 units and had 79 units returned, for a gross revenue of $1,849. (Id.) After August 5, 2003, there were 401 sales of SCO OpenLinux 3.1.1, for total gross revenue of $50,796. During the same period, 22 copies of this product were returned, so net revenue was $50,025. (IBM Ex. 284 ¶ 5.)

224. In taking into account the foregoing considerations and reaching the foregoing decisions, SCO never intended to waive its right to enforce its SVRX license agreements against IBM and Sequent. (Ex. 49 ¶ 13.)

225. Santa Cruz distributed a Linux product in 2000 and 2001, and Caldera System, Inc. also distributed a Linux product in 2000 and 2001. In doing so, neither company intended to waive its rights to enforce its UNIX System V license as relevant against IBM, neither company represented to IBM that its contributions to Linux were permissible under those agreements, and neither company had considered at that time whether IBM's contributions to Linux constituted a breach of the agreements. (Ex. 17 ¶ 11; Ex. 6 ¶ 6; Ex. 18 ¶ 12; Ex. 356 ¶¶ 2-4; see also Ex. 386 ¶ 7, Ex. 378.)

B. SCO's Protection of Information on Its Website

226. SCO has not provided public access to Linux through its website. To the contrary, in order to preclude public access to SCO Linux Server 4.0 Server files, SCO provided

93

customers who purchased this product with a password to enter at a log-in screen on SCO's website, so that only those customers would have access. (Ex. 49 ¶ 19; Ex. 324 ¶ 4.)

227. After suspending its marketing and distribution of Linux Sewer 4.0 in May 2003, SCO permitted access to Linux source code files via its website after August 5, 2003, because of SCO's pre-existing contractual obligations with its customers and with the UnitedLinux consortium, from whom it had received the Linux source code used in distribution of Linux Server 4.0. (IBM Ex. 324 at 190-91, 194; Ex. 49 ¶¶ 17-19; Ex. 324 ¶ 4.) SCO complied with those obligations by making the source code available to its customers on its website. In accordance with UnitedLinux, SCO provided customers who purchased SCO Linux Server 4.0 with a password to enter at a log-in screen on SCO's download site so that only they would have access. (IBM Ex. 324 at 195; IBM Ex. 311 at 37-38; Ex. 49 ¶¶ 17-19; Ex. 324 ¶ 4.)

228. The only way a non-customer could access the Linux Server 4.0 code on SCO's download site was to bypass the password-protected security system by hacking into the system. (Id. ¶¶ 20-21.) In addition, the download site contained an explicit notice that access to the Linux Server 4.0 files was limited to SCO customers. (Id. ¶ 28.)

229. Between October 31 and December 1, 2003, IBM repeatedly accessed the SCO log-in site but did not obtain access to the SCO Linux Server 4.0 files. (Id. ¶ 25.) After news of a bug in the SCO site's security system was reported on internet websites, IBM exploited the bug to bypass the security system, hack into SCO's website, and download the very files IBM has now attached to its motion. (Id. ¶¶ 22-27.)

230. The files that IBM hacked remained on SCO's website after August 5, 2003, because of SCO's pre-existing contractual obligations with its customers and with the

94

UnitedLinux consortium. (Ex. 49 ¶¶ 17-19.) Under the GPL, each time SCO distributed a copy of IBM's purported works in executable form, SCO was to provide the customer "with the complete corresponding machine-readable source code" on a "medium customarily used for software interchange" or with an offer to provide the code at cost. (IBM Ex. 128 § 3.) SCO complied by making the source code available to its customers on its website.

231. As noted, SCO diligently sought to remove all Linux-related code from its website promptly after expiration of the last of its contractual commitments, on December 31, 2004. (IBM Ex. 284 ¶ 11; IBM Ex. 324 at 191, 194; IBM Ex. 311 at 37-38, 12l; Ex. 49 ¶ 17; Ex. 324 ¶ 2-11.)

232. Between October 31 and December 1, 2003, IBM repeatedly accessed the SCO log-in site but did not obtain access to the Linux Server 4.0 files. (Id. ¶ 25.) After news of a bug in the website's security system was reported on internet websites, IBM exploited the bug to bypass the security system, hacked into SCO's website, and downloaded the very files IBM has now attached to its motion. (Id. ¶¶ 22-27.)

233. SCO has made diligent efforts since late 2003 to eliminate the availability of Linux on any current or archived SCO website, and is not currently aware that any version of Linux is available on any such website. (Ex. 324 ¶¶ 2-11.) SCO has never open-sourced its UNIX technology. (Ex. 269 ¶ 10.)

95

X. SCO HAS PROCEEDED IN GOOD FAITH IN DISCOVERY AND HAS DISCLOSED IBM'S MISCONDUCT IN DETAIL.

A. SCO's Good-Faith Efforts in Discovery

234. SCO has diligently complied with its discovery obligations and, has conscientiously endeavored to respond to all of IBM's discovery requests. SCO has provided IBM with detailed answers, to the extent the information was available to SCO, to all of IBM's interrogatories and other requests, specifically including IBM's requests for detailed information about the source code in Linux on which SCO bases its claims in this case. (See below.)

235. Where SCO could not produce information because IBM had not provided needed discovery (including earlier versions of AIX and Dynix and information concerning IBM's contributions and contributions to Linux), SCO so indicated in its responses. With respect to IBM motions to compel the Magistrate Court found in its March 2004 Order that SCO had made "good faith efforts to comply with the Court's prior order." (See below.)

236. SCO has specifically explained that its ability to identify the source code information that IBM requested was significantly impeded by IBM's failure to produce necessary discovery. (Ex. 148; Ex. 149; Ex. 152; Ex. 153; Ex. 154; Ex. 158.) SCO has explained that its ability to provide the discovery IBM sought was hampered by IBM's failure to produce adequate discovery concerning AIX and Dynix source code as well as design documents, programmer notes, and other information that would assist SCO in identifying contributions that IBM made to Linux in violation of the UNIX license agreements. (Ex. 148; Ex. 149; Ex. 152; Ex. 153; Ex. 154; Ex. 158.)

96

237. As of July 2004, when IBM filed its first round of summary judgment motions SCO had produced 241 CDs containing hundreds of thousands of pages of documents. (Ex. 157.) SCO had also produced all of the source code for its products in its possession, which exceeds over 700 million lines of code. (Id.)

238. In addition, over the span of dozens and dozens of pages, SCO had detailed its claims, provided file and line numbers for source code IBM contributed to Linux in violation of its contractual obligations, and otherwise provided all information in its possession requested by IBM or ordered by the Magistrate Court. (Ex. 156.)

239. SCO repeatedly stated in response to early IBM discovery requests that, absent the production of relevant materials from IBM, SCO would be unable to respond in full or in detail to IBM's requests. On October 23, 2003, for example, SCO initially answered IBM Interrogatories 12 and 13, regarding IBM's contributions to Linux, by stating (among other things) that "SCO notes that it 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. 152.)

240. At the time SCO answered those interrogatories it had not received a single line of code from AIX or Dynix from IBM. SCO was thus limited in what it could discover and produce by IBM's failure to provide requested discovery, such as AIX and Dynix source code. (IBM Ex. 64 at 31-32.)

241. In ruling on IBM's November 2003 motion to compel, on December 12, 2003, the Magistrate Court ordered SCO to "respond fully and in detail to Interrogatory Nos. 12 and 13 as stated in IBM's Second Set of Interrogatories." (Ex. 150 at 2.) The Magistrate Court also

97

directed SCO to "identify and state with specificity the source code(s) that SCO is claiming form the basis of their action against IBM." (Id.)

242. In addition, however, based on SCO's demonstration that it did not have sufficient information in its possession to provide much of the detail IBM was requesting, the Magistrate Court's December 20V03 Order also provided that in cases where "SCO does not have sufficient information in its possession, custody, or control to specifically answer any of IBM's requests that are the subject of this order, SCO shall provide an affidavit setting forth the full nature of its efforts, by whom they were taken, what further efforts it intends to utilize and the expected date of compliance." (Ex. 150 at 2.)

243. In response to the December 2003 Order, SCO undertook exhaustive efforts during the thirty-day period provided by the Order. In January 13, 2004, SCO produced nearly seventy pages of detailed supplemental and revised answers to IBM's Interrogatories 12 and 13 and other discovery requests. (Ex. 152.) In these supplemental and revised answers, SCO devoted fourteen pages to identifying, by file and line of code, those materials from Dynix that IBM had copied into Linux. (Id. at 3-17.)

244. SCO was able to provide this detailed information because IBM had produced limited versions of Dynix source code on December 4, 2003, the day before the hearing on SCO's motion to compel the production of that code, among other items. (Ex. 156.)

245. SCO also identified other areas of Dynix as well as AIX that appeared to have been contributed to Linux in violation of the license agreements, but because IBM's production of Dynix source code was incomplete, SCO could not provide the detail of identifying files and lines of code, which SCO explained in its responses. (Ex. 152.)

98

246. SCO concluded its supplemental and revised response by identifying other technologies that SCO believed IBM had contributed to Linux in violation of its license agreements, including specifying the bases for its belief and its need for IBM's comprehensive source code in order to provide further details. (Ex. 152 at 26-30.)

247. In addition to providing the supplemental answers in compliance with the Magistrate Court's December 2003 Order, SCO supplied a declaration, pursuant to that Order, detailing its extensive compliance efforts. (Ex. 151.) SCO's declaration detailed the difficulties created by IBM's refusal to provide the necessary source code to SCO and specifically identified the need for complete disclosure of IBM's source code and complete disclosure of IBM's contributions to Linux. (Id. ¶¶ 19-20.) The foregoing discovery responses and the certifications therewith uniformly stated that SCO needed additional discovery (and, once such discovery was provided, additional time) to provide further information.

248. The Magistrate Court thereafter considered SCO's supplemental responses (as well as SCO's motion to compel discovery from IBM, addressed further below). In its March 2004 Order, the Magistrate Court recognized that the time limitation in its December 2003 Order had made it difficult for SCO to collect all requested documents and to provide further responses to IBM's interrogatories. (IBM Ex. 56 at 2.)

249. The Magistrate Court thus gave SCO an additional forty-five days to provide further discovery pursuant to the earlier Order and "to provide and identify all specific lines of code that IBM is alleged to have contributed to Linux from either AIX or Dynix," to "identify all specific lines of code from UNIX System V from which IBM's contributions from AIX or Dynix are alleged to be derived," to "provide and identify with specificity all lines of code in Linux that

99

it claims rights to," and to "provide and identify with specificity the lines of code that SCO distributed to other parties." (Id.)

250. The Magistrate Court again recognized the limitations on SCO's ability to provide such information due to IBM's failure to produce the needed AIX and Dynix source code; the Magistrate Court specifically stated that SCO would only be required to identify those specific lines of code IBM had contributed to Linux that SCO could identify "at this time." (Id.)

251. Contrary to IBM's claims, neither of the Magistrate Court's December 2003 or March 2004 Orders directed SCO to "match up the lines of Linux code to which it claims rights to the specific lines of the UNIX software code from which the Linux code is alleged to derive." The December 2003 Order directed SCO to "identify and state with specificity the source code(s) that SCO is claiming form the bases of their action against IBM (Ex. 150 ¶ 4), and the relevant provision of the March 2004 Order directed SCO to "identify all specific lines of code from UNIX System V from which IBM's contributions from AIX and Dynix are alleged to be derived." (IBM Ex. 56 ¶ 4.) SCO provided such detailed answers in its January 2004 responses and in its April 2004 update. (Ex. 149; Ex. 155.)

252. In April 2004, SCO provided detailed responses corresponding to each of the items in the Magistrate Court's March 2004 Order. Specifically, SCO provided the additional documents that it had difficulty in collecting and reviewing during the thirty days following the Magistrate Court's December 2003 Order. As to those April 2004 supplemental responses, SCO only had the selected snapshots of AIX and Dynix source code and still had not received any identification of the contributors and specifically what they had contributed to this source code. (Ex. 154.)

100

253. SCO then provided detailed exhibits that answered each of the items set forth in the Magistrate Court's March 2004 Order. SCO identified, for example, further "specific lines of code that IBM is alleged to have contributed to Linux from either AIX or Dynix." (Ex. 155 at Tabs B and C.) SCO did so by attaching exhibits further specifying, by file and line, AIX and Dynix code that IBM had contributed to Linux. SCO's supplemental discovery represented an additional 21,000 lines of code. (Id.) SCO was able to provide the foregoing information because IBM had finally produced selected versions of AIX code and additional versions of Dynix code pursuant to the March 2004 Order. (IBM Ex. 64 at 38.)

254. With respect to IBM's contributions to Linux, moreover, SCO responded that , AIX and Dynix, as a whole, are modifications or derivative works based on UNIX System V, and provided two additional exhibits identifying, by file and lines, the UNIX System V code that remains in AIX and Dynix and from which AIX and Dynix are derived. (Ex. 155 at Tabs E and F.) SCO attached charts detailing files and lines of code from UNIX System V from which AIX and Dynix are derived. (Id.)

255. SCO further explained that without being provided access to the evolution of AIX and Dynix, SCO could not further address the requests. (Ex. 154 ¶ 6.) As it had previously, SCO noted that it was limited in its responses based on IBM's failure to provide all requested discovery. (Id. ¶ 9.)

256. With the same limitations caused by IBM's failure to provide complete discovery, SCO filed responses to IBM Interrogatories in May and June 2004. As with the SCO's other discovery responses in the case, SCO noted that its responses to the interrogatories were "based on the evidence SCO has discovered independently and based on information contained in

101

IBM's limited production to date" and that "[upon receiving complete discovery from IBM, including all versions of AIX and Dynix/ptx, there undoubtedly will be further evidence of IBM's contractual breaches and other violations of law." (Ex. 158.)

257. Within the constraints imposed by IBM's failure to provide foundational discovery, including but not limited to all versions of AIX and Dynix, SCO identified, among other items, what the code identified in its earlier answers constituted (idea, procedure, process, expression, etc.), the limits on its expression, if any, its location in the public domain (if at all), and whether it had been distributed without a copyright notice. (Id.)

258. SCO has continually supplemented and updated its production of documents since the summer of 2004. SCO produced eight CDs of documents in December 2004, two more CDs in January 2005, four more CDs in July 2005, two more CDs in August 2005, eleven more CDs in November 2005, three more CDs in December 2005, ten more CDs in January 2006, seventeen more CDs in February 2006, sixteen more CDs in March 2006, four more CDs in April 006, two more CDs in May 2006, one more CD in July 2006, and one more CD in October 2006. (Ex. 160.) The only motion to compel that IBM filed after 2003 related to the question of attorney-client privilege regarding SCO's predecessors-in-interest. (See Ex. 312.) (check cite)

B. IBM's Intransigence in Discovery.

259. SCO initiated discovery on June 24,2003, when it asked for a variety of documents, including all versions or iterations of AIX and Dynix since 1999, and also a listing of all persons who worked on AIX and Dynix and the precise contributions of each of these persons to the source code. (Ex. 146.)

102

260. After lengthy meet-and-confer sessions, IBM claimed compliance or ongoing efforts at compliance, but SCO was left without this discovery and eventually was forced to file a motion to compel in November 2003 to receive it. (See Ex. 313.)

261. On the eve of the hearing on SCO's motion to compel, in early December 2003, IBM produced limited Dynix source code but still no AIX code. In fact, IBM did not produce AIX code until March 2004 — one year after suit was filed and after ordered to do so by the Magistrate Court. (IBM Ex. 64 ¶ 46.)

262. When IBM finally produced the first portions of the necessary source code in December 2003 and March 2004, it provided only selected snapshots of AIX and Dynix and failed to identify the precise contributions of the IBM individuals involved in the development of AIX and Dynix. (Id.)

263. In March 2004, following oral argument in February 2004, the Magistrate Court ordered IBM to comply with its discovery obligations by providing specified discovery and supplementing its deficient responses. (See IBM Ex. 56.)

264. SCO filed a motion to compel in July 2004, again on the grounds that IBM's responses, this time to the Magistrate Court's March 2004 Order, were deficient. (See Ex. 314.) In October 2004, the Magistrate Court ordered IBM to "provide affidavits from the Board of Directors, Mr. Palmisano and Mr. Wladawsky-Berger regarding production of all non-privileged documents pertaining to IBM's Linux strategy." (See Ex. 315.)

265. In December 2004, SCO filed a motion to compel IBM properly to respond to the Magistrate Court's March 2004 Order and to the October 2004 Order. (See Ex. 316) In January 2005, the Magistrate Court ordered IBM to supplement its production. (See Ex. 317) (check

103

cite) On IBM's motion for reconsideration, in an April 2005 Order, the Magistrate Court continued to require IBM to supplement its production. (See Ex. 318.)

266. In January 2005, SCO filed a motion to compel IBM to produce its Chief Executive Officer, Samuel J. Palmisano, for deposition. (See Ex. 319.) The grounds included the plain and indisputable facts that (I) IBM intended to depose SCO's CEO, Darl McBride, for two days, and (2) Mr. Palmisano was obviously a relevant fact witness. (Id.) In July 2005, the Magistrate Court ordered IBM to produce Mr. Palmisano for deposition. (See Ex. 68.)

267. In September 2005, SCO filed a renewed motion to compel IBM to produce the complete development history of its Linux contributions. (See Ex. 320.) In response, as reflected in the Magistrate Court's October 2005 Order, IBM agreed to produce responsive materials. (See Ex. 321.)

268. In October 2005, SCO filed a renewed motion to compel IBM to properly respond to the Magistrate Court's March 2004 Order and to the October 2004 Order. (See Ex. 322.) In March 2006, the Magistrate Court ordered IBM to produce certain affidavits and to make certain witness available for deposition. (See Ex. 323.)

269. In April 2006, SCO filed a motion, in United States District Court for the Middle District of North Carolina, to compel the deposition of Otis Wilson, whom counsel for IBM had come to represent and had refused to make available for deposition. (Ex. 161.) In May 2006, the Magistrate Court in North Carolina ordered Mr. Wilson to appear for deposition. (Ex. 162.)

C. SCO's December 2005 Final Disclosures.

270. The District Court's Order of July 1, 2005, set forth new deadlines for completion of discovery, for exchange of expert reports, for filing of dispositive motions, for completion of

104

pre-trial stipulations and witness and exhibit lists, and, ultimately, for a five-week jury trial set to begin on February 26,2007.

271. At IBM's request, the Court also included deadlines for the parties to "identify" all allegedly "misused material" with "specificity," and to update interrogatory answers. The interim deadline for this identification was October 28,2005, and the final deadline was December 22,2005. This Court declined to adopt IBM's proposed language for that deadline, which stated that line, version, and file of source code must be provided. (Ex. 163 at 2; see also id. n.2.)

272. SCO timely and fully complied with both the interim October and final December deadlines. In October 2005, SCO identified 204 items of "misused material" and provided source code references for source code disclosures and specific references to the method and concept disclosures at issue. (Ex. 143; Ex. 144.)

273. On December 5,2005, little more than two weeks before the final submissions were due, IBM wrote SCO a letter claiming that the October disclosures were not specific enough and threatening to move to preclude SCO from pursuing any claims regarding allegedly misused material that IBM believed was not properly disclosed. (IBM Ex. 15 1.)

274. As SCO's plan and effort was to provide as much specificity in its December Submission as possible, and as SCO informed IBM at the time, that Submission, which SCO believed fully conformed to the Order and went well beyond what was required in many areas, was viewed as the response to IBM's letter. (IBM Ex. 60 at 4.)

275. SCO's December Submission consisted of a 466-page principal document organized around 294 items of misused material. (Ex. 144.) SCO and experts did everything

105

they could to ensure that they disclosed all the material they had and that it was organized in the most accessible possible manner. SCO and its experts cited versions, files and lines where available. (Ex. 143.)

276. The Submission thus provided identification of the person(s) making the disclosure; a description identifying the nature of the improperly disclosed code, method or concept; a summary of the improper disclosure or use; a reference to specific supporting files or documents listed as "sources"; and a list of Linux files believed to contain or to be related to the improperly disclosed materials. (Ex. 144; Ex. 143.)

277. For most methods and concepts, all or critical parts of the communication comprising the disclosure were reproduced in the "summary" section of the disclosure. Where IBM provided a patch file of code along with the disclosed method (which showed the Linux community how the method or concept might be implemented in Linux), such code was included or the link to the file which IBM identified as containing the code was noted. (Ex. 144; Ex. 143.)

278. Along with this principal document, SCO provided many thousands of pages of referenced sources which constituted source code files, articles, or copies of the full communications through which the improper disclosure was made. SCO also provided IBM and the District Court with a CD containing the December Submission, with all backup material hyperlinked to each disclosure item so that all source information identified in each disclosure could readily be viewed by clicking on the name of the hyperlinked source file. (Ex. 144.)

XI. NOVELL IMPROPERLY PURPORTS TO "WAIVE" SCO'S RIGHTS.

279. In 2003, Novell sent SCO a series of letters purporting to waive SCO's right to enforce its UNIX license agreements against IBM. (IBM Exs. 135, 136, 137, 138.)

106

280. At the time that Novell purported to waive IBM's breaches of the agreements, no binary royalty payments were being made or were expected to be made in the future, under the IBM or Sequent UNIX license agreements. In Amendment No. X, IBM had agreed to pay SCO a nonrefundable fee of $10.125 million for a perpetual license to distribute certain sublicensed binary products based on the UNIX source code at no additional royalty payment; Amendment X thus effected a buy-out of IBM's future UNIX binary royalty obligations. (IBM Ex. 124.)

281. Similarly, by the time Novell purported to waive SCO's source code rights with respect to Dynix (in February 2004), no further royalty payments were being made under Sequent's license; the last such royalty payment to SCO (of only approximately $3,000) was made in the first quarter of 2003. (Ex. 44 ¶ 3.)

282. 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. In a series of deals struck between November 2003 and March 2004, Novell and IBM formed a very close Linux partnership: Novell acquired Linux distributor SuSE Linux, and IBM invested $50 million in Novell to finance part of the acquisition. (Ex. 45.)

283. Under the IBM-Novel1 deal, Novell became a major Linux distributor, allowing IBM to continue its official distance from the Linux distribution channel. IBM spokesman Mike Darcy stated: "IBM is not a Linux distributor and has no interest in being in that business." Hiawatha Bray, Novell to Buy SuSE Linux for $210M; Firm's Commitment to Software Boosted, The Boston Globe, Nov. 5,2003 (Ex. 46).

284. Nevertheless, IBM benefits significantly from the Linux distributions made by Novell. Novell CEO Jack Messman explained the benefits of its partnership with IBM as

107

follows: "IBM stands to gain a great deal of revenue by providing systems, peripheral devices, software and services for Linux." Bob Mims, Novell, IBM and HP unite efforts to put Linux on top: Three companies unite to boost Linux and topple Microsoft, The Salt Lake Tribune, Mar. 25, 2004, at El (Ex. 47).

285. Novell and SCO entered into a Technology License Agreement ("TLA") contemporaneously with the APA. As contemplated by Section 1.6 of the APA, the Technology License Agreement effected a "license back" to Novell of rights to use the UNIX System V code. (Ex. 48; IBM Ex. 123 § 1.6; IBM Ex. 585 at 271-72.)

286. Under the TLA, Novell was permitted to use UNIX and UnixWare only for internal purposes and only in bundled products, and then only to the extent that no material part of the bundled product competed with SCO's UnixWare business. (Ex. 48; Ex. 76 at 44-45.)

287. The chief negotiators for both Novell and SCO, and other participants in those negotiations, agree that neither SCO nor Novell intended for the APA to grant Novell the sweeping rights over the assets it sold to SCO that IBM argues were granted. (Ex. 39 ¶ 13; Ex. 40 ¶ 10; Ex. 42 ¶ 5; Ex. 351 ¶ 9; Ex. 50 ¶¶ 29-35; Ex. 76 at 41-42, 53; see also IBM Ex. 260 at 315-16, 318 325, 356.) The understanding of Novell's designated employee "for achieving a smooth transition of Novell's UNIX customers to SCO" was that "Novell had retained no rights in SVRX source code under the Purchase Agreement," but rather "retained rights to the binary code royalties." (Ex. 360 ¶ 11.)

288. Ed Chatlos, who negotiated the APA for Novell, explained that "Paragraph 4.16 of the APA was specifically designed and intended to protect Novell's retained binary product royalty stream" and that Novell retained no "right to waive, or to direct or require SCO to waive,

108

any of SCO's source code rights, including under customer source code licenses." (Ex. 39 ¶ 13.) Mr. Chatlos confirmed his views at deposition. (Ex. 76 at 41-42, 53.)

289. Jim Wilt, who negotiated the APA for SCO, confirmed that Paragraph 4.16 of the APA allowed Novell to manage royalty streams, but "not at the expense of SCO's right to enforce its intellectual-property protections under any such licenses, and not to permit Novell to waive any of those protections." (Ex. 40 ¶ 10.) Mr. Wilt also explained that Amendment No. 2 was intended to confirm the parties' intent in this regard. (Id.)

290. Steve Sabbath, Santa Cruz's former Vice President of Law and Corporate Affairs and a participant in a number of the meetings and discussions with the chief negotiators and attorneys leading up to the APA, similarly refuted the suggestion that Section 4.16(b) gave Novell the right to waive any breach of the intellectual-property protections. According to Mr. Sabbath, IBM's proposed interpretation would permit Novell to eviscerate the entire purpose of the asset-purchase transaction. (Ex. 42 ¶ 5; IBM Ex. 585 at 19-20, 36-37.)

291. Mr. Sabbath, who was involved in the discussions leading up to Amendment No. 2 and who executed that amendment on Santa Cruz's behalf, has also explained that:

Amendment No. 2, however, was intended to confirm, among other things, the parties' intent that SCO would obtain ownership of the UNIX copyrights under the APA and that Novell had received no rights with respect to UNIX source code under the APA. Paragraph B.5of Amendment No. 2 was specifically intended to make clear that Novell had no right to increase any SVRX licensee's rights to SVRX source code, no right to grant any new SVRX source code licenses, and no right to prevent Santa Cruz from exercising the rights it obtained under the APA with respect to SVRX source code.
(Id. ¶ 6.) Mr. Sabbath confirmed the foregoing views at deposition. (IBM Ex. 585 at 38, 55-58, 84-86.)

109

292. Larry Bouffard, Novell's worldwide sales director for UNIX products and the Novell representative who negotiated Amendment No. X for the company, has now clarified his previous declaration. It was Mr. Bouffard's decision, in reliance on his interpretation of Section 4.16 of the APA, to enter into a buyout of IBM's binary royalty stream between IBM and Novell, purportedly on behalf of Santa Cruz. Mr. Bouffard confirms that Novell and Santa Cruz entered into Amendment No. 2 "to preclude Novell from undertaking the precise type of unilateral conduct with respect to the UNIX license agreements that I had undertaken with respect to the IBM-Novell buyout." (Ex. 50 ¶ 33.) Mr. Bouffard states:

Amendment No. 2 clarified and reiterated that the only rights Novell possessed in relation to Santa Cruz's UNIX license agreements was a limited right to preclude Santa Cruz from interfering with the binary royalty stream. I did not understand Novell to have the right to direct SCO to waive any of its rights under its UNIX source code license agreements, let alone to do so unilaterally.
(Ex. 50 ¶ 35.)

293. Kim Madsen was a Manager in the Law and Corporate Affairs group of Santa Cruz at the time of the APA and Amendment No. 2. In that capacity, she worked with Mr. Wilt and Mr. Sabbath on the negotiation of the APA, and with Mr. Sabbath in the negotiation of Amendment No. 2. Mr. Madsen testifies:

Under the APA, Novell also retained rights to certain binary product royalty payments. That retention of rights allowed Novell to manage that royalty stream within the operation of Santa Cruz's customer source code licenses. I did not understand the retention to be at the expense of Santa Cruz's right to enforce its intellectual property protections under such licenses or to permit Novell to waive any of those protections, and I never heard anyone from any negotiation team suggest otherwise. I do not believe that Novell had any right to waive, or to direct or require Santa Cruz to waive, any of its intellectual property rights or protections.
(Ex. 38 ¶ 13.) With respect to Amendment No. 2, Ms. Madsen explains:

110

My understanding from the negotiations and discussions leading up to the Amendment was that Amendment No. 2 was intended to confirm, among other things, the parties' intent and agreement that Santa Cruz had obtained ownership of the UNIX copyrights under the APA and that Novell had received no rights with respect to UNIX source code under the APA. Paragraph B.5 of Amendment No. 2 was specifically intended to make clear that Novell had no right to increase the rights of any UNIX System V source-code licensee, no right to grant any new such source-code licenses, and no right to prevent Santa Cruz from exercising the rights it obtained under the APA with respect to that source code.
(Ex. 38 7 16.)

111

Standard of Decision

The standards for summary judgment under Federal Rule of Civil Procedure 56 are stringent. "Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opposing the motion, shows there are no genuine issues of material fact and the moving party is due judgment as a matter of law." Kysar v. Amoco Prod. Co., 379 F.3d 1150, 1155 (10th Cir. 2004) (quoting Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1188 (10th Cir. 2000).)

It is axiomatic that the "moving party carries the burden of showing beyond a reasonable doubt that it is entitled to summary judgment," and that "the court must review the record in the light most favorable to the opposing party." Hicks v. City of Watonga, 942 F.2d 737,743 (10th Cir. 1991). Thus, the Court "must resolve factual disputes and draw inferences" in favor of the non-moving party, Rogers v. United States, 281 F.3d 1108, 1113 (10th Cir. 2002), and the Court may not "act as the jury and determine witness credibility, weigh the evidence, or decide upon competing inferences." Boyer v. Bd. of County Comm'rs of Johnson County, 922 F. Supp. 476, 484 (D. Kan. 1996). In short, summary judgment may not be granted unless "the uncontroverted material facts establish that the moving party is entitled to judgment as a matter of law." David v. City & County of Denver, 101 F.3d 1344, 1355 (10th Cir. 1996).

Argument

Each of the purported bases for IBM's Motion fails to establish any basis for summary judgment, with respect to either the facts at issue or the relevant precedent.

First, SCO has established a material breach of the Agreements. (Part I, below.) A core, fundamental restriction of the Agreements is that IBM was not entitled publicly to disclose the

112

source code, methods or concepts in AIX or Dynix/ptx. The plain language of the standard UNIX license agreement compels that interpretation, and there is extrinsic evidence spanning decades to confirm it. IBM does not dispute that it made hundreds of disclosures from AIX and Dynix/ptx to Linux, at least dozens of which remain at issue in the case.

Second, IBM's estoppel argument is based on numerous disputed facts and the misapplication of New York law. (Part 11, below.) The foregoing extrinsic evidence, and more, further establishes (and easily permits the inference) that neither IBM nor Sequent was ever told that it could openly disclose the source code, methods and concepts they developed even if they were developed as part of a derivative work based on the licensed UNIX software product. In addition, under New York law, the unambiguous and comprehensive integration clauses in the Agreements gave no legal effect to any such alleged representations and made any alleged reliance by IBM or Sequent on such statements unreasonable. Under the law, moreover, the conduct of AT&T, USL, Novell and Santa Cruz cannot bind SCO for purposes of the application of the equitable principle of estoppel

Third, IBM's waiver argument also is based on numerous disputed facts and a mistaken application of New York law. (Part Ill, below.) The evidence shows that neither SCO nor its predecessors-in-interest intended to waive their rights precluding their UNIX licensees from disclosing material from their derivative works in material breach of their agreements. Such evidence includes testimony from the members of the UNIX licensing group overseeing the licenses "on the ground" as well as from senior executives and members of the Board of Directors. As a legal matter, moreover, SCO could not be bound by any waivers by its predecessors-in-interest unless SCO knew of those waivers, which it did not and for which IBM

113

presents no evidence to suggest it did. The evidence also shows IBM's invocation of Novell's purported waiver to lack any basis as a grounds for summary judgment.

Fourth, SCO has timely asserted its claims relating to RCU. (Part IV, below.) IBM presents no evidence that any of SCO's predecessors-in-interest knew or should have known of the patent application (in 1993) or the issuance of the patent (in 1995). The patent application itself was not even public, and the point of the patent was to establish that no one besides the patent-holder was entitled to use RCU. IBM also presents no evidence that SCO or its predecessor-in-interest knew or should have known that RCU was subsequently incorporated into Sequent's UNIX flavor. The inclusion of RCU was hardly a well-known fact, and of course the Dynix/ptx source code was not publicly available.

I. SCO HAS ESTABLISHED A BREACH OF THE AGREEMENTS.

IBM does not dispute either that AIX and Dynix/ptx are derivative works within the meaning of the Agreements or that IBM has publicly disclosed technology from AIX and Dynix/ptx to help strengthen Linux. In addition, SCO has produced substantial evidence demonstrating the foregoing facts. (¶¶ 192-97.) Much of this evidence expressly describes or depicts AIX and Dynix/ptx technology being transferred to Linux. (Ex. 300.)

IBM argues instead that it and Sequent were free to disclose the source code, methods and concepts that it and Sequent developed even if they were developed as part of a derivative work based on the licensed UNIX software product. IBM bears the burden of demonstrating that its interpretation of the Agreements is correct as a matter of law. See Trainor v. Apollo Metal Specialities, Inc., 318 F.3d 976, 979 (10th Cir. 2002). IBM must establish that its reading is the

114

only reasonable interpretation. See Jellinick v. Joseph J. Naples & Assocs., Inc., 296 A.D.2d 75, 78-79 (App. Div. 2002).

IBM does not carry that burden. SCO demonstrates in its own pending Motion for Partial Summary Judgment on Its Third Cause of Action that the plain language of the Sequent Agreement required Sequent (and then IBM) to hold in confidence all parts of Sequent's derivative works based on the licensed UNIX software product. The Sequent Agreement was never modified by a side letter or amendment. In addition, as noted in SCO's Motion, the plain language of the IBM Agreement, Side Letter and Amendment No. X imposed the same requirements on IBM with respect to its own derivative work.

The record further establishes that AIX and Dynix/ptx are such derivative works, also as shown in SCO's pending Motion, and that IBM made numerous contributions to Linux development from those operating systems. With respect to the extrinsic evidence of the parties' intent under and understanding of the Agreements, moreover, IBM ignores the abundant evidence confirming the foregoing scope of the plain language of the Agreements.

A. The Plain Language of the Agreements Prohibits IBM's Disclosures from AIX and Dynix/ptx.

Although IBM's memorandum in support of its Motion is over one hundred pages long, IBM undertakes no serious textual analysis of the Agreements. Indeed, such an analysis precludes IBM's cursory plain-language argument.

It is well established that no contractual provisions be rendered superfluous, and that contractual provisions are read so as not to conflict with one another. Garza v. Mar. Trans. Lines, Inc., 861 F.2d 23,27 (2d Cir. 1988); Ronnen v. Ajax Elec. Motor Corp., 88 N.Y.2d 582, 589 (1996); Merrill Lynch v. Adler, 651 N.Y.S.2d 38, 39 (App. Div. 1996); Ruttenberg v.

115

Davidge Data Sys. Corp., 626 N.Y.S.2d 174, 178 (App. Div. 1995); Robshaw v. Health Mgmt., Inc., 470 N.Y.S.2d 226, 227 (App. Div. 1983).

It also bears mentioning that to support its argument for equitable estoppel, IBM cites numerous witnesses who acknowledge (often by omission) that they never relied on the language of the Agreements for their purported understanding of the scope of the Agreements, and who cannot reconcile the view of the Agreements they are proposing with the language therein.3 (¶¶ 130, 146, 159.) IBM and the cited witnesses thus concede that it is not any assertedly plain language that gives them the rights they say they have over such material.

The plain language of the Agreements directly defeat IBM's arguments about their supposedly limited scope. IBM's interpretation fails for the principal reasons set forth below.

First, if IBM's interpretation of the standard UNIX license agreement (such as the Sequent Agreement) were correct, then the requirement that "resulting materials" be "treated as part of the original SOFTWARE PRODUCT" would be rendered superfluous, because UNIX source code is already clearly and indisputably contained within the original SOFTWARE PRODUCT. In other words, there would simply be no reason for the contract to require that source code contained in "resulting materials" be treated "as part of the original SOFTWARE PRODUCT," because such source code is already covered by the contractual protections afforded to the original SOFTWARE PRODUCT.

116

At their depositions, principal witnesses from whom IBM has submitted declarations were unable to reconcile IBM's reading with this glaring textual problem. (See IBM Ex. 301 at 241,264-65; IBM Ex. 302 at 256-57; IBM Ex. 295 at 101.) The attorney (Geoff Green) whose testimony IBM cited two years ago, but now declines to cite, was at a complete loss to explain how IBM's interpretation would not convert the final clause of Section 2.01 ("provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT") into mere surplusage. (See Ex. 5 at 111-12, 121-22, 241.) Indeed, IBM declarant Michael DeFazio acknowledged that the "resulting materials" were the "derivative works" (IBM Ex. 260 at 69-70), and IBM's negotiator Richard McDonough admitted that IBM's AIX product constituted "resulting materials" within the meaning of the IBM Agreement (Ex. 79 at 32, 64, 113).

Second, IBM's reading fails to account for the protection under Section 2.01 for both modifications of the licensed UNIX product and "derivative works" based on that product. A modification plainly denotes that a programmer changed or altered portions of a product, but the separate protection under the agreement for "derivative works" clearly reflects an intent under Section 2.01 to cover products that were based on, but did not necessarily include, the original licensed source code. IBM's reading would render meaningless the term "derivative works." If IBM were correct in contending that the software agreements protected only literal UNIX source code, there would be no reason to delineate an additional — let alone two additional — categories of products that are distinct from the actual code, but were required to be treated the same as the original licensed UNIX software product.

Third, IBM's reading is incompatible with Section 2.01's language requiring derivatives or modifications to be treated "as part of' the original SOFTWARE PRODUCT. By definition,

117

treating such materials "as part of the original SOFTWARE PRODUCT" must mean adding something to the "original SOFTWARE PRODUCT" that was not already there. In other words, because source code is already contained in the "original SOFTWARE PRODUCT," IBM's reading of Section 2.01 (that is, that it covers only UNIX source code) would provide nothing to add (that is, nothing to treat "as part of").

Fourth, Section 7.06(a) of the Agreements includes a specific provision requiring the licensee to hold the "SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T." The Agreement further specifies in Section 7.06(a) that the licensee "shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." Section 7.06(a) of the standard agreement thus not only expressly extended the requirement of confidentiality to all aspects of the "SOFTWARE PRODUCTS'(which, by virtue of Section 2.01, must be treated identically to any modifications or derivatives based on such SOFTWARE PRODUCTS), but also specifies that protection of the SOFTWARE PRODUCTS includes protection of the "methods or concepts utilized therein." Again, a plain reading of these provisions is directly at odds with IBM's construction.

Fifth, beyond the plain language of Sections 2.01 and 7.06, further textual evidence undermining IBM's "literal source code only" theory is found in the plain language of the sublicensing agreements. Under those agreements, IBM and Sequent were permitted to distribute "SUBLICENSED PRODUCTS" — defined to include "COMPUTER PROGRAMS in object-code format based on a SOFTWARE PRODUCT subject to the software Agreement"

118

(IBM Ex. 120 § 1.04; IBM Ex. 121 § 1.04) — under certain conditions and in exchange for sublicensing fees and royalties. (§ 4.01(a).) Thus, under the sublicensing agreements, AT&T licensees were permitted to distribute, for a fee, products "based on a SOFTWARE PRODUCT subject to the Software Agreement" (which, pursuant to Section 2.01 of the software agreements, included any modifications or derivatives of the SOFTWARE PRODUCT), but only in binary format. Significantly, the plain terms of the sublicensing agreements contain no suggestion or requirement that such "SUBLICENSED PRODUCTS" had to be based on the literal UNIX source code; in fact, the sublicensing agreements do not contain any language whatsoever on which IBM could even argue that the agreements limited the coverage of "SUBLICENSED PRODUCTS" to those "based on" the literal UNIX source code.

In light of this plain reading of the sublicensing agreements, IBM's reading of the license Agreements makes no sense. Under IBM's view, a licensee is free to distribute any product that is "based on" the UNIX software product within the meaning of Section 2.01 — but that does not contain any literal copying of UNIX source code — in unprotected source-code format without charging any sublicensing fees. But under the sublicensing agreements, that same product could only be distributed in object code format and at a charge to the licensee. IBM would thus have the sublicensing agreements require licensees to pay for distributions in restricted object code of the very same products that the licensee could distribute in unrestricted source code without charge under the software agreements.

Sixth, as explained above, neither the IBM Side Letter nor Amendment No. X nullified the plain language of Sections 2.01 and 7.06 or otherwise reduced the contractual obligations regarding modifications and derivative works. Indeed, if the intent of the IBM Side Letter was to

119

cut back the Section 2.01 protections to mere literal source code, as IBM contends, that would have been exceedingly easy to accomplish as a drafting matter. Instead of leaving the "resulting materials" clause of Section 2.01 entirely in place, the IBM Side Letter could have simply added the word "not" before "treated as part of the original SOFTWARE PRODUCT." With that simple change, IBM could have effected the very change that it now reads into the Side Letter — economically, easily, and clearly. Without such a change, however, the plain language of the Agreements precludes the retroactive change that IBM is attempting to make.

Further, the Side Letter did not cover Sequent. Although the Sequent Agreement was entered into just a couple of months after the IBM Agreement and Side Letter, none of the language on which IBM relies from its Side Letter was included in the Sequent Agreement. And there is no textual support whatsoever for IBM's contention that Sequent somehow received the benefit of amendments to IBM's software agreement even though no such language had been included in their written contracts.

To the contrary, the Sequent Agreement contained clear and unambiguous merger language that specifically ruled out after-the-fact "me too" arguments such as those advanced here by IBM (on Sequent's behalf):

This Agreement and its Supplements set forth the entire agreement and understanding between the parties as to the subject matter hereof and merge all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions. warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date of acceptance hereof in writing and sinned by a proper and duly authorized representative of the party to be bound thereby. No provision appearing on any form originated by LICENSEE shall be applicable unless such provision is expressly accepted in writing by an authorized representative of AT&T.

120

(IBM Ex. 119 ¶ 4 (emphasis added).) IBM ignores this merger clause in its strained attempt to export its misreading of the IBM Side Letter over to the Sequent Agreement.

Accordingly, for all of these reasons, as explained in further detail below, there is no merit to IBM's limited textual argument that it is entitled to summary judgment on SCO's contract claims as a matter of law.

1. The Plain Language of the Sequent Agreement

The vast majority of the technology disclosures that SCO challenges were made from Sequent's derivative work, Dynix/ptx. SCO has filed a motion for partial summary judgment on the grounds that the plain language of the Sequent Agreement precluded IBM from making the disclosures it did. Sequent entered into no side letter amending any portion of its standard UNIX license agreement. The unambiguous integration clause of the Sequent Agreement establishes that the terms of the IBM Side Letter did not affect Sequent's rights. (¶¶ 13-21.)

The Sequent Agreement placed significant constraints on Sequent's rights as a result of its access and exposure to the licensed UNIX software product. The minimum set of those constraints are set forth in the plain language of the Agreement, imposing strict requirements on licensees' use, export, transfer, and disclosure of the UNIX software. The two cornerstone protections are found in Sections 2.01 and 7.06 of the Agreement:

Internal Business Use (Section 2.01): "AT&T grants [Sequent] a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in one or more Supplements hereto, solely for [Sequent's] own internal business purposes and solely on or in conjunction with DESIGNATED CPUs for such SOFTWARE PRODUCT. Such right to use includes the right to modify such

121

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

Non-Disclosure (Section 7.06(a)): "[Sequent] agrees that it shall hold all parts of the SOFTWARE PRODUCT subject to this Agreement in confidence for AT&T. [Sequent] further agrees that shall not make any disclosure of any or all of such SOFTWARE PRODUCTS (including methods or concepts utilized therein) to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder."
The Agreement thus plainly extended those protections not only to the literal source code in which the UNIX innovations had been originally expressed, but also to methods and concepts that were embodied in UNIX.

AT&T thus permitted its licensees to rely on the innovations in UNIX to develop modifications and derivative works based on the UNIX software product, "provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT." (IBM Ex. 119 § 2.01.) Under this provision, if a licensee exercised its right to use the original UNIX software product to prepare or as the base for modifications or derivative works, then the licensee had to afford such "resulting materials" all of the same strict protections required by the software agreement for the original UNIX product itself. Thus, pursuant to Section 2.01, all of the use, transfer, export, and confidentiality restrictions that applied to the original UNIX software product also covered any such modifications or derivative works. The Agreement further specifies: "Except as provided in Section 7.06(b), nothing in this Agreement grants to

122

LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part." (IBM Ex. 119 § 7.10.) The Agreement thus again prohibits Sequent from disclosing any "part" of the "resulting materials." (IBM Ex. 119 §§ 2.01; 7.06(a); 7.10.)

2. The Plain Language of the IBM Agreement, Side Letter, and Amendment No. X.

In addition to its own standard UNIX license agreement, IBM entered into a Side Letter with AT&T, and then in 1996 entered into an Amendment No. X to the Agreement and Side Letter with AT&T's successor-in-interest Santa Cruz. Neither the Side Letter nor Amendment No. X changed the foregoing core restrictions that applied under AT&T's standard UNIX license agreement.

The Side Letter. The Side Letter states: "Regarding Section 2.01, we agree that modifications and derivative works prepared by or for you are owned by you. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with us." (IBM Ex. 122 ¶ A.2.) Paragraph A.2 says nothing about IBM's confidentiality obligations, which are addressed in Section 7.06 of the Agreement and Paragraph A.9 of the Side Letter. IBM says that the ownership clarification must have changed the confidentiality restrictions, because otherwise IBM's ownership was insignificant. That is incorrect. Under the clarification, AT&T could not reach out and appropriate IBM's work for AT&T's benefit while the Agreement was in place, as IBM retained ownership rights. (See Part I.B, below.)

The Side Letter "amends" Section 7.06(a) of the Agreement by "replacing" that Section with a different "7.06(a)." (IBM Ex. 122 ¶ A.9.) The opening language of Paragraph A.9 of the Side Letter says that the right to "develop" at issue is one that applies only internally to IBM:

123

IBM "agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." (IBM Ex. 122 ¶ A.9.) Under the first part of Paragraph A.9, IBM "agrees that it shall hold SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T and "further agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder." (IBM Ex. 122 ¶ A.9.) The Side Letter thus repeats the core confidentiality restrictions of the IBM Agreement regarding SOFTWARE PRODUCTS.

Paragraph A.9 then affords IBM a limited right to "develop or market" certain products that the Agreement and Sublicensing Agreement do not permit IBM to "develop or market" — namely, products that are not modifications or derivative works based on the SOFTWARE PRODUCT, but that employ ideas, concepts, know-how or techniques embodied in the SOFTWARE PRODUCTS. (IBM Ex. 122 ¶ A.9.) IBM may "develop or market" such products as long as IBM does not copy code from the SOFTWARE PRODUCT into the product or refer to the SOFTWARE PRODUCT in developing the product.

The Side Letter thus does not remove the requirement that, with respect to products that are modifications and derivative works based on the licensed UNIX software product, IBM must continue to honor the confidentiality restrictions on such products. If IBM could freely disclose those parts of a modification or derivative work that IBM owned, then Paragraph A.9 would not make any sense. If IBM owned and therefore could disclose, with respect to a derivative work based on the licensed software product, any and all parts that did not contain literal System V

124

source code, then IBM would have been free to "develop or market" a product containing ideas, concepts, know-how and techniques from the software product even where IBM had referred to System V in developing that product — and would have been free to disclose all parts of such a product.

The Side Letter thus addresses the ownership of modifications and derivative works, and does not in any way compromise the strict prohibitions on improper use and disclosure of such works. Ownership and use rights are not synonymous in the law, and property rights — particularly intellectual-property rights — can be bifurcated along those lines. See, e.g., HotSamba, Inc. v. Caterpillar Inc., No. 01 C 5540,2004 WL 609797, at *5 (N.D. Ill. Mar. 25, 2004) (discussing software license agreement that allowed licensee to create derivative works and provided that licensee owned any derivative works it created, but prohibited licensee from transferring any such derivative works to third parties) (Ex. F). Contractual language addressing ownership should not be understood to define the contracting parties' rights with respect to use, particularly where, as here, the contract unambiguously distinguishes those rights, and addresses them separately and differently.

Amendment No. X. In amending part of Paragraph A.9 of the Side Letter, Amendment No. X does not give IBM the right to publicly disclose the SOFTWARE PRODUCT or "resulting materials" or ideas, concepts, know-how or techniques therein.

Amendment No. X states in pertinent part that the "second to last sentence of Paragraph A.9 of the February 1,1985 amendment to SOFT-00015 is modified by deleting the words: 'and employees of Licensee shall not refer to the physical documents and materials comprising Software Products subject to this Agreement when they are developing any such products or

125

services or providing any such service."' (IBM Ex. 124 ¶ 6.) Amendment No. X thus removes only the second of the two conditions that had to be satisfied before Paragraph A.9 of the Side Letter operates to permit IBM to "develop or market" a product that contains the "ideas, concepts, know-how or techniques" embodied in the SOFTWARE PRODUCT hut that is not a derivative work based on the SOFTWARE PRODUCT.

Amendment No. X thus does not permit IBM to publicly disclose any material that IBM is obligated to keep confidential under its Agreement and Side Letter. Amendment No. X specifically provides: "Except as modified herein, all other terms and conditions of the Related Agreements will remain effect. This Amendment No. X does not give IBM any additional rights to distribute the Software Product in source code form other than as modified in Section 2 and 3 of this Amendment No. X." (IBM Ex. 124 § 8.) Sections 2 and 3 relate only to IBM's rights to license the SOFTWARE PRODUCT to certain third parties under certain circumstances. Accordingly, under the Side Letter as modified by Amendment No. X, having indisputably copied code from the SOFTWARE PRODUCT into AIX, IBM did not have the right publicly to disclose in piecemeal fashion the AIX source code or ideas, concepts, know-how or techniques therein.

Amendment No. X also addresses the extent to which IBM could distribute source code of the SOFTWARE PRODUCT to certain third parties. The IBM Sublicensing Agreement gave IBM the right to permit its sublicensees to distribute the SUBLICENSED PRODUCT, and the right to use contractors to use a SOFTWARE PRODUCT "to modify a SUBLICENSED PRODUCT derived from such SOFTWARE PRODUCT." (IBM Ex. 120 § 2.05(b).) The Side Letter expanded on those rights with respect to contractors. (IBM Ex. 122 ¶ 3.)

126

Amendment No. X expands on IBM's right to distribute the SOFTWARE PRODUCT to certain third parties, but only for specific purposes. The contractor must be working "in support of the contractor's distribution and support of Sublicensed Products," and only for the "Authorized Purpose" of "making modifications to the Software Products, and furnishing such modifications to IBM and/or distribution of such modifications of Sublicensed Products in binary form by the contractor to customers directly or through other Distributors," provided that even additional conditions are satisfied. (IBM Ex. 124 § 2.1.)

Amendment No. X further provides that IBM "may license a Software Product in source code form to an eligible contractor or customer for such contractor's or customer's use in accordance with Section 2," and details the restrictions on that right to license. (IBM Ex. 124 § 3.) The "Software Product in source code form" is called a "Source Copy." With respect to IBM's circumscribed right to distribute source code to eligible contractors or customers, Amendment No. X provides scenarios to "clarify and illustrate the relief provided in Subsection 2.1." (IBM Ex. 124 § 3.7.) Company A is a "general computer system manufacturing firm" and a sublicensee of the Sublicensed Product: "IBM may not distribute Source Copies to Company A for purposes of making modifications to adapt the Sublicensed Products as a general operating system for Company A's general computer hardware system." (Id.) Amendment No. X thus does not even permit IBM to license the Software Product in source code form to a company to permit that company alone to modify and adapt the Sublicensed Product as a general operating system for that company. Amendment No. X certainly did not permit IBM to open-source the code that IBM remained obligated to keep confidential.

127

IBM's breaches were material. A contract breach is "material" if it goes to the "root of the agreement between the parties." Bear, Stearns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F. Supp. 2d 283,295 (S.D.N.Y. 2005) (quotations and citation omitted). Under the plain language of its license agreement, Side Letter, and Amendment No. X, IBM was obligated to keep all parts AIX confidential because IBM was required to treat a derivative work like AIX "as part of' the licensed UNIX software product. That language alone, by definition, proves that AT&T regarded confidentiality surrounding derivative works to be as important as the confidentiality for the licensed UNIX software product.

SCO has also demonstrated why such restrictions were integral and reasonable under the circumstances, and how they served to protect the value of the UNIX asset and business. (¶¶ 32- 64.) SCO has also demonstrated that the same core confidentiality protections for the licensed UNIX System V software product and their derivative works remained in the UNIX System V license agreements through the successive sales and transfers of the UNIX business and licenses. (¶¶ 63-96.) On these basis alone, SCO submits, the Court could not properly find as a matter of law that IBM's breaches were immaterial.

In addition to the plain language, extrinsic evidence confirms that the confidentiality provisions go to the root of the Agreements. (¶¶ 76-96.) Where, as here, the question of breach itself turns on disputed issues of fact concerning the parties' intent, it necessarily follows that the question of material breach cannot be resolved as a matter of law. Indeed, "in most cases, the question of materiality of breach is a mixed question of fact and law — usually more of the former and less of the latter — and thus is not properly disposed of by summary judgment." Bear, Stearns,361 F. Supp. 2d at 395 (citing numerous cases and substantial other authority);

128

Mackinder v. Schawk, Inc., No. 00 Civ. 6098 (DAB), 2005 WL 1832385, at *9 (S.D.N.Y. Aug. 2,2005) (Ex. G); Calamari & Perillo, The Law of Contracts § 11-18(a) (3d ed. 1987); Williston, on Contracts § 63:3, 440-41 & n.34 (4th ed. 2002). "Treating materiality as primarily a question of fact, best resolved by the jury, is consistent with the 'wavering and blurred' line that divides the material breach from the trivial." Bear, Stearns, 361 F. Supp. at 296 (citation omitted).

SCO has further shown, moreover, that IBM's breaches lead to the very harm that AT&T had precluded in its UNIX System V license agreements, such that as the successor to those agreements, SCO was deprived of "the benefit of the bargain." Bear, Stearns, 361 F. Supp. 2d at 297. That is, by publicly disclosing parts of its UNIX System V derivative work, IBM significantly helped to develop an unlicensed, UNIX-clone operating system in which the owner of UNIX System V and its license agreements had no royalty interest, and which proceeded to destroy the owner's own UNIX business. (¶¶ 192-97.) If there is ambiguity on the margins, as one of IBM's own declarants now acknowledges, the Agreements clearly did not permit licensees to develop such royalty-free clones. (Ex. 50 ¶¶ 19-26.)

SCO has thus further shown that IBM's breaches went to the "root" of its obligations, and therefore constituted a material breach of those obligations. (See also SCO's Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim (SCO's Fifth Cause of Action)," Argument, Part I.)

B. Any Contractual Ambiguity, as Well as the Extrinsic Evidence, Precludes IBM's Motion on the Meaning of the Agreements.

Courts applying New York law, as well as the Tenth Circuit, have repeatedly held that "in a contract dispute, summary judgment may be granted only where the language of the contract is unambiguous." Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1192 (2d

129

Cir. 1996). That is, courts may not resort to extrinsic evidence in order to resolve contractual ambiguities as a matter of law. Bouzo v. Citibank, 96 F.3d 51, 58 (2d Cir. 1996); Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992); State v. Home Indem., 66 N.Y.2d 669,671 (1985); Hartford Acc. & Indem. Co. v. Wesolowski, 350 N.Y.S.2d 895, 898 (1973); Ruttenberg v. Data Davidge Sys. Corp., 215 A.D.2d 191, 193 (N.Y. App. Div. 1995); accord Gomez v. Am. Elec. Power Serv. Corp., 726 F.2d 649, 651 (10th Cir. 1984); Met. Paving Co. v. City of Aurora, Colo., 449 F.2d 177, 181 (10th Cir. 1971).4

This rule reflects the Court's obligation under Rule 56 to construe all evidence on a motion for summary judgment — including ambiguous contractual terms — in the light most favorable to the non-moving party. Thus, if a contract is ambiguous, there necessarily exists a genuine issue of fact concerning the parties' intended meaning:

If the court must resort to extrinsic evidence to ascertain the correct and intended meaning of a term, material questions of fact necessarily exist. If the language is susceptible to different reasonable interpretations, and where there is relevant extrinsic evidence of the parties' actual intent, then the contract's meaning becomes an issue of fact precluding summary judgment.
Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's London, 136 F.3d 82, 86 (2d Cir. 1998) (emphasis added). Because ascertaining the meaning of an ambiguous contract necessarily involves drawing inferences from, and determining the credibility of, extrinsic evidence, see Hartford, 350 N.Y.S.2d at 898, permitting a court to resolve such matters on a motion for summary judgment "would greatly curtail the prerogatives of juries and trial

130

judges." Copley Cement Co. v. Willis & Paul Group, 983 F.2d 1435, 1439 (7th Cir. 1993) (Posner, J.) (recognizing that "to infer meaning from disparate bits of evidence, some textual, some testimonial, none contested in themselves but the aggregate forming a confused mosaic" is "a task more appropriate for a trier of fact").

The cases IBM cites are inapposite. In Moncrief v. Williston Basin Interstate Pipeline Co., 174 F.3d 1150 (10th Cir. 1999), for example, the district court had completed a full trial on damages, enabling the Tenth Circuit to review a complete factual record on liability. See id. at 1173. After assigning error to the district court's finding that the contract was unambiguous, the appellate court declined to remand the case and instead resolved the ambiguity on its own. In so doing, the court expressly relied on the "unusual procedural posture" of the case. See id. ("Because of the unusual procedural posture of this issue — an issue decided on summary judgment, yet about which the parties introduced evidence and testimony at trial — we have before us all of the arguments and evidence relevant.").5 Thus, although the appeals court in Moncrief acted as the fact finder "in the interest of judicial economy," see id. at 1154-55, 1174, that case cannot be read to set forth a district court's authority to resolve contractual ambiguities as a matter of law based on extrinsic evidence.6 Nor does the case apply to New York law.

131

The facts in Kaiser-Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563 (10th Cir. 1989), did not even involve the resolution of an ambiguity through the use of any extrinsic evidence; the case involved a suit to enforce a take-or-pay provision in a sales contract. The Tenth Circuit first affirmed the district court's finding that the contract was not ambiguous, see id. at 565-66, and then, as an independent matter, ruled that the district court had properly granted summary judgment on the issue of the seller's insecurity regarding the buyer's performance, id. at 568-69. As with Moncrief, IBM has ignored the context that makes it plain that the case in no way departs from the settled Tenth Circuit law that prohibits a court from resolving contractual ambiguities on summary judgment by resort to extrinsic evidence.7

In using the label the "Involved Persons" to describe the selected witnesses involved in AT&T's UNIX licensing program, IBM evidently means to suggest that the testimony of other individuals irrelevant. IBM even now excludes a witness (Geoff Green) whom it had previously

132

included as such an involved person, but who subsequently gave unfavorable deposition testimony for IBM, and who is now relegated to the sidelines.

Under the law, courts routinely consider testimony from witnesses who were involved in drafting and enforcing standard contract language, even if they did not sign or were not involved in the negotiation of the particular contract at issue. See, e.g., Schering v. Home Ins. Co., 712 F.2d 4,9-10 (2d Cir. 1983) (denying plaintiffs motion for summary judgment solely on basis of affidavits of two drafters of standard contractual clause); see also McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co., 858 F.2d 825,833 (2d Cir. 1988) (considering affidavits of two attorneys at contracting party's outside law firm who were not involved in drafting contract at issue but had "worked to develop similar clauses in similar transactions"). This evidence is relevant if it provides context for the communications and writings exchanged between the parties. See Nat'l Envmtl. Serv. Co. v. Ronan Eng'g Co., 256 F.3d 995, 1003 (10th Cir. 2001). Thus, a party's standard practice is relevant to a determination of that party's intent in adhering to or deviating from that practice in a particular case. Accord EPN Ingenieria S.A. de C.V. v. Gen. Elec. Co., No. 92 Civ. 1563 (KMW), 1996 WL 531867, at *2 (S.D.N.Y. Sept. 19,1996) (considering defendant's standard contract, which plaintiff signed hut defendant did not agree to in this case, as evidence of defendant's intent) (Ex. D); RMLS Metals, Inc. v. Int'l Bus. Mach. Corp, 874 F. Supp. 74, 77 (S.D.N.Y. 1995) (considering defendant's standard contract that was not adopted by the parties as evidence of defendant's intent). IBM's stated position that the UNIX license agreements were generally intended to contain the same core intellectual property protections only reinforces the plain relevance of the testimony from the individuals charged with the drafting and enforcement of the standard license agreements.

133

SCO shows below that the evidence squarely contradicts each of the principal assertions regarding the supposed meaning of the Agreements on which IBM relies in seeking summary judgment. (SCO addresses all of IBM's assertions in its response to IBM's Statement of Undisputed Facts, in Appendix A hereto.) Indeed, the testimony of "involved person" Otis Wilson at his August 2006 deposition underscored that his collective testimony alone (from his previous deposition in the BSD case and his testimony in this case) precludes summary judgment in IBM's favor on the supposed meaning of and AT&T's supposed statements regarding the meaning of the Agreements. (¶¶ 116-24.)

1. The Core Requirement of Confidentiality

IBM says it is undisputed that the requirements of confidentiality over the licensed UNIX software product, as well as its modifications and derivative works, were not part of the root of the agreements, but SCO's evidence shows that the confidentiality requirements were a core component of the agreements that remained in the agreements for decades. (¶¶ 63-96.) Such evidence easily defeats IBM's argument that AT&T's interest in protecting its UNIX asset was only a collateral matter, and the agreement says on its face that the license had to treat its derivative works "as part of" the UNIX software product.

Indeed, members of the UNIX license group from the 1980s, 1990s, and 2000s confirm that the obligations of confidentiality were a core component of the agreements. (¶¶ 76-96.) Mr. Wilson's own supervisor in 1985, William Guffey, confirms that the requirements of confidentiality were a core protection. (Ex. 138.)

134

2. The UNIX Licensing Group.

IBM says it is undisputed that Otis Wilson was the head of the UNIX licensing group in 1985 when the Agreements were executed, but Mr. Wilson himself acknowledges that he had a supervisor in that capacity, and SCO's evidence shows that neither Mr. Wilson nor any other single individual at AT&T, USL or Novell had the authority to modify or amend the standard UNIX license agreement. (¶ 90.)

Mr. Wilson's supervisor in 1985, Mr. Guffey, has testified to his disagreement with Mr. Wilson in all material respects. (Ex. 138.) Members of the UNIX licensing group from each of AT&T, USL, Novell, Santa Cruz, and SCO confirm that any decision to modify or amend the standard UNIX license agreement was a decision requiring the approval of several individuals at different levels of the company. (¶ 90.)

3. Methods and Concepts.

IBM says it is undisputed that in 1985 AT&T decided to "abandon" its protections for the methods and concepts in UNIX, but SCO's evidence shows that no such decision was made and that AT&T, USL and Novell continued to protect such methods and concepts. (¶¶ 76-96.)

Mr. Wilson himself signed and letters and signed agreements after 1985 requiring licensees to keep the methods and concepts confidential, and members of the UNIX license group from the 1980s, 1990s, and 2000s confirm that those obligations remained in the license agreements. (¶¶ 63-96.) Moreover, his testimony in the BSD litigation flatly contradicts his present stance. (¶¶ 105-24.)

135

4. Confidentiality Over Derivative Works.

IBM says it is undisputed that under the Agreements, IBM and Sequent were free to do as they wished with any material in the modifications and derivative works they developed based on the licensed UNIX software product, as long as the material was no UNIX source code, but the plain language of the Agreements belies that interpretation and SCO's evidence shows that AT&T, USL, and Novell intended to preclude the licensees from disclosing any part of such modifications and derivative works. (¶¶ 13-29; ¶¶ 76-96.)

Mr. Wilson himself sent side letters confirming that although licensees may own portions of their modifications and derivative works, they were obligated hold in confidence even those parts of the modifications and derivative works. (¶¶ 65,66,74.) Mr. Wilson and his account manager David Frasure testified in 1992, moreover, that the licensees were obligated to treat as part of the licensed UNIX software product anything the licensee had developed with "exposure" to the UNIX software product. (¶¶ 106-09,128-29.) Mr. Wilson's and Mr. Frasure's contradictory testimony is simply the tip of the iceberg. (¶¶ 63-96.)

Indeed, one of IBM's own initial declarants, Lawrence Bouffard, now clarifies his testimony to make clear that USL and Novell did not purport to draw the distinctions that IBM now draws, between so-called "homegrown" code and other material in a derivative work based on the licensed UNIX software product. (Ex. 50 ¶¶ 19-28.)

Mr. Bouffard he had previously stated that AT&T and USL did not claim the right to "own or control" the portion of a licensee's UNIX flavor that the licensee had developed after licensing the UNIX software product (the "added-on" material), and that is true in the sense that AT&T or USL claimed no right to appropriate such material for itself or for its own uses. (Id. ¶¶

136

20-21.) He now clarifies, however, that in retrospect he cannot recall analyzing while at Santa Cruz, USL, or Novell whether a licensee could freely distribute such added-on material. (Id. ¶ 21.) He explains that he never undertook such analysis for two main reasons:

"The first reason is that given the licensees' respective businesses, they had no compelling reason to want to disclose the source code of their UNIX flavors in the first place. The licensees were trying to develop the best UNIX flavors they could to distinguish themselves from their competitors in the effort to increase hardware sales by selling the hardware with an attractive UNIX operating system; they were not seeking to license their UNIX-flavor source code to others, thereby enabling those third parties to improve their own UNIX flavors and thereby increase their own hardware sales. In short, the operating assumption among AT&T, USL and their licensees was that the licensees would keep their UNIX-flavor source code confidential." (Id. ¶ 21.)

"The second, related reason is that the current circumstances raising the confidentiality issue were not ones that were presented to me while I was at USL or Novell. That is, I never specifically considered whether a licensee might want to use the added-on material to create a UNIX clone outside of the AT&T/USL/Novell royalty framework." (Id. ¶ 21.)

Mr. Bouffard now states clearly, however, that "even if AT&T did not intend to preclude their licensees from using their "added-on" material for certain purposes, AT&T did not intend to permit its licensees to use their "added-on" material from their UNIX flavors to create a UNIX clone outside of the AT&T/USL/Novell royalty framework.

As an example of his point, Mr. Bouffard cites USL's and Novell's source code- exchange program. (Ex. 50 ¶¶ 24-26.) Under that process, USL would permit one UNIX licensee to share the code of its UNIX flavor with another UNIX licensee, but only if the second licensee had a license for the same version of UNIX as the first licensee. (Id. ¶ 24.) The licensing group did not consider, as part of that process, whether the code the first licensee wished to show the second licensee was solely added-on code. (Id. ¶ 25.) USL's perspective was that if the code was part of a UNIX flavor, then the second licensee was obligated to have a license for the same version of UNIX as the first licensee. (Id.) That was true even though, as

137

the agreements stated, AT&T, USL and Novell did not claim to "own" that portion of a modification or derivative work that was not part of the licensed UNIX software product. (Id.)

SCO's evidence shows that multiple AT&T, USL and Novell executives and members of the UNIX licensing group make the exact same point, regarding the source code-exchange process, that USL and Novell did not seek to draw the distinctions that IBM now says were draw — let alone make representations to licensees on that issue. (Exs. 12,41,43,333, 337,375.) In addition to the contradictory testimony offered by Messrs. Wilson, Frasure, and Vuksanovich, and the supportive testimony of Messrs. Green, Cronan, and Rodgers, the witnesses who confirm SCO's interpretation of the Agreements thus include, among others:

Ira Kistenberg, initially an IBM declarant, who worked for AT&T and USL in the UNIX licensing group as a Contracts Manager, including on the Sequent Account, from 1984 until 1993. (Ex. 75; Ex. 10.)

Mitzi Bond, who worked for AT&T, USL and Novell in the UNIX licensing group as a Contracts Manager from 1983 until 1994. (Ex. 14; Ex. 69; Ex. 24.)

Evelyn Davis, who worked for AT&T, USL and Novell in the UNIX licensing group as a Contracts Manager from 1975 until 1994. (Ex. 4.)

William Guffey, who worked for AT&T from 1969 until 1987 and was the head of AT&T's Software Services Division, including UNIX licensing, in 1985 and Mr. Wilson's supervisor. (Ex. 138.)

REDACTED


Marty Pfeffer, who worked for AT&T as its General Counsel regarding UNIX licensing in the 1980s. (Ex. 8; Ex. 261.)

138

REDACTED


William Broderick, who has worked for USL, Novell, Santa Cruz and SCO as a Contracts Manager in the UNIX licensing groups and Director of Software Licensing. (Ex. 333; IBM Ex. 297.)

John Maciaszek, who has worked for USL, Novell, Santa Cruz and SCO as a Contract Manager in the UNIX licensing groups. (Ex. 355; Ex. 360.)

William Murphy, who has worked for Western Electric, AT&T, USL, Novell, Santa Cruz and SCO as a Contract Manager in the UNIX licensing groups. (Ex. 337.)

REDACTED

The foregoing evidence is an independently sufficient basis for denying IBM's motion for summary judgment on the grounds of both its asserted interpretation of the Agreements and its asserted reliance on supposed representations made to the company by members of the same UNIX licensing groups as the individuals set forth above.

5. The IBM Side Letter.

IBM says it is undisputed that IBM's Side Letter allowed IBM to use and disclose methods and concepts however it wanted, but the plain language of the Side Letter belies that

139

interpretation and SCO's evidence shows that the Side Letter did not permit IBM to disclose such methods and concepts in its modifications and derivative works, and did not permit IBM openly to disclose the source code of its derivative works. (¶¶ 21-29; ¶¶ 87-89.)

In fact, one of the former USL and Novel1 executives who had signed a declaration for IBM, Larry Bouffard, now confirms his understanding that although the Side Letter amended IBM's Agreement in certain respects, IBM nevertheless remained obligated to treat its modifications and derivative works as set forth under the standard UNIX license agreement, under which IBM was not permitted openly to disclose any part of its modifications or derivative works to develop an unlicensed UNIX clone, such as Linux. (¶¶ 87-89;Ex. 50 ¶¶ 39-41.)

6. Integrated Agreements.

IBM says it is undisputed that AT&T intended for the terms of IBM's Side Letter to apply to Sequent, but the plain language of Sequent's Agreement belies that interpretation and SCO's evidence shows that the terms and conditions binding Sequent were as set forth in its Agreement. (¶¶ 13-21.)

IBM also says it is undisputed that AT&T made certain representations regarding the scope of the Agreements that are not reflected in the plain language of the Agreements, but the plain language of the Agreement reflects, and SCO's evidence further shows, that the license agreement and written amendments or clarifications thereto represented the entire understanding between the parties, and that AT&T did not amend or modify any agreement orally. (¶¶ 91-92.)

140

C. The Restrictions in the Agreements on Disclosures from Derivative Works Is Reasonable.

In effect acknowledging the plain scope of the Agreements, IBM argues that the plain restrictions of the Agreements must be commercially unreasonable and violative of public policy. SCO shows below that each of IBM's arguments fails.

As to the framework of the relevant analysis, IBM acknowledges that, in the event of ambiguity in the Agreements, the relevant extrinsic evidence must include an assessment of the parties' respective businesses and economic incentives at the time of contracting. (IBM Ex. 283 at 31-57.) SCO shows below that such evidence confirms that the plain scope of the Agreements was and is eminently reasonable.

1. The Parties' Shared Control Rights Under the Agreements.

IBM proposes that neither IBM nor Sequent would have entered into a license agreement with AT&T under which AT&T exercised what IBM calls "control rights" over its and Sequent's "homegrown" material. In so basing its arguments, IBM misconstrues (or else ignores) the eminently reasonable, shared rights between the parties.

In clarifying that it claimed no ownership interest in any portion of a modification or derivative based on the licensed UNIX software product that is not part of the licensed UNIX software product, AT&T made clear that it had no affirmative right to take such "add on" material from its licensees. AT&T could not reach out and appropriate Sequent's work for AT&T's benefit while the Agreement was in place. At the same time, AT&T's foregoing clarification plainly did not address the licensees' obligations of confidentiality. (See Part I.A, above.) The Agreements thus reflect a scenario in which the parties shared what IBM calls "control rights" over the modifications and derivative works — not a situation in which the

141

licensees had no control or claim or right whatsoever to their "homegrown" or "add on" material.

REDACTED

The plain language of other side letters that AT&T wrote to its UNIX licensees confirm the framework of shared rights between AT&T and its licensees regarding their modifications and derivative works. (By IBM's own lights, the terms of such side letters — especially where they were executed after the IBM Side Letter — must apply to all of AT&T's UNIX licensees, including IBM and Sequent.)

Digital, for example, entered into a standard UNIX license agreement on September 21, 1984. On February 21,1985, AT&T sent a letter under the letterhead of Mr. Wilson (signed by Mr. Frasure) to Digital. (Ex. 26.) Paragraph 3 of the Digital Side Letter states:

If such derivative work does include any code or embody any confidential and proprietary methods and concepts used in a SOFTWARE PRODUCT, DIGITAL shall have a property right in such derivative work to the extent of any modifications made by DIGITAL, but the exercise of that property right is subject to the terms of the Software and Sublicensing Agreement.
(Ex. 26 ¶ 3 (emphasis added).) Paragraph 3 thus confirms the scope of the standard UNIX license agreement. Although a licensee will have a "property right" in a derivative work "to the extent of any modifications" by the licensee, the Software Agreement sets forth limitations on the exercise of that property right. As among "the terms of the Software and Sublicensing Agreement," the confidentiality restrictions of the Software Agreement must apply to even those portions of the derivative work that the licensee owns. Paragraph 3 thus confirms the distinction between ownership and control.

142

The foregoing framework of shared control rights between AT&T and its UNIX licensees thus belies IBM's arguments based on AT&T's allegedly exclusive "control," and provides the relevant context to examine IBM's assertions of commercial unreasonableness and absurdity arising out of the plain language of the Agreements.

2. The Agreements Properly Reflect Copyright Law.

IBM argues that one reason for the Court to construe the Agreements contrary to SCO's interpretation is because under that interpretation, AT&T would have secured more protection for its intellectual property than the copyright laws provided.

In its UNIX licenses agreement AT&T specifically sought to secure for itself greater protection for the licensed UNIX software product than the product might have had under the copyright laws. (¶ 81.) Although by the mid-1980s the federal courts had repeatedly held that computer programs and software were copyrightable, see. e.g., Whelan Assocs. v. Jaslow Dental Lab., 609 F. Supp. 1307, 1319-20 (E.D. Pa. 1985); S&H Computer Sys, Inc. v. SAS Inst., Inc., 568 F. Supp. 416,422 (M.D. Tenn. 1983), there was not a wealth of precedent on the issue. IBM thus seeks to disregard the context in which the parties entered into the Agreements at issue and sensibly agreed, in exchange for direct access to AT&T's intellectual property, to provide AT&T with certain protections that the copyright law may not have provided.

IBM's argument also fails because its core premise, that a party could not protect its intellectual property to any greater extent under contract if that property were protected by other common law or statutory law that applies to that intellectual property, is clearly not the law. It is well established that under a contract, one party may secure greater protection for its intellectual property than the party enjoys under the statutory law. That is particularly true where, as here,

143

under the contract the owner of the intellectual property affords its counterparty special access to the licensed material that the counterparty would not otherwise have had. See, e.g., Nat'l Car Rental Sys, Inc. v. Computer Assocs. Int'l, Inc., 991 F.2d 426, 431-35 (8th Cir. 1993) (holding that the licensor may properly seek to enforce license provision affording the licensor greater rights that it would hold under the copyright laws); Adobe Sys Inc. v. One Stop Micro. Inc., 84 F. Supp. 2d 1086, 1091-92 (N.D. Cal. 2000) (endorsing expert testimony addressing the utility and efficiency offered by software licenses in comparison to the intellectual-property laws); Computer Assocs. v. State St. Bank & Trust, 789 F. Supp. 470,475 (D. Mass. 1992) (holding that the applicable limitations on the licensee's use of the programs at issue "must be derived initially from the license agreements, not copyright law").

3. The Agreements Are Consistent with Public Policy

IBM argues (at 87) that where "SCO seeks to control the employment and employability of anyone who ever worked on Dynix," the Agreements as SCO interprets them are "contrary to public policy." This argument fails for three principal reasons:

First, SCO does not interpret the Agreements to impose restrictions on employment or employability as such. SCO does not base any claim of breach on the mere fact that IBM employed former Sequent employees.8

144

Second, the nondisclosure provisions in the license agreements do not raise public-policy concerns. It is well established that contractual restrictions against disclosure of trade secrets, proprietary and confidential information, and derivatives of such material are enforceable. See, e.g., IDX Sys Corp. v. Epic Sys. Corp., 285 F.3d 581, 586 (7th Cir. 2002) (recognizing contractual right to protect intellectual property from disclosure and enforcing provision requiring that software customer maintain the software and its related intellectual property confidential); HotSamba, 2004 WL 609797, at *5 (licensee prohibited from transferring derivative works of licensed material); Integrated Cash Mgmt. Servs. Inc. v. Digital Transactions, Inc., 732 F.Supp. 370, 377 (S.D.N.Y. 1989) (enforcing restriction requiring that programmers not disclose confidential information regarding the software of their former employer and enjoining their new employer from further developing competitive product). Nondisclosure restrictions are enforceable because they do not run counter to, but rather advance, public policy. See, e.g., IDX Sys., 285 F.3d at 586 (observing that nondisclosure restrictions "may make intellectual property more valuable to its producer and thus promote both the creation of knowledge and competitions against other firms"); see also Ex. 278 ¶¶ 81-86.

Contrary to IBM's position, the law makes clear, for example, that an employer may require an employee to maintain the employer's trade secrets both during and after employment, where the obligation to maintain the trade secrets after employment never terminates. See

145

Structural Dynamics Research Corp. v. Eng'g Mechanics Research Corp., 401 F. Supp. 1102, 1114 (D. Mich. 1975) (state laws recognized and enforced covenants not to use or disclose confidential information without reasonability limitations); Zep Mfg. Co. v. B. Harthcock, 824 S.W.2d 654 663 (Tex. Ct. App. 1992) (distinguishing nondisclosure from noncompete covenants and holding that nondisclosure provision was not subject to reasonable temporal, geographical, or scope-of-activity limitations); Williston on Contracts (4th ed.) ("It necessarily follows from the recognition of a property right in trade secrets that express contracts which prohibit their disclosure by those entrusted with knowledge of them are valid and may be as broad as is necessary to protect the owner from injury by the disclosure of the secret or its competitive use."); Raymond T. Nimmer, Nimmer on Law of Computer Technology § 3:37 (2006) ("While subject to general contract law considerations, nondisclosure agreements are generally not subject to special limitations that are typically applied to non-competition agreements with employees. The two types of agreements have different goals and much different effects on the employee and general patterns of competition."); cf. Henry Hope X-Ray Prods., Inc. v. Marron Carrel. Inc., 674 F. 2d 1336, 1342-43 (9th Cir. 1982) (nondisclosure provision without any time or space limitations was enforceable where "the disclosure or use of its trade secrets anywhere could reasonably be expected to harm [plaintiffs] business interests" and provision contained "implicit temporal limitation that information may be disclosed when it ceases to be confidential").

In fact, the courts have enforced contractual restrictions on the disclosure of computer programs under facts nearly identical to those in this case. In IDX Systems, a software provider sued its competitor and former customer, alleging that the competitor had induced the customer

146

to breach nondisclosure provisions of its contract with plaintiff. In particular, the customer had "promised not to allow the software and related materials furnished by IDX to be examined for the purpose of creating another system and vowed in addition not to use or disclose or divulge to others any data or information relating to the system or the technology, ideas, concepts, know-how, and techniques embodied therein." 285 F.3d at 584 (quotations omitted). Despite evidence that the customer's employees, who were also plaintiffs former employees, had made restricted disclosures to the competitor, the district court dismissed the claims holding that "the promises are unenforceable because they are unlimited in temporal and geographic scope, and thus unduly restrain trade." Id. at 584-85. The Seventh Circuit reversed, concluding there was no binding authority requiring "temporal or geographic limits as a condition to the enforcement of a non-disclosure agreement for intellectual property." Id. at 586. Moreover, the court observed that the public policy concerns underlying those limits did not apply to nondisclosure agreements. Id. at 585. Indeed, the court noted, the nondisclosure agreement "may compel rivals such as [competitor] to do more work to develop software independently, but this promotes rather than restricts competition." Id.

Similarly, the provisions in this case precluding IBM from disclosing SCO's invaluable confidential information and the derivatives of it raise no public policy considerations other than promoting healthy innovation and competition in the industry.9 In fact, as noted above, IBM's

147

REDACTED

Third, with respect to the scope of the Agreements and the manner in which they protect trade secrets and the value of AT&T's UNIX asset, IBM makes its argument from "public policy" without acknowledging the precedent from the New York courts establishing the courts' strong reluctance to decline to enforce a contract on such grounds. The precedent reflects the courts' strong deference to "freedom of contract." Slayko v. Sec. Mut. Ins. Co., 98 N.Y.2d 289, 295 (2002); accord New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74,81 (1989); see also Wechsler v. Hunt Health Sys., 216 F. Supp. 2d 347,354 (S.D.N.Y. 2002) (a court should enforce a contract unless a "clear and certain" violation of public policy would result); Pfoh v. Elec. Ins. Co., 788 N.Y.S.2d 441,442-43 (App. Div. 2005) (rejecting argument that exclusion in auto policy for resident relative of insured was void as against public policy in absence of statutory requirement that such coverage be provided); Chase Manhattan Bank v. New Hampshire Ins. Co., 749 N.Y.S.2d 632,642-43 (Sup. Ct. 2002) (refusing to declare insurance policy void on public policy grounds; "it is well to remember too that 'the right of private contract is no small part of the liberty of the citizen, and the usual and most important function of courts of justice is rather to maintain and enforce contracts than to enable parties thereto to escape from their obligation on the pretext of public policy, unless it clearly appears that they contravene public right or the public welfare.'") (quoting Miller v. Cont'l Ins. Co., 40 N.Y.2d 675 (1976)). When considered in the appropriate context, the Agreements plainly do not contradict any "public policy."

148

4. The Scope of the Agreements Has Always Been Reasonable.

The nature of AT&T's, IBM's and Sequent's respective businesses in the mid-1980s shows that the Agreements are commercially unreasonable and do not produce what IBM calls "absurd" results.

a. The Significant Advantage of the UNIX Head-Start
in the UNIX in Ecosystem That Developed.

UNIX provided a valuable head-start for licensees. By 1983 UNIX was not only a mature and robust operating system resulting from fourteen years of development, but also was the foundation technology for an entire network of skilled software developers, experienced IT services staff, and end users. The head-start would allow licensees to capitalize on the years of software development, significant expense and huge popularity of UNIX in the enterprise- computing arena. Licensees would thus reap the benefits from their investments by fulfilling customer demand with a differentiated "flavor" of UNIX that augmented their own proprietary hardware, other software, and services. (¶ 32-42.)

As a result of the revolutionary advantages offered by UNIX, a large number of users, programs, and programmers did and were expected to favor UNIX over competing operating systems. Accordingly, hardware providers in the 1980s became increasingly interested in offering versions of UNIX that would perform well on their hardware. AT&T recognized this landscape and developed a business plan under which AT&T would help hardware providers achieve this aim. (¶¶ 32-42.)

AT&T's business model was to allow other firms to purchase the head-start toward involvement in the UNIX ecosystem. What AT&T sold was the right to use the UNIX foundation to jumpstart the firm's entry into the community of UNIX end-users, UNIX programs,

149

and UNIX programmers. The hardware firm would as a result be able to take part in the UNIX ecosystem quickly and at reasonable cost, thereby avoiding strategically infeasible alternatives like developing a UNIX-compatible operating system from scratch. (¶¶ 32-42.)

What AT&T brought to the table was the foundation. It was up to the licensee to move forward from there, tailoring UNIX to accentuate that particular firm's hardware strengths. Over time, most licensees would add large amounts of code to their UNIX flavor and a great percentage of the resulting Unix code would therefore be code written by the licensee. Even at that point, however, the dynamic would be the same: AT&T would continue to earn revenue based on the resulting Unix flavor, because the licensee developed that flavor in reliance on AT&T's initial head-start contribution. (¶¶ 43-42.)

In other words, while AT&T in fact delivered specific lines of code to its clients, what it really licensed was the head-start that the code made possible. Firms were of course not obligated to purchase a head-start from AT&T. A firm could, for example, attempt to develop a UNIX-compatible operating system entirely from scratch. A firm that took advantage of the head-start, however, could not then escape its royalty and confidentiality obligations just because the head-start had worked and the firm had as a result been able to successfully develop even a substantially further developed UNIX variant. (1732-42.)

AT&T had success with its business model. Indeed, between 1985 and 1995, nearly every major hardware firm, including IBM, HP, Sun, Data General, Unisys, NCR, and Compaq, licensed AT&T's UNIX code. (¶¶ 43-47.) AT&T's perception in the mid-1980s of the prospective value of UNIX was further borne out in the years that followed. By the mid-to-late 1980s, there had been an enormous growth in the number of UNIX systems vendors and

150

applications among large businesses and law firms, and an increasing number of corporate users turned to UNIX for their mission-critical computing needs and independent software vendors (or "ISVs") developed numerous business-related applications for use with it. (¶¶ 43-47.)

b. The Parties' Commercial Interests Regarding UNIX.

Although IBM licensed UNIX from AT&T in 1985, it was not until the 1990s that IBM fully embraced UNIX. (¶ 51.) By the time IBM did fully embrace it, UNIX offered IBM two decades of development and community adoption as a head-start when compared to developing a completely new operating system from the ground up. IBM had been in the operating-system business for many years, yet it did not have a ready-made or close-to-complete operating system for an open-architecture server system, which is what UNIX was. Clearly, however, it would be much more difficult to develop a new operating systems from scratch than building on the head- start of UNIX. (¶¶ 50-56.)

Sequent also was not pursuing in the mid-1980s an unlicensed UNIX clone. Sequent was an AT&T licensee even before 1985, paying AT&T for the right to build on a combination of AT&T code and code from BSD. The 1985 contract was more of the same; Sequent again signed up to build on AT&T's head-start, and Sequent again was given access to additional AT&T code. Both before 1985 and in 1985, Sequent thus had only one UNIX strategy, and that strategy involved developing a UNIX flavor fully licensed by AT&T. (¶ 57.)

c. AT&T's UNIX Licenses Made Good Economic Sense.

In sharp contrast to the absence of any compelling reason for IBM or Sequent to loosen the core protections of the AT&T standard UNIX license, AT&T had an overriding interest in protecting the value of its UNIX asset. (¶¶ 48-59.) If AT&T had granted its licensees the right

151

to take source code, methods and concepts from a licensed UNIX flavor and use that material to subsidize the development of a competing, unlicensed UNIX clone, such a grant would have threatened AT&T's ability to profitably license its UNIX foundation. At the same time, neither IBM nor Sequent would have considered that right to be particularly valuable, because neither had any interest in pursuing a UNIX operating system beyond the licensed flavors they were developing. (¶ 58.)

In other words, from an economic perspective, if AT&T allowed IBM to use the product it developed based on the licensed UNIX software product to create or help develop an unlicensed UNIX clone, IBM would be able to destroy AT&T's UNIX asset. AT&T's licensees would migrate from AT&T's UNIX ecosystem to IBM's because IBM could offer the same ecosystem at a lower price, thanks to its exploitation of AT&T's head-start. (¶ 59.)

The operation of AT&T's standard UNIX licenses reflected these basic considerations. AT&T's UNIX licensees were permitted to use the AT&T UNIX foundation internally. They were also permitted to package it with hardware in object code format and to produce flavors that could be sold to equivalent-scope licensees. None of these rights threatened AT&T's UNIX business. The internal use of UNIX could not include the sale of an operating system to third parties; purchasers of hardware would not be able to inspect the source code and thus could not use the AT&T foundation to develop a competing, unlicensed UNIX system; and sales to equivalent-scope licensees at worst would result in disclosure only to parties who already bought from AT&T permission to see source code and thus have already agreed to abide by the above restrictions and confidentiality. AT&T thus protected the full value of its UNIX asset while leaving licensees with broad rights to pursue their legitimate businesses as well. (¶ 60.)

152

IBM and Sequent had no reason to object to these provisions, and the terms of the licenses to which they agreed show that they in fact did not object. Indeed, neither IBM nor Sequent would have considered it a valuable right even to be able to distribute source code, methods and concepts from their UNIX flavors only to equivalent-scope AT&T licensees. Such distributions would only serve to permit the equivalent-scope licensees to develop their own UNIX flavors to sell with their own hardware, thereby hurting IBM's and Sequent's sale of their hardware on which their UNIX flavors operated. (¶ 62.)

In sum, AT&T, IBM and Sequent entered into UNIX license agreements in 1985 that were eminently reasonable from a commercial perspective. Their reasonableness is supported by the expert testimony of Harvard Business School Professor Gary Pisano and clearly suffices to defeat IBM's request for the Court to find that the Agreements are commercially unreasonable and lead to "absurd" results.

Indeed, in repeatedly seeking to buttress its assertions regarding IBM's and Sequent's supposed intent in 1985, IBM acknowledges the relevance of substantial expert evidence that undercuts those assertions. On the premise that the ambiguity of the Agreements makes relevant an economic analysis of the parties' intent and motivation at the time the Agreements were executed, IBM repeatedly cites (as at IBM ¶¶ 80, 81, 130, 289, 291, and 292) the testimony of proposed expert Robert Willig. (IBM Ex. 283.) IBM's reliance on Dr. Willig's views are no support for IBM's request for summary judgment, however, for two main reasons.

First, SCO expert Dr. Gary Pisano directly refutes Dr. Willig's premises and conclusions. Dr. Pisano shows that in 1985 neither IBM nor Sequent was trying to build any operating system from scratch let alone an unlicensed UNIX clone like Linux, without the benefit of AT&T's

153

head-start. In contrast, AT&T's business model was to allow other firms to purchase the headstart toward involvement in the UNIX ecosystem that had developed. Dr. Pisano explains: Thus, economic analysis based on undisputed industry facts makes clear that the right at issue in this litigation would not have been granted to IBM or Sequent. It is a right that would have been expected to cost AT&T far more than it would have been expected to benefit either IBM or Sequent. This is not a close call. There are details in these contracts that could be subject to plausible dispute. But clearly none of these contracts would have authorized IBM to do what it did when it contributed code and concepts to Linux. (Ex. 286 at 85-86.) Dr. Pisano concludes: "AT&T's standard form license agreements reflected these basic considerations." (Id. at 87.) AT&T and USL policymakers confirm that "as the owner of the singular UNIX asset, AT&T was not in the business of enabling or subsidizing any , of the UNIX licensees to license the source code for their UNIX flavors to others and thereby compete with AT&T in creating binary-royalty revenues." (Ex. 12 ¶ 6; accord Ex. 375 ¶ 13.)

Second, Dr. Willig's testimony at deposition vitiated his opinions. Dr. Willig admitted that for his analysis he did not know or had not even considered:

  • Whether in the early 1980s IBM sold operating systems for use on any non-IBM hardware (42).

  • Whether in the early 1980s IBM sold any operating systems at all (42-43).

  • Whether in the early 1980s IBM licensed any source code to anyone (43).

  • Whether in the early 1980s IBM sold any software that could run on any non-IBM hardware (43).

  • Whether AT&T's UNIX licensees in the 1970s had the right to distribute UNIX in source code form (46).

  • Whether in the 1980s AT&T's UNIX licensees were obligated to pay AT&T a royalty fee for their distributions of their UNIX flavors in binary format (49).

154

Why Sequent did not undertake to develop its own cross-platform operating system from scratch (61).


  • Whether as a technical matter Sequent even could have developed its own crossplatform operating system from scratch (61).

  • How long it might have taken a company in the 1980s to develop its own crossplatform operating system from scratch (174).
These startling gaps in Dr. Willig's knowledge precluded any reliable or remotely thorough assessment of the industry, and the parties' respective economic incentives, as of 1985.

Just as fundamentally, Dr. Willig conceded that where the premises of his analyses were corrected to reflect SCO's actual interpretation of the Agreements — where the licensees owned parts of their derivative works, but nevertheless had to keep all parts of the derivative work confidential for AT&T — he in fact had not analyzed whether the parties would have agreed to such an arrangement as the jointly optimal one from an economic perspective. (Id. at 286-90.) That is, Dr. Willig simply had not analyzed from an economic perspective the shared control rights that obtain under SCO's interpretation of the Agreements. (Id.) These admissions, and others, render Dr. Willig's opinions both unfounded and irrelevant.

IBM nevertheless argues (at 89) that the application of SCO's theory in the computer industry today "would generally have far-reaching negative implications." IBM misses the picture. Prior to deciding to license the UNIX source code, any company could have decided instead to try to develop its own operating system, including its own UNIX-like operating system, and thereby be free of any control over their "homegrown" material. (¶¶ 38-42.) AT&T's capacity to negotiate and obtain partial control over its licensees UNIX flavors was a function of the many years that AT&T and its predecessors had invested in developing UNIX, and that

155

prospective licensees recognized they would have to spend if they wanted to try to develop their own UNIX-like operating system from scratch. (¶¶ 43-62.) The subsequent prevalence of UNIX flavors in the industry — the fact that so many companies decided instead to license the UNIX head-start — serves to reinforce the reasonableness of the terms of the UNIX licenses. (¶¶ 43-62.)

IBM further take issue (at 90) with the "viral quality" of AT&T's license agreements and contends that under those agreements, the owners of UNIX derivative works "would be limited in their ability to support or even market them." IBM thus implies that it is inappropriate for a contract to cover the derivative works of a program, yet the very contract that Linux is distributed under also controls the derivative works of Linux (IBM Ex. 128 at 3), and IBM's own

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY


It cannot be that the UNIX license agreements must be interpreted to have a lesser scope simply because AT&T and its successors were enormously successful in a licensing a product pursuant to licenses whose terms the licensees evidently found reasonable.10

II. THE SUBSTANTIAL EVIDENCE AND THE NEW YORK LAW OF EQUITABLE ESTOPPEL PLAINLY ALLOW SCO TO PURSUE ITS CLAIMS FOR BREACH OF CONTRACT.

IBM's estoppel argument, an inherently fact-specific issue, is no basis for summary judgment, considering both the facts on record and the relevant New York law. Under the law, for example, the plain language of the integration clause in the IBM Agreements is itself an

156

independently sufficient basis on which to deny IBM's Motion. With respect to the facts, contrary to the version of events on which IBM now bases its Motion, concurrent, internal IBM documents demonstrate that IBM had concluded that it was obligated to hold all of AIX in confidence for AT&T. (¶¶ 164-168.) SCO sets forth in detail below why IBM's estoppel argument fails.

The following principle obtains under New York law (as under the law of other jurisdictions): "Whether equitable estoppel applies presents an issue of fact."11 Bennett v. U.S. Lines. Inc., 64 F.3d 62,65 (2d Cir. 1995); accord Dunlop-McCullen v. Pascarella, No. 97 Civ. 0195 (PKL) (DFE), 2002 WL 31521012, at *I5 (S.D.N.Y. Nov. 13,2002) (Ex. C) ("Estoppel is usually a question of fact inappropriate for summary judgment."); Besicorp v. Enowitz, 652 N.Y.S.2d 366,369 (App. Div. 1997) (same).)12 That precedent applies with particular force where, as here, the question is whether a party should be estopped not by its own prior conduct, but rather by the alleged conduct of its predecessors in interest. Such a scenario further underscores the jury's role in assessing the "equitable" aspect of the asserted estoppel.

A. New York Law Does Not Support IBM's Estoppel Argument.

157

New York courts, including the courts cited by IBM have confirmed the following, well seasoned elements for an equitable estoppel:

The essential elements of an equitable estoppel as related to the party estopped are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, they are: (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance upon the conduct of the party estopped; and (3) action based thereon of such a character as to change his position prejudicially.
N.Y. State Guernsey Breeders' Co-op v. Noyes, 22 N.Y.S.2d 132, 140 (App. Div. 1940); accord Holm v. C.M.P. Sheet Metal, Inc., 455 N.Y.S.2d 429,433 (App. Div. 1982). "The elements that pertain to the party asserting the estoppel are commonly termed the elements of detrimental reliance." Holm, 455 N.Y.S.2d at 433. Application of these elements shape "New York's rather restrictive view" of the doctrine. Id. When these essential elements are considered, IBM's argument that SCO is estopped from arguing that IBM has breached the Agreements must fail for any of the following principal reasons:

First, IBM fails to establish as a matter of law any "conduct" on which IBM says it reasonably relied. SCO disputes that the statements regarding IBM's rights in "homegrown" material were made. (¶¶ 63-163.) In addition, the statements IBM cites, even if accepted, do not provide a legal basis for support summary judgment for the various reasons listed below.

Statements Subject to the Integration Clause. The Integration Clause contained in Paragraph 4 of the Agreements clearly controls the ways in which the parties intended to permit amendment and clarification of the Agreements. With respect to statements made during the negotiations between the parties, "neither of the parties shall be bound by any conditions,

158

definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein." (¶ 18.) With respect to amendment or clarification after the execution of the Agreements, the parties also make it clear that the only way the parties would be bound is when the amendment or clarification is "duly set forth on or subsequent to the date of acceptance hereof in writing and signed by a proper and duly authorized representative of the party to be bound thereby." (Id.)

Notwithstanding that clear expression of intent, IBM's argument for estoppel claim depends on "statements"13 made by AT&T representatives concerning interpretation or clarification of the Agreements to estop SCO from arguing a plain-language breach of the Agreements. This argument improperly seeks to circumvent the integration clauses of the Agreements, under the mistaken view that "equitable estoppel" trumps the express intent of the parties as to amendment or clarification at the execution of their agreement.

Under New York law, any evidence of such statements are barred in the context of an estoppel claim. See Holloway v. King, 161 Fed. Appx. 122, 125 (2d Cir. 2005). IBM has used that principle to its advantage in other litigation. See, e.g., Int'l Bus. Mach. Corp. v. Medlantic Healthcare Gp., 708 F. Supp. 417,423-24 (D.D.C. 1989) ("IBM has shown that the parole evidence rule would work to exclude evidence of any prior promises or agreements, and, in this Court's view, IBMs' showing controls as against any claim of promissory estoppel"). As in

159

Medlantic, the text of the integration clause controls the evidence that can be marshaled to support an estoppel claim. The integration clause between AT&T and IBM clearly forbids introduction of evidence of any statements that were made in negotiations and any statements made after execution of the Agreements that were not signed and in writing.

In addition, as an independent matter, IBM cannot have reasonably relied as a matter of law on any purported statement, given the integration clause. See Gebbia v. Toronto-Dominion Bank,762 N.Y.S.2d 38, 38 (App. Div 2003) (integration clauses forbid party from making a "tenable claim that they reasonably relied upon the representations alleged in support of their estoppel cause of action" (citing Thayer v. Dial Indus. Sales, Inc., 85 F. Supp. 2d 263,272 (S.D.N.Y. 2000)); see also Towne Gardens v. McDonalds Corp., No. 04-CV-292S, 2005 WL 2406004, at *4 (W.D.N.Y. Sept. 29,2005) (Ex. M) (presence of integration clause in lease created a material question of fact as to whether reliance on letter that did not meet clause's requirements for alteration of agreement was reasonable); Brock v. Baskin Robbins, USA. Co., No. 5:99-CV-274,2003 WL 21309428, at *5 (E.D. Tex. Jan. 17,2003) (Ex. B) ("[In the face of a merger and integration clause, as is present in these agreements, and absent fraud apparent from the underlying document, no reliance on these non-written assertions can be reasonable as a matter of law."); G. & V. General Contractors, Inc. v. Goode, No. 86-7408, 1990 WL 79436, at *4 (E.D. Pa. June 7,1990) (Ex. E) (existence of integration clause meant that "by the terms of the very contract appended to its complaint, plaintiff had no right to 'rightfully rel[y]' on any alleged oral or written representations made to it concerning defendant"). On this additional basis, any alleged statements made to IBM (on which, as shown above, there is a sharply disputed factual issue) is no basis for summary judgment.

160

The presence of the integration clause also raises an issue of material fact as the intent of AT&T with respect to the "statements" that IBM claims estop SCO's behavior. IBM must demonstrate that AT&T and its successors-in-interest intended that IBM rely on what the declarants "told" "assured" or "informed" IBM. In this case, such an intent cannot possibly have arisen in the face of a written provision in the Agreement that expresses AT&T's intent that any statements made prior to execution had no effect on the Agreements and that subsequent statements must be in writing. See Automatic Sys. Developers, Inc. v. Sabratek Corp., No. 93 Civ. 7149 (VLB), 1993 WL 535670, at *2 (S.D.N.Y. Dec. 22, 1993) (Ex. A) ("Where a contract provision specifies that an additional agreed-upon writing is necessary to any revisions, this clear indication of intent should be honored." (citing Arcadian Phosphates v. Arcadian Corp., 884 F.2d 69, 72-73 (2d Cir. 1989).) At a minimum, the fact that AT&T agreed to limit amendment or clarification to signed written documents raises an issue of material fact as to whether AT&T intended the statements noted by the declarants to those statements to be acted upon by licensees.

Statements by SCO Predecessors-in-Interest. IBM relies on statements by AT&T, and possibly USL and Novell. New York law holds that equitable estoppel is binding on a successor-in-interest only when it "knew of the existence of the facts which operate as a bar to the claim of the grantor." Int'l Chimney Corp. v. 26 W. Spring St. Assocs., 561 N.Y.S.2d 933, 934-35 (App. Div. 1990) (quoting 31 C.J.S. Estoppel § 133); see also Holm, 455 N.Y.S.2d at 433; 57 N.Y. Jur. 2d Estoppel, Ratification & Waiver § 43 (stating that "a successor in interest is not necessarily subject to an equitable estoppel valid against his or her predecessor, unless the

161

successor takes the interest with knowledge of the facts creating the estoppel").14 IBM is therefore required to establish a factual basis on which to enforce such an estoppel against SCO — namely, evidence that SCO had ever learned of the supposed statements or representations by its predecessors in interest but had failed to correct them. See. e.g., Int'l Chimney Corp., 561 N.Y.S.2d at 934 (where there was "no question" that a successor in interest had knowledge of the facts that gave rise to the estoppel, it was bound by an estoppel effective against the grantor). IBM cites no case that supports their assumption that SCO is automatically bound by the words of those same predecessors.15 IBM fails either to allege or demonstrate with undisputed facts that SCO had knowledge of any of the alleged statements. This failure, along with 1IBM's failure to attribute any of the "statements" directly to SCO, is fatal to IBM's estoppel claim.16

162

Silence or Inaction by SCO. IBM also suggests (at 96-97) SCO's silence as a basis to purport to estop SCO from arguing a breach. This claim also fails as a matter of law. Under New York law, the "elements that give rise to estoppel by silence are: (1) a duty to speak; (2) an opportunity to speak, and (3) injury to another party as a result of the failure to speak. & In re Ellison Assocs., 13 B.R. 661,675-76 (Bankr. S.D.N.Y. 1981). "The duty to speak may arise where the facts establish (1) a fiduciary or confidential relationship exists, or (2) one party has superior knowledge, or (3) one party will receive unjust enrichment." In re Vebeliunas, 252 B.R. 878,888 (Bankr. S.D.N.Y. 2000).

IBM fails to allege, let alone prove as a matter of law, that SCO had either a duty or an opportunity to speak. As explained, IBM has not presented any facts (because it cannot) showing that SCO was aware of any of the alleged representations on which IBM claims to have "relied" on in breaching its UNIX licenses. Thus, SCO did not have an opportunity to disabuse IBM of its purported belief that SCO would not enforce the restrictions in those licenses. IBM also does not argue, much less prove as a matter of law, that SCO owed it any duty as fiduciary or a confidant, had superior knowledge, or was unjustly enriched by its silence. See Windsor Plumbing Supply Co. v. Windsor Showroom, Inc., 170 B.R. 503, 525-527 (Bankr. E.D.N.Y. 1994) (defining each element of duty).

Third, IBM has failed to show a lack of knowledge sufficient to support the claim that they "reasonably relied" on the statements at issue here. As the party seeking estoppel, IBM is required to show a lack of knowledge of the truth as to the facts in question that were concealed or misrepresented. IBM here claims (at 96) that AT&T, USL and possibly Novell misrepresented or concealed the fact that the Agreements prohibited them from "doing as they

163

wished with their original works." On its face, this claim is not a legal basis for claiming reasonable reliance. As a party to the Agreements, IBM had full knowledge of their scope and meaning, including the existence of the integration clause, and any reliance on extra-contractual assurances is unreasonable as a matter of law. See Fashion Bug No. 2100 of Batavia, Inc. v. 425 W. Main Assocs., 10 Misc. 3d 1053(A) (N.Y. Sup. Ct. 2005) (defendant "was a party to the lease and the amendments and was aware of the 'true facts'. ... It was not unaware of the lease provision [plaintiff] ultimately sought to enforce, nor was it unaware that it was in breach" and could not claim equitable estoppel).17

In addition, Santa Cruz's conduct in 2000 and 2001 with respect to IBM's contributions to Linux is also no basis for an estoppel IBM does not present any evidence or even argue that it relied on Santa Cruz's conduct during that time in deciding to continue to make contributions to Linux from AIX and Dynix/ptx. Indeed, any such assertion would he inconsistent with IBM's claims that well before 1999, it had decided that it was permitted publicly to disclose any part of AIX that it wanted. To he sure, there is substantial evidence contradicting that alleged view; the point is that nothing that Santa Cruz did or did not do with respect to IBM's contributions could allow IBM to assert an estoppel.

In fact, other evidence defeats any argument from IBM that the company relied on SCO's inaction in making contributions to Linux. The evidence shows that IBM gave SCO's rights no consideration at all. Dan Frye founded and leads IBM's Linux Technology Center, which is the

164

organization within IBM dedicated to making technical improvements and technology disclosures to Linux. (Ex. 277.) Mr. Frye's deposition testimony substantially undercuts any assertion of reliance by IBM.

REDACTED

165

These admissions are inconsistent with any assertion that IBM was looking to or relying on anything SCO had said or done in determining whether it was permitted to make the UNIX technology contributions to Linux that it made.

B. IBM's Estoppel Argument Is Based on Sharply Disputed Facts.

In arguing that this Court could enter summary judgment for IBM on the grounds that SCO's predecessors-in-interest have made certain alleged representations to its UNIX licensees, IBM simply ignores the abundant evidence that those predecessors-in-interest did not take the view of the UNIX licenses that IBM claims they did and that those predecessors did not make such representations.

1. The Analyses of the Parties' Experts Defeat IBM's Version of Events.

The substantial expert evidence that IBM concedes to be admissible further contradicts IBM's assertions about its and Sequent's supposed reliance on statements by AT&T at the time the Agreements were executed. IBM relies on the expert report of Dr. Robert Willig (Ex. 283) in arguing that IBM and Sequent had overwhelming economic incentives to demand the assurances that IBM says it and Sequent demanded. IBM argues that such economic considerations are relevant where the contracts, and thus the terms governing the relationship between the parties, are ambiguous. It follows, by IBM's own analysis, that where economic analysis demonstrates that IBM and Sequent did not have the incentives or business interests that IBM says they had, such evidence undercuts IBM's arguments that it or Sequent relied on any supposed representations by AT&T in deciding whether to enter into the Agreements or how to develop its products under those Agreements. SCO expert Dr. Gary Pisano has provided that very economic analysis, and Dr. Willig admitted that in fact he had not undertaken to consider the parties'

166

economic incentives and interests under the Agreements as SCO actually interprets, and AT&T actually interpreted, them. (See Part I.C.4.c, above.)

SCO's expert analysis shows that neither IBM nor Sequent had any significant interest, let alone one that overrode AT&T's countervailing interest in protecting its UNIX asset and business, in securing the right to use so-called "homegrown" material however they wanted. The evidence confirms (and easily permits the inference that) IBM and Sequent did not demand the representations from AT&T they say they demanded. SCO's evidence further shows (and, again, easily permits the inference) that as of the early and mid-1990s, IBM understood that the amendment in its side letter regarding methods and concepts applied only to products into which IBM had not copied UNIX source code and for the development of which IBM had not referred to the UNIX software product. (¶¶ 87-88, 164-68.) The restrictions on its modifications and derivative works based on the licensed UNIX software product thus remained in place. In repeatedly seeking to negotiate with USL, Novell and Santa Cruz to loosen those restrictions, IBM confirms that it did not have the view then that it articulates now of the scope of the Agreements.

2. Substantial Evidence Defeats IBM's Claim of Reliance.

IBM argues by way of declarations that it never believed it was precluded from doing "as it wished" with what it calls its "homegrown code" in AIX, as opposed to the UNIX System V material in AIX, but IBM internal documents draw no such distinction between the two.

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY

167

REDACTED PURSUANT TO IBM DESIGNATION OF CONFIDENTIALITY


(Ex. 129 at 181427554) (emphasis added).) This document directly contradicts, and by itself creates a fact issue regarding, IBM's newly minted assertion that it believe it could disclose at least the "homegrown" parts of AIX however it saw fit.

There is substantial additional evidence providing (and from which a jury could easily infer) that no representations were made to IBM that it was permitted to disclose the "original" material in AIX:

  • AT&T's interpretation of its UNIX license agreements was that the licenses were obligated to keep confidential all parts of the modifications or derivative works the licensees developed based on the licensed UNIX software product. (¶¶ 82-86.)

  • AT&T's policy was that the members of its licensing group would never modify or amend any license agreement orally, hut rather would reduce any such clarifications or amendments to writing. (¶¶ 91-92.)

168

  • The interpretation of its UNIX license agreements by the members of the UNIX licensing group from the time of USL's control over the UNIX business going forward was that the licenses were obligated to keep confidential all parts of the modifications or derivative works the licensees developed based on the licensed UNIX software product. (¶¶ 82-86.)

  • The policy of the UNIX licensing group from the time of USL's control over the UNIX business going forward was that the members of its licensing group would never modify or amend any license agreement orally, but rather would reduce any such modifications or amendments to writing. (¶¶ 91-92.)
On the basis of the foregoing record evidence, the factual aspect of IBM's argument for equitable estoppel is fatally deficient and no basis for summary judgment.

Indeed, IBM relies heavily on the declaration of Sequent representative Roger Swanson, who when deposed was unable to ascribe any meaning whatsoever to portions of the Sequent Agreement, and who subsequently submitted a declaration seeking to augment his deposition testimony. Mr. Swanson argues that prior to the execution of the Sequent Agreement in 1985, AT&T Contracts Manager Ira Kistenberg orally represented to him that Sequent was free to do whatever it wanted with its "homegrown" or "add on" material in the modifications and derivative works it developed based on the licensed UNIX software product.

Mr. Kistenberg's own sworn declaration and subsequent deposition testimony, however, directly contradicts Mr. Swanson's claims. Mr. Kistenberg testified that "the policy of the UNIX licensing group was that any changes to a licensee's software agreement had to be in writing. I never verbally agreed with any licensee to modify its license in any way without memorializing

169

the modification in writing." (Ex. 10 ¶ 10.) He confirmed that testimony at deposition. (Ex. 75 at 21,22, 36,41-42.) Mr. Kistenberg could not have stated the matter any clearer. On this additional and independent basis, the factual aspect of IBM's argument for equitable estoppel is fatally deficient and no basis for summary judgment.

3. Amendment No. X Defeats IBM's Claim of Reliance.

The very existence of Amendment No. X, as well as IBM's explanation of its supposed effect, also preclude IBM's argument for estoppel as a factual matter. If IBM actually believed that it was obligated to hold in confidence only the licensed UNIX source code, then it would have had no reason to seek relief from that portion of the Side Letter specifying that IBM could not "refer to the physical documents and materials comprising SOFTWARE PRODUCTS" in developing products other than modifications and derivative works. That language in the Side Letter also factually refutes IBM's argument that it believe that it was free to "do as it wished" with any portion of a modification or derivative work that was not the literal UNIX source code. Until 1996, long after IBM's purported reliance on alleged statements and UNIX licensor inaction, the plain language of the Side Letter provided that IBM still was not free to "market" a product that was developed by referring to the UNIX software product, without regard to whether that product contained any UNIX source code.

4. The Few Documents Regarding UNIX Flavors Also Are No Basis for Summary Judgment.

IBM further argues that several documents regarding certain licensees' UNIX flavors are evidence that those licensees were free to disclose "original" material from those flavors, and cites a declaration from IBM stating generally that IBM relied on the inaction of the UNIX

170

licensors (USL and Novell) in concluding that IBM in fact was free to disclose material from AIX to the development of Linux. The argument fails for a myriad of reasons.

First, IBM presents no evidence that anyone at Sequent relied on the cited documents or any others for the proposition that IBM or Sequent was entitled to disclose any part of Dynix/ptx to the public. The vast majority of the disclosures that SCO challenges were made from Dynix/ptx. (¶¶ Exs. 144,287,288.)

Second, neither IBM nor Sequent could have reasonably relied on supposed disclosures made from other licensees' UNIX flavors, such as Sun's flavor or HP's flavor, because the terms and conditions governing each UNIX licensee were themselves confidential. (Ex. 333 ¶ 23; Ex. 355 ¶ 23.) Companies like IBM and Sequent would not even have known, and therefore could not have reasonably inferred, if the rights exercised by other licensees meant that IBM and Sequent could exercise any similar rights. Whether IBM and Sequent reasonably relied on the materials they cite, without saying they specifically relied on all or any one of them, is a question that "cannot be determined on summary judgment. See Towne Gardens, 2005 WL 2406004, at *4 (reasonable reliance regarding assertion of equitable estoppel is one of fact).

Third,the content of the documents that IBM cites is not comparable to the content of the IBM disclosures to Linux that SCO challenges, and for that additional reason the documents are not basis for IBM to claim that it reasonably relied on those documents in making its disclosures to Linux from AIX and Dynix/ptx. (Ex. 139 ¶¶ 2-22.) Most of the documents do not disclose internal operating system code, methods, or concepts at all. The few documents that do disclose such material do so at such a general and superficial level that the disclosure would be of no use to operating-system developers, or they disclose material that is so specific to a particular

171

operating system that it would not even be applicable to another operating system, such as Linux. Further, with only one exception, the documents are either confidential documents, patents whose purpose is to prevent the use of the disclosed invention, or materials that are protected by clear copyright language. The exception is a one-page IBM Technical Disclosure Bulletin that comes with no indication that it was ever published or distributed, or that its existence was even know to those outside of IBM. (Ex. 139 ¶¶ 2-22.)

IBM first cites and attaches, for example, part of a document called "AIX Operating System: Programming Tools and Interfaces (1989)" (IBM Ex. 560). IBM provides no evidence at all regarding the distribution of the document. The first page of the excerpt that IBM cites identifies the document as a "manual." In addition, the first page of the document contains multiple copyright notices, including one for AT&T. These facts easily permit the inference that this manual was sent only to IBM's AIX licensees, and was not releasing any material for wide public disclosure. The trivial method describes in the excerpt that IBM submits do not describe any method internal to AIX, but rather relates to the external API. (Ex. 139 ¶ 9.)

Fourth, contemporaneous and subsequent evidence contradicts any claim that IBM relied on such documents for the proposition that it could disclose "original" parts of AIX in the course of Linux development. The evidence, including the very negotiation and execution of Amendment No. X, shows that in the 1980s, 1990s, and 2000s IBM believed it was obligated to hold AIX in confidence under its Agreements. And although IBM submits no evidence that Sequent relied on such documents, the evidence also shows that Sequent regarded itself as obligated to hold Dynix/ptx in confidence except from equivalent-scope licensees. (¶¶ 164-68.)

172

Fifth, the evidence reveals sharply disputed facts on the question of whether the UNIX licensors knew that any licensee was disclosing material from its UNIX flavors. IBM presents no evidence that any such licensor knew of the foregoing documents, or any other particular publication at any particular time. In contrast, SCO's evidence shows that the licensors were not aware that their licensees were making disclosures from their UNIX flavors. (¶ 96.)

The law is clear that a rightholder is not held to a standard of monitoring all patent applications for possible violations of its rights. Jacobsen v. Deseret Book Co., 287 F.3d 936, 950 (10th Cir. 2002) (a copyright holder has no "duty of inquiry" in the absence of known evidence suggesting a reasons for suspicion); Schock v. United States, 21 F. Supp. 2d 115,119 (D.R.I. 1998) (duty to investigate is not triggered until a plaintiff receives warning of a potential problem); see also MacLean Assocs., Inc. v. Wm. W. Mercer-Meidinger-Hansen, Inc., 952 F.2d 769,780 (3d Cir. 1991) (the copyright holder who supplies software to another does not come "under a never-ending obligation to discover whether anyone to whom he ever supplied his software would copy it. The Copyright Act does not recognize such an obligation."); cf. Jackson Jordan, Inc. v. Plasser Am. Corp., 219 U.S.P.Q. 922, 926 (E.D. Va. 1983) (the commercial release of the infringing product, coupled with the copyright owner's examination of that product, triggers a duty of inquiry).

In addition, the question of whether a party in SCO's position "should have known" about such a disclosure presents a classic question of fact, and therefore cannot properly support IBM's motion. See, e.g., Kling v. Hallmark Cards Inc., 225 F.3d 1030, 1039-41 (9th Cir. 2000) (citing cases) (holding that question of whether copyright owner "should have known" of copyright infringement presents fact issues precluding summary disposition); Armstrong Virgin

173

Records, Ltd., 91 F. Supp. 2d 628,640 (S.D.N.Y. 2000) (holding that questions concerning when copyright holder "should have know of the infringement" "do not lend themselves to summary disposition"); In re Indep. Serv. Orgs. Anti-Trust Litig., 964 F. Supp. 1469, 1479 (D. Kan. 1997) (holding that question of whether copyright owner "should have discovered" defendant's infringement presents fact issues precluding summary disposition). On this additional basis, IBM's reliance on the documents presents no grounds for summary judgment in IBM's favor.

5. The Fact of IBM's Investment in AIX Also Is No Basis for Summary Judgment.

IBM further argues that IBM's decision to invest heavily in developing AIX constitutes evidence of IBM's alleged reliance on the alleged assurances of AT&T and its successors. Given the abundant evidence from which a jury could reasonably infer that there was no such reliance or assurances, however, the mere fact of IBM's substantial investment in AIX is of no moment. (¶¶ 30-168.) In addition, a jury could reasonably reach a number of conclusions about that investment other than that it was a function of IBM's alleged reliance on AT&T's alleged misrepresentations. The evidence shows, for example, that it was in IBM's decided business interests to develop as good a UNIX flavor as it could in order to increase IBM's hardware sales. (¶¶ 30-62.) There is simply no basis on which the Court could conclude as a factual matter that IBM's AIX investment is evidence of the supposed representations of AIX and its successors.

In all of the foregoing respects, IBM's estoppel argument turns on disputed factual issues and therefore provides no ground for summary judgment. (See also SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on Its Tenth Counterclaim (Nov. 11,2006) (addressing IBM's estoppel argument concerning, inter alia, UnitedLinux).)

174

III. THE SUBSTANTIAL EVIDENCE AND THE NEW YORK LAW OF WAIVER PLAINLY ALLOW SCO TO PURSUE ITS CLAIMS FOR BREACH OF CONTRACT.

IBM further argues that Novel1 has waived SCO's rights under the UNIX software agreements on SCO's behalf, and that SCO has waived those rights itself.

It is well settled that waiver is ordinarily a question of fact and, as such, is "generally ill- suited for summary adjudication." In re Caldor, Inc., 217 B.R. 121, 133 (Bankr. S.D.N.Y. 1998) (applying New York law); see also Boston Concessions Group v. Criterion Ctr. Corp., 606 N.Y.S.2d 696,697 (App. Div. 1994) ("[Under New York law, the establishment of a waiver, requiring the intentional relinquishment of a known right, is ordinarily a question of fact which precludes summary judgment."). Where, as here, "a waiver is not express, but found in the acts of a party, summary judgment is not appropriate. An implied waiver is invariably a matter of intention and, therefore, an issue of fact." McDarren v. Marvel Entm't Group Inc., No. 94 Civ. 0910 (LMM), 1995 WL 214482, at *5 (S.D.N.Y. Apr. 11, 1995) (Ex.H) (emphasis added); see Wyeth v. King Pharmaceuticals, Inc., 396 F. Supp. 2d 280,290 (E.D.N.Y. 2005) (explaining that implied waiver is "rarely established as a matter of law rather than as a matter of fact" and denying summary judgment on the grounds of disputed facts regarding waiver) accord NetTech Solutions. L.L.C. v. ZipPark.com, No. 01 Civ. 2683,2001 WL 11 11966, at *6 (S.D.N.Y. Sept. 20,2001) (acknowledging the same principle and denying summary judgment on the grounds of disputed facts regarding waiver) (Ex. I).18 As shown below, none of IBM's "waiver" arguments comes close to warranting a departure from that rule in this case.

175

In New York. "the well known and oft-stated definition of waiver is the 'intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it.'" In re Sanders-Langsam Tobacco Co., 224 B.R. 1, 11 (Bankr. E.D.N.Y. 1998) (quoting United Commodities-Greece v. Fid. Int'l Bank, 64 N.Y.2d 449,457 (1985).) New York's highest court has recently reiterated that waivers "must be clear, unmistakable and without ambiguity." Prof'l Staff Cong.-City Univ. of N.Y. v. N.Y. State Pub. Employee's Union, --N.E.2d --, 2006 WL 2945367 (N.Y. Oct. 17,2006) (Ex. J). The burden of proving a waiver is on the party asserting it. City of N.Y. v. State, 40 N.Y.2d 659,669 (1976). IBM has not met that burden here.

A. IBM's Primary Waiver Argument Is Based on Disputed Facts and An Incorrect View of the Law.

IBM first argues in support of its "waiver" claims (at 103): "While IBM does not believe AT&T or its successors ever had control over their licensee's original works, if they did, as SCO contends, they knowingly, intentionally and voluntarily abandoned the right by telling their licensees, including IBM and Sequent, that they could do as they wished with their original works so long as they protected AT&T's UNIX software." This argument is the same as IBM's estoppel argument, and fails for the same reasons set forth in Part II.A, above.

176

With respect to the "statements" by employees of AT&T, the presence of the integration clause raises an obvious question of material fact as to whether AT&T could have intended to waive contract provisions via such "statements" when it included an integration clause that expressly nullified all statements made before the execution of the Agreements and only permitted modifications that were written and signed by both parties.

A similar question of material fact exists with respect to whether SCO intended its alleged silence or failure to act regarding the publication of parts of AIX code in manuals and patent applications to effectuate a waiver. Such an issue of intention to unmistakably waive a cause of action is an issue for fact finders, and not appropriate for summary judgment. See Apollo Stell Corv. v. Sicolo and Massaro, 752 N.Y.S. 2d 493,494 (App. Div. 2002).

As with its estoppel claim, IBM cites no evidence that any party actually asserted to IBM that AT&T was waiving its rights under the Agreements.19 Instead, they support their claims with generic statements that AT&T employees "told," "assured" or "informed" customers, with only vague references to dates that they could do as they wish with their own works. Putting aside the fact that these statements are disputed in their entirety by SCO, for the purposes of waiver, the absence of any evidence AT&T ever told IBM that they were free to "do as they wished" raises an issue of material fact as to any potential waiver was sufficiently "clear,

177

unmistakable and without ambiguity." Civil Serv. Employees Ass'n, Inc. v. Newman, 450 N.Y.S.2d 901,903 (App. Div. 1982).

In addition, New York waiver law makes it clear that a successor-in-interest is bound by a predecessor's waiver only when the successor "has notice of the existence" of the waiver. Tehan v. Thos. C. Peters Printing Co., 421 N.Y.S.2d 465,467 (App. Div. 1979); accord Stoneybrook Realty, L.L.C. v. Cremktco. Inc., 675 N.Y.S.2d 749,751 (App. Term. 1998). The "key to the liability" of the successor is notice of the waiver. Rocky 116 L.L.C. v. Weston, 717 N.Y.S.2d 823, 824 (App. Div. 2000). IBM has not alleged that SCO ever knew of the "statements" by its successors that make up the alleged waiver of rights under the Agreements, a fact which is sufficient to deny them summary judgment as to waiver regarding SCO. See Tehan, 421 N.Y.S.2d at 467 (where waiver was "in direct conflict" with contract terms, successor in interest had no notice of waiver and was not subject to it); Rocky 116 L.L.P., 717 N.Y.S.2d at 824-25 ("the petitioner cannot reasonably be said to have had actual or constructive notice of a private waiver wholly inconsistent with" the written agreements between predecessor in interest and other party); Stoneybrook, 675 N.Y.S.2d at 752 (terms of previous waiver did not bind successor in interest with no knowledge of waiver due to lack of agreement between tenant and current landlord).20

In addition, IBM does not make the argument explicitly, at least not in its opening brief, but it appears to suggest that Santa Cruz and then Caldera International decided to waive any

178

contract claims against IBM in 2000 and 2001. The purported support for the argument is portions of the declarations of former Santa Cruz executive David McRabb and former Caldera International CEO Ransom Love. The argument fails for four main reasons:

First, SCO's evidence contradicts Mr. McRabb's testimony and shows that Santa Cruz did not know that IBM had made contributions to Linux development in violation of its UNIX license agreements, and did not intend to waive its rights to bring suit against IBM for such violations.21 (Ex. 17 ¶ 8; Ex. 333 ¶ 20; Ex. 355 ¶ 20; Ex. 337 ¶ 14.)

Second, IBM has presented no evidence that SCO was ever given any notice of Mr. McRabb's mistaken view of events, and the evidence shows (and easily permits the inference) that in fact Mr. McRabb never possessed those views in the first place. (Ex. 17 ¶ 11; Ex. 6 ¶ 6; Ex. 18 ¶ 12; Ex. 356 ¶¶ 2-4.) Absent such notice, as shown above, there can be no waiver attributed to SCO for purposes of its instant claims. SCO timely filed this lawsuit, on March 6, 2003, shortly after learning of IBM's breach, and SCO has always diligently protected and defended its rights under the UNIX license agreements. (Ex. 165 ¶¶ 3-38; Ex. 333 ¶¶ 20-22; Ex. 355 ¶¶ 20-22.)

Third, SCO submits substantial evidence contradicting Mr. Love's testimony and showing that Caldera International/SCO did not know that IBM had made contributions to Linux development in violation of its UNIX license agreements, and did not intend to waive its rights to bring suit against IBM for such violations. The evidence shows that Caldera International's Board of Directors never evaluated or determined whether IBM was in breach of its agreements,

179

and that the decision of whether to waive claims for such breaches was one the Board would have participated in making. (Ex. 18 ¶ 12; Ex. 17 ¶ 11; Ex. 6 ¶ 6.) That is, the decision was not one for Mr. Love to make himself.

Fourth, any attempt to claim that Santa Cruz's or Caldera International's silence before the filing of the lawsuit directly contradicts New York law. While waiver "will not be inferred from a doubtful or equivocal act," it "cannot be inferred from mere silence, unless there is a duty to speak." Rotterdam Square v. Town of Rotterdam, 717 N.Y.S.2d 473,476 (Sup. 2000); Bank of N.Y. v. Murphy, 645 N.Y.S.2d 800,802 (App. Div 1996). IBM has alleged no duty to speak on SCO's part, and has established no reason SCO was not permitted to pursue its claim at any time within the pendency of the relevant statute of limitation. SCO's silence simply does not support a waiver.

B. Novell Does Not Have the Waiver Rights IBM Claims.

In its next "waiver" argument, IBM attempts to argue that Novell waived SCO's protections under the UNIX software agreements against SCO's will.

IBM's argument is predicated on its fundamental misinterpretation of the Asset Purchase Agreement ("APA") between Novell and SCO's predecessor-in-interest The Santa Cruz Organization, Inc. (hereinafter "SCO"). Even though Novell sold its entire UNIX business to SCO under that agreement — specifically including all of the UNIX source code, UNIX licensing rights, and UNIX System V agreements — IBM claims that Novell retained the unfettered right to waive any rights under the UNIX System V licenses. Basic principles of contract construction and extensive and admissible extrinsic evidence (including sworn testimony from the principals on both sides of the APA transaction) contradict IBM's position.

180

1. IBM's Interpretation of APA Section 4.16(b) Is Inconsistent With the Language, Purpose, and Intent of the APA.

In the APA, Novell and SCO agreed that: "It is the intent of the parties hereto that all of the Business and all of Seller's backlog, if any, relating to the Business be transferred to Buyer." (IBM Ex. 123 § 1.3(a)(i) (emphasis added).) The APA defined the "Business" as "the business of developing a line of software products currently known as Unix and UnixWare, the sale of binary and source code licenses to various versions of Unix and UnixWare, the support of such products and the sale of other products which are directly related to Unix and UnixWare." (IBM Ex. 123 Recital A,) Section 1 .l(a) thus transferred to SCO "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the Business (collectively the 'Assets') identified on Schedule 1.l(a) hereto," (IBM Ex. 123 § l.l(a) (emphasis added)), which assets specifically included, among other things:

  • "All rights and ownership of UNIX and UnixWare including but not limited to," among other things, "all versions of UNIX and UnixWare and all copies of UNIX and UnixWare (including revisions and updates in process)," "all technical, design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code," and "UNIX Source Code Products," "Binary Product Releases," and "Products Under Development," (IBM Ex. 123 Schedule 1.l(a) § I (emphasis added));

  • "All of Seller's claims arising after the Closing Date against any parties relating to any right, properly or asset included in the Business," id. § II (emphasis added);

  • "All of Seller's rights pertaining to UNIX and UnixWare under any software development contracts, licenses and any other contracts to which Seller is a party or by which it is bound and which pertain to the Business (to the extent that such contracts are assignable)," id. § III (emphasis added);

  • All UNIX "Software and Sublicensing Agreements — This includes the source code and sublicensing agreements that Seller has with its OEM, End User and Educational customers," id. (emphasis added); and

181

  • "All contracts relating to the SVRX Licenses" — including for all versions of UNIX System Five that had been licensed to IBM and Sequent, id. § VI (emphasis added).

As part of the consideration that SCO paid Novell for the entire UNIX business, Novell was permitted to continue receiving royalties paid by UNIX System Five ("SVRX") licensees for their distribution, pursuant to sublicensing agreements, of binary (or object) code versions of System Five. See IBM Ex. 123 §§ 1.2(a)-(b), 4.16(a); id. Schedule l.l(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.") Although Novell thus had a limited financial stake in the future royalties paid under the SVRX licenses, SCO obtained through the APA all rights to the UNIX intellectual property and all rights to develop the UNIX business based on that property.22

Section 4.16 of the APA, titled "SVRX Licenses," governed Novell's SVRX binary royalty interests. Section 4.16(a) set out the procedures for SCO's collection and payment to Novell of the royalties, and gave Novell the right to audit those collection efforts. Section 4.16(b) set forth legal protections for Novell's future binary-royalty interests. And Section 4.16(c), in turn, protected SCO's future UNIX business by prohibiting Novell from promoting the sale of SVRX products.

182

Based on its misinterpretation of a single sentence in Section 4.16(b),23 removed entirely from context, IBM attempts to argue that the APA gave Novell the unilateral and unfettered right to require SCO to change or to waive, at any time and for any reason, any of SCO's rights (including SCO's right to enforce its intellectual-property protections) under any UNIX System Five agreement. This reading of the APA — on which IBM's entire Novell-related waiver argument rests — cannot entitle IBM to summary judgment for a number of textual reasons.

a. IBM Misinterprets the Term "SVRX License".

In suggesting that Novell had the authority to waive SCO's intellectual-property protections under the SVRX software agreements, IBM necessarily sweeps such agreements under the definition of "SVRX Licenses"; it is the software agreements that specify the restrictions on licensees' source code rights. The term "SVRX Licenses" is not defined anywhere in the APA,24 but a plain reading of the agreement reveals IBM's contract interpretation to be wrong. Specifically, the included "Assets" schedule to the APA (Schedule l.l(a)) expressly refers to the UNIX software agreements (in paragraph 1II.L) separately from the SVRX Licenses (in paragraph VI). Moreover, to the extent that the software agreements themselves may have been included within "All contracts relating to the SVRX Licenses" phrase in paragraph VI, the use of that broader phrase to describe the "Assets" included in the APA

183

transfer belies any suggestion that the term "SVRX Licenses," standing alone — as it does in Section 4.16(b) — includes such agreements. These considerations — and the fact that the APA specifically refers to "royalties, fees, and other amounts due under all SVRX Licenses," Section 4.16(a) — strongly support a narrower reading of "SVRX Licenses," to refer just to the SVRX product Schedules that, unlike the software agreements themselves, identify all such amounts. (See, e.g., Ex. 56.) Furthermore, this more precise reading is consistent with the role of Section 4.16 to facilitate the management of Novell's binary royalty interests and, unlike IBM's reading, does not (as described below) run into direct conflict with the purpose of the APA and many of its other key provisions. Accordingly, IBM's argument is not supported by the language of the provision on which it relies.

b. IBM's Interpretation of 4.l6(b) Would Defeat the Whole Purpose of the APA.

"The words, phrases and sentences employed are to be construed in light of the objectives and fundamental purposes of the parties to the agreement." Leo F. Piazza Paving Co. v. Found. Constructors. Inc., 128 Cal. App. 3d 583,591 (Ct. App. 1981); see also County of Marin v. Assessment Appeals Bd., 134 Cal. Rptr. 349 (Ct. App. 1976) ("A contract entered into for the mutual benefit of the parties is to be interpreted so as to give effect to the main purpose of the contract and not to defeat the mutual objectives of the parties; language which is inconsistent with the objective of the contract shall be rejected."); Viacao Aerea Sao Paulo. S.A. v. Int'l Lease Fin. Corp., 859 F.2d 924, 1988 WL 103286, at *4 (9th Cir. 1988) (reversing summary judgment because "the language of a contract is to be construed in light of the purposes of the parties to the agreement") (Ex. N). (Paragraph 9.8 of the APA provides that the APA "shall be

184

governed by and construed in accordance with the laws of the state of California" (IBM Ex. 123).)

As IBM attempts to read it, Section 4.16(b) of the APA would give Novell the unfettered right to, among other things:

  • require SCO to permit any and all SVRX licensees to copy, distribute, export, or even open source the licensed UNIX source code (and all of the protected elements contained in that code) — the very value of the assets SCO had acquired — without any protection or compensation for SCO; and

  • direct SCO to waive any of its rights to enforce any licensee's material breach of any SVRX license — even where such rights have no bearing whatsoever on Novell's future binary royalty stream or relate to an SVRX license under which there are no future binary royalties at all.
IBM thus argues that in a single sentence of Section 4.16(b), SCO gave Novell the authority, for any reason or no reason at all, to eviscerate the entire value of the UNIX assets that SCO had acquired through the APA even though Novell's sole continuing interest under the APA was limited to the SVRX binary royalties. That implausible construction of Section 4.16(b) cannot be accepted as a matter of well-settled contract interpretation law.

c. IBM's Interpretation of Section 4.16(b) Directly Conflicts with Other Key Provisions of the APA.

As a corollary to the requirement that contractual provisions are not be construed as meaningless,25 it is well settled that a contract which confers certain rights or benefits in one clause will not be construed in other provisions completely to undermine those rights or benefits. See County of Marin, 134 Cal. Rptr. at 353-55 (rejecting interpretation of clause that would have

185

permitted party to unilaterally deny the other party the bargained-for benefit provided for in another clause of the contract); Cooper v. Mart Assocs., 225 Cal. App. 2d 108, 114-16 (Ct. App. 1964) (holding that contract's waiver clause would not be read to nullify the right to sue provided in another clause, because a "contract is to he construed as a whole," with "each clause helping to interpret the other"). IBM's proposed reading of the second sentence of Section 4.16(b) must fail because it would completely undermine numerous other detailed provisions of the APA. For example:

  • Section 1.1 and Schedule 1.l(a) grants to SCO "All rights and ownership of UNIX and UnixWare including but not limited to" the "source code" to the "UNIX Source Code Products" (including UNIX System Five and all prior and subsequent UNIX and UnixWare products. But if Novell had the right to change or cancel any of the intellectual-property protections in the SVRX software agreements, this express asset-transfer provision would be rendered hollow for the same reasons that IBM's contract interpretation would undermine the purpose of the APA itself.

  • Section 4.16(a) provides that in consideration for collecting binary royalties and ensuring proper payment of such royalties, "Seller shall pay Buyer within 5 days of receipt of SVRX Royalties from Buyer." But if Section 4.16(b) were as broad as IBM contends, then Novell purportedly could have vitiated this provision by simply requiring SCO to direct licensees to make their royalty payments directly to Novell.

  • Section 4.16(c) states: "Seller further covenants that immediately following the Closing Date neither it, nor any of its officers, directors or employees shall . . . take any material action designed to promote the sale of SVRX products." APA § 4.16(c). But if Section 4.16(b) were as broad as IBM contends, then Novell purportedly could have directed SCO to change its SVRX licenses in any of several ways designed to promote the sale of SVRX products, including by requiring SVRX licensees to promote such products.

d. IBM Improperly Disregards Amendment No. 2.

Amendment No. 2 to the APA is directly relevant to IBM's argument and. expressly confirms the error in its contractual interpretation. See, e.g., Harm v. Frasher, 181 Cal. App. 2d

186

405, 412-13 (Ct. App. 1960) ("It is a general rule that several papers relating to the same subject- matter and executed as parts of substantially one transaction, are to be construed together as one contract."); Heston v. Farmers Ins. Group, 160 Cal. App. 3d 402,417 (Ct. App. 1984) ("The two documents are interrelated and must be read together for purposes of interpretation."). Paragraph B.5 of Amendment No. 2, which was executed on October 16, 1996, begins: "This Amendment does not give Novell the right to increase any SVRX licensee's rights to SVRX source code." (IBM Ex. 444 ¶ B.5 (emphasis added).) If Section 4.16(b) of the APA were as broad as IBM contends, then Novell would have already had the right to direct SCO to amend or supplement any SVRX software agreement in order to increase a licensee's rights to SVRX source code. The first sentence of Paragraph B.5 to Amendment No. 2 confirms the parties' understanding that Section 4.16(b) did have the broad scope that IBM now proposes.

SCO and Novell also expressly agreed in Amendment No. 2 that "Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement." (Id. ¶ B.5 (emphasis added).) This plain language further confirms that, contrary to IBM's argument, Novell had no right to waive SCO's protections for the SVRX intellectual property under the IBM and Sequent software agreements. It also highlights the crucial 'distinction — which must underlie any reasonable interpretation of the APA — between Novell's limited binary royalty rights and SCO's broad source code rights. This plain language of Amendment No. 2 forbids the very action that Novell seeks to take in preventing SCO from exercising its rights with respect to SVRX source code — and is in itself more than sufficient reason to deny IBM's motion.

187

2. The Extrinsic Evidence Directly Refutes IBM's Interpretation Of the Parties' Intent.

The discussion above demonstrates that IBM's proposed reading of the APA should be rejected as a matter of law. In addition, IBM cannot establish its entitlement to summary judgment on its claim that Novell waived SCO's rights because the language of the APA (including the scope of the undefined term "SVRX Licenses" in Section 4.16(b)) and of Amendment No. 2 is at least ambiguous.26 Extensive extrinsic evidence of the contracting parties' intent with respect to those two documents further demonstrates not only that the parties never intended for Novell to have the broad waiver rights that IBM claims, but also (under applicable California law) that the APA and Amendment No. 2 are at least ambiguous with respect to that issue. See Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33,37 (1968) ("The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible."); Wolf, 114 Cal. App. 4th at 1351, 1357. ("Where the meaning of the

188

words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning"; indeed, "it is reversible error for a trial court to refuse to consider such extrinsic evidence on the basis of the trial court's own conclusion that the language of the contract appears to be clear and unambiguous on its face."); So. Cal. Edison v. Super. Ct., 37 Cal. App. 4th 839, 848 (Ct. App. 1995) ("Whether the contract is reasonably susceptible to a party's interpretation can be determined from the language of the contract itself or from extrinsic evidence of the parties' intent."); see also Blumenfeld v. R. H. Macy & Co., 92 Cal. App. 3d 38, 45 (Ct. App. 1979)

The chief negotiators for both Novell and SCO agree that neither SCO nor Novell ever intended for the APA to give Novell the right to waive SCO's protections for its intellectual property under the SVRX software agreements. The sworn declaration of Novell's own principal negotiator, Ed Chatlos, explains:

Paragraph 4.16 of the APA was specifically designed and intended to protect Novell's retained binary product royalty stream. Based on the foregoing, including my understanding of the parties' intent, I do not believe Novell has any right to waive, or to direct or require SCO to waive, any of SCO's source code rights, including under customer source code licenses.
(Ex. 39 ¶ 13.) Jim Wilt, who negotiated the APA for Santa Cruz, concurs in his sworn declaration:
Paragraph 4.16 of the APA pertains to the binary royalty income stream that Novell retained through the APA. The parties agreed to the language in Paragraph 4.16(b) in order to allow Novell to manage that royalty stream within the operation of SCO's customer source code licenses — not at the expense of SCO's right to enforce its intellectual property protections under any such licenses, and not to permit Novell to waive any of those protections. I have reviewed Amendment No. 2 to the APA and believe that the language therein confirms that intent. In light of my intent, and based on

189

my understanding of the parties' intent, I do not believe that Novell had or has any right to waive, or direct or require SCO to waive, any of its intellectual property rights or protections.

(Ex. 40 ¶ 10.) And Steve Sabbath, Santa Cruz's former Vice President of Law and Corporate Affairs and a participant in a number of the meetings and discussions with the chief negotiators and attorneys leading up to the APA, has similarly declared:
I understand that IBM has argued that Section 4.16(b) of the APA gave Novell the right to require Santa Cruz to waive any breach of the intellectual property protections provided in the SVRX licenses. That argument is contrary to the intent of Paragraph 4.16(b) as I understood it. Indeed, Santa Cruz would never have agreed to give Novell the right under the APA to waive such protections under the SVRX licenses because such a right could have eviscerated the entire purpose of the APA and the value of the assets transferred to Santa Cruz under the APA.
(Ex. 42.) With respect to Amendment No. 2 to the APA, Mr. Sabbath, who was involved in the discussions leading up to that amendment and who executed the amendment on SCO's behalf, has further testified:
Amendment No. 2 arose as a result of a dispute between Novell and SCO concerning Novell's attempt to execute, on Santa Cruz's behalf, a royalty buy-out with IBM. That dispute was ultimately resolved through an amendment to IBM's SVRX license that was jointly executed by Santa Cruz, Novell, and IBM. Amendment No. 2, however, was intended to confirm, among other things, the parties' intent that SCO would obtain ownership of the UNIX copyrights under the APA and that Novell had received no rights with source code respect to UNIX source code under the APA. Paragraph B.5 of Amendment No. 2 was specifically intended to make clear that Novell had no right to increase any SVRX licensee's rights to SVRX source code, no right to grant any new SVRX source code licenses, and no right to prevent Santa Cruz from exercising the rights it obtained under the APA with respect to SVRX source code.
(Id. ¶ 6.) Accordingly, for all of the above reasons, there is no merit to IBM's claim that Novell had the authority to waive IBM's breaches of the intellectual-property protections in the SVRX software agreements.

190

In addition, IBM's proposed reading of the APA would render meaningless the Technology License Agreement ("TLA") that the parties entered into contemporaneously with the execution of the APA. See, e.g., Harm, 181 Cal. App. 2d at 412-13 ("Where two or more written instruments are executed contemporaneously, with reference to each other, for the purpose of attaining a preconceived object, they must all be construed together, and effect given if possible to the purpose intended to be accomplished."). As Section 1.6 of the APA contemplated, that TLA effected a "license back" to Novell of the right to use, among other things, the UNIX System V code. (See Ex. 48.) Under the TLA, Novell was permitted to use the licensed code only for internal purposes and only in bundled products (and then only to the extent that the bundled product did not compete with SCO's UnixWare business and the licensed-back technology did not constitute a material part of the product). See id.

According to IBM's untenable reading of the APA, however, Novell would have the right to waive, on SCO's behalf, even Novell's own strict obligations with respect to SVRX code under the TLA. By waiving such obligations, Novell could have even given itself the right to continue its UNIX business in competition with SCO — effectively nullifying yet another fundamental purpose of the APA.

C. SCO's Linux Activities Do Not Constitute a Waiver.

In its third "waiver" argument, IBM contends that SCO's acts and conduct are inconsistent with an intention to assert a breach of contract claim against IBM based on the code allegedly at issue. IBM's "implied waiver" claim fails on both the well-established law and the disputed facts.

191

As noted earlier, "[waiver requires the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable." Gen. Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist., 85 N.Y.2d 232, 236 (1995); see also Davison v. Kless, 280 N.Y. 252, 261 (1939) ("Whether an alleged waiver is express or implied, it must be intentional."). In addition, "where a waiver is not express, but found in the acts of a party, summary judgment is not appropriate. An implied waiver is invariably a matter of intention and, therefore, an issue of fact." McDarren, 1995 WL 214482, at *5 (emphasis added).

IBM's argument for implied waiver is thus untenable as a matter of law. Nor is there any factual basis for any claim that SCO has voluntarily and intentionally abandoned its right to pursue IBM's breach of contract. SCO timely filed this lawsuit, on March 6,2003, shortly after learning of IBM's breach, and SCO has always diligently protected and defended its rights under the UNIX license agreements. (Ex. 165 ¶¶ 3-38; Ex. 333 ¶¶ 20-22; Ex. 355 ¶¶ 20-22.) Indeed, IBM does not even allege (let alone present any evidence) that SCO failed promptly to pursue its rights after learning that IBM had improperly dumped source code into Linux. In light of SCO's diligent enforcement efforts, the Court could not possibly conclude, as a matter of law, that SCO has waived its contract claims.

IBM contends that SCO's "implied waiver" of its contract rights may be found based on (1) SCO's sales of certain Linux products that contained source code improperly contributed by IBM; and (2) SCO's steps in making some of that same code purportedly publicly available on the Internet. These "waiver" claims fail.

192

1. SCO Has Not "Waived" Its Contract Claims by Distributing Limited Linux Products.

SCO did not own the UNIX assets until June 2001, when (as Caldera International) SCO acquired them from Santa Cruz. It follows that the Caldera entity (Caldera Systems) that distributed Linux prior to that time could not have "waived" any claims for breach of the UNIX license agreements, and that any purported reliance by IBM on the conduct of Caldera Systems would not have been reasonable.

In addition, insofar as SCO's Linux sales are concerned, and where it cannot raise any failure to satisfy the statute of limitations, IBM's argument reduces to the contention that SCO waived its contract claims by continuing to "distribute" Linux products after SCO learned of IBM's breaches, because SCO could not have possibly waived any of rights before it knew of IBM's conduct. See K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 827 F. Supp. 985, 989 (S.D.N.Y. 1993) ("A proper claim of waiver should state that the waiving party voluntarily and intentionally relinquished a right, with knowledge of all the facts and circumstances that would constitute the entitlement to that right.").27

Caldera, Inc., Caldera Systems, Inc. and Caldera International, Inc. (collectively, "Caldera") copied, advertised, and distributed the Linux kernel and other related Linux software for years before 2003. Until approximately June 2001, however, none of those entities was the owner of the UNIX copyrights or the owner of the UNIX license agreements at issue. During the

193

time that Caldera International both owned the UNIX license agreement at issue in this case and copied, advertised, and distributed the Linux kernel and other related Linux software, the company did not undertake to determine if IBM's contributions to Linux constituted a breach of its UNIX license agreement. (Ex. 269 ¶¶ 11-18; Ex. 6 ¶¶ 2-12.) Caldera International never intended to waive any of its rights under the UNIX license agreements at issue in this case, and never represented to anyone that it believed that IBM's Linux contributions complied with the terms of its UNIX license agreements.

The same day SCO filed this suit, SCO sent a notice of termination to IBM's Chief Executive Officer, explaining that IBM's right to use or distribute any software product based on UNIX System V, including AIX, would be terminated on June 13,2003, unless IBM cured those breaches. (Ex. 49 ¶ 10 & Ex. C.) SCO sent a similar notice to IBM regarding Sequent, and Dynix/ptx, on May 29,2003. (Ex. 49 ¶ 10 & Ex. D.) SCO attempted to meet and confer with IBM, but IBM failed to cure its breaches during the 100-day period provided in SCO's termination letter to IBM. (Ex. 49 ¶ 11.) Sequent also failed to cure its breaches during the two-month period provided in SCO's termination letter to Sequent. (Id.) Accordingly, SCO terminated IBM's contract rights effective June 13,2003, and terminated Sequent's contract rights effective July 30,2003. (Id. & Exs. C, D.)

After filing this suit, SCO carefully considered whether to continue selling its Linux products. (Ex. 49 ¶ 12.) SCO considered its obligations to its existing customers. (Id. ¶ 13.) SCO decided that the appropriate solution was to suspend its sale and marketing of its Linux products (effective May 14,2003), but to continue to permit SCO's pre-existing customers to order Linux products (which IBM appears to describe as the "distribution" of those products).

194

(Id ¶ 14.)28 SCO did not enter into any further obligations to sell Linux Server 4.0 or OpenLinux 3.1.1 after May 14,2003. (IBM Ex. 284 ¶ 3.)29

This evidence precludes any finding that SCO "intended" — impliedly or otherwise — to "waive" any of its contract rights. Waiver "should not be lightly presumed." Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966,968 (1988). Instead, "the intent to waive a right must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act." Navillus Tile, Inc. v. Turner Constr. Co., 770 N.Y.S.2d 3, 5 (App. Div. 2003); accord ESS & Vee Acoustical & Lathing Contractors, Inc. v. Prato Verde, Inc., 702 N.Y.S.2d 38,39 (App. Div. 2000). In filing its suit for breach of contract and terminating the IBM and Sequent software agreements, SCO clearly manifested its intent to enforce their rights. It is illogical to suggest, as IBM does (without any authority), that a clear and unequivocal intent to waive certain rights can be inferred from acts taken after the filing of a suit to protect those rights. That SCO continued to honor pre-existing obligations to its own pre-existing customers does not remotely permit the inference that SCO intended to discontinue its enforcement of its contract rights.

IBM's argument amounts to the astonishing claim that its breaches of its contractual obligations created a situation in which SCO had only two choices when it learned of those breaches: (1) abandon its customers and its Linux business overnight, thereby inflicting the

195

maximum damage on those customers and itself as a result of IBM's breaches; or (2) immunize IBM for its improper conduct. IBM does not, because it cannot, cite any authority even suggesting that IBM, through its own improper conduct, could put SCO to such a choice. In light of all the circumstances — and particularly viewing those circumstances in the light most favorable to SCO — the Court could not possibly infer, as a matter of law, "a clear manifestation of intent" on SCO's part "to relinquish the protection" of the software agreements. Gilbert Frank, 70 N.Y.2d at 968.

2. SCO Has Not Made "Publicly Available" Source Code That IBM Misappropriated

SCO provided customers who purchased Linux Server 4.0 with access to the product (including source code that is part of the Linux 2.4 kernel) through a confidential and individualized password for use at the log-in screen to SCO's website. (Ex. 49 ¶ 19.) SCO continued to make that source code available in that way through December 3 1,2004, in light of SCO's continuing contractual obligations. In its Product Announcement for Linux Server 4.0 (dated November 19,2002), SCO promised to offer purchasers the "SCO Linux Update Service" for twelve months, including "Access to an up-to-date repository of UnitedLinux and other updates for their system." (Id. Ex. E.) When a purchaser registered at SCO's website for the SCO Linux Update Service, the purchaser was informed of its entitlement to "download and apply the latest updates" to its SCO Linux Server. (Id.)

Beginning in 2004, SCO stopped making available on its website any version of Linux. SCO has made diligent efforts since late 2003 to eliminate the availability of Linux on any current or archived SCO website, and is not currently aware that any version of Linux is available on any such website. (¶¶ 219, 231, 233.)

196

Instead, IBM went to illegal lengths to obtain Linux source code from SCO's website. Section 1030(a)(2)(C) of Title 18 of the United States Code, known as "The Computer Fraud and Abuse Act," makes it a felony for an unauthorized user to access a company's website. See, e.g., Creative Computing v. GetLoaded.com LLC, 386 F.3d 930,933-35 (9th Cir. 2004); Theofel v. Farey-Jones, 359 F.3d 1066, 1078 (9th Cir. 2004); I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc., 307 F. Supp. 2d 521,523-24,526 (S.D.N.Y. 2004) (citing cases); see also SCO's Mem. in Opp. to IBM's Motion for Summary Judgment on Its Eighth Counterclaim (Nov. 30, 2004). Between October 31 and December I, 2003, IBM repeatedly accessed the SCO log-in site but did not obtain access to the SCO Linux Server 4.0 files. (Ex. 49 ¶ 25.) After news of a bug in the website's security system was reported on the Internet, however, IBM exploited the bug to bypass the security system, hacked onto SCO's website, and downloaded the very files that IBM has now attached to its motion. (Id. ¶¶ 25-27.)

Again, in view of all the circumstances, especially as they are construed in the light most favorable to SCO, the fact that IBM impermissibly accessed source code that SCO made available only to its pre-existing customers — and only pursuant to what SCO believed were its contractual obligations to those customers — cannot remotely establish SCO's intentional waiver of its breach-of-contract claims against IBM as a matter of law.

IV. SCO HAS TIMELY ASSERTED ITS CLAIMS RELATING TO RCU.

IBM argues that SCO's claims relating to Sequent's disclosure of methods and concepts relating to RCU are time-barred because such methods and concepts were disclosed in a 1993 patent application. For several reasons, the argument is no basis for summary judgment.

197

First,IBM presents no evidence that any of SCO's predecessors knew or should have known of the patent application (in 1993) or issuance of the patent (in 1995). The question then becomes whether SCO's predecessors "should have known" about either event. As of 1993, patent applications were not even made public until the patent issued. (Ex. 342 (35 U.S.C. § 122 1994), 35 U.S.C. § 122 (2000)) Accordingly, the question is whether SCO's predecessors "should have known" that the RCU described in the patent had issued in 1995. SCO has shown that a rightholder is not held to a standard of monitoring all patent applications for possible violations of its rights, and that whether a party in SCO's position "should have known" about such a disclosure presents a classic question of fact. (See Part II.A.) IBM means to state otherwise by citing Dolgoff Holophase, Inc. v. E.I. Du Point de Nemours & Co., 212 N.Y.S.2d 769 (App. Div. 1995), but that case did not address and plainly did not overrule the long-established precedent under New York law establishing that a plaintiff's claim for breach of contract accrues only when the plaintiff knew or should have known about the breach at issue.

Second, with respect to the issuance of the patent in 1995, the patent of course served to establish that no one besides the patent-holder was entitled to use RCU, and gave no suggestion that IBM would open-source the code in RCU. (Ex. 139 ¶ 7.) The description of RCU in the patent thus hardly constituted an unprotected public disclosure of the methods and concepts therein, and even if SCO's predecessors had or could have known about the patent, would have constituted an immaterial breach of the Sequent Agreement. IBM cites no case even suggesting otherwise. IBM again means to state otherwise by citing Dolgoff, but the court in that case reached no conclusion whatsoever that the non-disclosure agreement at issue was breached upon the filing of a patent application or issuance of a patent.

198

Third, IBM presents no evidence that SCO knew or should have known that, subsequent to the non-public 1993 patent application, the RCU described therein was incorporated into Sequent's UNIX flavor. In contrast, SCO has produced evidence showing that the incorporation of RCU into Dynix or Dynix/ptx was not a well-known fact, even in the computer industry. (Ex. 139 ¶¶ 48-50.) Until such time as SCO's predecessors knew that the RCU described in the patent application or patent had been incorporated into Sequent's UNIX flavor, they would not even have had a reason to consider the patent application or issuance as an improper disclosure under the Sequent Agreement. Sequent's distributions of Dynix and Dynix/ptx do not even appear to have been marked with the RCU patent number. (Id. ¶ 50.) SCO did not know that RCU was in Dynix/ptx until its review of the Dynix/ptx source code produced in this case — which was not publicly available prior to this litigation. (Id. ¶ 50.)

199

CONCLUSION

SCO respectfully submits, for all of the reasons stated above and as set forth in Appendix A hereto, that this Court should deny IBM's Motion for Summary Judgment on SCO's Contract Claims (SCO's First, Second, Third and Fourth Causes of Action).

DATED this 11th day of November, 2006.

BY (signature)
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James

BOIES, SCHLLER & 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.

200

Appendix A

Response to IBM's Statement of Facts30

A. Development of the UNIX Operating System.

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

Undisputed.

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

Undisputed.

3. After Bell Labs withdrew from Multics, one of its developers, Ken Thompson, undertook to design an alternative operating system, drawing on the work done in Multics. (Ex. 386.) With others at Bell Labs, including Dennis Ritchie, Mr. Thompson developed an operating system they called Unics. (Ex. 487 at 9; Ex. 387.) At the suggestion of another Bell Labs developer, Brian Kernighan, the name of the operating system was eventually changed to "UNIX". (Ex. 388.)

Undisputed.

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

Disputed to the extent the statement suggests that AT&T had waived any copyright or other legal rights in UNIX by distributing any version of UNIX during that time. (¶ 79.) "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or

1

distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.)

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

Disputed to the extent the statement suggests that AT&T had waived any copyright or other legal rights in UNIX by virtue of any such courses or projects. (¶ 79.)

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

Disputed to the extent the statement suggests that any such manual, article, paper or commentary constituted any waiver by AT&T of any copyright or other legal rights in UNIX. (Ex. 288 at 49-50; Ex. 139 ¶¶ 23-26.) "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.)

B. Commercialization of the UNIX Operating System.

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

Disputed to the extent the statement draws a legal conclusion, disputed in that the cited material does not properly support the statement.

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

2

companies like Western Electric, a subsidiary of AT&T, continued to sell older UNIX versions. (Ex. 391.)

Disputed to the extent the statement suggests that AT&T developed and sold a commercial version of UNIX solely as a result of the 1982 consent decree, which statement the inadmissible cited material does not properly support.

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

Disputed to the extent the statement suggests that AT&T developed UNIX System V, Release 1 solely "in an attempt to end confusion concerning the differing versions of the UNIX operating system," which statement the inadmissible cited material does not properly support.

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

Undisputed.

11. AT&T generally licensed its UNIX operating system pursuant to standard form agreements. A software agreement granted the licensee the right to use and modify the source code of the operating system. A sublicensing agreement granted the licensee the right to furnish sublicensed products based on UNIX System V to customers in object code format. And, a substitution agreement provided that the software agreement and, if applicable, the sublicensing agreement replaced earlier agreements relating to UNIX System V software. (Ex. 282 ¶ 6.)

Undisputed.

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

3

Depending on the meaning of the terms "responsible for licensing" and "this time," disputed in that Mr. Wilson reported to William Guffey, who was then the head of AT&T's Software Services Division responsible for the UNIX software, through 1985. (Ex. 138 ¶ 3.) Disputed to the extent the statement suggests that Mr. Wilson had the authority to modify or negotiate away the terms of AT&T's standard license agreements. (¶ 90.)

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

Disputed in that as of 1985, Mr. Wilson reported to William Guffey, who was then the head of AT&T's Software Services Division responsible for the UNIX software, through 1985. (¶ 105.) Disputed in that Mr. DeFazio did not have the authority to modify or negotiate away the terms of AT&T's standard form UNIX license agreements, and was only one of several individual responsible for interpreting and enforcing the agreements. (¶ 90.)

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

Undisputed.

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

Disputed to the extent the statement suggests that Messrs. DeFazio, Wilson and Frasure had the authority to modify the terms of AT&T's standard UNIX license agreements, to the extent the statement suggests that Messrs. DeFazio, Wilson and Frasure were the only

4

individuals under whose direction AT&T licensed its UNIX source code, and to the extent the statement suggests that AT&T licensed any company to distribute their own UNIX operating system in source code format. (¶¶ 76-96.)

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

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

Disputed to the extent the statement suggests that AT&T did not license the UNIX System V methods and concepts pursuant to the standard license agreements. (¶ 80.)

17. Among the provisions in AT&T's early software agreement (including in the IBM Software Agreement and the Sequent Software Agreement) were the following:
  • Section 2.01: "AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE'S own internal business purposes."

  • Section 2.05: "No right is granted by this Agreement for the use of SOFTWARE PRODUCTS directly for others, or for any use of SOFTWARE PRODUCTS by others."

  • Section 4.01: "LICENSEE agrees that it will not, without the prior written consent of AT&T, export, directly or indirectly, SOFTWARE PRODUCTS covered by this Agreement to any country outside of the United States."

  • Section 7.06(a): "LICENSEE agrees that it shall hold all parts of the SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T."

  • Section 7.10: "Except as provided in Section 7.06(b), nothing in this Agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part."
(Ex. 282 ¶ 12; Ex. 119; Ex. 492.)

5

Depending on the meaning of the term "early," (disputed to the extent the statement suggests that AT&T or its successors-in-interest ever abandoned the foregoing protections in the standard UNIX license agreements. (¶¶ 76-96.)

18. These provisions concern the UNIX System V source code and related materials — the "SOFTWARE PRODUCT" or "SOFTWARE PRODUCTS" — that AT&T provided to its licensees. The Agreements define "SOFTWARE PRODUCT" as "materials such as COMPUTER PROGRAMS, information used or interpreted by COMPUTER PROGRAMS and documentation relating to the use of COMPUTER PROGRAMS"; "COMPUTER PROGRAM" is defined as "any instruction or instructions, in source-code or object-code format, for controlling the operation of a CPU". (Ex. 119; Ex. 492.) The provisions do not, by their terms, place restrictions on what licensees can do with their own original works. (Ex. 282 ¶ 12; Ex. 119; Ex. 492.)

Disputed to the extent the statement suggests that AT&T did not license the UNIX System methods and concepts pursuant to the standard software agreements, and, depending on the meaning of the term "their own original works," to the extent that the statement suggests that the terms of AT&T's standard UNIX license agreement do not place restrictions on what licensees can do with their own original works. (¶¶ 13-21.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, and Frasure had no such understanding or discussions. (¶¶ 63-163.) Depending on the meaning of the phrases "their own original works" and "its own products and source code," disputed in that AT&T's software agreements were intended to place restrictions on the licensee's modifications and derivative works based on the licensed UNIX software product. (¶¶ 82-86.)

6

20. AT&T's standard software agreements granted licensees the right to modify UNIX System V source code and to prepare derivative works based upon the code. Section 2.01 of AT&T's early software agreement included the following language:
Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.
(Ex. 281 ¶ 13; Ex. 182 ¶ 16; Ex. 189 ¶ 15; Ex. 190 ¶ 14.)

Disputed to the extent the statement suggests that the term "SOFTWARE PRODUCT" in the standard UNIX license agreement excludes the methods and concepts embodied therein. (¶ 80.)

21. As Messrs. Wilson, DeFazio, Frasure and other AT&T representatives communicated to AT&T's licensees, this provision was only intended to ensure that if a licensee were to create a modification or derivative work based on UNIX System V, any material portion of the original UNIX System V source code provided by AT&T or USL that was included in the modification or derivative work would remain subject to the confidentiality and other restrictions of the software agreement. Any source code developed by or for a licensee and included in a modification or a derivative work would not constitute "resulting materials" to be treated as part of the original software product, except for any material proprietary UNIX System V source code provided by AT&T or USL and included therein. (Ex. 282 ¶ 14; Ex. 182 ¶ 16; Ex. 190 ¶ 14.)

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives had no such understanding and engaged in no such communications. (¶¶ 63-163.) Disputed in that AT&T's license agreements were intended to require licensees to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 82-86.)

22. AT&T and USL did not intend to assert ownership or control over modifications and derivative works prepared by licensees, except to the extent of the original UNIX System V source code included in such modifications and derivative works. Although the UNIX System V source code contained in a modification or derivative work continued to be owned by AT&T or

7

USL, the code developed by or for the licensee remained the property of the licensee, and could therefore be used, exported, disclosed or transferred freely by the licensee. (Ex. 282 ¶ 15; Ex. 182 ¶ 17; Ex. 190 ¶ 16.)

Disputed in that AT&T and USL intended to require their UNIX System V licensees to hold in confidence all parts of the modifications and derivative works they developed based on the licensed UNIX System V software product, even those parts of such modifications and derivative works as to which AT&T and USL claimed no ownership. (¶¶ 82-86.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives held no such belief or understanding. (¶¶ 63- 163 .)

24. Some licensees sought to clarify that, under the agreements, the licensee, not AT&T or USL, would own and control modifications and derivative works prepared by or for the licensee (except for any original UNIX System V source code provided by AT&T or USL and included therein). Messrs, Wilson, DeFazio, Frasure, and other AT&T representatives provided such clarification when asked because that is what they understood the language in the standard software agreement to mean. In some cases, they provided this clarification orally. In other cases, they provided it in writing, such as in a side letter. (Ex. 282 ¶ 17; Ex. 182 ¶ 18; Ex. 189 ¶ 14; Ex. 190 ¶¶ 17-18.)

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives held no such understanding and made no such statements. (¶¶ 63-163.) Disputed in that no side letter permitted any AT&T or USL UNIX System V licensee to distribute any part of its modifications or derivative works

8

based on the licensed UNIX System V software product. (¶¶ 82-88.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18, 91- 92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that any writing referred to the licensee's "control," which statement the cited material does not support.

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

Disputed in that substantial evidence shows (and easily permits the inference) that Mr. Wilson held no such view and made no such representations. (¶¶ 63-163.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

26. Because AT&T and USL intended to distribute the UNIX System V source code and related information widely, AT&T understood that it would be difficult to require that the code and related information be kept confidential. Since AT&T believed that its licensees held the same view, its standard UNIX software agreements provided that a licensee would not be

9

required to keep a software product confidential if it became available without restriction to the general public. (Ex. 282 ¶ 29.)

Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

27. The exception is set forth in Section 7.06(a) of the standard software agreement:
If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE'S obligations under this section shall not apply to such information after such time.
(Ex. 119 § 7.06(a).) The licensee was free to disclose, without any restriction whatsoever, any information that became available without restriction to the general public by acts not attributable to that particular licensee. (Ex. 281 ¶ 30.)

Disputed to the extent the statement suggests that Section 7.06(a) of the standard software agreement embodies the exception as and for the reasons described in Paragraph 26.

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

Disputed. AT&T intended to require its licensees to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX software product. (¶¶ 82-86.) AT&T sought to obtain more protection under the standard license agreement than AT&T might have under the existing intellectual property law. (¶ 81.) Disputed to the extent the statement

10

suggests that Section 7.06(a) of the standard software agreement embodies the exception as and for the reasons described in Paragraph 26.

29. AT&T never attempted to list all the ways in which source code could become "available without restriction to the general public" within the meaning of the software and related agreements. But AT&T, including Mr. Wilson and other representatives, believed that the UNIX System V source code (or any part thereof) would be available without restriction to the general public if, for example, it were (1) published by a party other than the licensee in question; (2) accessible outside the limits of a confidentiality agreement, such as for download from the internet; (3) available because its owner failed, even if by inadvertence or simple negligence, to take sufficient precautions to ensure that it would remain confidential; (4) distributed so widely that contractual confidentiality restrictions would be insufficient to maintain confidentiality; (5) made available to a third party who had the right to disclose the software product (or any part thereof); or (6) distributed under an open-source license like the GNU General Public License (the "GPL"). (Ex. 281 ¶ 32.)

Disputed to the extent the statement suggests that a distribution of the source code or methods or concepts embodied therein, accompanied by a copyright notice, would constitute making such technology "available without restriction to the general public." "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.) Disputed to the extent the statement suggests that the GPL existed when the standard UNIX license agreement was created, which statement the cited material does not support.

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

11

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend to hold all licensees to the same basic standard without regard to the provisions of any side letters with its licensees. (¶ 89.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend and it was not its policy to hold all licensees to the same basic standard regardless of the provisions of any side letters with its licensees. (¶ 89.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

D. IBM/Sequent Negotiations of New UNIX Licenses.

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

Undisputed.

33. While Messrs. Wilson, DeFazio, and Frasure had primary responsibility for the negotiation and execution of the new IBM and Sequent UNIX licensing agreements, Mr. Steve Vuksanovich and Mr. Ira Kistenberg also participated in the negotiations. (See Ex. 275 ¶ 7; Ex.

12

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

Disputed to the extent the statement suggests that the standard UNIX license agreement at that time had not been previously drafted by AT&T. (¶¶ 106-18.)

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

Undisputed.

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

Undisputed.

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

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend and it was not its policy to hold all licensees to the same basic standard regardless of the provisions of any side letters with its licensees. (¶ 89.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

13

37. Mr. Wilson and his staff explained that the proposed agreements controlled what licensees could and could not do with the UNIX System V software products. They stated that the proposed agreements did not allow AT&T to control licensees' use, export, disclosure, or transfer of any software products or source code that licensees developed themselves that did not contain any UNIX System V code. (Ex. 178 ¶ 9; Ex. 228 ¶ 12; Ex. 233 ¶¶ 8-9; Ex. 252 ¶ 7; Ex. 266 ¶ 10.)

Disputed to the extent the statement suggests that Mr. Wilson and his staff held the view and told IBM or Sequent that the proposed agreements did not allow AT&T to control licensees' use, export, disclosure, or transfer of the licensees modifications and derivative works based on the licensed System V software product, in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson and his staff other AT&T representatives held no such understanding and made no such statements. (¶¶ 63-163.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed in that AT&T's license agreements were intended to require licensees to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product, AT&T would not have entered into a license agreement with any

14

licensee who had stated a contrary view as a condition of entering into the contract, and the plain language of AT&T's standard UNIX System V license agreement made clear that AT&T had entered into no such understanding. (¶¶ 13-163.) Disputed in that the evidence shows (and easily permits the inference) that neither IBM nor Sequent would have imposed any such conditions on their willingness to enter into their agreements. (¶¶ 13-21.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18, 91 -92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that the AT&T negotiators gave no such advice or assurances, because they held no such understanding. (¶¶ 63-163.) Disputed to the extent that the statement suggests that the AT&T negotiators had the authority to modify or amend the standard terms of AT&T's standard System V license agreement. (¶¶ 90-91.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the

15

Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

40. The IBM negotiating team would never have agreed to give AT&T the right to own or control IBM's original works. To do so would have represented a dramatic departure from IBM's practices regarding the licensing of third-party code and would have required IBM to change the way it developed products to ensure that it not allow any IBM or third-party code to be introduced into the source code base containing the UNIX System V code (however briefly) unless IBM was prepared forever to yield control of that code to AT&T. (Ex. 178 ¶ 9; Ex. 228 ¶ 18; Ex. 233 ¶ 17.)

Depending on the meaning of the phrase "IBM's original works" and "control," disputed to the extent the statement suggests that the IBM negotiating team did not enter into a written agreement requiring IBM to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts) ¶ 50.) Disputed to the extent the statement suggests that IBM had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

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

16

Disputed in that substantial evidence shows (and easily permits the inference) that the IBM negotiators made no such statements and asked for no such assurances. (¶¶ 63-163.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Depending on the meaning of the phrase "IBM's original works" and "control," disputed to the extent the statement suggests that the Sequent negotiating team did not enter into a written agreement requiring Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-21, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that

17

Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

43. Messrs Wilson, Frasure and DeFazio understood that neither IBM nor Sequent would have entered into the proposed UNIX licensing agreements if AT&T had sought and insisted on the right to control any product or code that might in the future be associated with UNIX System V code, except insofar as it might include UNIX System V code. (Ex. 182 ¶ 17; Ex. 190 ¶ 29; Ex. 282 ¶ 16.) No one involved in the negotiation of the Agreements ever suggested that they would give AT&T (or anyone else other than IBM or Sequent) the right to control IBM or Sequent original code. (Ex. 178 ¶¶ 11-12; Ex. 228 ¶ 19; Ex. 233 ¶ 9; Ex. 252 ¶ 7; Ex. 266 ¶ 10.)

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives held no such understanding and made no such statements. (¶¶ 63-163.) Depending on the meaning of the phrase "IBM or a Sequent original code," disputed to the extent the statement suggests that the Sequent negotiating team did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

44. Based at least in part on AT&T's assurances, IBM and Sequent made the decision to execute licensing agreements that AT&T represented to reflect its standard terms. Sequent agreed to sign the agreements as is, whereas IBM agreed to sign them subject to clarifications

18

and amendments set out in a contemporaneous side letter. IBM wanted to make sure there would be no question that, among other things, AT&T's licensees, not AT&T, would own and control the source code that was developed by the licensee or developed for the licensee by a third party. (Ex. 178 ¶¶ 13-17; Ex. 228 ¶¶ 13-14, 18; Ex. 233 ¶¶ 10-13; Ex. 252 ¶ 7; Ex. 266 ¶ 12.)

Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives gave no such assurances. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into agreements requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

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

Depending on the meaning of the term "most-favored nation customer provision," disputed in that the term concerns terms other than pricing. (Ex. 333 ¶ 27.) Disputed in that

19

substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives possessed no such wishes. (¶¶ 63-163.)

46. AT&T made clear that - side letter or not - AT&T intended to treat all of its licensees the same. Messrs. Wilson, DeFazio Frasure, Kistenberg, and Vuksanovich intended to hold all licensees to the same basic standard. AT&T's stated policy was to treat all of its licensees essentially the same. (Ex. 182 ¶¶ 18,20; Ex. 189 ¶¶ 14-16; Ex. 217 ¶¶ 21-22; Ex. 275 n26-27; Ex. 281 ¶ 17.) All were free to do as they wished with their original or homegrown works, so long as they protected AT&T's UNIX software. (See Ex. 182 ¶ 18; Ex. 190 ¶ 26; Ex. 217 ¶ 12; Ex. 275 ¶ 29; Ex. 282 ¶ 28.)

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend to hold all licensees to the same basic standard without regard to the provisions of any side letters with its licensees. (¶ 89.) Disputed in that substantial evidence shows (and easily permits the inference) that Messrs. Wilson, DeFazio, Frasure and other AT&T representatives gave no such assurances. (¶¶ 63-163.) Depending on the definition of the phrase "original or homegrown works," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-21, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

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

20

Undisputed.

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

Undisputed.

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

Undisputed.

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

Undisputed.

51. The Agreements included the following provisions from AT&T's standard Software Agreements, each of which SCO accuses IBM of breaching:
Section 2.01:

AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE'S own internal business purposes and solely on or in conjunction with DESIGNATED CPUs for such SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.

Section 2.05

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

Section 4.01

21

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

Section 6.03

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

Section 7.06(a)

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

Section 7.10

Except as provided in Section 7.06(b), nothing in this Agreement grants to LICENSEE the right to sell, lease or otherwise transfer or dispose of a SOFTWARE PRODUCT in whole or in part.
(Ex. 492; Ex. 119.)

Undisputed.

52. On their face, the allegedly breached provisions (Sections 2.01, 2.05, 4.01, 6.03, 7.06(a) and 7.10) pertain to AT&T's "SOFTWARE PRODUCT", which is defined by the Agreements as:
[M]aterials such as COMPUTER PROGRAMS, information used or interpreted by COMPUTER PROGRAMS and documentation relating to the use of

22

COMPUTER PROGRAMS. Materials available from AT&T for a specific SOFTWARE PRODUCT are listed in the Schedule for such SOFTWARE PRODUCT.
(ex. 492 ¶ 1.04; Ex. 119 ¶ 1.04.)

Disputed to the extent the statement suggests that the foregoing provisions relate only to the "software product" in that, on their face, Sections 2.01, 7.06(a) and 7.10 of the Agreements also pertain to any modifications and derivative works that IBM and Sequent develop based on the licensed UNIX System V software product.

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

Disputed to the extent the statement suggests that the agreements do not refer to specific versions of UNIX System V, which statement the cited material does not support.

54. The IBM Side Letter clarified Section 2.01 as follows:
Regarding Section 2.01, we agree that that modifications and derivative works prepared by or for [IBM] are owned by [IBM]. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with [AT&T].
(Ex. 122 at 2; Ex. 282 ¶¶19-20; Ex. 189 ¶ 14; Ex. 182 ¶ 18; Ex. 275 ¶¶ 15-16; Ex. 228 ¶¶ 13-14; Ex. 178 ¶¶ 13-16; Ex. 233 ¶¶ 10-13.) This language clarified that IBM (like all AT&T licensees) owned and controlled its original or homegrown works. (Ex. 282 ¶¶ 19-20; Ex. 189 ¶ 14; Ex. 182 ¶ 18; Ex. 275 ¶¶ 15-16; Ex. 228 ¶¶ 13-14; Ex. 178 ¶¶ 13-16; Ex. 233 ¶¶ 10-13.)

Depending on the meaning of the word "controlled" and the phrase "original or homegrown works," disputed in that the language in Paragraph 2 of the IBM Side Letter did not clarify that IBM (or any other AT&T UNIX System V licensee) was free to publicly disclose

23

even those portions of a modification or derivative work that IBM (or AT&T's other UNIX System V licensees) owned. (¶¶ 87-89.)

55. In addition, the Side Letter, as well as subsequent Amendment No. X, amended Section 7.06(a) of the IBM Software Agreement to provide as follows:
LICENSEE agrees that it shall hold SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T. LICENSEE further agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder. ... Nothing in this Agreement shall prevent LICENSEE from developing or marketing products or services employing ideas, concepts, know-how or techniques relating to data processing embodied in SOFTWARE PRODUCTS subject to this Agreement, provided that LICENSEE shall not copy any code from such SOFTWARE PRODUCTS into any such product or in connection with any such service. . . If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE'S obligations under this section shall not apply to such information after such time.
(Ex. 122 ¶ A.9; Ex. 124 ¶ 6.) This language clarified, among other things, that IBM (like all AT&T licensees) had no obligation of confidentiality regarding UNIX software that becomes available without restriction to the general public by acts not attributable to IBM.

Disputed in that the foregoing statement omits the third sentence of Paragraph A.9 of the IBM Side Letter: "LICENSEE shall appropriately notify each employee to whom any such disclosure is made that such disclosure is made in confidence and shall be kept in confidence by such employee."

56. Consistent with AT&T's policy to treat all licensees the same, Paragraph A.12 of the IBM Side Letter provides:
We agree that all SOFTWARE PRODUCTS, including enhancements to or new versions of existing SOFTWARE PRODUCTS, generally available under the Software Agreement will be made available to you at the fees and under terms, warranties and benefits equivalent to those offered to other licensees.

24

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

Disputed to the extent the statement suggests that paragraph A.12 concerned any term other than pricing. (Ex. 333 ¶ 27.) Disputed to the extent that IBM ever licensed any subsequent version of UNIX System V other than the version licensed under its 1985 Agreement and Side Letter. (Ex. 333 ¶ 27.)

F. Parties' Intent as to Homegrown Material

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

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Depending on the definition of the phrase "original code written by, or for, IBM and Sequent," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all pasts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude

25

any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Depending on the definition of the phrase "original code written by, or for, IBM and Sequent," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the

26

terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

59. As the Involved Persons understood the Agreements, they impose no restrictions on IBM's or Sequent's use, export, disclosure or transfer of those portions of any modifications or derivative works of UNIX System V that were created by or for IBM or Sequent and do not contain any UNIX System V source code. (See Ex. 178 ¶ 18; Ex. 182 ¶ 18; Ex. 190 ¶ 24; Ex. 217 ¶ 12; Ex. 228 ¶ 16; Ex. 233 ¶ 6; Ex. 252 ¶ 18; Ex. 266 ¶ 12; Ex. 275 ¶ 12; Ex. 282 ¶ 27.) Under the Agreements, IBM and Sequent are free to use however they want any AIX or Dynix source code, except for the UNIX System V source code or other licensed software products provided by AT&T that may be contained therein (except as otherwise permitted by the AT&T Agreements). (See Ex. 178 ¶ 19; Ex. 182 ¶ 18; Ex. 190 ¶ 26; Ex. 217 ¶ 12; Ex. 228 ¶ 15; Ex. 233 ¶ 14; Ex. 252 ¶ 13; Ex. 266 ¶ 13; Ex. 275 ¶ 29; Ex. 282 ¶ 28.)

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they

27

could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts) ¶ 50.)

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

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Depending on the definition of the phrases "freedom of action" and "original source code, methods, or concepts," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they

28

could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶50.)

61. Section 2.01 of the Software Agreements, as understood by the Involved Persons, was only intended to ensure that if a licensee were to create a modification or derivative work based on UNIX System V, any material portion of the original UNIX System V source code provided by AT&T or USL that was included in the modification or derivative work would remain subject to the confidentiality and other restrictions of the software agreement. (See Ex. 178 ¶ 1; Ex. 182 ¶ 16; Ex. 190 ¶ 14; Ex. 228 ¶ 12; Ex. 233 ¶ 8; Ex. 282 ¶ 14; Ex. 584 at 176:2- 18; Ex. 310 at 30:17-31:5.) Any source code developed by or for a licensee and included in a modification or a derivative work would not constitute "resulting materials" to be treated as part of the original software product, except for any material proprietary UNIX System V source code provided by AT&T or USL and included therein. (See Ex. 178 ¶ 11 ; Ex. 182 ¶ 16; Ex. 190 ¶ 14;Ex.21¶¶ 11;Ex.228 ¶ 12;Ex.233 ¶ 8;Ex.252 ¶ 7;Ex.282 ¶ 14;Ex. 584 at 173:3-174.)

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they

29

could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

62. None of the Involved Persons intended the Agreement to permit AT&T and USL to assert ownership or control over modifications and derivative works prepared by licensees, except to the extent of the original UNIX System V source code included in such modifications and derivative works. (See Ex. 178 ¶ 15; Ex. 182 ¶ 20; Ex. 190 ¶¶ 14-15; Ex. 21 ¶ 22; Ex. 228 ¶ 13; Ex. 233 ¶ 8; Ex. 252 ¶ 7; Ex. 266 ¶ 10; Ex. 275 ¶ 27; Ex. 282 ¶ 15.) They intended that the code developed by or for the licensee would remain the property of the licensee, and could therefore be used, exported, disclosed or transferred freely by the licensee. (See Ex. 178 ¶ 18; Ex. 182 ¶ 20; Ex. 190 W 14-15; Ex. 217 ¶ 23; Ex. 228 ¶ 15; Ex. 233 ¶ 9; Ex. 252 ¶¶ 8,9; Ex. 266 ¶¶ 10, 12; Ex. 275 ¶ 27; Ex. 282 ¶ 15.)

Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

30

63. Whether or not AT&T entered into a side letter or other agreements with its licensees to clarify the treatment of modifications and derivative works, or altered the language of Section 2.01, AT&T's and USL's intent was always the same. It never intended to assert ownership or control over any portion of a modification or derivative work that was not part of the original UNIX System V source code provided by AT&T or USL. The licensee was free to use, copy, distribute or disclose its modifications and derivative works, provided that it did not use, copy, distribute or disclose any portions of the original UNIX System V source code provided by AT&T or USL except as permitted by the license agreements. (See Ex. 182 ¶ 20; Ex. 190 ¶ 24; Ex. 217 ¶ 22; Ex. 275 ¶ 27; Ex. 282 ¶ 27.)

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend to hold all licensees to the same basic standard without regard to the provisions of any side letters with its licensees. (¶ 89.) Disputed to the extent the statement suggests that the "Involved Persons" had the authority to modify the terms of AT&T's standard UNIX license agreements and to the extent the statement suggests that the "Involved Persons" were the only individuals under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that the "Involved Persons" did not share any such view during their tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18-91- 92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

31

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

Disputed to the extent the referenced materials are cited for the truth of the proposition that other licensees and prospective licensees sought such clarification, and disputed to the extent the statement suggests that AT&T held the view that the agreements did not preclude the licensees' use, export, disclosure, or transfer of the licensees modifications and derivative works based on the licensed System V software product, in that substantial evidence shows (and easily permits the inference) that AT&T held no such view. (¶¶ 63-163.)

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

Depending on the meaning of the word "apply," disputed to the extent the statement suggests that AT&T intended the $ echo newsletter to have any binding legal effect. (Ex. 5 at 100-01; Ex. 69 at 120-21; Ex. 10 ¶ 8; Ex. 14 ¶ 4; see also IBM Ex. 301 at 68; IBM Ex. 302 at 246-47.)

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

Disputed to the extent that the statement suggests that in April 1985 Mr. Wilson had the lone or ultimate authority over AT&T's UNIX software licensing, or that Mr. Wilson or Mr

32

.

Frasure alone had the authority to make any "changes" to the standard licensing and sublicensing agreements. (¶ 90.)

67. As discussed in the newsletter, among the changes AT&T decided to implement, and which were announced at the seminars by Mr. Frasure, were "[language changes . . . to clarify ownership of modifications or derivative works prepared by a licensee". (See Ex. 190 ¶ 20; Ex. 217 ¶ 17; Ex. 275 ¶ 21; Ex. 282 ¶ 23.) The August 1985 edition of $ echo describes these changes in detail. With respect to Section 2.01, the newsletter states:
Section 2.01 - The last sentence was added to assure licensees that AT&T will claim no ownership in the software that they developed - only the portion of the software developed by AT&T.
(Ex. 190 ¶ 21;Ex. 217 ¶ 18;Ex. 275 ¶ 22;Ex. 282 ¶ 24.)

Depending on the meaning of the term "control" in previous statements, disputed to the extent the statement suggests that AT&T's statement regarding ownership was one relieving the licensees of their existing obligations to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System software product, or to remove that obligation for future licensees. (¶¶ 82-86.)

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

Depending on the meaning of the term "any right," disputed to the extent the statement suggests that AT&T intended to relieve the licensees of their existing obligations to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System software product, or to remove that obligation for future licensees. (¶¶ 82-86.)

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

33

Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided that any such modification or derivative work that contains any part of a SOFTWARE PRODUCT subject to this Agreement is treated hereunder the same as - such SOFTWARE PRODUCT. AT&T-IS claims no ownership interest in . ---- any portion of such a modification or derivative work that is not part of SOFTWARE PRODUCT.
(Ex. 127 ¶ 2.01 (emphasis added).)

Disputed to the extent the statement suggests that AT&T did not intend to require Santa Cruz to keep confidential all parts of its modifications and derivative works based on the licensed UNIX System software product. (¶¶ 82-86.)

70. As AT&T communicated at its seminars and in its newsletters to UNIX System V licensees, this new language was intended only to clarify the language in the original Section 2.01, not change its meaning. Mr. Wilson's licensing group interpreted the language of the original Section 2.01 and thus revised Section 2.01 in exactly the same way. (See Ex. 190 ¶ 22; Ex. 217 ¶ 20; Ex. 275 ¶ 24; Ex. 282 ¶ 25.)

Disputed to the extent that the statement suggests that at the time Mr. Wilson had the lone or ultimate authority over AT&T's UNIX software licensing (¶¶ 90-105) and to the extent the statement suggests that AT&T intended to eliminate from their existing or prospective UNIX System V license agreements the obligation on the part of the licensees to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System software product (¶¶ 82-87).

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

Depending on the meaning of the phrase "to receive the benefit of the changes and clarifications," disputed to the extent the statement suggests that AT&T intended the $echo

34

newsletter to have any binding legal effect. (Ex. 5 at 100-01; Ex. 69 at 120-21; Ex. 10 ¶ 8; Ex. 14 ¶ 4; see also IBM Ex. 301 at 68; IBM Ex. 302 at 246-47.) Disputed to the extent the statement suggests that AT&T intended to eliminate from their existing or prospective UNIX System V license agreements the obligation on the part of the licensees to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System software product. (¶¶ 82-87.)

H. IBM's and Sequent's Reliance.

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 82-87.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 82-87.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Depending on the meaning of the terms "control" and "original works" as used in previous statements, disputed to the extent the statement suggests that AT&T ever represented to IBM or Sequent that those companies would have the right to "control" their "original works" that were part of any modification or

35

derivative work they had developed based on the licensed UNIX System V software product. (¶¶ 63-163.) Depending on the meaning of the term "UNIX flavor," disputed to the extent the statement suggests that AIX and Dynix are not "derivative works" of the licensed UNIX System V software product within the meaning of their agreements, as well as the copyright law. (¶ 192.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Depending on the meaning of the term "no interest whatsoever," disputed to the extent the statement suggests that AT&T ever represented to IBM or Sequent that those companies would have the right to "control" their "original works" that were part of any modification or derivative work they had developed based on the licensed UNIX System V software product. (¶¶ 63-163.)

36

Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

74. IBM devoted hundreds of millions of dollars and tens of thousands of personal hours to the development and marketing of AIX, including writing many millions of lines of original source code for AIX. Similarly, Sequent spent tens of millions of dollars and hundreds of person-hours in the development and marketing of Dynix, including writing millions of lines of original source code for Dynix/ptx. (Ex. 257 ¶¶ 7-10; Ex. 252 at 97:25-98:20, 140:12-21; Ex. 81, Ex. G; Ex. 596 ¶¶ 3-4.)

Depending on the meaning of the term "original," disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

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

Undisputed.

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

Depending on the meaning of the term "original," disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

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

Disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without exposure, reference or access, or experience based

37

on such exposure, reference or access, to the licensed UNIX System V software product.

REDACTED

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

Disputed to the extent the statement suggests that Dynix/ptx is not a derivative work based on UNIX System V. (¶ 192.) Disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

79. Over the years, IBM has spent more than $2 billion in the development of original IBM code for AIX. IBM has also expended significant resources to license third party code (excluding System V code) for inclusion in AIX. (Ex. 257 ¶ 7.)

Depending on the meaning of the term "original," disputed to the extent the cited material does not identify what lines of code in AIX were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

80. Among the original IBM works in AIX are Virtual Resource Manager, Logical Volume Manager, Object Data Manager, System Management Interface Tool, Network Install Manager, Web-based System Manager, IBM Java Development Kit, AIX Workload Manager, Dynamic Logical Partitioning, Capacity On Demand, Cluster Systems Management, and many other developments. (Ex. 257 ¶ 8; Ex. 283 ¶ 85.)

38

Depending on the meaning of the term "original works," disputed to the extent the cited material does not identify whether the works were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

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

Depending on the meaning of the term "original Sequent works," disputed to the extent the cited material does not identify whether the works were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

I. Continued Assurances and Reliance.

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

Disputed to the extent the statement suggests that AT&T or USL held the view or told IBM or Sequent that the proposed agreements did not require their licensees to hold in confidence all parts of their modifications and derivative works based on the licensed System V software product. (¶¶ 63-163.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they

39

could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T and USL held no such understanding and made no such statements. (¶¶ 63-163.) Depending on the definition of the phrase "original works," disputed to the extent the statement suggests that the licensees did not enter into written agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreements, the parties did not intend to exclude any previous or subsequent oral discussions from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed to the extent the referenced materials are cited for the truth of the proposition that other licensees sought such clarification, and disputed to the extent the statement suggests that AT&T held the view that the agreements did not preclude the licensees' use, export,

40

disclosure, or transfer of the licensees modifications and derivative works based on the licensed System V software product, in that substantial evidence shows (and easily permits the inference) that AT&T bad no such intent. (¶¶ 63-163.)

85. Mr. Wilson and members of this staff stated, orally and in writing, that AT&T's licensees, not AT&T or USL, would own and control modifications and derivative works prepared by or for the licensee (except for any original UNIX System V source code provided by AT&T or USL and included therein). (Ex. 182 ¶ 18; Ex. 189 ¶¶ 17-22; Ex. 271 ¶¶ 3-5; Ex. 275 ¶¶ 25; Ex. 280 ¶¶ 73-75; Ex. 282 ¶ 17.)

Disputed to the extent the statement suggests that AT&T ever represented to IBM or Sequent that those companies were not obligated to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 63-163.) Disputed to the extent that the statement suggests that Mr. Wilson or the "members of this staff" had the lone or ultimate authority over AT&T's UNIX software licensing, or that Mr. Wilson or any "member of his staff' had the authority to amend the licensing and sublicensing agreements. (¶¶ 76-96.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that AT&T ever represented to IBM or Sequent

41

that those companies would have the right to "control" their "original works" that were part of any modification or derivative work they had developed based on the licensed UNIX System V software product. (¶¶ 63-163.) Disputed to the extent that the cited material does not support the assertion that AT&T or USL ever represented in writing that any licensee would "control" any part of the modifications or derivative works it developed based on the licensed UNIX System V software product.

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

Disputed in that substantial evidence shows (and easily permits the inference) that Mr. Frasure held no such understanding of the licenses and had no such communications with licensees regarding rights of disclosure. (¶¶ 63-163.) Disputed to the extent that the cited material does not support the assertion that Mr. Frasure had any such communications in writing.

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

Disputed to the extent the statement suggests that Mr. DeFazio had the authority to modify the terms of AT&T's standard UNIX license agreements or was the person under whose ultimate direction AT&T licensed its UNIX software product. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that Mr. DeFazio held no such

42

understanding of the licenses and had no such communications with licensees regarding rights of disclosure. (¶¶ 63-163.)

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

Disputed to the extent the statement suggests that AT&T or USL stated in any such communications that UNIX System V licensees "could do as they wished with their own original material" without regard to whether such material was included in the licensees' modifications or derivative works based on the licensed UNIX System V software product. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Depending on the meaning of the term "their own original material," disputed to the extent the statement suggests that AT&T ever represented to its licensees that they would have the right to "do as they wished" with their "original works" that were part of any modification or derivative work they had developed based on the licensed UNIX System V software product. (¶¶ 63-163.)

43

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

Depending on the meaning of the term "original works," disputed to the extent the statement suggests that AT&T ever represented to its licensees that they would have the right to "do as they wished" with their "original works" that were part of any modification or derivative work they had developed based on the licensed UNIX System V software product. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

90. Taking Mr. Wilson and his colleagues at their word, IBM, Sequent and other UNIX licensees exercised ownership and control over their original works, despite the fact that those works had been part of a modification and derivative work of UNIX System V or had been associated in some respect with UNIX System V code, such as by publicly disclosing them. (Ex. 508; Ex. 509; Ex. 510; Ex. 51 1; Ex. 512; Ex. 559; Ex. 560; Ex. 561; Ex. 562; Ex. 563; Ex. 564; Ex. 565; Ex. 566; Ex. 567; Ex. 568; Ex. 569; Ex. 570; Ex. 571.)

Disputed in that the referenced exhibits do not disclose internal operating system source code, methods or concepts at all; disclose operating system source code, methods or concepts at only a general and superficial level such that the disclosure would be of no use to operating system developers or disclose material that is so specific to a particular operating system that it

44

would not be applicable to another operating system, such as Linux; are confidential documents, patents whose purpose is to prevent the use of the disclosed invention, or materials that are protected by clear copyright language; and/or give no indication that they were published or distributed, or that their existence was ever known to individuals outside of IBM. (Ex. 139 ¶¶ 2- 22.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

91. For example, IBM publicly disclosed -- in open and candid fashion -- code, methods and concepts of AIX in AIX Operating System: Programming Tools and Interfaces (1989) (Ex. 560). IBM also disclosed AIX methods and concepts in patent applications and in the resulting patents, such as Patent No. 4,742,447 (Ex. 509), Patent No. 4,742,450 (Ex. 510), Patent No. 4,918,653 (Ex. 51 1), and Patent No. 5,032,979 (Ex. 512.)

See Response to IBM Statement of Fact No. 90. Disputed to the extent that the statement suggests that AT&T or USL knew or should have known about the substance of IBM's patent applications. (See Argument at III-IV.)

92. Mr. Wilson, his staff, and other AT&T representatives were aware and understood that AT&T's licensees were exercising ownership and control over, and disclosing, code, methods and concepts from their flavors of UNIX, including AIX and Dynix. At no point did AT&T or USL take any steps to preclude their licensees from doing as they wished with their original works. (Ex. 183 ¶¶ 76-¶¶; Ex. 191 ¶ 8; Ex. 250 ¶¶ 6-7; Ex. 271 ¶¶ 5-6; Ex. 276 ¶¶ 6-7.)

45

Disputed to the extent the statement suggests that Mr. Wilson or "his staff" had the authority to modify the terms of AT&T's standard UNIX license agreements or was the person under whose ultimate direction AT&T licensed its UNIX software product, or had the authority to waive any of AT&T's or USL's rights under the UNIX System license agreements. (¶ 90.) Depending on the meaning of the term "their original works," disputed in that substantial evidence shows (and easily permits the inference) that Mr. Wilson or "his staff' did not know about such disclosures. (¶¶ 63-163.) The evidence further shows (and easily permits the inference) that such disclosures, including as made under copyright protection, were not material breaches of the agreements. (Ex. 139 ¶¶ 2-22.)

93. Based on their understanding of the Agreements, the representations of AT&T's a representatives and AT&T's failure to take any action to preclude licensees from doing as they wished with their original works, IBM and Sequent (like other licensees) continued to develop their flavors of UNIX. (Ex. 257 ¶¶ 3-10; Ex. 310 at 295-31:5, 56:11-57:5,62:20-63:17, 119: 16-120:2, 127:15, 128:l.)

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could he used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent that the cited material does not support the assertion that IBM or Sequent relied on

46

"AT&T's failure to take any action to preclude licensees from doing as they wished with their original works" in deciding to continue to develop their AIX and Dynix derivative works. (IBM Statement of Undisputed Facts 1[ 50.) Depending on the meaning of the term "original works," disputed to the extent that IBM and Sequent had compelling reasons to continue to invest in AIX and Dynix as they did under the terms of their UNIX System V license agreements. (¶¶ 30-62.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

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

Depending on the meaning of the term "original source code," disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without exposure, reference or access, or experience based on such exposure, reference or access, to the licensed UNIX System V software product.

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the

47

Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that AT&T or any of its successors-in-interest claimed to own IBM's or Sequent's "original works." (¶¶ 76-96.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

J. Wide Availability of UNIX Information.

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

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that the cited material does not properly support the assertion that AT&T did not "necessarily" require its UNIX source code to be kept confidential. Disputed to the extent the statement suggests that AT&T intentionally decided not to keep its UNIX System V source code confidential.

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

48

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

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

Depending on the meaning of the phrase "very favorable forms," disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

99. AT&T knew that some universities made the source code available to individual students who were not bound by confidentiality obligations. AT&T also knew that such students often took copies of the source code with them when they graduated. AT&T's practice was not

49

to take action regarding such breaches of the license agreements unless the students sought to commercialize the software, in which case it would require the students to enter into license agreements and pay royalties. (Ex. 281 ¶ 34.)

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

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

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

101. AT&T expressly granted IBM the right to disclose UNIX System V ideas, concepts, know-how, methods, and techniques embodied in UNIX System V (Ex. 122 ¶ 9) and

50

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

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T did not intend and it was not its policy to hold all licensees to the same basic standard, without regard to the provisions of any side letters with its licensees. (¶ 89.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed in that AT&T did not grant IBM "the right to disclose UNIX System V ideas, concepts, knowhow, methods, and techniques embodied in UNIX System V." (¶¶ 88-89.) Disputed in that neither AT&T or nor its successors-in-interest ever "abandoned" any intent to protect the methods and concepts of its UNIX operating systems. (¶¶ 63-96.)

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

Disputed to the extent the statement suggests that by publishing a System V Interface Definition, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth

51

Counterclaim) ¶ 8.) Disputed in that a UNIX system could not be created, even in theory, from information in the SVID alone. (Ex. 139 ¶¶ 36-39.)

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

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's ' Eighth Counterclaim) ¶ 8.) Depending on the meaning of the phrase "design and implementation," disputed to the extent the statement suggests that such publications disclosed the internal materials and concepts in UNIX, which statement the cited material does not support, and which is not correct. (Ex. 139 ¶¶ 2-22.)

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

Disputed in that the cited material does not properly support the assertions. Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.)

52

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

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.)

106. The code, methods, and concepts of UNIX System V are available without restriction to the general public within the meaning of 7.06(a), as the provision was intended by AT&T. (Ex. 181 ¶¶ 58-59 & Ex. E; Ex. 122 ¶ 14; Ex. 125 ¶ 2; Ex. 207 ¶¶ 11-13; Ex. 281 ¶¶ 33- 39; Ex. 219.)

Disputed to the extent the statement suggests that by making its source code available to persons and entities, AT&T waived or intended to waive any of its copyrights or other legal rights in UNIX. "The mere fact of publishing a copyrighted work does not give others the right to use, copy, modify, or distribute that work." (IBM Statement of Undisputed Facts in Support of IBM's Motion for Summary Judgment on Its Claim for Copyright Infringement (IBM's Eighth Counterclaim) ¶ 8.) Disputed in that there was nothing inherent in AT&T's or USL's UNIX licensing program that would result in the disclosure of any confidential UNIX material, modifications, or derivative works. (¶¶ 78-79.) Disputed to the extent the statement draws a

53

legal conclusion. Disputed in that the code, methods, and concepts of UNIX System V are not available without restriction to the general public. (Ex. 139 ¶¶ 23-26.)

K. Development of the Linux Operating System.

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

Disputed. SCO disputes IBM's assertion that Linux Torvalds set out to create a "new" operating system. Rather, Mr. Torvalds based Linux on the Minix operating system, which he describes as a "Unix variant." Linux Torvalds & David Diamond, Just for Fun: The Story of an Accidental Revolutionary 6! (2001) (Ex. 169 at 61 .). Mr. Torvalds then used the manuals for the Sun Microsystems version of Unix for his early development of the operating system: "That's how early development was done. I was reading the standards from either the Sun OS [Operating System] manual or various books, just picking off system calls one by one and trying to make something that worked." id. at 82.)

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

Disputed. SCO disputes that Mr. Torvalds "developed" much of the Linux material, because such "development" consisted of appropriating material from Minix and other UNIX like operating systems, at least as to the material in dispute in this case and as described in SCO's expert Dr. Thomas A Cargill's expert reports. See Disputed Facts #1,283-85; (Cargill I Ex. 274; Cargill 11 Ex. 275; Cargill 111 Ex. 276.).

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

54

Disputed. SCO disputes that Mr. Torvalds and/or other Linux contributors "created" much of the material in Linux, as opposed to copying such material from pre-existing sources, to the extent Linux versions contain the material in dispute in this case as described in SCO's expert Dr. Thomas A. Cargill's expert reports. (See Disputed Facts Nos. 1-2,283-85 to SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on Its Tenth Counterclaim (Nov. 11,2006).)

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

Disputed in part and undisputed in part. It is undisputed that developers at SCO have contributed to the development of Linux-related products. However, neither Santa Cruz, Caldera International, nor SCO have contributed or intended to contribute any of the material at issue in this litigation to Linux. (Ex. 269 ¶¶ 9-14; Ex. 233 ¶¶ 4,6, 13; Ex. 11 ¶ 17; Ex. 6 ¶ 11.)

IBM's sources do not support the assertion that SCO, or any other entity that held copyrights to UNIX, contributed to Linux. Neither Caldera, Inc. nor Caldera Systems, Inc. ("Caldera Systems") held any copyrights to UNIX prior to the 2001 merger that created Caldera International. (Ex. 269 ¶ 9; Disputed Facts Nos. 9,34-37, 104 to SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on Its Tenth Counterclaim (Nov. 11, 2006).).

IBM Ex. 5 (SCO's Answer to IBM's Second Amended Counterclaims) ¶ 45:

The cited source does not support the assertion that SCO "contributed to the further development of Linux." Rather, the cited source supports the assertion that IBM contributed source code to

55

Linux, and denies all other allegations, including allegations that SCO distributed IBM's contributions under the GNU General Public License ("GPL").

IBM Ex. 105 (Caldera Systems, Inc.'s October 2000 Form 10-K/A) at 15,22,26: The cited source refers to Caldera Systems, Inc. ("Caldera Systems"), which did not own any copyrights in UNIX. (Disputed Facts Nos. 9,34-37, 104 to SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on Its Tenth Counterclaim (Nov. 11,2006).) The cited source shows that Caldera Systems sought to deliver Linux-related products (p. 15), would be forced to contribute to the development of Linux if independent third-parties ceased such development (p. 22), and competed with Linux providers (p. 26). The source does not mention SCO and does not support the assertion that either SCO or Caldera Systems contributed source code to the Linux kernel or any non-proprietary, Linux-related software. Rather, the source stresses that "most of the components of [Caldera Systems'] software offerings are developed by independent parties" (p. 26).

IBM Ex. 364 (SCO website): The cited source shows only vague support for limited contribution by SCO to elements of Linux that do not constitute part of the infringing Linux material. The cited source does not specify a time frame for the asserted actions.

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

Disputed in part and undisputed in part. SCO disputes that Linux is an "open source" program, because it contains material that has not been properly licensed by the owner(s) of the

56

copyright in such material. In particular, neither SCO nor any other UNIX copyright holder properly released the copyrighted, disputed UNIX material at issue in this case under the GPL.

Neither AT&T, Unix Systems Laboratories ("USL"), Novell, Inc. ("Novell"), Santa Cruz, Caldera International, or SCO have placed a notice on or in any products indicating that they grant the rights "to run, copy, distribute, study, adapt and improve" the infringing UNIX material in Linux without royalties, under the terms of the GPL or any other "open source" license, nor did they ever intend to grant such rights. (Ex. 11; Ex. 233 ¶¶ 4,6, 13; Ex. 269 ¶¶ 9-14; Ex. 6 ¶¶ 11, 14. Placement of such a notice by the copyright holder in the UNIX material is a prerequisite to granting such rights in the UNIX material under the GPL. (IBM Ex. 128 5 0.)

IBM has put forth no evidence that any UNIX copyright holder contributed the infringing Linux material to Linux or placed an appropriate GPL notice on Linux, or that other Linux contributors actually owned the copyright in the material they contributed. For instance, Mr. Torvalds admits to having incorporated system calls taken from a Unix licensee - Sun Microsystems. (Disputed Fact No. 2 to Yet, IBM has put forth no evidence showing that Sun granted rights to use such material in Linux.

Furthermore, whether SCO or any other UNIX copyright holder has granted such rights, to whom such rights were granted, what conditions were imposed on such rights, and whether use of the infringing Linux material complies with such conditions, are all disputed legal conclusions, not "Disputed Facts."

IBM Ex. 5 (SCO's Answer to IBM's Second Amended Counterclaims) ¶ 22: The cited source does not support the assertion that such rights have been granted in all of Linux, and does not specify any particular portion of Linux in which such rights have been granted.

57

IBM Ex. 272 (Declaration of Linux Torvalds) ¶ 6; Ex. 221 (Declaration of Ransom Love) ¶ 7: The cited sources constitute legal conclusions asserted without any supporting factual basis.

112. Linux not only adheres to open standards, but also is built and maintained by a worldwide group of engineers who share the common goal of making open systems and open source ubiquitous. (Ex. 106 at 3; Ex. 272 ¶ 7; Ex. 22 ¶ 8.) Anyone can freely download Linux and many Linux applications and modify and re-distribute them with few restrictions. (Ex. 107 at 5; Ex. 272 ¶ 8; Ex. 221 ¶ 9.)

Disputed in that the cited material is inadmissible to support the assertion that a worldwide group of engineers who build and maintain Linux share the common goal of making open systems and open source ubiquitous.

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

Disputed to the extent the statement suggests that the foregoing provisions of Linux are the only ones relevant to the terms under which the Linux kernel is distributed.

L. USL and Novell.

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

Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. The declarant is Joseph A. LaSala, Jr. "on behalf of Novell, Inc." (IBM Ex. 240.) 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

58

.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 plaintiffs 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). Specifically, paragraphs 7, 11-28, and 40-43 of the declaration convey on their face Novell's "understanding" of the significance of events and are therefore inappropriate evidence in support

59

of a summary judgment motion, in addition to the fact that the Federal Rules of Civil Procedure do not permit Mr. LaSala to declare anything "on behalf of" Novell.

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

Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. (See response to IBM Paragraph 114.)

116. In acquiring AT&T's rights to the Agreements, Novell understood them to place restrictions on the extent to which AT&T's licensees could use UNIX System V. Novell did not understand the UNIX licenses to confer on AT&T or Novell (as AT&T's successor) any rights to the code, methods or concepts of AT&T's and Novell's licensees -- whether or not the licensees' code, methods or concepts were or had been part of a modification or derivative work of AT&T's UNIX software product. (Ex. 240 ¶¶ 11-23.)

Disputed in that there is substantial evidence demonstrating (and easily permitting the inference) that the members of Novell's UNIX licensing group understood the UNIX licenses to require the licensees to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 63-96.) Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. (See response to IBM Paragraph 114.)

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

Disputed in that there is substantial evidence demonstrating (and easily permitting the inference) that AT&T and Novell understood the UNIX licenses to require the licensees to keep confidential all parts of their modifications and derivative works based on the licensed UNIX

60

System V software product, and that neither AT&T nor Novell suggested otherwise to each other. (¶¶ 63-96.) Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. (See response to IBM Paragraph 114.)

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

Disputed in that there is substantial evidence demonstrating (and easily permitting the inference) that AT&T and Novell understood the UNIX licenses to require the licensees to keep confidential all parts of their modifications and derivative works based on the licensed UNIX System V software product, and that neither AT&T nor Novell suggested otherwise to each other. (¶¶ 63-96.) Disputed in that like the AT&T licenses, Novell's own UNIX System V license agreements state expressly that Novell and its licensees intended to exclude any previous or subsequent discussions from the agreement the parties had reached. (¶¶ 18,91-92.) Disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the licensees did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. (See response to IBM Paragraph 114.)

61

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

Disputed in that substantial evidence shows (and easily permits the inference) that Novell held no such understanding of the licenses and had no such communications with licensees regarding rights of disclosure. (¶¶ 63-96.) Disputed to the extent the statement suggests that Novell represented that UNIX System V licensees could do as they wished with "the licensees' code, methods and concepts" without regard to whether such material was included in the licensees' modifications or derivative works based on the licensed UNIX System V software product. (¶¶ 63-96.) Disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the licensees did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement call for a legal conclusion. Disputed in that IBM Exhibit 240 constitutes, in relevant part, inadmissible evidence. (See response to IBM Paragraph 114.)

120. Just as they had before Novell acquired USL, IBM, Sequent and other UNIX licensees exercised ownership and control over their original works, despite the fact that those works were (or had been) part of a modification and derivative work of UNIX System V or were

62

(or had been) associated in some respect with UNIX System V, such as by publicly disclosing them. (Ex. 561; Ex. 562; Ex. 563; Ex. 567; Ex. 568; Ex. 569; Ex. 571.)

See Response to IBM Statement of Fact No. 90.

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

See Response to IBM Statement of Fact No. 90.

122. For example, IBM published The Advanced Programmer's Guide to AIX 3.x, which contained source code, methods and concepts from AIX (Ex. 493), and disclosed AIX methods and concepts in patent applications and issued patents including Patent No. 5,202,971 (Ex. 567), Patent No. 5,175,852 (Ex. 499), Patent No. 5,421,011 (Ex. 496), and Patent No 5,428,771. (Ex. 497.) Likewise, Sequent disclosed methods and concepts in patent applications and issued patents including Patent No. 5,442,758 (Ex. 498), and Patent No. 5,185,861 (Ex. 499.)

See Response to IBM Statement of Fact No. 90. Disputed to the extent that the statement suggests that AT&T or USL knew or should have known about the substance of IBM's patent applications. (See Argument, Part IV.)

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

See Response to IBM Statement of Fact No. 90.

124. Like AT&T and USL before it, Novell was aware and understood that its licensees were exercising their full rights of ownership and disclosing the code, methods and concepts of their flavors of UNIX. (Ex. 186 ¶¶ 6-7; Ex. 250 ¶¶ 6-7; Ex. 271 ¶¶ 5-6; Ex. 276 ¶¶ 6-7.) Yet, Novell took no steps to stop its licensees from doing as they wished with their original works. (Ex. 183 ¶¶ 6-7; Ex. 250 ¶¶ 6-7; Ex. 271 ¶¶ 15-16; Ex. 276 ¶¶ 6-7.)

Disputed in that substantial evidence shows (and easily permits the inference) that Novell representatives did not actually know about such disclosures. (¶ 96.) The evidence further shows (and easily permits the inference) that such disclosures, including as made under copyright protection, were not material breaches of the agreements. (Ex. 139 ¶¶ 2-22.)

63

125. Based on its understanding of the Agreements, the statements of Novell representatives and Novell's failure to take any action to preclude licensees from doing as they wished with their original works, IBM continued to develop its flavor of UNIX. Similarly, Sequent, having received no indication of a different interpretation of the Agreements from Novell, continued to develop its own Dynix operating system. (Ex. 257 ¶¶ 3-5; Ex. 252 at 67:21- 68: 11; 97:25-98:20, 140:12-21; Ex. 596 ¶¶ 2-4.)

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent that the cited material does not support the assertion that IBM or Sequent relied on "Novell's failure to take any action to preclude licensees from doing as they wished with their original works" in deciding to continue to develop their AIX and Dynix derivative works. Disputed to the extent the statement suggests that, absent an "indication of a different interpretation of the Agreements," IBM and Sequent would not have continued to develop AIX and Sequent as they did. (¶¶ 30-62.) Disputed to the extent the statement suggests that IBM knew the terms and conditions of any other UNIX licensee's license arrangement. (Ex. 333 ¶ 23; Ex. 355 ¶ 23.)

126. REDACTED Sequent likewise invested tens of millions of dollars in the development and marketing of Dynix and wrote millions of lines of

64

original source code. (Ex. 257 ¶ 10; Ex. 252 at 67:21-68:11; 97:25-98:20, 140:12-21; Ex. 181, Ex. G; Ex. 596 ¶¶ 3-4.)

Depending on the meaning of the term "original source code," disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without reference or access, or experience based on such reference or access, to the licensed UNIX System V software product.

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,8246.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that AT&T or any of its successors-in-interest claimed to own IBM's or Sequent's "original works." (¶¶ 76-96.) Disputed in that IBM and Sequent had compelling reasons to continue to invest in AIX and Dynix as they did under the terms of their UNIX System V license agreements. (¶¶ 30-62.)

M. Formation of SCO.

65

128. After Novell announced the termination of a project related to Linux, members of Project Corsair (as it was known) left Novel1 to form Caldera, Inc. ("Caldera"), a predecessor of SCO, in 1994. (Ex. 107; Ex. 440; Ex. 193 ¶ 6; Ex. 221 ¶ 16.)

Disputed in part and undisputed in part. Caldera, Inc. is not a "predecessor" of SCO to the extent that term could be construed as making the past actions of Caldera, Inc. attributable to SCO or indicating that Caldera, Inc. could grant others rights to use the infringed SVr4 material. (See Disputed Fact No. 4 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.)

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

Disputed in part and undisputed in part. SCO disputes IBM's implication that the actions of Caldera, Inc. or Caldera Systems prior to May 2001 are attributable to SCO, or that Caldera, Inc. or Caldera Systems had the power to grant or release rights in the infringed SVr4 material.

The actions of Caldera, Inc. and Caldera Systems prior to May 2001 are not attributable to SCO and could not grant IBM any rights to use the infringed SVr4 material, because neither Caldera, Inc. nor Caldera Systems owned copyrights in any UNIX material. (See Disputed Facts Nos. 4,22 to IBM's Memorandum in Support of Its Motion for Summary Judgment on Its Tenth Counterclaim (Nov. 11,2006).)

130. Caldera continued the work done by Novell on Project Corsair to develop a Linux desktop operating system and eventually delivered a product called "Caldera Network Desktop" in 1995. (Ex. 221 ¶ 19; Ex. 440; Ex. 107 at 8; Ex. 283 at 33; Ex. 198 ¶ 8; Ex. 242 ¶ 7.)

Disputed in part and undisputed in part. SCO disputes IBM's implication that the actions of Caldera, Inc. or Caldera Systems prior to May 2001 are attributable to SCO, or that Caldera, Inc. or Caldera Systems had the power to grant or release rights in the infringed SVr4 material.

66

The actions of Caldera, Inc. and Caldera Systems prior to May 2001 are not attributable to SCO and could not grant IBM any rights to use the infringed SVr4 material, because neither Caldera, Inc. nor Caldera Systems owned copyrights in any UNIX material (See Disputed Facts Nos. 4,22 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.)

IBM's cited sources do not indicate that the Linux products created by Caldera, Inc. were created through any affiliation with Novell, or that Novell transferred any rights or copyrights to Caldera, Inc. (See Disputed Facts Nos. 4,22 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.)

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

Disputed in part and undisputed in part. SCO disputes IBM's implication that the actions of Caldera, Inc. or Caldera Systems prior to May 2001 are attributable to SCO, or that Caldera, Inc. or Caldera Systems had the power to grant or release rights in the infringed SVr4 material.

The actions of Caldera, Inc. and Caldera Systems prior to May 2001 are not attributable to SCO and could not grant IBM any rights to use the infringed SVr4 material, because neither Caldera, Inc. nor Caldera Systems owned copyrights in any UNIX material. See Disputed Facts Nos. 4,22 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.)

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

67

Disputed in part and undisputed in part. SCO disputes IBM's implication that the actions of Caldera, Inc. or Caldera Systems prior to May 2001 are attributable to SCO, or that Caldera, Inc. or Caldera Systems had the power to grant or release rights in the infringed SVr4 material.

The actions of Caldera, Inc. and Caldera Systems prior to May 2001 are not attributable to SCO and could not grant IBM any rights to use the infringed SVr4 material, because neither Caldera, Inc. nor Caldera Systems owned copyrights in any UNIX material. (See Disputed Facts Nos. 4,22 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.)

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

Disputed in part and undisputed in part. SCO disputes IBM's implication that the actions of Caldera, Inc. or Caldera Systems prior to May 2001 are attributable to SCO, or that Caldera, Inc. or Caldera Systems had the power to grant or release rights in the infringed SVr4 material.

The actions of Caldera, Inc. and Caldera Systems prior to May 2001 are not attributable to SCO and could not grant IBM any rights to use the infringed SVr4 material, because neither Caldera, Inc. nor Caldera Systems owned copyrights in any UNIX material. (See Disputed Facts Nos. 4,22 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.) N. Novell and Santa Cruz Share UNIX Interests.

134. In 1995, as Caldera was beginning its Linux business, Novell entered negotiations with The Santa Cruz Operation, Inc. ("Santa Cruz") concerning the sale of certain Novell assets relating to its UNIX and UnixWare software products. (Ex. 239 ¶ 14; Ex. 123.)

Depending on the meaning of the term "certain Novell assets," disputed in that the parties negotiated the sale of Novell's UNIX business assets, and intellectual property, with few limited exceptions. (¶¶ 169-82.)

68

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

Undisputed.

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

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

Depending on the meaning of the term "a variety of assets," disputed in that the parties negotiated the sale of Novell's UNIX business assets, and intellectual property, with limited exceptions. (¶¶ 169-82.) Disputed to the extent the statement suggests that Santa Cruz did not obtain the UNIX copyrights. (¶¶ 169-82.)

138. Novell retained the right to receive royalty payments under System V Release X ("SVRX") licenses, prior approval rights relating to new SVRX licenses and amended SVRX licenses, the right to direct Santa Cruz to take certain actions relating to SVRX licenses and the right to conduct audits of the SVRX license programs. (Ex. 123 5 4.16; Ex. 239 ¶ 8.)

Disputed to the extent the statement suggests that the rights retained by Novell under the APA extend beyond the right to continue to receive and protect royalties paid by then-existing SVRX licensees for their ongoing distribution of SVRX binary products pursuant to UNIX sublicensing agreements. (¶¶ 279-93.)

139. Santa Cruz assumed responsibility for administering the collection of royalty payments from SVRX licenses. The APA provided that Santa Cruz would collect and pass through to Novell 100% of the SVRX royalties. In return, Novell agreed to pay Santa Cruz an

69

administrative fee of 5% of those royalty amounts. Santa Cruz also agreed to pay additional royalties relating to other products. (Ex. 123 § 4.16(a); Ex. 239 ¶ 9.)

Disputed to the extent the words "royalty" or "royalties" in the first three sentences refers to anything other than the royalties paid by then-existing SVRX licensees for their ongoing distribution of SVRX binary products pursuant to UNIX sublicensing agreements, and disputed to extent the word "royalties" in the last sentence suggests that Novell retained any rights to the "other products" other than the right to receive certain contingent payments for the projected (hut ultimately unrealized) sales of the "other products." (¶¶ 279-93.)

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

Disputed. The parties intended to have the UNIX copyrights transferred from Novell to Santa Cruz in the APA, and Amendment No. 2 clarified that the parties had so intended. (¶¶ 169-82.)

141. Novell also retained rights to supervise Santa Cruz's administration of SVRX licenses. (Ex. 239 ¶ 11 .) Section 4.16(b) of the APA provides that:
Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf. (Ex. 123 § 4.16(b).)

Depending on the meaning of the phrase "supervise Santa Cruz's administration of SVRX licenses" and the term "SVRX licenses," disputed in that the parties did not intend to

70

permit Novell to interfere with Santa Cruz's exercise of its rights with respect to SVRX source code in accordance with the transfer of assets under the APA. (¶¶ 279-93.)

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

Disputed to the extent the statement suggests that the rights retained by Novell under the APA extend beyond the right to continue to receive and protect royalties paid by then-existing SVRX licensees for their ongoing distribution of SVRX binary products pursuant to UNIX sublicensing agreements (¶¶ __-__), in that the parties did not intend to permit Novell to interfere with Santa Cruz's exercise of its rights with respect to SVRX source code in accordance with the transfer of assets under the APA. (¶¶ 169-82).

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

Disputed to the extent the statement suggests that Novell had any ownership rights in Santa Cruz's UNIX licenses or copyrights. (¶¶ 169-82.) Disputed in that substantial evidence shows (and easily permits the inference) that Novell and Santa Cruz held no such understanding of the licenses and had no such communications with licensees regarding rights of disclosure. (¶¶ 63-163.) Disputed to the extent the statement suggests that Novell or Santa Cruz represented that UNIX System V licensees could "do as they wished with their own code, modifications and derivative works" without regard to whether such material was included in the licensees'

71

modifications or derivative works based on the licensed UNIX System V software product. (¶¶ 63-163.) Disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the licensees did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

See Response to IBM Statement of Fact No. 90.

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

See Response to IBM Statement of Fact No. 90.

146. Representatives of Novell and Santa Cruz were aware and understood that its licensees were exercising their full rights of ownership and disclosing the code, methods and concepts of their flavors of UNIX. Neither company took any steps to preclude them from doing as they wished with their original works. (Ex. 183 ¶¶ 6-7; Ex. 250 ¶¶ 116-17; Ex. 271 ¶¶ 5-6; Ex. 276 ¶¶ 6-7; Ex. 227 ¶¶ 8-11 .)

Disputed to the extent the statement suggests that Novell had any ownership rights in Santa Cruz's UNIX licenses or copyrights. (¶¶ 169-82.) Disputed to the extent the statement suggests that the cited declarants had the authority to modify the terms of the UNIX license

72

agreements, or had the authority to waive any of Santa Cruz's rights under the UNIX System license agreements. (¶¶ 90.) Disputed in that substantial evidence shows (and easily permits the inference) that Santa Cruz had no such awareness or understanding. (¶¶ 63-163.) Depending on the meaning of the term "original works," disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) The evidence further shows (and easily permits the inference) that such disclosures, including as made under copyright protection, were not material breaches of the agreements. (Ex. 139 ¶¶ 2-22.)

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

Disputed to the extent the statement suggests that Mr. McCrabb had the actual or apparent authority to speak for Santa Cruz regarding the scope of Santa Cruz's UNIX licenses, or had the authority to modify the terms of the UNIX license agreements, or had the authority to waive any of Santa Cruz's rights under the UNIX System license agreements. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that Mr. McCrabb and his colleagues at Santa Cruz had no such understanding and made no such statements. (¶¶ 63-163.) Depending on the meaning of the term "their own code, modifications and derivative works," disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that

73

the statement suggests that, upon entering into their written agreements, the parties did not intend to exclude any previous or subsequent oral discussions from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶50.)

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent that the cited material does not support the assertion that IBM or Sequent relied on 'Novell's failure to take any action to preclude licensees from doing as they wished with their original works" in deciding to continue to develop their AIX and Dynix derivative works. Disputed to the extent the statement suggests that, absent an "indication of a different

74

interpretation of the Agreements," IBM and Sequent would not have continued to develop AIX and Sequent as they did. (¶¶ 30-62.)

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

Depending on the meaning of the term "original source code," disputed to the extent the cited material does not identify what lines of code in AIX or Sequent were written by developers without reference or access, or experience based on such reference or access, to the licensed UNIX System V software product.

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous and subsequent oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that AT&T or any of its successors-in-interest claimed to own IBM's or Sequent's "original works," (¶¶ 76-96.) Disputed to the extent the statement

75

suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

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

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

Disputed to the extent the statement suggests that Novell had any ownership rights in Santa Cruz's UNIX licenses or copyrights. (¶¶ 169-82.)

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

Disputed to the extent the statement suggests that Caldera, Inc. made the acquisition, or made it solely "to expand and enhance its Linux business," which statement the cited material does not support.

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

Disputed to the extent the statement suggests that either Caldera or Mr. Love immediately intended to, or ever did, open-source the UNIX technology, to improve Linux or for any other reason. (Ex. 386 ¶¶ 3-9.31) Disputed to the extent the statement suggests that Caldera, Inc. ("Caldera International") made the acquisition, which statement the cited material does not support. Disputed to the extent the statement suggests that IBM's contributions to Linux in

76

material breach of its UNIX System V license agreements were not a substantial factor in the downturn of Santa Cruz's UNIX business by the time of Caldera's acquisition of the business. (¶¶ 192-97.)

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

Disputed to the extent the statement suggests that IBM's contributions to Linux in material breach of its UNIX System V license agreements were not a substantial factor in the downturn of Santa Cruz's UNIX business by the time of Caldera International's acquisition of the business. (¶¶ 192-97.)

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

Disputed to the extent the statement suggests that Mr. McCrabb had the actual or apparent authority to speak for Santa Cruz regarding the scope of Santa Cruz's UNIX licenses, or had the authority to modify the terms of the UNIX license agreements, or had the authority to waive any of Santa Cruz's rights under the UNIX System license agreements. (¶ 90.) Depending on the meaning of the term "their original works," disputed in that substantial evidence shows (and easily permits the inference) that Mr. McCrabb and his colleagues at Santa Cruz had no such understanding. (¶¶ 63-163.) Depending on the meaning of the term "their original works," disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Depending on the meaning of the term "their original works," disputed to the extent the statement suggests

77

that Mr. Love specifically considered at the time of acquisition the issue of the extent of Caldera International control over the modifications and derivative works the licensees had developed based on the licensed UNIX System V software product. (Ex. 386 ¶ 7.)

P. SCO's Distribution of the Disputed Material.

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

Disputed to the extent the statement suggests that Caldera International or SCO chose to undertake Linux activities "instead" of pursuing its UNIX products and services or UNIX intellectual property rights. Neither Caldera International nor SCO ever did or intended to waive intellectual property rights in UNIX as a result of any Linux-related activities. (See Disputed Facts Nos. 4-5 to IBM's Motion for Summary Judgment on Its Tenth Counterclaim.) Caldera International derived 95% of its revenues from its UNIX products and services. (See id. No. 83.) Furthermore, Caldera International nor SCO investigated the infringement of UNIX material in Linux until late 2002 or early 2003. (See id. No. 109.) IBM's cited documents do not support its assertion that UnitedLinux activities were an alternative to litigation or other pursuit of UNIX intellectual property rights.

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

Undisputed.

158. SCO Linux 4 included the very code and technologies that SCO claims IBM improperly contributed to Linux. (See Ex. 33 at 43; Ex. 44 at 3-22.) This material includes JFS (Item 1), RCU (Item 2) and certain "negative know how" (Items 23 and 90). (See id.) For the

78

remaining Items of allegedly misused material, SCO indicates that it has "not presently determined" whether the material is included in its UnitedLinux distribution. (Id.

Undisputed.

159. In its Revised Response to IBM's interrogatories, SCO stated that the allegedly misused material "is included in any product that contains the Linux kernel 2.4 and above, which is sold or distributed by hundreds of entities around the world", including by SCO. (Ex. 33 ¶ 43.) In particular, SCO conceded that its "SCO Linux Server 4.0" products contain such code.

Undisputed.

160. Although not identified by SCO in its interrogatory responses, SCO's earlier Linux distributions also contain code SCO claims IBM improperly contributed to Linux. (See Ex. 350; Ex. 351 .) Among other products, SCO's "OpenLinux Server 3.1.1" and "OpenLinux Workstation 3.1.1" products, which were released in January 2002, both include the Linux 2.4 kernel. (See Ex. 350 at 2; Ex. 35 1 at 2; Ex. 296 at 16: 18-23,)

Disputed in part and undisputed in part. SCO disputes that IBM's cited sources support the assertion that Caldera International or SCO distributed the OpenLinux Server 3.1.1 or OpenLinux Workstation 3.1.1 at any time after January of 2002.

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

Depending on the meaning of the clause "some of the very technology it now complains IBM should not have contributed to Linux," disputed to the extent that the statement does not specify the "very technology" at issue.

162. For example, in its product announcements for OpenLinux Server 3.1.1 and OpenLinux Workstation 3.1 .l, SCO specifically advertised that the products included new features such as "journaling file system support". (Ex. 350 at 2; Ex. 351 at 2.)

Disputed to the extent that the statement suggests that SCO specifically advertised that the products included the Journaling File System (or "JFS") taken from AIX, which statement the cited material does not support.

79

163. Similarly, in its November 2002 product announcement for "SCO Linux Server 4.0", which was based on UnitedLinux Version 1 .O, SCO noted that "[t]he core of SCO Linux Server 4.0 is the 2.4.19 Linux kernel. New features include broadened USB support, Logical Volume Manager, improved journaling file system support". (Ex. 352 (emphasis added).)

Disputed to the extent that the statement suggests that SCO specifically advertised that the products included the Journaling File System (or "JFS") taken from AIX, which statement the cited material does not support.

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

Undisputed.

165. Although SCO claims to have "discontinued" distributing any products containing the source code it claims IBM should not have disclosed, it continued to do so after it filed this lawsuit. (See Ex. 44; Ex. 45; Ex. 296 at 92:l-22; 353:33 at Tab 121; Ex. 505; Ex. 486.)

Disputed to the extent the statement suggests that SCO did not timely discontinue its intentional distribution of its Linux products. (¶¶ 220-33.) Disputed to the extent the statement suggests that, as a legal conclusion, SCO was not entitled reasonably to wind-down its Linux business in support of its existing customers after bringing this lawsuit.

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

Undisputed.

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

Undisputed.

168. Moreover, SCO made available to the public as recently as the end of 2004 the Linux 2.4 kernel for download from its website. (See Ex. 45 at 3; Ex. 167 ¶ 11.) The version of

80

Linux available from SCO's website includes code SCO claims IBM disclosed in violation of its contracts. (See Ex. 44; Ex. 45; Ex. 33 at 43; Ex. 167 ¶¶ 5, 11.)

Undisputed.

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

Undisputed.

170. SCO distributed source code for the Linux 2.4 kernel, which is contained in SCO's OpenLinux Server 3.1.1, OpenLinux Workstation, and Linux Server 4.0 products, under the terms of the GPL. (Ex. 128; Ex. 296 at 75:9-12.) The terms of the GPL permit licensees freely to use, copy, distribute and modify whatever code is provided thereunder. (Ex. 128.)

Disputed to the extent the statement seeks to summarize the terms of the GPL and to the extent the statement draws a legal conclusion.

Q. SCO's Litigation.

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

Disputed in that the cited material does not support the assertions.

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

Depending on the meaning of the term "featured," disputed in that the cited material does not support the assertion that SCO treated its claim for the misappropriation of trade secrets with any higher priority that the other claims brought in the original Complaint.

81

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

Depending on the meaning of the phrases "with any specificity" and "specific UNIX code," disputed to the extent the statement suggests that SCO did not detail the nature of its claims based on what SCO knew at the time. (Ex. 165 ¶ 37.)

174. SCO filed an Amended Complaint on July 22,2003. (Ex. 2.) The Amended Complaint did not identify in any greater detail the trade secrets allegedly misappropriated by IBM. (See id.) Again, SCO described its trade secrets only as "unique know how, concepts, ideas, methodologies, standards, specifications, programming, techniques, UNIX Software Code, object code, architecture, design and schematics that allow UNIX to operate with unmatched extensibility, scalability, reliability and security".

Depending on the meaning of the phrase "in any greater detail," disputed to the extent the statement suggests that SCO did not detail the nature of its claims based on what SCO knew at the time. (Ex. 165 ¶ 37.)

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

Disputed to the extent the statement draws a legal conclusion.

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

Undisputed.

177. SCO's First and Third Causes of Action allege that IBM misused source code subject to the IBM and Sequent Software Agreements by contributing such code to Linux. (Ex.

82

3 ¶¶ 110-36, 143-66.) Specifically, SCO alleges that IBM and Sequent breached ¶¶ 2.01, 2.05, 4.01, 6.03, 7.06(a) and 7.10 of the Software Agreements. (Ex. 3 ¶¶ 112-25.)

Disputed to the extent the statement suggests that SCO does not allege as part of its claim for breach of contract that IBM misused methods, concepts and know-how subject to the IBM and Sequent Software Agreements by contributing such technology to Linux. (IBM Ex. 3.)

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

Depending on the meaning of the phrase "SCO's claims rest on the proposition," disputed to the extent the statement suggests that SCO has brought no claims other than its claims for breach of contract. Depending on the meaning of the phrase "lines of code ever associated with any technology found in AIX or Dynix," disputed to the extent the statement suggests that SCO claims that any technology is subject to the restrictions of the IBM and Sequent Software Agreements if such technology were not included in a modification or derivative work based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.)

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

Depending on the meaning of the phrase "lines of code ever associated with any technology found in AIX or Dynix" in the prior statement of fact, disputed to the extent the statement suggests that SCO claims that any technology is subject to the restrictions of the IBM

83

and Sequent Software Agreements if such technology were never included in a modification or derivative work based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.)

180. SCO's Second and Fourth Causes of Action allege that IBM breached the IBM and Sequent Sublicensing Agreements by continuing to distribute AIX and Dynix after SCO's purported termination of those agreements on June 13,2003. (See Ex. 311 ¶¶ 137-42, 167-72.)

Depending on the meaning of the term "purported," disputed to the extent the statement suggests that SCO did not properly terminate the agreements. (See SCO's Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim (Fifth Cause of Action).")

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

Disputed to the extent the statement suggests that SCO did not terminate the agreements for IBM's material breach. (See SCO's Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim (Fifth Cause of Action).")

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

Disputed to the extent the statement draws a legal conclusion.

R. SCO's Touting and Obfuscation.

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

84

Disputed to the extent the statement suggests that SCO's public statements pertained solely to the claims brought in this lawsuit, in that the cited material does not support such a statement.

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

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


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

Disputed to the extent the statement suggests that the quotes pertained solely to the claims brought in this lawsuit, in that the cited material does not support such a statement, and to the extent the statement ignores the following context: In (a), Mr. McBride was referring to the protection of intellectual property rights, particularly in software, their significance to this case, and the importance of the protection of intellectual property rights to the global economy. In (b), Mr. McBride was referring more broadly to the question of whether Linux could be distributed freely and without greater methods for protection of intellectual property. IBM's use of Linux to commoditize the operating system, among other impacts, did have and is still having major impacts on the software industry, as set forth in the expert reports of Drs. Gary Pisano and Jeffrey Leitzinger. (Exs. 281,282,283,284,285,286.) Furthermore, at the time of these articles, this case was receiving a high level of national and international media attention, consistent with it being considered a case of national or even global importance, and consistent with its potential to have great consequence in the software industry.

85

185. SCO's public statements concerning its alleged evidence are no less grandiose:
  1. In an interview with CNet News.com in August 2003, McBride claimed that SCO had found a "mountain of code improperly contributed to Linux. (See Ex. 367.)

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

  3. In an interview in LinuxWorld.com, McBride claimed that a "truckload of code" was improperly contributed to Linux. (See Ex. 372.)
  4. In July 2003, in an interview with Business Week, McBride stated that the amount of LINUX code infringing on SCO's intellectual property rights is "gargantuan". (Ex. 480.)

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

Disputed to the extent the statement suggests that SCO's public statements pertained solely to the claims brought in this lawsuit, in that the cited material does not support such a statement. Disputed to the extent the statement ignores the following context: This and other statements about the volume of code that had been improperly contributed to Linux are truthful. Mr. McBride was referring to the large number of lines of code from derivative works (such as AIX and Dynix) that were identified by SCO consultants. For instance, SCO identified approximately 160,000 lines of code contributed by IBM from its Journaling File System that are derived from System V code and improperly contributed to Linux. (Ex. 144 at Item No. 1.) SCO also identified 1,200,000 lines of code in the form of test suites that IBM contributed improperly to the Linux development. (Ex. 144 at Item Nos. 18, 113-42).

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

86

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith (¶¶ 234-93), to the extent the statement suggests that SCO chose not to disclose its evidence for any reason other than to protect what SCO regarded as confidential material (Ex. 165 ¶ 38), and to the extent the statement suggests that SCO's public statements pertained solely to the claims brought in this lawsuit, in that the cited material does not support such a statement.

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

Depending on the meaning of the term "indicated," disputed in that counsel for SCO made no such statement. (Ex. 251 ¶¶ 3-8.) Disputed in that the cited material does not support the proposition that counsel for SCO made the quoted statement. Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith (¶¶ 234-93) and to the extent the statement suggests that SCO chose not to disclose its evidence for any reason other than to protect what SCO regarded as confidential material (Ex. 165 ¶ 38). Disputed in that the fact that SCO would not discuss the substance of SCO's claims with a reporter no more evinces a design to obfuscate than does IBM's spokesperson's refusal "to spell out what steps it was taking to monitor the technology it contributes to open-source projects like Linux and to ensure that its Linux development does not violate the intellectual property rights or licenses of others," even though in the article "I.B.M. contends that these matters will be evidence if the SCO suit goes to trial." (Ex. 170.)

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

87

Disputed in that the statement misquotes the quotation attributed to Mr. Blepp, which is quoted as follows: "There you don't put everything on the table at the start, but instead you bring out arguments and evidence piece by piece." Disputed to the extent the statement suggests that Mr. Blepp did not make his statement in the context of explaining the procedures that govern "legal actions in the United States" and the role of confidentiality ("non-disclosure") agreements in preventing certain information from being released publicly. Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith. (¶¶ 234-93.) Disputed in that the fact that SCO would not discuss the substance of SCO's claims with a reporter no more evinces a design to obfuscate than does IBM's spokesperson's refusal "to spell out what steps it was taking to monitor the technology it contributes to open-source projects like Linux and to ensure that its Linux development does not violate the intellectual property rights or licenses of others," even though in the article "I.B.M. contends that these matters will be evidence if the SCO suit goes to trial." (Ex. 170.) Disputed in that, if said at, Mr. Blepp's statement is not consistent with anything he was instructed by anyone at SCO to say and does not reflect SCO's position or strategy; and in that Mr. Blepp is from Munich, and was a SCO sales person in Germany, and was not familiar with the American legal system. (Ex. 9 ¶¶ 13-16.)

S. Novell's Waiver of any Purported Breaches.

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

88

Disputed to the extent the statement draws a legal conclusion and, disputed in that Novell does not have the right or authority to "waive the purported breaches of contract SCO has asserted IBM committed." (¶¶ 279-93.)

190. On October 7,2003, in a letter from Joseph A. LaSala, Jr. to Ryan Tibbitts, Novell directed SCO to waive any purported right to assert a breach of the IBM Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 135; Ex. 240 ¶ 30.) The letter states:
[P]ursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to require IBM to treat IBM Code itself as subject to the confidentiality obligations or use restrictions of the Agreements. Novell directs SCO to take this action by noon, MST, on October 10,2003, and to notify Novell that it has done so by that time.
(Ex. 135; Ex. 240 ¶ 32.)

Disputed to the extent the statement draws a legal conclusion and, disputed in that Novell does not have the right or authority to "direct SCO to waive any purported right to assert a breach of the IBM Software Agreement." (¶¶ 279-93.)

191. In the letter, Novell informed SCO that its position that IBM's own homegrown code "must be maintained as confidential and subject to use restrictions is contrary to the agreements between AT&T and IBM, including Amendment X, to which Novell is a party". (Ex. 135; Ex. 240 ¶ 33.)
Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and IBM or Amendment No. X. (¶¶ 63-163.)

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

89

(Ex. 135; Ex. 240 ¶ 33.) Novell concluded that any other interpretation "would defy logic as well as the intent of the parties". (Ex. 135; Ex. 240 ¶ 3 1.)

Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and IBM or Amendment No. X. (¶¶ 63-163.)

193. After SCO failed to follow Novell's instruction, on October 10,2003, Novell expressly waived any purported right of SCO's to assert a breach of the IBM Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 136; Ex. 240 ¶ 34.) Novell states in its letter to SCO:
Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to require IBM to treat IBM Code, that is code developed by IBM, or licensed by IBM from a third party, which IBM incorporated in.AIX but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and IBM, itself as subject to the confidentiality obligations or use restrictions of the Agreements.
(Ex. 136; Ex. 240 ¶34.)

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "expressly waive any purported right of SCO's to assert a breach of the IBM Software Agreement." (¶¶ 279-93.) Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and IBM or Amendment No. X. (¶¶63-163.)

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

Novell directs SCO to take this action by noon, MDT, on February 11,2004, and to notify Novell that it has done so by that time.
(Ex. 137.)

90

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "waive any purported right to assert a breach of the Sequent Software Agreement." (¶¶ 279-93.) Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and Sequent. (¶¶ 63-163.)

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

Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and Sequent. (¶¶ 63-163.)

195. After SCO failed to follow Novell's instruction, on February 11, 2004, Novell expressly waived any purported right of SCO to assert a breach of the Sequent Software Agreement based on IBM's use or disclosure of code that does not contain any UNIX System V source code. (Ex. 138; Ex. 240 ¶ 36.) Novell states in its letter to SCO:
Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to require Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license.
(Id.)

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "expressly waive any purported right of SCO to assert a breach of the Sequent Software Agreement." (¶¶ 279-93.) Disputed to the extent the statement purports to describe the scope of the agreements between AT&T and Sequent. (¶¶ 63-163.)

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

91

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "waive any purported right of SCO to terminate the IBM Sublicensing Agreement." (¶¶ 279-93.)

197. On June 9,2003, in a letter from Jack L. Messman to Darl McBride, Novell informed SCO that under the terms of Amendment No. X, SCO did not have the right to terminate any of IBM's rights under the Sublicensing Agreement to distribute its AIX software program. (Ex. 139; Ex. 240 ¶ 37.) The letter states:
Pursuant to Amendment No. X, however, Novell and SCO granted IBM the "irrevocable, fully paid-up, perpetual right" to exercise all of the rights under the IBM SVRX Licenses that IBM then held. IBM paid $10,125,000 for the rights under Amendment No. X. Novell believes, therefore, that SCO has no right to terminate IBM's SVRX Licenses, and that it is inappropriate, at best, for SCO to be threatening to do so.
(Ex. 139; Ex. 240 ¶ 7.)

Disputed to the extent the statement draws a legal conclusion. Disputed to the extent the statement purports to describe the scope of Amendment No. X. (See SCO's Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim (Fifth Cause of Action).")

198. Novell further directed SCO to waive any purported right under its SVRX Licenses with IBM to terminate IBM's right to distribute AIX under the IBM Sublicensing Agreement:
[Pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM. Novell directs SCO to take this action by noon, MDT, June 12, 2003, and to notify Novell that it has done so by that time.
(Ex. 139; Ex. 240 ¶ 38.)

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "direct SCO to waive any purported right under its SVRX

92

Licenses with IBM to terminate IBM's right to distribute AIX under the IBM Sublicensing Agreement." (¶¶ 279-93.)

199. After SCO failed to follow Novell's instruction, on June 12,2003, Novell expressly waived any purported right of SCO to terminate IBM's rights under the IBM Sublicensing Agreement. (Ex. 140; Ex. 240 ¶ 39.) Novell states in its letter to SCO:
Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6,2003 to IBM.
(Ex. 140; Ex. 240 ¶ 39.)

Disputed to the extent the statement draws a legal conclusion. Disputed in that Novell does not have the right or authority to "expressly waive any purported right of SCO to terminate IBM's rights under the IBM Sublicensing Agreement." (¶¶ 279-93.)

T. SCO's Failure to Substantiate Its Claims.

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

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

93

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

203. At the same time, IBM also asked SCO to identify how IBM is alleged to have violated SCO's rights. IBM asked SCO: "For . . .any confidential or proprietary information identified in response to Interrogatory No. 1, [to] please describe, in detail . . . (a) the date of the alleged misuse or misappropriation; (b) all persons involved in any way in the alleged misuse or misappropriation; (c) the specific manner in which IBM is alleged to have engaged in misuse or misappropriation; and (d) with respect to any code or method . . . the location of each portion of such code or method in any product, such as AIX, in Linux, in open source, or in the public domain." (Ex. 11 at Interrogatory No. 4.)

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

94

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

95

207. Specifically, IBM asked the Court to require SCO to specify (1) all the material in Linux to which SCO claims rights (i.e. by kernel version X, file Y, and lines 1-2-3); (2) the nature of SCO's alleged rights, including whether and, if so, how the material derives from the UNIX software (i.e. if SCO asserts contract, copyright or some other right to the identified code, and how the Linux code identified derives from UNIX version A, file B, lines 4-5-6); and (3) whether IBM has infringed material to which SCO claims rights, and if so, the details of the alleged infringement (i.e. by copying Linux kernel version X, file Y, lines 1-2-3, which are copied or derived from UNIX version A, file B, lines 4-5-6; or by distributing Linux kernel version X, file Y, lines 1-2-3, the structure and sequence of which was copied from UNIX version A, file B, lines 7-8-9; or by inducing others to copy (or distribute) Linux kernel version, file Y, lines 1-2-3, which are copied or derived from UNIX version A, file B, lines 4-5-6). (See Ex. 63.)

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein.)

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

Disputed to the extent the statement suggests that the Court found that SCO had not proceeded in discovery in good faith, to the extent the statement suggests that the Court had concluded that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems, and to the extent the statement suggests that the Court's Order adopted the requests for relief set forth in IBM's underlying motion. (¶¶ 239-42.)

209. In an order dated March 3,2004, the Court reiterated its December 2003 order, compelling SCO again to provide meaningful responses to IBM's interrogatories, this time on or before April 19,2004. (See Ex. 56.) Specifically, the Court required SCO to "fully comply within 45 days of the entry of this order with the Court's previous order dated December 12, 2003". (Ex. 56.) Thus the Court required SCO to "respond fully and in detail to Interrogatory

96

Nos. 12 and 13 as stated in IBM's Second Set of Interrogatories [which require SCO to specify (1) the material in Linux to which SCO claims rights; (2) the nature of SCO's alleged rights including whether and, if so, how the material derives from UNIX; and (3) whether IBM has infringed material to which SCO claims rights and, if so, the details of the alleged infringement]." (Ex. 55.)

Disputed to the extent the statement suggests that the Court found that SCO had not proceeded in discovery in good faith, to the extent the statement suggests that the Court had concluded that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems, and to the extent the statement suggests that the Court's Order adopted the requests for relief set forth in IBM's underlying motion. (¶¶ 243-51.)

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith (¶¶ 234-93), to the extent the statement suggests that the Court had concluded that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems and to the extent the statement suggests that the Court's Order adopted the requests for relief set forth in IBM's underlying motion (¶¶ 239-51).

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

97

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein), to the extent the statement suggests that the Court had concluded that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems and to the extent the statement suggests that the Court's Order adopted the requests for relief set forth in IBM's underlying motion (¶¶ 239-51).

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

Disputed to the extent the statement suggests that SCO did not proceed in discovery in good faith or could have provided the requested information without precedent production of material by IBM (¶¶ 234-69), and to the extent the statement suggests that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems, to the extent the statement suggests that the Court had concluded that IBM was unable to identify those instances in which its employees contributed technology to Linux from the AIX or Dynix/ptx operating systems (IBM Statement of Fact No. 238 and material cited therein), and to the extent the statement suggests that the Court's Order adopted the requests for relief set forth in IBM's underlying motion (¶¶ 239-51).

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

98

Depending on the meaning of the term "failure of proof," disputed to the extent the statement suggests that the Court concluded that SCO had failed to or would be unable upon full discovery to adduce proof to support its claims, which statement the cited material does not support.

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

Undisputed.

U. SCO's Interim and Final Disclosures.

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

Disputed to the extent the statement suggests that the Court had ordered, clearly or otherwise, SCO "to describe all of the allegedly misused materials by version, file, and line of code." (Docket No. 643.)

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

Depending on the meaning of the word "immediately," disputed to the extent the statement suggests that IBM provided such notice as soon as it had reached its conclusions, and which statement the cited material does not support, disputed to the extent the statement suggests

99

that the Court had ordered, clearly or otherwise, SCO "to describe all of the allegedly misused materials by version, file, and line of code." (Docket No. 643.)

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

Disputed to the extent the statement suggests that the Court had ordered, clearly or otherwise, SCO "to describe all of the allegedly misused materials by version, file, and line of code." (Docket No. 643.)

218. Thereafter SCO expressly stipulated and agreed with IBM that its claims would not exceed the Final Disclosures. In a Stipulation Re Scheduling Order filed with the Court on December 7,2005, the parties stipulated and agreed as follows:
1. Both parties are required to identify with specificity any and all material that each party contends the other has misused no later than December 22,2005; . . .

(c) Neither party shall be permitted to use [the period for discovery relating to the Final Disclosures] for the purpose of identifying additional misused material not disclosed by the December 22,2605, deadline.
(Ex. 481.)

Disputed to the extent the statement purports to summarize the terms of the parties' stipulation. (Ex. 481.)

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

Disputed to the extent the statement suggests that the Court had ordered, clearly or otherwise, SCO "to describe all of the allegedly misused materials by version, file, and line of code." (Docket No. 643.) Disputed to the extent the statement purports to characterize the final disclosures. (Ex. 144.)

100

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

Disputed to the extent the statement suggests that the Court had ordered, clearly or otherwise, SCO "to describe all of the allegedly misused materials by version, file, and line of code." (Docket No. 643.) Disputed to the extent the statement purports to characterize the final disclosures. (Ex. 144.)

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

Disputed to the extent the statement suggests that the content of the referenced expert reports included material that the Court had ordered SCO to produce by its Final Disclosures but that SCO had not included in its Final Disclosures. (Docket No. 707.)

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

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the order at issue was one "striking from the case" the material cited in the referenced Item Nos., and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

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

101

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the Magistrate Court found that SCO had acted in bad faith in discovery, to the extent the statement suggests that SCO had acted in bad faith in discovery, and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

224. The Court held further that "SCO has had ample opportunity to articulate, identify and substantiate its claims against [IBM]. [SCO's] failure was intentional and therefore willful based on SCO's disregard of the court's orders and failure to seek clarification. In the view of the court it is almost like SCO sought to hide its case until the ninth inning in hopes of gaining an unfair advantage despite being repeatedly told to put 'all evidence . . . on the table."' (Ex. 59 at 32.)

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the Magistrate Court found that SCO had acted in bad faith in discovery, and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

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

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the Magistrate Court found that SCO had acted in bad faith in discovery, and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

102

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

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the order at issue was one "striking from the case" the material cited in the previously referenced Item Nos., and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

V. SCO's Failure of Proof.

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

Disputed to the extent the statement draws a legal conclusion, and in that the cited material does not support the statement.

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

Undisputed.

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

Disputed to the extent the statement suggests that the District Court granted IBM's motion, to the extent the statement suggests that the order at issue was one "striking from the case" the material cited in the previously referenced Item Nos., and to the extent the statement suggests that the District Court has passed judgment on the content of the order, which statements the cited material does not support.

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

103

Disputed to the extent the statement suggests that the order at issue was one "striking from the case" the material cited in the previously referenced Item Nos., which statements the cited material does not support.

231. The remaining 42 Items concern allegations of misuse relating to Dynix. Item 2 concerns Read-Copy Update (RCU); Items 113-42 concern testing technologies; and Items 23, 43, 90, 94 and 186-92 concern "negative know-how" or "exposure" to Dynix. (Ex. 54; Ex. 291 ¶ 7.)

Disputed to the extent the statement suggests that the order at issue was one "striking from the case" the material cited in the previously referenced Item Nos., which statement the cited material does not support.

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

Disputed to the extent the statement suggests that JFS is not derived from UNIX System V. (Ex. 277 ¶¶ 95-1 14 & Exs. C-H.)

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

Disputed in that the SPIE Test Suites are part of the Dynix operating system. (Ex. 164 at

234. While the remaining 43 Items do identity Linux kernel source code files or Linux Test Project files 11, of those Items (Items 23, 43, 90, 94, and 186-92) do not identify any versions or lines of code in the Linux kernel or any versions, files or lines of source code from UNIX System V, AIX or Dynix. SCO simply lists a number of Linux kernel files (without version or line information) for each of those Items and does not offer any evidence (expert or

104

otherwise) that these files contain any code methods or concepts from UNIX System V, AIX, or Dynix. (See Ex. 54; Ex. 291 ¶ 10.)

Disputed to the extent the statement suggests that SCO was obligated to provide "versions, files or lines of source code" with respect to all of IBM's allegedly misused material. (Docket No. 643.)

235. SCO has not specifically identified, in the Final Disclosures or elsewhere, a single line of UNIX System V material that IBM is alleged to have misused in violation of its contractual obligations. Nor has it specifically identified any evidence that IBM misused any UNIX System V code. (Ex. 54; Ex. 291 ¶ 5.) When IBM raised with SCO its failure to disclose UNIX System V material, SCO stated that "IBM keeps insisting on something that is not part of SCO's claims, so it should come as no surprise that files or lines of code in System V have not, been identified". (Ex. 134 at 2.)

Disputed to the extent the statement suggests that SCO has not shown that Linux versions '2.4 and 2.6 are derivative works of UNIX System V, release 4 under the copyright law. (Ex. 274.) Disputed to the extent the statement suggests that SCO has not shown that AIX is a derivative work of UNIX System V, release 4 under the copyright law. (See SCO's Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim (Fifth cause of Action).")

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

Disputed to the extent the statement suggests that SCO has not shown that Linux versions 2.4 and 2.6 are derivative works of UNIX System V, release 4 within the meaning of the copyright laws. (Ex. 274.) Disputed to the extent the statement suggests that SCO has not shown that AIX is a derivative work of UNIX System V, release 4 under the copyright law, or that SCO has not alleged that IBM's distribution of its AIX operating system post-termination of its UNIX System V licenses constitutes a violation of SCO's copyrights. (See SCO's

105

Memorandum in Opposition to IBM's "Motion for Summary Judgment on SCO's Copyright Claim and Fifth Cause of Action).")

237. All of the material IBM is alleged to have misused in the remaining Items (Items 1-2, 23, 43, 90, 94, 113-42, and 186-92) is original IBM work or the work of third parties other than SCO and independent of System V. (Ex. 162 ¶ 15; Ex. 248 ¶ 5; Ex. 218 ¶ 5; Ex. 243 ¶ 5; Ex. 168 ¶ 6; Ex. 258 ¶¶ 4-5; Ex. 231 ¶¶ 7-8; Ex. 292 ¶ 4; Ex. 507 at 40, 57, 199-200, 225-26, 228; Ex. 293 ¶ 4; Ex. 173 ¶ 4; Ex. 196 ¶ 5; Ex. 235 ¶ 5; Ex. 237 ¶ 5; Ex. 211 ¶ 5; Ex. 216 ¶ 5; Ex. 246 ¶ 4; Ex. 210 ¶ 6; Ex. 263 ¶ 5; Ex. 222 ¶ 5; Ex. 206 ¶¶ 4-5; Ex. 274 ¶ 4; Ex. 161 ¶ 74; Ex. 225 ¶ 5; Ex. 188 ¶ 5.)

REDACTED

106

REDACTED

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

Disputed for the reasons set forth in response to IBM Paragraphs 243-276 below.

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

Disputed for the reasons set forth in response to IBM Paragraphs 243-276 below.

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

Disputed for the reasons set forth in response to IBM Paragraphs 243-276 below.

Disputed in that Exhibit 507 does not support the statement.

241. In making the challenged contributions, the alleged wrongdoers identified by SCO relied on their own creativity and general experience. (Ex. 291 ¶ 13; Ex. 162 ¶ 5; Ex. 248 ¶ 5; Ex. 218 ¶ 5; Ex. 243 ¶ 5; Ex. 168 ¶ 6; Ex. 258 ¶¶ 4-5; Ex. 231 ¶ 7; Ex. 292 ¶ 4; Ex. 507 at 109-10; Ex. 294 ¶ 4; Ex. 173 ¶ 6; Ex. 196 ¶ 5; Ex. 235 ¶ 5; Ex. 237 ¶ 5; Ex. 211 ¶¶ 5; Ex. 216 ¶ 5; Ex. 246 ¶ 4; Ex. 210 ¶ 6; Ex. 263 ¶ 5; Ex. 222 ¶ 5; Ex. 206 ¶ 5; Ex. 274 ¶ 4; Ex. 161 ¶ 5; Ex. 225 ¶ 5; Ex. 188 ¶ 5.)

Disputed for the reasons set forth in response to IBM Paragraphs 243-276 below.

Disputed in that Exhibit 507 does not support the statement.

W. Specific Items of Alleged Misuse.

107

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

Depending on the meaning of the phrase "original IBM works," disputed in that the referenced Items include technology taken from and developed based on modifications and derivative works based on the licensed UNIX System V software product (¶ 192), and JFS is a derivative work of UNIX System V (Ex. 277 ¶¶ 95-114 & Exs. C-H.).

1. Journaled File System (JFS).

243.

REDACTED

Undisputed.

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

Disputed. The misused JFS material is a modification or derivative work of UNIX System V. (Ex. 277 ¶¶ 95-1 14 & Exs. C-H.)

245. SCO has not specifically identified any UNIX System V material (by version, file or line of code, or otherwise) that it alleges is contained in the allegedly misused JFS material. (Ex. 291 ¶ 171; see also Ex. 54, Item 1 .) UNIX System V does not have journaling capability in its file system. (Ex. 286 ¶ 94; Ex. 186 ¶ 100; Ex. 291 ¶ 17.)

Disputed in that the misused JFS material is a modification or derivative works of UNIX System V. (Ex. 277 ¶¶ 95-114 & Exs. C-H.) Disputed in that the cited material does not support the statement. Paragraph 100 of IBM Exhibit 186 makes the unsupported statement that "JFS is

REDACTED

108

REDACTED

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

Disputed in that as IBM has itself admitted, UNIX System V source code was used in the development of JFS. (Ex. 277¶¶ 95-114 & n.55 & Exs. C-H.)

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

Disputed in that the JFS code that IBM contributed to Linux came from AIX (and previously UNIX System V). (Ex. 277 ¶¶ 95-114 & n.55 & Exs. C-H.) Disputed in that the misused JFS material is a modification or derivative works of UNIX System V. (Ex. 277 ¶¶ 95- 114 & Exs. C-H.)

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

Disputed in that the cited material is neither admissible nor sufficient to support the proposition in the statement, and in that the JFS in OS/2 is derived from and based on UNIX System V. (Ex. 277 ¶¶ 95-114 & Exs. C-H.)

109

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

Disputed in that the JFS code that IBM contributed to Linux came from AIX (and previously UNIX System V). (Ex. 277 ¶¶ 95-114 & 11.55 & Exs. C-H.) Disputed in that the misused JFS material is a modification or derivative works of UNIX System V. (Ex. 277 ¶¶ 95- 114 & Exs. C-H.)

250. REDACTED

Disputed in that the JFS code that IBM contributed to Linux came from AIX (and previously UNIX System V). (Ex. 277 ¶¶ 95-114 & 11.55 & Exs. C-H.) Disputed in that SCO did not assign any intellectual property rights in the JFS source code pursuant to the UnitedLinux Joint Development Agreement. (See SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on Its Claim for Declaratory Judgment of Non-Infringement (IBM's Tenth Counterclaim).)

251. REDACTED

Disputed. The cited material does not support the statement.

REDACTED

110

REDACTED

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

Disputed in that SCO has identified 179 files in AIX that contain origin codes for UNIX System V. (Exs. 287 & 288.) Disputed in that the evidence shows (and easily permits the inference) that origin codes are reliable indicators of whether a file contains System V material and/or is based on or derived from such material. (Ex. 139 ¶¶ 34.)

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

Depending on the meaning of the phrase "draw no connection," disputed in that the JFS code that IBM contributed to Linux is derived from UNIX System V. (Ex. 277 ¶¶ 95-1 14 & n.55 & Exs. C-H.) REDACTED

111

REDACTED

254. REDACTED

2. Read-Copy Update (RCU).

255. REDACTED

Disputed to the extent the statement suggests that the above-quoted language constitutes the entire scope of SCO's allegations in Item 2. (See Ex. 144 Item 2 and the referenced Tabs.)

256. IBM's Linux RCU contributions, and the earlier Sequent implementation of RCU in Dynix, do not include any UNIX System V code; they are not modifications or derivative works of UNIX System V; and they were not based on or created with reference to UNIX System V. They are original IBM work created independent of UNIX System V. (Ex. 231 ¶ 8; Ex. 258 ¶ 5; Ex. 291 ¶ 124.)

112

REDACTED

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

REDACTED

REDACTED

258. REDACTED

Disputed in that the cited material does not properly support the second statement. In IBM Exhibit 258, the declarant does not deny that his RCU was a modification or derived from UNIX System V. Depending on the meaning of the phrase "did not use," disputed in that the RCUs at issue were based on or created with reference to UNIX System V. (Ex. 139 ¶¶ 27-30.)

259. REDACTED

113

Disputed in that REDACTED conclusions are unsupported, given his exclusive reliance on the two comparison programs he used. (Ex. 287 ¶¶ 116-129 & Ex. A.)

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

Disputed to the extent that the statement suggests that AT&T or USL knew or should have known about the substance of IBM's patent applications. (See Argument at __.)

3. Testing Technologies.

261. REDACTED

Undisputed.

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

REDACTED

263. REDACTED

114

Disputed to the extent the statement suggests that SCO was obligated to provide "versions, files or lines of source code" with respect to all of IBM's allegedly misused material. (Docket No. 643.) Disputed in that the cited material does not support the statement.

REDACTED

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

REDACTED

Disputed in that the cited material does not support the second and third statements.

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

Disputed to the extent the statement suggests that SCO was obligated to provide "versions, files or lines of source code" with respect to all of IBM's allegedly misused material. (Docket No. 643.) Disputed in that the cited material does not support the statement. Disputed

REDACTED

266. The SPIE tests were not part of the Dynix or Dynix/ptx operating systems. (Ex. 208 ¶ 102; Ex. 288 ¶¶ 25,29; Ex. 173 ¶ 3; Ex. 196 ¶ 4; Ex. 291 ¶ 30.)

REDACTED at 150-51; Ex. 164 at 256-58.) Disputed in that the cited material does not support the statement.

115

4. General Operating System Experience.

267. REDACTED

Undisputed.

268. REDACTED

Disputed in that the cited material does not support the statement that none of the IBM contributors to Linux based their work on experience and know-how gained from their exposure to UNIX System V source code, methods, or concepts, or the statement that all of the materials that were in fact contributed by the named programmers were original IBM works created independent of UNIX System V.

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

Disputed to the extent the statement suggests that SCO was obligated to provide "versions, files or lines of source code" with respect to all of IBM's allegedly misused material. (Docket No. 643.)

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

116

Disputed to the extent the statement suggests that SCO was obligated to provide "versions, files or lines of source code" with respect to all of IBM's allegedly misused material. (Docket No. 643.)

271. REDACTED

Undisputed.

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

Disputed in that the cited material does not support the statement that none of the IBM contributors to Linux based their work on experience and know-how gained from their exposure to UNIX System V source code, methods, or concepts, in that Dynix/ptx is a derivative work based on UNIX System V and contains source code, methods, and concepts from UNIX System V (¶ 192), and declarants acknowledge their direct experience with Dynix/ptx.

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

Undisputed.

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

Undisputed.

275. REDACTED

117

REDACTED

Undisputed.

X. Implications of SCO's Theory

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

Disputed to the extent the statement refers to all UNIX System V licensees, in that the cited material does not support such a statement. Depending on the meaning of the term "control," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product (17 13-29, 82-686), and to the extent the statement suggests that AIX and Dynix/ptx are not derivative works based on UNIX System V (¶ 192). Disputed to the extent the statement suggests that SCO challenges the employability of programmers as such, which SCO does not and which statement the cited material does not support. (See Argument at __.)

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

Disputed to the extent the statement refers to all UNIX System V licensees, in that the cited material does not support such a statement. Depending on the meaning of the term

118

"control" and "associated with," disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.)

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

Disputed to the extent the statement suggests that the cited declarants had the authority to modify the terms of AT&T1s standard form UNIX license agreements, to the extent the statement suggests that the cited declarants were the only individuals under whose direction ' AT&T licensed its UNIX source code, and to the extent the statement suggests that the cited declarants have not offered conflicting and contradictory sworn testimony and taken conflicting and contradictory actions. (¶¶ 63-163.) Disputed in that other substantial evidence shows (and easily permits the inference) that the cited declarants did not have such a view during their tenure at AT&T. (¶¶ 63-163.)

279. According to Mr. Wilson, any claim that the IBM Software Agreement and the Sequent Software Agreement prohibit the use, export, disclosure or transfer of any code other than UNIX System V code is clearly wrong. Not only did Mr. Wilson and others at AT&T not intend the agreements to be read that way, but they also went out of their way to assure AT&T1s licensees that that is not what the agreements meant. (Ex. 282 ¶ 30.)

Disputed to the extent the statement suggests that Mr. Wilson had the authority to modify the terms of AT&T's standard UNIX license agreements or was the only individual under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that Mr. Wilson did not have such a view during his tenure at AT&T. (¶¶ 163-63.) Disputed to the extent the statement suggests that Mr

119

.

Wilson has not offered conflicting and contradictory sworn testimony and taken conflicting and contradictory actions. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed to the extent the statement suggests that Mr. Frasure had the authority to modify the terms of AT&T's standard UNIX license agreements or was the only individual under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that Mr. Frasure did not have such a view during his tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that Mr. Frasure has not offered conflicting and contradictory sworn testimony. (¶¶ 125-37.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative

120

works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

281. According to Mr. DeFazio, SCO's claims are inconsistent with the provisions of the Agreements. He does not believe that anyone at AT&T, USL, or Novel1 intended the Agreements to be construed as SCO construes them. In all cases, according to Mr. DeFazio, modifications and licensees' contributions to derivative works are not subject to the confidentiality and other restrictions contained in the license agreements (except for any protected UNIX System V source code actually included therein) because they are owned by the licensees. (Ex. 182 ¶ 31 .)

Disputed to the extent the statement suggests that Mr. DeFazio had the authority to modify the terms of AT&T's standard UNIX license agreements or was the only individual under whose direction AT&T licensed its UNIX source code. (¶¶ 76-96.) Disputed in that substantial evidence shows (and easily permits the inference) that Mr. DeFazio did not have such a view during his tenure at AT&T. (¶¶ 63-163.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the

121

terms under which UNIX System V could he used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.)

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

Disputed to the extent the statement suggests that IBM and Sequent did not enter into a written agreement requiring IBM and Sequent to hold in confidence all parts of its modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82- 86.) Disputed to the extent that the statement suggests that, upon entering into their written agreement, the parties did not intend to exclude any previous oral discussion from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Depending on the meaning of the phrase "far-reaching, negative implications," disputed in that prior to deciding to license the UNIX source code, any company could have decided instead to try to develop its own operating system, including its own UNIX-like operating system, and thereby be free of any control over their "homegrown" material reserved to the UNIX licensor. (¶ 42.) AT&T1s capacity to negotiate and obtain partial control over its licensees UNIX flavors was a function of the many years that AT&T and its predecessors had invested in developing UNIX, and that prospective licensees recognized they would have to spend if they wanted to try to develop their own UNIX like operating system from scratch. (¶¶ 32-47.) The subsequent prevalence of UNIX flavors in

122

the industry - the fact that so many companies decided instead to license the UNIX head-start - serves to reinforce the reasonableness of the terms of the UNIX licenses. (¶¶ 32-47.) Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable term or are void on grounds of public policy. (See Argument at __.) Disputed to the extent the statement suggests that all or even a significant amount of the UNIX System V methods or concepts have been made publicly available without restriction. (Ex. 139 ¶¶ 23-26; Ex. 278 ¶ 86.)

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

Depending on the meaning of the terms "original" and "control," disputed on the same bases as set forth in response to IBM Statement of Fact Paragraph 283.

284. The viral quality of SCO's claim would give it control rights well beyond the life of the System V rights that the "control rights" are purported to protect. The apparent purpose of the "control rights" claimed by SCO seems to be to ensure, among other things, the confidentiality of AT&T System V code, methods, and concepts. The argument seems to be prophylactic in nature: by retaining control of its licensees' code, methods, and concepts, SCO can retain control of any System V code, methods, and concepts that might be included therein. Even where the code, methods, and concepts of System V are no longer confidential, SCO would have the right to control the original works of its licensees, System V could become freely available and SCO's right to control others' works would (under its theory) persist. (Ex. 181 ¶ 54.)

Depending on the meaning of the term "viral quality," disputed to the extent the statement suggests that it is inappropriate for a contract to cover the derivative works of a

123

program, in that the very contract that Linux is distributed under also controls the derivative works of Linux (Ex. 178 ¶ 84), and IBM's own AIX source-code licenses require that AIX licensees treat all parts of derivative works of AIX as confidential (Ex. 178 ¶ 85; Exs. 348, 349, 350). The UNIX license agreements cannot be interpreted to have a lesser scope simply because AT&T and its successors were successful in a licensing a product pursuant to licenses whose terms the licensees evidently found reasonable. (¶¶ 30-62.) Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable terms or are void on grounds of public policy. (See Argument at I.) Disputed to the extent the statement suggests that all or even a significant amount of the UNIX System V methods or concepts have been made publicly available without restriction. (Ex. 139 ¶ 23-26; Ex. 178 ¶ 86.)

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

Disputed to the extent the statement refers to all UNIX System V licensees, in that the cited material does not support such a statement. Disputed in that the statement ignores the "material breach" component of the UNIX System V license agreements, and bear no comparison to the wholesale disclosures IBM undertook in the course of its Linux-development efforts. (Ex. 139 ¶¶ 2-22.) Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable terms or are void on grounds of public policy. (See Argument at I.)

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

Disputed to the extent the statement refers to all UNIX System V licensees, in that the cited material does not support such a statement. Disputed to the extent the statement suggests that SCO interprets the Agreements to impose restrictions on employment or employability as such. SCO does not base any claim of breach on the mere fact that IBM employed former Sequent employees. Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable terms or are void on grounds of public policy. (See Argument at I.) Disputed to the extent the statement suggests that all or even a significant amount of the UNIX System V methods or concepts have been made publicly available without restriction. (Ex. 139 ¶¶ 23-26.)

287. At the same time, SCO would have little information about the scope of its rights. It could not, as a practical matter, know to what extent its licensees have associated their own original code, methods, and concepts with System V code, methods, and concepts. It could know even less about the extent to which software developers have relied upon public information about the code, methods, and concepts of System V. Thus, if SCO had the right to control modifications and derivative works, there would be widespread uncertainty about the scope of SCO's rights, including the identity of the persons whose employability it claims to have controlled. (Ex. 181 ¶ 57.)

Disputed to the extent the statement suggests that SCO interprets the Agreements to impose restrictions on employment or employability as such. SCO does not base any claim of breach on the mere fact that IBM employed former Sequent employees. Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable terms or are void on grounds of public policy. (See Argument at I.)

125

288. Based in part on the assurances of AT&T and its successors about what UNIX licensees could do with their original works, IBM and Sequent invested heavily in the development of AIX and Dynix. (Ex. 257 ¶¶ 3-5; Ex. 310 at 29:8-31:5,56:11-57:5,62:20-63: 17, 119:16-120:2, 127:15-128:1 (Ex. 257 ¶¶ 3-5, 10; Ex. 283 ¶ 87.) IBM assigned thousands of people to AIX projects. (Ex. 257 ¶¶ 3-5,10; Ex. 283 ¶ 87.) REDACTED Sequent devoted hundreds of person-years to developing Dynix. (Ex. 596 ¶ 4.) Both companies invested at least tens of millions of dollars in developing their businesses around AIX and Dynix. (Ex. 257 ¶ 7, 10; Ex. 283 ¶ 87; Ex. 596 ¶¶ 3-4.)

Disputed in that substantial evidence shows (and easily permits the inference) that no such assurances were given (¶¶ 63-163), and in that IBM and Sequent otherwise had compelling reasons to agree to the terms of the contracts they did (¶¶ 30-62.) Disputed to the extent the statement suggests that IBM and Sequent did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreements, the parties did not intend to exclude any previous or subsequent oral discussions from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that SCO interprets the Agreements to impose restrictions on employment or employability as such. SCO does not base any claim of breach on the mere fact that IBM employed former Sequent employees. Disputed to the extent the statement suggests that the IBM and Sequent Agreements set forth unreasonable terms or are void on grounds of public policy. (See Argument at __.)

289. Both companies added significant quantities of original code to the operating systems. To give an example, the original AT&T SVR2.0 source code totaled 896,204 lines of

126

code. (Ex. 181 Ex. G.) The AIX Version 5.1.G for Power contains 160,198,865 lines of code. (id.) SCO does not and could not allege that AIX or Dynix incorporate all of any version of System V. (See Ex. 285 at 22-25.)

Depending on the meaning of the term "original" and "significant quantities," disputed to the extent the statement suggests that some specific amount of the quoted number of lines of code in AIX were written without reference to, reliance on, or exposure to the licensed UNIX System V software product, in that the cited material does not support such an assertion.

290. Since the initial introduction of the original versions of AIX in 1987, IBM has incorporated new technology and improvements, including Virtual Resource Manager, a Journaled File System, a Logical Volume Manager, an Object Data Manager, a System Management Interface Tool and a Network Install Manager, and others. (Ex. 257 ¶ 8; Ex. 283 ¶¶ 81-85.) Subsequent AIX versions integrated even more enhancements, including a Web-based System Manager, an IBM Java Development Kit, an AIX Workload Manager, and many other developments. (Ex. 257 ¶ 8; Ex. 283 ¶¶ 81-85.)

Depending on the meaning of the term "new technology," disputed in that the cited material does not support the statement, where the declarant in IBM Exhibit 257 acknowledges that "Each of these developments . . . are comprised primarily of non-UNIX source code," which means that they contain UNIX source code, which in turn means that they are modifications and derivative works of UNIX.

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

Disputed in that the cited material in IBM Exhibit 283 is inadmissible evidence based solely on an expert's description of the unsubstantiated recollections of an IBM employee.

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

127

products would be subject to the confidentiality provisions of the licensing agreements, AIX would not have been used in these products. (Ex. 257 ¶ 9.)

Disputed in that the cited material does not support the statement, where the declarant in IBM Exhibit 257 acknowledges that "Each of these developments . . . are comprised primarily of non-UNIX source code," which means that they contain UNIX source code, which in turn means that they are modifications and derivative works of UNIX. Disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreements, the parties did not intend to exclude any previous or subsequent oral discussions from the agreement the parties had reached. (¶¶ 18,91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed in that IBM otherwise had compelling reasons for improving AIX as it did. (¶¶ 30-62.)

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

Disputed in that substantial evidence shows (and easily permits the inference) that AT&T and its successors-in-interest ever stated, orally or in writing, that its UNIX System V licensees were not obligated to hold in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29,82-86.) Disputed to the extent the statement suggests that licensees did not enter into agreements requiring them to hold

128

in confidence all parts of their modifications and derivative works based on the licensed UNIX System V software product. (¶¶ 13-29, 82-86.) Disputed to the extent that the statement suggests that, upon entering into their written agreements, the parties did not intend to exclude any previous or subsequent oral discussions from the agreement the parties had reached. (¶¶ 18, 91-92.) "The IBM Agreements and the Sequent Agreements (collectively "the Agreements") set forth the terms under which UNIX System V could be used and disclosed by them and under which they could distribute software programs "based on" UNIX System V." (IBM Statement of Undisputed Facts ¶ 50.) Disputed to the extent the statement suggests that IBM or Sequent had compelling business reasons to insist on the "control" as described by IBM herein. (¶¶ 30-62.)

129

CERTIFICATE OF SERVICE

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc., hereby certifies that a true and correct copy of the foregoing was served on Defendant/Counterclaim-Plaintiff, International Business Machines Corporation, on this 16th day of February 2007, via CM/ECF to the following:

David Marriott, Esq. ([email])]
Cravath, Swaine & Moore LLP]
[address]

Todd Shaughnessy, Esq. ([email])]
Snell & Wilmer LLP
[address]

/S/ Edward Normand

130

  1. The documents, declarations, and depositions supporting SCO's response are appended to the November 11,2006, Declaration of Brent O.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. ___."

    (Referenced here)

  2. As of the time of this filing, the District Court had not resolved SCO's Objections to the Magistrate Court's Order excluding many of SCO's disclosures as a basis for additional discrete claims of breach of contract.

    (Referenced here)

  3. To prove an "equitable estoppel" with respect to the Agreements, IBM must prove that its and Sequent's conduct has not been referable to the terms of the Agreements. New York law requires the parties' conduct to be "not otherwise compatible with the agreement as written." Rose v. Spa Realty Assocs., 42 N.Y.2d 338,346 (1977); accord EMI Music Mktg. v. Avatar Records, Inc., 317 F. Supp. 2d 412,421 (S.D.N.Y. 2004); Towers Charter & Marine Corp. v. Cadillac Ins. Co., 708 F. Supp. 612, 614 (S.D.N.Y. 1989); Matter of Irving O. Farber, PLLC v. Kamalian, 791 N.Y.S.2d 609,609 (App. Div. 2005).

    (Referenced here)

  4. See also Restatement (Second) of Contracts § 212(2) (1981) ("A question of interpretation of an integrated agreement is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence."); Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2730.1, at 273-75 (2d ed. 1983); E. Allan Farnsworth, Contracts § 7.14, at 538-39 (2d ed. 1990).

    (Referenced here)

  5. IBM's quotation from Moncrief omits the court's acknowledgment that the sole basis for its ruling was the "unusual procedural posture of this case"; recognized that "in most such cases" the court "must remand ... for findings regarding the interpretation of the ambiguous contract"; and prefaced the very language from the opinion on which IBM relies with the express caveat that in that case "all the extrinsic evidence [was] in." 174 F.3d at 1173, 1174.

    (Referenced here)

  6. IBM cites a similar case from the Second Circuit, Compagnie Financiere de CIC et de L'Union Europeenne v. Merril Lynch, 232 F.3d 153 (2d Cir. 2000), which also rested on unique procedural posture. In that case, the court emphasized that, because the summary judgment motion at issue "followed a bench trial, the trial record was before it." Id. at 161. The court also observed that neither party bad suggested the existence of additional evidence not already submitted at trial: "The parties confirmed at oral argument that the record was complete with regard to extrinsic evidence supporting their interpretations." Id.

    (Referenced here)

  7. In addition, IBM's reliance on the doctrine of contra proferentem is entirely misplaced. Contra proferentem "is applied only in cases where there is an ambiguity in some terminology of the policy [contract] which cannot be resolved by the presentation of extrinsic evidence." Alfin, Inc. v. Pac. Ins. Co., 735 F. Supp. 115, 121 n.5 (S.D.N.Y. 1990). Accordingly, courts have rejected the application of the doctrine in the summary judgment context. See, e.g., Schering Corp. 712 F.2d at 9-10 (refusing to apply contra proferentem because "the party opposing summary judgment propound[ed] a reasonable conflicting interpretation of a material disputed fact"). Moreover, contra proferentem applies where one of the contracting parties had no voice in the selection of the contract language, and thereby protects the weaker of two contracting parties with unequal bargaining power. See 67 Wall St. Co. v. Franklin Nat'l Bank, 37 N.Y.2d 245,249 (1975); Hertzog, Calamari & Gleason v. Prudential Ins. Co. of Am., 933 F. Supp. 254,258-59 (S.D.N.Y. 1996). The cases IBM cites in support of its contra proferentem argument make this very point. In Jacobson v. Sassower, 66 N.Y.2d 991,993 (1985), the court noted that an ambiguous contract must be construed against the drafter "and favorably to a party who had no voice in the selection of its language," and emphasized the special concerns governing attorney fee arrangements. (emphasis added). In Westchester Resco Co., L.P. v. New England Reinsurance Corp., 818 F.2d 2 (2d Cir. 1987), the court emphasized the particular rule in New York law that ambiguous insurance policies are to be construed against the insurer. Id. at 3. None of these concerns exist in this case, which indisputably involved arms-length deals between sophisticated and well-represented parties.

    (Referenced here)

  8. In concluding otherwise, IBM relies entirely on a somewhat awkwardly worded sentence in a SCO interrogatory response. SCO's supplemental response to IBM Interrogatory No. 4 included the following language:

    The agreements, among other things, allow IBM and Sequent to disclose and use "Software Products" only to and for entities that have the requisite licenses of a scope equivalent to those of IBM and Sequent, respectively. The agreements likewise permit work by persons exposed to such Sequent "Software Products" and knowledge based on such exposure only to and for such licensees of equivalent scope licenses. The agreements thereby prohibit IBM from making at least a great many of the IBM public disclosures and particular contributions intended to promote and otherwise help develop Linux.
    (IBM Ex. 43 at 7-8.) The point of the first two sentences is that IBM and Sequent are allowed to disclose "Software Products" only to equivalent-scope licensees. If IBM's mere acquisition of Sequent and its employees constituted a breach of contract (as a result of what IBM calls the "employability" problem), SCO would have said as much.

    (Referenced here)

  9. The Agreements do not address the licensees' obligation vel non to impose restrictions on what material their former employees may disclose after their employment with the licensee ends. It follows that it is for the licensee to decide whether it believes that such restrictions were necessary for it to remain in compliance with its UNIX license, and for the licensee to impose any such restrictions. In short, contrary to IBM's arguments, the Agreements do not contain any restrictive covenants on former employees, and therefore cannot be violative of "public policy" on any such basis.

    (Referenced here)

  10. As to IBM's assertions about technical disclosures of AIX code, methods and concepts in marketing and installing the product, they simply ignore the "material breach" component of the UNIX agreements, and bear no comparison to the wholesale disclosures IBM undertook in the course of its Linux-development efforts. (Ex. 139 ¶¶ 2-22.)

    (Referenced here)

  11. As IBM notes in its brief (at 95) the doctrine "rests largely on the facts and circumstances of the particular case." (Quoting Sassower v. Barone, 447 N.Y.S.2d 966,971 (App. Div. 1982)). Several of the cases used by IBM, including Sassower, are clearly distinguishable on the facts. See id. (estoppel appropriate under "egregious circumstances" presented by parties to original divorce action deciding to preclude attorney's appeal for legal fees); see also Kerns v. Mfrs. Hanover Trust Co., 272 N.Y.2d 535, 540-41 (Sup. Ct. 1966) (estoppel appropriate to prevent executor from arguing ratification of forged deed when executor convinced widow to sign deed).

    (Referenced here)

  12. Two of the cases cited by IBM support this premise. In Besicorp, the New York Appellate Division concluded that "[because the issues of reliance and estoppel are ones of fact, it was improper for [the trial court] to grant summary judgment in favor of defendant" on the estoppel issue. Besicorp, 652 N.Y.S.2d at 369. In Nassau Trust, the Court did not find the existence of an estoppel, merely that the facts precluded a court from dismissing a defense of estoppel. Nassau Trust Co, v. Montrose Concrete Prods. Corp., 56 N.Y.2d 175,183 (1982).

    (Referenced here)

  13. IBM's evidentiary support for its assertion (at 96) that "AT&T and its successors represented to their licensees ... that they could do as they wished with their own works" consists of the declaration testimony of nine witnesses who worked for AT&T during the negotiations and then, to varying degrees, for USL and Novell. (See IBM Exs. 182-83, 189, 191, 250, 271, 275-6, 280-81.) These declarants state only that they "assured," "provided the requested clarification [to]," "told," or "informed" licensees that the Agreements permitted them to own and control their own works. The only subsequent written agreement mentioned by any of the declarants is the side letter. No declarant testifies as to any specific dates. No declarant states that he specifically informed IBM or Sequent of these so-called "clarifications."

    (Referenced here)

  14. The historical basis for the doctrine is that the issuer of the statement and the party being estopped be the same entity. See White v. LaDue & Fitch, 303 N.Y. 122, 128 (1951) ("It is called an estoppel ....' Said Lord Coke, 'because a man's own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth.'" ) (quoting 2 Coke on Littleton, 352a)) (emphasis added).

    (Referenced here)

  15. The plain language of the cases cited (and quoted) by IBM (at 94-95) support SCO's argument. See, e.g., McManus v. Board of Educ. of Hempstead Union Free Sch. Dist., 87 N.Y.2d 183,186-87 (1995) (estoppel precludes "a party" from denying a fact to the detriment of "another party") (emphasis added); Nassau Trust, 56 N.Y.2d at 184 (estoppel requires "justifiable reliance on the opposing party's words or conduct") (emphasis added); Sassower, 447 N.Y.S.2d at 971 (estoppel "prohibits a person ... from asserting rights, the enforcement of which would, through his omissions or commissions, work fraud and injustice") (quoting Rothschild v Title Guar. & Trust Co., 204 N.Y. 458,464 (1912)) (emphasis added); N.Y. State Guernsey Breeders', 22 N.Y.S.2d at 140 (estoppel "forecloses one from denying his own express or implied admission") (emphasis added).

    (Referenced here)

  16. The Nassau Trust case, cited twice by IBM (at 95, l00), contains a particularly strong enunciation of this principle. The Court quoted a concurrence by Judge Cardozo as the best summary of "the legal principles at work here." Nassau Trust, 56 N.Y.2d at 185. Judge Cardozo notes that the "fundamental" principle behind estoppel is that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong," Id.(quoting Imperator Realty Co. v. Tull, 228 N.Y. 447,457 (1920) (emphasis added).

    (Referenced here)

  17. The McManus case, cited by IBM, denies a claim of equitable estoppel on these exact grounds. McManus, 87 N.Y.2d at 190 ("Petitioner cannot be estopped from asserting a state of facts that were known to all parties throughout the transaction."). Similarly, SCO should not be estopped from asserting a plain language reading of the Agreements that was clearly known to IBM, a signatory to those same Agreements.

    (Referenced here)

  18. The cases IBM cites do not suggest a different rule and are based on facts that are irrelevant to those presented here. In Securities Industry Automation Corp. v. United Computer Capital Corp., 723 N.Y.S.2d 668 (App. Div. 2001), the court found a waiver in light of the uncontradicted evidence and under the UCC rule that "where a signed agreement excludes modification except by a signed writing, which was the case here, an attempted modification that does not meet the writing requirement or satisfy the Statute of Frauds may still operate as a waiver." Id. at 669. In T.W.A. Trading. Inc. v. Gold Coast Freightways Inc., No. 2001-900 KC, 2002 WL 1311648 (N.Y. App. Term. Apr. 2,2002) (Ex. L), the court applied the "well settled" rule that "a shipper's unqualified and unconditional acceptance of a check that was collected by its carrier in payment of merchandise, contrary to the shipping instructions, ratifies the carrier's conduct, and the shipper thereby waives any claim it may have against the carrier for breach of contract." Id. at *1. In Heidi E. v. Wanda W., 620 N.Y.S.2d 665 (App. Div. 1994), the plaintiff indisputably had waived the defendant's right to maintain the confidentiality of plaintiff's medical records "by authorizing her friend to inquire about her condition and concerns." Id.

    (Referenced here)

  19. IBM avoids this issue in their brief by stating (at 103) that AT&T waived its rights by "telling SVRX licensees, including IBM and Sequent, . . .that they could do as they wished." The evidentiary support they cite for this statement is paragraphs 82-88, 119 and 143 of their statement of facts. Those paragraphs, in turn, cite several separate declarations, none of which supports the proposition that any statements were made to IBM. Only the declaration of Roger Swanson (IBM Ex. 266) maintains that "AT&T Technologies explained the agreements" to him while he was at Sequent. The declaration does not specify a time frame or a speaker and, as explained previously, is contested by the sworn testimony of Mr. Kistenberg.

    (Referenced here)

  20. To the extent IBM claims that SCO's silence has affected a waiver, this too is clearly contrary to precedent. See Peck v. Peck, 649 N.Y.S.2d 22,23 (App. Div. 1996) (waiver "cannot be inferred from mere silence."); accord Comvest Consulting, Inc. v. W.R.S.B. Dev. Co., 698 N.Y.S.2d 807,808 (App. Div. 1999).

    (Referenced here)

  21. There are additional reasons to doubt the accuracy of Mr. McRabb's testimony. Mr. McRabb purports to describe conversations with representatives of Lucent regarding the scope of rights in their derivative works, but in fact Lucent did not even have a source code license under which they were allowed to create derivative works. (Ex. 333 ¶ 24-26; Ex. 355 ¶¶ 24-26.)

    (Referenced here)

  22. By the time of the APA closing, SCO's business did not contemplate any additional significant sales of SVRX source-code licenses, and the remaining interest in that particular part of the UNIX business consisted primarily of collecting binary royalties attributable to sublicensed object-code product. (Ex. 40 ¶ 11.) Of course, because the System Five software included substantial intellectual property that SCO was using in later versions of its UNIX and UnixWare products, SCO had a strong continuing interest in protecting that property under the existing SVRX software agreements. (Id.)

    (Referenced here)

  23. That sentence states: "In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller." (IBM Ex. 123 § 4.16(b).)

    (Referenced here)

  24. Indeed, although SVRX Licenses is capitalized like the other defined terms in the APA — such as "Business," "Shares," Assets," "Excluded Assets," "Assumed Liabilities," and "Unassumed Liabilities" — unlike those other terms, SVRX Licenses is not defined in the APA. Section 4.16 refers to SVRX licenses "listen in detail under Item VI of Schedule 1.l(a)." The software agreements are not listed in detail or otherwise under Item VI, but rather in Item IV.L of the Schedule — which is not referenced in Section 4.16 at all.

    (Referenced here)

  25. See, e.g., Heidlebaugh v. Miller, 271 P.2d 557, 559 (Cal. Ct. App. 1954) ("The court will if possible give effect to all parts of the instrument and an interpretation which gives a reasonable meaning to all its provisions will be preferred to one which leaves a portion of the writing useless or inexplicable.").

    (Referenced here)

  26. The "absence of a [contract] definition, though perhaps not dispositive, might weigh, even strongly, in favor of finding an ambiguity, for example, when the term in question has no generally accepted meaning outside the context of the [contract] itself." Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co., 5 Cal. 4th 854, 867 (Ct. App. 1993). Indeed, California courts routinely deny summary judgment where an undefined relevant term is subject to more than one reasonable interpretation. See, e.g., Wolf, 114 Cal. App. 4th at 1357 (reversing summary judgment because "the only way to construe the meaning of the term" was by considering extrinsic evidence); EOTT Energy Corp. v. Storebrand Int'l Ins. Co., A/S, 45 Cal. App. 4th 565, 574, 578 (Ct. App. 1996) (undefined term "certainly presents a problem [precluding summary judgment] if the term is reasonably susceptible to more than one meaning"); cf. Ramming v. Barnard, No. E030334, 2002 WL 393118, at *5 (Cal. Ct. App. Mar. 13,2002) ("It cannot seriously be contended that the [agreement] is not ambiguous. For example, the use of the undefined term 'sale proceeds' is susceptible to many meanings[.]") (Ex. K); accord World Trade Ctr. Props. v. Hartford Fire Ins. Co., 345 F.3d 154, 190 (2d Cir. 2003) (summary judgment was properly denied because meaning of undefined term was "an open question as to which reasonable finders of fact could reach different conclusions").

    (Referenced here)

  27. Further, evidence that SCO "should have known" of its claim or of SCO's "negligence," "oversight," or even "thoughtlessness" would not suffice to show SCO's waiver of its rights. Leibowitz v. Elsevier Sci., Ltd., 927 F. Supp. 688, 705 (S.D.N.Y. 1996); Madison-Oneida-Herkimer Consortium v. N. Am. Admins., 765 N.Y.S.2d 184, 190 (Sup. Ct. 2003); accord Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 303 (2d Cir. 1996).

    (Referenced here)

  28. Contrary to IBM's assertion, SCO issued a press release on April 14,2003, announcing the proposed release of "SCO Linux Server 4.0 for the Itanium Processor Family," but never released or sold the product. (Ex. 49 at Ex. E.)

    (Referenced here)

  29. By suspending the sale of its Linux-related products — including the operating system, services, support, professional services, education, and layered applications — SCO lost approximately 5-10% of its revenues. (Ex. 49 ¶ 15.) In contrast, from May 14,2003, until May 31,2004 (when SCO last sold a unit of Linux Server 4.0), SCO sold 83 units and had 79 units returned, for a net revenue of $1,849. (IBM Ex. 284 ¶ 15.) Since May 14,2003, SCO has sold 403 units of OpenLinux 3.1.1 and had 51 units returned, for a net revenue of $49,097. (Id. ¶ 5.)

    (Referenced here)

  30. In citing its basis for disputing an IBM statement of fact, SCO cites herein either the paragraphs in SCO's Statement of Facts above or directly to exhibits, or both.

    (Referenced here)

  31. SCO has submitted a declaration from Ransom Love addressing certain points where Mr. Love was willing to clarify certain aspects of his prior testimony. Mr. Love is a paid consultant for IBM (Ex. 378), and SCO submits that a jury will be required to evaluate his testimony in light of all the facts and circumstances.

    (Referenced here)


  View Printable Version


Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )