While we're waiting for a report on today's hearing in SCO v IBM, Groklaw reporter Chris Brown has provided us with a treat: a partial transcript of the hearing held on Monday. This portion of the hearing transcript concerns IBM's Motion for Summary Judgment on SCO's Interference Claims (SCO's Seventh, Eighth, and Ninth Causes of Action) [PDF]. (As we get the rest of the transcript, we'll post it all.) Todd Shaughnessy argued this Motion for IBM, Mark James argued for The SCO Group.
THE COURT: Go ahead, Mr. Shaughnessy.
MR. SHAUGHNESSY: Thank you, Your Honor.
Your Honor, this motion concerns Counts VII, VIII and IX of
SCO's second amended complaint. Those are claims that IBM
tortuously interfered with various business relationships with SCO.
SCO claims that IBM interfered with SCO's contracts for licensing
its OpenServer and Unixware products in Count VII; that IBM
interfered with the asset purchase agreement between Novell and
Santa Cruz in Count VIII; and that IBM interfered with various
existing and prospective economic relationships with companies in
the computer industry in Count IX.
Your Honor, as you will see in the illustration that we provided
at Tab 2, this claim has been a constantly moving target in the
course of discovery. We in July of 2003 sort of hit the low point
when we only had three companies with whom we had supposedly
interfered, and the high point in December of 2005 of having
supposedly interfered with more than 250 companies. Each time we
got a new pleading, discovery response, deposition, the list of
companies expanded, tracted and changed. Ultimately SCO committed
to fully and finally articulate the scope of its interference
THE COURT: 177.
MR. SHAUGHNESSY: That's correct, Your Honor.
And despite having agreed to meaningfully limit them, we have
now 177 as you see at Tab 3. Of those 177, Your Honor, SCO claims
that IBM contacted directly only seven for purposes of discussing
SCO. For the remaining 170, 14 purported to be former SCO customers
and the balance are simply companies who may have used Linux.
There are at least three independent reasons why IBM is entitled
to summary judgment, Your Honor. And not surprisingly, they track
the three elements of the claim of tortious interference under Utah
law. They are that SCO --
THE COURT: Does Utah law apply?
MR. SHAUGHNESSY: Utah law does apply Your Honor. I think the
parties are in agreement on that issue.
SCO offers no admissible evidence that IBM interfered with any
of the 177 companies in question.
Number two, SCO has failed to show that IBM acted with improper
purpose or by improper means and IBM's conduct is privileged.
And Number three, Your Honor, SCO has failed to show causation
Now, beginning with the interference portion of the text, Your
Honor, you see at Tab 7 we have excerpted for you IBM's
Interrogatory Number 8. In that interrogatory, we asked SCO --
which is part of IBM's first set of interrogatories, we asked SCO
to identify all of the agreements with which IBM has
supposedly interfered, and describe in detail what IBM had
supposedly done. In December of 2003 and then three months later,
Judge Wells entered two separate orders requiring SCO to respond to
And if you turn to Tab 8, Your Honor, you will see that as I
mentioned with regard to 170 of 177 companies, SCO in the words of
its Rule 30(b)(6) witness on this subject, quote:
Is not alleging that IBM contacted any one of these
companies individually and somehow wrongfully induced them to
switch to Linux on that basis.
With respect to the remaining seven, Your Honor, which I will
speak about in just a moment, each of these companies have
testified that they did not speak -- strike that -- that they did
not in any way change their relationship with SCO as a result of
anything IBM said or did.
So if we can begin at Tab 10, Your Honor, with BayStar, and I'll
try to clip through these fairly quickly. We tried --
THE COURT: These are the seven; right?
MR. SHAUGHNESSY: These are the seven. These are the seven with
whom IBM supposedly had some contact according with SCO.
We start with BayStar. The background here, Your
Honor, is that in October 2003, BayStar invested and arranged
for others to invest in SCO. The companies had a rocky relationship
and ultimately a falling out seven months later when BayStar
redeemed its investment. SCO claims that IBM is at fault, that IBM
contacted BayStar and somehow convinced BayStar that it should
redeem its investment, and thereby tortuously interfered with that
Your Honor, we've submitted a declaration from BayStar's CEO
Larry Goldfarb who testified unequivocally that he has never even
spoken with anyone at IBM about SCO. And he further testifies that
BayStar's decision to redeem its investment was done for a whole
laundry list of reasons concerning SCO and the company and the way
the company was being managed. But none of those reasons had
anything whatsoever to do with IBM.
Now, in the face of that evidence, Your Honor, SCO offers one
thing. SCO submits the declaration of Darl McBride in which Mr.
McBride says that Mr. Goldfarb told him IBM was, quote, on him, on
him, on him, close quote.
That, Your Honor, is the complete substance of SCO's evidence
with respect to BayStar. And I have absolutely no idea what "on
him, on him, on him" means. But I do know that it's hearsay and it
can't be used to create an issue of fact.
Next, Your Honor, at Tabs 11, 12, and 13, Intel,
Oracle and Computer Associates, briefly by way of background. In
January of 2003 as SCO was preparing its SCO source
licensing/litigation plan, according to SCO, IBM had expressed some
opposition to that plan. And SCO claims that in the LinuxWorld
convention in January of 2003, Karen Smith, an employee of IBM,
spoke with representatives from Intel, Oracle and Computer
Associates and attempted to convince each of these companies to
stop doing business with SCO. Now, what does the evidence show?
Ms. Smith has testified no such conversation occurred.
Representatives from Intel, Oracle and Computer Associates have
each testified that no such conversations occurred. Representatives
from each of these companies, Your Honor, have further testified
that they did not reduce or change their business with SCO in any
way as a result of anything that IBM did.
And, Your Honor, SCO admits that it has no evidence of any
contact or communication between Ms. Smith and any of these
companies in which they attempted to persuade SCO not to do
business with -- persuade these companies not to do business with
SCO other than one thing. SCO claims that it can simply point to
the decline in the business that it was doing with these particular
companies at or around January of 2003 and that a jury could simply
infer from the drop in that business that these conversations must
have occurred even
though everyone denies them.
Your Honor, that argument is both factually wrong and it's
irrelevant. The only evidence SCO offers to support this purported
decline in business is the declarations of Eric Hughes and Janet
Sullivan. That testimony is summarized or quoted at Tab 17. And
what you will see, Your Honor, is that neither Mr. Hughes nor Miss
Sullivan testified that SCO's relationship changed with any of
these companies in or around January of 2003. Instead what you see,
Your Honor, is these SCO declarants say that the relationship
changed in 2001, two years before the contact at issue.
Now, Your Honor, the fact that companies decline or altered
their relationship with SCO in 2001 cannot by any stretch support
an inference that a conversation occurred two years later. But even
more fundamentally, Your Honor, even if that relationship had
declined, that business relationship had declined in early 2003,
that change is not evidence of Ms. Smith having talked to these
companies. Your Honor, there are any number of reasons why these
companies may have done less business with SCO, not the least of
which being a very public attack SCO had launched on Linux.
Tab 14, Your Honor, summarizes Hewlett-Packard. Same allegation
here. SCO claims that Karen Smith from IBM encouraged Rick Becker
from HP to stop doing business with SCO. The only difference here,
Your Honor, is that they have
the deposition testimony from Mr. Becker in which he recounts
his version of a conversation with Ms. Smith. The content of that
conversation is disputed, Your Honor. But what is not disputed is
that HP did absolutely nothing as a result of that. Mr. Becker
himself testified that he did as a result of this conversation
nothing more than simply decide not to have any further
conversations with Ms. Smith, and that HP continued to do business
We've also submitted a declaration from HP's Joseph Beyers who
says that HP has not reduced or altered its relationship with SCO.
And, in fact, Your Honor, SCO admits itself that SCO has a very
good relationship with HP.
Once again, Your Honor, the only evidence that SCO offers is the
Hughes declaration claiming that the business between the two
companies declined as a result of this supposed conversation. And
once again, Mr. Hughes' declaration does not say that.
Tab 15, Your Honor, is Novell. And here, Your Honor, SCO claims
that IBM directed Novell to a certain ownership over the
copyrights, the UNIX copyrights that are at issue in this case and
to exercise Novell's right under the asset purchase agreement to
waive breaches of contract claims against IBM. There are, Your
Honor, at least three problems with this interference claim
The first problem, SCO has never identified Novell
or the asset purchase agreement in response to any of the many
varied answers it has provided to Interrogatory Number 8. That
interrogatory required SCO to tell us if it was claiming
interference with the asset purchase agreement. Judge Wells ordered
SCO twice to fully answer the interrogatory. And it is undisputed
that in none of the four iterations of that answer has SCO ever
identified or even mentioned Novell or the asset purchase
agreement, and on that basis alone will tie the summary
The second problem, Your Honor, is that Novell has submitted a
declaration in which it refutes entirely SCO's claim. Novell makes
it clear that it acted on its own behalf, that it did not force or
pressure IBM to do anything, and that its actions were entirely
independent. SCO has not come up with evidence to refute that, and
it's an additional basis why Novell's claim fails.
The third problem, Your Honor, is that SCO can offer literally
no admissible evidence from anyone that any such conversation
between IBM and Novell occurred. Instead, the substance of SCO's
evidence as SCO describes it in SCO's brief is, quote:
It was Mr. McBride's impression that Ms. Smith implied
that someone from IBM had asked Novell whether Novell or SCO held
Your Honor, I can't begin to list all the reasons why that
statement is not admissible and doesn't create a genuine issue of
fact. But at the end of the day, Your Honor, even if SCO could show
that someone from IBM talked to someone from Novell about the UNIX
copyrights or about the asset purchase agreement, the question
remains, so what? That's not interference, and it's not evidence of
I won't discuss the OpenSource conference, which is at Tab 16.
SCO has abandoned that claim in its opposition brief.
And, Your Honor, what has happened here is that as a result of
being utterly unable to develop any evidence of tortious
interference by IBM, SCO struck upon a theory at a late date in the
case that IBM had not interfered with any of these companies, but
it instead interfered with the UNIX-on-Intel market in general. And
SCO advocates in --
THE COURT: What's the status of the law on that type of
MR. SHAUGHNESSY: Well, the status of the law on that type of
claim, Your Honor, as far as we can tell is non-existent. SCO has
cited nothing in its opposition brief to support such a claim, and
we've located no law that would recognize such a claim. And there
is certainly no good reason for Your Honor to reach out and
recognize a claim like this.
But beyond that, Your Honor, there are additional
problems with the theory. With respect to the 170 companies with
whom IBM supposedly interfered, you've got 14 who are former
customers, but SCO has offered no information and no evidence
concerning whether or when any of these companies adopted Linux,
why they adopted Linux, whether those companies would have chosen
SCO's products had Linux been not in existence. And the other 156
companies stand on the same footing.
Again, SCO has provided absolutely no evidence about these
companies; whether they adopted Linux; when they adopted Linux or
why; whether SCO had products that would have been available to
compete; whether these companies would have, in fact, purchased
those products; and indeed, Your Honor, SCO has not even been able
to identify whether any one of these products was ever a
prospective customer of SCO. It is, Your Honor, simply a list of
random companies who apparently are Linux users that SCO is asking
the Court to find IBM interfered with the respective
THE COURT: In securities cases, there is a fraud on the market
theory. Maybe its akin to that.
MR. SHAUGHNESSY: It's a far cry I think from a securities case
and fraud on the market theory. I mean, fraud on market is
generally recognized -- in a securities context is generally
recognized as a substitute for being able to show causation. And
you have to have an efficient market and all
of the other things that are required in a securities that are
not present here.
Finally, Your Honor, the case that we have that is closest to
this one is Judge Campbell's decision in Bower vs. Stein Eriksen.
And she correctly concluded there that a claim like this ultimately
rests on speculation.
And SCO's case, SCO's claim asked the Court to speculate on any
number of grounds that these companies use Linux, that they use
Linux only because of IBM, that in the absence of Linux each and
every one of them would have purchased products from SCO rather
than someone else.
The second element, Your Honor, SCO has not shown either an
improper purpose or improper means. I won't discuss this in detail.
The Court is familiar with the standards.
With respect to improper purpose, SCO really doesn't make a
serious effort to show that IBM acted with ill will and a desire to
harm SCO, purely for the sake of harming SCO, and that that ill
will predominated over any and all other legitimate economic
SCO attempts to make an argument with respect to HP and Novell.
But at the end of the day, Novell is a company that can't even
establish a communication ever occurred. So they're certainly going
to have a difficult time showing that that communication was
motivated by spite and a desired harm to SCO as opposed to a
legitimate business interest.
With respect to improper means, briefly, Your Honor, SCO cites
no statute, no regulation, no common law rule that prohibits a
company from saying to someone else that they shouldn't do business
with a competitor.
Now, SCO has no evidence that these conversations ever occurred,
Your Honor. But let's assume that they did. Let's assume that IBM
met with Intel or Oracle or Computer Associates and told them that
they shouldn't do business with SCO. Judge, that's not against the
law. They are permitted to do that, and SCO doesn't even attempt to
make an argument that that is not permitted under the law.
With respect to the interference with the market, Your Honor,
SCO seems to be claiming, at least as I can best understand it,
that IBM made contributions to Linux in violation of SCO's
purported contracts with IBM, that those constitute a breach of
contract, and SCO has been damaged as a result.
The Utah Supreme Court has recognized since the Leigh Furniture
case that a breach of contract by itself, even an intentional
breach of contract is not sufficient to satisfy improper means. And
to satisfy improper means with respect to a breach of contract
there has to be an intent, an immediate intent to injure. SCO's
experts have testified that IBM was not acting with the intent of
injuring SCO, but rather was acting with the intent of competing
with Sun and
With respect to the copyright infringement claim or the argument
that IBM has infringed copyrights, Your Honor has heard discussion
of this in part in discussion of the unfair competition from Mr.
Marriott, I won't repeat any of that here, except to say that SCO
seems to be arguing that if it can establish unfair competition or
if it can establish copyright infringement, it will have
automatically established interference, tortious interference. And
that, Your Honor, is simply not the case. The claims standalone,
and SCO is required to establish the elements of each of them.
Finally, Your Honor, with respect to causation and injury, SCO
has failed on both fronts and can prove neither causation nor
injury for four reasons.
First, SCO failed in discovery responses to identify any damages
resulting from IBM's tortious interference. At Tab 27, we have
excerpted for you Interrogatory Number 24, which asked for an
explanation of SCO's damages for all its claims, including its
interference claims. And as Mr. Marriott indicated a moment ago,
SCO said it was going to provide those answers in its expert
reports. Not one of SCO's expert reports calculated, addressed or
even purported to calculate damages resulting from IBM's alleged
interference. SCO's experts don't even mention Intel, Oracle
Computer Associates and what happened after January of 2003
and the effect on SCO's relationship after January 2003.
Your Honor, we noticed a Rule 30(b)(6) deposition of SCO on this
precise topic precisely because we had no idea what damages they
were claiming. And SCO's 30(b)(6) witness testified that he could
not identify, quote, any damages that SCO may have suffered with
respect to a particular company with which IBM -- with which SCO
alleges IBM interfered.
Now, Your Honor, in its opposition brief for the very first time
SCO says that its damages for indirect interference are the same as
its damages for contract -- breach of contract copyright. That
damage theory should have been disclosed long ago, but in the end,
Your Honor, it fails for a couple of reasons.
First of all, it fails, Your Honor, because if it is true that
SCO's damages for breach of contract are the same as its damages
for interference and if it is true that the conduct making
contributions to Linux in violation of the IBM and Sequent
licensing agreements are the same, then any claim for damages for
intentional interference would be barred by the economic loss
doctrine. The conduct is the same. The measure of damages is the
same. And the courts don't permit double recovery for the same
Your Honor, additionally, each of the companies with whom IBM
allegedly interfered that I've talked about a moment ago has
directly testified that any change in their
relationship with SCO was due to events having nothing to do
with IBM. That, Your Honor, is fatal to causation in the face of
that evidence which SCO's not disputed, at least not disputed with
competent evidence, IBM's entitled to summary judgment.
And finally, Your Honor, SCO's own employees have had something
to say about why SCO's business with these particular companies
declined. And those are excerpted at Tab 26. You can see that they
are very clear in speaking about each of these companies, Computer
Associates, Oracle, Intel, Hewlett-Packard. And their conclusion is
that those business relationships declined for reasons having
nothing to do with IBM and having everything to do with SCO and the
way in which SCO chose to run its business.
In the end, Your Honor, SCO can prove none of the elements of
intentional interference. Indeed, in our view SCO is not close on
any of them, and IBM is entitled to summary judgment on those
THE COURT: Thank you, Mr. Shaughnessy.
MR. SHAUGHNESSY: Thank you very much.
THE COURT: Mr. James?
MR. JAMES: Thank you, Your Honor.
I think Mr. Shaughnessy touched on this, but let me make clear.
Our Seventh Claim alleges interference with contracts relating to
certain specific entities. Eighth cause
of action relates specifically to Novell. Ninth Claim is for
interference with prospective business relations or economic
I think it's appropriate to provide Your Honor with at least a
brief chronology relating to the acts and history that we think are
relevant to the three causes of action. The chronologies are
summarized in Tabs 2, 3 and 4. Let me talk first about IBM's
interference with SCO's existing contractual relations. That the
Seventh cause of action, and that's Tab 4.
During the period of November 2002 to January of 2003, SCO
initiated discussions with IBM regarding SCO's concerns over its
intellectual property in Linux. SCO had learned that its
proprietary UNIX libraries were being used in Linux, and SCO had
devised a license by which customers could use Linux more broadly
without violating SCO's intellectual property rights.
IBM urged SCO not to pursue its plan to pursue its intellectual
property. In fact, IBM's general counsel reacted to the news about
SCO's plan with four-letter expletives which were relayed to SCO
through IBM, an IBM executive. IBM urged SCO not to announce its
plan at least until after the end of the year because was IBM had
some very large Linux-related deals in the works. And then SCO was
in agreement and complied -- and agreed to comply and agreed to
wait while IBM
and SCO talked and tried to work something out.
When no resolution was reached with IBM on January 22nd, 2003,
SCO issued a press release regarding its intent to protect its
intellectual property that had been placed in Linux.
The following day, SCO's CEO Darl McBride met with IBM executive
Karen Smith. Smith was very angry at the meeting, and she
threatened Mr. McBride. And she told Mr. McBride that IBM would cut
off all business relationships with SCO and that she would tell
SCO's partners to do the same.
When Mr. McBride would not back down, Smith followed through on
her threats telling HP executive Rick Becker that IBM was cutting
off its business relationship with SCO. HP should do the same.
Subsequently, Your Honor, HP significantly reduced its financial
support of SCO.
There is a genuine issue of material fact here. IBM asserts
Smith did not instruct or encourage HP to cut off ties with or
support for SCO. SCO has submitted evidence that that did, in fact,
There is also a genuine dispute of material fact as to whether
and why HP decreased its support for SCO. IBM claimed that HP did
not reduce its support for SCO, and that even if it did, it was not
related to IBM.
This is a jury question, Your Honor. SCO has, in
fact, presented evidence that following Smith's threat, HP did
reduce its support of SCO. A reasonable jury could conclude that
this was no coincidence, that HP was bowing to the pressure applied
On January 24th, 2003, Smith again followed through on her
threats and directed IBM departments in an e-mail to discontinue
any plans to work with SCO and avoid any association with SCO in
our development sales and marketing efforts.
Subsequent IBM e-mails demonstrate that the freeze was purely
motivated by Smith's anger toward SCO and that it was inconsistent
at the time with IBM's financial interests.
From January to March of 2003, IBM continued to follow through
on Ms. Smith's threats contacting SCO UnitedLinux partners to
reinforce a negative position on SCO's efforts to protect its
In July of 2003, IBM met with Novell, Computer Associates,
Oracle, Dell, Intel and HP. And the companies discussed at that
time SCO's efforts to protect SCO's intellectual property and the
potential damage this would do to the Linux market.
This evidence creates a genuine factual dispute. A reasonable
jury could conclude that Smith not only threatened to interfere
with SCO's business, she executed on those threats.
Throughout 2003, key SCO partners decreased or ceased their
dealings with SCO. Oracle stopped trading processor roadmaps with
SCO. HP, its SCO market development fund declined from $1 million a
year to 100,000. Computer Associates' certification to SCO's
product declined remarkably. Oracle withdrew its support of SCO or
withdrew its SCO OpenUNIX8 certification.
We've heard about BayStar. In October of 2003, BayStar invested
$50 million in SCO. Thereafter, BayStar began behaving erratically,
at times supporting this lawsuit and at other times criticizing
SCO's focus on the suit.
On April 14, 2003, BayStar suddenly claims SCO breach its
agreement but would not explain how. BayStar's Larry Goldfarb tells
SCO that IBM was on him, on him, on him, suggesting, Your Honor
THE COURT: It is hearsay, isn't it?
MR. JAMES: It's hearsay, Your Honor. But it creates an issue of
fact for this reason, and that is IBM has come forward with
information or testimony from Mr. Goldfarb testifying that IBM
didn't tell him anything. Darl McBride has come forward with
testimony saying that Mr. Goldfarb did tell him.
At a minimum, Your Honor, that is evidence that comes in for
impeachment purposes, and it does create an issue of fact as to
whether Mr. Goldfarb was being honest when he
gave his deposition testimony because now we have testimony that
is directly contrary to that.
All of these involves material fact disputes, Your Honor,
particularly when you draw the reasonable inferences from the
evidence. In the context of IBM's cumulative bad acts, its repeated
threats, its efforts to cut off support for SCO, a reasonable jury
could conclude from the evidence that IBM pressured BayStar to
withdraw the support for SCO.
Now let me talk briefly, Your Honor, if I might, about our
Eighth cause of action. This is a cause of action that discusses
interference between SCO and Novell with respect to the asset
purchase agreement. Very curiously, counsel makes reference to the
fact that SCO never explained or referred IBM to the Novell
interference claim. But, in fact, if you look at our Eighth cause
of action, it's about Novell, and it's only about Novell, and
that's what it talks about.
Let me just talk briefly about the chronology relating to that
claim. '96, Santa Cruz purchased Novell's Unix business. As Novell
would later describe, Santa Cruz purchased that business lock,
stock and barrel. Novell kept only existing royalty rights.
Subsequently Novell confirmed its and SCO's understanding that the
UNIX business that SCO acquired included the Unix copyrights.
Novell even offered to provide SCO with verification of that
However, January of 2003, Novell's CEO Jack Messman began having
multiple discussions with IBM which occurred over a period of
several months. Novell then suddenly reversed course and refused to
provide the previously promised clarification that SCO, in fact,
owned all of the UNIX-related copyrights.
On January 23rd, 2003, IBM executive Karen Smith told SCO's CEO
Darl McBride that IBM had looked into SCO's copyright acquisition
and concluded that SCO had not acquired the copyrights, implying
that IBM had obtained such assurances from Novell.
In May of 2003, at the end of the discussions between Novell CEO
Messman and IBM, Novell announced publicly that Novell, not SCO
owned the UNIX copyrights that were the subject of the asset
purchase agreement between Santa Cruz and Novell.
On June 6, 2003, after SCO sent Novell Amendment 2 to the asset
purchase agreement, Novell retracted its public claim of copyright
Two days later on June 8, 2003, Novell again reversed its
position and falsely asserted ownership over the UNIX copyrights.
Novell also falsely purported to waive SCO's rights to enforce and
terminate the IBM software agreement.
Shortly thereafter, Novell announced that it secured a $50
million investment from IBM so that Novell could
acquire SuSe Linux, an investment that Novell said resulted from
a single telephone call from Novell CEO Messman to an IBM
executive. Remarkably, Novell acknowledges that it did not seek
investment capital from any other entities.
And then in early 2004, Novell consummated its acquisition of
SuSe, a major Linux distributor.
There is an overreaching genuine issue of material fact here.
IBM asserts that Novell's actions toward SCO was just completely
independent of IBM, that it was merely coincidental, that IBM was
in active discussions with Novell and providing Novell with $50
million all the while Novell was doing a complete about face on its
previous position that it had not retained the UNIX copyrights, but
rather that SCO had obtained all of those under the asset purchase
The reasonable inference that can be drawn here based on the
facts is that IBM plainly did interfere with SCO's contractual
relationship with Novell.
A reasonable jury could find that IBM's conduct was an
intentional interference with a contractual relationship between
SCO and Novell. An offer of support for Novell's flegently (sic),
Linux business, ultimately a payment of $50 million in return for
Novell's support deriving its position in the SCO litigation.
Finally, let me just briefly address, Your Honor, the chronology
relating to IBM's interference with the
UNIX-on-Intel market. That's SCO's Ninth cause of action. And
that chronology is set forth in summary fashion behind Tab 2.
The UNIX-on-Intel market is SCO's UNIX operating systems running
on Intel processors. In 1998, that was a $3 billion industry in
which IBM acknowledged SCO's dominance. In 1998, SCO had 80 percent
of the market share in that market. In April of 1999, IBM knew and
it recognized in its internal e-mails that we've cited to the Court
that Linux was not then sufficiently advanced or what they call
commercially hardened to compete with SCO's UNIX operating
While IBM realized the injury that would be inflicted on SCO,
IBM nevertheless publicly announced in January of 2000 that it two
disclose UNIX-derived technology to harden Linux for commercial
use. IBM did so by among other things disclosing protective
UNIX-derived AIX and Dynix technology starting with SCO's JFS.
To cover its tracks, IBM subsequently made the false assertion
that the JFS that it disclosed put into Linux was derived from the
OS/2 rather than UNIX System V AIX, which is where it was actually
There is a genuine issue of material fact here, Your Honor, that
I think is fairly obvious, whether or not IBM breached its software
agreements with SCO by disclosing SCO's
protected intellectual property to Linux. Tied up in those
disputes is the origin of the JFS disclosed to Linux, an issue I
believe was addressed with Your Honor this past week, along with
other technologies that IBM disclosed to Linux.
From the date of those 2000 disclosures made by IBM, those
disclosures have substantially improved Linux for commercial use
enabling Linux to be used within corporations for the same
functions as SCO's UNIX at a much lower price. IBM disputes this,
but SCO has submitted substantial evidence on this point. There is
a genuine issue of material fact.
Tellingly from 2000 to 2002, SCO's revenue dropped like a brick
plummeting 74 percent following IBM's disclosure of Linux and the
commercial hardening of Linux that resulted. SCO's experts have
directly attributed the decline to the increased competition from
Linux due to IBM's disclosures of protected technology. Again,
there are disputed issues of facts here, Your Honor, that cannot be
properly resolved in summary judgment.
And Leigh Furniture, the leading case applicable here, the Utah
Supreme Court observed that:
Driving away an individual's existing or potential
customers is the archetypical injury this cause of action was
devised or designed to remedy.
THE COURT: You're both citing it. It must be the leading
MR. JAMES: I don't think there's any disagreement on that issue.
I'm going to talk about Leigh Furniture. I think Mr. Shaughnessy
called it Leigh Furniture. Leigh, Leigh, but whatever.
Let me talk a little bit more just for a moment about the
disputed facts, Your Honor. In support of their motion, IBM set
forth the statement of facts that they claimed were material and
undisputed. IBM, in fact -- or excuse me -- SCO, in fact, has
disputed in whole or in part at least 35 of those paragraphs. Those
are identified by number at Tab 5. One disputed material fact is
sufficient to defeat summary judgment. In this case, we've disputed
numerous, at least 35 of the facts that are relied upon by IBM in
seeking summary judgment. And those disputes as well as the
evidence that SCO has cited in asserting those disputes are
detailed in Appendix A to SCO's opposition memorandum.
Now, in Addendum A to IBM's reply memorandum, IBM tries to
eliminate the disputes of material fact that SCO has raised
primarily by asserting a conclusory fashion deemed admitted as if
IBM has the power or right to make that determination. IBM seems to
think, Your Honor, that it's a final arbiter of what facts are
material, how disputes are resolved, what rules apply. We beg to
differ, and we will defer to Your Honor in that regard.
THE COURT: Thank you.
MR. JAMES: You're welcome.
There are multiple disputes of material fact with respect to
IBM's conduct that resulted in harm of the termination of specific
contractual relationships. We've talked about some of those. There
are genuine disputes regarding why these companies withdrew support
for SCO and UNIX. IBM alleges that the companies only withdrew
support for SCO after SCO stopped distributing Linux. SCO has
produced evidence that the companies withdrew support before it
stopped distributing Linux and did so because IBM demanded and
pressured those companies to do so.
There are genuine issues of material facts about SCO's damage
claims, Your Honor, and I'll talk about those in a minute. IBM
claims that SCO cannot specifically identify any damages relating
from IBM's interference, contracts. SCO has put forth evidence that
SCO's UNIX space revenue declined almost immediately after IBM
began distributing derivations of UNIX code into Linux and that
further damages resulted from IBM's demands made to it and to SCO's
business partners. Those companies as a result either seized or
reduced their business with SCO.
Again, one issue of material fact is sufficient to defeat
summary judgment. In this case, there are multiple.
Now, in addition to controverting various facts that IBM set
forth in support of its motion, SCO set forth an
additional 91 paragraphs of material facts that set forth IBM's
conduct in which supports SCO's opposition. IBM in response does
not dispute or purport to dispute any of those facts, simply
ignores them because otherwise, the existence of material facts
becomes even more obvious.
Now, IBM cites the Ashley Creek case. It asserts that a party
cannot avoid summary judgment based on a counter statement of facts
that does not satisfy the requirement of Utah Rule, Civil Rule
THE COURT: Ashley Creek. It's another case that sounds very
familiar to me.
MR. JAMES: I wonder why.
IBM's argument in that regard, however, is irrelevant, Your
Honor, and it entirely misses the point. Ashley Creek addresses a
situation where the party opposing summary judgment did not even
respond to the moving party's statement of facts or refer the Court
to any material facts that claims were in dispute.
Here SCO has specifically disputed IBM's facts and then sets
forth an additional statement of material facts which IBM does not
even dispute. Those additional facts, Your Honor, further support
SCO's opposition to IBM's motion here.
Let me talk just for a few minutes about some of the legal
issues that IBM has raised. I think there are some guiding
principles that are important to keep in mind in that
regard. See those summarized I think at Tab 6. It refers at
least to the elements of the claim.
The intentional interference element of the claim requires only
that the plaintiff show that the defendant's conduct interfered
with existing and prospective business relationships.
The second element of the tort requires one or the other of
improper purpose or improper means, not both. Improper means may be
shown in a variety of ways including by violation of statutes,
regulations, common law rules and deliberate breach of contract for
the purpose of injuring the plaintiff, false statements regarding a
plaintiff, disclosure of confidential information through a variety
of other types of conduct.
It is not necessary, Your Honor, that one particular act or even
several acts establish interference, although they might. The fact
finder may look to the total cumulative affect, the course of
action over time in determining whether interference has
Finally, a plaintiff may defeat its burden of defeating summary
judgment or may meet its burden of defeating summary judgment
through circumstantial evidence with the right that all reasonable
inferences be drawn in favor of the non-moving party.
That is the case even in the face of direct
evidence offered by the moving party. It's rare that a party
will admit to lying or otherwise acting improperly, and often
circumstantial evidence is all that is available to prove improper
SCO set forth in its memorandum, Judge, the strong position that
it held with UNIX-on-Intel marketplace as well as IBM's awareness
of SCO's position. Those are facts that IBM does not dispute. It's
SCO's position, and we think the facts support this, that IBM
intentionally interfered with SCO's business relationships in that
Again, we have facts that in 2000 IBM began disclosing
derivatives of SCO's proprietary UNIX technology to Linux for the
purpose of improving Linux. I talked about the impact on SCO. It
was immediate. It was devastating. Linux source code was free.
Companies began a rapid migration away from SCO's UNIX technologies
from Linux. During the two-year period from 2000 through 2002,
SCO's revenues declined by 74 percent. You'll see that at Tab 8,
I talked about the actions that were taken as a result of SCO
having devised a license, the actions that Karen Smith took
informing Darl McBride that if SCO went forward with this licensing
efforts, IBM would terminate its relationship and would encourage
others to do the same.
Since 2000, IBM has frequently misrepresented to the public its
claimed rights to disclose the technology and
the derivation of the technologies. It's violated copyrights.
It's committed unfair competition. You heard about that from Mr.
I think the point is, Your Honor, when you took the cumulative
effect of IBM's actions, there is sufficient evidence that a jury
can conclude IBM tortuously interfered with the relationships of
And those improper means are summarized at Tab 9.
IBM has argued that SCO cannot identify any relationships, and
there's no harm, anyway. I've talked about the specific
relationships. Regarding the second aspect, the interference on the
market aspect, I want to talk to Your Honor for a few minutes about
that. I think that relates to SCO's broader, more significant
interference claims. That's not a new theory, as Mr. Shaughnessy
describes it. In fact, that's our Ninth cause of action.
IBM argues that such theory is not legally cognizable because
SCO has not identified specific relations by name with which IBM
has claimed to have interfered. I submit, Your Honor, that is not
required by Utah law. And I don't think the Court needs to look any
further than the Leigh Furniture case to answer that question. Let
me just talk very briefly about that case.
In the Leigh Furniture case, Mr. Leigh sold his
furniture store in St. George to a guy name Richard Isom. The
deal involved payments over time, a long-term lease, purchase
options. Subsequently, Leigh apparently wanted out of the deal. His
conduct included frequent visits to the store during business hours
by Leigh and his employees, which visits annoyed and drove off
Isom's customers. Numerous letters of complaint to Isom. Demands
for audits. Threats to cancel contracts. Filing frivolous lawsuits
against Isom. All of these acts apparently had the common purpose
of forcing Isom out of the business and out of the building.
Isom eventually concluded he couldn't stay in business. He
closed the store and shortly thereafter declared bankruptcy in
response to Leigh's suit seeking to cancel the contract. Isom
counterclaimed for tortious interference.
Now, if you look at what happened in that case, Your Honor, the
facts were these, and these were relevant. Expert testimony valued
the Isom's lease hold at $45,000. The net value of Isom's furniture
business, $59,300. Based on this evidence, the Utah Supreme Court
affirmed the damage award of $65,000 and reinstated the full amount
of a punitive damage award that had been awarded.
There's no suggestion in that opinion, none, that Isom ever
proved the specific identity of each lost prospective customer or
for that matter any lost prospective customer. There was no
evidence of the amount of profit Isom
might have expected from each lost customer or from any
particular lost customer. Isom's damages were based on the
valuations of the business rather than a tabulation of the profits
he lost from each act of alleged interference.
Yet, the Leigh court held that was sufficient, that the
prospective relationships from unidentified customers who may or
may not have purchased goods for an unspecified amount were the
very types of injuries that tort of interference with economic
relations was devised to address.
IBM cites the Bower vs. Stein Eriksen case, a case by Judge
Campbell of this court. In the Bower case, the tortious
interference claim was premised on the plaintiff's contention that
an obstructed view caused by defendant's construction lowered both
the fair market value and the rentability of the condominium, and
therefore interfered with prospective economic relations.
IBM concludes that this case adds an extra element that, in
fact, is not found in Utah law, the requirement of specifically
identifying third parties. The Bower case does not stand for that
proposition. In fact, in Bower, Judge Campbell found dispositive
the fact that plaintiff had failed to establish evidence of any
damages. They had not tried to sell the condominium. They continued
to rent it. Any future interference with renters was purely
speculative. And she concluded that plaintiff's allegations of
of third party damages were, in fact, pure speculative.
Here, Your Honor, SCO has identified a specific theory of
damages and advanced evidence or loss of market share,
UNIX-on-Intel market, directly attributable and co-extensive with
IBM's development of the Linux strategy and IBM's improper
In Kerry Coal vs. United Mine Workers, it's a case from the
Third Circuit, 637 F. 2e 957, the Third Circuit specifically
rejected the argument that IBM is making here, that tortious
interference with respect to economic relations claims requires
identification of specific third parties. In Kerry Coal, the
plaintiff was a non-union coal producer that was effectively shut
down during a union strike by various threats and interferences by
the Union and its representatives.
Plaintiff contended and offered into evidence that it could have
continued to sell its coal market prices if it had been able to
operate during the strike. Plaintiff did not prove any of the
specific customers to whom it would sell coal, rather what its
expert did was it calculated damages by determining the difference
between a maximum sale at the time the defendant's activities were
low and with sales when the defendant's activities were more
On appeal after a verdict in favor of the plaintiff, the
defendant contended that the evidence on lost
profits was insufficient because it failed to establish lost
sales to specific customers. And because it failed to tie such
specific loss to defendant's activities, the Third Circuit held in
response, and this is Tab 11, Your Honor:
We reject its contention. The jury was presented with a
reasonable basis from which it could find both the amount of Kerry
Coals lost sales during the coal strike and the causal relationship
between the lost sales and the defendants' activities. No more was
Same applies here. We've provided evidence of the market share
of SCO's revenues in that market, SCO's percentage of market share
and what happened after IBM's interference.
Regarding improper purpose or improper means, IBM has asserted
in its briefing, Your Honor, that the various means asserted by SCO
are merely conclusory statements of SCO's allegations of improper
I'm not sure why IBM makes that claim. It's not accurate. SCO's
claims again I think with respect to improper means, which is what
SCO primarily relies on, are very straight forward, talked about
those. They're summarized at Tab 9. Such conduct we believe was
If you look at the Leigh Furniture case, and I set forth the
quote at Tab 2, basically what the Court says is
even with independent acts they made on their own or even
several acts that may together not constitute a tortious
interference, when you look at the cumulative effect of those acts,
which is what a jury is entitled to do, it says:
In total and in cumulative effect, as a course of
action extending over a period of three and one-half years and
culminating in the failure of Isom's business, the Leigh
Corporation's act cross the threshold beyond what is incidental and
justifiable to what is tortious.
Utah Court of Appeals applies the same approach in the Sampson
v. Richins case. In that case, Sampson had countered his acts were
taken in good faith. And again, the Court said:
Taken in isolation, each of the interferences might
justify as an overly zealous attempt to protect Sampson's interest.
However, the cumulative effect crossed the threshold beyond what is
incidental and justifiable to what is tortious.
I think that is the case here. Let me just very quickly address
the intentional aspect, Your Honor.
THE COURT: Okay.
MR. JAMES: IBM says it did not act intentionally. If you look at
Mumford vs. ITT Commercial Financial Corporation case, a case from
the Utah Court of Appeals, what
that case says is the intent for improper means is not an intent
that you act with hostility or that you act with ill will. It is
simply that you would have the intent to act, that you know that
In fact, in that case, the defendant contended that it didn't
even know that the contract existed or alleged to have been
interfered with. But what the Court of Appeals said reversing
summary judgment that had been entered on the tortious interference
claim said the affidavit of a plaintiff indicating that the
defendant had acted intentionally to prevent access to property was
sufficient with respect to the intentional aspect.
IBM claims there's no harm, there's no damages, no causation.
We've set forth expert testimony on that regard, Your Honor. This
isn't an economic loss theory issue. This is alternative theory
issues. And we've presented damage evidence on this case. We've
shown the loss of market share as a result. We have shown you have
undisputed evidence that IBM knew where SCO stood in the market.
We've come forward with undisputed evidence as to what SCO's market
share was in the market and what that size of that market was.
And we've also demonstrated to Your Honor through undisputed
evidence the loss of market share and revenues that SCO has
I'm out of time, I know. Let me just read very,
very quickly and very succinctly, Your Honor, a couple of
passages from IBM's memorandum in opposition to SCO's motion for
summary judgment. You're going to be hearing about this on
THE COURT: This is sort of a preview, is it?
MR. JAMES: A little preview that I think is relevant here,
because I think what IBM does is it takes irreconcilable positions.
What it says in its briefing is:
SCO's actions have affected the market place adoption
of Linux. IBM has made Linux a large part of its business strategy.
Therefore, decreased adoption of Linux has decreased sales and
profits of IBM.
IBM alleges that SCO has intentionally interfered with its
relationships with numerous companies and individuals to whom IBM
has sold and are licensed products and services and to whom IBM
seeks to sell and are licensed products and services as well as
with businesses and individual members of the Linux and OpenSource
software development distribution services and computing
In direct contravention to what IBM tells the Court in this
context, IBM argues in its context of opposing SCO's motion for
summary judgment, and SCO, by the way, doesn't
allege in that context that a market theory is inappropriate, it
alleges exactly the same theory that it attacks in this case.
IBM doesn't identify a single customer, a single lost sale, a
single -- it doesn't attempt to connect any particular loss with
any particular customer. Yet, it claims that there are issues of
facts with respect to its tortious interference claim that mandates
denial of that claim.
Your Honor, we've set forth those excerpts at Tab 16 and Tab 17,
if you look at a couple of tabs before that regarding damages.
And finally to defeat SCO's motion, IBM need only raise a
question of fact that it was injured as a result of SCO's
misconduct. It need not provide an exact dollar figure for damages.
That is as equally applicable here. Even, as IBM says, Your Honor,
even nominal damages will suffice.
SCO has provided evidence, Your Honor, to support its damages in
this case. There are issues of material fact, Your Honor, that
preclude summary judgment. Thank you.
THE COURT: Thank you, Mr. James.
Reply, Mr. Shaughnessy?
MR. SHAUGHNESSY: Unless the Court has questions, Your Honor, I'm
THE COURT: Thank you. Well, two more motions argued and taken
under advisement. We'll see you Wednesday at
2:00, we decided at 2 o'clock. We'll be in recess.
(Whereupon, the court proceedings were concluded.)
* * * * *
|STATE OF UTAH )
|COUNTY OF SALT LAKE )
I, KELLY BROWN HICKEN, do hereby certify that I am a certified
court reporter for the State of Utah;
That as such reporter, I attended the hearing of the foregoing
matter on March 5, 2007, and thereat reported in Stenotype all of
the testimony and proceedings had, and caused said notes to be
transcribed into typewriting; and the foregoing pages number 561
through 42 constitute a full, true and correct report of the
That I am not of kin to any of the parties and have no interest
in the outcome of the matter;
And hereby set my hand and seal, this ____ day of _________
KELLY BROWN HICKEN, CSR, RPR, RMR