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To read comments to this article, go here
Another SCO Declaration From Someone Not Involved in the APA - Troy Keller - Updated 2X
Tuesday, May 29 2007 @ 11:50 AM EDT

Here's another person who wasn't involved in any way in the APA drafting, negotiation or execution who tells us that he concluded it transferred the copyrights, Troy Keller [PDF], at attorney who worked on a later deal. I'd say the hearsay testimony from SCO is about halfway to the moon by now.

Keller was involved, he tells the court, representing Caldera when it purchased Santa Cruz's two divisions in 2000 and 2001, which would be five and six years after the APA, respectively. He didn't have primary responsibility for intellectual property issues in the transaction, but he sat in on many discussion and he and the other lawyers looked over the APA and they "concluded" from reading it that copyrights transferred. Like I say, halfway to the moon, at least.

He says something a little odd, though. He claims that back then, he reviewed the APA and both Amendment 1 and Amendment 2 for Caldera. How come, then, in 2003, nobody at Caldera or at Novell knew about Amendment 2 until a paralegal dug it up from an old file cabinet in June of 2003?

He says something else odd in paragraph 10. He claims the famous clause about Santa Cruz having no knowledge of any fact that would prevent Caldera from registering the rights it acquired except maybe the chain not being provable from Novell meant that there was a question about the location of the copyrights. Unless someone has changed the definition of chain of title, this would be an odd statement to my mind. Here's the famous paragraph, so you can see if it matches logically with what he says or if it matches the concept that there was a problem with the chain of title from Novell:

(v) Assignor has no knowledge of any fact that would prevent Assignor's registration of any Rights related or appurtenant to the Inventions and Works or recording the transfer of Rights hereunder (except that Assignor may not be able to establish a chain of title from Novell, Inc. but shall diligently endeavor to do so as soon as possible); and

Does that sound like it's talking about a warehouse to you? That's where the copyright registrations were kept. Or does it sound like they couldn't prove Novell transfered the copyrights?

He attaches the "Intellectual Property Assignment" document from the 2001 deal between Caldera and Santa Cruz. But a 2001 document between Caldera and Santa Cruz can't tell you what Santa Cruz got from Novell in 1995. It certainly couldn't transfer more than what it got from Novell. And this declarant wasn't there in 1995. So the list doesn't actually tell us anything more than that the lawyers "concluded" that Santa Cruz must have gotten the copyrights, so it listed products on the list. I note, however, that the list has no copyright numbers. That seems very strange indeed. If Santa Cruz really had them, I'd normally expect that they'd list them that way. And if they couldn't find the paperwork, I would expect them to contact the Copyright Office and get the precise list that way. Finally, if you notice, Schedule C's list is titled Assigned Copyrights and Technology. All very odd indeed.

Update: You may wish to compare the copyrights that Novell (and SCO) registered with the US Copyright Office -- the copyrights at issue in the litigation -- with the list on Schedule C. So here is Novell's list.

Here's my explanation, as long as people who were not involved at all can opine. I notice that when SCO went to try to register the copyrights in July of 2003 (you can find all of SCO's copyrights here on our Contracts page), they were mostly still all registered to AT&T or USL. For example, here's the copyright for UNIX System V Release 3.2/386, registered to AT&T. So that tells me that nobody cared a bit about the copyrights, not Novell, not Santa Cruz, not Caldera. Not one of those companies bothered to register. Why?

My guess is because you only need to if you wish to sue somebody, and no one was doing that until SCO Group came along, and they sued IBM without even doing so. It was only after they sued IBM in March of 2003 that they tried to register copyrights, as did Novell soon thereafter. So the legal work looks to me like nobody thought to ask or even much thought about the copyrights. That in turn tells me that no one needed the copyrights to run any of the businesses.

I think Kim Madsen told the truth in her deposition. It never came up. People may have assumed things, on the Santa Cruz side, but that is not enough to transfer the copyrights. Why the Santa Cruz lawyers on the APA deal didn't do that part of the legal transaction to make sure the copyrights transfered is the question mark, but it looks to me like they just didn't, so if I were SCO, that's who I would sue. Maybe that's why they haven't shown up yet. Lawyers, at least, know that to transfer a copyright, you need an instrument of conveyance. With all the witnesses who were not there giving these opinions, that is the missing piece, the piece that if it existed, would negate the need for any of the witnesses.

What is fascinating to me is that when SCO filed for the registrations, it didn't tell the Copyright Office that it had been asking Novell to transfer them over to SCO since late 2002 without success. From what is publicly available at the Copyright Office website, I see no indication of that. I believe that detail is going to come up again later.

Update 2: I just noticed something, thanks to a reader who asked where the definitions section is in the contract attached to this declaration. So I went to take a look, and I noticed that this document references the Caldera-Santa Cruz Reorganization Plan from 2000. That has some interesting consequences.

Let me show you what I mean. First, though, let's look at the language, to my eyes very weak, even squirrely, in the Intellectual Property Assignment. Here is a paragraph from the opening section of the contract, dated May of 2001, the WHEREAS part of the document, called the recitals:

WHEREAS, Assignor has developed, created, written, and/or acquired certain inventions, patent applications, trade secrets, trademarks and trademark applications, designs, products, processes and works of authorship prior to the Effective Date, including but not limited to, the software code, inventions, trade secrets, trademarks and trademark applications designs, products, processes and works of authorship listed in Schedules A-C attached hereto (the "Inventions and Works") (which do not include the Excluded Assets, as defined in the Reorganization Plan, and any intellectual property rights appurtenant thereto;

I emphasized the parts that jumped out at me. First, it says "any" IP rights, not "all," and while it lists every form of IP, such as trademarks, patents and trade secrets, it doesn't name copyrights in the list, except perhaps by inference, which isn't enough in copyright law. And whatever was excluded under the Reorganization Plan remained excluded, it says. So for sure, just out of the gate, we see that some things transferred, but not everything. And in paragraph 1, that is all Assignor says it is transferring, whatever it actually has:

1. Assignment. Assignor hereby assigns, transfers and conveys to Assignee, and Assignee accepts, all of Assignor's right, title, and interest...

There follows the list, but all this says to me is that Santa Cruz was assigning whatever rights it did own. Let's see what Assignor says that amounts to, in the warranty section, where normally you would expect to see language that Assignor warrants that it owns and has the right to transfer the patents, copyrights, etc.:

8. Representations and Warranties. Assignor hereby represents and warrants to Assignee the following:
(i) Assignor has the full power, authority and all rights necessary to transfer and assign Assignor's Rights in the Invention and Works...

(v) Assignor has no knowledge of any fact that would prevent Assignee's registration of any Rights related or appurtenant to the Invention and Works ...(except that Assignor may not be able to establish a chain of title from Novell Inc. but shall diligently endeavor to do so as soon as possible)....

All this says to me is that Assignor, Santa Cruz, was giving Caldera whatever it turned out Santa Cruz actually did get from Novell, whatever rights it turned out to have, at that time not so clearly known or established, but that Santa Cruz would try really hard to get it clarified.

Remember that in the original reorganization deal with Caldera, Santa Cruz retained some rights and some IP. There were Excluded Assets. So what might that be? Here's the definition of "Excluded Assets" in the Reorganization Plan:

(b) Excluded Assets.

(i) Excluded Assets. SCO is not selling and Caldera shall not acquire from SCO any of the following assets or any interest therein (collectively, the "Excluded Assets"):...

(C) those assets set forth on Exhibit 1.4(b).

That is the phantom exhibit that Caldera didn't file with the SEC in a form you can access digitally anyway, and so IBM asked SCO to provide the missing materials. If you go to the linked article, you will see on the chart, number 10, that SCO said it would look for it. Presumably IBM has it now, but I don't seem to find it, or at least not this second. So this is to mark the place where that missing exhibit goes, when we have it. If you recall seeing it mentioned, please let me know. Anyway, there were exclusions. So without a list, how can anyone know if any copyrights actually transferred, or if they did which? One of the exclusions in the initial Reorganization was OpenServer. We can see that from this 2000 Q&A regarding the deal, filed with the SEC:

1. What was announced?

Caldera Systems, Inc. has reached a definitive agreement to acquire the assets of the Server Software Division (SSD), and Professional Services Division of The Santa Cruz Operation, Inc. (SCO). A new company, Caldera, Inc., will be formed, combining the assets of Caldera Systems with the assets acquired from SCO.

2. What part of the Server Software Division is included in the deal?

Employees, the UNIX and related intellectual properties, including UnixWare, facilities, legal entities, customer relationships, channel relationships and all products except for OpenServer intellectual property rights (IP). Some of the Tarantella support personnel will move to the Tarantella Division. Caldera, Inc. will act as SCO's exclusive sales representative with respect to sales and support of SCO OpenServer, and will receive commissions for such service. Caldera, Inc. will have exclusive distribution rights of SCO OpenServer.

So, originally, the idea was to have Santa Cruz retain ownership of OpenServer, while Caldera sold it for them and provided support, as you can see spelled out in this filing, a letter to the two companies' employees:

SCO will retain its Tarantella Division, and the SCO OpenServer revenue stream and intellectual properties.

Further, this is Caldera's account, and Novell has raised some questions about their alleged "joint press release" about the deal, but in any case my point is that while there was a later deal, the IP assignment document references the first deal's document, and that first deal didn't transfer everything by a long shot.

Remember that in 2000, Ralph Yarro and Canopy were involved in this deal, as the 8K dated August 2, 2000 tells us:

On August 1, 2000, Caldera Systems, Inc. ("Caldera"), Cyclone, Inc. ("Newco"), and The Santa Cruz Operation, Inc. ("SCO") entered into an Agreement and Plan of Reorganization (the "Acquisition Agreement"). As a result of the acquisition (the "Acquisition"), SCO will receive a 28% interest of Caldera, Inc., which is estimated to be an aggregate of approximately 17.54 million shares of Caldera stock (including approximately 2 million shares reserved for employee options assumed by Caldera for options currently held by SCO employees joining Caldera), and $7 million in cash. In conjunction with the Acquisition, The Canopy Group, Inc., a major stockholder of Caldera, has agreed to loan $18 million to SCO....

The foregoing description of the Acquisition Agreement and the transactions contemplated thereby do not purport to be complete and are qualified in their entirety by reference to the Acquisition Agreement and the Voting Agreements, copies of which will be filed with the Securities and Exchange Commission at a later date in an appropriate filing.

All stockholders should read the joint proxy statement/prospectus concerning the Merger that will be filed with the SEC and mailed to stockholders. The joint proxy statement/prospectus will contain important information that stockholders should consider before making any decision regarding the Acquisition....

Caldera and certain other persons named below may be deemed to be participants in the solicitation of proxies of Caldera stockholders to adopt and approve the Acquisition Agreement, to approve the Acquisition and to approve the issuance of Newco Common Stock. The participants in this solicitation may include the directors of Caldera (Ransom H. Love, Ralph J. Yarro III, Dale R. Boyd, John R. Egan, Edward E. Iacobucci, Raymond J. Noorda, Thomas P. Raimondi, Jr. and Steve Cakebread) and the officers of Caldera (Ransom H. Love, Chief Executive Officer and President, Alan J. Hansen, Chief Financial Officer, Drew A. Spencer, Chief Technology Officer, Richard C. Rife, Vice President and General Counsel, Royce D. Bybee, Senior Vice President of Sales and Marketing, Benoy Tamang, Vice President of Business Development, R. Dean Taylor, Vice President of Marketing, Darren Davis, Vice President of Engineering, John Thomas, Vice President of Support Services and Walter D. Hammond, Vice President of Operations and Information Systems. The aforementioned directors and officers of Caldera, as a group, may be deemed to beneficially own approximately 89.1% of Caldera's outstanding common stock or securities convertible into common stock.

At the time, Caldera Systems, Inc. was a Linux company, and so in the press release, Caldera listed what it had open sourced:

Caldera Systems is a leader in--and supporter of--the Open Source movement. Please visit www.openlinux.org to download Caldera Systems' technologies that have been open-sourced--including but not limited to--LIZARD, Caldera Open Administration System (COAS), Webmin, OpenSLP, the NetWare Kernel File System (NKFS) and the OpenLinux 2.2 port for Sun's SPARC(TM) and UltraSPARC(TM)-based platforms....

Caldera Systems, Inc. (Nasdaq: CALD) is a "Linux for eBusiness" technology leader in developing and marketing successful Linux-based business solutions, including its award-winning OpenLinux, NetWare for Linux, Linux technical training, certification and support--with free 30-day phone support and on-site consulting. Caldera OpenLearning Providers offer exceptional distribution-neutral Linux training and certification based on Linux Professional Institute (LPI(TM)) certification standards. Caldera Systems supports the open source community and iS a leader in, and advocate of Linux Standard Base (LSB(TM)) and LPI(TM).

That was then. Now it would like to sue your pants off for using Linux or contributing to it. Note however that back then it was a "leader in, and advocate of, Linux Standard Base (LSB)". Note what Santa Cruz is described as owning in that press release:

SCO, The Santa Cruz Operation, the SCO logo, the Tarantella logo, Tarantella, UnixWare, and SCO OpenServer are trademarks or registered trademarks of The Santa Cruz Operation, Inc. in the USA and other countries. UNIX is a registered trademark of The Open Group in the US and other countries. All other brand or product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

So they knew that the UNIX trademark was not theirs. It had gone to the Open Group from Novell already. So again, although the IP assignment has an impressive sounding list, it can't be everything. Now note the definition of "Intellectual Property Rights" in the Reorganization agreement:

"Intellectual Property Rights" means, collectively, all of the following worldwide intangible legal rights including those existing or acquired by ownership, license or other legal operation, whether or not filed, perfected, registered or recorded and whether now or hereafter existing, filed, issued or acquired: (i) patents, patent applications, and patent rights, including any and all continuations, continuations-in-part, divisions, reissues, reexaminations or extensions thereof; (ii) inventions (whether patentable or not in any country), invention disclosures, industrial designs, improvements, trade secrets, proprietary information, know-how, technology and technical data; (iii) rights associated with works of authorship (including without limitation audiovisual works), including without limitation copyrights, copyright applications and copyright registrations, moral rights, database rights, mask work rights, mask work applications and mask work registrations; (iv) rights in trade secrets (including without limitation rights in industrial property, customer, vendor and prospect lists and all associated information or databases and other confidential or proprietary information), and all rights relating to the protection of the same including without limitation rights under nondisclosure agreements; (v) any other proprietary rights in technology, including software, all source and object code, algorithms, architecture, structure, display screens, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including, without limitation, manuals, memoranda, records, business information, or trade marks, trade dress or names, anywhere in the world; (vi) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property, including without limitation brand names, trademarks, service marks, domain names, trademark and service mark registrations and applications therefor, trade names, rights in trade dress and packaging and all goodwill associated with the same; and (vii) all rights to sue or make any claims for any past, present or future infringement, misappropriation or unauthorized use of any of the foregoing rights and the right to all income, royalties, damages and other payments that are now or may hereafter become due or payable with respect to any of the foregoing rights, including without limitation damages for past, present or future infringement, misappropriation or unauthorized use thereof; and (viii) rights under license agreements for the foregoing.

I marked the nuggets I see, particularly the fact that the document seems to support Novell's position regarding a license being sufficient to run a business, because the contract mentions license agreements conveying rights. Also it says Caldera would get the right to sue. Remember Darl mentioning that, when the copyright issue of ownership first came up, that at least they for sure had the right to sue? And I read the contract that way too. And that is where I think SCO read this agreement and say, Oh, goody. We have the right to sue.

But over what? Only over whatever Santa Cruz had to transfer. We already see that Novell didn't transfer everything to Santa Cruz. Open Group got the UNIX trademark, for example. So that brings up the question, what else didn't Santa Cruz get? And of course, Novell says it didn't get patents, which SCO concedes, and Novell points to the clause that says that copyrights were excluded from the Novell deal, while SCO has collected all sorts of passersby to say they thought SCO was getting the copyrights. But in copyright law, you need more than thoughts, desires, hopes, dreams and assumptions.

Also Novell asserts that it retained a right to waive, of course, but I think Darl is correct in saying that they got the right to sue, subject to that Novell veto, if Novell establishes that right, which I expect them to.

But it all depends on what was excluded all down the line, starting with AT&T. For example, just for fun, ask yourself this: what copyrights did AT&T have available to transfer, post the BSDi case? Remember what a mess their copyright situation turned out to be in that litigation? It could only sell to Novell what it had to sell. Then Novell only could sell, if it wanted to, what it had gotten from AT&T (plus whatever copyrights it had on code it had developed); and in turn it could retain, sell parts of its rights, license certain rights, etc. Even the right to sue would be subject to that qualification.

And here's the Third Amendment to the Reorganization agreement's changes to the Excluded Assets section:

4. Section 1.4(b)(i)(B) is hereby amended by adding the following phrase to the end of such section:

", except for rights associated with the Commit Transaction Receivables"

5. Section 1.4(b)(i) is hereby amended by adding the following sentence to the end of such section:

Notwithstanding Sections 1.4(b)(i)(A)-(C), Newco's continued use of certain Excluded Assets as part of UnixWare and OpenServer, and sale of certain unbundled and bundled products including certain Excluded Assets, is set forth in Exhibit 1.4(b)(i).

So that seems to indicate at least the important exclusions, or at least it hints at them. And obviously Caldera was able to use "excluded assets" it didn't own in its products, so I guess it is possible to sell software that includes code you don't own the copyrights to. Ahem.

This Keller declaration, as I read it, is saying that they had trouble with establishing the chain of title, however one defines it, and that would indicate that someone at some point had to get proof that the copyrights had transfered or that Novell was now willing to do so, neither of which I have seen. Look what the Reorganization Plan has in the Excluded Assets section:

(e) Unassignable Assets. Notwithstanding any other provision of this Agreement or any of the Ancillary Agreements, to the extent that any of the Contributed Assets are not assignable or otherwise transferable by the Contributing Companies to Newco without the consent, approval or waiver of another party thereto or any third party (including any governmental agency), or if such assignment or transfer would constitute a breach thereof or of any other material contract binding upon the transferor or any of its Affiliates, or a violation of any applicable law, then neither this Agreement nor such Ancillary Agreements shall constitute an assignment or transfer (or an attempted assignment or transfer) thereof until such consent, approval or waiver of such party or parties has been duly obtained.

With respect to each such Contributed Asset whose assignment or transfer to Newco requires the consent, approval or waiver of another party thereto or any third party, Newco and SCO shall cooperate and use their mutual reasonable, commercial efforts to obtain such consent, approval or waiver of such other party or parties or such third party to such assignment or transfer as promptly as practicable prior to the Effective Time; and each agrees to supply relevant information to such party or parties or such third party in order to facilitate such objective. Notwithstanding the foregoing, nothing contained herein shall obligate Newco or any Contributing Company to expend or pay any amount to third parties to obtain any consents, approvals or waivers, or to make alternative arrangements available; provided that where the Contributing Companies are unable to effectively assign or otherwise transfer to Newco nor any Contributed Asset without constituting a breach due to such lack of third party consent, the Contributing Companies shall make available to Newco the net economic benefits (such as inbound royalty payments, net of actual costs), if any, received by the Contributing Companies from and after the Effective Time with respect to any such Contributed Asset.

Does that sound to you like the parties knew there was a problem? It does to me. And I read it that they agreed that unless it could establish the full chain of title, for which it needed Novell's permission and agreement, the copyrights wouldn't transfer. What else could that paragraph mean? Maybe you can see something I am missing, but this is a big red flag to me. And does it sound like the problem was trying to locate the physical copyright registrations? Would you need permission of Novell for that? I don't think that story matches this clause very well.

And look at the definition of "Contributed Assets":

"Contributed Assets" shall mean those assets, including real property assets, that are owned, leased or licensed by the Contributing Companies that are (a) listed on Exhibit 13.15A attached hereto, (b) Intellectual Property Rights used in the production, development, support or marketing of the Group Products, or (c) used in the Group Business, and (d) all Contributed Contracts to which any of the Contributing Companies is a party, but in all cases excluding the Excluded Assets.

Assets include real property, it says, like the building where the copyrights were kept, presumably, that are owned, leased or licensed and IP rights used in "the production, development, support or marketing" of the "Group Products". Do you need copyrights to do any of those things, assuming you have a license? Here's the definition of "Copyright Assignment":

"Copyright Assignment" means a form of assignment mutually acceptable to Caldera and SCO assigning all copyrights included in the Contributed Assets.

Well, it also needed to be acceptable to the Copyright Office. That's the part that didn't seem to get done. But here we see that at least these lawyers knew you needed a clear assignment by a written conveyance, but only for "Contributed Assets" and only, of course, whatever Santa Cruz itself owned, which Novell says is nothing in the way of copyrights, except for any new code Santa Cruz had itself developed.

Caldera sent its partners a letter also, dated August 2, 2000 and filed with the SEC, and in it, it called Linux "the wave of the future":

One of the greatest benefits the customers of the new Caldera will now enjoy is a full product spectrum. This array of world class products, which no other company has today, will be tightly coupled with strong Professional Services and Support organizations to create the reality of the Open Internet Platform. The combination of Linux, the wave of the future, with Unix's history of providing literally thousands of serious, fully developed business applications, gives Caldera customers a trusted path to the future.

UNIX is also well established as an enterprise platform -- a system that allows service to either a centrally located or broadly disbursed customer base. The Linux/UNIX combination provides a full-range migration path from the desktop to the enterprise.

Obviously, at the time, the focus was on Linux, and so SCO's current story that it was only IBM that made Linux a realistic operating system for business or that it was a UNIX company, blindsided by IBM contributing to Linux, which allegedly they did in a plot to ruin Caldera's Unix business, is obvious poppycock, judging from these words alone. Caldera planned to merge them itself, so any contributions IBM made to Linux would benefit its business back then, and certainly IBM had every reason to take Caldera at its word as to what business it thought it was in. Here are the headers of another press release Caldera released the same day and then filed with the SEC:

ON AUGUST 2, 2000, CALDERA SYSTEMS, INC., A DELAWARE CORPORATION ("CALDERA"), AND THE SANTA CRUZ OPERATION, INC., A CALIFORNIA CORPORATION ("SCO"), JOINTLY ISSUED THE FOLLOWING PRESS RELEASE:

CALDERA SYSTEMS TO ACQUIRE SCO SERVER SOFTWARE AND PROFESSIONAL SERVICES DIVISIONS, PROVIDING WORLD'S LARGEST LINUX /UNIX CHANNEL

Offers First Open Internet Platform, Embracing Open Access to Linux and UNIX Technologies

Now imagine yourself IBM back on that date. Would you imagine in a million years that helping Linux improve was going to harm Caldera in any way? Here's what Caldera said about the merger of Linux and UNIX:

The new company will offer the industry's first comprehensive Open Internet Platform (OIP) combining Linux and UNIX server solutions and services globally. The OIP provides commercial customers and developers with a single platform that can scale from the thinnest of clients to the clustering needs of the largest data center....

By the way, as I was plodding through the various filings in 2000, I came across this document, dated July of 2000, so just before the Reorganization Plan, whereby Caldera declared that it would find a number of ways to incentivize its executives and board with stock options of various kinds, and nestled in that document is this missing link, which explains finally how it came to be that Caldera, when it sued Microsoft, ended up with money going to Canopy instead:

Ralph J. Yarro, III and Raymond J. Noorda were directors of Caldera, Inc. until Caldera, Inc. was merged into its parent, The Canopy Group, Inc. ("CANOPY"), during fiscal 2000. Until such merger, Caldera, Inc. was majority-owned by Canopy which holds more than 5% of the Common Stock. The Noorda Family Trust, of which Mr. Noorda and his spouse are co-trustees, is the controlling stockholder of Canopy.

And that explains how Canopy had the authority to direct the court to get rid of the documents from that litigation. It's a fascinating document. Not being a stock guru, I had never heard of Phantom Stock, but it sounds like a great deal if you can get it. And there is an elaborate dance of stock between various Canopy companies and Canopy itself, which is way over my head, but I see John Egan and Egan Capital mentioned as one of the directors of Lineo, which in turn ended up being partially owned by Caldera. MTI is in there too, with Thomas P. Raimondi an officer of MTI, which had more than 5% of the outstanding Caldera stock, and in turn Canopy held 45% of "the outstanding common stock of MTI." Anyway, those of you who are stock gurus may find it of interest.

I'm going to bump this article to the top now, from its original posting on Saturday, because I did a lot of work, and I don't want you to miss it.


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