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Novell's Redacted Reply Memo re SCO's Lack of Slander of Title Special Damages
Friday, June 08 2007 @ 08:20 AM EDT

This is the redacted Novell Reply Memorandum in Support of Novell's Motion for Summary Judgment on SCO's First Claim for Slander of Title Based on Failure to Establish Special Damages [PDF].

That is one of the motions argued on May 31st, so we're getting to see it only after the fact. But it's fascinatingly blunt. "After three years of litigation, SCO seeks more than $100 million in 'special damages' based on nothing but some hearsay accounts of what mostly unidentified third parties supposedly said about unspecified potential licenses." Oof.

Special damages must be based on "realized" losses, and SCO doesn't have any evidence of such, Novell argues.

Oh, you mean dashed daydreams of - ka-ching! - castles in the air don't count?

No, they don't, says Novell and it points out on page 17 of the PDF that special damages must be proven, not just implied:

SCO contends that "many potential licensees never contacted SCO at all because of Novell's false claims, or did not identify Novell even though they were deterred by Novell's false claims." (Opp'n at 2.) SCO does not identify these putative customers by name, does not explain its bases for assuming that any of them would have agreed to accept a license, does not proffer any evidence of how much each or any of these entities would have supposedly paid, and does not show how much profit SCO would have supposedly realized from any of the transactions. Given this complete absence of any identifying evidence on the more than one thousand entities who never responded to its licensing solicitation letters, SCO cannot prove it suffered any "special damages" for this category of potential customers.

Putative unidentified lost customers. That, I believe, is what one case Novell cites called a record "barren with respect to evidence."

And to prove special damages, Novell continues, not only must you be specific, the damage must be irrevocable. This is, to me, a very funny argument to watch play out, from SCO's side. Because they brought up the slander of title and applied what is normally a real estate issue to IP, they are now in the very peculiar situation where they must argue, under the special damages rules, that they can never go after their victims in the future, even if they were to prove they own the copyrights and that copyrighted code is in Linux. To so argue is to state that the world is perfectly safe from them no matter what happens, and of course, I agree. But Novell quotes from a 2006 SCO 10K where SCO said the setback due to Novell's copyright claim was only a temporary problem. And so SCO finds itself having to announce, if it wishes to go after special damages, that it is holding no threat against Linux now. It's funny what can happen to you in a court of law if you don't look before you leap.

Normally, Novell explains, special damages are due when a house sale is lost irrevocably, or the value is less on sale after the title is cleared, not if it's merely delayed by a cloud over the title which upon being cleared leads to the house selling at full price or more. Simple logic should win the day there. How are you harmed, if you end up making more money or the same?

So here, SCO is having to argue against Novell's point that if SCO wins, it surely has copyrights worth even more than when this farce began, because the uptake of Linux in the interim has been huge, which creates more potential SCOsource victims it can go after, not to mention the crafty ones who told SCO they couldn't buy a SCOsource license *until* the Novell copyright claim was sorted out, instead of just showing them to the door. That "until" is SCO's problem with proving special damages, Novell argues. If you remember, SCO argued at the hearing that HP setting up indemnification means that SCO has lost that opportunity there forever. Of course, Novell counters that SCO can surely sue for copyright infringement and get its beelions that way.

Another problem SCO has, Novell says, is it never gave the court a valuation amount for the copyrights. Methinks that may have something to do with having no assets valuation on copyrights on SEC filings before or after the alleged transfer, at least none that I ever found. You'd expect that, at least, wouldn't you, if they were part of the deal? Any of the deals? And Novell says it didn't give the court any value of any lost "opportunities" either, so how can special damages even be calculated, even if they existed?

Well, on page 10 of the PDF, we learn SCOsource folks tried to get Dell to sign up too. Funny. And now they are selling Ubuntu Linux. They did bend for Microsoft's equivalent of SCO's SCOsource, but Dell always was a willing partner of Microsoft, shall we say. SCO also went after Merrill Lynch. And on page 22 we learn SCO claims that the following said they'd decline for the moment due to Novell's competing copyright claims: Merrill Lynch, Sherwin Williams, Ford, Morgan Stanley, Google, Raytheon, the Department of Defense, Cisco, and Just Sports USA. SCO never lacked guts. What it lacks is evidence. Novell says that while SCO has claimed all these folks turned them down, it provides no declarations or depositions or anything from any of them. Maybe it's more of the "we told them we'd call later but when we did, no one answered the phone" SCOsource syndrome.

There's a very funny footnote on that same page 10, footnote 2:

Obvious questions arise: Would HP be willing to pay SCO exactly what it sought in 2003? Might HP be willing to pay SCO more now, given that SCO would have established in a court of law its ownership of the UNIX copyrights? Or, would HP now -- for some unexplained reason -- only be willing to pay less ? If so, couldn't SCO recover what it seeks by suing HP for copyright infringement? SCO never entertains these questions and so has not shown any realized loss.

I get the impression Novell is mocking SCO, and the implication I get is that the only way SCO would lose irrevocably is if it was all a scam and there is no way to fool anyone any more. After all, HP set up indemnification for its customers, not for itself.

I get the impression also from footnote 3, despite the heavy redaction, and pages 13 and 14 that Novell was not impressed with two of SCO's experts:

Platitudes about REDACTED -- absent any real analysis or facts -- do not create a genuine issue of material fact.... Second, Dr. Pisano offers no facts to support his conclusion about the REDACTED. His unsupported, uncorroborated bare opinion cannot raise a genuine factual issue.

Litigants and their experts must be like dogs and their owners. Owners pick pets that look like them. Litigants must choose experts who act like them.

Novell says that Darl McBride's testimony "is also legally irrelevant and factually unsupported. As a legal matter, Mr. McBride's testimony misses the point.... There are evidentiary defects in Mr. McBride's testimony as well. REDACTED. His testimony is unspecific, speculative, vague, and not tied to the issue at hand..." Etc. I believe they are saying that it has no legal weight. I have to share with you my Freudian slip. When I typed up "McBride's testimony", I typed it first as "testimoney".

As for SCO's dealings with Regal Entertainment that came to nought, there is no evidence that SCO offers that can be used:

Finally, SCO's only evidence about any potential transaction with Regal Entertainment is the testimony of its salesman Phil Langer from his deposition in the IBM case. (Opp'n at 14.) Novell was not present at that deposition in a separate litigation, and Mr. Langer's testimony is inadmissible double hearsay -- both because he gave the testimony in another case, and because he is purporting to recount a third-party's out-of-court statements.

Double hearsay. What? SCO's lawyers don't know that they needed to depose him again in the Novell litigation if they wanted it to maybe count for something? They are lawyers. It must be awful having to represent SCO in this motion. (If you'd like to read how Boies and the DOJ once argued against Microsoft on the subject of double hearsay, here you go.)

And on page 12 we learn that SCO has argued that real property and IP are different. Hey. Tell me about it. Then on page 16 of the PDF, Novell in footnote 6 points out that Novell invited SCO in 2004 to bring a declaratory judgment action to resolve who owned the copyrights once and for all, then and there. SCO didn't:

6 During the briefing on Novell's motion to dismiss SCO's slander of title claim in 2004, Novell invited SCO to bring a declaratory judgment action to resolve the parties' ownership dispute. (Reply in Support of Novell's Motion to Dismiss Amended Complaint (11/8/04) (PACER No. 56) at 24.) If SCO had done so, it could have had its ownership claim adjudicated without having to plead and prove tort elements like malice, causation, and special damages. In addition, if SCO prevailed, it could have tested its ability to license in the crucible of the marketplace. Rather than speculating now about what might happen if SCO prevails and why, SCO could have actually gone to the Linux end-users and vendors it believes infringe, and -- were it successful, with a judgment establishing title in hand -- demanded licenses. SCO declined Novell's invitation and, as a result, SCO now has to prove "special damages" by establishing a "realized loss." Summary judgment is the result.

I think here the court will read this to be saying that SCO had no confidence it would prevail in a declaratory judgment action. If they really thought they owned the copyrights and could prove it, why didn't they take that earlier opportunity? Now, because they didn't, they are stuck having to prove special damages, and they haven't, Novell argues.

The only time, Novell says, you can be as vague as SCO is here about special damages is when it is impossible to identify particular customers lost. SCO has pages and pages of customers listed and what happened when they were contacted. They sent mass mailings, so they knew who were their potential customers. Or as Novell puts it, quoting, I gather, from the Sontag deposition, "SCO created a Global 1500 list of 'the largest potential commercial users of [] Linux who would most likely have the greatest concern about issues related to.... our possible intellectual property issues' and sent demand letters to each of them." Then salespeople had spreadsheets, which we saw as Exhibit 46, tracking all their contacts. So if there were any actual special damages to be found, SCO would know exactly where to find it:

After over three years of litigation, SCO could have -- and should have -- sought out these potential customers, and provided declaration or deposition testimony from them. But it didn't. This evidentiary gap is fatal to SCO's claim.

Instead, SCO apparently argued that no minimum amount of damages is necessary to satisfy the special damages requirement. True, says Novell, on page 25 of the PDF. This is uncontroversial. "The key here is that, for SCO, the existence of any damages remains "speculative and uncertain." Further, SCO would have to be able to prove there was no other cause for their lack of success, and that would be an uphill climb for SCO:

To the contrary, the evidence that the losses were the result of multiple causes is so overwhelming that no reasonable fact-finder could find that the failure of SCO's licensing business was the direct and immediate result of Novell's actions alone.

I'll say. And words fail me to describe to you how funny this paragraph is to me:

Novell understands that, notwithstanding its interrogatory response (and complaint) alluding to harm to its stock value, SCO now concedes that it is not seeking to include the drop in its market capitalization as a measure of special damages.... SCO offers no authority -- and we are aware of none -- that would treat an item of loss that is concededly not special damages as "evidence" of special damages.

It's even funnier because in fact SCO brought it up at oral argument on the 31st. The one thing SCO could have used to prove special damages, namely costs to research and review copyright registrations and respond to Novell's statements to third parties, SCO didn't present any evidence to demonstrate. Instead they argued, Novell says, that legal fees of the litigation are their specials. But if you could prove special damages by bringing slander of title litigation, where you necessarily will have legal fees, then there would be no slander of title case without special damages, and that would eviscerate the rule that you are required to plead and prove them. If SCO had brought an action to quiet title, it could have used attorney's fees as specials, but it didn't. It brought a slander of title claim, and it's stuck with it now.

Reviewing the oral arguments, SCO mainly said it wants a jury to decide this. Well, yes. They always do.

Pacer also shows the following:

06/07/2007 - 357 - CERTIFICATE OF SERVICE by SCO Group Regarding SCO's Expert Reports (Normand, Edward) (Entered: 06/07/2007)

I don't know who Mr. Moxley is, as he is new to this litigation and didn't appear in the IBM case as an expert, unless he is this attorney who is past president of the Utah State Bar.


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