Here we go, thanks to Groklaw's bot we call Steve Martin, we have the summary judgment transcripts as text for you. Thank you, Steve.
Well, he's so fast, it seems he simply must be a bot. Yes, bots respond to appreciation shown. He's actually faster than this. He finished both hearing transcripts last night but for some reason, Groklaw fell off the Internet for a while, and then I fell asleep waiting for it to pop back up to the surface again.
Now we get to hear the arguments in detail about whether or not SCO suffered special damages when Novell announced that it believed Novell owns the copyrights, not SCO.
That means we must fall down the rabbit hole once again and enter that special wonderland called SCO.
Here are the motions heard that day:
These arguments were heard on May 31, 2007, and now the moment our eyewitnesses always worry about: we get to see how they did. Kidding. But you can compare and verify now.
Novell's argument in the Failure to Establish Special Damages motion goes something like this:
1. SCO wants a double recovery. It wants to get money from Novell for "lost" licenses, but it also says it'll be back to dun HP and Linux end users if it prevails. Should that happen, it's a double recovery. So what the court needs to do is look at the before and after value, and if there is no dip in value, SCO has no damages to claim. And if it has no special damages to claim, it can't prove slander of title because that is a required element.
2. Actual costs for quieting title are recoverable, but SCO didn't happen to plead that.
3. Attorneys' fees are not special damages in a slander of title case, which is the kind of claim SCO chose to bring.
4. Special damages must be concrete, "direct and immediate", realized, and knowable. There is one gray area, something Judge Kimball wrote earlier in his ruling on the Novell Motion to Dismiss years ago, that if a slander is very widely disseminated to the public, you may not be able to quantify precisely, because you can't know who didn't get a license because they never contacted you in the first place, due to believing the slander. It's the weakest part of Novell's argument, in my view, and probably in theirs, but the way they handle it is by showing that SCO knew who to contact. They had spreadsheets about it. And that makes it something that can be quantified, and on those spreadsheets, there's no notation about Novell getting between SCO and its millions from cowering Linux end users and vendors.
SCO's noxious dream. There is an interesting detail about HP. I gather from Jacobs' words that the HP deal was not really all about SCOsource. That may have been one issue, but the deal itself, or the proposed deal, appears to have been about other things. P. 12:
MR. JACOBS: What exactly was the value of the transaction that they were contemplating doing with HP? And how much of it turned on -- how much of the value of the transaction was
actually about the Linux issue and the ownership of the UNIX copyrights? There were a whole bunch of things going on in that transaction as SCO's evidence illustrates. And then there's even more -- there's nothing on the back end of the story because we have no information at all on what would happen if following a successful court decision that SCO owns the UNIX copyrights, SCO went back to HP and said, we're back. We'd like to do this transaction again. On that topic, they're simply silent.... All SCO has really offered on this is speculation about what might or might not occur in the future, and speculation is very much what special damages law is designed to weed out.
There are so few slander of title over IP cases, Novell says, that there is also a discussion on whether or not the judge can instead use Texas cases. And you'll see Novell show him a way where Novell thinks he can, following an earlier ruling in Utah that did exactly that. Judges are supposed to stick to cases in their particular district and circuit, unless there aren't any, in which case they can look elsewhere to see if there is any guidance in other courts. So that is what that part of the argument is about.
I enjoy very much watching Judge Dale Kimball interact with Michael Jacobs, Novell's attorney. Here's a snip where they are talking about the before and after value of Linux, with Novell arguing there not only is no loss in value, there has been an increase:
MR. JACOBS: Let's suppose that I write a script and I submit it to a movie producer, and the topic is hot at that particular moment. And then my friend Mr. Normand comes in, and he says, I own the script. You don't, Jacobs. And so the movie house passes on the script. Then we have a dispute, and we -- and I win. I did have title to the script. I resubmit it to the movie house. The movie house says, you know what, we're not interested anymore.
I had a transaction before. I had a transaction after. I can probably show a realized and liquidated loss.
Or I didn't have a transaction after. It was valued at zero, and so I get the value of the lost transaction. There was a moment when my script was valuable. The passage of time caused that to go away.
THE COURT: But you say this is different.
MR. JACOBS: This is absolutely different; because what's happened here is that the Linux -- there's been no showing of the diminution of value of the UNIX copyrights that particularly is applied to Linux. Limit [sic] has blossomed in the intervening period. And at the risk of being a little cute on the question, we've probably done them a favor on this, because if they had been successful in asserting their copyrights --
THE COURT: They ought to be paying you.
MR. JACOBS: Exactly, Your Honor. And we hope they will at the end of this litigation, but not on their claim for slander of title. On our claims.
It is a little -- I realize it comes off as a little cute, but the point is this. The Linux market has expanded dramatically in the four years since SCO launched SCOSource. The cute part of it is that had they been successful with SCOSource in 2003, it undoubtedly would have put brakes on the expansion of the Linux market.
So in the intervening period, Linux has expanded because SCOSource founder for all of the various reasons that
we pointed to in our brief, the number of Linux implementations is far larger than when SCO launched SCOSource. So the value of the copyrights has if anything have gone up in the interim, not down. That's the basic problem --
THE COURT: So if they own them, their value has increased.
MR. JACOBS: Exactly.
So in that scenario, if SCO were to get the court to force Novell to pay SCO for lost transactions, and then it goes and bullies people into paying them after the court battle is over, it's a double dip. I'm sure SCO executives wouldn't mind, but Novell argues the court should.
All the above would also depend on SCO actually owning the copyrights or at least convincing the court and then also proving infringement and all the rest of the issues that don't fit into Wonderland, but in court, you argue as if certain things could happen, even if, like Mr. Jacobs, you don't expect them to occur. As Jacobs very economically phrases it to Judge Kimball, "That's if they really can prove infringement. You have before you in the IBM case their evidence of infringement." 'Nuff said.
Some of you wanted to know how the Novell evidentiary objections would be handled. I didn't know myself, but we find out now:
THE COURT: There are motions to strike objections to evidence. I assume you would not really spend a lot of time arguing those.
MR. JACOBS: That's correct.
THE COURT: But I should decide those on the briefs as part of the decision with respect to the motions.
MR. JACOBS: I'm sorry, Your Honor?
THE COURT: I would decide them on the briefs as I'm deciding the motion.
MR. JACOBS: That is our intent, Your Honor; although Mr. Brakebill is here to answer any questions on the evidentiary objections, if you'd like.
So Kenneth Brakebill is the one who drew up the objections, I gather. With his paralegal, one assumes. Just have to say that. That tells us he is the detail guy, the one who notices every little thing that could be used and how. Later Jacobs explains that the evidentiary objections are only if the judge decides not to toss out SCO's entire slander of title claim on the basis of failure to establish special damages.
SCO's case, presented by Edward Normand, goes essentially like this:
1. We want to go to a jury on this matter of special damages. It's not appropriate for summary judgment decision by a judge. "We submit that SCO is entitled to show the jury that we've suffered special damages and that none of the precedent that Novell cites or the evidence that they take issue with suggests otherwise."
2. When Novell first claimed publically to own UNIX and Unixware copyrights, SCO stock price dropped 25 percent in a single day, and Novell meant for that to happen. "And that is the only day since that time in which SCO's stock has fallen in a statistically significant way in a single day." The problem with this argument is that it depends on believing Maureen O'Gara's musings on what Novell executives were thinking. And if you read her coverage of the June 4 hearing, you know she got some facts wrong, let along imaginings. For one thing, she claimed that Groklaw had no one at the hearing. But we did, and we published the report. Just a suggestion to anyone wishing to evaluate her reliability as a witness. As to bias, I leave that to you, gentle reader. Also, is that really the only day there was a huge drop? I thought there was another the first time a negative ruling issued from the court in IBM. I will check that, or you stock market brainiacs can research it.
3. SCO shows three different types of special damages: specific customers who declined a SCOSource license; that prices for such licenses has eroded if not faded away entirely; and that SCO lost sales to unknown purchasers. Those unknown purchasers, Linux end users, number in the millions, so SCO is not limited by the few listed on the spreadsheets.
4. Novell is claiming attorneys' fees for its slander of title counterclaim, so why can't we? "Attorney's fees are permitted as special damages in a slander of title action if incurred to clear title or to undo any harm created by whatever slander of title occurred."
5. There are cases showing that the issue is a substantial factor test. Surely Novell's statements were a substantial factor in SCO's losses. SCO doesn't have to prove it was the only factor, the "direct and immediate" standard Novell proposes.
6. He defends against the Novell evidentiary objections. For one example, he says that executives may be offering hearsay about what a customers told them; but their conclusions about the vendability of their offering isn't hearsay, and anyway, this should be decided by a jury.
7. Novell's slander has had "a damaging residual effect" on the market value of SCOsource. Novell says SCO failed to show the value of the copyrights. But SCO doesn't need to. The value of those copyrights is reflected in what people are willing to pay for a SCOsource license, and that, SCO claims, has gone down even if they win. This, to me, is SCO's weakest argument. It is too early, at best, to even know what the value might be if SCO won. Obviously Microsoft is following the same general "pay me or I'll sue" IP strategy, so the business model is still viable in Microsoft's eyes, so why wouldn't it work for SCO? SCO argument is that if it's foggy, then let the jury decide. But if it's premature, then who decides that? If losses are not realized, they're not realized. And what if SCO guesses wrong, collects from Novell, then goes after victims in the market and they *do* pay? Then you have the double dip, and clear proof that SCO's losses were *not* realized, and that's Novell's argument exactly, that SCO put the cart before the horse. Like that never happens with the SCO Group.
As for HP, SCO points out it has an indemnification program now, so it obviously won't buy licenses for its customers from SCO.
Novell of course gets a chance to respond:
1. On "residual impact" there has to be more than speculation. If they had sought to clear title first, and then go back and relaunch SCOsource, then it would be clear what the value is after clarification of the title ownership, although there would still be uncertainty about before. But that was SCO's choice, to do it backwards. The factors SCO offers for special damages -- drop in stock price, residual effects, etc. -- are irrelevant in a special damages analysis.
2. SCOsource was about people taking licenses to avoid copyright lawsuits. "If SCO has ownership of the copyrights, they can bring their infringement lawsuits." That is the bottom line. Even if you are indemnified, *somebody* has to pay for that infringement, and they'll be paying SCO. If no one wants a license now, it's not because of Novell. It's because people have seen the "evidence" of "infringement" SCO has claimed in the IBM case, and they're not afraid any more, due to its paucity. That's SCO's problem with SCOsource, and it's not a problem Novell created. They had a business model based on people not being sure what cards SCO was holding and reacting out of fear. Now they aren't afraid, because SCO's cards are on the table. Jacobs: "I think what SCO is really saying is they were rolling people back in May, June before Novell statements,
they had the industry in a turmoil and they had people signing licenses out of fear. Now the facts are out on the table....
the fact that there are more facts out on the table now about the strength of their Linux claims, and maybe those claims are weaker now is just because they were hiding them all back in May and June on the very issue that people were asking them to come forward with. I don't think that's legally probative. But if you drill down to what they're saying, that seems to be the essence of it.
And that ends the first motion. If I see anything particularly noteworthy as I read the second, I'll add it here. But I don't want you to have to wait to read all this, and the first motion is the one I was most interested in.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
|THE SCO GROUP, INC.,
||Case No: 2:04CV00139
BEFORE THE HONORABLE DALE A. KIMBALL
May 31, 2007
A P P E A R A N C E S
|FOR THE PLAINTIFFS:
||HATCH, JAMES & DODGE
BY: BRENT O. HATCH
Attorneys at Law
||BOIES, SCHILLER & FLEXNER, LLP
BY: EDWARD NORMAND
Attorney at Law
|FOR THE DEFENDANT:
||ANDERSON & KARRENBERG
BY: THOMAS R. KARRENBERG
Attorney at Law
||MORRISON & FOERSTER, LLP
BY: MICHAEL JACOBS
GRANT L. KIM
Attorneys at Law
SALT LAKE CITY, UTAH, THURSDAY, MAY 31, 2007
* * * * *
THE COURT: We're here this afternoon in the matter of SCO
vs. Novell, 2:04-CV-139. The plaintiff is represented by Mr. Brent
I don't have your name for some reason.
MR. HATCH: This is Sashi Boruchow.
THE COURT: Okay. I do have your name. Never mind.
Mr. Brent Hatch, Mr. Edward Normand and Ms. Sashi Boruchow;
MR. HATCH: Yes.
THE COURT: The defendant is represented by Michael
Jacobs, Mr. Thomas Karrenberg.
MR. KARRENBERG: Yes, sir.
THE COURT: Mr. Grant Kim.
MR. KIM: Yes.
THE COURT: And Mr. Kenneth Brakebill; correct?
MR. BRAKEBILL: Yes.
THE COURT: All right. First we'll hear the arguments on
Novell's motion for summary judgment on First Claim for Slander of
Title for Failure to Establish Special Damages.
MR. JACOBS: I will, Your Honor.
THE COURT: Mr. Jacobs.
And for you?
MR. HATCH: Mr. Normand.
MR. NORMAND: I will.
THE COURT: Mr. Normand?
MR. JACOBS: Good afternoon, Your Honor.
THE COURT: Good afternoon.
MR. JACOBS: We were here several years ago on the
question of damages for slander of title.
THE COURT: Several years ago.
MR. JACOBS: And we moved to dismiss. You granted our
motion and allowed them to replead, and now we're back on summary
Two things have happened since then of substance. One, all the
evidence is now in front of us; and, two, I think we've exhausted
every possible research avenue to discern the law of special
damages as it applies to slander of title actions. And the two
litigants have brought that law before and asked you to call this
I want to start out with an observation and not withstanding the
thoroughness of the research. Both sides have cited only one
slander of title case involving title to intellectual property. And
we've looked far and wide for more slander of title cases involving
intellectual property, and
they are very few. And the one we cited is the only one that we
were able to find that is actually is in any way helpful to the
damages issues in front of us today.
That's not because there's a shortage of intellectual property
ownership disputes. As you know from the briefing we've done on the
copyright ownership issue, there are lots and lots of copyright
cases. And if we were to be in patent law or other areas of
intellectual property, we would see even more ownership disputes.
But there are very few slander of title claims that are
The one that is in front of us, the case that is an IP case is
the Macia decision. There the Court noted at the motion to dismiss
stage, which is the only published decision in the case, that
plaintiff's damages were likely going to be speculative. It's a
trademark claim, and the defendant had asserted that it was the
rightful owner of the mark against the plaintiff.
The Court also noted in a footnote that because the plaintiff
had retained the intellectual property cause of action, the
trademark cause of action there, certain potential claims for
special damages were not being asserted in the action. The Court
was trying, in that footnote trying to I think wind its way through
special damages as it applies to intellectual property disputes,
which are fundamentally disputes about who owns a right to assert
We don't know what ultimately happened in the Macia case, but we
believe that its skepticism about damages was very well-placed.
It's not just that damages generally are often difficult to prove
and that courts are on the watch for speculative damages theories.
In slander of title cases, the damages rules are quite strict. The
restatement and the cases applying it show that the kind of
modeling and predictions about future markets that often underlie
intellectual property laws process disputes just don't meet the
legal standard. Instead, courts are instructed to look for realized
and liquidated losses that are the direct and immediate result of
the alleged slander.
These turn out to be difficult to prove even in the Lanham cases
that so populate interestingly the courts of Utah and the courts of
Texas. These turn out to be -- yet, these cases get thrown out on
damages theories frequently. We did a tally on the cases that are
in front of you. And in 15 of the cases, it was zero damages
leaving aside the question of attorney's fees.
The Utah Supreme Court has followed this trend towards
strictness in evaluating special damages claims. But it's in Texas
where the cases seem to have arisen that most clearly present the
kind of before-and-after question that is the heart of our -- heart
of our brief.
THE COURT: You talk about meeting the legal standards.
How would you articulate that standard?
MR. JACOBS: The legal standard in slander of title cases
is a requirement to show realized and liquidated losses including
-- and this is maybe the heart of the dispute between us or at
least one way you can decide this motion. If you agree with us that
that includes a showing of the value of the intellectual property,
once the cloud on the title has been released or vacated by some
action, some release of a lien or some declaratory judgment action,
if that before-and-after requirement is an element of the damages
claim as the cases we cited indicate, then they've made no such
showing. We'll get to what they say about SCO itself, which is a
different question. But they made no before-and-after showing.
And the fundemental purpose of that requirement, Your Honor, and
this is why I think it has to be an element in this case, is it's
the only way to avoid a double recovery. Only if you do a
before-and-after analysis of that sort, you avoid the situation
which SCO has presented squarely to the Court, we want to have our
damages from Novell for lost licenses. Some more or less
particularized and some vague and extreme.
But once you decide, once the Court decides that we're the
owner, SCO says, we'll be back. We'll be back
asserting our intellectual property rights. We'll be back in
front of Hewlitt-Packard. We'll be back in front of literally tens
of hundreds of thousands of Linux -- of users of Linux asserting
our copyright claim. And they've made no effort to reconcile the
double recovery issue that is so well addressed by the Texas court
in the Rio case with their damages claim here.
Now, one question is whether you should follow Texas law at all
because the Texas cases are pretty strong on this.
THE COURT: I was going to ask that.
MR. JACOBS: I'm sorry?
THE COURT: I was just going to ask, what attention should
I pay to Texas law?
MR. JACOBS: Exactly. Well, I have one way to get you will
there, which is the Valley Colour case, which is a Utah Supreme
Court case, of course, in 1997. And it cited a Texas case Belo,
B-E-L-O, for the proposition that a specific lost sale must usually
be proven. And then Belo gets followed by other cases in Texas
which puts some boundaries around what the essence of that lost
sale showing must be.
There are cases in other jurisdictions, though, that have
reenforced this before-and-after element of the rule. And so it's
not unique to Texas. We believe it's the prevailing standard, and
we've cited cases outside of Texas
for that proposition.
In the intellectual property context, it is particularly
difficult to show the requisite degree of loss even if you just
follow the looser standard that SCO is advancing without this
requirement to show that the -- after the cloud on title is
released what the value of the intellectual property is.
We agree that the costs of actually quieting title should be
readily provable and are recoverable in a slander of title action
involving intellectual property. So that part is not difficult, the
cost of actually quieting title, and we'll get to the attorney's
fees question in a minute. But when it comes to showing a realized
and liquidated diminution in value in the intellectual property
context, that's tough. And I can imagine scenarios in which it
could be readily proven.
Let's suppose that I write a script and I submit it to a movie
producer, and the topic is hot at that particular moment. And then
my friend Mr. Normand comes in, and he says, I own the script. You
don't, Jacobs. And so the movie house passes on the script. Then we
have a dispute, and we -- and I win. I did have title to the
script. I resubmit it to the movie house. The movie house says, you
know what, we're not interested anymore.
I had a transaction before. I had a transaction after. I can
probably show a realized and liquidated loss.
Or I didn't have a transaction after. It was valued at zero, and
so I get the value of the lost transaction. There was a moment when
my script was valuable. The passage of time caused that to go
THE COURT: But you say this is different.
MR. JACOBS: This is absolutely different; because what's
happened here is that the Linux -- there's been no showing of the
diminution of value of the UNIX copyrights that particularly is
applied to Linux. Limit has blossomed in the intervening period.
And at the risk of being a little cute on the question, we've
probably done them a favor on this, because if they had been
successful in asserting their copyrights --
THE COURT: They ought to be paying you.
MR. JACOBS: Exactly, Your Honor. And we hope they will at
the end of this litigation, but not on their claim for slander of
title. On our claims.
It is a little -- I realize it comes off as a little cute, but
the point is this. The Linux market has expanded dramatically in
the four years since SCO launched SCOSource. The cute part of it is
that had they been successful with SCOSource in 2003, it
undoubtedly would have put brakes on the expansion of the Linux
So in the intervening period, Linux has expanded because
SCOSource founder for all of the various reasons that
we pointed to in our brief, the number of Linux implementations
is far larger than when SCO launched SCOSource. So the value of the
copyrights has if anything have gone up in the interim, not down.
That's the basic problem --
THE COURT: So if they own them, their value has
MR. JACOBS: Exactly.
Now, there are a whole bunch of assumptions lurking in that.
That if they really can prove infringement. You have before you in
the IBM case their evidence of infringement. But for present
purposes, I want to just set aside all of those other factors for a
minute and just focus on the question of ownership.
So that's the basic problem, though, with SCO's claim. They have
not made the requisite showing that if the cloud Novell has cast on
its alleged title is removed, it has suffered a realized and
liquidated loss, and that any such loss is the direct and immediate
result of the alleged slander. Those are the requirements. Realized
and liquidated, direct and immediate.
Now, there is one instance that just kind of looms large in the
briefing, so it's worth focusing on for a minute, and that's the HP
transaction. We are going to be asking -- we are asking you on
these motions really to do two things, I
think. One is to patrol the evidence. We have submitted evidence
through objections, and there are huge evidentiary issues with
SCO's damage claim. The other thing is to make the ruling as a
matter of law that certain contentions even after you get through
the evidentiary issues survive the requisite filter.
THE COURT: There are motions to strike objections to
evidence. I assume you would not really spend a lot of time arguing
MR. JACOBS: That's correct.
THE COURT: But I should decide those on the briefs as
part of the decision with respect to the motions.
MR. JACOBS: I'm sorry, Your Honor?
THE COURT: I would decide them on the briefs as I'm
deciding the motion.
MR. JACOBS: That is our intent, Your Honor; although Mr.
Brakebill is here to answer any questions on the evidentiary
objections, if you'd like.
So let's focus on HP for a minute. And I'm going to set aside
the evidentiary objections because it illustrates the problem SCO
has. It's the lack of concreteness on both ends of the HP story.
It's the lack of concreteness at the beginning. What exactly was
the value of the transaction that they were contemplating doing
with HP? And how much of it turned on -- how much of the value of
the transaction was
actually about the Linux issue and the ownership of the UNIX
copyrights? There were a whole bunch of things going on in that
transaction as SCO's evidence illustrates. And then there's even
more -- there's nothing on the back end of the story because we
have no information at all on what would happen if following a
successful court decision that SCO owns the UNIX copyrights, SCO
went back to HP and said, we're back. We'd like to do this
transaction again. On that topic, they're simply silent. They made
no such showing, and I think it's inerrant in the nature of this
case in the way they litigated it they can make no such showing,
because they put the cart before the horse here and sought to prove
slander of title damages before they've been able to release the
cloud on the title, or it's just in the nature of the intellectual
property right that it's going to be very hard absent that sequence
to actually show diminution in value.
All SCO has really offered on this is speculation about what
might or might not occur in the future, and speculation is very
much what special damages law is designed to weed out.
The one -- so where I think SCO is moving on this and looking
ahead of their slides, I think they're jumping in the direction of
the large number of unknown purchasers, and they find some comfort
in your ruling on the motion to dismiss. It is true that there is
law in special damages, and
special damages is supplied to slander of title. That if the
communication was widely disseminated and you can't count up, you
can't find the people who didn't take the -- in this case didn't
take the license that they might have a wedge in proving special
But that's not our case. We know who they contacted. They
presented us with a chart. It has -- it's in front of you. It has
no -- it has no entries for Novell as a cause for people not taking
the license. The number of Linux -- the population of Linux users
is knowable. They contacted these people and offered them SCOSource
licenses, so we're not in unknowable territory. I don't think
they've been able to prove that.
Moreover, we think, and this is something you may have to decide
in ruling on this motion, we think the better view of the case law
is that once you move over into unknown purchasers, the causation
requirement is heightened. And now the plaintiff must rule out
other causes by which there was a diminution in value on account of
unknown purchasers who didn't enter into a transaction with
The directed and immediate standards bites at one other element
of SCO's argument, and that is the "we are wounded." SCO is a
wounded actor now, and it doesn't have money and it's had to
disband its SCOSource staff.
Aside from the speculative nature that we've
highlighted in our brief, I want to note that the direct and
immediate element of a slander of title damages proof precludes SCO
from so arguing. Those are circumstances unique to SCO. That
doesn't go to the value of the intellectual property right. And
what the direct and immediate cases show is that things like the
lost interest you would have gotten on the money had you been able
to make the sell earlier, that's all too tangential to meet the
direct and immediate test. We think the same thing applies to the
"we are wounded" contention that SCO has advanced.
Attorney's fees. We think that there are two principles out
there that have to be reconciled in the way that SCO's teed up the
attorney's fees claim. One is, and one that this Court has
articulated is that damages are not recoverable based on attorney's
fees and slander of title actions because that will allow
bootstrapping. And the other is that damages are recoverable --
THE COURT: That's the Bloomberg case?
MR. JACOBS: What?
THE COURT: The Bloomberg case?
MR. JACOBS: Yes.
And the damages are recoverable for expenses of quieting title.
So what they've done is they've submitted a declaration from an
attorney who says, I can look at the bills, and I can figure out
how much of SCO's attorney's fees
are attributable to the ownership element, which is an element
of -- which is the falsity element of their slander of title
So what do we do? Can't get attorney's fees in a slander of
title action. Can get attorney's fees for quieting title. We think
that the answer is to look at the pleading. SCO did not bring an
action to quiet title. It brought a slander of title action. Had it
brought an action to quiet title, whether it was styled as a quiet
title or declaratory judgment action, the claim we have said for
the last several years is the right claim to be bringing here if
they want to prove their ownership. Then they might be able to
allocate attorney's fees to that cause of action. But we think that
the principle that attorney's fees are not available in slander of
title actions trumps their ability to try and divide up the
attorney's fees among various elements of the proof in that
So on summary judgment, we're asking the Court to dismiss SCO's
slander of title claims on the claim on the grounds that SCO has
not proven special damages. In the alternative, we are asking you
to go through what they have proven, what you think they have
proven and decide which of it meets the standard and which of it
There's a case that I want to refer you to in this connection
that we found after the briefing that is sort of a
road map in this product disparaging case. It's the Brooks Power
case at 1994 US District Lexis, 11451 from the Eastern District of
Pennsylvania. In that case, the Court goes through the evidence
quite randomly and decides what's out on evidentiary grounds and
what meets the special damages requirement in a disparagement case
and what doesn't.
THE COURT: Thank you, Mr. Jacobs.
MR. NORMAND: Thank you, Your Honor. Good afternoon.
THE COURT: Good afternoon.
MR. NORMAND: We submit that SCO is entitled to show the
jury that we've suffered special damages and that none of the
precedent that Novell cites or the evidence that they take issue
with suggests otherwise.
And counsel started off by referencing the Macia case. That's a
case cited at Tab 25 of our binder, in which the Court denied the
motion to dismiss and said it was for the trier of fact to resolve
the issues of proof that were presented in that case. We think that
case supports our argument for summary judgment here is
Counsel also alluded to the Court's June 2004 order. We
summarize that at Tab 1. That's where the Court said that:
The motion to dismiss stage that the harm alleged by SCO to its
SCOSource licensing program must be a natural consequence of the
alleged cloud of ownership and customer confusion and would amount
to a realized pecuniary loss.
I think then we agreed with the other side that that is the
other arching standard, and we submit that our evidence easily
Let me take a step back, Your Honor. What's at issue is a series
of slanderous statements that we allege that Novell has made over
the course of years. And Your Honor has seen those statements
summarized in previous briefings. We've also set forth those
statements at Tab 6 of the binder. And I think we have a board that
summarizes those statements, as well.
Of course, the key statement, Your Honor, May 28, 2003, when
Novell first claimed publically to own UNIX and Unixware
copyrights. As SCO's expert evidence will show and as the
undisputed facts show, SCO stock price dropped 25 percent that day.
And that is the only day since that time in which SCO's stock has
fallen in a statistically significant way in a single day.
Obviously the claim of ownership had an affect on the market.
The evidence further shows that Novell intended such a negative
impact when it made the statement. And we
cite at Tab 3, Your Honor, the testimony from an industry
reporter who spoke with Novell senior executive Christopher Stone
the day before the announcement was made. And Mr. Stone explained
that they were making the announcement that day in order to affect
the SCO's stock price.
SCO also made repeated claims of copyright ownership to SCO as
reflected in the board privately forcing SCO to acknowledge to the
many customers who asked that Novell was continuing to make claims
of copyright ownership. So we have a mix of private and public
statements, which as Your Honor knows we allege to be
Now, there is no question that SCO suffered an effect after
Novell's statements. The undisputed foundation of the SCOSource
program, to which Mr. Jacobs alluded, was that SCO owned the UNIX
copyrights. I don't think that is disputed. In the event that issue
is disputed, we have expert testimony explaining that the ownership
of copyrights was the key foundation for that program. And that's
summarized at Tab 7.
Harvard Business School of Economic Gary Pisano explained that
because the would-be licensees SCO's intellectual property already
had access to that property via Linux, their willingness to pay for
a license is a function of their belief that SCO owned the rights.
Again, the self-evident proposition and one that certainly couldn't
decided against you us on summary judgment.
After Novell began to make its claims of copyright ownership,
SCO had very little success in entering into its SCOSource licenses
to the point that as of the middle of 2004, the program essentially
faded away. SCO executives decided to end it. And in addition,
since 2004. As Mr. Jacobs acknowledged, SCO has incurred attorney's
fees in seeking a clear title to the copyrights.
Now, with this background, we come to the principal issues that
Novell's motion raises. The first main issue is whether these
damages, these losses that occurred after Novell began making these
statements constitute special damages. We submit that they do. We
set forth the legal standard, Your Honor, at Tab 8. This is from
the Restatement of Torts:
The following specific types of damages are recoverable under a
slander of title claim:
Loss caused by prevention of a particular sale.
Loss caused by deprivation of opportunity to sell to a
Loss resulting from diminution of price.
And loss caused by prevention of sales to unknown
And it bears noting that in Your Honor's June 2004 order, Your
Honor stated that where the losses are realized, a showing of a
specific amount of damages is not necessary.
Now, on the facts and pleadings of evidence, SCO shows three
different types of special damages corresponding to the
One, that specific customers declined a SCOSource license.
Two, that the prices for such licenses has eroded if not faded
And, three, that SCO lost sales to unknown purchasers.
Both this Court's June 2004 order and the Restatement made clear
that SCO can prove such damages even more specific identification
of all loss of consumers and potential customers may be impossible.
And it bears emphasis that the universe of the Linux users is
So the notion as Mr. Jacobs suggested that we contacted many or
a significant percentage of these potential customers I think is
illusory. We summarize, Your Honor, at Tabs 10 and 11 some law
regarding the possibility of identifying all potential
At Tab 10, as Your Honor noted in the June 2004 order:
Once SCO shows that there, in fact, has been a realized
pecuniary loss as a result of Novell's statements, a showing of a
specific identification of customers may be impossible.
That reflects the standard in the Restatement Section 633 and in
cases summarized at Tab 10.
And at Tab 11, until I heard Mr. Jacobs suggest otherwise today,
I thought Novell had conceded that it may be impossible to identify
potential customers. And that is a tenant that follows from a
finding where the slander is widely disseminated, it may be
impossible to identify such customers. I think it's undisputed.
Certainly the Court would find in favor of summary judgment that
Novell's statements were widely disseminated.
The precedent also shows that where the plaintiff has incurred
legal costs, through the claims of slander of title, such costs
constitute special damages. We summarize that law at Tabs 14 and
16. And we think it's worth noting at the outset that Novell in its
reply does not respond to the citation to their own pleading that
we make in our opposition brief. In Novell's own slander of title
claim, they allege slander:
Has resulted in special damages, inter alia, Novell's cost and
fees in prosecuting this action.
We think, as we set forth at Tab 15, that Utah law is clear at
this point. That's the Computerized Thermal Imaging case, quoting
the Bass case from 1988 that Your Honor is familiar with:
Attorney's fees are permitted as special damages in a slander of
title action if incurred to clear title or to undo any harm created
by whatever slander of title occurred.
And Tab 16 cites the cases reflecting that that is the clear
Counsel has alluded to Your Honor's earlier order regarding
special damages. We understood that to be a defamation case, which
we think is different from a slander of title case for among other
reasons the fact that any slander of title case premises that you
can clear title. You can in effect try to solve the problem.
And the premise of a defamation case is that you can't solve the
defamation that's occurred. And that is built into the damages that
are available to a defamation claim. In short, we've provided
direct evidence of the special damages that we've suffered.
Now, the next question that Novell's motion raises is whether
the damages that SCO has suffered, special damages, were caused by
Novell's conduct. We think the evidence and reasonable inferences
certainly show that they were.
It's important to note, Your Honor, the dearth of evidence that
Novell has on this point. Novell cites no case resolving the issue
of causation on summary judgment and no case even suggesting that
it is appropriate to resolve the
issue of causation on summary judgment. In contrast, SCO set the
precedent holding the resolution of such issue is not appropriate
for summary judgment including the Macia case that now we both
refer to. We have summarized that law, Your Honor, at Tabs 24 and
Your Honor asked what the legal standard is. I think the parties
are in disagreement on this. We believe the case law shows clearly
that we must show that Novell's statements for a substantial factor
in causing the losses at issue. We summarize that law at Tabs 19
through 20. Tab 19, Restatement of Torts:
Publication of an injurious falsehood is a legal cause of
pecuniary loss if it is a substantial factor in bringing about the
The Restatement has defined substantial factor in the context of
a slander of title action specifically.
At Tab 20, Your Honor, we summarized the law showing that courts
across the country adopted and applied the substantial factor test
in actions evaluating special damages.
And finally, Your Honor, at Tab 23, we show that Utah has
adopted the Restatement of substantial factor test in a variety of
The direct and immediate standard that Mr. Jacobs referred to as
we explained in our briefing we believe is a subset incorporated by
the substantial factor test, not a
different or independent test.
In short, SCO does not have to prove let alone show on summary
judgment that Novell's conduct was the only or exclusive factor
causing the special damages that we've suffered.
Now, as you've heard Novell say, they argue that our evidence is
inadmissible or insufficient. We think Novell is wrong for several
reasons on this issue of causation. First, causation isn't an issue
of expert analysis. And we summarize some of that expert analysis
at Tabs 26 and 27.
Tab 26, Professor Pisano testifies that he has:
Concluded that Novell's conduct had a substantial impact on
SCO's ability to sell the SCOSource Intellectual Property License
And at Tab 27, University of Utah accounting Professor Christine
Botosan testifies that she has concluded:
Novell's statements reduced SCO's profits from its SCOSource
These opinions are well supported, non-conclusory, and they're
supported by the record evidence. The cases make clear that such
analysis is appropriate to assess damages on claims for slander of
title, and the precedent also shows that it would not be
appropriate for the Court to exclude that testimony on summary
judgment. The admissibility of the testimony has to be decided
after a Daubert examination, and
Novell's objections are premature and don't even begin to cite
or acknowledge all the relevant Daubert factors.
And in the reports, SCO's experts do account for other potential
causes for the losses and they reconcile those. It's important to
note also that objecting to these reports Novell takes these out of
context. It was Novell who recently requested the enlargement of
time to exchange the initial expert reports. That brought the
exchange reports after the time before briefing. And that's what
resulted in reports being submitted to the Court yesterday. And in
any event, you don't hear Novell to argue that they suffered any
prejudice by virtue of the submission of the reports this week.
Now, in addition to this expert analysis, the other evidence
goes to show, and again, easily permits the inference that Novell's
statements were a substantial factor in causing SCO's special
damages. SCO submits, for example, letters from customers
specifically called out the issue of copyright ownership as a
reason for declining to enter into the SCOSource licenses. We
summarize those letters at Tab 35, and I believe we have a board on
that, as well.
As Your Honor can see, letters from big players such alleges
Merrill Lynch, Sherman Williams, Ford, Morgan Stanley, Google and
the like. Novell argues that these letters are inadmissible as
hearsay, but we submit that
they're wrong. If the Court were inclined to resolve these
issues on summary judgment at all, there's no reason to doubt the
reliability or authenticity of these letters. And the evidence is
the best evidence that SCO could obtain about the state of mind
with such potential customers. The letters satisfy the residual
hearsay exception under Rule 807.
Indeed, in a recent copyright case, the Federal District Court
applied Rule 807 and admitted evidence of unsworn complaints from
customers about their confusion between the plaintiff's work and
the allegedly infringing work. I think decisions like that, Your
Honor, reflect the fact that there really is no other highly
probative source on these customers' state of minds. And we
summarize that case and a similar case, Your Honor, in Tab 46.
Novell's new evidentiary objections are also a basis for summary
judgment if the Court were inclined to consider that issue. Novell
stated in its opening brief actually that it was not objecting on
any hearsay grounds. They decided that they wanted to object to
SCO's hearsay evidence. Novell itself relied on hearsay evidence in
their opening brief. On that basis alone, we submit the objections
are no basis for summary judgment.
It's also undisputed with respect to the facts that the
SCOSource was part of SCO's business as of May 2003, and that after
Novell made its initial statement, SCO stock price
fell precipitous. And based on those facts alone a reasonable
juror could concur that Novell's statements are a substantial
factor in the decline of SCOSource plummeted.
It's also undisputed as we set forth in the briefs, Your Honor,
that SCO's CEO senior vice-president and senior vice-president in
charge of the SCOSource program and senior salesperson in charge of
SCOSource all testified to their view that Novell's claims of
copyright ownership negated the SCOSource business. They reached
that conclusion based on evidence and discussions cited in our
opposition brief. SCO's experts are entitled to rely on that
evidence. There's no question about that.
And we submit that a jury would be entitled to reach the
conclusion that those executives based on their experience and
their industry knowledge were correct. It may be that the
statements that the executives attribute to the customers are
themselves hearsay, but the conclusions the executives reach is
admissible evidence for the jury to consider.
We think that Novell underscores the genuine factual disputes at
issue in arguing that the expansion of the Linux market has
increased SCO's value in the copyrights. That's an issue for the
experts to fight about. And the crucial issue here is the
willingness of the market to enter into SCOSource license. It's not
the sheer number of the
potential customers. And we submit the evidence shows there is
less willingness now than there was three or four years ago, and
that's an issue I'll touch on in a few minutes that I have left,
So this last issue is whether SCO's losses are realized. Again,
the evidence and reasonable inferences show that they are. We
submit that the legal standard -- and we agree with Mr. Jacobs that
there's not a wealth of precedent on this issue. We cited a case at
Tab 48 showing that losses are realized where slander has a
residual impact on the vendibility of the product at issue. That's
the Marseilles case from the Northern District of Illinois
And the issue there according to the Court was whether you can
prove that the alleged slander had a damaging residual effect on
the vendibility on market value of the product. We submit that we
easily meet that standard.
Now, Novell has cited some real property cases, and that's the
lynch pin for their argument that there shouldn't be a double
recovery. We see a very fundamental difference between a real
property cases and an intellectual property case.
In a real property case, the full value of the lost sale, if you
lost that, you might not be entitled to damages because you'd be
entitled to damages, you might not be entitled to anything beyond
that. Intellectual property is
different. It's not a one-time event. It's undisputed that in
the case of an intellectual property, the owner can enter into
multiple licenses for his property. In fact, your ability to enter
into multiple licenses is the way or at least one principal way
that you value the copyrights.
Mr. Jacobs suggests that we should submit evidence of a value of
the copyrights. The costs or prices at which you can enter into the
license history in intellectual property is the reflection of the
value of copyrights. It's a more specific way of rendering that
than even trying to estimate what the sale of the business would
be. We submit that our evidence is more reliable and more specific
than the more general standard that Mr. Jacobs proposes.
Novell also argues that our evidence on realized losses is
insufficient or inadmissible. We think they're wrong about that.
First of all, like causation, the issue of realized losses is the
subject of expert analysis. The main question is if SCO did clear a
title of the copyrights, could SCO then sell SCOSource licenses at
all or at the same price it could three or four years ago? SCO's
experts and CEO explain why SCO could not do so. And we summarize
that evidence, Your Honor, at Tabs 51, 52, and 53.
Mr. Pisano, Professor Pisano, quite candidly says:
It is my opinion that even a court's determination that SCO owns
the UNIX copyrights
probably would not restore SCO to the position they were in
before Novell's statements.
It's not an issue of super clarity, Your Honor. It's an issue
for the experts to fight about and for the juries to draw
Mr. McBride is more equivocal, of course, and his testimony
would be admissible. He says:
The market and SCO's position in it has substantially changed
during the four years in which Novell has been making its false
This is the CEO of the company. The jury is certainly entitled
to conclude he has experience in the relevant markets and has
knowledge of the relevant markets.
And Novell argues that we failed to draw a connection between
Professor Pisano's acknowledgement of probability and Mr. McBride's
more unequivocal testimony regarding that his view of the market is
different. But those two types of testimony are reconciled, and we
summarize that at Tab 53. Mr. McBride states:
Companies that have been now using Linux for several years
simply will not perceive the risk of an infringement action as
credible at this time, even if copyright title is cleared, and SCO
would not have the resources to pursue such actions.
That's admissible testimony.
Professor Pisano concludes:
Because would-be licensees of SCO's intellectual property
already had access to that property via Linux, their willingness to
pay for a license is a function of their belief that SCO owned
those rights, and would enforce those rights.
Same testimony we pointed Your Honor to earlier. Taking that
testimony together, a reasonable jury certainly could conclude that
the value of the SCOSource program has faded significantly, if not
In addition to the expert testimony, SCO submits other evidence
in support of this assertion. The fact that SCO will have the right
to seek licensing fees doesn't mean that is will succeed in doing
Indeed, we submit, Your Honor, that the only conclusion that the
jury would have to reach to conclude that the market is less
favorable for SCO now than it was in 2003. If the jury reached that
conclusion, they could conclude that the value of the SCOSource
program is faded.
THE COURT: Is what?
MR. NORMAND: That the value of the SCOSource program has
faded. That the only conclusion that the jury would have to reach
is the market is less favorable than it used to be. The jury could
reach that conclusion based on
undisputed facts such as the drop in SCO's stock price since
that time, an undisputed fact, and questions raised about SCO's
viability in the recent past, an undisputed fact, and, in fact, the
subject of Novell's pending motion for preliminary injunction.
It is undisputed, for example, with respect to HP that Mr.
Jacobs brought up that since Novell began making these statements,
HP launched its own indemnification loan. That fact alone shows
that the clock can't be unwound. SCO could not now enter into a
deal with HP whereby HP would sell SCOSource with HP hardware to
customers who have since taken the HP indemnification. That
opportunity is lost. And on that basis alone, the jury could
conclude the market conditions are not as favorable.
Novell's evidentiary objections, and this one also is a basis
for summary judgment, Mr. McBride's testimony, for example, is
based on his personal knowledge.
And finally, Novell cites no relevant precedent for the
proposition that the Court can resolve on summary judgment the
question of whether SCO's losses are realized.
In closing, Your Honor, the undisputed facts, the
well-established precedent will show that SCO is entitled to bring
this claim to the jury. We think that Novell cites no cases to
support its argument to resolve these issues on summary judgment.
And we also think that Novell is wrong on
the merits. We respectfully ask the Court to deny Novell's
THE COURT: Thank you, Mr. Normand.
MR. NORMAND: Thank you.
THE COURT: Reply, Mr. Jacobs?
MR. JACOBS: I think we have converged, Your Honor, on the
issues, and it is well-teed up to you. A couple things to highlight
in Mr. Normand's comments.
Number one, on this expert testimony and Mr. McBride's testimony
on residual impact, there has to be more than just speculation,
Your Honor. There has to be more than SCO unique factors that give
rise to the market's unwillingness to take SCOSource licenses. It
defies -- merely asserting that in the face of the basic legal
principles that are at issue here in the assertion of intellectual
property rights does not create a fact dispute.
As even Pisano's declaration, leave aside his expert report, as
even his declaration admits, this is all about people taking
licenses to avoid copyright lawsuits. If SCO has ownership of the
copyrights, they can bring their infringement lawsuits. Whether
you're indemnified or not, somebody is going to be liable for that
infringement. That is a basic A follows B -- B follows A aspect of
intellectual property law. And merely speculating that that won't
happen if SCO's successful on ownership isn't enough to create
disputed issue, a disputed issue of fact.
THE COURT: Mr. Normand, with respect to causation, he
talked about the quarrel between your direct and immediate standard
and what he calls the substantial factor standard. Do you remember
his argument on that?
MR. JACOBS: Both are applicable, Your Honor. We don't
disclaim substantial factor, but it's in the very next section of
The pecuniary loss for which a publisher of a injurious
falsehood is subject to liability is restricted to in relevant part
the pecuniary loss that results directly and immediately from the
effect of the conduct of third persons including impairment or
vendibility or value caused by disparagement.
So direct and immediate is in there, but that's another test. I
think the right way to think about this is substantial factor is
kind of a course grain filter, and direct and immediate is a very
tight filter, a very fine grain filter. And they have kind of
written the element of the damage proof out of their claim by
saying that it's not applicable.
The irony of this argument, Your Honor, is that -- and in a
sense I think what SCO is really saying is they were rolling people
back in May, June before Novell statements,
they had the industry in a turmoil and they had people signing
licenses out of fear. Now the facts are out on the table, they're
saying, including the facts, for example, about the strength of
their infringement claim. So there may be some -- the other
causational factors that we highlighted in all the letters that
came out are still going to be there. They're going to be there.
They were there before. The letters say, we don't see any evidence
of copying. Well, now the copying has been before the Court, and
it's been widely publicized so people can judge for themselves just
how strong that evidence of copying is.
But I don't think their ability to roll the industry out of
uncertainty is the kind of link to substantial factor and direct
and immediate that slander of title was designed to promote. The
fact that there are more facts out on the table now about the
strength of their Linux claims, and maybe those claims are weaker
now is just because they were hiding them all back in May and June
on the very issue that people were asking them to come forward
with. I don't think that's legally probative. But if you drill down
to what they're saying, that seems to be the essence of it.
On residual effect, they really haven't made a showing of a
residual effect. Again, I think it's inherent in the way they
litigated the case. It's very difficult. It would be speculative
inherently to talk about what would
happen once the cloud on title were removed. Had they litigated
it differently, had they sought to remove the cloud on title and
then go back and relaunch SCOSource, then at least we would have
the after condition. I think we would still have a lot of
uncertainty about the before condition. But we would have the after
condition clearly teed up before the Court. But that's not Novell's
problem. That's SCO's problem for the way they sought to tee up the
issues for adjudication.
And importantly, direct and immediate does not allow the unique
SCO circumstances, drop in stock price, lack of resources, maybe no
motivation to pursue SCOSource anymore, those factors are
irrelevant to the special damages equation. And that is very clear
from the direct and immediate cases.
In sum, Your Honor, we actually think the issue is a legal one
here. There are some evidentiary issues. Mr. Normand's recitation
about the back and forth is not quite right between us. And in any
case, we had it scheduled for summary judgment. All the evidence in
opposition should have been in with their oppositions. But at the
end of the day, I think what we're asking you to do is take a look
at the cases and decide what the legal standard is for proving
slander of title and special damages. Thank you.
THE COURT: Thank you, Mr. Jacobs.
Do you want to take a short break between each
motion, or do you want to try to get another one done before we
take a break? Or what do you want to do?
MR. JACOBS: We're ready to jump in, Your Honor.
THE COURT: All right. Let's go on the second motion.
Novell's motion for partial summary judgment on SCO's noncompete
claims and Second and Fifth Claims; right? Same people arguing?
MR. JACOBS: Yes.
THE COURT: All right.
MR. JACOBS: If I might take one minute.
MR. HATCH: Your Honor, we'll change on the next motion.
Maybe take a break.
THE COURT: Yeah. It might kill us to be here three hours
MR. JACOBS: Your Honor, this is the binder that we've all
be been waiting for. It is the thin binder in which the key
agreement documents are before you so you don't have to go look at
the Brakebill declaration or the Normand declaration. Yes, Your
Honor, I think that's it.
And at the back of it, this will be more relevant for our
arguments on Monday, what we've done is provided the Court with the
language of the APA as amended by Amendment Number 1 and Amendment
Number 2. In other words, we've gone back at Tab 7, for example, or
Tab 8, and we have put --
THE COURT: You red-lined.
MR. JACOBS: Exactly. But the choice of exhibits, Your
Honor, reflects the basic thrust of our motion on the TLA and on
other issues that we're going to argue Monday, and that is that
these disputes are governed by legal documents carefully crafted by
trained lawyers, carefully reviewed by sophisticated companies
engaged in a complicated transaction, and that the plain language
controls. And if you look at the agreements, you should decide
these motions -- if you look at the agreements as we believe the
law requires, summary judgment motions should be decided in our
On the technology license agreement motion, this is embedded --
this issue is embedded in several causes of action, but what we're
in essence asking you to do at this stage on summary judgment is to
decide the legal meaning of certain aspects of the TLA. And what
we're going to do, what I'm going to do now is reverse the order
that we argue these issues in our briefing because if we prevail on
the question of which change of control provision controls, then
the relevant limitations are out of the TLA, and it doesn't matter
whether it's a limitation or a covenant. So if we prevail on our
reading of the TLA, then the issue of whether it's a limitation on
a license or a covenant giving rise to a contractual lawsuit is
So that's the issue that I want to talk about first, which
THE COURT: But if you don't, then it isn't mooted.
MR. JACOBS: That's correct. So we'll get to it.
Which change of control provision controls? Is it the APA's
provision which voids the disputed provisos and the TLA in the case
of Santa Cruz only within two years and only as to specified
purchasers, or is it the provision the TLA points to which
unambiguously we submit drives to a different outcome, that there
was a change of control and that the provisos are, therefore, were
no longer in legal effect?
Let's start with the TLA so we can walk through together how
we're reading the document. The TLA is at Tab 5. And if you look at
Roman II-A(2), you'll see the provisos that follow from the grant
of the license in (2). Note that the provisos don't apply to (1);
they just apply to (2):
Provided, however, that such technology and modifications may be
sublicensed and/or distributed by Novell solely as -- skip ahead --
a composite offering. The composite offering shall not be directly
competitive with core applications server offerings of SCO, and the
licensed technology shall not constitute a primary portion of the
value of such composite offering.
We're calling those the disputed provisos.
And then if you go to the next paragraph,
Paragraph B, it says:
In the event of a Change of Control of SCO and commencing with
the effective date of such Change of Control, the proviso in
Subparagraph II-A(2) setting forth restrictions on the sublicense
and/or distribution of licensed technology and modifications
thereof shall cease to exist.
So in B, there's a capitalized term, Change of Control. If you
go up to the top of that page, there's the language that we rely
quite heavily on:
The terms "Assets," "Change of Control," et cetera, shall have
the respective meanings attributed to such terms in the asset
So importantly, we're talking about a capitalized term, and
we're talking about looking to the APA to define the meaning of
So now if we go to Tab 1 and go to Page 41 of the APA. We put
some stamps, some bolder numbering stamps on the document. So if
you look at the bolder stamps, it's Page 48.
THE COURT: I have it.
MR. JACOBS: So this is 6.6(c). And it says --
THE COURT: Okay. Change of Control.
MR. JACOBS: Change of Control. Exactly. But it's even for
our purposes even better than that.
For purposes of this agreement, a, quote, capital C, Change of
-- capital C -- Control, close quote, with respect to one party
shall be deemed to have occurred when the conditions that are laid
out in that paragraph have been met.
And, of course, in this provision, 6.6 (c), there is no two-year
limitation, and there is no list of specified acquirers.
So that's -- so the way we read it, then, if you go back to the
TLA, if a Change of Control occurs as defined in the asset purchase
agreement at 6.6(c), then the provisos are no longer existing. And
that's the effect we contend of II-B.
Now, I think that if you just follow the logic so far you'd have
to say that is unambiguously what the TLA provides. I don't think
there's room for dispute on that question. Where the dispute arise
is because the asset purchase agreement has a different provision
governing Change of Control of SCO as it relates to the license
that will ultimately be provided by the TLA.
And it's at Page 30 or bold Number 37. And this is at 6.3(c),
Expansion of Seller's Rights Relating to the License Technology
Upon a Change of Control.
Until two years from the closing date, that's the two-year
limitation. And if you read on, sold assets to a party identified
by seller on Schedule 6.3(a) hereof. So
that's where you get the list of specified companies. So 6.3(c)
on a standalone basis, SCO wins on this question in terms of what
Change of Control provision applies.
So our argument turns on the TLA, and we think it's a pretty
clear cross-references to 6.6 trumping the APA and its provision on
about what happens on a change of control with respect to what
ultimately will become the TLA. And as we noted in our brief, the
TLA is later in time than this disputed language, and the law is
clear that when there's a contradiction between two agreements
which arguably apply to the same subject matter, the second in time
But there's really I think a deeper sense in which the TLA is
later in time than the asset purchase agreement, and that is that
the TLA is an implementation of the provisions of the asset
purchase agreement. It is the agreement that is contemplated by the
APA. In fact, SCO's response to our statement of facts and in other
places, they characterize it as an implementation of the asset
The APA contemplates and requires later execution, later in a
sequential sense of what contemplates what. And the TLA is itself
that license. The TLA is where you're supposed to look if you want
to find out what the terms of the license are. It is the agreement
implementing the promise in the APA to enter into a license
agreement. And the law is
clear that the later agreement controls.
There are other doctrines that might be applied. It's the more
specific agreement in many respects. But for our purposes, I think
the argument that is unassailable is that it is the license that
was contemplated by the APA. The APA is not itself a grant of a
license. So if you want to find out what the terms of the license
are, you go to the TLA.
Now, SCO points to cases about multiple documents being read
together to comprise an agreement. If you pars those cases closely,
we think you will find that they relate to situations in which
there are multiple documents and they're not fundamentally
inconsistent with each other. There's no deep contradiction in
them. And we're just trying to figure out what the entirety of the
In our case, we have a contradiction. I think both sides agree
with that. The TLA goes one place, and the APA goes another place.
And depending on which agreement controls, you'll have a different
But that's not those cases. Those cases aren't about a
contradiction. The contradiction cases say you look at the second
agreement, not the first.
Now, there's one other aspect of this, but I think --
THE COURT: And your view is this is a legal issue and I
ought to decide it.
MR. JACOBS: Exactly. It's a legal issue that forensic
evidence can't help very much on.
Now, the document gives SCO one more argument, which is, that it
THE COURT: Which document?
MR. JACOBS: I'm sorry. The TLA, at Paragraph VIII, the
entire agreement clause.
By the way, one more point before I miss it. At 6.3(c) back in
the APA, there is in the heading the words Change of Control. But
there's also a clause in the asset purchase agreement that although
it uses slightly different language is essentially a heading for
our for convenience clause. And it says that it doesn't bear on the
interpretation of the agreement. So again, we think that it's clear
the TLA is driving the reader towards Section 6.6.
So the Entire Agreement clause in the TLA says that both
agreements constitute the entire understanding between the parties
with respect to the subject matter. And all prior understandings
So that gives them an argument that you have to read these two
agreements together. But we don't think that that clause has the
effect that SCO seeks. Number one, it vitiates reliance on parole
evidence. It's an entire agreement integration clause, so it has
that effect if the agreement is -- if there's an ambiguity, if
there's a legal
But we don't think there is a legal ambiguity here. There's a
contradiction, and the Court as a matter of law, we ask the Court
to decide, that it's the TLA that controls in the event of a
contradiction. And, hence, there's no ambiguity; and, hence, there
is no need to rely on parole evidence.
Because of the sequence of these agreements, both chronological
and in the legal sense that the asset purchase agreement contains a
promise to enter into the technology license agreement, because of
that sequence, what SCO needs in the Entire Agreement provision is
not there. What SCO needs is a provision that says, in the event of
a conflict between the TLA and the APA, the APA shall control.
There are provisions like that. It's easy to write a provision
like that. It isn't in the technology license agreement, and it
isn't in the entire agreement clause.
SCO's real argument when you look at their declarations, when
you look at what they're saying is that the TLA does not conform
the intent of the parties, that the parties intended some other
outcome. And in a sense, I think they're saying here, as I think
they will say on Monday, implicitly Novell's lawyers at the time
slipped one by Santa Cruz. They got one in there. They got a
"gotcha" for Novell. And that's not right.
But the cause of action that SCO needs, if that's their real
theory that the TLA -- if we're right that the TLA points to 6.6
and they want to argue that the TLA does not represent the intent
of the parties, the answer is not to ask you to interpret the TLA
to mean something it can't mean. It's an action for
We had this discussion in March about how, really, in place
after place, we submit, that SCO is actually arguing the elements
of reformation, but they didn't plead reformation, and it's too
late to amend their pleadings. And besides, Your Honor, the
standard of proof and the burden of proof on reformation is clear
and convincing evidence, and they can't meet that statement.
So we think it's a legal question which document controls. If
you decide the TLA controls, we think there's only one outcome,
that the provisos in Section IIA(2) are, in the words of Section B,
ceasing to exist.
If you decide to go on, whether because you want to resolve more
issues now or if you disagree with us on this question, then we
need to decide the legal effect of those provisos. And this is the
question on whether they are a limitation or a covenant.
We brought this motion, the causes of action, we have applied
the summary judgment motion to our causes of action that depend on
the provisos being a covenant. But I
want to make sure that you see the TLA in its entire
SCO has sued Novell for copyright infringement based on Novell's
distribution of SuSe Linux. Part of that is off in the arbitration.
Incidentally, it looks like we're set for hearing in the
arbitration on the interpretation of the UnitedLinux agreements.
And we'll stick to a schedule that will have that hearing go
forward in December.
But setting that aside that for a minute, and just looking at
the pleadings here --
THE COURT: Which year?
MR. JACOBS: This coming year, Your Honor.
In the context of this dispute, Novell has asserted the TLA is a
defense to SCO's copyright infringement claims. Now, the TLA is
undeniably a license to licensed technology. That much I think
neither side could dispute. And SCO's view of what licensed
technology includes is copyrighted UNIX code. SCO contends that the
TLA doesn't immunize Novell's activity and that it can sue for
In order to do that, it must be contending that Novell's actions
are outside the scope of the license granted in the TLA. SCO points
to the provisions I read to you about competing with an application
server offering or not constituting a primary portion of the value.
And they say that Linux falls within the proviso. And, therefore,
because they say licensed technology including the copyrighted code
in Linux, it's outside the scope of the TLA license.
That is precisely the effect of a limitation on the scope of a
license. Activities that fall outside the scope of the license are
subject to an infringement claim. In this case, SCO's alleged
copyright infringement claim. And if that were the full effect of
what SCO wanted out of this provision in setting aside our first
argument about those provisions the provisos going away, we would
not be in disagreement with them. We agree that at one time, at
least, that these are limitations on the scope of the license. We
agree that the legal effect of that is if we're outside the scope
of the license, they have a copyright infringement action.
What SCO is arguing for, however, is to have its infringement
cake and eat a contract claim, too. The specific causes of action
to which this motion is directed, as I mentioned, are breach of
contract claims. And they -- in order to have breach of contract
claims, they have to treat these provisos as affirmative covenants,
not just limitations on the scope of the license. So the issue is,
are these covenants?
Now, what the Sun v. Microsoft case teaches us here is that
language and geography in terms of the way the agreement is laid
out actually matters. And these, of course, these provisions are
provisos in the grant of a license. So it strongly suggests as a
matter of just reading the agreement
and how it's laid out that these are limitations on the
And SCO has to be acknowledging that for purposes of its
copyright claim. What they must be saying is that they're both.
They're limitations on the scope of the license, and they're
affirmative contractual covenants.
Brief parenthetical. We never argued that they were conditions.
A condition is a different beast. It was imagined in their
opposition brief as a way of setting up a straw man, but we're
arguing limitation versus covenant. And SCO must be contending that
this language is dual purpose and that they don't have to elect a
remedy and that they don't have to decide which it is.
If you look at the cases or the treatises, and both sides have
pointed you to many of them, that's not what the cases teach is
going on in these disputes where there's a contract in the form of
In the Ninth Circuit case in Sun v. Microsoft, which is really
in many ways of a lone star, they can remand for a determination
whether the contractual language there was a limitation on the
license, a covenant or both. They said it's got to be one or the
other. They didn't say whole. The issue wasn't squarely presented
to them. But there's no case that asks the question whether
particular language is both.
What causes some confusion in the cases that
require some drilling down into the district court decision is
that the way these cases work is that if you have a license
agreement and it has a covenant and you breach the covenant, the
licensor can rescind the license and then sue for copyright
So before recision, there's a contract claim, say, for unpaid
royalties. After recision, there's a copyright claim. And so you
can see both causes of action arising out of a single agreement.
But that's because of the recision. And this is very well settled
in the case law and in the treatise.
And that's what's going on at the appellate level where SCO
cites the appellate decision. We provided you with the district
court decisions. You can see that there was a sequence of breach of
contract claim for before recision and copyright infringement claim
So what is it? Is it a license limitation or a covenant? SCO
doesn't seem to want to tell us what choice it wants to make. But
the TLA, we submit again, looking at the plain language points in
only one direction. It's a license limitation. You have to look at
the geography of the agreement, and importantly, the word that is
used in the agreement is restriction. That's used twice at II-A(2)
and II-B. Those restrictions are referred to -- those provisos are
referred to as restrictions. If you go to the dictionary
and look up restrictions for synonyms or definitions, the first
word you hit is limitation. So another argument, if you will,
another linguistic argument for why these should be treated as
limitations and not covenants.
And perhaps most importantly of all, what these provisions do is
they don't deal with some extra license issues, such as, shall
Novell be obligated to put copyright notices on? Or shall Novell be
obligated to pay on a per-copy basis? Those could be and most often
are treated as contractual covenants. These are -- these provisos
here go to the scope of what Novell can use license technology for.
Provisos limit that scope and, hence, are limitations on the
license and nothing more.
Now, if you turn to the Section 16600, which is --
THE COURT: That's the California law.
MR. JACOBS: That's the California law argument. It really
just highlights our basic points, and SCO's responsive briefing on
the point underlies our basic argument. If you read this language
as a covenant, as a covenant not to compete, then you run head-long
into 16600 and its prohibition on covenants not to compete.
So when SCO briefed this issue in its opposition, all of a
sudden the language changed and these provisions were referred to
as limitations on the license. As we said in our brief, we agree.
They can only be limitations on the license.
They cannot be covenants.
We believe that the analysis of the TLA and the case law drive
the outcome here that we're asking you to render. At most these are
limitations on the scope of the license. By virtue of our first
argument, we believe that they have ceased to exist. But if they
exist, they are not contractual covenants giving rise to a claim
THE COURT: Thank you, Mr. Jacobs.
MR. NORMAND: Thank you, Your Honor.
As Mr. Jacobs said, the issue of whether Novell has breached the
APA and the TLA statement is what briefly pointed out the context
in which the motion is brought. Novell's own former CEO Mr.
Frankenberg testified in deposition, and in his view Novell has
breached the APA and the TLA for its distribution of SuSe Linux.
That's an issue for a later day. But as I say, I think it adds
color to the motion.
Now, I would like to start with the issue that Mr. Jacobs
finished with, if that's okay with Your Honor.
THE COURT: Whatever order pleases you.
MR. NORMAND: Novell argues that SCO can't bring a breach
of contract claim because the APA and the TLA noncompete clauses
are not covenants, as they say, but are instead merely restrictions
on the scope of the license. As
Mr. Jacobs said, we believe that is one and the same thing. We
believe a restriction on the scope of the license, a license
limitation, whatever phrase you want to use, is a --
THE COURT: Actually he finished with the California
argument, but that's all right.
MR. NORMAND: Oh, I'm sorry, Your Honor. I'll get to
THE COURT: All right. So you're actually starting with
the second argument, not his third. But that's okay.
MR. NORMAND: Very good.
THE COURT: Any order you want.
MR. NORMAND: I'd like to start with his middle
THE COURT: All right.
MR. NORMAND: We think it's worth pointing to the dearth
of the case law on this issue of Novell. As Mr. Jacobs concedes,
they rely almost exclusively on the Sun case, which I'll get to.
Novell cites not a single case holding that a plaintiff cannot
bring a breach of contract claim, whether for breach of covenant or
breach of license restriction, whatever phrase you want to use.
Novell cites not a single case holding that restrictions on the
scope of a license cannot constitute affirmative covenants. And
they cite not a single case holding that a licensee's failure to
comply with a license restriction cannot give rise to a claim for
Now, the noncompete provisions in the APA and TLA or
restrictions on the scope of the license are covenants not to
compete. They are affirmative promises. They are the basis for a
motion for breach of contract. Williston on Contracts is
THE REPORTER: I'm sorry. Can you slow down just a tiny
MR. NORMAND: Of course.
THE REPORTER: Or a lot.
MR. NORMAND: At Tab 3 -- I'm trying to get through my
THE REPORTER: I know.
MR. NORMAND: At Tab 3, Your Honor, we summarize
Williston, who has says:
A promise is a manifestation of an intention to act or refrain
from acting in a specified way.
Again, that is the basis for the claim for a breach of contract.
In this case, SCO provided Novell a license in exchange for
Novell's promise not to use the license technology in competition
with SCO. And that's set out clearly, Your Honor, in the slides or
board Section 1.6 of the APA:
Buyer shall execute a license agreement.
The license agreement shall provide Seller unlimited, a
royalty-free, perpetual, worldwide license.
And TLA, sets forth the license restrictions that the APA
directs the parties to create.
Such composite offering shall not be directly competitive with
core application server or offering of SCO.
Affirmative promise on Novell's part.
Now, Novell's primary argument on the close reading of the APA
and TLA in their opposition opening brief, at least, is it that the
license restrictions are not set forth in the section of the APA
called "certain covenants." We think that argument fails out of the
box. There's no precedent that suggests that the only kind of
promise that you can for -- breach of contract based on are those
promises set up in the covenants section of the contract.
The APA and TLA provisions apply only to Novell products
incorporating license technology, and, therefore, it makes sense to
place these covenants in the sections of the APA and TLA dealing
with licensed technology rather than certain covenants.
And Novell's interpretations of the APA and TLA assumes that SCO
would allow Novell to use the transfer UNIX assets, the license
back technology without any contractual
obligation on Novell's part to hold up its end of the
Novell's theory is that if Novell breached the promise, we can
only sue them for copyright infringement, somewhat defeating the
purpose of entering into the contract in the first place. So for
all those reasons, we think the plain language reading of whether
the license restriction constitutes a promise of the sort that will
extend alludes to or covenant is incorrect.
Now, Novell cites Sun v. Microsystems as their primary case. For
the proposition that contractual provisions must be either
limitations on scope of the license or covenants, we think that is
fundamentally wrong. We don't think that Sun suggests that.
THE COURT: You don't think Sun suggests one or the other
as Mr. Jacobs argued.
MR. NORMAND: We don't, Your Honor. And to summarize --
our basic approach on that is at Tabs 5 and 7. Let me walk through
The only issue before the Sun court is whether the plaintiff had
properly brought a copyright infringement claim, not whether the
plaintiff could bring a breach of contract claim. In fact, the Sun
case included both a copyright infringement claim and a breach of
contract claim. And as I think as Mr. Jacobs acknowledges, there's
no suggestion from the Court that the breach of contract claim was
that it couldn't be brought.
We summarize at Tab 7, Your Honor, what we think the key
language in Sun is.
The Court framed the issue as whether the disputed terms limited
the scope of the license or were independent contractual covenants,
merely separate contractual covenants or contractual covenants that
did not limit the scope of the license.
We think the case means that license restrictions are covenants.
The question in Sun was just whether the license restrictions at
issue related to the copyright claim. They would be if in exceeding
the scope of the license the defendant was exercising the exclusive
rights of copyright ownership. That's the definition of a copyright
claim, unauthorized copy.
The Sun case didn't address the second question, the one framed
here, whether you could also bring a claim for breach of contract
on the same basis. In other words, independent or merely separate
covenants may have no bearing on the scope of the license while
other covenants define the scope of the license grant.
Now why does this matter? It matters because there were cases in
both respects in our favor. There are cases saying that the conduct
in excess or in violation of the scope of license agreement is a
basis for breach of contract. And
there are cases and authority saying, you can bring both a
copyright infringement claim and a breach of contract claim for
conduct in excess of the scope of the license agreement.
At Tab 8, Your Honor, Ninth Circuit precedent is consistent with
our position. The Germaine case from 2005:
If defendant was using the song without paying royalties, it was
likely both a breach of contract and a violation of the
The Grosso case:
Reversing district court's holding that plaintiff could not
bring a breach of contract claim in addition to copyright
The Bernstein case:
Upholding the district court's damage award for breach of
contract and copyright infringement.
At Tab 9, Your Honor the cases reflecting that we can bring a
claim for breach of contract based upon conduct in excess of the
scope of the licensing agreement.
Kepner-Tregoe case, the Second Circuit --
THE COURT: Of course, in all of these cases the language
of the controlling document would be important; correct?
MR. NORMAND: Absolutely, Your Honor. It's not -- I think
as both sides agree, it requires assessment of the contract at
issue. There's just no overarching principle that
you can't bring both. And I think that's the premise of Novell's
And, in fact, at Tab 10, Your Honor, we cite the Nimmer
Information Law treatise. He explained:
Breach of the license creates the potential of liability for
contract breach and also the possibility of liability under
property rights law.
An intellectual property rights law. It goes on to say:
Both forms of action may exist in a given case.
And acknowledges that an infringement claim can exist in
addition to the contract claim.
And we cite other cases at that Tab 10, Your Honor, discussing
this area of the law.
And I was going to emphasize among the other cases reflected in
the slides the case summarized at Slide 12, the Second Circuit case
Kepner-Tregoe, going through again on particular facts, going
through and concluding that the claim for copyright infringement
and breach of license agreement is appropriate.
We think in short, Your Honor, that the basis for Novell's
motion for summary judgment, we think we are entitled to bring both
kinds of claims.
Now, I should note, Your Honor, that we don't
understand Novell to go into the level of detail that gave Your
Honor's question suggested, the level of detail. Let's examine the
kinds of conduct that constitute a copyright infringement versus
the kinds of conduct that constitutes the breach of license
agreement. I think it's enough to say that in this case we're not
alleging that the exact same conduct is all of the facts relevant
for both claims. Our claim of breach of contract involves slightly
different facts of copyright infringement. And on that additional
basis, there would be no reason we couldn't bring both.
THE COURT: Would there be some overlapping facts,
however? They wouldn't be completely different sets of fact.
MR. NORMAND: That's correct, Your Honor. And I mean, to
be candid with you, this is an area of law discussing preemption
which we cited in our opposition brief. The preemption cases are
relevant. The cases of arising under jurisdiction are relevant.
Even upon examination of those cases which are really collateral,
there's nothing to say we can't bring both in those cases.
Now, Mr. Jacobs' initial argument was the question of the change
of control provision between the APA and TLA. Let me make sure I
have my slides straight, Your Honor.
We think Novell presents a false choice as Mr. Jacobs said
between the APA and TLA. I don't think there is a between, and I
think the documents made clear that there
isn't a between. They're an integrated set of documents. The TLA
makes that clear. As a primary matter, the APA says, the parties
shall enter into technology license agreement. And the APA directs
what the content of the TLA will be. The TLA then refers back to
the APA and says, this is the integrated agreement with the
There's no suggestion that there is any contradiction between
the two. There's every suggestion that the TLA is meant to be
incorporated into the APA and they're meant to be read as one
integrated document. When read that way, there is no contradiction.
We think it's wrong to say you've got to choose between the two of
them and that there's some sort of contradiction. They're easily
reconciled, and they need to be read together.
Now, none of the precedent that Novell cites suggests that the
TLA somehow trumps the APA. Precedent really doesn't address these
sorts of facts or the second document incorporates the first
document or the first document directs the parties to enter into
the second document. We don't think there's any reasonable reading
of the documents that would state it that way.
Now, the APA draws distinction. And I'd like to spend a minute
walking through this verbally, Your Honor, and perhaps trying to
show on the boards how we believe this works.
The APA draws distinction between changes of control Santa Cruz
versus changes of control of Novell. It draws the distinction in
Section 1.6 on the left, the same section in which it directs the
parties to enter into the TLA. The TLA in turn incorporates that
same distinction between changes of control for Santa Cruz and
changes of control for Novell. How does that work?
Buyer shall execute a license agreement. The parties agree that
is the TLA. The license agreement shall also provide seller with an
unlimited worldwide license.
That's the license we talked about there. And that happens:
Upon the occurrence of a Change of Control of Buyer described in
In the event of a Change of Control of Seller as defined in
Section 6.6, certain events shall happen.
Santa Cruz. Novell. Capital "C", Change of Control. Capital "C",
Change of Control.
Define terms as defined in Section 1.6.
Section 1.6 attributes meaning, to use the phrase in the TLA, it
attributes meaning to the changes of control. In one case Santa
Cruz, and in one case Novell.
Now, does the TLA preserve this distinction? It does clear as
day. It preserves this distinction.
In the event of a Change of Control of SCO, as incorporating
Section 1.6, the proviso of Subparagraph II-A(2) setting forth
restrictions on the sublicenses and/or distribution of licensed
technology and modifications thereof shall cease to exist.
In the event of the Change of Control of Novell.
Again, preserving the distinction that is reflected in 1.6,
these events shall happen.
Now, Novell reads Change of Control to mean only the definition
of Change of Control in Section 6.6. But we believe that the
section of the TLA that Mr. Jacobs alluded to, the section of the
TLA on the top of the second page saying, the term of Change of
Control shall have the meaning attributed to that term in the APA,
is this meaning with respect to Santa Cruz. And we think that's
very clear from the documents.
Now, under 6.3, the parties agree Novell may obtain its
unlimited license only if certain events happen within two years of
the closing day. Only if there is a sale of substantially all the
assets to one of the Novell's principal competitors identified in
It's undisputed that that didn't happen. That Santa Cruz/Caldera
transaction happened much more than two
years after the closing day of the APA. So we think the plain
language of these documents read together makes it clear that the
TLA was incorporating what the APA said it would. There is no
reason to believe otherwise.
Now, Novell's interpretation would improperly require the Court
to, in summary, ignore the language of Section 1.6; ignore the
language of Section of 6.3; ignore the list of the entities in the
schedule that's identified in Section 6.3; ignore the integration
clause of the TLA; and ignore the fact that the APA record
department incorporating an interim to the TLA; and assume that the
parties reached a completely different agreement in the TLA than
the APA had recommended. We don't think that's a reasonable
Now, if the Court were inclined to find some ambiguity on that
issue, and we don't think there is, all of the extrinsic evidence
is in our favor. If there were an ambiguity, as I think Novell
concedes, extrinsic evidence comes in. We cite testimony that we
believe is directly relevant to people who negotiated the APA and
were with Novell as the TLA was negotiated, that they never heard
any inclination and never had any intent that the TLA would be
anything other than an incorporation of the APA. There was no
discussion according to that testimony of anything different
happening. That's admissible extrinsic evidence, and on that basis
alone if the Court were to find ambiguity, there would
be no basis for summary judgment on this point.
Finally, Your Honor, we come to the issue of Section 16600. And
I won't dwell on this, because we believe by virtue of its
arguments regarding the scope of license restrictions Novell makes
this an easy decision. Novell concedes in its reply briefly that a
licensor obviously is able to set geographic and temporal and usage
boundaries on a license without running afoul on Section 16600. And
that concession reflects the case law summarized, Your Honor, at
Under California law, as Novell now concedes, clauses
restricting a licensee's ability to use the licensor's own licensed
property do not violate Section 16600.
And California law at Tab 36, Your Honor:
Allows the use of noncompetition clauses in employment,
supplier-distributor, and franchisor-franchisee context.
Finally, I think Novell's concession moots this issue, but
Novell raised an argument that this is a different context because
Novell and Santa Cruz didn't have any day-to-day involvement. We
don't read the case law to suggest such a day-to-day involvement.
And as a practical matter, Novell has argued in this case, and to
some extent they are correct, that there was an agency relationship
and Santa Cruz. So the relationship between Novell and Santa
Cruz clearly falls within what some courts have called in term
restriction that do not run afoul from Section 16600.
Finally, let me just mention a few other arguments in our brief
in this area in California law. Section 16601 says where there is a
sale of assets and goodwill goes with the assets, there is no
problem with a noncompete. We think the record makes clear that the
goodwill came over in the APA included assets schedules really
couldn't be broader. And Novell's own argument has been only those
things specifically enumerated in the excluded asset schedule are
excluded. Goodwill is not excluded. We submit in a letter from
SCO's auditor saying specifically that goodwill is part of the
transaction. That is an admissible document.
Secondly, no California law has established that where there is
only a partial restraint on a business that doesn't run afoul with
That is exactly what happened in this case. Novell agreed to
nothing more than not using certain technology in a business that
it had just sold to compete with a business that it just sold.
There is no question that Novell continued with its million dollar
network business and continued in its operating business generally
in the noncompete restriction doesn't run afoul with California law
on that front.
And finally, Your Honor, we made our argument about
unjust enrichment just to make a point that California law makes
clear that in deciding whether to apply civil code provisions, the
Court should not do so in factual fashion. And by virtue of the
stay, the kinds of facts that the Court would consider under
California law in deciding whether to enforce the noncompete
provisions here haven't been developed. So we think it would be
inappropriate to make that decision at this time.
For those reasons, we ask you to deny Novell's motion.
THE COURT: Thank you, Mr. Normand.
MR. JACOBS: I'm trying to go green, Your Honor, so I have
a lot of documents on the computer.
I'd like to -- I think the arguments are actually very
well-briefed, and again the parties have converged in the briefing
and the oral argument. I would like to ask Your Honor when you're
going through the materials to take a look at the District Court
decision in one of the cases SCO relies heavily on. It's this Ninth
Circuit decision. They pointed to the Guthy-Renker case. And if you
go look at the underlying district court memorandum decision, it's
just sort of Black Letter law at this stage.
Under Federal and California law --
This is at Page 5 of the memorandum decision.
Under federal and California law, a material breach of a
licensing agreement gives rise to a right of recision which allows
the non-breaching party to terminate the agreement but does not
automatically terminate the license. If the non-breaching party
then terminates the agreement, any further distribution would
constitute copyright infringement.
So the way you get two causes of action in the same lawsuit is
whether there is a recision. In the court, they're actually divided
up in the claims of various photographs and the failure to
attribute or to credit on the various photographs depending on
whether it was before and after which form of action lay and
whether you had a contract claim or a copyright claim. So it's
important to look closely at what's going on in these cases and
understand what SCO seems to ignore, which is this recision element
that allows for two causes of action in a single case.
I think we do rely heavily on Sun V. Microsoft. It really is the
case that says you have to look closely at a contract, and you have
to decide whether something is a covenant, in which case you only
have a contract claim and you don't have the preliminary injunction
irreparable harm presumptions that you'd have if it was a copyright
claim. Or you look at it as a limitation on the scope of the
giving rise to a copyright claim. The case sets that question up
and asks courts to decide that question based primarily on looking
at the language of the agreement and the geography of the
And what Mister -- the former CEO of Novell says ten years later
about what he had in his mind ten years before can't trump what is
fundamentally a question of law. We actually do have pretty
compelling extrinsic evidence on our side because we took the
deposition of not an executive who is closely involved in drafting
the agreement, but the lawyer on the other side Steve Sabbath. We
provided that in our brief. Sabbath says, the right place to look
under the TLA to figure out which chain of control provision you
should be looking to in Section 6.6, not Section 6.3(c). More
particularly, he said, sure looks like it.
The asset purchase agreement and the TLA are not to be read
together when it comes to deciding all of the questions of what is
in the scope of the license. I think that's our fundamental divide
on this question. The asset purchase agreement contains a promise
entered into the TLA. And the TLA is the TLA. And you look to the
TLA to decide what the license terms are.
If you pars the TLA the way SCO does and look at the change of
control of SCO versus change of control of Novell, it actually
would have been very easy to have written,
change of control of SCO or of seller or buyer, and change of
control of seller shall have the meanings attributed to them in
Section 6.3 and Section 6.6, respectively. That language isn't
there. Instead there's the single defined term, Change of Control
in caps, in quotes, and I think if you look at the asset purchase
agreement, that occurs only in one place in Section 6.6.
On the 16600 point, I don't think there are -- there are the
concessions in our briefing that SCO would seek to find. There's a
big legal issue in California right now headed to the California
Supreme Court about whether there are -- whether limited covenants
not to compete are allowed. Our view again is that if this is a
limitation on the license but not a covenant, it's a limitation on
the license, then we are not running afoul of 16600, whichever way
that law ultimately goes, suggesting the benefits of deciding this
question in favor of limitation.
The last point is this unjust enrichment point. And I'm not
really sure where SCO is going with this. It may be that their
suggesting to the Court having agreed we should brief this now,
maybe this whole issue should be stayed pending the outcome of the
arbitration so we can come back to what's at issue with licensed
technology. It's a little late for that. We teed it up to Your
Honor. If you decide the TLA issues on summary judgment, it will
have a big impact on the
overall posture of this case and be of substantial benefit to
the litigants at this stage of the proceeding. Thank you.
THE COURT: Thank you.
We'll take a break. Now, who's arguing the third motion when we
come back? Mr. Hatch and --
MR. KIM: I am, Your Honor.
THE COURT: -- and Mr. Kim. All right. Let's try to get
back by 10 to.
THE COURT: We'll proceed with the third motion today.
And Mr. Kim?
MR. KIM: Thank you, Your Honor. We've come to the end of
a long day, and I'll try to be as simple and clear as possible.
THE COURT: I like that. Some people say that's all I can
understand is simple and clear.
MR. KIM: Well, I wouldn't say that. But it is I think in
our view a very simple motion. There are quite a few issues that
SCO has raised, so I'll have to run down all of those.
THE COURT: All right.
MR. KIM: But at the end of the day, we say this is a very
simple motion about two claims which just don't belong in the case.
And we actually, frankly, are surprised that
we're even arguing about these, because these claims are not
only clearly improper under the governing law, they're just
superfluous. They don't add anything to the case.
The claims that I'm talking about are within SCO's Second Claim
for breach of contract and the Fifth Claim for unfair
THE COURT: Yes.
MR. KIM: And does Your Honor have a copy of the complaint
in front of you?
THE COURT: No. But I know what you're talking about. Go
MR. KIM: Okay. Do you mind if I hand it up to you?
THE COURT: Sure. You want me to have it.
MR. KIM: Sure. It's just a very small portion.
THE COURT: Thank you.
MR. KIM: Now, if you look at the breach of contract and
unfair competition claims -- first of all, they were added in 2006,
two years after the case started. It used to just be a slander of
title case. A whole bunch of claims got added. If you look at the
Second Claim for breach of contract, which is Page 24. It's got tab
on the side.
THE COURT: Right. I have it.
MR. KIM: If you look at this, there are a whole bunch of
different things in here that really are not the same
claim. They're jumbled together. The claim that we're concerned
with here is Paragraph 99 and specifically Subsection A. The claim
is that Novell has breached the covenant of good faith by making
false and misleading statements denying SCO's ownership of the UNIX
That's the claim. That's the portion we'll talk about now.
And then if Your Honor looks at Page 28, unfair competition,
again there are various claims in there. The only part we're
talking about here on Page 28, Paragraph 122 is the second
Novell has falsely claimed ownership of SCO's copyrights in
That's what we're talking about. It goes on, by the way, to say
that Novell has misappropriated technology. That is a part that's
been stayed. That's not at issue here. The only thing we're talking
about here is this, like, one sentence or portion of sentence in
the unfair competition claim and the corresponding sentence in the
breach of contract claim. Do those state claims under the governing
Now, we say that these claims actually have to be dismissed for
two reasons. The first is that both of them require SCO to prove
that Novell's statements were false. In other words, that when
Novell said that SCO didn't own the copyrights, that was false
because SCO did own the copyrights.
Now that's an issue that's been fully briefed and will be argued
THE COURT: Monday, yes.
MR. KIM: So I won't go into it now.
The only thing I want to highlight is that there really is no
dispute that if Your Honor determines that the copyrights were not
transferred to SCO, then these two claims must be dismissed because
critical allegation here which is not be provable. And both sides
have simply incorporated by reference of other briefs. So I think
that is undisputed.
So the part I'm going to argue today is that regardless of
whether the statements are true or false or even if those
statements were false, under the governing law, they simply don't
state claims for breach of contract or for unfair competition. They
do state claims for slander of title. Of course, we have
substantive defenses of slander of title, we referred to one of
them today, a lot of reasons that it should be dismissed. But this
is just a tag-along claim, duplicative claim that adds nothing to
the slander of title claim and that has never been recognized by
any court and is it not consistent with the statute.
So that's in a nutshell our basic argument. And before I get
into details, there's one other point that I really want to
highlight. The nature of the claim is quite extraordinary. The
claim is not that Novell came into their
premise and stole something or not that Novell took some
intellectual property and put it in their products and selling it,
that's a different claim. The claim is that in the midst of a very
public, very heated debate about the SCOSource claim, Novell made
statements about its position on copyright ownership and its
interpretation of the contracts. I wouldn't be exaggerating if I
say that normally a person making a statement about interpretation
of a contract is not going to make the headlines, and it's also not
something that you're going to bring claim about. There's no claim.
People disagree all the time on meanings of contracts, and you
don't see thousands of claims being brought. They would be
Now, why? Because that's really extraordinary. There's no --
it's just normal that people when people have disputes they should
be able to talk about their position. And it's a very extraordinary
rule that prevents that. Now, we admit that in the case of slander
of title, if SCO is going to be able to overcome all of the
defenses, show it's false, malicious, unprivileged, all those
things, yes, there would be a claim.
But now what's SCO doing? They're trying to bring the same claim
under a different theory.
THE COURT: But you're saying if they're right about all
these other things, these don't matter because
they're duplicative; right?
MR. KIM: Yeah, exactly. Well, I think there's two
possibilities, Your Honor. One is exactly duplicative of the exact
same defense, adds nothing at all to the case. Let's just clean up
the pleadings and get rid of it. The other possibility, and maybe
this is what SCO is trying to get at, I'm not sure. They may say
that they don't have to prove it's unprivileged. They don't have to
prove malice. They don't have to prove all of that. They're going
to be a new body of claims to get around all those defenses.
Malice, slander, you don't have to prove special damages. They
don't try to do that.
And we're going into a really mirky area because no court has
ever recognized such a claim. So Your Honor will be opposed with
very knowledgeable issues as to whether certain privileged
documents would apply. We say they would. They will argue the
opposite. We're just in uncharted waters, and there's no reason to
go there. Why? Again, no court, no statute are possible. So that's
getting to the heart of this.
Unfair competition. SCO has said Utah law is what they're
relying on. Clear. They've also said they're relying on common law,
and they're relying on statutory law. So let's take those one at a
As to common law, this is one of those dream areas for a lawyer.
You do research a lot of times, and you don't
find anything on point. Here we have a case that is closely on
point. Is it 100 percent on point? No. But it's like 95 percent on
point. That's Judge Winder's decision in the Proctor & Gamble
vs. Haugen case, which was affirmed by the 10th Circuit applying
Utah law found, first, that basically under Utah law, unfair
competition should either be misappropriation or common law.
Second, a claim based on allegedly false and defamatory statements
did not state a claim for unfair competition and therefore was
dismissed. It was just a motion to dismiss.
Now, what's SCO's response? Their first argument is that, in
fact, Novell's statements about copyright ownership were seizing
their property, that somehow by simply saying Novell believes it
owns the copyrights, the property had been taken.
THE COURT: Or misappropriated.
MR. KIM: Or misappropriated. That's just not the way it
is. I mean, misappropriation in the normal language means actually
taking the property in the case of a physical object taking it, and
in the case of intellectual property, it means putting it in your
product and selling it. That's not what happened. There was no
seizure of property.
Simply stating Novell's position didn't change anything. If they
own it, if we own it, same. It's all the same. No seizure. No
misappropriation. And SCO has tried to
cite a bunch of cases which they say cite and support them. If
you look at them, every one of those cases where the normal
situation where misappropriation where somebody allegedly, you
know, they took some trade secrets, put them in their computer
program and were selling it, that kind of thing. And that's
summarized in our reply brief at Footnote 1, Page 2. We just listed
all of their cases and said, this is what it's about. It's not our
case. Some of them involved palming-off. And SCO is not arguing
that there's any kind of palming-off. We're not trying to sell
their product as ours.
So really the Judge Winder's decision in Proctor & Gamble is
really the most relevant here. They have argued that the Utah
Common Law of Unfair Competition goes beyond misappropriation in
palming-off. So when we got the opposition paper, I promptly looked
at their cases. I was very surprised to find out that they had just
really mischaracterized all of those cases. They don't stand for
what they said. They've misquoted them. And that's our reply brief
at Pages 4 and 5, and I won't repeat what's there.
In fact, the P&G case is very clear itself. Judge Winder
said, you know, in Utah there's basically two branches of
misappropriation -- I'm sorry -- unfair competition,
misappropriation and palming-off. The plaintiff here has not plead
either. Therefore -- and there's no Utah court that has ever
extended unfair competition to defamation
in the marketplace. So the Court will not create a new cause of
the action under the umbrella of unfair competition, which would be
essentially identical to an already existing cause of action, and
offer no further protection of commercial finding.
The 10th Circuit affirmed in very similar language said, look,
no Utah court has gone there, and we're not going there,
And SCO has said, well, that's a defamation case. It's not
slander of title. Sure, that's true. But those are very close, and
it's quite common to look at the law. And it's something that's
closest case to our case, in particular just making the statements
about copyright one should not use misappropriation or palming-off.
There's been no claim recognized by that, recognized by any court.
And there's no reason to recognize it because it's duplicative.
The next issue is the Unfair Competition Act, and this fails for
multiple reasons. The first issue is SCO has a really big problem
because the Unfair Competition Act was enacted in May 2004. That's
when it became effective.
And if you look at their complaint, Page 37 has a tab at the top
-- I'm sorry -- Page 10. Page 10, Paragraph 37, there's a list of
Novell's allegedly false statements. It goes on for three pages. A
lot of statements. But you look at the dates. Every single one of
those statements is before May 2004. They're between May 2003
March 2004. And it's very well established in Utah you can't
apply statute retroactively unless there's an expressed statement
of that. SCO doesn't dispute that. So as pled in their complaint,
there is no claim under the Unfair Competition Act because none of
these statements happened before then.
In its opposition, SCO scrambles around and tries to respond
statements that were made after the act became effective, and they
pointed to two things. First, this is one of the most amazing
things, they pointed to Novell's counterclaim, to its pleading in
this case. They pointed, they cited Paragraphs 94 to 98 of our
answer in counterclaims and said, you know you assert that you
owned the copyrights here.
Well, you know, of course pleadings are privileged. And, in
fact, SCO argued exactly that point in opposition in support of
their summary judgment motion on IBM's unfair competition claims.
So I guess when the shoe is on the other foot, it's privileged.
But in any event, the second thing that they've relied on is
Novell's web page. Now, this is actually kind of an intellectually
issue. I found this and said, interesting. I wonder what the law
is, so we looked it up. Well, here's the factual situation. This is
supported by Ken Brakebill's second supplemental declaration,
Exhibits 7 and 8 in
Paragraph 10 and 11.
The website content that we're relying on which is one page
which simply contains links to correspondence that predates the
effective day of the act and also provides links to copyright
registrations which predate the effective date of the act. That
website was posted before the act became effective, and it's just
stayed the same since then. So the intellectually interesting
question is on the Internet, something is posted and just stays
there? Is this a continuing publication even though it's staying
there as soon as the act becomes effective law, now we use it?
Well, it turns out that no Utah court has addressed this. We
found a District of Colorado decision in 2006 that addresses that
issue. They considered the vast weight of authority is in favor of
saying that -- it was a statute of limitation case, I should
mention. But the statute of limitations case, they said, is a web
page that simply stays the continuation publication for the purpose
of statute of limitation or is it a single publication at the
earlier date? And they said, it's a single publication at the
earlier date. And we submit that is the correct rule. So this web
page was published before the Unfair Competition Act became
effective, so they can't rely on it.
Now, if Your Honor were to -- if SCO were somehow able to get up
beyond these procedural hurdle, they still have
a really big problem because the Unfair Competition Act in Utah
is very really narrow. It lists four specific categories of unfair
competition. The only one they've argued upon is software license
violation. And here they say that when Novell said, we think we own
the copyrights, not SCO, that violated the technology license
agreement. They say it violated Section III, which is a statement
that says, SCO shall own the license technology.
Well, it doesn't violate Section III. Section III, what they
really want to rewrite it to say is, Novell shall make no
statements to the public about its understanding of its right under
There's nothing like that, and I would submit that would be a
really extraordinary provision in the contract. It's not there. It
is true, of course, as we just heard, SCO has alleged breach of a
different provision of the TLA noncompete clause, but they haven't
even alleged that there was a breach of this Section III, and it's
way too late for them to amend their claim to bring in a new claim
for alleged breach of the TLA.
And I submit, also, the statement SCO owns the license
technology does not as they've contended -- they've contended that
Novell acknowledges and admitted that they owned the UNIX
copyrights. No. That's a totally separate argument. Licensed
technology is defined as assets that were
The million dollar question in this case is, what assets were
transferred? Our position, of course, is these copyrights were not
transferred. Therefore, by saying that they owned the licensed
technology -- of course, whatever that licensed technology, which
by the way is trade secrets and other sorts of things, that -- you
know, they own that, of course. But it's not an admission of
Anyway, so in summary, the Unfair Competition Act doesn't apply
both because it's not retroactive and because there is no software
license violation that was even plead or that can be proven by the
Finally, they've talked about the Utah Unfair Practices Act, and
they've just tried to confuse the issue. First they suggest that
somehow part of the Unfair Competition Act, there's two separate
chapters of the statute. Second, they say, well, they must have
somehow violated the act. But they haven't listed specific things
that violate. There's things like price discrimination and below
cost sales. None of those provisions apply here.
So, Your Honor, then the last issue is their claim for the
breach of the implied covenant of good faith. The good news is they
actually, the parties do agree on some things. They agree that
California law applies, because now we're in a contract claim. And
this is under the APA.
California law applies to the contract issues.
As to the general standard, the parties have both relied on the
same California Supreme Court decision, Foley from 1998. And that's
just the general standard. But what it says is the implied covenant
of good faith has been developed as a safety valve to fill gaps in
the contract in order to implement the intent of the deal. That's
what it says. Obviously there's a difference in how we would apply
SCO says -- well, let me step back a second. SCO says that they
win under that standard because we violated their intent of the
contract signing. But they haven't cited any provision in the APA
that even vaguely suggests that making a statement about what
assets were transferred or not is a violation of the APA.
So I checked. There's no general confidentiality provision. Just
even the contents of the APA are not confidential. Sometimes they
are, and sometimes they're not. Are there any confidentiality
provisions in the APA? There's exactly one, which is Section 4.5
that says, with regard to due diligence, if the parties do due
diligence, the parties will keep those confidential. Makes
There's nothing in there saying we can't make statements about
the legal interpretation of the contract. Again, that would be most
extraordinary to find. And I think again, the extraordinary nature
of it is very important for
the issue of whether if you are trying to fill a gap. They're
not trying to fill a gap. They're trying to fill a chasm. I mean,
there's nothing vaguely similar to this.
And if you look at the implied covenant cases, the parties have
generally addressed it, but there's something that they haven't
quite specifically addressed. But you reach a little bit to imply
something. That's not our case.
Now, what SCO does rely on is the Restatement of the contract
Section 205 Common E. And I will admit that if you simply read the
comment by itself it tends to suggest SCO's position, because what
it says is that a dispute, conjuring up a dispute or kind of taking
bad faith interpretation of the contract may be a breach of the
obligation of good faith. So that tends to suggests something.
But then you have to go look at the examples. And you look at
the examples. What are the examples? There are two examples both
based on cases, I've looked at both cases. What those stand for is
that if you have a dispute about contract and then based on that,
you refuse to ship a product or you refuse to accept a product,
then there may be a breach of claim. That's obvious. But they don't
say that, if I simply tell you, well, you know what, I think I
don't have to accept your goods, and then you go ahead and accept
the goods, or you say, I'm not going to accept your goods when you
them one year from now, one year hasn't happened. You haven't
taken any conduct. Those cases don't say that simply telling
somebody your legal position is going to be a breach of bad faith.
And they're very strong policy reasons for not holding that,
because when parties have a breach of contract dispute going on,
it's normal that they should be able to talk to each other. And
when it affects the public as this Linux dispute heavily does and
the other party is resulting to public forums and precedent, it's
very normal that you should be able to do that. This is the first
amendment among other things. A strong public policy in favor of
And fortunately for us California Supreme Court has enforced
this policy in the case of Freeman, 11 Cal 4th at 97 and 100. What
that case did was it rejected, it overruled a prior line of cases
that allowed parties to bring a claim for bad faith denial of the
existence of the contract. In overruling that line of authority,
they said, you know, this is bad, because what it means is every
time that you try to defend yourself in a contract breach, you
might get sued, not only for breach of contract, but breach of
these collateral stuff, and you have a lot of stuff going on.
Now, SCO has pointed out that it involved a tort claim and not a
contract claim, but we submit exactly the same policy
considerations apply here. They already have a claim of slander of
title, so why go out and create a new founded
Now, finally, one point, SCO argues that Novell's statement
deprived them much of the expected value of the APA, and,
therefore, they've got to be able to go out, and you've got to
imply, Your Honor has to imply a duty that wasn't written down. And
it just doesn't hold up. They have submitted no evidence that the
APA was signed in 1995. The market was entirely different then.
If you look at the APA and you look at the press release,
there's no suggestion that the reason Santa Cruz was buying the
copyrights because they wanted to go out and sue Linux users. Of
course, there was none. What was the purpose? The basic purpose you
can look at was for them to develop their UNIX business. They
wanted to create a merger product and combine two products lines.
They wanted to expand their UNIX business. That's the purpose, and
there's been no evidence of that. SCO later had a change of heart,
and they have a new business of suing people, Linux people. That
was not part of the APA, and it is absolutely not essential to
implement the party's intent to sign the APA to imply the duty that
simply doesn't exist.
So in sum, they're trying to make an extraordinary new claim.
The cases and the statutes are clear that they can't do it. And
there's also no reason because we already have slander of title and
the accompanying claims.
THE COURT: Thank you, Mr. Kim.
MR. HATCH: First, I constantly hear this comment that
SCO's in the business of suing people. I think Mr. Kim may
misunderstand. I'm the one who's in the business of suing people as
a lawyer. SCO is conducting business and protecting its
intellectual property rights. We're talking about clients who are
in the business of suing. I think we need to only look at the
docket in the Northern District and see that Novell has done its
share of suing, as well. So I don't think that's a particularly
I want to start because this particular motion, it comes to us
in a slightly unique procedural posture. Novell has argued its
motion almost exclusively as a matter of law. They've disputed none
of the facts that we have set forth in our opposition. They've
advanced no evidence to support its motion for partial summary
judgments, and SCO's allegations stand here undisputed for purposes
of this motion. With that in mind, I'd like to take just a second
with your indulgence to go a little bit into the history behind the
claims as outlined in large part in our papers. But I think it puts
it in context of misappropriation here. Basically, and I'm not
going to go into the detail, you know, of the whole case but just
what is fairly relevant here.
In 1995, the Santa Cruz Operation, which we all
know is the predecessor of SCO here, purchased the UNIX and
Unixware business including all copyrights from Novell. Mr. Normand
talked a little bit about that, and, of course, we'll talk about
that even more on Monday.
2003, SCO developed its SCOSource licensing program to protect
its UNIX intellectual property. And that was particularly in
response to the rise of Linux in SCO's UNIX market. Soon after SCO
announced that licensing program and having filed suit against IBM
for breach of its UNIX license, Novell for the first time since
1995, almost eight years later for the very first time claimed that
it never sold UNIX copyrights to Santa Cruz, predecessor of
In fact, on the very day that SCO was announcing its most
profitable quarter in history, SCO knew that -- I mean, Novell knew
that, Novell issued a press release on May 28, 2003, and it's at
Tab 2, I believe, in the book that we gave you. They issued a press
release claiming that it, not SCO, owned UNIX copyrights. And it
was an attempt to affect SCO's stock price.
Now, after that happened, SCO reminded the CEO of Novell of
Amendment 2 to the asset purchase agreement and that that clarified
that the copyrights had been, indeed, transferred to SCO. Novell
then publically admitted that it did appear that SCO owned the
copyrights. Novell conveniently forgets that part of its history.
After talking to their
lawyers and others, Novell again shifted its position to once
again claim ownership of the copyrights. And it was shortly
thereafter we've heard in some of the other hearings that IBM then
announced that it was investing $50 million in Novell, not long
after that change in position.
Novell became more aggressive then in stating its newly changed
position that it was the owner of the copyrights, and it became
more aggressive in its attack on SCO. And throughout 2003 and 2004
and continuing to the present, Novell continued to make numerous
public claims that it owned UNIX copyrights.
Now, facts showed that Novell engaged in this unfair conduct to
damage SCO's business. For instance, there's deposition testimony
in the case, and I think this is one of the reasons why Novell
didn't want to dispute facts and wanted to bring their motion is
just something on the law of the pleadings because they didn't want
to get into these facts.
But there's deposition testimony that Chris Stone, the
vice-chairman of Novell at the time, told the press, and this is at
Tab 3, told the press that Novell's May 28th, 2003, press release
which claimed the claim that Novell owned the copyrights was
specifically timed to hurt SCO and its stock price. As a matter of
fact, the journalist testified and said:
Did Novell executive Chris Stone say anything about the reasons
why they were issuing that announcement on that date?
He said they were doing it because SCO's earnings were that
THE COURT: One of the arguments that Novell here is that
the claim is duplicative. You've already brought this claim. You've
got a slander of title claim, so why do you need another claim?
MR. HATCH: Well, that's an interesting argument because
that's like --
THE COURT: It is an interesting argument, and I want to
you respond to it.
MR. HATCH: And the response is every one of the claims
here have different elements, and they have different aspects, and
they pointed them out. And I'm going to go through those as part of
But slander claim, for example, doesn't require that it be a
competitor. I can slander the title to your home, but I don't have
to be a competitor of yours. Unfair competition requires being a
competitor, and the Unfair Competition Act requires
misappropriation. I'm going to talk about that.
The UPA, the Unfair Practices Act, is older and, frankly, the
early Unfair Competition Claim Act in Utah, and
I'll talk about that. But it has slightly different elements, as
well, as does the common law -- excuse me -- the UCA requires
specific conduct. And each one of them has slightly different
elements. And we have the ability, if we can show the elements and
we can show the facts that support it, to make those claims even
though they may be somewhat similar, because a jury may or may not
find, they may find on all of them, but they may find that some of
the elements support Unfair Competition Act claim, and they may not
support one or the other claims. So we have that right.
Now, they argue, well, maybe that's not efficient, or what have
you. But I think that's the wrong argument at the time. That's not
a basis for summary judgment. I know of zero cases that would argue
that simply because you have claims that are somewhat similar, they
each have their own elements, each of them are a separate cause of
action, and you have the right to bring them, that just because
they don't want to defend them we don't get to bring them.
Now, Novell didn't just make statements. I mean, a lot of what
I'm going to go through here and what Novell talked about is that
we just -- that they just made statements.
Well, they actually did more than that. They actually took
action, and they talk about in their briefs about affirmative
conduct. Well, Novell went so far as to
register the UNIX copyrights in their own name, not too much out
of time proximity with receiving the $50 million from IBM. And they
made those comments in Tab 4. They made those representations and
registrations with the United States Government under oath.
Now, significantly, and one of the things that's glossed over
here and one of our allegations is that these registrations were
for the same UNIX code that in 1995 Novell had placed when it gave
-- when it transferred it to Santa Cruz. Before they transferred
it, they don't talk about this, they took the code and they turned
it from their name, from Novell, to the Santa Cruz Operation saying
that the copyright was held by the Santa Cruz Operation. That's a
fact in the case.
That alone has to raise a question as to Novell's veracity, that
they didn't do any affirmative conduct here. These were merely
words alone, and it has to raise a question as to their involvement
Now, Novell even went so far as to announce in a heavily
attended Opensource business conference that it still owned UNIX.
And with your indulgence, I'd just like to play a short clip
because this gives you some flavor of the evidence that's out
there. And it's like ten seconds, maybe less.
THE COURT: Go ahead.
(Whereupon, the clip was played.)
MR. HATCH: This is then Novell's vice-chairman. And you
noticed what he just said at the end. He said, we still own
While he's doing that, in the face of Schedule 1.1A of the APA
which specifically indicates that all in this first line, it's hard
All rights and ownership of UNIX and Unixware, all versions, all
copies including the source code and without limitation.
Were being transferred to then Santa Cruz, predecessor of SCO,
and then it lists these things.
Now, on Monday, we're going to go in some detail about those
actual transfer issues and go in a little bit more detail about
Amendment 2 and the APA. But in the face of all this, these are the
statements that they're saying they're privileged to make.
Contrary to their assertions at trial, we're going to show that
they lawfully claimed ownership of the copyrights; they made the
statements specifically for unfair purposes to hurt SCO's business;
they made these statements to support IBM's Linux strategy; and
they took affirmative actions consistent with their wrongful
statements by putting them on their website, filing for copyright
registrations they had no right to file for and then putting those
on their website, and making presentations of industry conferences
continued on till today to do that.
Now, it's odd I think in several parts in his briefing that
Novell says SCO cannot rely on statements outside the second
amendment complaint. They don't want us to show these types of
things. And they made comments that I just found were a little odd
for summary judgment. They say:
SCO cannot -- this is Page 6 of their reply.
SCO cannot properly rely on statements that were not identified
in SCO's second amended complaint.
Well, that sounds like a motion to dismiss. Maybe it's a motion
for judgment on the pleadings. But that's the basis they are coming
to you today because they're saying, they can't win these motions
because they didn't plead some of these specific statements, one of
which is the website that he talked about where they continue to
this day to publish the fact that they own the copyrights, which
continues to hurt SCO, and we'll talk about that a little bit more
in a minute. And they characterize it in the brief. This is SCO's
improper attempt to amend its claim. Well, I've never heard
evidence made in discovery, found in discovery somehow as an
amendment of the claim and that you're limited somehow to what you
have in your complaint. That doesn't make any sense. So let's talk
about what we did plead, because I think they played a small
here, as well.
First, I think they've agreed that we've asserted common law
unfair competition. Now, Novell claims that we failed to plead it
properly, and they cite to the Proctor & Gamble case. And they
say numerous times in their briefs and today in oral argument
they've said, we've done that in an attempt to expand Utah law.
Well, that's simply not the case, and it's wrong. In citing
Proctor & Gamble, Novell admits, and I think it's pretty clear
from the case, that it says, Utah unfair competition encompasses at
least two forms of violation. One is passing off and palming, which
we're not talking about hear; and the second is
Now, while we argue that Utah unfair competition is really
broader than that, I don't think we need to for purposes of this
motion because at the very minimum, I think it's undenied that we
have alleged misappropriation. And again, Novell's the one that
chose to put this motion in the procedural posture of attacking the
pleadings. I've seen people bring motions to dismiss which are
really summary judgment motions. In large part, this is a motion to
summary judgment that they brought as a motion to dismiss.
But all we need to do is look at the complaint. They say we
didn't plead it, and I think Mr. Kim even cited to it at Tab 16 of
the booklet that I gave you, Paragraph 122 of
the second amended complaint. As you can see, it clearly talks
about Novell misappropriating SCO's UNIX technology. And so we have
Now, we have only argued that Proctor & Gamble doesn't kick
us out here because Proctor & Gamble is a slightly different
case. One, it's talking about defamation in the marketplace which
we're not talking about here. We're talking about misappropriation
of our intellectual property rights. We're make a straight-up
traditional argument for that, as a matter of fact. Here we're
talking about Novell taking from SCO its goodwill and its
unfettered right to its IP and to force exclusivity of its IP. Its
goodwill and its unfettered right to the IP.
Now, Proctor & Gamble also was a plain defamation case with
a party that had no contractual relationship with the opposing
party, and that's certainly not the case here. So I think, if
anything, the Proctor & Gamble case, which Your Honor is
probably far more conversant with it than I am, is actually
supportive of SCO's claim here and not a position that Novell has
Now, next Novell makes the attempt to say, well, really these
are just words, and words alone can't make a misappropriation.
Well, we cited cases, and they're in our brief, and they're also on
Tabs 8, 9 and 11 that words are enough, and particularly when
you're talking about
intellectual property, which is an intangible right. And you're
talking about goodwill, which is an intangible right. Words can
certainly be enough and can destroy it. And I think the Royer case
makes that inevitably clear, that if you try to read out that, then
people can willy-nilly steal people's intellectual property rights
by simple words. And that's not what the courts intend to limit
unfair competition claims to be.
But we've also alleged that the words here were coupled with
actions, because Novell's essentially saying here is, I can say --
I, Novell, can say I own UNIX, but I don't. If I don't, by saying
it alone doesn't change the ownership, and so, therefore, that
can't be misappropriation.
But even for the Court to accept their erroneous assertion,
that's not what they did here, because Novell conveniently ignores
the fact that it acted on those statements, and they keep saying in
their brief that we need to show affirmative action in furtherance
of the words. Well, they did. They went out and filed false
copyright registrations representing they own the copyrights.
That's not mere words. In the context of this case, words are
enough. But here Novell's misappropriation is not mere words.
They engage in other affirmative conduct in furtherance of their
unfair competition. For instance, they went to the public and said
they own UNIX and would indemnify
the customers who used its products, Suse Linux from SCO
lawsuits regarding that use.
In Tab 4 of our briefing book, Novell also began -- we've also
shown that Novell began discussions in marketing essentially with
SCO's partners and SCO's potential customers saying that SCO did
not own the copyrights.
These are affirmative acts. These are acts to go out and destroy
someone's business, and that's what Novell did. It's more than
just, as I think Novell tried to characterize it, commenting on our
interpretation of the contract. These aren't comments only on the
interpretation of the contract. These are words that were intended
Now, I want to turn to the Unfair Competition Act for a second.
They've addressed that, and Novell has said that the Utah Unfair
Competition Act was not in effect at the time of the statements,
and that, therefore, should not be applied retroactively.
Again, I think they somewhat misstate our claims, because I
think our claims can be fairly characterized as going to the
ongoing nature of the unfair competition here. And so -- and in
that regard, these statements, some of the these statements having
been made, some of the them beforehand, they're still ongoing, and
that's the allegations in the complaint. Again, they were the ones
that said we didn't plead it properly. Well, we did.
If you look at, I think it's Tab 13. Tab 13 I lay out from the
second amended complaint Paragraphs 36, 39 and 24 in particular
that talks about the fact that we are pleading that they have
embarked on this, that they made numerous false and misleading
representations, that they continue to cause damage to and that
they will continue. This is -- you know, we're in a notice pleading
state. They've been put on notice. It's been properly pled that
this conduct has gone on. And, indeed, we've shown with no other
fact, and the reason they wanted -- they say in their brief, Your
Honor, they didn't talk about the website in the second amended
complaint, so they ought not be able to show that as an ongoing and
affirmative continued misrepresentation.
Well, that's odd, one, because why should we? Why does that have
to be in the complaint? The notice in the complaint is already
giving notice of the complaint itself. It isn't there to layout
every single fact in the case. That's why we have discovery. That's
why we have summary judgment motions. And they don't want us to
look at that. And we know now and he's admitted these things are on
So that fact alone gets us past summary judgment, even if we
show none of the other facts that are in our brief or that I've
mentioned in the argument today.
So what do they do? They attack, and this one I
find really kind of humorous partly because they said we misread
cases in other areas in the brief, which I totally disagree with.
But here I don't think they could have more plain misreading,
because you know what he said, he said, I've done a lot of
research, and they've got these cases. And he cited one, really.
And they cited to Bloom vs. Goodyear. It's out of the District of
Colorado. I'm sure they picked it because it was in our circuit.
And they said, it had a first publication on it. And it says that
you only count the first day the website goes up, and you can't
count it as a continuing violation. Remember that?
Well, if you read the Bloom case, and Your Honor I'm sure has,
the only thing that the Bloom case is addressing is statute of
limitations. When should the statute of limitations run? Well, in a
statute of limitations context, that makes a really good point. It
says the statute of limitations would begin to run when you first
publish it. But it does not stand for and there's absolutely no
language in that, and I'm kind of surprised that Novell stretches
it that far, to stand for the proposition that it's only the day --
the only day we could have been damaged was the first day it was
The reality is that every single day that sits there, they know
it's damaging us because they know people get on that website, they
look at it, and they see that they're
still claiming to this day that they own that copyright. And
that is a daily damage to my client.
And if they wanted to get out of that, if this was some
defamatory billboard on the highway and the statute -- there was a
new statute and they left it up, are they really arguing, no, we
put it up before. So I think it's a grandfather clause argument of
some sort. It doesn't make sense. It now violates the statute.
So we pled enough to get past the summary judgment for certain.
And I think that's why they misread these cases because it doesn't
stand for that. They haven't retracted it, either. It's still
there. I think that says a lot.
Now, then they go to, we haven't plead a software violation, and
they site to the Klein Becker case, Judge Cassell's decision. And
again, as Your Honor has a connection with the prior case. I have
one with this because I was actually for once on the winning side
of that one. And --
THE COURT: Is that rare?
MR. KARRENBERG: Yes, sir.
MR. HATCH: And Novell makes -- Judge Cassell didn't find
the logic they tried to put in their brief. Judge Cassell said, you
have to show some specific conduct. And that's because the UCA
says, you have to show, and it lists certain things, and one of
those is a software violation. And Novell says we didn't plead
That's really quite absurd, because if you go to the second
amended complaint, right in the fourth claim for relief, we allege
copyright infringement with regards to the -- and specifically
refer to the technology license agreement that Mr. Normand had been
talking about. And Tab 15, and this is Paragraph 118 from the
second amended complaint, you'll notice throughout it's talking
about the TLA that we, that SCO granted Novell a nonexclusive
license. Novell expressly covenanted not to use those technologies
to compete with SCO's core application server, and Novell has
infringed and is infringing SCO's copyrights.
So they allege that we don't allege a software violation, yet,
there it is in Paragraph 118 in the second amended complaint. And
they said, well, I guess they could say -- I suppose they could say
that's in paragraph -- in Claim Four, and your unfair competition
claim is Claim Five.
Well, I believe it's the next slide, 16. I mean, it shouldn't be
a big point. But Paragraph 121 says, we fully, that:
SCO re-alleges and incorporates all prior paragraphs as if fully
set forth herein.
That's not very novel or unique. But we clearly incorporated
that alleged allegation of a software violation in Claim Five for
unfair competition. And so I think it's very clear that we've
alleged that. They said we haven't, but
it's there. They've been given -- they were given this pleading.
They're on notice. Again, we're in the context of them saying we
didn't plead it in this motion. They've been given notice, and they
know it. All right.
Lastly, they say we didn't plead the Unfair Practices Act. Now,
I'm somewhat confused about this because -- where's that -- Kim
gave you a copy of the second amended complaint. It's very
interesting because I think this is a straw man argument. They want
to interpret our Fifth Claim for relief as simply the Unfair
Competition Act and I think in part so they could set up a straw
man for their retroactivity argument that I've already pointed out
doesn't hold water. And they want to ignore that we're making a
claim under the UPA, as well.
Well, and part of the problem they say there is the UCA started
in 2004. This was the predecessor. If you'd gone and looked for
unfair competition and Utah law prior to the enactment of the UCA
at the time where most of these statements were made, you would
have seen this statute. The UPA. Excuse me.
Well, our complaint doesn't say it's just made under UCA, under
the Unfair Competition Act. What does it say? It says it's a claim
for relief for unfair competition.
And let's see. If you go to the very next page to Paragraph 126,
and it's also at Tab 12 in our book. It says
specifically when it seeks a remedy that we're seeking a remedy
under -- available under the applicable unfair competition law.
So you might say, well, that's pretty vague. But as you'll
recall, Your Honor, we were in here on a motion for more definite
statement where they wanted to know specifically what law we were
doing because they were concerned by applicable unfair competition
law, they wanted to know what that meant, in part, what
jurisdiction, because I think it was a fight whether it was
California or Utah. And you'll recall we reached a stipulation, and
Your Honor issued an order on the stipulation at Docket 250. And if
I could just give you a copy.
THE COURT: Sure.
MR. HATCH: And this is the stipulation. And you'll notice
at the very end of the stipulation, it says:
Consistent with SCO's representation, SCO's second amended
complaint is hereby deemed amended to reflect that SCO's Fifth
Claim for relief arises out of Utah statutory and/or common
Now, it doesn't say just the UCA. They want to read it, and I
understand why, I think we all do, but they want to read it as that
doesn't mean the UPA. Again, we have a notice pleading statute.
They didn't ask for any further clarification. We felt they
And, you know, I have -- just on a whim, I think you saw me
during the last argument send a note back and have somebody run
back to my office. I had them just -- we're a notice pleading
statute, and I know this may be a little, I think Mr. Jacobs said
he didn't want to get cute, and I don't want to get too cute, but I
said, go get me our index to the Utah Code. And there it is, right
under unfair competition, the first statute cited is the UPA,
Unfair Practices Act. The second one cited is the UCA, Unfair
So I think it is very hard to say we didn't plead that. They
could have asked for more if they thought there was something more
limited, but instead they decided to make arguments that we didn't
plead things when we really did.
I think in our brief and in our underlying papers, we've set in
our underlying brief and I think the arguments I made setting out
the facts very clearly that we've shown unfair practices under UPA.
We've shown unfair competition under the UCA and under Utah common
law. Each one of them are slightly different elements, and we have
a right to go forward with them. You know, and so I think that's
completely plead right and it's in the case.
Lastly, we talked about good faith and fair dealing. And I find
this one interesting, as well. And I think the telling thing about
this is they called it kind of a gap filler. And --
THE COURT: Actually he called it a chasm filler.
MR. HATCH: Chasm filler. And that's fair. I think he did
say that. I think the problem is the gap/chasm is of their own
making, because what they're essentially saying is, we can enter
into a contract, transfer your copyrights, and unless you tell us
we can't go out and disparage those copyrights, then we have
absolute freedom to do that.
Well, I find it amazing because the arguments in the brief and
that was made here again today is that, why isn't there a provision
saying we can't do that? That is exactly why there is a cause of
action for good faith and fair dealing, because it fills in that
gap where people don't act reasonably. People, if they buy
something are reasonably intending the other party not to walk out
the next moment and try to destroy either verbally or in any other
way that right.
And so I think this is actually a classic case of the need for
good faith and fair dealing, which is recognized here. They haven't
said that it's a law that isn't recognized. They've tried to make
kind of a cutesy argument that, well, there wasn't any clause in
the contract that said, we can't -- even though we're selling you a
copyright, we can't go out and tell people, but we really didn't.
Who would even think of putting that clause in? I mean, that would
be kind of bizarre because you would never assume that someone
would act with such bad faith that you would have to do
And I think if Your Honor rules the way they're asking, I think
every corporate lawyer certainly in this jurisdiction is going to
have to start putting in clauses that say things that are just
patently obvious. And I think that's why contracts start to get
this big is because people want to make arguments like that instead
of acting in good faith with regard to their contract. And so I
find it kind of an offensive argument, frankly.
And the Foley case. Mr. Kim said we both cite the Foley case.
But it kind of states it fairly succinctly when it says:
These covenants extend to effectuate the intentions of parties
and to protect their reasonable expectations.
I think it would be hard-pressed -- I understand on Monday we're
going to argue about the ownership of the copyrights. But assuming
we own the copyrights as we believe the contracts say, it would be
very hard for I think anybody to argue that a reasonable
expectation would be that SCO would -- that Novell would walk out
the next day and make every effort to destroy that right. It isn't
an intellectual property right. It's goodwill. It's in the air.
It's intangible to a large degree. And I think that's why their
argument is that much more insidious than normal than if it
was being made with regard to an actual tangible piece of
property, because it's that much easier to destroy that right by
words than it is by almost any other means, because who's going to
license this stuff? And I think Mr. Normand put up that evidence
that people who won't contract with us because they clouded the
Your Honor, I think -- lastly, I think we talked -- we saw the
Stone clip. And one of the reasons I played that and given the
history at the beginning is that the Restatement Second of
Contracts Section 205 Common E that was referred to in our brief
and by Mr. Kim, one of the reasons I talked about Mr. Stone in this
is the Restatement clearly says it is a violation to assert an
interpretation contrary to one's own understanding.
Mr. Normand and you will see on Monday virtually every single
person that was involved in the negotiations and drafting of these
contracts has taken the position that the contracts were
transferred to SCO. And the statements that they're now making
after they're in bed with IBM, after they're getting money with
IBM, after they're in litigation, that they own it and being done,
and when they have a product that now competes, that's somewhat
insidious, and it's clearly the type of thing that the Restatement
is talking about.
Thank you, Your Honor.
THE COURT: Thank you, Mr. Hatch.
MR. KIM: Thank you, Your Honor.
Counsel raised a number of arguments, many of which I heard for
the first time today. I'll try to get through them as quickly as
I think it is interesting counsel began, ended where he began
which is talking about the facts. This is not a motion about the
facts. As counsel has rightly said, it could be considered a motion
or judgment on the pleadings or a motion to dismiss. But the
purpose of this motion only, we will accept that all the
allegations are true. The question is, can they bring another claim
where they already have a perfectly good claim
THE REPORTER: I'm sorry?
MR. KIM: Slander of title. When they already have a claim
for slander of title.
So the question at the end is the straw man argument, how can it
be that the law would permit people to go out and disparage
copyrights and there would be no remedy on that? We're not saying
there is no remedy. If they can prove false, malicious,
unprivileged, et cetera, et cetera, there may be a claim. Should we
go out and create a new claim? No.
And it is the implied covenant of good faith, you start with the
contract and the parties expectations under the contract. There's
not a shred of evidence that would support
imposition of what's basically a gag rule about talking about
your interpretation of the contract. And again, there's solid
policy reasons against that. And let me just make one mention, one,
which counsel started out his argument.
He went through the facts, about half of his argument was about
the facts. And one of the things he said is in May 2003, Novell
said publicly for the very first time that they owned the
Now, Novell will be arguing and has argued and will be arguing
on Monday, Novell didn't say anything until May 2003. That means
they just admitted the copyrights were transferred. But now they're
saying, oh, but, of course, Novell start to talk? That violated
You know, you can't have it both ways. That's exactly why
parties should be able to talk. Novell's actions were defenseless.
SCO started the whole thing. Novell had to put its position on the
record. And that's also, by the way, Your Honor, what a duplicate
contract registration is. The facts are in the record. Novell
registered second. SCO registered its copyrights in the summer of
the 2003. Novell registered the same copyrights in the fall of
2003. Those registrations, certainly there's statements in them,
but they have absolutely no legal significance as to who owns the
copyrights. The copyright office will simply accept the
registration. They won't examine the validity. They don't
get into disputes. And significantly, if you look at 17 USC
Section 410(C), it says that:
A copyright registration is prima facie evidence of the validity
if made within five years of publication of the order.
These registrations on both sides were more than eight years
later. So the registrations themselves have no legal effect. So
effectively there are some (unintelligible) it's just another
statement of the defense position. You could be sure that if Novell
didn't register its copyrights when it did, SCO would argue, it
didn't register its copyrights, so it must have conceded the
That's exactly the policy reason why people should be able to
take positions on that issue. And by the way, we're not saying that
you could never make a claim of any sort based on words alone. For
example, false advertising is a well-established branch of the law.
It has special rules, special statutes in Utah. They have a special
statute I understand. It's separate from unfair competition. False
advertising is not part of unfair competition.
In fact, in the P&G case, the 10th Circuit reversed the
Lanham Act claim. They said that can proceed, but the unfair
competition cannot go ahead.
Counsel has talked about evidence discovered in discovery, and
you should be able to add new statements.
Well, what are they talking about? The website, which was up
there in 2004. That is not evidence that was discovered in
discovery. They knew about that. That's what they want to rely on
The District of Colorado case that I mentioned, as I mentioned
is a statute of limitations case. We could not find a case
involving publication retroactive application of the statute. But
we think it's very closely on point. We think the single
publication rule should apply, and, therefore, they can't
retroactively reach out to a website that was published before the
But even if it did, there is absolutely no software violation.
And what counsel has done, they said, we pledged a different
software violation. We've alleged that you've misappropriated our
property and things like that. That's a state claim. That's not at
issue here. We're talking about the statement itself, the statement
itself doesn't seize anything.
Now, there's one thing that counsel said, which is that they
have cases for the proposition that words alone can be enough. He
said that they cited it in their brief, and it's at Tabs 8, 9 and
11. I invite Your Honor to compare the cases at Tabs 8, 9 and 11
with SCO's brief. None of them are in the brief. The first time
I've ever seen those cases was today, so I'm obviously not prepared
to talk about those
cases. But from a cursory glance at them -- therefore, we object
to them. But a cursory glance at them indicates they're really kind
of product disparagement type cases. From their brief description I
can't tell. They say it's procedurally different than what is
involved in the discovery dispute. They don't seem -- there's
nothing in there that suggests that the words in this case, a
statement about a legal position on the interpretation of a
contract would trigger a claim of any sort.
The Unfair Practices Act, just to be clear, we have two
positions. One, we're not clear that it was on notice, but even if
it were, the Unfair Practices Act has a list of probative
practices, such as price discrimination and tie-ins, and we're not
close to any of those. So it just wouldn't help them, anyway.
So I think I'd just like to begin where -- end where I began,
I'm sorry, it's the end of the day, which is this is a claim that
no court has ever recognized, this kind of claim. There are strong
policy arguments why the parties should be able in this kind of
dispute to say what their position is. Slander of title could apply
if they can prove everything. But there is absolutely no reason to
go beyond that. Thank you, Your Honor.
THE COURT: Thank you, Mr. Kim.
Thank you all. I'll take these motions under
advisement. We'll be in recess. I look forward to seeing you all
(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 May 31, 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 from 3
through 116 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