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June 4 Novell Summary Judgment Hearing Transcript
Tuesday, June 19 2007 @ 12:22 AM EDT

Here, thanks to Steve Martin, is the June 4th summary judgment hearing transcript in SCO v. Novell. This was the hearing on the dueling slander of title claims. So each side gets to reply to the other, so that is why it's not the usual three-part arrangement.

The first thing we learn is why there was all that rescheduling. It wasn't confusion on anyone's part. It had to do, sadly, with a death in Stuart Singer's family. I know you feel as I do, that we send him our condolences in the loss he has suffered.

As usual, he is able to make the impossible sound absolutely convincingly plausible. It's a gift, without a doubt. Of course, that's until you snap out of the cloud of acceptance he puts you in, and listen to Novell's Michael Jacobs. It's not a surprise that Judge Dale Kimball thanked the lawyers for their "efficient arguments" and their "brilliant briefs", and I'm sure he's enjoying this high level of skill as much as we are.

There is a lawyer listed on SCO's team that I don't recall seeing before, Mark Chaney. I can't seem to find anything on him either. So he will be our mystery man for the moment.

You'll find a lot of exhibits referenced, and to give you a hand, I've added links to those documents, so that is a change from the original. The exhibits can mostly be found on our Novell Timeline page or on our Contracts page, but it seemed sensible to intersperse them for you, because this is getting mighty complex.

On the first motion heard on June 4th, Novell's Motion for Summary Judgment on its Fourth Claim for Relief, you'll find all of Novell's exhibits attached to the Declaration of Kenneth Brakebill here or on the timeline page as number 173 on the docket list. I mention it in case I miss something you'll know where to look to find it, but also some of the exhibits are not referenced at the oral hearing, and you still might find them interesting to read. And here is SCO's Cross Motion [PDF].

********************************

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

________ )
)
THE SCO GROUP, INC. )
)
)
Plaintiff/Counterclaim-Defendant, )
)
)
vs. ) Case No.
) 2:04-CV-139 DAK
)
NOVELL, INC., )
)
)
Defendant/Counterclaim-Plaintiff. )
)

BEFORE THE HONORABLE DALE A. KIMBALL

DATE: JUNE 4, 2007

REPORTER'S TRANSCTIPT OF PROCEEDINGS

MOTION HEARING

VOLUME II

Reporter: REBECCA JANKE, CSR, RMR

1

A P P E A R A N C E S

FOR SCO GROUP: HATCH, JAMES & DODGE
BY: BRENT HATCH, ESQ.
[address]

BOIES, SCHILLER & FLEXNER
BY: STUART H. SINGER, ESQ.
EDWARD J. NORMAND, ESQ.
MARK CHANEY, ESQ.
[address]
FOR NOVELL: MORRISON & FOERSTER
BY: MICHAEL JACOBS, ESQ.
[address]

ANDERSON & KARRENBERG
BY: THOMAS KARRENBERG, ESQ.
[address]

2

JUNE 4, 2007 SALT LAKE CITY, UTAH

P R O C E E D I N G S
* * *

THE COURT: We're here this morning in the matter of SCO Group vs. Novell, Inc., 2:04-CV-139. For Plaintiff, Mr. Stewart Singer.

MR. SINGER: Good morning, Your Honor.

THE COURT: Good morning. And Mr. Edward Normand and Mr. Mark Chaney.

MR. NORMAND: Good morning, Your Honor.

For defendant, Mr. Michael Jacobs.

MR. JACOBS: Good morning, Your Honor.

THE COURT: Mr. Thomas Mr. Karrenberg.

MR. KARRENBERG: Yes, Your Honor.

Mr. Brakebill had to step out for a minute.

THE COURT: I was going to say Mr. Brakebill is here, but I don't see him.

MR. KARRENBERG: He'll be in, in just a secdond.

THE COURT: All right. Now, first we're going to argue the cross motions on the Fourth Counterclaim regarding the SVRX licenses, correct? No?

MR. SINGER: I think it's a motion and a cross motion on the fourth claim.

3

THE COURT: Yeah. The cross motion. What did I say, the cross claim? Cross --

MR. SINGER: We understand we're going to argue both motions at the same time.

THE COURT: So, how do you want to do this?

MR. JACOBS: Your Honor, I think we moved first on this one.

THE COURT: So you go first, and you're going to tell me why I ought to grant your motion and not grant his.

And you're going to do the same.

And you each get a brief reply.

How much time are you going to take on this one?

MR. JACOBS: Half an hour.

THE COURT: All right. Go ahead, Mr. Jacobs.

MR. JACOBS: Good morning, Your Honor.

THE COURT: Good morning.

MR. JACOBS: When we were here on our previous 4.16-B) related -- 4.16 related motion, we argued our claim to money that SCO had received from SUN and Microsoft based on the contention that all or some of that money was SVRX royalties within the meaning of the Asset Purchase Agreement. The focus of SCO's opposition to that motion was a source-versus-binary distinction and

4

a distinction between then existing SVRX licenses and future SVRX licenses.

On this motion, which goes to Novell's rights under 4.16-B), to waive claims that SCO has made against IBM and Sequent, the focus of SCO's argument has shifted, and now they are arguing really with intense focus on this product-supplement-versus-software -- software agreement distinction that's found in the structure of the SVRX licenses that Novell inherited from AT&T.

So I thought what I would do is spend a little bit of time walking through the structure of the UNIX licenses so we can see exactly what SCO is arguing and what legal effect it might have. And I'm going to be relying on the Brakebill declaration that came with this motion and some exhibits that are attached to it. Do you have that?

THE COURT: Go ahead.

MR. JACOBS: And I'm going to be -- of course, we have the binder from Thursday. Do you have your copy of that?

THE COURT: She can go get it.

MR. JACOBS: That's all right. We have an extra one. Do you have one?

THE COURT: I guess I thought you would give me a new one today.

5

MR. JACOBS: And I've also given you, Your Honor, a copy of the draft Amendment No. 2 [PDF] to the Asset Purchase Agreement that's attached to the Amadia declaration, which is submitted formally as part of our motion for summary judgment on the copyright claim. As we will see, it has relevance to arguments SCO is advancing on 4.16-B).

So, if you have the Brakebill declaration there, Your Honor, let's start with Exhibit 25 [PDF], which is where the dispute begins.

THE COURT: Okay.

MR. JACOBS: Exhibit 25 is the March 6, 2003 letter from SCO to IBM in which SCO says: We're the successors to a set of UNIX-related licensing agreements. Because of the Asset Purchase Agreement, we have rights to enforce under those agreements, and we accuse you of violating those agreements, and we're going to terminate the license that you received from AT&T and that was made, quote, irrevocable, unquote, by Amendment X.

And you know lot of that history from the IBM motion.

Just as an aside, at the top of page 3, the claim that SCO is advancing at this point is a violation of their trade secrets rights which, as we know, is no longer in the case. And so, if you look at the top of

6

the letter, you will see that SCO is referring to Software Agreement Number SOFT 15, Sublicense Agreement Sub 15-A, Substitution Agreement, Side Letter and Amendment X.

Now, if you take a look at Amendment X, which is Exhibit 13 to the Brakebill declaration, you will see in the recitals how Amendment X incorporates the previous agreements that related to this version of UNIX, and, in particular, it cites the version of UNIX. So it's UNIX System V Release 3.2 in the second line of the recitals. And then Amendment X recites a series of agreements that licensed to IBM, UNIX System V Release 3.2, and there's the SOFT 15 agreement referenced there. There's the sublicensing agreement referenced there, and there's a supplement number 170.

And what that agreement -- now, this is an -- this is an agreement that was concluded after months of negotiation between SCO, Novell and IBM, so the lawyers are intensely involved in this.

THE COURT: You mean Amendment X?

MR. JACOBS: Amendment X, yes. The agreement says Novell acquired AT&T's rights under the related agreements, and the related agreements are all the agreements; the SOFT 15, Sub 015, Supplement 170. And then there's the Asset Purchase Agreement, and SCO

7

purchased, and -- it says: SCO purchased and Novell retained certain rights with respect to the related agreements.

So, right there in the recitals, it's specifying that Novell retained rights with respect to the related agreements; not merely the supplement, but the entire package of licensing agreements. So, right there in 1996, close to the time of the Asset Purchase Agreement, the parties are documenting their understanding at the time, and it is making clear that Novell retained rights with respect to the entire package of agreements that licensed UNIX System V Release 3.2 to IBM.

Well, as I mentioned, SCO is focusing -- and as the briefing makes clear, SCO is focusing on this Product Supplement distinction, so let's look at the supplement. And that's Exhibit 12 [PDF] to the agreement. Now the supplement starts out by crossreferencing the agreement to which it relates, and that's SOFT 15, and then at the top it says Supplement 170. And if you look at the supplement, you will see that it is a lengthy list of locations for designated CPU's, the name of the specific software product, and per-copy fees.

And perhaps importantly, depending on how you view these agreements, it makes it quite clear that

8

there's a lot of source code involved in the supplement. In fact, there's reference after reference after reference to source in the supplement. It's just on the right-hand column of the supplement.

Now, if you go -- now, as I mentioned, 190 -- and as you have seen from the other documents, 190 relates to SOFT 15, so let's take a look at SOFT 15, which is Exhibit 5 to the Brakebill declaration. And this is, if you will, the master agreement. And it sets up the basic structure of the SVRX licensing arrangements that AT&T established. And in paragraph 2 of the software agreement, it makes clear that the way you make a software product -- say UNIX System V Release 3.2 -- part of this agreement is you execute a Product Supplement. And the Product Supplement or Product Supplements then become a part of the software agreement. It says that in paragraph 2.

And then if you look at the body of the agreement, of the SOFT agreement, you will see that it's in Article 2 that the licensee is actually granted rights, granted rights to use the software product identified in the supplement. And then importantly, in terms of the way SCO has tried to tee up the argument, it's Article 5 that actually says the licensee has an obligation to pay.

9

So the supplement will set forth the fee Schedule, but it's Article 5 that actually establishes the binding obligation on the part of the licensee to pay the fees that are set forth in the Product Supplement, and the reason I focus on that at this stage is that part of SCO's core argument here is that all of this section -- Article 4 -- these Article 4 provisions, including 4.16-B), were about protecting Novell's revenue stream.

And that's why we should focus exclusively on the Product Supplement because that's where the prices are. But the obligation to pay is set forth in Article 5 of the software agreement. So, in short, it is the software agreement that grants the substantive rights to the SVRX products listed in the supplement, including the rights to use, modify, distribute, prepare derivative works and, in the case of Supplement 19 -- 170, those are rights with respect to source code.

So, back to the dispute. IBM has threatened to terminate -- I'm sorry. SCO has threatened to terminate IBM's SVRX license. The industry is in an uproar, and Novell steps in at Exhibit 27 [PDF]. And Exhibit 27 is the letter from Novell to SCO in which Novell laid out its view that "irrevocable" meant "irrevocable" and that SCO didn't have the right to terminate IBM's software

10

agreement and that it -- it was directing SCO, pursuant to Section 4.16-B), to waive termination of the license.

SCO responds at Exhibit 28 [PDF] of the Brakebill declaration, and in the very first paragraph, the capitalized term "SVRX License," is used. So it's a letter to the CEO of Novell from SCO: Dear Jack. This letter is in response to yours of June 9, 2003. In your June 9 letter, you attempt to assert claims on behalf of IBM with respect to its SVRX capital "L" license with SCO.

So, at this stage, SCO has not come up with a theory why IBM's SVRX small "l" licenses are not also capital "L" licenses, although the letter does go on to explain SCO's view about why Novell doesn't have the right Novell asserts.

Then in Exhibit 31 [PDF], Novell writes again to SCO and says: We have the right under 4.16-B) to direct you. If you don't take the action we direct you to take, then we have the right to take that action on your behalf. We are hereby taking that action on your behalf, and we are waiving termination.

And then, in Exhibit 33 [PDF], Exhibit 33 is the letter in which Novell directed SCO to waive its claims regarding IBM-developed code. And, again, you have the issue in the IBM case of what the license agreement

11

means. Novell had a view. Novell expressed that view in that letter and said to SCO: We disagree with you. We direct you to waive your claims about the use of IBM-developed code, and if you don't, we will take action on your behalf, which Novell subsequently did.

So that sets up the dispute that we are asking you to rule on summary judgment. You've seen the language of 4.16-B) for many times, I'm sure, but just to remind ourselves that the second sentence says: In addition, at seller's sole discretion and direction, buyer shall amend, supplement, modify or waive any rights under or shall assign any rights to any SVRX license to the extent so directed in any manner or respect by seller. In the event that buyer shall fail to take any such action concerning the SVRX licenses, as required herein, seller shall be authorized and hereby is granted the rights to take any action on buyer's own behalf.

Now, we established, I think, in the last hearing that this set of provisions in Article 4 of the Asset Purchase Agreement set up SCO as Novell's agent and its fiduciary with respect to the administration of SVRX licenses. And this provision, Section 4.16(b)is, in that sense, then, the -- both the grant -- part of the grant of and a restriction on the rights of Novell's agent and fiduciary SCO and makes it clear that Novell retained

12

plenipotentiary authority over the administration of the SVRX licenses and, after all, Novell could even demand that the license be assigned back to Novell under the assignment clause of that provision.

As I mentioned, SCO says that SVRX licenses are only the Product Supplements and they have a parsing of the included-assets list that they believe supports that argument. We think this argument makes very little sense, and let me show you why. Suppose we go with SCO on this argument and we say that Novell retained 4.16(b) rights only with respect to Product Supplement 170. That's the supplement at issue in the waiver of SCO's claims against IBM. That's the supplement that makes UNIX System V Release 3.2 subject to the software agreement.

Now, just as an aside, if you go to look at the list of SVRX licenses, UNIX System V Release 3.2 is there. So there's no question that UNIX System V Release 3.2 in some way falls within the scope of SVRX licenses.

Under SCO's reading of 4.16(b), if we substitute Product Supplement 170 for the language, it would read: In addition, at seller's sole discretion and direction, buyer shall amend, supplement, modify or waive any rights under or shall assign any rights to Product Supplement 170 to the extent so directed in any manner or

13

respect by seller.

And then there would be the right of Novell to take action on SCO's behalf if SCO didn't follow that direction. All of the rights of the licensor and the rights of the licensee with respect to Product Supplement 170, and hence, all the rights with respect to UNIX System V Release 3.2 are set forth in the software agreement in Amendment X and the other instruments that relate to Product Supplement 170.

Product Supplement 170 is legally inert. It grants no rights. It imposes no obligations. It's a menu. It's a price list, but it is not a definition of legal rights and obligations. So, in order to waive rights with respect to product 170, you have to look at what those rights are, what, in this case, SCO's rights are. And where do you go to find what SCO's rights are with respect to Product Supplement 170? You go to the documents that Product Supplement 170 is expressly made a part of and integrated into. And in that case, that would be SOFT 15 or Amendment X.

Now, SCO basically ignores this problem in the analysis that it gives the Asset Purchase Agreement. It says that its issues had do with -- it's IBM issues had to do with source code and so it tries to draw the source/binary distinction again. But Product Supplement

14

170, as we have seen, is all about source code. It's all about a grant of rights to IBM, the price list and Schedule with respect to source code.

So Novell retained the right, even under their theory, to direct SCO to amend, modify, supplement or waive any rights under the source code for UNIX System V Release 3.2. Again, this is their -- even assuming that you sort of start in looking at the definition of SVRX license with Product Supplements.

Now, I've handed you a -- the exhibit from the Amadia declaration [Exhibit 1; Exhibit 2] because it not only is relevant to the copyright argument but it's relevant to SCO's Amendment No. 2 argument. And SCO's argument, if you look at Amendment No. 2, in paragraph (b)(5) it says: This amendment does not give Novell the right to increase any SVRX licensee's rights to SVRX source code, nor does it give Novell the right to grant new SVRX source code licenses. In addition, Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the agreement.

Now, the plain language of Amendment No. 2 is that this paragraph 5, first of all, relates to buyouts because it's indented from Section B of Amendment No. 2, and, secondly, it's internal to the amendment. This amendment does not give Novell the right -- well, we have

15

never claimed that Amendment No. 2 gave Novell some rights with respect to SVRX licensee source code.

And then it says: Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the agreement.

Again, we have never argued that we were trying to prevent SCO to exercise some right with respect to SVRX source code that was granted by the Asset Purchase Agreement. So the plain language of Amendment No. 2 defeats SCO's argument. But, if you look at the draft that was sent over by Steve Sabbath of Santa Cruz in 1996, and you look at the -- at the out-to-the-margin paragraph underneath C, SCO -- Santa Cruz proposed Amendment No. 2 to say: As stated in Amendment Number 1 to the agreement, Novell has no rights or interest in the source code pertaining to the SVRX licenses.

THE COURT: Your argument is that that didn't survive?

MR. JACOBS: I'm sorry?

THE COURT: Your argument is that that didn't make it into the final agreement?

MR. JACOBS: Exactly. And we know what it means -- clearly we know what it means to say what the APA said versus what this amendment says. Moreover, it's quite clear what's happening by way of, again, the

16

geography of the amendment, that it's moving into an indented position enumerated under B.

Our view, Your Honor, is that Amendment No. 2 and paragraph 5 of Amendment No. 2 has absolutely nothing to do with the issues pertaining to Section 4.16(b) and Novell's rights to direct SCO in that connection. What happened in 2003 is that SCO made a sudden turn of business direction. They broiled the industry. They upset well-settled expectations about the meaning of SVRX license provisions.

As I mentioned, you already have the IBM motion on the meaning of the licenses, but Novell took a position about the meaning of the licenses and exercised its rights over its fiduciary, its agent SCO, to rein it in, in what Novell viewed as SCO asserting an untenable position with respect to what the license meant.

We ask that the Court, on summary judgment, rule with the plain language of Section 4.16(b), that Novell had the right to direct SCO to take any action with respect to SVRX licenses and to give the waiver that Novell executed with respect to the claims SCO asserted their full force and legal effect.

THE COURT: Thank you, Mr. Jacobs.

Mr. Singer.

MR. SINGER: Your Honor, if I might approach, I

17

have a couple of books.

THE COURT: All right. Thank you.

MR. SINGER: Your Honor, first of all, I'd like to thank the Court and also thank Novell for the consideration paid in rescheduling this argument for me due to the loss of my mother last week. I appreciate that.

THE COURT: Sorry about your mother. And that's no problem.

MR. SINGER: Thank you, Your Honor.

Thank you for your cooperation.

I'd like to begin with an observation that applies both to this motion and the one that we argue later regarding copyright ownership because if the Court sits back for a moment and looks at Novell's twin positions, those positions would mean that SCO paid over $200 million for a UNIX and UnixWare business where it did not get the Court intellectual property protection, copyrights protecting UNIX and UnixWare, and left in Novell's hands the absolute right to reach in, countermand, waive and direct how SCO would conduct that business in the future.

We submit that is contrary to the intent of the APA as reflected in that document itself. If one turns to our tab number 1, one sees that Novell's claim would

18

allow any SVRX licensee to use, disclose and profit from source code without any protection or compensation to SCO. Their position would say they could reach in and waive any material breach of any contract related to SVRX source code, and it would destroy the value of UnixWare source code and licensing, which are built on that prior SVRX technology.

By contrast, at tab 2, we show that in the agreement itself, it was contemplated that the APA would transfer all rights and ownership of UNIX and UnixWare to Santa Cruz. That was expressly stated in Section 1.3(a)(1) of the APA: It is the intent of the parties that all of the business, which is a defined term, and all of the seller's backlog relating to the business be transferred. And "business" is defined as the business involving UNIX and UnixWare.

On the Schedule, which we will talk about more later this morning, the Schedule of included assets provides that all of seller's right, title and interest to the assets are being sold; all rights and ownership of UNIX and UnixWare are being sold. It is fundamentally inconsistent with the transaction provided for in the APA to give Section 4.16(b) the reading that Novell has asked you to give it. It does not make sense that any party would pay $200 million for a business and not have the

19

right to run that business.

We would like to turn to 4.16, and I would like to spend time on that because we submit it has a meaning. It has a limited meaning to protect the binary royalty stream and existing binary royalties, which Novell was counting on for part of the purchase price, but not more than that. And it specifically does not have this broad interpretation based on the plain language meaning.

Now, I have taken Section 4.16 and put it on this board. It also appears at tab 4 in the book. SVRX licenses are not specifically defined as such in the APA. They are referred to under 4.16(a). There is not a definition which says, for example, that an SVRX license is every contract that relates to any binary code, source code or relates to SVRX products. You won't find that in this section or any section of the APA.

What you have is a provision under A, which says SVRX licenses, as listed in detail under Item 6 of Schedule 1.1(a) hereof and referred to herein as SVRX royalties. Schedule 1.1(a) is a Schedule of the assets being sold by Novell to SCO in the transaction. If we turn, for a moment to that particular provision -- and that's also found -- the point I'm making is at tab 5. What do we learn?

We do not have a provision under 6 which

20

says -- and this is, I think, the key misunderstanding upon which Novell's argument is predicated. They act as though this Item 6 says: SVRX licenses are all contracts relating to the following products.

It doesn't say that. What it does, in transferring assets to SCO, it says that all contracts relating to the SVRX licenses. And then that was amended from just those to auxiliary product licenses, which are collectively the SVRX licenses, the SVRX licenses and the auxiliary product licenses listed below. It distinguishes between all contracts, which is what's being transferred to SCO in Section 6 of this Schedule, and the SVRX licenses themselves, which are the ones supposed to be listed below.

Of course the confusion engendered here is that licenses, as such, are not listed below. Products are listed below, which is, we submit, an ambiguouity that is created by the way this was put together and, therefore, requires one to go back to the 4.16 to understand what was the scope of rights that was retained by Novell.

And when you look at 4.16, we think it follows from -- all of this deals with royalties, which, as we've argued before, meant the existing royalty stream on binary code products. The source code royalties, to the extent there was any confusion about that, were given up

21

by Novell in Amendment 1. And B is a protection that should be read related to those royalties, and there is nothing in here which says, when it says SVRX license, that any contract relating to an SVRX license is within the scope of what Novell could waive.

And specifically, we submit, it doesn't include the contracts that are at issue here because those contracts were in fact transferred by a different Section of the APA Schedule 1. Section 3 of that document provides that all of seller's rights pertaining to UNIX and UnixWare under any software development contracts, licenses and other contracts to which seller is a party, including, without limitation -- and then you go to the next page of the Schedule of Assets which are sold, and you come to Item L, Software and Sublicensing Agreements.

This includes the source code and sublicensing agreements that seller has with OEM's, which obviously includes IBM as an original equipment manufacturer. The software and sublicensing agreements are not part of Section 6. They are part of Section 3. If the parties contemplated that Novell, for some reason, would have a right to interfere with SCO's administration of 3-L, then that would have been what is set forth somewhere in the APA. It isn't there.

Their misunderstanding is that they are reading

22

Section 6 wrong. They are reading Section 6, where it says that all contracts relating to the SVRX licenses are transferred to SCO, as meaning something it doesn't say. It does not say that SVRX licenses means all contracts relating to the following products. That's not in Schedule 1. It's nowhere in the APA. And that is the foundation on which the entire argument being made by Novell rests.

Now I'd like to spend just a moment talking about the role of the Product Supplements in connection with this because -- and the software and sublicensing agreements, as opposed to the SVRX licenses. Software agreements, such as the ones under Section 3(l) -- and we address this at tab 7 in our book. Software agreements give original equipment manufacturers, like IBM, the right to use source code in UNIX to have created their own UNIX flavor.

So the original agreements which we are suing IBM under are related to giving them the source code of UNIX, saying you can make derivative products. They made those flavors, like AIX and Dynix, and they were subject to restrictions. The sublicensing agreements give those manufacturers the right to duplicate and distribute those UNIX flavors in a binary code format that doesn't disclose the actual code in usable form if someone wants

23

to take it and put it in another product.

And those two agreements, the software agreements and the sublicensing agreements, are part of what's transferred under Section 3(l) of Schedule 1 as to which there is no right in the APA for Novell to intervene and interfere with how SCO runs that business.

Now, the Product Supplements are product-specific licenses that have to be signed by the OP, the manufacturer, before you sell the product to end users for use on specific CPU's, central processing units, and which set the royalties, the binary royalties, which is what Novell has a retained interest in and is what, we submit, therefore, was the purpose of B, to protect those royalties, and is what was the intent of listing products in this Section. It is the only interpretation that makes sense in light of the structure, language of this provision.

And, in fact, contrary to what Novell suggests, the Product Supplements do set forth rights, the rights for payments of the applicable fees set forth in those Product Supplements. And those Product Supplements and the binary rights were subject to buyouts, like occurred with IBM and Hewlett-Packard and others, whereby a party would come in, as IBM did, and seek, for one lump sum, to buy out those rights. And especially after that occurs,

24

Novell has no right to come in then, years after the fact, and say: Now we want to come back and we want to revisit how SCO administers its source code contracts with IBM.

Now, Novell has suggested that somehow there is some interest that they are protecting because they don't like SCO's position in the IBM case. If SCO's position is warranted, this Court will so rule, and Novell is under no jeopardy from IBM under any of these agreements where royalties have been paid up. If SCO is wrong, then no rights take effect as a result of SCO's litigation, as well, on Novell. Novell has no interest that it is legitimately seeking to protect by the actions that it is seeking to take.

Your Honor, I think it's also important that the Court interpret these provisions in light of the rest of the APA. It is, as the Court is aware, settled law that one should interpret a clause consistently with other provisions in a contract and in a way that doesn't render those other provisions in the contract meaningless. We have put some of that law into our argument exhibits at tab 9. I don't think there can be much dispute with that principle.

Let us consider, though, what it would mean -- at tab 9, I should say, and at tab 10 which says the APA

25

must be construed to effectuate the purpose of the contract. And at tab 11 we give just a few examples of how Novell's interpretation would make a sham of the APA. Whereas Schedule 1.1(a) grants SCO all rights and ownership of UNIX and UnixWare, under Novell's interpretation, they would have a veto under every decision which SCO might seek to make, either directing SCO how to take action or, if SCO disagreed with it, to take that action itself.

Schedule 1.1(a) granted SCO all of seller's rights pertaining to UNIX and UnixWare under these software development contracts, like the IBM contract. It doesn't say: Except for Novell's right, as the seller, to come back in and change any decision that SCO seeks to make.

Schedule 1.1(a) grants SCO all of seller's claims arising after the closing date, but Novell takes the position that they can come in here and, when SCO believes its business is threatened by a breach by IBM, that SCO is 80 percent of the UNIX-on-Intel market, and IBM's actions in distributing code were undermining that business by giving it away to Linux, and seeks to protect it's intellectual property rights, SCO says: You can't do that. You don't have these claims. You don't have these rights. We still have them. We can tell you not

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to exercise them.

That is fundamentally at odds with and, we submit, makes a sham of all these other provisions of the APA for which SCO paid over $200 million.

Now, there's one additional part of the APA which we think makes it even clearer that Novell does not have these rights, and that is Amendment 2. First of all, how did Amendment 2 arise? Amendment 2 and Amendment X, which you have heard Novell's counsel talk about, came about at the same time in connection with the negotiations with Novell and with IBM that arose when Novell tried unilaterally to enter into an agreement with IBM for a buyout.

And as we'll get to a little bit later in more detail when we talk about extrinsic evidence, it was principally because Novell -- if Novell had the rights which they claim they have under 4.16, you wouldn't have an Amendment X. You wouldn't have an Amendment 2. They could have just taken this action unilaterally.

Amendment 2 made clear that Novell's rights do not extend to taking action that affects SCO's rights regarding source code, such as the rights it is seeking to pursue in its claims against IBM under these contracts. Section B of Amendment 2 said: Notwithstanding the provisions of Article 4.16 -- so it's

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a limitation on 4.16, Sections B and C -- any potential transaction with an SVRX licensee which concerns a buyout of such licensee's royalty obligations shall be managed as follows.

Now, IBM was such a licensee. There was a buyout concerning its royalty obligations. There is no reason why this an amendment, which arose in the context of a dispute involving IBM, somehow doesn't apply to Novell's future relationship with IBM. Of all third parties out there, these restrictions should apply to Novell's relationship with IBM.

In restriction 5, which says that not only did the amendment not give Novell the right to increase an SVRX licensee's rights to SVRX source code, it says: In addition, Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the agreement, with the APA. That language, we think, is key because it confirms that Novell cannot do exactly what it's seeking to do here.

Now, in response to that, Novell says: Well, this was moved from a draft from outside of the whole Section to a subparagraph of (b)(5), and, therefore, it should be considered limited to buyout transactions. And I would suggest to that, two things. Number 1, this was a buyout transaction involving IBM. So, even if one

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accepted that limitation, it still should apply to IBM going forward.

It doesn't say that once the buyout is over, you can come back later and suddenly waive rights that you couldn't waive in connection with the buyout. And, secondly, the reason it refers to buyouts, we submit, is that outside the context of a buyout, there was no plausible basis for Novell to assert --

THE COURT: No what?

MR. SINGER: Excuse me?

THE COURT: There was no what?

MR. SINGER: No plausible basis for Novell to assert it had any rights to interfere with source code or the administration of source code by SCO. It was only in this buyout scenario that the issue came up. And if you look -- another way of looking at it is this, we submit, Your Honor: If Novell could waive rights in advance of a buyout or waive rights after a buyout, unilaterally, it would be meaningless to restrict what Novell could do during the buyout process itself. They could either do it before or afterwards.

The only sensible interpretation of this language is that it prevents the very action which Novell seeks to take here, unilaterally reaching into the relationship between SCO and a third party, such as IBM,

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and trying to restrict SCO from exercising its rights with respect to source code in connection with the agreement.

It is on this basis of the language that we believe we are entitled to our cross motion for summary judgment on plain language of the agreement being granted, saying that this language precludes the interpretation that Novell advances.

Now, if the Court were to disagree and, after looking at these different provisions, find that there is ambiguity, I want to spend a few moments in discussing the role of extrinsic evidence both in terms of what the parties said at the time, as well as their subsequent actions. I'm not going to belabor the legal authorities, which the Court has heard us argue on several other occasions regarding the role of extrinsic evidence in interpreting the APA under California law. We have set forth those authorities at tab 13.

The basic principle is that if a contract is reasonably susceptible to a particular interpretation, that extrinsic evidence should be considered to aid in its interpretation by the Court.

At tab 14, and on a chart which I'm going to put up now for Your Honor, we see here what that extrinsic evidence indicates with respects to the issue

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before the Court. And what it reflects is that Novell's own executives, at the time; not Novell's executives that are currently in office, but the Novell executives at the time that the APA was agreed to and amended, agreed that Section 4.16 did not give Novell the rights to waive SCO's intellectual property protection in the way in which they have sought to do it here with respect to IBM.

That starts with -- and I'd like to just mention a few of those individuals. Mr. Frankenberg, who was the CEO at the time, he said: It delt with SVRX licensing fees. That was the purpose of 4.16.

Duff Thompson, personally involved in negotiations with Santa Cruz officials. He said that it's simply wrong to say that they had right -- that Novell retained rights to waive claims that Santa Cruz or its successors might have regarding breaches of System V source code agreement. That does not comport with the instructions he received or the negotiations.

Ty Mattingly, who was Mr. Frankenberg's personal liaison with the Novell negotiating team and heavily involved in the negotiatings: Novell simply doesn't have the right to waive IBM breaches. And he says, basically, it's an absurd position that Novell is taking.

The same is true for Ed Chatlos, Burt Levine,

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the Novell attorney, Mr. Broderick. So here's a half a dozen people who don't work for Santa Cruz, they work for Novell at the time, and they all agree that Novell's interpretation is simply wrong.

At tab 16 and, briefly, on another chart which I will put before Your Honor, is the other side of the transaction from Santa Cruz. And the senior executives there involved in the transaction, including the CEO, General Counsel, the Chief Negotiator, all agree that that is not the intent of Section 4.16(b). And in the book at tab 17, we have more quotes from those individuals indicating that.

It is well established, Your Honor, that post-contract behavior by the parties are an important guide to interpreting the intent. Those authorities are set forth at tab 18 in the book. One case from California says a practical construction placed by the parties is sometimes the best evidence of their intention.

I'd like to focus just on a couple of those post-contract pieces of evidence to show how they confirm our position. At tab 16 -- excuse me -- at tab 19, we discuss Novell's conduct in the IBM buyout, and I focus on that conduct, that episode in 1996, because it simply can't be reconciled with Novell's current motion. The

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APA was closed in December of 1995. Very soon thereafter, a dispute arose because in April of 1996, Novell unilaterally negotiated a buyout of IBM's royalty obligations, and it included things such as source code

Santa Cruz objected to that. They told Mr. Frankenberg that our agreements provide SCO with exclusive rights regarding source code. There was then an exchange of correspondence in April and June of 1996 between Mr. Frankenberg of Novell and Mr. Mohan who was the CEO at Santa Cruz. In those letters Mr. Frankenberg never asserted that SCO had the right, under Section 4.16(b) to simply do this unilaterally, which is the right which SCO -- Novell maintains today.

What happened after that is you had a three-party agreement. Novell and Santa Cruz, together with IBM, entered into Amendment X. And you also had this Amendment No. 2. If, at any time there, Novell believed that they could simply exercise these rights, they would have done that. They had already signed an agreement with IBM. If they belived, at the time, they had the right that Novell today maintains they have, they simply would have said: We insist, under Section 4.16(b) that you go along with the buyout that we agreed with IBM.

That isn't what happened.

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If one turns to tab 20, one looks at the HP buyout, and there you have a written statement by Novell which says Novell has no present or future reversionary interest in any source code royalties and that Novell's rights regard HP binary royalty obligations, which is a distinction between source code and binary that we have been drawing throughout this case.

The same is true of Novell's admissions in the Cray buyout in tab 21. In addition, Novell's position here is completely inconsistent with statements made publicly after the APA was signed. Very shortly after the APA was signed, Larry Bouffard, Novell's worldwide sales director for UNIX, stated on October 18, 1995 -- and we reproduce this at tab 23.

He said: With respect to SCO and the UnixWare and UNIX business, they have, quote, bought it lock, stock and barrel. Once the transaction is closed in November or December, we will have no more involvement with this business.

But, of course, here you have Novell arguing they have such rights and involvement they can countermand any decision they want by SCO regarding that business.

I would like to raise one final point, your Honor, that even if one interpreted the agreements as

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broadly as Novell interprets them here, they are still violating the implied obligation of good faith and fair dealing in seeking to waive the rights we have asserted against IBM.

At tab 24 we have the general law, which is that every contract has that implied obligation. At tab 25, the fact that under California law, it specifically is applicable where a party gives -- a contract gives a party discretionary authority. Tab 26, we indicate that in fact, until 2006; in other words, during the time relevant to this case when this agreement was entered into, California law prohibited the disclaimer of such an obligation of good faith.

The only exception, which is dealt with at tab 27, is where limiting the discretion of the party would contradict the express rights of a party, such as in the Carma case where it was an express understanding that the landlord could cancel the lease so as to increase the rental rate by entering into a new lease.

Section 4.16 does not give Novell such rights. Instead, it gives it discretion. And like the Locke vs. Warner Brothers case and other cases, that discretion is bounded by good faith.

Now, Novell's final argument there is to say: Well, we can't have a good faith obligation to SCO

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because SCO is our fiduciary. But SCO's fiduciary status is only with respect to collecting and turning over the royalties under Section 4.16(a), royalties that we believe are limited to existing binary licenses. Nothing creates a fiduciary relationship on SCO with respect to the rest of the UNIX and UnixWare business which it's been sold.

In fact, I would submit, Your Honor, that if Novell's position were correct, and it had the rights to come in and countermand how SCO ran its UNIX and UnixWare business, it would be charged in with being a fiduciary because it would then be in a position of not only advising us but basically controlling that business. And as we indicate in the case cited at tab 28, in that situation they would not only have a good faith obligation to us but a fiduciary obligation to us.

Finally, at tab 29, we point out the obvious, that Novell doesn't even try to argue as a matter of summary judgment, that their exercise of these rights is an exercise of good faith and fair dealing.

Your Honor, for all these reasons, we submit that Novell's motion should be denied and SCO's cross motion should be granted, and I would like to save my remaining minutes for rebuttal.

THE COURT: Thank you, Mr. Singer.

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Mr. Jacobs, what do you say about the last half of Mr. Singer's argument? He makes a plain meaning argument, but then he says when you look at the extrinsic evidence and the post-contract conduct and documents, he wins. Talk to me about that

MR. JACOBS: Let's start with the IBM buyout because it cuts in exactly the opposite direction. It is four months after the closing of the Asset Purchase Agreement, and Novell does exactly what SCO says it should have done in order to confirm that it had the rights that it believed it had. It went out and it actually executed an amendment, a buyout amendment with IBM in April.

SCO objected. As SCO has put it, SCO has demonstrated in its evidence, it threatened a lawsuit. The parties went ahead and agreed on a buyout. SCO was paid a settlement amount. That is a settlement agreement. Its has an express no-admission clause in it, so that settlement agreement is out for evidentiary purposes. If you look at the way the money was allocated from the buyout, SCO took its 5 percent fee, confirming that the buyout is all about SVRX licenses, precisely as prescribed in Article 4 in Section 4.16.

So the extrinsic evidence entirely supports Novell here. Now, Novell settled that dispute with SCO,

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but, again, four months after the Asset Purchase Agreement is signed, Novell is directing SCO -- Santa Cruz. I'm trying to keep the distinction straight here -- is directing Santa Cruz to execute a buyout with IBM. Frankenberg testified: We kept a lot of the protections in the agreements in order to do buyouts.

It's true that, later on, when Novell and Cray and HP are doing some buyouts, that Novell decided to give some more rights to SCO in the context of those specific buyouts, but that is no confirmation and no waiver of Novell's rights under Section 4.16(b), which survives to this day.

So the IBM buyout really cuts very much against SCO. Yes, there was settlement of a dispute, but virtually contemporaneously with the execution and closing of the Asset Purchase Agreement, Novell is starting to execute these buyout agreements with IBM and others. SCO, as you can tell from the letters they submitted, Santa Cruz thought this was a huge issue for them.

The issue was compromised in the context of IBM, but the rights in Section 4.16(b), aside from the modification of the management of buyouts -- a key word in Amendment No. 2, the "management" of buyouts. Aside from that compromise about future buyouts, Section

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4.16(b) remained unchanged, and the parties had an opportunity, at that moment, to change 4.16(b) more generally. The parties could have written in, at that moment: This provision applies only to the protection of Novell's binary royalty retained interest.

That's the way SCO wishes 4.16(b) read. They are trying to change the plain language of 4.16(b) to something that just isn't there.

As for this global point that we paid all this money and look what we got, first of all the price keeps on going up. There is -- right there on the board it's 125 million. Now it's 200 million. There are documents that suggest it was even less. It was 6.7 million shares of SCO, of Santa Cruz, whatever they were valued at at the time. But, secondly, it's very clear what happened here. The original idea was a straight out asset purchase, a sale from Novell to Santa Cruz that mirrored the purchase by Novell from AT&T.

We now know much more than we did earlier on in this lawsuit about the negotiating history. We now know that, in the last three weeks, the documents were changed substantially to document the fact that Novell was retaining this interest in the SVRX revenues, and that is why the agreement gets changed and these provisions get added. 4.16 gets added in the last couple of weeks of

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the negotiations.

But that doesn't take away their force. The fact is that, as to SVRX, in contrast to UnixWare, as to SVRX, Santa Cruz had very, very limited rights. They got essentially the right to administer the relationship with the customer and a 5 percent fee so that they could have the contact with the customer and try to upgrade the customer to UnixWare. As to UnixWare, they got the business, and, in a larger sense, they got to keep the royalties unless they hit a certain threshold.

That's the deal SantaCruz cut. That's the deal SCO inherited when it bought from Santa Cruz. To now go back and say: Well, sure, they retain the 95 percent, but all the protections that Novell built in to protect that 95 percent were only going to read very narrowly. When those narrow limitations aren't in the contract, that's rewriting the contract, and that's what the law prohibits. Thank you.

THE COURT: Thank you, Mr. Jacobs.

Mr. Singer.

MR. SINGER: Your Honor, first of all, with respect to the buyout agreement, if Novell had the rights which it claims here, when it reached its original agreement unilaterally with IBM, and SCO objected, IBM -- or rather Novell would simply exercise its rights under

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4.16 and say: We are directing you to accept this buyout. We are directing you to amend these licenses with these terms. And if SCO further protested, it would seek to do what it sought to do here and take that action itself.

On the contrary, Novell did no such thing, and even in its letters back and forth, Novell's executives never asserted that 4.16(b) gave them the right to take this action. The whole reason you had a resolution of this is because there were rights of SCO which Novell could not overturn. Those rights were then clarified and made stronger by Amendment 2, which came out of that process, and SCO received not 5 percent, but $1.5 million plus additional source code payments if IBM would buy additional source code properties, plus protections in Amendment 2.

You cannot reconcile their actions with either 4.16 or what we had quoted not as simply giving rights to SCO with respect to HP and Cray, but admissions they make about what rights Novell had if those are limited to binary protection.

Mr. Jacobs refers to being uncertain as to what was actually paid for this business. At tab 3 in the book we have provided, it indicates it was 17 percent of Santa Cruz common stock which, at the time, was about $50

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million in valuation; the royalty stream on existing licenses, which resulted in more than $200 million being paid, and potential royalties on future UnixWare sales under certain conditions that expired in December of 2002.

To believe that they paid over $200 million and didn't have the right to run their business and protect their intellectual property makes no sense. The final position is, Mr. Jacobs says: Well, what we got was great with respect to UnixWare, but virtually nothing with respect to UNIX and SVRX, but that is not what the agreement says. The agreement doesn't say: You're getting the UnixWare business but just limited rights in UNIX.

It says: You're getting all of the business. And we went over that intent coming right out of the language of the APA earlier.

And, in addition, Mr. Jacobs says: We didn't get this. But the people who ran his client at the time of this deal uniformly say something different. Mr. Jacobs can't point to one Novell executive, at the time of the APA, who defends, as consistent with the contract, the position that Novell articulates today with respect to Section 4.16.

THE COURT: Thank you, Mr. Singer.

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Let's take a break. We have left the copyright ownership motion, correct?

MR. SINGER: Yes, Your Honor, and we moved first on that one.

THE COURT: So you argue first on that one

MR. JACOBS: That is fine.

THE COURT: About how long are you going to take on those?

MR. SINGER: 30 minutes in total between principal and rebuttal.

MR. JACOBS: Same, Your Honor.

THE COURT: All right. Let's reconvene at about 10:15. Thank you. (Short break.)

Mr. Singer.

MR. SINGER: Thank you, Your Honor. Again, with your permission, if I can approach and give you a copy of our argument exhibits.

THE COURT: Yes.

MR. SINGER: Your Honor, I think of Novell's position with respect to the issues on this motion, which concern our ownership of the copyrights, that Novell is seeking to defend the indefensible. We point out at tab 1 this is a case involving the sale of a software business, UNIX and UnixWare business. And yet Novell's

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position is we did not get the core intellectual property that protects those operating systems, the copyrights on UNIX and UnixWare.

So when you have a party that seeks to defend that type of a position, what do you see? You see a party arguing that conveyance of all rights and ownership of UNIX and UnixWare, without limitation, did not convey copyrights to UNIX and UnixWare. There's no dispute with respect to the case law that generally determines a transfer of all right, title and interest to computer programs can, in the words of the Southern District of New York, who construed the case, can only mean that the transfer of the copyrights, as well as the actual computer programs, are meant.

You also find a party like Novell struggling to obscure Amendment 2's clarification that excluded assets did not include copyrights required for the UNIX business and ignoring clear testimony from senior executives and business negotiators, again on both sides.

Now, why is this important? This arises in the context of a slander of title claim that we have brought. In 1995, the APA conveyed from Novell to Santa Cruz the UNIX and UnixWare businesses. From 1996 to 2003, as I will get into in more detail, Novell never disputed that Santa Cruz owned these copyrights, and their actions are

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inconsistent with their position that they retained ownership.

However, after the dispute with IBM arose in May of 2003, Novell publicly claimed it still owned the UNIX copyrights; in fact, in a press release that evidence in the record indicates was timed to inflict maximum damage on SCO. In June of 2003, Novell, by that time, had received Amendment 2. They, in deposition later, admitted they had it in their files but they never looked at it when they made their May 28 announcement, and on June 26 they issued what appeared to be a retraction.

They admitted that Amendment 2, quote, appeared to support -- those words -- "appeared to support" SCO's claims of ownership to the copyrights. And then, after that, they did a 180 degree reversal and appeared to retract the retraction and went back to their position that they did not convey the copyrights.

And so that is why we are here, and that is why we are seeking, as a matter of summary judgment on the issue of copyright ownership, that the copyrights were conveyed.

Now, as a general observation, if you look at Novell's papers, particularly their reply papers and their opposition papers to our motion, they seek to have

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this Court interpret Amendment 2 in a vacuum. Amendment 2 does not exist in a vacuum. Amendment 2 amends the APA, and it has to be interpreted together with the instrument which it amends. The APA, Amendment 1, Amendment 2, and ancillary documents like the bill of sale are one agreement which must be interpreted together. That's Black Letter law. We give an examplel of it at tab 3.

On the other hand, interpretation of the APA, as though Amendment 2 doesn't exist and you had the language before the amendment is, we would submit, both meaningless and irrelevant. And yet that is what the bulk of Novell's argument amounts to.

Now, we submit the starting place for this argument is really where we left off in the last argument, that the APA was intended to transfer all rights in ownership of UNIX and UnixWare to Santa Cruz. And I won't go over these provisions again because I just discussed it. It comes right from the plain language of the agreement.

Now, that was effectuated here by the Schedule of Assets that were conveyed, and I'd like to spend some time talking about that Schedule because it makes plain that the transfer of copyrights is included. This is page 1 of a four-page Schedule of the assets being sold.

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We have it. In addition, it appears behind tab 5 of the binder. And the Schedule makes plain that all rights and ownership of UNIX and UnixWare and that it includes source code, all copies, without limitation, are being transferred.

And then it provides specificity as to the products, so there's no issue with respect to what copyrights are being transferred. They are the copyrights relating to UnixWare 2.0, as described in the UnixWare 2.0 licensing Schedule, and the other products listed specifically here on Schedule 1.1(a). In addition, the Schedule went on to say that all of seller's claims arising after the closing date against any parties related to any right, property or asset included in the business is being transferred.

We submit there has been no dispute about this. You need the copyrights in order to enforce those rights against infringers and third parties. All seller's rights pertaining to UNIX and UnixWare under any software development contracts. In short, we got the entire UNIX and UnixWare business. And we submit, if this is all you had, Schedule 1.1(a), there could not be any issue under the case law or otherwise that this transfers the whole business, copyrights included.

The issue which Novell has raised relates to

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the Schedule of Excluded Assets, and I'd like to turn to that as amended. The first page of excluded assets dealt principally with NetWare, which is a system which the parties agree was not being sold. And virtually every category here deals with NetWare. And then you turn to Section Roman Numeral V of the list of excluded assets. And as amended by Amendment 2, that provides that what Novell retains as excluded assets in the sale are all copyrights and trademarks except the copyrights and trademarks owned by Novell as of the date of the agreement, which is the date of the APA, required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies.

Now, we submit that, as amended, this taking out the language which was originally in there, which just excluded copyrights, there no longer is any conflict between the Schedule of sold assets, Schedule A, and the Schedule of Excluded Assets, Schedule B. Schedule A transfers all right, title and interest in these programs, all rights of ownership in UNIX and UnixWare which, under the law and really is not disputed, includes copyrights, by definition.

This, while retaining copyrights by Novell, does not retain copyrights required for SCO to exercise its rights with respect to the acquisition of UNIX and

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UnixWare technologies. There is no dispute, we submit, other than an issue we will get to in a moment, as to whether we just got a license, as opposed to acquisiton of the assets themselves, that SCO needed copyright rights, needed copyrights to exercise its rights for UNIX and UnixWare; to be able to run the business, to license it to third parties, to enforce rights against infringers.

On this basis we are entitled to summary judgment. There is not an issue there. There is no inconsistency that requires resolution at trial. This is also consistent with another part of the APA, and that is the technology licensing agreement because, under the APA, the parties agreed that there would be a related agreement called the Technology Licensing Agreement, under which Novell would have the license to use the intellectual property and technology which it had sold subject to certain restrictions.

And those restrictions were part of the argument which was before Your Honor last Thursday for the breach of those promises not to use that technology to compete with SCO with an operating system that embraced the very technology that they had sold us.

But the point of this, as we indicate at tab 9 in our book and on the board -- but this transaction

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makes no sense if SCO did not get the copyrights. If SCO did not get the copyrights, you would have seen not a license back to Novell, but a license from Novell to Santa Cruz for the copyrights which were maintained, which were essential for Santa Cruz to run a UNIX and UnixWare business. Instead, this is Novell retaining a license to the technology which it sold.

And the only thing which Novell has sought to say about this is: Well, maybe there's other types of intellectual property like trade secrets, or knowhow other than copyrights, which this was referring to. Of course that's not how the agreement is written with respect to those specific forms of intellectual property. It covers everything. And of course it is the copyrights on UNIX and UnixWare which is the core intellectual property for the business which was sold.

So that provides a strained and, I would suggest, unacceptable interpretation of an agreement which, as Mr. Frankenberg and other Novell witnesses have admitted, only makes sense in the context of Novell having sold those copyrights.

Now, we think the combination of the TLA, the purpose of the agreement is transferring the business, the embracing language of Schedule 1.1(a), and now Schedule 1.1 B as amended by Amendment 2, not creating

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any inconsistency, is a firm and solid plain language basis on which the Court should grant summary judgment that we received the copyrights.

I will discuss at the end of my argument the Section 204 copyright transfer issue.

But if one turned to the extrinsic evidence, again, the extrinsic evidence fully supports our position. Now, it is well established that extrinsic evidence is admissible to give effect to the intent of the parties, and we submit that, as we have before, at tab 10 in our book, what Novell has done in response is raise a whole series of evidentiary objections, mainly in a 60-page set of objections filed after their reply brief on Tuesday of last week.

The short answer to those is, first of all, it's silly to suggest that there would be separate evidence of intent regarding, for example, the Bill of Sale. You look at the transaction as a whole and what is the intent of that deal. At tab 11 we cite California Civil Code, which makes clear that particular clauses of a contract are subordinate to its general intent. At tab 12, we briefly deal with the litany of objections which are being raised to this and other of the extrinsic evidence. The Court doesn't need to reach it if it agrees with our plain language interpretation.

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But clearly what the people who put the deal together at the time believed they were transferring is relevant evidence. As we will see, those witnesses had personal knowledge of the transaction. It's not hearsay when a Novell witness makes that statement about what was said. And this doesn't turn on issues of expert opinion. And, to the extent we use any depositions from the IBM case, those certainly stand equal to declarations which we can also use on summary judgment.

If we turn to tab 14, we have a list of the individuals, and it gives a little bit about the foundation on which they testified from personal knowledge. And if we turn to tab 15, I'd like to go over some of that in a little more detail, and, again, starting with the Novell witnesses.

Your Honor, I've litigated a lot of cases over the past 20 years, and I'm sure Your Honor has litigated many cases. I can't think of a case where -- you have cases where maybe you get one witness on the other side who agrees with your position, and you're fortunate to get that. I can't think of a case where virtually every witness, with the exception of a couple of lawyers we will talk about in a moment, but every businessman involved in the transaction in structuring the deal, from the Novell side, agrees with our position, starting with

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the CEO, Mr. Frankenberg, who repeatedly, clearly testified it was his understanding that the sale of all rights and ownership included the copyrights associated with UNIX and UnixWare.

Now, what do they do with testimony like this? They try to create uncertainty where there is none. For example, at tab 16, where we have longer excerpts from each of these witnesses, you have, first of all, Mr. Frankenberg's clear statements that that was the intent at the time the APA was signed, when the deal closed, and it was always his intent.

On the next page, behind tab 16, you have Novell's quotation of Mr. Frankenberg where they point to the fact that he recalled discussing with the negotiation team the fact that retaining the copyrights might facilitate Novell's exercise of rights. And then you have the full testimony at that point in his deposition, on the right-hand-side column, where, after he says: I recall vaguely discussing that. He specifically says: It would have been inconsistent with selling UNIX to SCO that they wouldn't get the copyrights.

On the next page, you have Novell's quotation of Frankenberg saying it's possible, supposedly, that the negotiation team excluded copyrights from the transfer of assets. And then, on the right-hand column, you look at

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what that possibility was mentioned as.

He's asked at deposition: Is it possible the negotiating team acted outside of its authority in drafting the original exclusionary language -- you remember the language that was then changed by amendment.

He says: It's possible. Maybe there was a drafting error.

He's then asked: Are there any other possibilities?

He says: Not that I can think of.

And then it's Novell's counsel that says: Well, is it possible that they effectuated your directions by obtaining the UNIX copyrights?

And he says: Well, I guess that's possible as well.

That is the type of counter extrinsic evidence that Novell is reduced to trying to rely upon in the face of their own CEO at the time's clear testimony that he intended the copyrights to be sold.

And it doesn't stop with the CEO. If we go back to tab 15 on the chart here before the Court, you have Duff Thompson, who formed the Novell team, personally involved in face-to-face negotiations with Santa Cruz officials, who specifically and unmistakably says that it was the intent that the UNIX copyrights were

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transferred to Santa Cruz.

Ty Mattingly, the personal liaison between the CEO and the negotiating team, who was very heavily involved in the negotiation. And he says that we sold them the entire business, including the copyrights.

Ed Chatlos, the lead negotiator for Novell: The copyrights were included. It was intended to sell the entire business, including the copyrights.

Burt Levine, at the time a Novell attorney involved in drafting parts of the APA. Mr. Broderick, who was part of the Novell licensing group, and Mr. Masley.

And then, if you turn to the next page, you see that on the Santa Cruz side, the people involved in the deal, beginning with the CEO and working your way down, also all agree that the transaction involved the transfer of the copyrights.

Now, what does IBM rely upon to try to deal with this overwhelming testimony?

THE COURT: Novell?

MR. SINGER: Did I say "IBM?"

THE COURT: Yes.

MR. SINGER: I meant Novell. IBM has echoed the same arguments.

THE COURT: But he said IBM once, too.

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MR. SINGER: Okay. So we're even.

THE COURT: Let's try to keep all the parties straight.

MR. SINGER: I will try to. In this case, it is Novell that is relying on the Braham and Bradford declarations, Braham being a lawyer and Bradford being an in-house counsel. And at tab 17 we explain why those declarations do not create a factual conflict. They don't controvert the business deal for the sale of the entire business, including the copyrights. Amendment -- they deal with the language which was changed by Amendment 2.

They basically say that in the last ten days before the agreement was signed, they amended the language to try to exclude copyrights. There is no testimony that this was ever discussed with or agreed to by Santa Cruz. And to the extent they got away with changing that language by putting into an asset -- a list of excluded assets that language, that was changed by Amendment 2.

And you can't create, we submit, a factual conflict on a material issue of disputed fact by relying on language which has been excised from the agreement by amendment.

Now, the other points they rely on of extrinsic

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evidence, the board minutes. The boards minutes recited that Novell will transfer UNIX and UNIX technology assets. You have press releases at the time that said that the UnixWare business was sold, that Mr. Frankenberg said it was a joint release.

The other testimony they rely on is Mr. Amadia -- or Ms. Amadia and Mr. Tolonen's declarations with Amendment 2, where they say Amendment 2 created only an implied license. At tab 19, I deal with this argument. The argument doesn't make any sense. The word "license" is not used in Amendment 2. Amendment 2 is an amendment to a schedule of assets excluded from the sale of assets. It's not anything to do with a license.

Moreover, under the law, that cannot be a tenable position. You can't have an implied exclusive license. That's Black Letter law. If it's a non-exclusive license, SCO would not be able to enforce it's IP rights. That's also Black Letter law. Holders of a non-exclusive license don't have standing to sue. Novell admits that we have the rights to sue. Those are one of the rights under Section 3 of Schedule 1, the rights to bring claims.

So you cannot have an implied license as the way by which SCO obtained the rights it needed to operate this business. And, of course, that's not what the

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agreement says. It deals with amending an asset transfer.

Similarly, Amendment 2 didn't create a process to ask Novell for permission. Now, there are other post-contract actions that are consistent with this. If you turn to tab 22, you see that Santa Cruz transferred the copyrights to Caldera in 2001, and Mr. Keller, who is an attorney there, says that that included the understanding that Santa Cruz owned the UnixWare and UNIX copyrights.

The actual copyright registrations, which were in New Jersey in a building, Novell didn't say: Give us those. We are retaining those in the deal. Those went along with all the other assets. And that is, while not dispositive evidence, it is evidence suggesting that they didn't intend to retain the copyrights. That's also at tab 22.

In addition, there were changes in the copyright notices made my Novell after the APA, with Novell's assistance, which, in one case, it specifically said in the documents: SCO will replace Novell as the copyright owner in UnixWare 2.1 online books. On other copyrights Santa Cruz was added and Novell was left on because they owned the copyright at earlier periods of time.

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The position we have briefed regarding Microsoft; Santa Cruz referred to itself as the copyright owner in a very public issue, and Novell never objected.

I'd like to deal with one final issue, Section 204 of the Copyright Act, sort of a Statute of Frauds and evidentiary requirement they would have some right. As we indicate in our brief and at tab 25, both -- all the cases indicate there is no particular form of writing required. No magic words are required. A one-line pro forma statement will do. Here, of course, you have a complelte agreement with schedules, and we submit the APA, with Amendment 2 and the Bill of Sale, constitute a set of documents easily sufficient to convey title under Section 204, and, in the alternative, could also satisfy the requirement where you have an oral assignment that's ratified or confirmed by a written memorandum of the transfer.

So, clearly, Section 204 is not grounds on which Novell can rest. We are entitled, Your Honor, to summary judgment on this issue.

THE COURT: Thank you, Mr. Singer. Mr. Jacobs, I suppose you have a different view.

MR. JACOBS: I do, Your Honor, and, ultimately, I hope you will, too. Let me start with just a review of the bidding on this issue.

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THE COURT: A review of the what?

MR. JACOBS: Of the bidding because, of course, we're back again on ownership, and you parsed the agreements in your ruling on the motion to dismiss. In that ruling, you noted that the Asset Purchase Agreement, pre-Amendment 2, specifically excluded the UNIX and UnixWare copyrights from the transfer, and as to Amendment Number 2, you noted that it doesn't identify which copyrights are required for SCO to exercise its rights. You noted that it's not retroactive to the date of the APA. You noted that it does not state that a transfer of copyrights is to occur as of the date of the amendment, and it suggested that perhaps a separate writing was contemplated in order effectuate a transfer.

You noted that the use of the word "required" was troublesome, given the number of copyrighted works involved in the transaction. Amendment Number 2, the Court's decision notes, doesn't state which works are being transferred or what rights within each copyrighted work are being transferred.

And then, citing the Apex Associate case, the Court's ruling noted the policy behind Section 204(a) of the Copyright Act, to force a negotiation to determine precisely what rights are being transferred.

Well, as the Court anticipated in not ruling

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definitively on the motion to dismiss, the parties have now amended their pleadings so there are more causes of action relating to ownership. They have taken discovery. We have got lots of testimony in the form of transcripts and declarations, and we have provided you with a voluminous report. And the question is: Are there genuine issues of material fact that defeat Novell's motion for summary judgment that copyright ownership didn't and shouldn't transfer?

Well, the APA still specifically excludes UNIX and UnixWare copyrights from the transfer. Only two UNIX trademarks are identified as included IP assets in Section 5 of the included-assets list. We tend to not focus so much on the included-assets list, but remember there is a specific provision for intellectual property, and all that it refers to is two trademarks.

No declaration or other extrinsic evidence can be considered to vary the clear terms of the Asset Purchase Agreement. None of the business people have testified to knowing the details of the negotiations in the last few weeks. Now, we don't think we need this evidence in order to win on summary judgment, but if you look at the Braham declaration or the Bradford declaration, you're not just talking about people and their memories. We are talking about a documented

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negotiating history that specifically describes what went back and forth between the lawyers who were negotiating the final transaction.

In it there are detailed declarations supported by contemporaneous documentary evidence. SCO has nothing like that about the negotiations of the Asset Purchase Agreement. They have business people who perhaps didn't understand the legal technology involved in converting a very simple deal to the complicated structure that ultimately was executed in connection with the Asset Purchase Agreement. The Bradford and Braham declarations, they can be considered because they are consistent with the plain language of the Asset Purchase Agreement. They are not necessary, but they can be considered.

All the declarations, all the depositions that are contradictory to the plain language of the Asset Purchase Agreement, they are out on the Parol Evidence Rule.

Since the motion to dismiss, we have also spent more time on Amendment Number 1, the TLA, the Operating Agreement and the Bill of Sale. Amendment Number 1 shows that the parties spent several months puzzling over the Asset Purchase Agreement and scrubbing it and working it through on a very fine grain basis. The parties

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specifically included and considered Schedules 1.1(a) and 1.1(b), and they amended both of those schedules in Amendment Number 1 without changing the copyright exclusion.

The TLA we have talked about, it provides Novell with a retained license, and it says that the licensed technology is owned by SCO, but licensed technology is unambiguously defined as the assets and derivative of the assets, which excludes the copyrights at issue.

The Bill of Sale transfers only the assets and, by the way, harkening back to our argument on Thursday, it says that if there is an inconsistency between the Bill of Sale and the Asset Purchase Agreement, the Asset Purchase Agreement controls.

The Operating Agreement, which we haven't spent a lot of time on, describes in greater detail the business Santa Cruz was supposed to operate after the closing, and it grants it specific permissions with respect to the UnixWare business.

And that brings us to Amendment Number 2. It still suffers from the same flaws that were present at the motion-to-dismiss stage. It does not effectuate a transfer in the sense of a present A transfers to B. It is not retroactive to the date of the Asset Purchase

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Agreement's closing. There are a lot of ways that the parties could have done that differently had they so intended in the summer of 1996.

They could have said that it was effective as of the earlier date. They could have had a provision which says that the parties acknowledge and agree that the transaction or conveyance occurred as of the earlier date. They could have said that it shall be deemed to have occurred. They could have said that Amendment Number 2 was merely a clarification for the avoidance of doubt. They could have said that the transferer has transferred or licensed, and, to the extent not already transferred or licensed, hereby transfers or licenses.

All of these are familiar drafting styles if you want to make sure that a document is clear as to whether a transfer is taking place or whether you are trying to incorporate the document back into an earlier document. And, critically, the Asset Purchase Agreement, even as amended by Amendment Number 2 or Amendment Number 2 on its own still doesn't specify what versions of UNIX or UnixWare or what rights within copyright are being transferred.

Now on Amendment Number 2, once again, there is only one set of probative evidence before Your Honor about the negotiating history and what set the stage

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for the copyright provision, and that's the Allison Amadia declaration. Only two people apparently were actually involved in the interactions between the two companies. That's Amadia and Sabbath.

Sabbath testified in his deposition that he didn't remember anything about Amendment Number 2. He has submitted a -- completely contrary declarations about his understanding of the deal. In the IBM case, he earlier submitted a declaration that said that Santa Cruz didn't own all the copyrights, and then, later on, Boies Schiller, the SCO lawyers talk to him, and he submitted a completely contradictory declaration. So I think Sabbath's testimony is effectively dead for purposes of this litigation.

As with the Braham declaration and with the Bradford declaration, Ms. Amadia's declaration is backed by documents, specifically a prior version, which I gave to Your Honor, Santa Cruz's initial proposal, which is very probative of their intent. They wanted the copyrights acquired through Amendment Number 2. It wasn't a clarification but a proposed change to the original Asset Purchase Agreement which had not transferred the copyrights.

This sequence of an earlier draft and the final agreement reinforces the plain reading of the amendment.

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There is no present transfer included by virtue of Amendment Number 2. SCO needed to demonstrate that something was required for it to operate the business, and, ultimately, as the declaration of Ms. Amadia makes clear, the purpose of that language was to reassure Santa Cruz that the exercise of its rights to develop and distribute UnixWare would not run afoul of Novell's retained copyrights.

It was a confirmation of what had gone on in the many months before already. Santa Cruz is off running its UnixWare business. Novell isn't coming after it, for what was obviously contemplated by the parties and is specifically set forth in the Asset Purchase Agreement and in the Operating Agreement.

So, as we come before the today, the only significant issue is: What is or was required for Santa Cruz or SCO to exercise its rights with respect to the acquisition of UNIX or UnixWare technologies? The natural reading of "required" is that it imposes a pretty substantial burden on SCO to make a sufficient showing that some right within copyright is essential -- not just nice to have, not just desirable, but essential for SCO to carry out the particular business activities that were contemplated by the Asset Purchase Agreement and the Operating Agreement. To exercise its rights with respect

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to the acquisition, what SCO was supposed to do with respect to the acquisition was set forth in the APA and associated documents.

Now, here we come to a huge fundamental problem with SCO's argument. It is a bolder in their road to victory. The industry is replete with companies that are in the UNIX business that didn't own the underlying UNIX copyrights. The biggest example in front of Your Honor is IBM. You know all about how IBM developed AIX, how it added the UNIX codes with its AIX code and then redistributed AIX to its customers.

AIX is a UNIX flavor. You've heard that term often in this litigation. You know that AIX was based on SVRX. We have discussed that in the previous argument. IBM never owned the SVRX code. It owned its enhancements, just as we have acknowledged SCO owns all the enhancements it wrote as it carried out the activities contemplated by the Asset Purchase Agreement. But IBM did just fine in the AIX business for several tens of years without ever owning the underlying copyrights to System V.

And the Operating Agreement of the APA refers to Hewlett-Packard's 64 bit UNIX product then under development. HP never owned the underlying UNIX code. We talked about, in the other motion, how SCO terminated

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Sequent's SVRX license related to Sequent's flavor or the Silicon Graphics's flavor that is at issue in the litigation. All of these companies had UNIX businesses but didn't own the underlying UNIX copyrights.

Even SCO itself, Santa Cruz, as is referenced in the APA, they had a license before the Asset Purchase Agreement, pursuant to which they modified UNIX and had an Open Server product, and they provided it to customers. It was a business that they had even before the APA. They never owned the underlying UNIX copyrights. None of these commercial strategies, perfectly viable commercial strategies, are premised on ownership of the underlying UNIX copyrights.

That ownership went from AT&T to Novell. There is no intermediate grant of copyright ownership rights.

So, when SCO gets right down to it, they say it actually pretty crisply. It's in their reply brief at page 45. The issue between the parties as of late 1996, concerned the legal rights and entitlements necessary for Santa Cruz lawfully to copy, modify, distribute and sublicense the copyrighted code and otherwise to take the steps it had been taking -- the steps it had been taking -- in operating the business it had acquired.

We submit that, as a matter of law, Your Honor, the only rights that are required in that context are not

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outright ownership of the copyrights, they are the -- they are the license rights to carry out those activities, the permission to engage in those activities; in other words, the non-exclusive right under copyright to copy, modify, distribute and sublicense.

That is precisely how SCO got into the Open Server business, how IBM got into the AIX business, etc. They all had these non-exclusive rights under the license agreements to carry out these activities. And the Asset Purchase Agreement and the Operating Agreement give SCO specific permissions.

For example, in the Operating Agreement, at 6(b)(iv), quote: SCO will begin offering Eiger binary and source offerings when it becomes available. SCO will also offer a binary and source offering of the merged product sometime within the first half of 1997. SCO shall have discretion to name and market this product as SCO deems appropriate.

Or Section 6(b)(i): As of the closing date -- this is critical -- As of the closing date, SCO will begin to distribute, offer, promote and market UnixWare through existing UnixWare distributor and reseller channels as well as through SCO's existing resellers -- reseller channels. Section 4.16(b), our famous -- favorite provision

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says SCO has the right to -- refers to SCO's right to sell and license the assets or the merged product or future versions thereof, of the merged product.

So, in the Asset Purchase Agreement are all the permissions Santa Cruz and SCO need to carry out the business that was contemplated by the Asset Purchase Agreement. So we believe those rights were conferred in the APA. It's not in a formal grant of license. And you've seen how the agreement evolved from an outright asset purchase into this kind of hybrid agreement, and that explains why perhaps it isn't in the exact form that SCO submits such an agreement should have.

It's also critical, in connection with the heart of the copyright ownership dispute, which is the copyright rights to System V Release SVRX. SCO's rights with respect to SVRX under the Asset Purchase Agreement were very narrow. They were not supposed to enter into SVRX license except in the most narrow circumstances, this incidental provision that you may recall from our previous argument a few months ago.

They were supposed to remit 100 percent of the royalties to Novell, and Novell paid over the 5 percent administration fee. They have made no showing of why the SVRX copyrights are required, when really Novell retained the SVRX business and enormous rights over it. SCO

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administered the license agreements, but under Article 4, Novell retained plenipotentiary rights to tell SCO what to do with those license agreements.

Now, that's all that's necessary, we submit, for you to rule on our motion for summary judgement. The APA didn't transfer copyright ownership before or after Amendment Number 2 because SCO has not made the requisite showing of necessity for such a transfer, and we submit that that's an issue of law for the Court.

Now we've learned some more, however, about the transaction which I think should make all of us a little bit more comfortable with the answer that we think the documents drive at. We know, from the Braham declaration why the copyrights were retained. We know that Novell was concerned. Its lawyers were concerned about protecting Novell's interest with respect to the retained revenue stream and that by owning the copyrights, Novell would be much more than merely an unsecured creditor if Santa Cruz went bankrupt. It would have the right to assert the copyrights.

The documents that you've seen show how the Asset Purchase Agreement evolved and that it did, indeed, evolve, with full notice to the negotiators. There's a document showing the revised exhibit going over to Jeff Higgins, Jeff Higgins, the lawyer for Santa Cruz on the

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deal, an empty chair before Your Honor. We have no substantial evidence from anyone on the Santa Cruz side, who was actually doing the last several weeks of negotiations, to explain how it is that the copyrights were excluded from the deal, from their standpoint.

But there's a fascinating document that came in through one of SCO's other briefs. It's the James -- it's in the TLA opposition, and it's James Exhibit 70. And what it does is it highlights the distinction that the parties were drawing between physical ownership of the UNIX source code, the asset -- the included asset in the first section of the Included-Asset Schedule and the underlying intangible intellectual property rights.

SCO undeniably got ownership of the physical source code. How that code would be treated, though, for tax purposes, was very closely scrutinized, and in Amendment Number 1, part of the changes to Article 1 of the APA, they specify exactly how the source code is going to get delivered to Santa Cruz. So what this Peat Marwick tax planning document does is show us how much forethought went into all of this. There was major distinction between how the physical embodiments were going to be treated for tax purposes, and then the Peat Marwick document itself says there is no intangible being transferred here, so we don't need to worry about it.

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We now know something that we didn't know at the time of the motion to dismiss, that the copyright ownership issues surfaced in 2001 during the Santa Cruz to Caldera, now SCO, transaction.

Now, we have given you the documents. They have a lawyer who says that what I will refer to as the Novell exception in the 2001 asset transfer dealt only with the location and transfer of copyright registrations.

Now, we have objected on a variety of admissibility grounds to Keller's declaration, but the documents just show exactly what was going on. In the Brakebill opposition declaration at Exhibit 5, there's talk about a proposed form for a Novell IP assignment. The penultimate draft of the 2001 intellectual property assignment -- that's at Exhibit 6 of the Brakebill declaration -- says: Except for the inability to obtain third-party acknowledgements to establish a chain of title.

Exhibit 7 says that Santa Cruz -- it's an e-mail. It says: Santa Cruz will try to get Novell to sign a global IP assignment. And the final, line of this intellectual property assignment agreement says: Except that Santa Cruz, in brackets, may not be able to establish a chain of title from Novell, Inc., but shall

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diligently endeavor to do so as soon as possible.

Now, interestingly, Keller says that the Caldera team evaluated Amendment Number 2. He says that right in his declaration. But still the issue of establishing the chain of title remained. There is no evidence in the record that Santa Cruz actually sought the global assignment from Novell that's referenced in the Novell exception in the IP assignment agreement. And when we asked SCO's witnesses about it, they were instructed not to answer.

But we do know that it wasn't until about a year and a half after the Santa Cruz/Caldera transaction closed, and hence after the control of the original Asset Purchase Agreement asset changed hands from Caldera to now SCO, that SCO embarked on an effort to obtain a transfer of title from Novell to clear up this issue, that Novell resisted SCO's efforts and that this lawsuit followed.

What's most interesting to us is not the Novell silence during that period that SCO talks about because Novell wasn't seized with the copyright issue until 2003, but what's most interesting is that, for a total of nearly seven years, neither Santa Cruz nor SCO thought it necessary to document a chain of title from Novell, and yet both were fully able to operate the business that

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Santa Cruz bought and to which SCO ultimately succeeded.

Again, I emphasize, for about a year and a half SCO was perfectly fine operating the UNIX business without clarifying this chain of title promise that they were fully on notice about as a result of the Santa Cruz/Caldera transaction.

The business strategy changed, and now it depends on the assertion of SVRX copyrights in Linux, but as we have seen, SVRX is the area where SCO has the smallest role and the greatest restrictions on it. It's even more difficult for SCO to establish that it was entitled to a transfer of SVRX copyrights.

SCO's argument has shifted back and forth on this and, on summary judgment, I don't know how much it matters that they can't quite figure out exactly what their argument is. Was it the Asset Purchase Agreement that originally transferred it? Was it Amendment Number 2? Do you read them all as a whole? They are all over the map on this. I think their fundamental problem is that the Asset Purchase Agreement itself is clear. The negotiating record of the Asset Purchase Agreement is clear. Amendment Number 2 imposes a heavy burden on them, a burden they have simply not met, and the negotiating history of Amendment Number 2 reinforces that heavy burden.

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For those reasons, Your Honor, we think our motion for summary judgment should be granted and SCO's denied.

THE COURT: Thank you, Mr. Jacobs.

Mr. Singer.

MR. SINGER: I'd like to start with the observation by Mr. Jacobs that: Why do we need the copyrights? IBM and other licensees got along fine without owning the copyrights. This was the UNIX business was sold to Santa Cruz. We weren't a licensee like IBM and Hewlitt-Packard. Santa Cruz, and now SCO's business was UNIX. It paid $200 million, plus, for that business. And it's suggested they were in the same position as the license that any other licensee got? It makes no sense whatsoever.

And even the Operating Agreement which Mr. Jacobs points to, together with all the other agreements, Section 7 of that agreement says: It is the intent of the parties to transfer the agreements and associated rights and obligations which relate to Novell's UNIX System business to SCO.

All of these agreements talk about a sale of the business. We weren't just to be a licensee, and if we were to be licensee, we need an express license because one argument that Mr. Jacobs -- I did not hear a

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response to is the following: If one was going to imply, as they argued, a license out of these various transactions, even though the word "license" to SCO was never mentioned. It talks about selling assets -- but if one were to indulge the fiction that we were just a licensee, by implication, we would not have the right to bring suits because to bring suits to enforce your intellectual property rights, you either have to be an exclusive licensee or the owner of a copyright, which both require an express transfer of either the license or the ownership.

You, therefore, cannot reconcile the sections of the transferred assets that say we have rights to bring claims and the rights, with all rights and ownership of UNIX, to sue IBM, to enforce our intellectual property, to take whatever steps are prudent to take as the owner of business with the idea that we're operating under just some type of an implied license.

Now, the first part of Mr. Jacobs' argument is simply what the reply brief does in seeking to separately deal with the Amendment 2 issue from the APA and to try to interpret the APA as though Amendment 2 never existed. So when they're looking at sections of the APA, everything has been excised. They took out the language excluding copyrights. And to have interpretations of

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that language from Braham and Bradford, whatever they tried to do in the last ten days, they tried to change the business deal.

Number 1, it was contrary to the intent of the business people, and you haven't heard anything denying all the business people on both sides of the transaction intended there to be a sale of the UNIX and UnixWare copyrights. So, first, it's contrary to the intent of the deal.

But, second, their work, their language, which created confusion in the Excluded-Asset Schedule was changed, and you don't look, on the other hand, at Amendment 2 just standing alone and is it specific enough? Does it transfer title? Amendment 2 amends a schedule which is part of a broader agreement, and when you then look at that broader agreement with the amendment, there is no inconsistency, and you have specificity.

Section 1.1(a), that schedule on page 1, specifically identifies the products to which everything, the copies and all right, title and ownership are being transferred for, UnixWare 2.0, as described in the schedule, and all prior products, SVR 4.1 and on through here. This is as specific a list as anyone could ever require of a transfer of not only all the source code but

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the copyrights as part of all right, title and interest.

And I note, does it make any sense that you would have a transaction where Novell retained the copyrights but every last copy of source code has been given and transferred to Santa Cruz? The arguments Novell is making before Your Honor are predicated upon Amendment 2 either not existing, and it does exist, or on one looking at Amendment 2 with blinders as though it wasn't part, now, of a broader agreement and an amendment, an amendment which clearly is retroactive in the sense that it amendmends a schedule of assets that closed at the time the APA closed with the Bill of Sale, which clearly satisifies Section 204 as being a writing or other memorandum which, because it is part of this agreement, it didn't have to spell out these assets which were transferred.

It's a schedule of excluded assets. It's the copyrights related to these products that are now transferred as part of all right, title and ownership, without contradiction from Amendment 2.

And so the only argument that Mr. Jacobs has left is that, well, Amendment 2 does not require these copyrights. At tab 23 -- excuse me -- at tab 22 -- that isn't quite right either. It's tab 21. We have the factual evidence, and we think it is a factual issue as

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to whether UNIX copyrights are required for a UNIX business. And all the same witnesses who say that the assets were sold, the copyrights were sold, say you need the copyrights to run the business.

But even Novell doesn't contend we don't need those rights. It just says we got them from a license, and if you don't buy the idea that somehow Amendment 2, which doesn't talk about a license, nevertheless gave us a license rather than, together with the rest of the APA, the actual ownership of the copyrights, you never get to an issue of whether UNIX copyrights are required.

If there is an issue there, it's a factual issue which would require a trial on that issue, but we don't think there is any genuine dispute that UNIX and UnixWare copyrights themselves, the ones specifically related to the products being sold in Schedule 1, are transferred to SCO in the transaction.

Now, the other arguments made are simply -- they are in tab 22. Mr. Keller deals with, in his testimony, the fact that when Santa Cruz transferred these copyrights to Caldera, that included ownership of the copyrights, and the language about excepting the chain of title was referring to physical possession of all the copyrights, which they didn't have in their hand at that time. And that's in his sworn and unrefuted

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testimony.

With respect to our possession of the copyrights, I didn't hear anything as to why, if Novell retained them, they didn't take them with them when they left the New Jersey offices. I didn't hear anything about why, if Novell retained these copyrights, they went ahead and changed the designation in copyright books and other forms to show SCO to be -- Santa Cruz to be the copyright owner.

I didn't hear anything about why, publicly, Santa Cruz, in the Microsoft dispute, referred to itself as the copyright owner of UNIX, and Novell never said a word.

The only thing I heard Mr. Jacobs say is that in 2003, we asked for a transfer of the copyrights. That's inconsistent with the belief we already owned them. But if you look at tab 23, you will see that Novell's General Counsel, Mr. Jones, at his deposition, admitted that what SCO's request was for was a document that would clarify the issue; not a transfer, but to clarify SCO's ownership and that this was simply a clerical error in the Excluded Assets Schedule of the APA, which is completely consistent with the position which we have taken throughout this lawsuit.

And, lastly, as with the prior argument, you

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have not heard any dispute that all of the Novell and Santa Cruz witnesses who actually put the business deal together intended for there to be a sale of these copyrights. The plain language and the extrinsic evidence and the parties' conduct all agree here that at the sale of the UNIX and UnixWare business to Santa Cruz, the copyrights went with it.

THE COURT: Thank you.

Mr. Jacobs.

MR. JACOBS: Your Honor, I think Mr. Singer put his finger on the heart of the issue sort of in the middle of what he was talking about when he asserted that in SCO's view what is required for is a factual issue and not a legal issue and, therefore, not susceptible of decision on summary judgement. We disagree. We think it's legal from start to finish. It's legal in terms of interpreting the required-for language, whether on its plain meaning or with the benefit of the consistent extrinsic evidence provided by Ms. Amadia and only Ms. Amadia.

We think it's a legal question as to what, in fact, is necessary to carry out the business that was contemplated by the Asset Purchase Agreement. I don't want to get into whether Mr. Singer should have heard something or should have read something in the briefs,

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but as we have made clear, it is our view that the Asset Purchase Agreement conferred express rights on SCO to carry out the business as contemplated.

And what Ms. Amadia makes clear in her declaration is that she was trying to get past a dispute between the companies by offering SCO something -- Santa Cruz something that would make them happy, and it was an assurance, but it was not intended to be a transfer.

Now, I did miss one issue before that Mr. Singer raised again, and that's the question of whether the Asset Purchase Agreement contemplated that Santa Cruz would sue for copyright infringement and, therefore, Santa Cruz or SCO needs the copyrights in order to sue. The language is very carefully worded. It's all of seller's claims arising after the closing date against any parties relating to any right, property or asset included in the business.

But, of course, copyrights were specifically excluded from the business and, therefore, could not have been contemplated that Santa Cruz would bring copyright infringement suits. Otherwise, as Mr. Singer asserted, some basis would have been required to give them standing, and that's not present in the Asset Purchase Agreement. So we think this argument cuts in our favor, not in favor of SCO.

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And as we explored on Thursday, there are actually a variety of causes of action available to a licensor. And what the deal here was, was that Novell would retain the copyrights. Novell would retain the right to bring various forms of action, whether by terminating an agreement or rescinding it and then suing for infringement or bringing a contract claim, Santa Cruz retained the right to bring contract claims subject to Novell's exercise of its Section 4.16(b) right. When they launched the IBM lawsuit, they didn't assert a copyright infringement claim for breach of the SVRX license against IBM, they asserted a breach of contract claim, and that allowed them to plead a billion dollars in damages.

So there's plenty of basis in contract law itself to bring a claim, but Novell wanted additional assurance. That's set forth in the Bradford declaration. They really have no contrary testimony. They do have a lot of business executives who were not a part of that detailed structuring, and if we get to trial if you rule against us, we will have to deal with that.

They will tell you, they will tell the jury that they did not know what was going on with the schedules. They did not study them. They did not explore the detailed implementation of the plan to retain

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the SVRX revenues. But we hope we don't need to get there.

Thank you very much, Your Honor.

THE COURT: Thank you, Mr. Jacobs.

Thank you both.

I will take these motions under advisement. I appreciate your efficient arguments and your brilliant briefs. We will be in recess.

(Whereupon the proceedings were concluded.)

85

REPORTER'S CERTIFICATE

STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )

I, REBECCA JANKE, 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 June 4, 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 numbered 1 through 85 constitute a full, true and correct record of the proceedings transcribed.

That I am not of kin to any of the parties and have no interets in the outcome of the matter;

And hereby set my hand and seal this 11th day of June, 2007.

_______________________________
REBECCA JANKE, CSR, RPR, RMR

86


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