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.
BEFORE THE HONORABLE DALE A. KIMBALL
DATE: JUNE 4, 2007
REPORTER'S TRANSCTIPT OF PROCEEDINGS
Reporter: REBECCA JANKE, CSR, RMR
A P P E A R A N C E S
|FOR SCO GROUP:
||HATCH, JAMES & DODGE
BY: BRENT HATCH, ESQ.
BOIES, SCHILLER & FLEXNER
BY: STUART H. SINGER, ESQ.
EDWARD J. NORMAND, ESQ.
MARK CHANEY, ESQ.
||MORRISON & FOERSTER
BY: MICHAEL JACOBS, ESQ.
ANDERSON & KARRENBERG
BY: THOMAS KARRENBERG, ESQ.
|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
MR. SINGER: Good morning, Your Honor.
THE COURT: Good morning. And Mr. Edward Normand and Mr.
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.
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
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
a distinction between then existing SVRX licenses and future
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
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
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
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
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
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
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
And perhaps importantly, depending on how you view these
agreements, it makes it quite clear that
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
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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: Your Honor, if I might approach, I
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
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
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
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
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
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
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
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
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
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
Their misunderstanding is that they are reading
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
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
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
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,
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
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
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
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
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
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
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
accepted that limitation, it still should apply to IBM going
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
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,
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
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
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
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,
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
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
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
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
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.
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
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
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
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
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.
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
So the extrinsic evidence entirely supports Novell here. Now,
Novell settled that dispute with SCO,
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,
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
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
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
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
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.
THE COURT: Thank you, Mr. Jacobs.
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
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
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
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.
Let's take a break. We have left the copyright ownership motion,
MR. SINGER: Yes, Your Honor, and we moved first on that
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
MR. SINGER: 30 minutes in total between principal and
MR. JACOBS: Same, Your Honor.
THE COURT: All right. Let's reconvene at about 10:15.
Thank you. (Short break.)
MR. SINGER: Thank you, Your Honor. Again, with your
permission, if I can approach and give you a copy of our argument
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
position is we did not get the core intellectual property that
protects those operating systems, the copyrights on UNIX and
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
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
inconsistent with their position that they retained
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
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
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
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,
The issue which Novell has raised relates to
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
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
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
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
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
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,
any inconsistency, is a firm and solid plain language basis on
which the Court should grant summary judgment that we received the
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
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
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
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
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
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
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
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
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
Ed Chatlos, the lead negotiator for Novell: The copyrights were
included. It was intended to sell the entire business, including
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
THE COURT: Novell?
MR. SINGER: Did I say "IBM?"
THE COURT: Yes.
MR. SINGER: I meant Novell. IBM has echoed the same
THE COURT: But he said IBM once, too.
MR. SINGER: Okay. So we're even.
THE COURT: Let's try to keep all the parties
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
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
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
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.
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
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
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
Well, as the Court anticipated in not ruling
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
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
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
negotiating history that specifically describes what went back
and forth between the lawyers who were negotiating the final
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
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
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
Agreement's closing. There are a lot of ways that the parties
could have done that differently had they so intended in the summer
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
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
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 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.
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
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
to the acquisition, what SCO was supposed to do with respect to
the acquisition was set forth in the APA and associated
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
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
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
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
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
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
administered the license agreements, but under Article 4, Novell
retained plenipotentiary rights to tell SCO what to do with those
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
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
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.
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
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
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
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
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: 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
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
that language from Braham and Bradford, whatever they tried to
do in the last ten days, they tried to change the business
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
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
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
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
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
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
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: 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
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
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.
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
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
(Whereupon the proceedings were concluded.)
|STATE OF UTAH
|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
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