We finally have the transcript from the court for the January 23, 2007 hearing in SCO v. Novell. This is the hearing on Novell's motion about the money, on the question of whether SCO owes Novell for the money it took in from Sun and Microsoft in 2003, or as I call it Novell's "give us our money before it's all gone" motion. SCO also filed a Cross Motion, also heard that day. And though there are efforts made to keep sealed certain details, we find the haze lifting a little bit more on just what those two signed, but all in all, it's remarkable how accurate Chris Brown's report from the hearing was.
First, thanks to Steve Martin, we have it in HTML, minus the page line numbers, so folks who use readers don't have the annoyance of having to hear the numbers read in the middle of sentences. But here's a PDF of the text with the numbers, so you can choose to read it either way. And as you do, note in particular the questions the judge asks each side. It doesn't necessarily tell you what he will rule, but it tells you what he thought needed an answer before he could. Chris had mentioned that one question the judge asked Stuart Singer, who argued for SCO, was what should a judge do if the contract says A, B, C and the witnesses say it meant X, Y, Z? SCO had offered sealed declarations from 9 individuals. Chris couldn't catch all of Singer's answer. But we have it now:
THE COURT: Hypothetically, could a contract provide A, B and C, hypothetically, in the clearest terms, and you could have a situation, then, hypothetically, where most of or many of the people involved say: Well, what we meant was X, Y and Z.
What is a Judge to do, then, hypothetically? I'm not saying that's this case. Hypothetically, what is the Judge supposed to do then?
MR. SINGER: Hypothetically -- and it's not this case -- if the language is not at all open to the interpretation that the witnesses say, then absent issues of reformation and mistake and issues like that, which one would need to go into, you look at the language.
He answered honestly. The contract trumps the witnesses. That, of course, is precisely Novell's position.
Novell is represented by Michael Jacobs, and he essentially says that whatever the business people thought the deal was supposed to be, what stands is what the lawyers actually drafted and that they signed:
It may be that, as the Asset Purchase Agreement was being drafted, people were working quickly. It may be that Novell had all sorts of leverage over old SCO during the time of drafting the Asset Purchase Agreement. That doesn't change the outcome. We look at what the contract says, not what the business people might have thought was the essence of the deal.
He doesn't mention the why of that. It's because people sometimes lie and sometimes they misremember and sometimes they forget completely. But the wording on a contract never changes. So that's why what the actual wording says, if it's clear, trumps what people think or thought or say. And Singer said so. The issue then becomes is this such a situation, where the contract trumps SCO's witnesses? Some of them named by Mr. Singer are Acheson, Broderick, Maciaszek, Chatlos, Madsen, De Fazio and Sontag. Well, we've seen some of their testimony in other matters, and to me some of it wasn't so compelling. Sometimes it was contradictory even. And sometimes the person offered strong assertions that didn't seem to me to stand up to questioning at deposition. But Singer asserts that there is nobody on Novell's side now to counter this testimony. Of course, if the agreement is clear on its face, that doesn't matter. But if it isn't, then it does matter.
So Mr. Jacobs responds, in part, like this, saying that the fact that none of the witnesses say the contract would cover SCOsource licenses is because nobody back then had any idea such a weird thing would ever happen in a million years:
JACOBS: As SCO knows, under Section 4.16, it wasn't supposed to enter into new SVRX licenses. It was barred from doing so. I offer -- for purposes of this motion, let's assume that no business person present at the negotiation of the Asset Purchase Agreement or on the periphery of those negotiations contemplated that, in 2003, old SCO would have sold its business to new SCO, that new SCO would have decided that there's not much profit in UnixWare and instead it's going to launch the SCO Source intellectual licensing campaign.
Let's assume that for a minute because I suspect it may well be true that no one, in 1995, contemplated what SCO has wrought over the last three or four years. But that doesn't answer the question: Did
the lawyers draft language covering that exigency? Studiously missing from SCO's argument is any explanation of how "all" doesn't mean "all." "All" does mean "all." "All" can only mean "all." "All" can't mean less than "all." The lawyers drafted language that covers the situation. What if SCO takes this set of rights in SVRX and in violation of the agreement, goes out and gets more SVRX revenue? Who gets that money? The fiduciary relationship established by Section 4.16 answers that question. I imagine it's a little bit like the situation where a client hires a lawyer and the lawyer sues, with the client's permission, A, B and C based on some fundamental right. And then the lawyer, without the client's permission, goes off and sues D. Does the client get the recovery? Of course the client gets the recovery.
And that's, in essence, what has happened here. SCO, without authority from Novell, went out and got more SVRX money, a lot of it. And the contract tells us that that money is within the scope of SCO's fiduciary obligation to Novell and that it must remit it and that failing to remit it, we are entitled to an accounting and a constructive trust.
That answers all these questions that SCO raises about course of conduct, about the declarants
because I offer to stipulate for purposes of this motion; in fact, I offer to stipulate it for purposes of society at large, no one really contemplated what SCO has done with SCO Source.
THE COURT: Stipulate it for society at large?
MR. JACOBS: That was a pretty broad stipulation.
THE COURT: It might exceed your authority.
MR. JACOBS: The authority of all of us is a little limited. I think, just to clarify, what I meant was: This change of business strategy by SCO, by new SCO, by Caldera renaming itself as SCO was, as we all know because of the attention this case has gotten, an extraordinary event in the life of the computer industry, and I dare say few, if anybody, contemplated that the 1995 asset purchase agreement would, by virtue of the chain that we have seen, lead to this campaign that SCO launched.
That doesn't -- the fact that that set of circumstances may not have been contemplated by the business people doesn't negate the legal effect of the language the lawyers drafted.
That's a humorous exchange, by the way. Singer's response is interesting, not for the abstruse argument about Amendment 1, but for what he says about Microsoft's agreement with SCO:
MR. SINGER: Your Honor, I'll be very brief. I
don't see how SCO Source has really anything to do with this. To the extent SCO entered into certain SCO Source licenses, those clearly are not covered by anything in the relevant agreements here from which Novell would receive any share of revenue. The focus on "all," by Novell, does not answer this case. "All" modifies SVRX licenses. The SVRX licenses have to be the SVRX licenses in existence at that time. Otherwise you can't transfer the title. Otherwise, it doesn't make any sense in the context of the agreement.
Similarly, "all" does not mean "all" after Amendment 1 because, at that point, indisputably, source code fees for both amended licenses and new licenses with approval go to SCO, not to Novell. So, clearly, that changed "all" in that respect.
And, thirdly, "all" does not mean "all" when you have language in the agreement, Section J of Amendment 1, that makes clear that incidental distributions and licenses of SVRX are okay as long as it's in the context of the selling of the new or merged products. And that's what we have here.
I would suggest to the Court, if it has any question about that, it could look in Exhibit 3 to the Microsoft agreement which specifies Open Unix products, distribution rights for UnixWare and things which go well
beyond the listing of SVRX licenses. You have only one side offering evidence in this record that what was done there was incidental to the licensing of UnixWare. And, therefore, the plain language of the agreement is carved out of those provisions, those SVRX royalties on existing licenses, which Novell enjoys and continues to enjoy revenue that currently has generated more than $200 million to Novell. They do not have a right to the revenue from the Microsoft and SUN agreements
So, Microsoft licensed OpenUnix and UnixWare? For what? And Singer admits that SVRX licenses are also listed. Jacobs tells us that both the Sun and the Microsoft agreements were amending 1994 SVRX license agreements:
MR. JACOBS: Okay. So, first of all, with respect to the SUN agreement -- part of SCO's argument is that we should have filed this three years ago, this motion three years ago before we saw the agreement, but it isn't until you see the agreement, for example, that you see that in the whereas clauses, SUN and SCO are specifically referring to a 1994 agreement that is being amended and restated, and that is an SVRX agreement. So, if there is any question about whether the SUN agreement is an SVRX agreement, as opposed to something else, that statement, that this is part of a desire to amend and
restate the original agreement dating back to 1994, pretty much answers what the intent of these parties was.
And then, if you go to the exhibit on the SUN agreement, the list of technology, you will see a list of System V release after System V release. Is it alll System V technology? No. There are some other things that are included. But, are the bulk of the listed programs System V releases? Absolutely. Is it possible that one could allocate the value between the various components? Conceivably. Does a fiduciary get to make that kind of carve up under these circumstances? I submit not. Only with the heaviest of presumptions against them, if they can somehow demonstrate that there is something to be excepted, but demonstrate as a fiduciary has to demonstrate, then perhaps in the accounting that we see, some portion of the SUN money gets retained by SCO.
But looking at the purpose of the agreement, and looking at the list of materials that are licensed in the agreement, it's quite plain, we submit, that this is an SVRX license within the meaning of the Asset Purchase Agreement or that, at the the very least, it is, in substantial part, an SVRX license.
So there you have it, the essence of the argument. Novell points to SCO taking two 1994 SVRX license agreements, amending them and adding a couple of items, and then claiming they are not SVRX license agreements any more. That seems a bit of a stretch. But here's Amendment 1 if you would like to parse it all out:
In section 1.2, the following new paragraphs (e) and (f) are added:
-- (e) Revenues to be Retained by Buyer. Subject to the last sentence of paragraph (a) of Section 4.16 hereof, Buyer shall be entitled to retain 100% of the following categories of SVRX Royalties collected by Buyer:
1. fees attributable to stand-alone contracts for maintenance and support of SVRX products listed under Item VI of Schedule 1.1(a) hereof;
2. source code right to use fees under existing SVRX Licenses from the licensing of additional CPU's and from the distribution by Buyer of additional source code copies;
3. source code right to use fees attributable to new SVRX licenses approved by Seller pursuant to Section 4.16(b) hereof; and
4. royalties attributable to the distribution by Buyer and its distributors of binary copes of SVRX products, to the extent such copies are made by or for Buyer pursuant to Buyer's own licenses from Seller acquired before the Closing Date through Software Agreement No. SOFT-000302 and Sublicensing Agreement No. SUB-000302A.
You'll need that and the APA handy to even follow the back and forth between Jacobs and Singer on Amendment 1. What I haven't figured out yet is how a 1995 Amendment to the 1995 APA can affect two preexisting 1994 SVRX agreements or how they can be viewed as "new" agreements not part of the APA transfer, but when I get some time to research, I'll try to figure it out. It's not that I'm not trying to follow SCO's argument; just that so far, it makes no sense to me.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
|THE SCO GROUP, INC.
BEFORE THE HONORABLE DALE A. KIMBALL
DATE: JANUARY 23, 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.
||MORRISON & FOERSTER
BY: MICHAEL JACOBS, ESQ.
ANDERSON & KARRENBERG
BY: THOMAS KARRENBERG, ESQ.
HEATHER SNEDDON, ESQ.
|JANUARY 23, 2007
||SALT LAKE CITY, UTAH
P R O C E E D I N G S
* * *
THE COURT: We're here this afternoon in the matter of SCO
Group vs. Novell, Inc., 2:04-CV-139. For plaintiff, Mr. Brent
Hatch, Mr. Stuart Singer.
MR. HATCH: Good afternoon.
THE COURT: Good afternoon.
And Mr. Edward Normand.
MR. NORMAND: Good afternoon.
THE COURT: For defendant, Mr. Michael Jacobs.
MR. JACOBS: Good afternoon, Your Honor.
THE COURT: Mr. Thomas Karrenberg, and Ms. Heather
MS. SNEDDON: Yes, Your Honor.
THE COURT: All right. We have Novell's motion for partial
summary judgment on the sixth, seventh, eighth and ninth claims for
relief or, in the alternative, a motion for preliminary injunction,
and SCO's cross motion for partial summary judgment.
Who is arguing?
MR. JACOBS: I will for Novell, Your Honor.
THE COURT: Okay. Mr. Jacobs?
MR. JACOBS: That's correct.
THE COURT: You're going to argue everything
And, Mr. Singer?
MR. SINGER: I'll be arguing for SCO, Your Honor.
THE COURT: Well, since you're not splitting arguments,
can you argue the motions together; in other words, you can argue
-- while you're arguing, Mr. Jacobs, about your motions, you can
tell me why I shouldn't grant the cross motion. And, Mr. Singer,
while you're arguing against Novell's motions, you can tell me why
I ought to grant this cross motion. All right. How much time do you
MR. JACOBS: Ten or 15 minutes, Your Honor, would be
THE COURT: Mr. Singer?
MR. SINGER: Your Honor, I would ask for 30 minutes.
THE COURT: Okay. And then I'll give you each a few
minutes on rebuttal.
Go ahead, Mr. Jacobs.
MR. JACOBS: Your Honor, I apologize. I seem to have
gotten a little gravel in my throat, so if you have any trouble
hearing me, please let me know. On this motion for --
THE COURT: It doesn't sound like it's going to
make it any harder to hear you. It might make it easier. Go
MR. JACOBS: I'm reminded of Demosthenes, Your Honor.
THE COURT: Take the rocks out of your mouth.
MR. JACOBS: On this motion for summary judgment and
preliminary injunction, Your Honor, we have two powerful things
going for us. The first is SCO's acknowledgement that they're a
fiduciary for Novell when it comes to the administration,
collection and remittance of SVRX royalties. I say
"acknowledgement" advisedly. We made quite an issue out of this in
our opening papers. They did not contest it in their opposition,
and we brought the issue home in our reply brief.
It's really a very important aspect of the motion because it
changes what might be seen as two contesting versions of the
situation into --
THE COURT: But it would still leave open, wouldn't it,
the question of what SCO might be a fiduciary of?
MR. JACOBS: Exactly. And the contract defines the scope
of its fiduciary obligations. But because they are a fiduciary,
they have certain duties not to play around the edges of those
obligations, and they have a duty to act in the utmost good faith.
We know these
doctrines well. Most importantly, they have a duty to put
Novell's interests above their own when it comes to the SVRX
license royalty fiduciary duty that they undertook through their
predecessor in the Asset Purchase Agreement.
So then that does bring us to the question of: What is the scope
of the duty? And that is defined by the contract. And that's the
second thing we think powerfully argues in our direction. We were
joking among ourselves preparing for this argument. This is an
argument about the three alls. And the alls are: The all royalty
fees and other amounts due in 4.16A; all SVRX licenses, also in
4.16A; and then in the annex that lists the SVRX releases, the all
contracts relating to the SVRX licenses listed below.
THE COURT: So it's a-l-l-s, not a-w-l-s?
MR. JACOBS: That's right, Your Honor.
THE COURT: Think about this question, and you don't need
to get to it now.
MR. JACOBS: Sure.
THE COURT: But if you have here -- part of the relief you
seek here is equitable.
MR. JACOBS: Yes.
THE COURT: And yet you're relying on a contract. Does
that make any difference? And, if so,
what difference does it make, if you have a breach of contract
but you still seek this equitable relief based on breach of
contract? Anyway. Have that rolling around in your mind.
MR. JACOBS: I think that's -- so, the Supreme Court I
think has helped us out on this issue recently and, to some degree,
trumped some of the case law that might have preexisted on this
question. I think I'm not going argue that, on that breach of
contract claim, where our remedy is at law, that we have a
constructive trust remedy. I don't think I need to reach that point
because we are defined in the agreement as the equitable owner of
the SVRX royalties because they are a fiduciary collecting for our
That set of predicate relationships, if you will, sets up the
claim for a constructive trust. It's our property that they are
holding in trust for us, and it's defined that way in two ways:
One. The strict letter of the agreement, which allocates to us this
ownership interest; and, secondly, the fiduciary arrangement that
arises out of the contract.
So I think maybe the harder question is: Can a contract
establish a fiduciary relationship? Can a contract allocate
ownership in the way it does and not convert the remedy that we
would have, because it's in a
contract, to a legal remedy?
And I think the answer to that clearly, under California law, is
that the contract doesn't change the essence of the claim. The fact
that the relationship or the ownership interests arise out of the
contract doesn't change this from a legal to an equitable --
doesn't change this from an equitable to a legal claim, and,
therefore, we have a claim to a constructive trust, and we have a
claim to a preliminary injunction establishing a constructive
I think, concededly, we have a much harder row to hoe if we are
making strictly a claim at law as a breach of contract action.
That's why that first doctrine, that fact that this is a fiduciary
relationship, is so important to the ultimate relief we seek, as
well as the way it, if you will, biases the analysis of the
provisions of the contract.
So, on the scope of the fiduciary relationship, it's worth
pausing on the specific language for a minute. I don't know if you
have the Asset Purchase Agreement handy.
THE COURT: I do.
MR. JACOBS: So if you would turn to page 24.
THE COURT: Twenty-four. I'm there.
MR. JACOBS: And 4.16A.
THE COURT: Okay.
MR. JACOBS: So the language, "All royalties fees and
other amounts due," is dispositive here of one of the issues in
SCO's opposition. Is it really just royalties due under the binary
aspects of the SVRX relationships? Well, it doesn't say "royalties
only." It says, "royalties, fees and other amounts due." So, any
category of revenue under an SVRX license, regardless of what it is
attributed to and regardless of how it's labeled, again, all
royalties, fees and other amounts due.
Now let me pause here because there is something very
interesting going on in the debate between the parties. Their cross
motion and their opposition rests heavily on these declarations
from business people who have had some varying degree of
association with the actual transaction. And I think there is a
basic misapprehension about the role of contracts and the role of
lawyers that divides the parties on this motion.
Business people form -- I'm not telling you anything new, but I
thought it's worth articulating what's going on here. Business
people come up with an idea for a deal. They model the deal. They
model the transaction based on aspects of the transaction that they
understand. One of the aspects of this transaction that
they apparently modeled was the continuation of the existing
SVRX revenues because they could understand that.
Lawyers then sat down and drafted an agreement. And lawyers,
they are not computer engineers, but they are transactions
engineers, and they try to draft language that anticipates not only
what the business people might have specifically contemplated by
way of the business purpose of the transaction, lawyers try and
draft language that covers all contingencies.
That doesn't make that any less of the intent of the parties
simply because it's the result of the lawyers doing drafting of an
agreement. The lawyers are the party at that stage of a
relationship and then, of course, the parties ratify what the
lawyers do when they sign the agreement. So there's -- what's
basically going on here is SCO would have us ignore what the
Now, there are ways to do that. They could ask for the contract
to be reformed if, in some way, the contract didn't reflect the
underlying intent of the parties. But they haven't asked for
reformation. They could make an argument for mutual mistake, but
they haven't made an argument for mutual mistake. They haven't said
the lawyers were incompetent, although there is a theme running
through their papers that somehow
their lawyers didn't capture their intent or, to be more
precise, the predecessor's intent in the agreement.
It may be that, as the Asset Purchase Agreement was being
drafted, people were working quickly. It may be that Novell had all
sorts of leverage over old SCO during the time of drafting the
Asset Purchase Agreement. That doesn't change the outcome. We look
at what the contract says, not what the business people might have
thought was the essence of the deal.
Now, here, we have one additional important fact, if you will,
that reinforces this basic point I'm driving at. There were three
months between the signing of the Asset Purchase Agreement and the
signing of Amendment Number 1. This provision was heavily focused
on. 4.16 is a major focus of Amendment Number 1. There was a lot of
opportunity to tweak the language if tweaking would have better
conformed the agreement to some different notion of what the
transaction was all about.
But, in particular, the language, "all royalties, fees and other
amounts due, under all SVRX licenses" didn't change. SVRX royalties
in Amendment Number 1 was used as a category. There are various
carve outs from the category, but those carve outs confirm that the
set SVRX royalty is a very large set because certain
things were exempted from the set explicitly. They weren't said
-- it wasn't not said that these things are not SVRX royalties. It
was said that these things which are not SVRX royalties are not
part of the payment remittance obligation that SCO incurs.
So, these elements of the set help define the set, and that was
done three months after the Asset Purchase Agreement was signed. So
that's the first "all," all royalties fees and other amounts
Then the second "all," all SVRX licenses as listed in detail
under Item 6 of Schedule 1.1A hereof and referred to herein as SVRX
Now, this part has provoked all sorts of consternation and
argumentation on the other side. What is an SVRX license, they ask.
The list of programs that is identified under Section 1.1A makes
this a non-issue as far as this motion is concerned because what we
demonstrated in our papers is that if you take the SUN and
Microsoft agreements and lay them against the list of programs in
Schedule 1.1A, it's almost a -- it's a lay down. It's a perfect
match up. It's almost as if they took Schedule 1.1A, added and
subtracted a little bit from it, but used the exact formulations
for the names of the programs in the SUN and Microsoft
So, we don't need to know the ultimate scope of
SVRX licenses. We don't need to know how far it could possibly
reach in order to decide this motion. What we know is: If you take
that list of programs and you lay it down against the exhibits in
SUN and Microsoft, particularly NXB of the Microsoft agreement, the
second payment provoking annex of the Microsoft agreement, it's a
nearly perfect match up.
THE COURT: What does "nearly perfect" mean?
MR. JACOBS: Well, there are a few additions. I didn't
notice any important subtractions. There are a few additions to the
list. In annex B, it's two additions at the top, I think, and
everything else lines up perfectly. So are these -- is there --
there are two questions to ask, I suppose. Are the SUN and
Microsoft agreements SVRX licenses, or do they represent at least,
in part, SVRX licenses? We think the answer to both is yes. The
second. They are at least in part an SVRX license. We think they
are also SVRX licenses.
And this is where I think the fiduciary obligation starts to
kick in. One of the obligations of a fiduciary is to make it
possible for the principal to know whether you have collected on
behalf of the principal or on behalf of yourself. And you have a
duty to prevent the kind of commingling here that's gone on; not
commingling only in the sense of the pot of money but
commingling in the agreements. So this is where I think the
fiduciary duty aspect of this should tilt the -- any concerns that
one might have about this lineup of programs against SCO.
They had a duty to do this in a way that would not provoke this
kind of self-serving, "no, no we are not your fiduciary for this"
sort of declaration that they have introduced.
Now, if you look, then, at Amendment 1, just to underline the
point about the scope of the obligation, I think it's worth walking
through that briefly. So the first thing to note is that on page 9
of Amendment 1, which is Exhibit 2 to my declaration.
THE COURT: Uh-huh.
MR. JACOBS: It's in item four. The first line is amended
in its entirety to read as follows: All contracts relating to the
SVRX licenses and auxillary product licenses collectively SVRX
licenses listed below. So what's going on here three months after
the asset purchase agreement is signed, are the parties cutting
back on the definition of SVRX license? No. They are actually
making sure that it's sufficiently inclusive and so, with three
months -- with the benefit of three months, if it was rushed at the
initial negotiation, it's being cleaned up but, in this respect,
not in a way that
And in the other provisions, the elements of the set that I was
referring to here, are really quite telling here because I think
they answer all of SCO'S arguments. So really this is a question
about the importantance of the language of the contract as against
the declarations of the business people that SCO submitted.
If you look at page 3, revenues to be retained by buyer, it
says: Buyer shall be entitled to retain 100 percent of the
following categories of SVRX royalties collected by buyer.
So what this amendment is doing is making clear that the
following categories are SVRX royalties. They would, therefore,
fall under the scope of the fiduciary obligation of the payment and
remittance obligations of 4.16A, but we are going to exempt them
explicitly. We are not going to define them away. We are not going
to define SVRX more narrowly. We are going to take a few elements
of the set and pull it out. And one of them is source code
right-to-use fees under existing SVRX licenses from the licensing
of additional CPU's, proving, we submit, that source code
right-to-use fees in all other circumstances are SVRX royalties and
are not exempted by the language of the agreement.
They are not exempted by this Section E of Amendment Number 1
from SVRX royalties. A specific category of SVRX royalties is taken
out of the pool of money that has to be remitted to Novell.
And then, similarly, in the next little bullet. Source code
right-to-use fees attributable to new SVRX licenses approved by
seller prusuant to Section 4.16B. So, had SCO obtained approval for
source code right-to-use fees under these SUN and Microsoft
agreements from Novell, then SCO could have retained those
Now plainly, had they -- what the agreement contemplates, then,
is some kind of a discussion and negotiation between SCO and Novell
under those circumstances. Novell has no obligation to approve a
proposed agreement that SCO might enter into. But here, of course,
there was no such opportunity to negotiate, and Novell might very
well have -- if asked, might very well have declined to approve it,
in which case SCO would have been entering into the agreements at
its own peril under this provision.
So I think that Section E and little Section E on page 3 make it
very clear that SVRX royalties is not limited temporally. It's not
limited to existing, as against future, and it's not limited as to
source code or
that source code or binary dimension that SCO proposes as a
Now, it is worth pausing for a minute on the actual agreements
themselves, and I want to observe that the agreements are under --
I'm talking about the SUN and Microsoft agreements are under seal.
It's not our confidential information, so if you want to stop me at
some point and propose to Judge Kimball -- however you wish to
proceed with this, Your Honor.
THE COURT: Do we need to clear the courtroom before you
MR. JACOBS: I think what I will try to do is keep away
from something that might be sensitive.
THE COURT: That would be better, if you can.
MR. JACOBS: Okay. So, first of all, with respect to the
SUN agreement -- part of SCO's argument is that we should have
filed this three years ago, this motion three years ago before we
saw the agreement, but it isn't until you see the agreement, for
example, that you see that in the whereas clauses, SUN and SCO are
specifically referring to a 1994 agreement that is being amended
and restated, and that is an SVRX agreement. So, if there is any
question about whether the SUN agreement is an SVRX agreement, as
opposed to something else, that statement, that this is part of a
desire to amend and
restate the original agreement dating back to 1994, pretty much
answers what the intent of these parties was.
And then, if you go to the exhibit on the SUN agreement, the
list of technology, you will see a list of System V release after
System V release. Is it alll System V technology? No. There are
some other things that are included. But, are the bulk of the
listed programs System V releases? Absolutely. Is it possible that
one could allocate the value between the various components?
Conceivably. Does a fiduciary get to make that kind of carve up
under these circumstances? I submit not. Only with the heaviest of
presumptions against them, if they can somehow demonstrate that
there is something to be excepted, but demonstrate as a fiduciary
has to demonstrate, then perhaps in the accounting that we see,
some portion of the SUN money gets retained by SCO.
But looking at the purpose of the agreement, and looking at the
list of materials that are licensed in the agreement, it's quite
plain, we submit, that this is an SVRX license within the meaning
of the Asset Purchase Agreement or that, at the the very least, it
is, in substantial part, an SVRX license.
Now, the only other thing that SCO tries to argue, really, on
this point is that it's incidental and
this falls under the incidental language of 4.16. But I don't
think this is something on which there can be a fact dispute when
you look at the list of technology and System V release after
System V release is listed there. To say that it's incidental, I
think turns incidental into something that it is not.
Incidental means by happenstance or by chance or it might, in
some minor way be related to, in my dictionary. And I don't see how
they can concoct an incidental argument out of this agreement.
Now, that brings us to the Microsoft agreement, and it had an
interesting aspect to it which we think also answers the question:
Is it, in substantial part, an SVRX license? And that is the
structure of the agreement and the fact that, pursuant to an
option, there were -- there was a purchase of rights to additional
code. And if you compare the two lists -- I won't go into it in
detail because of the confidentiality, but if you look at Exhibit
A, it starts out with SCO UnixWear and then lists a lot of
technologies under it, including the System V kernel in the first
Are you looking -- I'm on page 8 of the Microsoft agreement.
THE COURT: All right.
MR. JACOBS: So if that was what this agreement
was all about, you might say: Well, gee, this is just incidental
because Exhibit A looks like a license to UnixWear with a Unix
component included. But then, if you look at Exhibit C. -- I think
I misspoke before. Exhibit C, well, it, too, starts out with
references to UnixWear. Pretty soon we're in that body of the
additional assets that are listed there that lines up letter
perfect with releases on the Asset Purchase Agreement's definition
of an SVRX license, so in no way, with Exhibit C, can this aspect
of the Microsoft agreement be thought to be an incidental licensing
of SVRX associated with UnixWear. The contrast between C and A, we
believe, makes that very, very plain.
To say it again, Exhibit A is how you would document it if you
were going to make an argument from incidentalness, and Exhibit C
is an SVRX license with some additional licensing of UnixWear.
So we think that basically is the beginning and the end of it.
Now, we don't need to get into the extrinsic evidence, but what we
thought the extrinsic evidence gave us an opportunity to do was to
show Your Honor how, in fact, in the wake of the agreement, the
parties' conduct was consistent with the interpretation we
And to the extent that gives the Court some
additional comfort, that we are not twisting the language ten
years later, the way it wasn't contemplated, we thought actually
their cross motion gave us an opportunity to not get into the facts
on the lead motion which rests -- which really, as a matter of law,
under the contract, we win.
But if you look at the factual material we submitted in
opposition to their motion, to their cross motion, you will see
that, in fact, in the wake of the Asset Purchase Agreement, the
word "source code" was used repeatedly to describe the rights that
Novell retained. There was no source binary distinction, in
particular. When there were various buyouts, such as the IBM
buyout, source code was -- revenues were paid 95 percent to Novell,
as well as binary code revenues.
So that's only five months after Amendment Number 1 is signed.
The Asset Purchase Agreement actually closes. So that's very close
in time. I think I'll stop there and see what important points SCO
advances in their motion.
THE COURT: Thank you, Mr. Jacobs.
MR. JACOBS: Thank you.
THE COURT: Mr. Singer.
MR. SINGER: Thank you, Your Honor. Your Honor, if I may
approach, we have some argument
THE COURT: Sure. Have you given Mr. Jacobs a copy?
MR. SINGER: I have, Your Honor.
THE COURT: Thank you.
MR. SINGER: Your Honor, I would submit that it is an
extraordinary motion for summary judgment when a party asks the
Court to interpret a contract in direct opposition to what all of
the witnesses who were directly involved in the negotiation of the
agreement, in setting the business deal, in directing the lawyers,
testify was the intent and the effect of that agreement. Yet that
is the situation we have here. We have submitted nine declarations.
Not just from individuals on the Santa Cruz side, but numerous
individuals who, at the time, worked at Novell; from the senior
executive, such as Doug Thompson to Ed Chatlos, the chief Novell
negotiator, to Mr. Maciaszek, who worked throughout this period on
these products, and on and on, as well as witnesses on the Santa
And they tell a very consistent story, that the intent of this
agreement was for Novell to retain 95 percent of the royalties on
existing SVRX licenses. And by SVRX licenses, they meant binary
licenses that went to end users.
Now, Mr. Jacobs suggests that, well, the business people must
not have understood what the lawyers were drafting. First of all, I
would submit that position turns on its head the practice of
contractual interpretation followed by Courts throughout the
country that look at evidence reflecting the intent of the business
people, of the parties, and don't assume that somehow the lawyers
took it upon themselves to run amuck and recut a different
THE COURT: Hypothetically, could a contract provide A, B
and C, hypothetically, in the clearest terms, and you could have a
situation, then, hypothetically, where most of or many of the
people involved say: Well, what we meant was X, Y and Z.
What is a Judge to do, then, hypothetically? I'm not saying
that's this case. Hypothetically, what is the Judge supposed to do
MR. SINGER: Hypothetically -- and it's not this case --
if the language is not at all open to the interpretation that the
witnesses say, then absent issues of reformation and mistake and
issues like that, which one would need to go into, you look at the
language. If, for example, this was a case of a contract which said
the 2003 Microsoft agreement and 2003 SUN agreement and the fees
related to those agreements should go to Novell,
that would be a clear statement, and one, then, doesn't have to
worry as much about these types of statements.
Or, if you had a statement which said that all existing and
future licenses for source code and binary or object code are ones
on which Novell keeps the royalties, then you might get closer to
your hypothetical situation. That is, of course, not the case
But, not only does one not assume that the lawyers run amuck in
interpreting and writing the agreement that is counter to what the
business purpose is, one would assume, then, that that would only
be counter to what the Santa Cruz witnesses said was the business
purpose and that, without negotiating with Santa Cruz, they
effectuated the intent of their client on the Novell side.
But here we find that the declarations indicate, from Novell as
well as Santa Cruz, that they very well understood the intent, that
the intent was the same and that the intent was a limited right
with respect to existing licenses, with respect to binary and not
source code and, as we'll see later, by operation of the
amendments, did not apply when you had a distribution or license of
SVRX that was incidental to, that accompanied the sale of UnixWear,
which was a new product being sold.
Now, not only is there this uncontroverted
testimony from the witnesses most directly involved in the
transaction, but it is reflected, as well, in formal public
statements by SCO -- by Novell to the public, to the Securities
& Exchange Commission.
If Your Honor would turn to tab 1 of the book of exhibits, one
finds an excerpt, and that excerpt is taken from, at the time, the
'95 annual report, the '96 annual report, the '96 quarterly reports
that Novell filed. And they describe the transaction because the
purpose of this transaction was the sale of the business, the Unix
business, and it was compensation which Novell received, which was
17 percent of the SCO common stock. It was a future revenue stream
based on UnixWear that Novell doesn't discuss that I'll get to
later, but, most importantly, they described the issue here by
specifically saying that Novell will continue to receive revenue
from existing licenses for older versions of Unix System source
code, which, again, is consistent with what all the witnesses on
both sides say.
Now, Your Honor, we would submit that the plain language of the
agreement is consistent with and effectuates this intent when one
looks at Amendment 1, as well as when one looks exactly at what was
put into those agreements. But there is no controversy over the
fact that the purpose there was to transfer the entire
business to SCO and to provide this as a mechanism of paying for
that business. And, in fact, the evidence in the record shows that
Novell has received from SCO over $200 million in royalties
relating to the binary product sales.
And the evidence shows that SCO has consistently taken that
interpretation in terms of what was paid and also contrary to what
Mr. Jacobs says, that Novell, until 2003, never even asked about
source code focused on binary license revenue when they audited the
revenue stream that these licenses were generating.
Now, I'm going to only very briefly talk about the legal
standard that California law applies here. We insert two cases at
tabs 4 and 5. California law says one uses extrinsic evidence to
expose ambiguities and to see if a contract is reasonably
susceptible to the parties' interpretation. And here we think
whether this was under California law or otherwise, the language
goes beyond reasonably susceptible but, in three critical respects,
fully supports the arguments SCO is making: One, on the argument of
existing-versus-future contracts; two, on the issue of source code
in light of Amendment 1; and, third, on the issue of incidental
licensing of SVRX in the context of a new UnixWear license.
And I'd like to spend some time talking about
each of those points. First of all, the fact that we were
talking about licenses existing at the time. And if one looks at
1.2B, one immediately sees how the language supports that position
because what is being defined here is the transfer of SVRX
licenses, is only legal title and not an equitable interest. Those
are licenses that have to be existing at that time. How else could
they appear on the schedule of assets, which is schedule 1, which
is being sold? How else can you say that buyer has legal title, if
these contracts have not yet come into existence? At the same time,
when the drafters of this contract wanted to deal with future
sales, they knew how to do so expressly.
Later, in the same provision of 1.2B, it talks about future
sales. That's the UnixWear. And it says that on account of buyer's
future sale of UnixWear products, there will be a payment to the
seller. That provision is totally ignored by everything Novell has
said in its papers. If they had earned a royalty on UnixWear, they
would have received it. That was a limited royalty. It had to meet
certain threshold amounts of sales based on a Novell business plan
that did not occur, and it expired in December of 2002 before the
contracts at issue here were entered into.
But what it reflects is that the drafting of
this agreement was talking about a transfer of licenses -- and
we submit you can't transfer something that doesn't exist at that
time -- and specifically dealt with future sales with express
language. You do not see, Your Honor, any language in this
agreement which says future SVRX licenses entered by SCO or the
buyer, the revenue from those flow to Novell. That is not found
anywhere in the document. If one follows 1.2 to the reference in
4.16 where the issue is: What does SVRX licenses mean? that refers,
in turn, to a schedule.
Item 6 of Schedule 1.1A. It says these are listed in detail. Of
course the licenses aren't listed in detail. If one turns to that
provision, one sees just a product listing. One finds, in other
provisions of this list of assets being sold -- because that's what
this was. This was a schedule of the assets being sold --
references to UnixWear generally, references to software and
sublicensing agreement, including source code and sublicensing
agreements that the seller has, and those agreements are under a
different section here.
There is no specific listing of licenses here in detail. There
is no reason to believe that this listing was intended to be more
than the product supplements which are the actual licenses by which
a royalty is generated.
Now, there is an additional reason, looking at 4.16B why the
parties didn't contemplate any need to deal with future SVRX
licenses, and that's found in Subsection B because the expectation
here was that the future sale would be of the UnixWare, the new
product. And it said: Buyer shall not, and shall have no right to
enter into future licenses or amendments of the SVRX licenses
except as may be incidentally involved through its rights to sell
and license the assets for the merged product or future
And later, after the amendment, that was also expanded to where
there was an approval from Novell. But the contemplation of the
parties was that you weren't going to have future SVRX licenses,
which is perfectly consistent with this being understood as meaning
the licenses in place which, in turn, is consistent with what every
person who has touched this transaction, nine separate
declarations, reflect was the intent.
Now, if the Court agrees on the issue of this reaching only
existing licenses either as a result of the plain operation of the
language or if it's reasonably suceptible to that language, that's
the end of the issue because the 2003 agreements in question here
did not exist back at the time of the APA in 1995, and the result
of that should be denying the summary judgment motion
brought by Novell and granting the cross motion.
But there is a separate, second issue which also leads on to
that result. And that is the question of whether source code
license fees would ever go to Novell. Now, Mr. Jacobs suggests that
Amendment 1, which was entered into later, in the end of 1995,
supports his position. I submit it does not. One should look at
what these provisions meant rather than just the terms that they
use. Focus not on the fact that somewhere in here there's a
reference to source code, but what do these provisions say?
They say, under Section 2, that the buyer, that's SCO, shall
keep 100 percent of SVRX royalties that consist of source code
right-to-use fees under existing licenses from the licensing of
additional CPU's or from the distribution by the buyer of
additional source code copies. And then, if you have totally new
licenses that are approved by the seller, all of those fees also go
to SCO, go to the buyer.
There is no way, we submit, that you can reconcile this
amendment with the idea that some part of source code fees go to
Novell. I mean, first of all, it doesn't say any of the source code
fees goes to Novell. There is nothing in Amendment 1 which says
that. We submit that they have covered the relevant universe in
these two provisions when one considers where source code fees
can arise from. And if Your Honor turns to tab 11 in our binder, it
indicates the four different categories one could conceivably have
of these source code fees.
One category are the paid-up source code agreements. Sun's
agreement in 1994 is one of them. Novell received $84 million with
respect to those rights. They kept it all before the transaction.
No need for the agreement to treat the paid-up source code
agreements because they already have the revenue. If those
agreements are being expanded in terms of additional units or
distribution, that's the second clause here. That goes to the
buyer. If there are new licenses that are approved by the seller,
that also goes to SCO. If there was an intent that source code
licenses generated revenue that went to Novell, that provision
would say Novell has to approve them, but then the revenue goes to
Novell. It makes no sense to suggest that there was an intent that
the revenue go to Novell when it says that the revenue shall go to
But then there's the question of: What happens if there is
something that is a new source code license but it isn't approved
by Novell? And we agree the Microsoft and SUN agreements were not
approved by Novell. There is nothing in the APA or Amendment 1 that
those fees in that circumstance would go to the seller. We
submit that those are properly treated under the incidental
language because what was contemplated was that any licensing of
source code of SVRX, along with UnixWear, fell within the separate
provision of Amendment 1 that dealt with that, and that is Section
Section E said: Notwithstanding the foregoing, buyer shall have
the right to enter into amendments of the SVRX licenses, as may be
incidentally involved to its rights to sell and license UnixWare
software or the merged product or future versions of the merged
And it also provides that a licensee, such as SUN, under a
particular SVRX license, can be allowed to use the source code on
additional CPU's or to receive an additional distribution from the
buyer of such source code.
So, through these provisions, which do not require the approval
of Novell, SCO was able to conduct its business, sell UnixWare and,
as I believe five different witnesses have testified in their
declarations, it was a customary and ordinary part of that business
when you licensed a new product, when you licensed UnixWare, to
provide a license to the Legacy product as well to go along with
it. That is what is meant by incidental.
Now Mr. Jacobs suggests, without anything in the record to
support him, that this Court should determine, as a matter of law,
what's incidental by counting up the lines on a product license or
the number of times that certain products on .6 appear on that
list. There is no basis in law or in fact for that. One looks
either at the agreement -- and this agreement does not define what
incidental means -- or one looks to what the business people say
was meant by incidental.
Here five witnesses, again both on the Novell and the SCO side,
say this is what was meant when you license older Legacy products
along with the UnixWare current product. And that was specifically
authorized, and that is where the Microsoft and SUN agreements fall
within their treatment of the agreement.
So those agreements mean, first of all, that because these are
not existing SVRX licenses, they are not subject to Novell's
royalty rights. Number 2, because they deal with source code, not
binary rights, the revenue certainly does not flow to Novell. And,
number 3, they fall squarely within this provision both on the
language here and as interpreted by the extrinsic evidence of what
Now, Mr. Jacobs also says that his position on source code is
supported by Amendment X, which was an
amendment that was entered into with IBM, and he suggests that's
because 95 percent of the revenue in that Amendment X actually went
to Novell. But, as we point out at tab 12, it made perfect sense
for that revenue to go to Novell because that revenue related to
expanded binary rights. And Amendment X expressly provided that
when you are dealing with future source code rights, that would be
dealt with differently.
Section 1 of Amendment X said that upon payment to SCO, they
would have these rights. And then -- this is the third bullet point
under tab 12 -- however if IBM requests deliveries of additional
copies of source code, IBM will pay certain fees that were then
listed under a separate topic. That would be in addition to the
money that was paid when Amendment X was entered into. That money
properly went -- at least 95 percent of it properly went to Novell
completely consistent with the interpretation of the agreement that
we, and the witnesses who were there and operated these agreements,
testified to in their sworn declarations was the intent.
If one turns to tab 13, Your Honor, one sees references to the
declarations of Ms. Acheson,
Mrs. Broderick, Mr. Maciaszek, Mr. Chatlos, and Madsen, all of
which support the view that these products commonly included -- or
these licenses of UnixWare
commonly included licenses of SVRX. Incidentally, because the
licensee wanted to have those rights and it was authorized, it's
exactly what was intended by the language of Amendment 1.
Now, beyond the language of the agreements which we've been
talking about and beyond the intent of the witnesses, the course of
conduct on both Novell's side and SCO's side is completely
consistent with our interpretation.
If Your Honor turns to tab 14, we indicate that, in 1998, Novell
conducted an audit of SCO's royalty payments. That was in
accordance with their rights. The representatives at that time did
not ask for anything other than their reports of binary royalties
from the SVRX licenses that existed at the time of the APA, and
they never asked about the licensing of the source code. That is
powerful evidence that supports the other evidence as to how the
parties understood these agreements.
It is only in 2003, after litigation developed -- and this is
now many years after the 1995 APA, eight years later -- that Novell
starts asking about source code. We submit, the relevant course of
conduct evidence is how, in the immediate aftermath of the
agreement, they, by their actions, interpreted those
How about on the Santa Cruz side? If one turns to tab 15, you
see, based on this record, that Santa Cruz's conduct is also
consistent with SCO's position. There's an April 23, 1996 letter
which talks specifically about the APA providing for Novell to
receive the residual royalties from the in-place SVRX license
stream. There was the fact that that is what Santa Cruz paid and
reported to Novell. They didn't pay anything else. So this is not
some new interpretation that SCO has moved to in the last year or
just with respect to the Microsoft and SUN agreement. This is
consistent with how SCO and its predecessors have operated under
these agreements going all the way back.
There was a particular instance involving Craig Computers where
Santa Cruz reminded Novell it had no right to negotiate source code
right and fees, and Novell agreed. And, of course, Santa Cruz and
SCO has paid over $200 million in SVRX binary royalties based on
Now, if Your Honor turns to tab 16, we go a step beyond opposing
Novell's motion for summary judgment and deal with our cross
motion. And it's been an interesting evolution in the language with
which Novell's attorneys in this case have used to describe the
When they initially filed their motion for summary judgment,
they said: Well, this is clear.
In opposing our summary judgment motion, they say: Well, we
think the language is reasonably suceptible to their
We don't think that's true for the reasons that I've outlined
regarding the agreement, but even if that's true, they have not
come forth with any competent evidence to counter the nine
declarations of people who were there on both sides of the
transaction with personal knowledge, explaining that only existing
SVRX licenses were covered and that source code license fees were
not covered. The only reference that they make is to a testimony
from Mr. DeFazio who provided a declaration in the IBM case, and
that declaration, while it talks about source code, does not in any
way dispute the fact that the only licenses which Novell retained
revenue on were the existing licenses. So even if one looked at Mr.
DeFazio's declaration, that does not create a factual dispute
Simply put, Novell has no witness directly involved in the
negotiations who supports their position, and both sides' witnesses
Now, what is the impact, then, on the SUN and the Microsoft
agreements? If one looks at tab 17 as a
matter, then, of undisputed fact, the SUN agreement was not a
license in existence at the time of the APA. It was, therefore, not
transferred by Schedule 1. Secondly, it's a license for UnixWare as
to which, based on this record, the SVRX licenses, five different
witnesses support is incidental, and therefore it was authorized by
the buyer to enter into it, and none of the revenue flows to
I don't even think we get to the third bullet point which is an
issue of: If Novell did have rights, one would have to allocate how
that fell within the agreement.
If one turns to the next tab, tab 18, the same is true with
respect to the Microsoft agreement. The Microsoft agreement did not
exist at the time of the APA. It was not subject to schedule 1. It
was not subject to Section 1.1 B. Neither legal title or any other
title transferred at that time. Number 2, any licensing of SVRX was
incidental to the UnixWare license for the same reason. And, third,
if you looked at an allocation of what was being treated there,
contrary to Novell, the Microsoft agreement does not provide for $8
million going to the licenses that -- for SVRX.
Mr. Sontag, in his declaration, directly explains, at length,
that that section of the agreement
provided Microsoft with broader distribution rights for
UnixWare, and there is no counter to Mr. Sontag's testimony on that
The UnixWare license basically was expanded by this section of
the Microsoft license that Novell suggests only brought these other
products, these Legacy products, into play.
Now, I'm not going to take the Court's time with all the other
issues that we have briefed that one only reaches in the event one
were to find against us and be prepared to either conclude it as a
summary judgment matter or as a likelihood-of-success matter on a
preliminary injunction. We have briefed those. We have undisputed
evidence that we have larger claims for copyright infringement
against Novell than these claims.
We show that, as a matter of law, the risk of uncollectibility
of a judgment is not a basis for an injunction and that, if they
wanted to pursue something like that, they had to do it under
Utah's Pre-judgment Attachment Statute; that a constructive trust
requires proof that there is in existence today proceeds traceable
to these funds received in 2003, which Novell has no evidence on;
and that, in any balancing of the equities, one does not have the
effect -- I mean, Novell likes to say that SCO is on the point of
bankruptcy. It has no
proof of that. SCO obviously has been managing tight cash
situations for some years, and it is planned to be in a position to
continue through to conclusion of this litigation doing that.
The only thing that's clear is that if this injunction issued,
it would greatly complicate and undermine SCO's ability to do so
and that there is a public interest, particularly given the
intellectual property rights here being involved in SCO being
allowed to fully vindicate in litigation those rights.
So, for all of those reasons, even if one got through the merits
issues that I have devoted most of my time discussing because I
think that's the key here, one should not, under any circumstances,
consider the relief which is being suggested here.
One last point. The issue is not fiduciary relationships. We
have not contested a fiduciary relationship with respect to
collecting money, but a fiduciary relationship doesn't extend
beyond what the contract establishes here is the proper scope of
that. It only kicks in once the Court were to conclude that an SVRX
license is implicated by the Microsoft and the SUN agreements.
Other than that, there is no case law or anything else that says
that the Court interprets the contract any differently, just
because, the way the
parties set this up, we would collect and hold the money for
them and then transmit it to them.
This is an issue of contract interpretation, and it's an issue
on which all of the evidence, the language, nine declarations, the
course of conduct, everything, points in favor of SCO. Thank
THE COURT: Thank you, Mr. Singer.
MR. JACOBS: I would like to lever off of SCO's reliance
on a provision of the Asset Purchase Agreement that helps explain
why there are no declarations that deal with this circumstance. As
SCO knows, under Section 4.16, it wasn't supposed to enter into new
SVRX licenses. It was barred from doing so. I offer -- for purposes
of this motion, let's assume that no business person present at the
negotiation of the Asset Purchase Agreement or on the periphery of
those negotiations contemplated that, in 2003, old SCO would have
sold its business to new SCO, that new SCO would have decided that
there's not much profit in UnixWare and instead it's going to
launch the SCO Source intellectual licensing campaign.
Let's assume that for a minute because I suspect it may well be
true that no one, in 1995, contemplated what SCO has wrought over
the last three or four years. But that doesn't answer the question:
the lawyers draft language covering that exigency? Studiously
missing from SCO's argument is any explanation of how "all" doesn't
mean "all." "All" does mean "all." "All" can only mean "all." "All"
can't mean less than "all." The lawyers drafted language that
covers the situation. What if SCO takes this set of rights in SVRX
and in violation of the agreement, goes out and gets more SVRX
revenue? Who gets that money? The fiduciary relationship
established by Section 4.16 answers that question. I imagine it's a
little bit like the situation where a client hires a lawyer and the
lawyer sues, with the client's permission, A, B and C based on some
fundamental right. And then the lawyer, without the client's
permission, goes off and sues D. Does the client get the recovery?
Of course the client gets the recovery.
And that's, in essence, what has happened here. SCO, without
authority from Novell, went out and got more SVRX money, a lot of
it. And the contract tells us that that money is within the scope
of SCO's fiduciary obligation to Novell and that it must remit it
and that failing to remit it, we are entitled to an accounting and
a constructive trust.
That answers all these questions that SCO raises about course of
conduct, about the declarants
because I offer to stipulate for purposes of this motion; in
fact, I offer to stipulate it for purposes of society at large, no
one really contemplated what SCO has done with SCO Source.
THE COURT: Stipulate it for society at large?
MR. JACOBS: That was a pretty broad stipulation.
THE COURT: It might exceed your authority.
MR. JACOBS: The authority of all of us is a little
limited. I think, just to clarify, what I meant was: This change of
business strategy by SCO, by new SCO, by Caldera renaming itself as
SCO was, as we all know because of the attention this case has
gotten, an extraordinary event in the life of the computer
industry, and I dare say few, if anybody, contemplated that the
1995 asset purchase agreement would, by virtue of the chain that we
have seen, lead to this campaign that SCO launched.
That doesn't -- the fact that that set of circumstances may not
have been contemplated by the business people doesn't negate the
legal effect of the language the lawyers drafted.
THE COURT: Thank you, Mr. Jacobs.
MR. SINGER: Your Honor, I'll be very brief. I
don't see how SCO Source has really anything to do with this. To
the extent SCO entered into certain SCO Source licenses, those
clearly are not covered by anything in the relevant agreements here
from which Novell would receive any share of revenue. The focus on
"all," by Novell, does not answer this case. "All" modifies SVRX
licenses. The SVRX licenses have to be the SVRX licenses in
existence at that time. Otherwise you can't transfer the title.
Otherwise, it doesn't make any sense in the context of the
Similarly, "all" does not mean "all" after Amendment 1 because,
at that point, indisputably, source code fees for both amended
licenses and new licenses with approval go to SCO, not to Novell.
So, clearly, that changed "all" in that respect.
And, thirdly, "all" does not mean "all" when you have language
in the agreement, Section J of Amendment 1, that makes clear that
incidental distributions and licenses of SVRX are okay as long as
it's in the context of the selling of the new or merged products.
And that's what we have here.
I would suggest to the Court, if it has any question about that,
it could look in Exhibit 3 to the Microsoft agreement which
specifies Open Unix products, distribution rights for UnixWare and
things which go well
beyond the listing of SVRX licenses. You have only one side
offering evidence in this record that what was done there was
incidental to the licensing of UnixWare. And, therefore, the plain
language of the agreement is carved out of those provisions, those
SVRX royalties on existing licenses, which Novell enjoys and
continues to enjoy revenue that currently has generated more than
$200 million to Novell. They do not have a right to the revenue
from the Microsoft and SUN agreements
Thank you, Your Honor.
THE COURT: Thank you. Thank you both. I'll take the
matter under advisement and get a ruling out in due course. We'll
be in recess.
(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 January 23, 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 45 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 3rd day of May, 2007.
REBECCA JANKE, CSR, RPR, RMR