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SCO/Novell File Joint Status Report - PDF and text
Friday, August 17 2007 @ 11:21 PM EDT

SCO and Novell have jointly filed their Status Report [PDF], in which they answer the judge's question as to what they believe is the effect of his August 10th Memorandum Decision and Order. What's left for the trial? They've talked it over, and they don't agree.

You didn't think SCO would just accept the judge's Order as meaning what you thought it meant, did you? So, motion practice ahoy!

But interestingly, the issue is more about how much SCO owes and whether it needed prior Novell approval to enter into the Sun and Microsoft agreements. I gather from this report that SCO has given up on the issue of ownership of UNIX and UnixWare copyrights, at least at this level, and SCO's lawyers understand that the judge's decision means that they didn't transfer under the APA, Darl McBride's letter to partners and customers notwithstanding. SCO isn't arguing that issue here.

I expect we may eventually see some motion practice on the subject of any subsequent copyrights on derivative works, but only after the arbitration in Switzerland is over. All of that and all copyright issues pending, they agree, are stayed. The trial, the parties agree, won't last three weeks now, and in fact they are talking about whether a jury trial is even needed, and they'll tell the judge what they decide about that on August 24.

SCO has a theory regarding whether it really and truly has to pay so much money to Novell as the Order seems to indicate. SCO wants to argue by motion that "to the extent SCO licensed SVRX only incidentally to a UnixWare license in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell isn't entitled to any part of the royalties." It offers the same argument for whether it had to seek Novell's prior approval. No doubt Sun and Microsoft hope that SCO's interpretation is correct, since otherwise SCO had no authority to enter into either agreement. Novell's position is that the judge's Order decided all this already.

Here's what the judge wrote, by the way:

Finally, the court concludes, as a matter of law, that the only reasonable interpretation of all SVRX Licenses includes no temporal restriction of SVRX Licenses existing at the time of the APA. The court further concludes that because a portion of SCO's 2003 Sun and Microsoft Agreements indisputably licenses SVRX products listed under Item VI of Schedule 1.1(a) to the APA, even if only incidental to a license for UnixWare, SCO is obligated under the APA to account for and pass through to Novell the appropriate portion relating to the license of SVRX products. Because SCO failed to do so, it breached its fiduciary duty to Novell under the APA and is liable for conversion.

See any match up with SCO's theory? I don't either, and apparently neither does Novell. But SCO would like to give it a shot, and if you were SCO, you might too.

The other big issue is one that the judge introduced regarding SCO likely having some copyright ownership on derivative works after the APA:

The parties, however, have not specifically addressed whether any of SCO's copyright infringement claims are based on copyrights SCO may have obtained in derivatives of the technology included in the Assets. In the copyright ownership discussion, Novell recognized that SCO would have the copyright to the new merged product. Novell also recognized that joint copyright notices are used that demonstrate a copyright ownership by SCO as of 1996. SCO's non-compete and copyright infringement claims also relate to SUSE Linux. The SUSE Linux claims have been stayed pending arbitration. Although those claims are stayed, Novell asserts in its motion that it should not be precluded from raising a motion relating to the meaning and interpretation of the TLA. Assuming that SCO has a basis for asserting a copyright infringement action other than based on ownership in the UNIX and UnixWare copyrights, the court will address the merits of Novell's motion.

Well, SCO definitely wants to go into this issue, so you can expect that, for sure. You'll see in footnote one, SCO says that it reserves the right to bring a motion for clarification/modification of the Order. Novell says it will oppose. I discern from this footnote that SCO will now try to find some infringement that ties to any such copyrights, and then the parties will argue whether it is too late to do that in this litigation, since it was never pled by SCO that way, according to Novell:

The parties agree that the Court did not dismiss any alleged portion of the claim concerning technology other than the UNIX and UnixWare copyrights the Court has held were retained by Novell. The parties disagree as to whether SCO has pled or can pursue such a claim, but agree that any such portion is stayed by the Court's August 21, 2006 Order pending resolution of the SuSE arbitration. No aspect of this claim will be tried during the September 2007 trial.

That makes sense, since the arbitration is to decide if SCO has any right to complain about any copyrights at all regarding SUSE, due to the UnitedLinux agreements.

So, let me now give you the more detailed listing of what the parties say remain to go to trial of SCO's and Novell's claims. For those of you planning to attend, note that if SCO follows through with its intent to bring motions, as seems to be planned, that September 17 date could conceivably change.

What's Left of SCO's Claims?

As to SCO's claims, the parties agree that the slander of title claim is dismissed in its entirety, breach of APA and TLA is dismissed to the extent the claims are regarding UNIX and UnixWare copyrights and all claims that concern Novell's waiver of claims against IBM and Sequent. The parties don't agree that SCO has pled or can pursue any such claim, however, but what they do agree about is that any such matters are stayed pending arbitration of the SUSE stuff in Switzerland. "No aspect of this claim will be tried during the September 2007 trial." The copyright infringement claim is also stayed by the arbitration.

As for SCO's specific performance claim, they agree it's gone from the case completely.

SCO's unfair competition claim is dismissed to the extent it concerns the UNIX or UnixWare copyrights retained by Novell under the APA and to the extent it concerns Novell's waiver re IBM, including Sequent.

So that's what remains of SCO's claims. Not much. SCO reserves the right to bring a motion asking for clarification/modification of the Order.

What's Left of Novell's Claims?

Novell is saying it will dismiss the slander of title claim "without prejudice to renewing it should there be any subsequent adjudication or trial of copyright-related issues." You get very little out of a slander of title claim in the way of money, by the way, so I guess Novell decided it's not worth the bother. Also not worth bothering with, according to footnote 3, are SCO's failure over the years:

...to remit certain miscellaneous SVRX Royalties over the history of SCO's administration of SVRX licenses. As these royalties constitute only a small portion of the recovery sought and as seeking these royalties would add considerably to the complexity of the trial, Novell does not intend to pursue, under any claim, the royalties reflected on Exhibits 6, 7, and 8 of Terry Musika's Supplemental Expert Report on Damages or the associated prejudgment interest.

It will go forward on Novell's two breach of contract claims. On the accounting requirement related to the breach of contract claim on 1.2(b) and 1.2(f) of the Asset Purchase Agreement, Novell presently says it intends to pursue this claim at trial. SCO "reserves the right to argue this Count is resolved by the Court's ruling".

On the other breach of contract claim regarding 1.2(b) and 4.16(a) of the APA, the parties agree that the order found that SCO is liable for conversion regarding the Sun and Microsoft licenses. SCO claims it can argue by motion that "to the extent SCO licensed SVRX only incidentally to a UnixWare license in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell isn't entitled to any part of the royalties." Novell's position is that the judge's Order forecloses any such argument. Also going to trial in connection with those Novell claims will be whether SCO breached the APA by failing to remit SVRX Royalties from SCO's remaining SCOsource licenses and the amount that should go to Novell.

As for Novell's request for declaratory relief regarding its right to waive, the parties agree that's been decided by the Order, that Novell is entitled to direct SCO to waive claims against IBM, Sequent, and other SVRX licensees. Novell will seek a declaration at trial that SCO was also obligated to seek Novell's approval prior to entering into the Sun, Microsoft and SCOsource licenses, and that SCO had no authority to do so. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to UnixWare, it didn't have to seek prior approval. Novell again thinks this question was settled by the Order. This is no doubt of deep interest to both Sun and Microsoft -- if SCO lacked authority to enter into those licenses, now what? EV1 might be perking up its ears too.

As for Novell's request for a declaration of rights and obligations under the APA's covenant of good faith and fair dealing, SCO thinks that Novell claim is now moot, and Novell disagrees, intending to pursue the claim at trial.

On the constructive trust/restitution/unjust enrichment claim, Novell says the Order settled all that, and what's left for trial is how much SCO should pay. SCO wants to reserve the right to argue by motion that "to the extent SCO licensed SVRX only incidentally" blah blah. The trial will also address whether SCO unjustly enriched itself by retaining SVRX Royalties from the rest of SCO's SCOsource licensees and how much it owes there.

On the breach of fiduciary duty claim, Novell takes the position that the judge's Order has resolved the question as to SCO's liability regarding the Sun and Microsoft licenses, and all that remains is how much it owes. SCO wants to bring a motion about its "incidental to Unixware" position here too. As for other SCOsource licensees, Novell says the trial will address whether SCO unjustly enriched itself by retaining royalties from the rest of the SCOsource licensees and how much it owes Novell; also whether SCO breached by failing to comply with the audit provisions of the APA and "whether that breach is a further reason why any questions as to royalty apportionment should be decided against SCO". SCO threatens to bring a motion asserting that such issues were mooted by the Order and that the only issues to be tried should be apportionment of royalties between SVRX and non-SVRX royalties, "including whether the SVRX aspect of licenses are incidental to SCO's licensing of UnixWare such that no royalties are due at all".

On Novell's conversion claim, Novell says the Order decided that SCO was declared liable by the Order, and all that's left to decide is how much it should pay. It also intends to address at trial whether SCO is also liable for conversion of other SCOsource royalties. SCO wants to argue by motion its "incidental to UnixWare" theory.

The parties agree that the accounting claim is mooted, so that won't be tried.

Finally, the parties have agreed that Novell won't seek punitive damages "under any claim, without prejudice to seeking such relief should there be any subsequent adjudication or trial in this action or any enlargement of the issues for this trial beyond that contemplated by this report." I hope they have something in writing between themselves on what this means, or I expect future discussions about it. Subsequent adjudication or trial in this action? Beyond this report? Does that mean that if there is a trial or adjudication of the derivative copyrights that Novell can seek punitives? Or only if there is something else beyond that issue? I can't tell from the wording itself, although I assume it's about the copyright stuff, if it survives arbitration. So hopefully, Novell has drafts of this report showing intent. Otherwise, we could see SCO rounding up paralegals and ex-execs to swear on a Bible that it means the opposite of what Novell says it means. (Joke. But you do realize that all of that testimony about SCO getting the copyrights under the APA in the summary judgment phase was for nothing? The judge didn't buy it at all.) Or it could just be me, that I'm missing something obvious about this wording. The decision not to go for punitives unless it decides to later is likely mainly because SCO has no money, and it's perhaps like a carrot to keep SCO from "enlarging" this litigation should it get any more bright ideas. Or, most probably, it just means Novell doesn't want to bother, unless it has to. In time, I'm sure it will all get clarified for us.

The two parties agree that the trial now won't take three weeks. They are even discussing whether a jury is even going to be needed. Novell thinks not, at least not for everything; SCO wants one, but they are still going around about that, and they say they'll let the court know their decision on August 24.

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

MORRISON & FOERSTER LLP
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice
[address]
[phone]
[fax]

ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[address]
[phone]
[fax]

Attorneys for Defendant & Counterclaim-Plaintiff Novell, Inc.

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

THE SCO GROUP, INC., a Delaware
corporation,
Plaintiff and Counterclaim- Defendant,

v.

NOVELL, INC., a Delaware corporation,
Defendant and Counterclaim- Plaintiff.
JOINT STATEMENT


Case No. 2:04CV00139

Judge Dale A. Kimball

1

Defendant and Counterclaim-Plaintiff Novell, Inc. ("Novell"), by and through its counsel, and Plaintiff and Counterclaim-Defendant The SCO Group, Inc. ("SCO"), by and through its counsel, hereby submit the following statement in response to the Court's August 10, 2007 Memorandum Decision and Order, Docket No. 378, directing the parties "to submit a joint statement identifying the remaining claims in the case that are proceeding to trial and the anticipated length of trial."

The parties propose that the Court's August 10, 2007 Memorandum Decision and Order, Docket No. 377, has had the following effect on trial:

SCO Claims for Relief1

1 - Slander of Title: The parties agree this claim is dismissed in its entirety.

2 - Breach of the APA and TLA: The parties agree this claim is dismissed to the extent it concerns the UNIX and UnixWare copyrights the Court has held were retained by Novell, and to the extent it concerns Novell's waiver of claims asserted against IBM and Sequent. The parties agree that the Court did not dismiss any alleged portion of the claim concerning technology other than the UNIX and UnixWare copyrights the Court has held were retained by Novell. The parties disagree as to whether SCO has pled or can pursue such a claim, but agree that any such portion is stayed by the Court's August 21, 2006 Order pending resolution of the SuSE arbitration. No aspect of this claim will be tried during the September 2007 trial.

3 - Alternative Breach-of-Contract Claim Seeking Specific Performance: The parties agree this claim is dismissed in its entirety.

4 - Copyright Infringement: The parties agree that this claim is stayed by the Court's August 21, 2006 Order pending resolution of the SuSE arbitration.

5 - Unfair Competition: The parties agree this claim is dismissed to the extent it concerns the UNIX and UnixWare copyrights the Court has held were retained by Novell, and to

2

the extent it concerns Novell's waiver of claims asserted against IBM (including Sequent). The parties agree that the Court did not dismiss any alleged portion of the claim concerning technology other than the UNIX and UnixWare copyrights the Court has held were retained by Novell. The parties disagree as to whether SCO has pled or can pursue such a claim, but agree that any such portion is stayed by the Court's August 21, 2006 Order pending resolution of the SuSE arbitration. No aspect of this claim will be tried during the September 2007 trial.

Novell Claims for Relief2

1 - Slander of Title: The parties agree that Novell shall dismiss this claim without prejudice to renewing it should there be any subsequent adjudication or trial of copyright ownership-related issues. The parties will incorporate this agreement into the proposed final judgment.

2 - Breach of Contract - 1.2(b) and 1.2(f) of the Asset Purchase Agreement: Novell presently intends to pursue this claim at trial. SCO reserves the right to argue this Count is resolved by the Court's ruling.

3 - Breach of Contract - 1.2(b) and 4.16(a) of the Asset Purchase Agreement: The parties agree that the Court's Order finds SCO liable for breach of the APA as to the Sun and Microsoft licenses, leaving only the proper apportionment of the Sun and Microsoft royalties for trial. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to a UnixWare license in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell is not entitled to any apportionment of the Sun and Microsoft royalties (or royalties from other licenses). Novell believes that such an argument is foreclosed by the Court's Order. The trial will also address whether SCO breached the APA by

3

failing to remit SVRX Royalties from SCO's remaining SCOsource licenses and the amount of those royalties that should be apportioned to Novell.3

4 - Declaratory Relief - Rights and Duties Under 4.16(b) of the Asset Purchase Agreement, B of Amendment No. 2: The parties agree that the Court's Order establishes that Novell is entitled to direct SCO to waive claims against IBM, Sequent, and other SVRX licensees; that Novell is entitled to waive such claims on SCO's behalf; and that SCO is obligated to recognize such a waiver. At trial, Novell will seek a declaration that SCO was also obligated to seek Novell's approval prior to entering into new SVRX licenses or amendments to SVRX licenses and that SCO therefore had no authority to enter into the Microsoft, Sun, and other SCOsource licenses. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to UnixWare in the Sun and Microsoft licenses (or any other licenses), SCO was not obligated to seek Novell's approval prior to entering into any such licenses. Novell believes that such an argument is foreclosed by the Court's Order.

5 - Declaratory Relief - Rights and Obligations Under APA's Covenant of Good Faith and Fair Dealing: Novell intends to pursue this claim at trial. SCO reserves the right to argue this Count is moot in light of the Court's ruling.

6 - Constructive Trust/Restitution/Unjust Enrichment: Novell contends that the Court's Order resolves any question as to SCO's liability for unjust enrichment as to the Sun and Microsoft licenses, leaving only the proper apportionment of the Sun and Microsoft royalties for trial. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to UnixWare in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell is not entitled to any apportionment of the Sun and Microsoft

4

royalties (or royalties for any other licenses). Novell believes that such an argument is foreclosed by the Court's Order. The trial will also address whether SCO unjustly enriched itself by retaining SVRX Royalties from SCO's remaining SCOsource licenses and the amount of those royalties that should be apportioned to Novell.

7 - Breach of Fiduciary Duty: Novell contends that the Court's Order resolves any question as to SCO's liability for its breach of fiduciary duties as to the Sun and Microsoft licenses, leaving only the proper apportionment of the Sun and Microsoft royalties for trial. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to UnixWare in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell is not entitled to any apportionment of the Sun and Microsoft royalties (or royalties from any other licenses). Novell believes that such an argument is foreclosed by the Court's Order. The trial will also address: whether SCO breached its fiduciary duties by retaining SVRX Royalties from SCO's remaining SCOsource licenses; the amount of those royalties that should be apportioned to Novell; whether SCO breached its fiduciary duty by failing to comply with the audit provisions of the APA; and whether that breach is a further reason why any questions as to royalty apportionment should be decided against SCO. SCO reserves the right to argue that these issues are moot by the Court's ruling, that the only issues to be tried should be the apportionment of royalties between SVRX royalties and non-SVRX royalties, including whether the SVRX aspect of licenses are incidental to SCO's licensing of UnixWare such that no royalties are due at all.

8 - Conversion: Novell contends that the Court's Order resolves any question as to SCO's liability for its conversion of Sun and Microsoft license royalties, leaving only the proper apportionment of the Sun and Microsoft royalties for trial. SCO reserves the right to argue by motion that to the extent SCO licensed SVRX only incidentally to Novell in the Sun and Microsoft licenses (or any other licenses), SCO did not breach the APA and Novell is not

5

entitled to any apportionment of the Sun and Microsoft royalties (or royalties for any other licenses). Novell believes that such an argument is foreclosed by the Court's Order. The trial will also address whether SCO converted SVRX Royalties from SCO's remaining SCOsource licenses and the amount of those royalties that should be apportioned to Novell.

9 - Accounting: The parties agree that the Court's Order moots this claim. No aspect of this claim will be tried during the parties' September 2007 trial.

Further, the parties have agreed that Novell will not pursue punitive damages under any claim, without prejudice to seeking such relief should there be any subsequent adjudication or trial in this action or any enlargement of the issues for this trial beyond that contemplated by this report. The parties will incorporate this agreement into the proposed final judgment.

Trial Length

The parties agree that the trial will be considerably shorter than the three weeks presently reserved. The parties continue to meet and confer as to whether the trial will proceed before the bench, a jury, or both. As a general matter, Novell believes that the disputes remaining for trial would be appropriate to try to the Court, while SCO requested a jury trial and contends that a jury trial is appropriate. The parties will report the results of this meet and confer, along with a more precise estimated trial length, by August 24, 2007.

DATED: August 17, 2007

ANDERSON & KARRENBERG
/s/ Heather M. Sneddon
Thomas P. Karrenberg
John P. Mullen
Heather M. Sneddon
Attorneys for Novell, Inc.

6

DATED: August 17, 2007

BOIES, SCHILLER & FLEXNER LLP
/s/ Edward J. Normand
(Signed by filing attorney with permission from
Edward J. Normand)

Edward J. Normand
Attorneys for The SCO Group, Inc.

7

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 17th day of August, 2007, I caused a true and correct copy of the foregoing JOINT STATEMENT to the served to the following:

Via CM/ECF:

Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]

Stuart H. Singer
William T. Dzurilla
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
[address]

David Boies
Edward J. Normand
BOIES, SCHILLER & FLEXNER LLP
[address]

Devan V. Padmanabhan
John J. Brogan
DORSEY & WHITNEY, LLP
[address]

Via U.S. Mail, postage prepaid:

Stephen Neal Zack
BOIES, SCHILLER & FLEXNER LLP
[address]

/s/ Heather M. Sneddon

8

1Second Amended Complaint, Docket No. 96. SCO reserves the right to file a motion for clarification and/or reconsideration of the Order. Novell reserves the right to oppose any such motions.
2Amended Counterclaims, Docket No. 142. SCO also reserves the right to challenge by in limine and other affirmative motions Novell's intent to litigate certain of its counterclaims (as noted below). Novell reserves the right to oppose any such motion and to bring in limine and other affirmative motions with respect to its claims.
3Novell also contended that SCO breached the APA by failing to remit certain miscellaneous SVRX Royalties over the history of SCO's administration of SVRX licenses. As these royalties constitute only a small portion of the recovery sought and as seeking these royalties would add considerably to the complexity of the trial, Novell does not intend to pursue, under any claim, the royalties reflected on Exhibits 6, 7, and 8 of Terry Musika's Supplemental Expert Report on Damages or the associated prejudgment interest.

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