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To read comments to this article, go here
SCO's Reply Memo in Further Support of its Motion for Reconsideration/Clarification - as text
Friday, September 14 2007 @ 01:51 PM EDT

In response to Novell's arguments, which I presented as text in the previous article SCO filed its Reply Memorandum in Further Support of its Motion for Reconsideration or Clarification of the Court's August 10, 2007 Order, which I now present as text also. You can hold them up side by side and figure out who is making sense. Here's the Judge Dale Kimball's Order that SCO would like him to reconsider or clarify.

You will notice that SCO makes the point that contrary to Novell's assertion, the issue of whether incidental SVRX royalties should go to Novell was not fully briefed. Let's look at that a little more closely.

Here's SCO's wording:

SCO's motion asks the Court to reconsider or clarify a single ruling in the Order: Is the Asset Purchase Agreement ("APA"), as amended by Amendment No. 1, reasonably susceptible to the reading that the incidental licensing of SVRX in a UnixWare license does not require payment of an SVRX royalty along with a potential UnixWare royalty.

Contrary to Novell's suggestion (at 2), this question was not "fully briefed" or argued on summary judgment. The parties' arguments and memoranda regarding SVRX Royalties centered on whether SVRX Licenses were limited to existing licenses at the time of the APA or to licenses of binary code. Novell did not argue until reply that it was entitled to a portion of the payments from the Sun and Microsoft Agreements even if a factfinder determined that any SVRX license included therein was only incidental. Novell's contention (at 1) that the Court need not reconsider this question since argument on this issue was exhausted in the 1,500 pages of summary judgment briefing is therefore misleading, as at most a handful of those pages included any discussion of Novell's claim to royalties from incidental licenses of SVRX. To the contrary, the volume of summary judgment briefing - virtually none of which addressed this issue - underscores the limited attention this issue had received and the consequent basis for the instant motion.

Here's the language from Novell's filing, so you can compare:

In support of their Motions for Summary Judgment, Novell and SCO submitted over 1,500 pages of briefing, numerous declarations, and many hundreds of pages of exhibits. The Court heard oral argument for three days on these motions; the transcripts run over 240 pages. Following careful review of that extensive record, the Court issued a 102-page opinion that exhaustively lays out each side's position and evidence, concludes some issues in Novell's favor as a matter of law, others in SCO's, and leaves several issues open for the trier of fact. In that August 10, 2007 Memorandum Decision and Order ("Order"), the Court held that when the APA said that Novell retained title to "all ... SVRX Royalties," it did, in fact, mean that Novell is entitled to all such royalties.

SCO's motion for reconsideration seeks again to avoid the plain language of the APA and secure for SCO a chunk of the SVRX Royalties. SCO's motion does not cite any intervening change in law. It does not claim that there is any new evidence that might undermine the Court's considered Order. SCO merely claims the Court was wrong. As this Court has held, that is not an appropriate basis for reconsideration: "A disagreement with the court's decision is not enough to warrant the court to amend, alter or reconsider its decision."

Who is correct? As is typical, SCO talks a little bit past what Novell's point is. Let me show you what I mean. I suggest you go to the transcript of the court hearing on January 23, 2007 on Novell's motion about the Sun and Microsoft royalties and SCO's cross motion [PDF], which Judge Kimball ruled on in his August 10 ruling, and use keyword "incidental" and you'll see that they spoke of almost nothing else that day. So Novell is correct in saying that this is hardly a brand new issue.

Certainly Novell has repeatedly argued that "all" SVRX royalties means "all" SVRX royalties, as you can see in this Motion for Partial Summary Judgment or Preliminary Injunction and Memorandum in Support. It's one of the subheadings in the Table of Contents in the memorandum, "Novell Holds 'All Right, Title and Interest' to the SVRX Royalties". It made the case that in all licenses, it had the right to an accounting and all SVRX royalties:

14. Further, under Section 4.16(b) of the APA, Novell retains the "sole discretion" to direct Santa Cruz to amend, supplement, modify, waive or assign any rights under or to any SVRX Licenses; if Santa Cruz fails to take any such action, the APA specifically grants Novell the right to take these actions on behalf of Santa Cruz. (Id. at 24 (§ 4.16(b)).) Novell also retains the right to veto Santa Cruz's attempts to "enter into amendments of the SVRX Licenses," subject to two limited exceptions listed in Section J of Amendment No. 1, and "to enter into new SVRX Licenses," subject to one of those limited exceptions. (Id., Ex. 2 at 6 (§ J).) Section J does not, however, alter Santa Cruz's duty to remit "all royalties, fees and other amounts" flowing from any new or amended SVRX Licenses that satisfy these limited exceptions. (Id., Ex. 1 at 24 (§ 4.16(a).)...

The APA explains that the monies to be passed through are those derived from licenses of the SVRX technology listed in Item VI of Schedule 1.1(a) of the APA, including UNIX System V releases 1.0, 1.1, 2.0, 2.1, 3.0, 3.1, 3.2, 4.0, 4.1, and 4.2. Therefore, SCO has a fiduciary duty to collect and pass through, in a timely manner, "all royalties, funds and other amounts due" from any agreements that license this SVRX technology....

Amendment No. 1 does not change the analysis. It alters the Agency Provisions in only a few respects. First, it affirms the Agency Provisions by adding a monthly royalty reporting requirement and, second, it changes the amount of time that SCO must remit royalties to Novell from 45 days to one month. The undisputed fact is that SCO failed to comply with either.

In addition, even though Amendment No. 1 allows SCO to retain 100% of SVRX Royalties in four narrow circumstances, none of them apply here. Moreover, SCO's duty to remit SVRX Royalties does not disappear in the limited circumstances where, pursuant to Section J of Amendment No. 1 (a provision that SCO has not invoked as a justification of withholding the Sun and Microsoft funds), it may enter into amendments of and new SVRX Licenses. Amendment No. 1 does not change the simple fact that, as with any SVRX Licenses, Novell is the equitable owner of the monies flowing therefrom, including from the Sun and Microsoft Agreements. As such, SCO breached its fiduciary duty to timely account for and remit those monies to Novell.

That word "any" would seem to cover UnixWare licenses with an incidental SVRX element, and Novell directly addressed whether Amendment 1 altered the picture, so I don't think one can say the issue never was briefed or discussed until it's Reply. Novell won that motion, the only issue remaining for trial being how much of each agreement was for SVRX so as to know how much to put in the constructive trust Novell asked for. So, while SCO's filing is persuasive on first reading, I wonder if it hasn't mischaracterized the history. While technically the words are accurate, I don't see that they give the whole picture.

SCO also argues, as usual, that instead of looking at the language (which it invariably describes as plain, by the way), extrinsic evidence from humans should be considered. However, that very question came up in that January hearing, and the judge asked SCO's lawyer what he should do if witnesses said the opposite of the contract, and here's what Singer answered:

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.

That is the correct answer in contract law. So that is what the judge did in his ruling, go by the language that he believed was clear, despite SCO offering numerous witnesses, whose testimony in any case the judge said was in some instances contradictory anyhow. So when you read that he should have allowed a jury trial to consider witness testimony, you can see from this exchange that this isn't true and that even SCO's attorney acknowledged what the judge would have to do in such a situation is go by the language, not the witnesses.

Our eyewitnesses at the January hearing caught the essence of the "incidental" argument being made by SCO also. The "incidental" issue was discussed briefly at this June 4 hearing also. Here's Novell's Novell's Redacted Reply to SCO's Opposition to Novell's Motion for Partial Summary Judgment or Preliminary Injunction, which discussed at length the issue of the incidental language.

Way back in 2004, Novell asked for information from SCO and referenced the incidental clause and some others as well, so I'll put it here so you can know what they are discussing:

The purpose of this letter is to emphasize and repeat Novell's outstanding request for information and documentation. In addition, this letter sets forth additional requests for information and documentation we must receive before we can close the audit.

Specifically, Novell's audit team has requested certain information and documentation from SCO's representatives and has yet to receive a full response. Attached hereto is a list of specific information that Novell must receive from SCO. We appreciate your assistance in expediting SCO's response to these requests.

In addition, Novell, makes the following additional requests for information and documentation that we must receive before we can close the pending audit:

1. Amendments and Modifications to SVRX Licenses

1.1. Section 4.16(b) of the APA specifies that SCO "shall not, and shall not have the authority to, amend, modify, or waive any right under or assign any SVRX License without the prior written consent of" Novell.

1.2. Section J of Amendment No. 1 to the APA establishes certain exceptions to the prohibition on amendments by SCO, namely, those amendments (i) "as may be incidentally involved through [SCO's] rights to sell and license UnixWare software or the Merged Product," or (ii) that "allow a licensee ... to use the source code ... on additional CPU's or to receive an additional distribution, from [SCO], of such source code."

1.3. Also, Section B of Amendment No. 2 to the APA provides that "any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations shall be managed as" specified in subsections 1 - 6.

1.4. With these obligations and prohibitions in mind, Novell has noted recent public statements by SCO indicating that SCO has unilaterally amended and modified SVRX Licenses with Sun Microsystems and Microsoft. These public statements also indicate that SCO may have agreed to a buy-out of Sun and Microsoft's royalty obligations under their SVRX Licenses.

1.5. Novell requests copies of the Sun and Microsoft amendments to verify SCO's compliance with Section 4.16(b) of the APA and Section B of Amendment No. 2. In addition, Novell, requests copies of any similar agreements SCO has entered into, or assurances that SCO has not entered into any similar agreements. Finally, Novell requests that SCO identify any potential buy-out transactions it has become aware of, or that SCO assure Novell that no such potential buy-outs have come to its attention.

1.6. If SCO contends that either the exceptions (i) and (ii) under Section J of Amendment No. 1 has been triggered, Novell requests a detailed explanation of SCO's position.

Later Novell complained that it didn't get the information it wanted, but that's another long story. My point is that Novell wanted the information in connection with an *audit*, to see what it was owed. It seems a little late now for SCO to complain. SCO could have asked, for example, for an opportunity to more fully brief the issue in response to Novell's Reply. They surely know how to do sur-sur-sur-replies! Or it could have complained at the hearing that the matter was not fully briefed. It did neither.

And Novell says that it's actually SCO bringing up a new argument in SCO's Memorandum in Support of its Motion for Reconsideration or Clarification. Here's what Novell says on that:

As the Court has recognized, "Santa Cruz could not afford to purchase the entirety of Novell's UNIX and UnixWare assets and rights." (Order at 9.) As a consequence, "Novell and Santa Cruz focused on a more limited deal that also included a forward looking revenue stream for Novell." (Id.) To make the transaction affordable for SCO, Sections 1.2(b) and 4.16(a) of the APA set up a basic regime: Novell gets SVRX revenue; SCO gets UnixWare revenue. To protect Novell's continuing revenue stream, Section 4.16(b) of the APA also allowed Novell to retain various powers concerning SVRX Licenses, and prohibited SCO from entering into new SVRX Licenses -- or amending them -- except in very limited circumstances. Indeed, as SCO readily admitted, the APA made SCO Novell's agent with respect to collection and distribution of SVRX royalties. SCO seeks to upset this balance by retaining revenue it acknowledges is in part attributable to licensing SVRX rights.

In that quest, SCO introduces two new terms that the APA does not even use: "UnixWare License" and "UnixWare Royalties." (Mot. at 4.) In SCO's account, if a so-called UnixWare License includes "an incidental license to SVRX," this does not "alter[] that license's status as a UnixWare License or change[] the royalty rights of either party." (Id.) That concept, however, is found nowhere in the APA. Instead, as this Court has held, Section 1.2(b) and 4.16(a) of the APA use the term "SVRX License," define that term to refer to "all licenses related to the SVRX products listed in Item VI of Schedule 1.1(a) to the APA," and make clear that Novell is entitled to all SVRX Royalties from such licenses. (Order at 100.)

Indeed, SCO's supposedly "plain reading" of Section 4.16(b) is nothing of the sort. SCO attaches significance to Section 4.16(b)'s failure to "indicate that the inclusion of ... an incidental license to SVRX ... changes the royalty rights of either party" (Mot. at 4), but there is no reason to attribute significance to Section 4.16(b)'s silence on this subject. As the Court recognized, Section 4.16(b) addresses only SCO's authority to enter into new or amended licenses -- it has nothing to do with SCO's "obligation to remit 'all royalties, fees, and other amounts due' under [] SVRX Licenses." (Order at 95.) These "royalty rights" are governed unambiguously by Sections 1.2(b) and 4.16(a). Under those provisions, Novell is always due revenue attributable to the license of SVRX rights.

Can you bring up a new argument in a motion for reconsideration? And then claim it isn't fully briefed so you need a jury trial to settle it? We'll see. Meanwhile, you'll note that both parties have described the APA as susceptible to a "plain reading". So when you read folks opine that the language is unclear and thus needs a jury, that isn't the SCO position. Both parties and the judge agree the language is clear. SCO's problem is that two of them say it's clearly not saying what SCO wishes it did say.

You can find all the documents regarding the APA and all the amendments and schedules on our Contracts page, if you wish to dig deeper or reach your own conclusions.

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

Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE, PC
[address, phone, fax]

David Boies (admitted Pro Hac Vice)
Robert Silver (admitted Pro Hac Vice)
Edward Normand (admitted Pro Hac Vice)
BOIES SCHILLER & FLEXNER LLP
[address, phone, fax]

Devan V. Padmanabhan (admitted Pro Hac Vice)
DORSEY & WHITNEY LLP
[address, phone, fax]

Stephen N. Zack (admitted Pro Hac Vice)
BOIES SCHILLER & FLEXNER LLP
[address, phone, fax]

Stuart Singer (admitted Pro Hac Vice)
BOIES SCHILLER & FLEXNER LLP
[address, phone, fax]

Attorneys for Plaintiff, The SCO Group, Inc.

____________________________

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

____________________________

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff/Counterclaim-Defendant,

vs.

NOVELL, INC., a Delaware corporation,

Defendant/Counterclaim-Plaintiff.

__________________________

SCO's REPLY MEMORANDUM IN
FURTHER SUPPORT OF ITS MOTION
FOR RECONSIDERATION OR
CLARIFICATION OF THE COURT'S
AUGUST 10, 2007 ORDER

FILED IN REDACTED FORM
(ORIGINALLY FILED UNDER SEAL)

Civil No. 2:04 CV-000139

Judge Dale A. Kimball
Magistrate Brooke C. Wells

________________________

TABLE OF CONTENTS

ARGUMENT...........................1

I. NOVELL DOES NOT REFUTE THE EVIDENCE THAT SCO IS ENTITLED
TO ROYALTIES FROM UNIXWARE LICENSES THAT LICENSE SVRX
INCIDENTALLY..................2

A. The Plain Reading of the APA Grants SCO the Royalties from UnixWare Licenses that License SVRX Incidentally...........................2

B. The APA's Failure to Specify Any Method for Calculating an Incidental SVRX Royalty Right Demonstrates That Novell Never Received Such a Right.......4

C. The Extrinsic Evidence Confirms That Novell Is Not Entitled to Royalties from UnixWare Licenses That License SVRX Incidentally..................6

Conclusion.........................................................10

i

TABLE OF AUTHORITIES

Cases

Page(s)

Adams v. Anderson,
12 Fed. Appx. 910 (10th Cir. 2001)..........................2

Hernandez v. Badger Constr. Equip. Co.,
28 Cal. App. 4th 1791 (1994).................................8

Universal Sales Corp., Ltd. v. Cal. Press Mfg. Co.,
128 P. 2d 665 (Cal. 1942).....................................8

ii

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc. ("SCO"), respectfully submits this Reply Memorandum in further support of SCO's Motion for Reconsideration or Clarification of the Court's Order dated August 10, 2007 (the "Order").

ARGUMENT

SCO's motion asks the Court to reconsider or clarify a single ruling in the Order: Is the Asset Purchase Agreement ("APA"), as amended by Amendment No. 1, reasonably susceptible to the reading that the incidental licensing of SVRX in a UnixWare license does not require payment of an SVRX royalty along with a potential UnixWare royalty.

Contrary to Novell's suggestion (at 2), this question was not "fully briefed" or argued on summary judgment. The parties' arguments and memoranda regarding SVRX Royalties centered on whether SVRX Licenses were limited to existing licenses at the time of the APA or to licenses of binary code. Novell did not argue until reply that it was entitled to a portion of the payments from the Sun and Microsoft Agreements even if a factfinder determined that any SVRX license included therein was only incidental. Novell's contention (at 1) that the Court need not reconsider this question since argument on this issue was exhausted in the 1,500 pages of summary judgment briefing is therefore misleading, as at most a handful of those pages included any discussion of Novell's claim to royalties from incidental licenses of SVRX. To the contrary, the volume of summary judgment briefing - virtually none of which addressed this issue - underscores the limited attention this issue had received and the consequent basis for the instant motion. 1

1

As the Court recognized in its most recent Order, “the nature of Novell's remaining claims” has changed as a result of the Court's analysis of those claims in its Order. (Order (9/11/07) at 4.) Given the Court's finding that there was no binary or temporal limitation on the SVRX Royalties that Novell was entitled to, the question of incidental licensing is now central to the upcoming trial. Reconsideration is appropriate “to correct clear error or prevent manifest injustice” which could result from a misapprehension of the facts or of the parties' positions. Adams v. Anderson, 12 Fed. Appx. 910,914 (10th Cir. 2001). The plain language of the APA and the evidence in the record are at least reasonably susceptible to the interpretation that Novell has no interest in royalties SCO receives under UnixWare licenses, even when an incidental license to prior SVRX products is included therein. SCO therefore moves for reconsideration or clarification of the Order with respect to this one issue.

I. NOVELL DOES NOT REFUTE THE EVIDENCE THAT SCO IS ENTITLED TO ROYALTIES
FROM UNIXWARE LICENSES THAT LICENSE SVRX INCIDENTALLY.

A. The Plain Reading of the APA Grants SCO the Royalties from UnixWare
Licenses that License SVRX Incidentally.

As Novell concedes (at 3), the APA provides that “Novell gets SVRX revenue; SCO gets UnixWare revenue.” Specifically, the APA provides that “no royalties shall be payable in connection with any of the UW [UnixWare] Products” to Novell, unless Novell satisfies certain specified conditions. (APA Schedule 1.2(b) § (b)(i)(a).) Novell does not dispute that it has not

2

satisfied those conditions. The implication of the plain language of the APA, then, is that “no royalties shall be payable” to Novell in connection with an agreement that licenses a UnixWare product, even if that agreement includes the incidental licensing of SVRX products, which is permitted by the APA. Thus, to the extent that the Court determines at trial that the Sun and Microsoft Agreements are UnixWare licenses that include incidental licenses to SVRX prior products, the payments SCO received are “UnixWare revenues” that belong to SCO under the plain language of the APA. This provision of the APA - combined with the absence of any statement in the APA that incidental licensing of SVRX must pay a royalty as an SVRX License - at minimum renders the APA “reasonably susceptible” to the interpretation SCO advocates, such that extrinsic evidence should be considered.

In response, Novell contends (at 3) that SCO's position upsets the APA's division of royalties by “retaining revenue [SCO] acknowledges is in part attributable to SVRX rights.” Novell argues (at 3) that Section 4.16(b) of the APA evidences the degree of protection Novell secured for its SVRX revenue stream, by giving Novell the right to prohibit SCO from entering into new or amended SVRX licenses.

But if Novell's right to prohibit SCO from entering into SVRX licenses is a true indication of the parties' respective royalty rights, as Novell suggests, then, by the same logic, the Court cannot ignore Section 4.16(b)'s express exception granting SCO the unfettered right “to enter into amendments of the SVRX Licenses (i) as may be incidentally involved through its rights to sell and license UnixWare software.” (APA § 4.16(b), as amended by Amendment No. I ¶ J.) If Novell's SVRX royalty rights were protected by retaining the right to prevent SCO from entering into SVRX licenses, then it follows that there were no SVRX royalty rights to

3

protect in the case of incidental licenses of SVRX, because SCO was granted express authority to enter into such licenses without Novell's approval. Novell's own argument thus demonstrates that the APA is at least reasonably susceptible to the reading that royalties paid for UnixWare licenses that licensed SVRX incidentally were not due to Novell.

B. The APA's Failure to Specify Any Method for Calculating an Incidental
SVRX Royalty Right Demonstrates That Novell Never Received Such a Right.

SCO further argues that, if the APA had intended to subject an incidental SVRX license to SVRX royalty obligations, the APA would have specified how such an additional royalty was to be calculated. In opposing this argument, Novell does not dispute that the APA fails to specify any mechanism for calculating such an apportionment. Novell also fails to explain how the parties could have overlooked such a critical and pervasive issue in crafting the APA, had they indeed intended to apportion royalties every time SCO licensed UnixWare and included therein an incidental license to prior SVRX.

Sidestepping SCO's core argument, Novell contends (at 4) that the Court should not draw any inferences from the APA's failure to specify any such mechanism because the parties are able to apportion royalties even without a formula in the APA. In support of its position, Novell (at 4) cites one example, in which Santa Cruz purportedly proposed an apportionment for its licensee Unisys “for products that contained both UnixWare and SVRX components” even absent a provision in the APA. Novell's reference to the Unisys licenses is both misleading and misplaced.

First, contrary to Novell's suggestion, the Unisys example that it cites did not involve the apportionment of royalties from a UnixWare license that licensed SVRX incidentally. Instead,

REDACTED

4

REDACTED

That is, Unisys had licensed SVRX independently - and not incidental to a UnixWare license - in 1991 (before UnixWare was even released). (Ex. 1.) Under that standalone SVRX license, Unisys had created an SVRX-based operating system on which it was required to pay per-copy fees to Novell each time Unisys sold hardware that included that operating system. Since Unisys continued to ship that SVRX binary operating system even after it licensed UnixWare, Unisys was never relieved of its obligation to pay binary per-copy distribution fees on each shipment of that SVRX operating system.

REDACTED

(Ex. 2.) In marked contrast to the Unisys license, neither party here contends that the Sun or Microsoft payments were made for pre-existing, separate SVRX products on which either licensee had been paying SVRX royalty payments.

In fact, the Unisys example that Novell cites actually underscores SCO's position that it is entitled to all of the royalties being paid under UnixWare licenses.

REDACTED

(Id.) That UnixWare license included a list of prior SVRX products similar to the Sun and Microsoft Agreements. (Ex. 3 at SCO1040491.) Nevertheless, Novell never asked Santa Cruz for any royalties corresponding to the SVRX prior products listed in the UnixWare license. Instead, Santa Cruz kept all the payments under that

5

UnixWare license, without any apportionment for the SVRX prior products to Novell. Even the lone example Novell cites in response to SCO's argument thus demonstrates that the parties have always treated all royalties from UnixWare licenses as belonging to SCO, even when there was also an incidental license of SVRX included in a UnixWare license. It is telling that Novell did not cite to or submit as an exhibit the Unisys UnixWare 2.1 license referenced in the letter that Novell did submit.2

Second, Novell's argument misses the point. Regardless of whether the parties are able to propose apportionment formulae without relying on a specific provision in the APA, the Court can (and should on summary judgment) infer from the APA's failure to specify the mechanism for such a calculation that the parties did not contemplate apportioning royalties from UnixWare licenses into a UnixWare portion (that SCO would keep) and an incidental SVRX portion (that SCO would remit to Novell). Had the parties actually intended to remit to Novell a portion of every UnixWare royalty SCO received simply because the UnixWare license incidentally licensed prior SVRX, it would have made little sense for the parties to have ignored the inevitable apportionment question in drafting the APA.

C. The Extrinsic Evidence Confirms That Novell Is Not Entitled to
Royalties from UnixWare Licenses That License SVRX Incidentally.

The record also contains evidence that the parties' intent and course of performance was to treat UnixWare licenses that licensed SVRX incidentally as subject only to the contingent interest Novell retained in UnixWare royalties, which expired in 2002.

Novell's principle response to this extrinsic evidence is to avoid it by arguing that the

6

Court need not consider such evidence, since it found that “the plain language of the APA is not reasonably susceptible to the meaning SCO would give it.” (Opp. at 6 (citing Order at 86).) But Novell's citation to the Order is misplaced. That excerpt from the Order concerns a different issue, on which the Court held that the language of the agreement was unambiguous. The Court made no such finding with respect to the question of incidental licensing of SVRX, which it analyzed ten pages later. To be sure, there is no express provision in the APA that resolves this question, and thus consideration of extrinsic evidence is appropriate.

The only reasonable conclusion that the extrinsic evidence supports is that Novell is not entitled to a portion of royalties from a UnixWare license that licenses SVRX incidentally. The parties' course of performance and the testimony in the record confirm that, in the years following the closing of the APA, Novell did not audit or request the SVRX royalties that licensees such as Unisys would continue to pay after the APA under the UnixWare licenses that Novell itself had granted such licensees and that included rights to the prior SVRX products. (See Ex. 4 at SCO1039921.) Novell cannot deny that it knew about such licenses, yet Novell never audited or asked for the binary royalties that such licensees continued to pay after the APA or the source fees for additional CPUs or distributions that those licensees could have paid under the APA.

In addition, Novell does not dispute that it never once sought a portion of royalties Santa Cruz received under new UnixWare licenses - even though those licenses included incidental licenses to SVRX consistent with the prior licensing of UnixWare by Novell itself. The evidence further demonstrates that Novell was aware that the UnixWare licenses granted by Santa Cruz contained such incidental licensing, from (1) Novell's comprehensive audit of Santa Cruz's

7

royalty reporting in 1998; (2) Novell's own prior practice of including incidental SVRX prior product licenses in its own UnixWare licenses and its instructions to Santa Cruz to use those same license forms for new UnixWare licenses; and (3) Novell's own representative sitting on Santa Cruz's Board. Such course of performance conduct is recognized as the best sort of extrinsic evidence of the parties' intent regarding these royalties and simply cannot be ignored. See, e.g., Universal Sales Corn.. Ltd. v. Cal. Press Mfg. Co., 128 P.2d 6655 672 (Cal. 1942) (stating that “a practical construction placed by the parties upon the instrument is the best evidence of their intention”); accord Hernandez v. Badger Constr. Equip. Co., 28 Cal. App. 4th 1791,1814-15 (1994).

Novell's only substantive response (at 7) is to suggest that there is no conclusive proof that Novell was aware of specific incidental licenses of SVRX. That conclusory contention does not bear scrutiny. Novell does not - and cannot - dispute that UnixWare licenses often included a list of prior SVRX products being licensed incidentally; Novell can only say that some UnixWare licenses did not include prior products lists. Novell does not - and cannot - dispute that it had included those incidental licenses to prior SVRX in its own UnixWare licenses before selling the UnixWare business to Santa Cruz. Novell's implicit admission that at least some UnixWare licenses licensed SVRX incidentally underscores its failure to explain why it never asked for a portion of UnixWare royalties until this litigation. 3 Similarly, Novell does not - and cannot - dispute the testimony in the record from Jean Acheson, Bill Broderick, and John Maciaszek, all of whom confirm the standard practice of including: SVRX prior product lists in

8

UnixWare licenses, including during the time that Novell entered into such licenses.

Finally, Novell's contention that its auditors might not have reviewed these UnixWare licenses during the 1998 audit fares no better. The auditors were charged with reviewing all of the royalties Santa Cruz had received to determine precisely this issue: Were there any royalties Santa Cruz was improperly withholding from Novell. Novell proffers no evidence that the auditors failed to properly fulfill their duties and did not review the royalties Santa Cruz collected under UnixWare licenses that licensed SVRX incidentally. Novell admits that during several of these years, in which Santa Cruz publicly filed financial statements, Novell was a significant shareholder of Santa Cruz and held a board seat where it was privy to all aspects of Santa Cruz's business. Novell thus fails to undermine the overwhelming extrinsic evidence in the record that supports the conclusion that the parties never apportioned any part of UnixWare royalties to Novell, even where - as is the case with the Sun and Microsoft Agreements - SVRX prior products were licensed incidentally in such UnixWare licenses.

9

CONCLUSION

SCO respectfully submits, for the reasons set forth above, that the Court should reconsider and clarify that no SVRX royalty payments are due to Novell where SCO has licensed SVRX incidentally to UnixWare, or at minimum the Court should clarify that this issue will be resolved at trial.

DATED this 12th day of September, 2007.

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

BOIES, SCHILLER & FLEXNER LLP
David Boies
Robert Silver
Stuart H. Singer
Stephen N. Zack
Edward Normand

DORSEY & WHITNEY LLP
Devan V. Padmanabhan

Counsel for The SCO Group, Inc.

By: /s/Edward Normand


1 Novell's complaint (at 5) that "this is the first time SCO has pointed to this 'missing' provision of the APA" similarly underscores the basis for the instant motion. Novell's core position with respect to the Sun and Microsoft Agreements had always been that "SVRX is central, and not incidental, to the Sun and Microsoft Agreements," and, that Novell was therefore entitled to the payments from those Agreements as SVRX Royalties. (Novell Reply to SCO's Opp. to Novell's Motion for Partial Summary Judgment or Preliminary Injunction at 7.) Only on reply did Novell suggest that it was entitled to a portion of the Sun and Microsoft payments even if SVRX was determined to be incidental to the UnixWare licenses.

2 Novell also did not reference or submit the Unisys SVR 4.0 MP license also discussed in the letter Novell cited. That SVRX license also lists prior SVRX products licensed incidentally in the agreement. (Ex. 1 at SCO1062370.)

3 Indeed, while Novell seeks an apportionment of the Sun and Microsoft Agreements, it has decided not to pursue a similar apportionment for other UnixWare licenses that, like the Sun and Microsoft Agreements, also granted incidental rights to a list of prior SVRX products.

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CERTIFICATE OF SERVICE Plaintiff/Counterclaim-Defendant, The SCO Group, Inc., hereby certifies that a true and correct copy of SCO'S REPLY MEMORANDUM IN FURTHER SUPPORT OF ITS MOTION FOR RECONSIDERATION OR CLARIFICATION OF THE COURT'S AUGUST 10. 2007 ORDER was served on this 12th day of September, 2007, via CM/ECF to the following:

Thomas R. Karrenberg

John P. Mullen
Heather M. Sneddon
ANDERSON & KARRENBERG
[address redacted]

Michael A. Jacobs
Matthew 1. Kreeger
Kenneth W. Brakebill
David E. Melaugh

MORRISON & FOERSTER
[address redacted]

/s/ Edward Normand

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